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The Power of Productivity

EconLog pointed me to an extended interview with my old friend, William Lewis, the director emeritus of the McKinsey Global Institute.  Bill is an extraordinarily thoughtful and insightful guy who, in addition to working for 20 years at McKinsey, spent time at the World Bank, the Department of Defense and the Department of Energy.

The interview prompted me to give a plug for Bill’s book, The Power of Productivity: Wealth, Poverty, and the Threat to Global Stability.  It is a very rich examination of differences in productivity around the world and, more importantly, the key drivers shaping differences in productivity.  Drawing heavily on the in-depth research of the McKinsey Global Institute, Bill doesn’t just offer provocative perspectives, he backs it up with a wealth of data.

He summarizes his basic approach early in the book:

Over the course of our research a single theme emerged: the importance of productivity . . . . Productivity, however, varies enormously around the world . . . Thus, most of our work sought to explain the reasons for the differences in productivity around the world.  . . . Many people look for the causes of poor economic performance primarily in macroeconomics, but we found that must also look at the industry level for causal factors for economic performance.

Perhaps one of Bill’s most provocative views is that education matters far less than many people would imagine:

Many people believe that the educational attainment of a nation’s current labor force is responsible for the success or failure of its economy.  The importance of the education of the workforce has been taken way too far.  In other words, education is not the way out of the poverty trap. A high education level is no guarantee of high productivity.  The truth of the matter is that regardless of institutional education level, workers around the world can be adequately trained on the job for high productivity.

In the context of a recent post I did on choice, Bill quotes some well-known economists in a section entitled "Elites Want to Control Others and Reward Themselves" (Bill pulls no punches):

Peter Bauer, no friend of elites, quotes Sir Arthur Lewis as saying that "the advantage of economic growth is not that wealth increases happiness, but that it increases the range of human choice." Through economic growth, ordinary people get to choose what they want.  Bauer goes on to say, "It is well-to-do and established politicians, academics, media men, clerics, writers and artists who are apt to dismiss economic choice as unimportant."

If you want to understand why productivity varies so much around the world and have a stimulating read at the same time, pick up Bill’s book – you will not be disappointed.

Star Wars and Offshoring

OK, I can’t resist.  My old friend from business school, Mike Massey, pointed me to a column on "Turn On, Tune In, Veg Out" written for the New York Times by Neal Stephenson, one of my favorite science fiction writers.  Neal makes an interesting case that Star Wars reflects some broader social trends that ought to give us pause. His key comments:

Modern English has given us two terms we need to explain this phenomenon: "geeking out" and "vegging out." To geek out on something means to immerse yourself in its details to an extent that is distinctly abnormal – and to have a good time doing it. To veg out, by contrast, means to enter a passive state and allow sounds and images to wash over you without troubling yourself too much about what it all means.

And then later on,

Scientists and technologists have the same uneasy status in our society as the Jedi in the Galactic Republic. They are scorned by the cultural left and the cultural right, and young people avoid science and math classes in hordes. The tedious particulars of keeping ourselves alive, comfortable and free are being taken offline to countries where people are happy to sweat the details, as long as we have some foreign exchange left to send their way. Nothing is more seductive than to think that we, like the Jedi, could be masters of the most advanced technologies while living simple lives: to have a geek standard of living and spend our copious leisure time vegging out.

If the "Star Wars" movies are remembered a century from now, it’ll be because they are such exact parables for this state of affairs. Young people in other countries will watch them in classrooms as an answer to the question: Whatever became of that big rich country that used to buy the stuff we make? The answer: It went the way of the old Republic.

Neal is on to something big here, although he makes a mistake by confining geeks to scientists and technologists.  In fact, geeks can be found in a broad array of endeavors, ranging from crafts and extreme sports to the remix music culture and the hot rod car culture.  If we broaden the notion of geeks to anyone who pursues their passion in creating things or perfecting their skills, we might find a new lens to view the growing culture gap in the U.S. (and elsewhere).  Maybe the real division is not between "Red State" and "Blue State" , but between geeks and veggers.

For those of you who are not familiar with Neal Stephenson, he is the author of, among many other books, the cult classic in Silicon Valley – Snow Crash. Besides being a really funny book, Neal’s description of the Metaverse, a three dimensional virtual world where people spend a good deal of their time, captured the imagination of a whole generation of geeks and inspired them to push the frontiers of computer technology.  There’s a whole lot of Neal behind the flourishing massive multiplayer online role-playing game culture.

By the way, even though I didn’t like Star Wars III, I will forever be indebted to George Lucas for the early Star Wars movies and, most importantly, for one of the best movies of all time – American Graffiti – another parable about geeks and exploration (and hot rods).

Unbundling Financial Supermarkets

I just came across Tom Peters’ exercise in pattern recognition, commenting on three news announcements in a 48 hour period.  I couldn’t agree more.

His blog reminded me that I have long had a particular problem with the metaphor of "financial supermarkets."  Now, let’s see – when was the last time you ran into a supermarket that grew its own fresh produce, processed its own packaged goods and manufactured all the other stuff it offered for sale?  Yet that is exactly the business model that many major financial institutions embarked on in the 1980’s and 1990’s.  These so-called supermarkets have a choice – are they in the customer relationship business or are they in the product innovation and commercialization business? Straddle strategies are becoming less and less tenable.  Choices need to be made – unbundle and then rebundle through collaborative relationships, not acquisitions in the quest for elusive synergies. I have written about this before, both in this blog and in Harvard Business Review (purchase required).  The chickens are coming home to roost as financial markets become less and less patient with scale for the sake of scale.

Wikis, Weblogs and RSS

We’re gearing up for Kevin Werbach’s Supernova 2005 here in San Francisco next week.  JSB and I will be speaking there and there’s a host of interesting people featured on the agenda.  One person in particular that I am looking forward to seeing again is Philip Evans from Boston Consulting Group.  Philip and I go way back – we both entered BCG at the same time even though, to his dismay, I departed after two years to make the trek to Silicon Valley to do a business start-up.  Philip stayed at BCG, wrote a great book, Blown to Bits, and we have managed to stay in touch off and on over the years.

In preparation for Supernova, Philip did an interview on "Wikis, Weblogs and RSS" along with another friend, Ross Mayfield, and Janice Fraser, the CEO of Adaptive Path. It is an interesting read on what the new Internet means for business. For my money, Philip puts a bit too much emphasis on transaction costs and not nearly enough discussion of the role of the new Internet in driving innovation and capability building, but then I just wrote a book on this.

For those who haven’t seen it yet, JSB and I did a similar interview with Kevin Werbach on "Can Your Firm Develop a Sustainable Edge?" (accessing the interview requires a brief and free registration).

Cooperation and Competition

Thanks to Advancing Insights for pointing me to some interesting new reports from The Institute for the Future.

The first report, Toward a New Literacy of Cooperation in Business (link for pdf file download),  by Howard Rheingold, Andrea Saveri, Alex Soojung-Kim Pang and Kathi Vian, observes that "cooperation is one partner in a pair of strategic choices; its constant companion is competition.  The two go hand-in-hand, posing a choice at every juncture . . ."  It focuses on two key business questions:

• How can new insights about the dynamics of cooperation help us to identify new and lucrative models for organizing production and wealth creation that leverage win-win dynamics?
• How can organizations enhance their creativity and grow potential innovation with cooperation-based strategic models?

This report is a helpful review of the emerging inter-disciplinary field having to do with cooperation and cooperative strategy (the bibliography alone makes the report worthwhile).  The authors develop a map of the relevant disciplines comprised of seven lenses and seven levers, creating a very rich terrain to survey. In fact, at times it becomes too rich – I began to hunger for the classic two by two matrix that is the foundation of consulting.

More broadly, the report ultimately disappoints in terms of delivering on the two questions framed at the outset.  The raw materials are there, but the synthesis into actionable recommendations for business executives remains to be done. The final section outlining five key areas of potential innovation and disruption is suggestive, but the implications need to be developed more explicitly.

The second report, Technologies of Cooperation (link for pdf file download), by the same authors minus Alex Soojung-Kim Pang, is more satisfying, perhaps because it stays closer to the technologies that are reshaping the business landscape.  The authors focus on eight key clusters of cooperation-amplifying technologies:

• Self-organizing mesh networks
• Community computing grids
• Peer production networks
• Social mobile computing
• Group-forming networks
• Social software
• Social accounting tools
• Knowledge collectives

This report has an even richer map for the reader to navigate, combining the eight clusters of technologies with the seven key dimensions of cooperative systems discussed in the earlier report. The authors observe that

. . . each example of a cooperative technology is also a model for thinking about future social forms as well as future tools; each example embodies principles that can help us think more strategically about cooperation.

The report concludes by outlining seven guidelines for learning from cooperative technologies.  Each guideline has value, but the first one, for my money, is by far the most important: "shift focus from designing systems to providing platforms".  Understanding the profound implications of this one principle is challenging in itself. But it is also a huge mindset shift for most executives, even those in relatively enlightened technology companies as most recently (and repeatedly) illustrated by Steve Jobs at Apple.

At the end of this report, the authors come back to where they started in the first report:

One clear lesson from this research is that cooperative strategy does not replace competitive strategy: the two are inter-related and co-evolve. A key challenge is learning to understand the dance between the two strategies, their respective range of choices, and the conditions that urge an organization to follow one or the other at a particular time period and environmental context.

This is the crux of the matter.  These two reports do a great job of surveying the landscape and even creating some interesting maps to orient us. What we need now is a more prescriptive view of the paths that are most promising through this landscape – constrained by the awareness that the landscape continues to evolve and that individual context does matter.

I should mention that the bibliography in the first report rightfully highlights the work of Elinor Ostrom, especially her book Governing the Commons: The Evolution of Institutions for Collective Action.  For anyone interested in understanding the governance mechanisms that help to foster cooperation, her book is an essential read. 

Craft Manifesto

Thanks to David Weinberger for pointing me to Hobbyprincess, the intriguing blog by Ulla-Maaria Mutanen, a PhD student at the University of Helsinki, who is focused on the interface between technology, fashion and crafting.

In one posting, Mutanen comments on the rapid growth of the hobby and craft business in the United States.  It expanded from $20 billion in 2000 to $29 billion in 2004 – a growth of almost 50% in just 4 years. Clearly, more and more people are pursuing their passion to create things.

Mutanen has posted a Draft Craft Manifesto that does a great job of capturing the key dynamics shaping the growth of crafting. For example:

1. People get satisfaction for being able to create/craft things because they can see themselves in the objects they make.  This is not possible in purchased products.

6. Work inspires work.  Seeing what other people have made generates new ideas and designs.

10. Learning techniques brings people together.  This creates on-line and offline communities of practice.

I wish I had been able to see Mutanen’s presentation at Reboot7, the meetup for "practical visionaries" that just concluded in Copenhagen.  Entitled "Craftblogging – A Window into the Long Tail of Fashion?", this is the abstract for her presentation:

In Europe and Japan, the trend against mass-produced fashion is growing. An increasing number of people prefer to buy their apparel from a designer someone has recommended, or one that they personally know. This presentation is about craftblogging – producing hand-made fashion items and publishing them on weblogs. Examples of how people produce, tag and share self-made fashion items on-line provide an opportunity to understand the potential of the Long Tail of Fashion.

Mutanen is on to something very significant.  The urge to create is getting stronger and more distributed.  Technology is playing a significant role in connecting people who share this passion for creation and, in the process, it is intensifying the urge to create.

The Burden of Choice

Virginia Postrel has just written a useful article on "Consumer Vertigo". Her target is the growing body of literature making the case that the explosion in choice we experience as consumers in market societies is creating growing unhappiness and anxiety rather than satisfaction and fulfillment. She cites just two of the most critical books on this topic – Robert Lane’s The Loss of Happiness in Market Democracies and Barry Schwartz’s The Paradox of Choice. (One wag in a review of Schwartz’s book on Amazon commented that he came across 20 books on the same topic and couldn’t make up his mind, so he didn’t buy any of them.)

In her critique of these books, Postrel observes:

For good scientific reasons, psychology experiments systematically screen out the habits and business practices that make real-life choices, especially shopping decisions, manageable. . . Businesses have strong incentives not just to offer options but to help customers navigate these choices.

She makes the case that abundant choice serves us well:

. . . something is missing from the simplistic argument that people would be happier if we went back to the good old days of one-cut-fits-all jeans. That something is pluralism. People are different – in size and shape, in personality, in tastes, in values. . . . Abundant choice accommodates this variation.

But she observes that greater choice has consequences:

In a world of choices, virtue comes from learning to make commitments without regrets. And commitment, in turn, requires self-confidence and self-knowledge.

Although she doesn’t develop this further, Postrel has hit on something really significant here that helps to explain the paradox of choice that is playing out around us: expanding choice begets even more choice.  The more choice we have, the more we have to decide what it is that we really want.  The more we reflect on what we really want, the more we end up getting involved in the creation of the goods that we buy and use. This in part explains why, in a growing range of domains, we are seeing customers get more actively involved in co-creation of products and services. The more we participate in the creation of products and services, the more choices we end up creating for ourselves.

Managing Critical Talent

Thanks to a posting by Bruce Hoppe on his Connectedness blog last February, I came across an interesting study by Robin Athey, who leads Deloitte’s research on organizational performance.  Deloitte has just published a white paper written by Robin called "It’s 2008: Do You Know Where Your Talent Is?".

Robin does a very good job of re-framing the talent challenge faced by companies around the world.  As Robin points out, most companies still tend to focus on attracting and retaining talent.  Unfortunately, at the same time, they neglect the opportunity to more effectively deploy, develop and connect their employees.  As she rightly observes, if companies do a better job of deploying, developing and connecting their employees, they will have much greater success in attracting and retaining talent.  On the other hand, without more focus in these areas, companies spend much more than they have to in efforts to attract and retain talented people.

She makes a strong case as well that development of talent does not primarily concern investment in formal training but instead involves thoughtfully structuring experiences that accelerate learning:

The best way to develop critical talent is through the collaborative resolution of real-life issues ("action learning") . . . . People learn the most in situations that stretch them – the "trial by fire" experiences that put them slightly outside of their comfort zones. . . . People also learn from those they trust: bosses, subordinates, and mentors, both internal and external.

Given this perspective, it becomes clear that development, deployment and connection are all closely related.  Development does not occur unless talent is deployed into opportunities that stretch them and unless talent is able to connect with appropriate and trusted expertise to accelerate their learning.

I have three broad comments on Robin’s excellent white paper.  First, I agree with everything she says, but she tends to adopt a relatively narrow "enterprise-centric view"  – an increasing amount of development, deployment and connection for talent occurs at the edge of the enterprise in collaboration with talent from suppliers, partners and customers.  This is the reason that JSB and I in our book The Only Sustainable Edge put so much emphasis on "productive friction" at the boundaries of the enterprise as a key driver of capability building.

Second, she correctly emphasizes that talent strategies must focus on the "critical talent" of the firm – "the first step is defining exactly which jobs are critical" – meaning "people who create the value an organization needs to succeed." I couldn’t agree more (although I would tighten the definition to focus on distinctive or differentiated value), but then I would ask a second question: for any jobs which are not classified as critical, why is the company still retaining those jobs?  One of the reasons that companies don’t do a great job on talent development, deployment and connection is that they are spread too thin, trying to do too many things.  For any non-critical job, the company should be aggressively trying to shed these jobs and collaborate with companies that view these jobs as critical.

Finally, Robin makes the case that talent is increasingly becoming a scarce resource, giving rise to active talent markets. I mentioned in an earlier posting that economic value gets created around scarce resources.  From my perspective, attention and talent are the two scarce resources that will shape value creation opportunities over the next decade.

Social Network Analysis

Social networks are becoming increasingly critical to understanding business performance.  On my web site, I posted an entry almost three years ago mentioning a variety of books on social network analysis and their relevance to business. I just came across a good bibliography by Patti Anklam and Bruce Hoppe that covers a broader range of resources that others might find useful in understanding social network analysis. Bruce Hoppe’s Connectedness blog (where the bibliography was posted) is a good way to keep current on some of the developments in this field.

Goldhaber and Attention Economy

As analysts try to discern the contours of the Media 2.0 industry (to use Umair Haque’s felicitous term), the economy of attention is emerging as a central construct.  Often this term is used rather loosely, but it has deep meaning.  Many years ago, I first read Michael Goldhaber’s seminal writing on The Attention Economy and I have been greatly influenced by it ever since (a version appeared five years earlier in 1992 as an essay entitled "Attention and Software" in Esther Dyson’s Release 1.0). I continue to be surprised at how little recognition it receives.

Goldhaber rails at all the hype about "The Information Economy":

Information, however, would be an impossible basis for an economy, for one simple reason: economies are governed by what is scarce, and information, especially on the Net, is not only abundant, but overflowing. We are drowning in the stuff, and yet more and more comes at us daily. That is why terms like "information glut" have become commonplace, after all. . . .

There is something else that moves through the Net, flowing in the opposite direction from information, namely attention. . . . Attention, at least the kind we care about, is an intrinsically scarce resource. . . .

Earlier, I suggested that when information flows one way through the Net, attention has to be flowing the other.  Now I want to say that it would be even better to think in terms of attention of some kind flowing both ways.

Consider an ordinary conversation. You could describe it as the exchange of information, but except in a highly technical sense that is rarely a very accurate description of what takes place.  A conversation is primarily an exchange of attention. . . what really matters in every conversation is the exchange of attention – an exchange that normally must be kept more or less equal if one party or the other isn’t likely to lose interest.

Goldhaber spells out the implications of some of these basic insights:

In a full-fledged attention economy, the goal is simply to get either enough attention or as much as possible . . . getting attention is not a momentary thing; you build on the stock you have every time you get any, and the larger your audience at one time, the larger your potential audience in the future.  Thus obtaining attention is obtaining a kind of enduring wealth, a form of wealth that puts you in a preferred position to get anything this new economy offers. . . . since it is hard to get new attention by repeating exactly what you or someone else has done before, this new economy is based on endless originality, or at least attempts at originality.  By contrast, the old industrial economy worked on the basis of making interchangeable objects in huge numbers.

Now, I don’t accept all of Goldhaber’s speculations about the implications of an attention economy.  For example, he anticipated that all organizations would become temporary and that money would diminish in importance as a medium of exchange.  But his basic insights are profound and pinpoint some of the forces that will reshape the the structure and economics not only of the media business, but business in general, including such fundamental notions as brand (something I will be writing about shortly).

To make money, focus on the areas of the economy where scarcity reigns, rather than abundance. Goldhaber appropriately points out that attention is rapidly becoming the scarce resource in our economy. Of course, it has always been a scarce resource – after all, we each have only 24 hours in the day.  But what is changing is relative scarcity – relative to the growing abundance of products, services, content and people vying for our attention and relative to the steady erosion of shelf space and other distribution channel bottlenecks, our attention is becoming a much more scarce resource. It is one of the key reasons that customers are gaining more power in global markets – they own the scarce resource that will ultimately determine who creates value and who destroys value. We are accustomed to analyzing business performance in terms of return on assets but, if one understands the implications of Goldhaber’s insight, executives will need to focus on a new form of ROA instead – return on attention. Instead of looking at market share, we will be looking at share of attention (of individual customers) and share of wallet (again, of individual customers).

For some additional commentary on Goldhaber’s ideas, see Phil Jones’ wiki essay on "The Attention Economy".  Clay Shirky also has a provocative essay entitled "Who Are You Paying When You Pay Attention?", although he never explicitly refers to Goldhaber.  I mentioned Umair Haque earlier – he has some interesting perspectives on Media 2.0 in two presentations available as PowerPoint files here and here.