John Seely Brown on Innovation

Innovation Weblog has a report by Robert Tucker on a presenation by John Seely Brown at the Front End of Innovation conference:

Leading off Day two was the bearded, soft-spoken John Seely Brown, former chief scientist of Xerox, and director emeritus of Xerox Palo Alto Research Center, whose only reference to PARC was to remind us that invention is not the same thing as innovation (PARC being famously good at the former, and less effective on the latter) before quickly going on to explore the new tools emerging to help us mine the future and to remain personally relevant in an age of discontinuity. He cited the need to fight an urban war in Iraq as being one example of generals not being prepared but reminded all of us: “The better we get at doing something, the worst we get at seeing new patterns,” he noted.

How do you look around inside your company? How do you get insights from the digital generation? How do you get insights from customers? “We treat our call centers as cost centers when we should be using them not just as tactical listening posts, but as strategic listening posts.”

Using the video games industry as metaphor, Brown pointed out that “it’s not the games, it’s the social ecology around them” that makes them a useful example of how companies must use new insights and tools to alert them to subtle changes. Not just the online playing of them but sharing of information about them between millions of players outside game makers control, which is already larger than the movie industry by a billion dollars, was Brown’s concern. “In Korea, people have practically stopped watching television; there are 26,000 game parlors in Korea alone. Another example: Computer blogs. Brown sees such self-forming communities leading companies to have to change.

“We think of consciously designing things, but … today’s kids are so busy multi-tasking that they smell their way through the web” rather than navigate, and for them the internet is like breathing, they don’t think of it as technology. In today’s networld, you pull stuff off the web and co-create new stuff and put it out there with your name on it and gain identity thereby,” he said. This has an impact on how you sell ideas. “Nobody sells ideas based on the content. We have to be able to engage the gut” to reach people today.

Oil-ternatives

A big challenge going ahead is going to both availability of energy and its cost. The world is still quite dependent on oil. Geopolitical and other factors are signalling the end of the era of cheap oil. National Geographic has an excellent story:

You wouldn’t know it from the hulking SUVs and traffic-clogged freeways of the United States, but we’re in the twilight of plentiful oil. There’s no global shortage yet; far from it. The world can still produce so much crude that the current price of about $30 for a 42-gallon barrel would plummet if the Organization of the Petroleum Exporting Countries (OPEC) did not limit production. This abundance of oil means, for now, that oil is cheap. In the United States, where gasoline taxes average 43 cents a gallon (instead of dollars, as in Europe and Japan), a gallon of gasoline can be cheaper than a bottle of watermaking it too cheap for most people to bother conserving. While oil demand is up everywhere, the U.S. remains the king of consumers, slurping up a quarter of the world’s oilabout three gallons a person every dayeven though it has just 5 percent of the population.

Yet as the Enterprise drillers know, slaking the world’s oil thirst is harder than it used to be. The old sources can’t be counted on anymore. On land the lower 48 states of the U.S. are tapped out, producing less than half the oil they did at their peak in 1970. Production from the North Slope of Alaska and the North Sea of Europe, burgeoning oil regions 20 years ago, is in decline. Unrest in Venezuela and Nigeria threatens the flow of oil. The Middle East remains the mother lode of crude, but war and instability underscore the perils of depending on that region.

And so oil companies are searching for new supplies and braving high costs, both human and economic. Making gambles like Thunder Horse and venturing into West Africa and Russia, they are still finding oil in quantities to gladden a Hummer owner’s heart. But in the end the quest for more cheap oil will prove a losing game: Not just because oil consumption imposes severe costs on the environment, health, and taxpayers, but also because the world’s oil addiction is hastening a day of reckoning.

Humanity’s way of life is on a collision course with geologywith the stark fact that the Earth holds a finite supply of oil. The flood of crude from fields around the world will ultimately top out, then dwindle. It could be 5 years from now or 30: No one knows for sure, and geologists and economists are embroiled in debate about just when the “oil peak” will be upon us. But few doubt that it is coming. “In our lifetime,” says economist Robert K. Kaufmann of Boston University, who is 46, “we will have to deal with a peak in the supply of cheap oil.”

Business Week writes that as oil touches $40 a barrel, “oil and gas companies finally are hiking exploration and production budgets.”

As regards to alternatives, there are no clear alternatives. Solar and wind energy still are quite expensive, while Scientific American has some doubts on the Hydrogen Economy.

India urgently needs to look at its energy plicy and make significant investments in alternative sources of energy. As India develops, the need for energy is going to increase. We better be looking at alternatives to oil – $40/barrel or more is not something we will be able to afford easily.

Also read: Jeff Nolan’s post on oil and the possible alternatives.

Sun’s Developing Country Pricing Policy

Sun has fired tthe first salvo in coming up with a pricing of its software for developing countries. NYTimes writes:

The new government pricing strategy will be based on a “per-citizen” model for licensing its software to federal, state and local governments of developing nations. Sun already uses a similar system for its corporate pricing – for example, it is selling its Java Enterprise software, based on Solaris and Linux operating systems, to corporate customers for $100 an employee a year. Industry executives said this compared favorably with Microsoft’s pricing for corporate software, which averages about $250 an employee a year.

Sun will start its government pricing model by selling Java Enterprise, which lets customers provide e-mail, identity authentication and other Internet services.

Sun executives said it made sense to put government functions online.

“A lot of these network services are natural evolutions of existing phone and mail services,” Mr. Schwartz said. “It’s not all that far-fetched: our government delivers mail to every U.S. citizen.”

The software will be sold to governments for 33 cents to $1.95 a citizen annually, depending on each nation’s development status as measured by the United Nations.

News.com adds:

Sun is also launching per-citizen pricing for its Java Enterprise System server software. While the company had committed to the idea earlier, it now has begun selling it according to population and how the United Nations ranks countries as more, less or least developed. Countries with larger populations and lower development pay less per citizen.

“Governments–when delivering driver’s licenses, health care or fishing permits–tend to serve massive marketplaces,” Schwartz said.

Under Sun’s pricing, Mexico, a less-developed country with a population of 100 million, would get to use as much Java Enterprise System software as it wants for a charge of 81 cents per citizen per year. Nations classified as “least developed” pay between 33 cents and 75 cents per citizen, while “less developed” nations pay between 33 cents and $1.95 per citizen, spokesman Russ Castronovo said.

WSJ elaborates on Sun’s broader strategy:

Jonathan Schwartz, a former software chief at Sun who was named the company’s president and chief operating officer earlier this year, argues that Sun has a distinct advantage over companies that don’t make their own operating systems for low-end servers. While pricing Solaris aggressively — either as a separate product, or bundled with servers — Sun can still derive additional revenue from the software to counteract the effect of falling hardware prices, he said

Mr. Schwartz, who is describing the strategy at a customer gathering this week in Shanghai, predicts that recurring revenue from software and services could allow Sun to offer companies hardware on a subscription basis or for free — a bit like the way cellphone services subsidize the price of handsets.

“My belief is in five years, customers will no longer be paying for hardware — it will be free,” Mr. Schwartz said.

Over time, Mr. Schwartz argues, the company hopes to shift its recurring revenue to two-thirds of its total from about a third currently. Other companies that cannot offer subscriptions that combine software and services as well as hardware aren’t likely to survive, he predicts.

Nokia’s Blind Spot

WSJ writes how Nokia chased the top-end of the market and got hit in the middle:

The Finland-based company has spent hundreds of millions of dollars launching a string of “smart phones.” It now pours almost 80% of its research-and-development budget — about $3.6 billion (2.9 billion) a year — into software, much of it designed to give phones computer-like capabilities. Adding urgency to the effort: Microsoft Corp. has been developing software for smart phones for years, threatening to dominate the burgeoning market.

Now it appears that Mr. Ollila and his trusted lieutenant, Anssi Vanjoki, focused on the wrong battle — at a big cost to Nokia. Smart phones have proved too bulky and expensive for many consumers, and remain a tiny presence in the market. Moreover, in concentrating on smart phones, Nokia has neglected one of the hottest growth sectors in cellphones, midrange models with sharp color screens and cameras, giving competitors a rare opportunity to steal market share.

Last year, Nokia sold 5.5 million smart phones, according to estimates from International Data Corp., far short of Nokia’s target of 10 million. Analysts expect the company to post its third year of little or no sales growth. In the first quarter, its sales fell 2% — in a global cellphone market that grew 40% from the year before, as measured by units sold. Nokia’s share price is down 17% in Helsinki and 19% on the New York Stock Exchange this year.

Meanwhile, Nokia’s global market share, which a year ago stood at 35%, has plunged to 29%, as Samsung Electronics Co. and archrival Motorola Inc. pushed the cheaper midrange models.

This amounts to the biggest stumble for Nokia since it became the world’s leading handset maker in 1998. Behind Mr. Ollila’s miscalculation is a dilemma that many executives face: how to choose which battle to fight? Often, corporate chiefs are criticized for focusing too much on short-term goals and quarterly performance. Yet Nokia’s experience shows that fighting long-term wars at the expense of today’s battles also can be damaging.

The issue that Nokia faces is that they have made Microsoft the “evil empire,” says Don Listwin, chief executive of Openwave Systems Inc., a Redwood City, Calif., cellphone-software supplier that competes with Nokia. “How do dominant companies lose their position? Two-thirds of the time, they pick the wrong competitor to worry about.”

India’s Population Problem

Atanu Dey [1 2] writes:

In 1965, about 40 years ago, there were less than 500 million of us. By 2004, the population of India has more than doubled. The effect of this incredible increase has been a falling standard of living in general, shortages, untold misery and conflict. It is foolish to expect that we can provide a decent standard of living to so many in such a short time. The vast majority of us do not have adequate drinking water, sanitation, health care, education and job opportunities. The preceding statement does not even begin to indicate the amount of human misery and sorrow which it implies. It hides within it the teeming millions who suffer without the slightest hope of ever seeing a future remotely human.

By the year 2030, at the current birth rate, India would have 1700 million people, surpassing China to become the most populous nation on earth. For the present, India has an additional 16 million mouths to feed, clothe and educate every year. Even the most optimistic scenario for the future of India is daunting due to demographic momentum.

Some of the effects of overpopulation should be briefly indicated. Intensive agriculture can impoverish the soil and the relentless conversion of forests and old growth to farmlands leads to soil erosion and desertification. India loses about 8,000 square miles of arable land each year. Fresh water reserves are used up faster than what nature can replace; groundwater levels fall. With the disappearance of forests, rainfall patterns change leading to droughts and floods. The biotic diversity decreases with the loss of animal habitat. Pollution of lakes, rivers and the atmosphere takes its toll in terms of health hazards.

At the social level, overcrowding leads to communal tensions and civil unrest. Malnutrition and poor health services create unnaturally high infant mortality rates. Education takes the back seat while the society is remorselessly driven to unemployment and underproductivity. The cycle of poverty finally gets a firm hold on the population at large and it is a vicious cycle from which it is almost impossible to break free. Though we may gloss over the details of the exact effects of all this, it can be reasonably argued that overpopulation is the corner stone upon which all the other ills of society are founded.

The scarcity of goods and the abundance of people are a potent formula for poverty. Poverty and exploitation are quite well suited.

In effect, India is like a nation of bonded labourers with no recourse. The exploitation of this nation is inevitable given the circumstances however unfair it may appear to be. It is unfair that 20 percent of the world’s population consumes 80 percent of the world’s resources. It is unfair that India with 16 percent of the global population uses only 3 percent of its resources. But who is responsible for this imbalance and who are we going to complain to? Unfortunately, we have no one to thank but ourselves for the situation that we find ourselves in.

TECH TALK: Good Books: The Toyota Way

A lot has been written about the Japanese automobile industry, especially about Tokyo. Most of the previous work has tended to focus on a few aspects of the industry like just-in-time manufacturing, lean production and kaizen. A new book by Jeffrey Liker goes beyond everything else. The Toyota Way details 14 management principles used by the worlds greatest manufacturer. Liker is well-qualified. As Director of the Japan Technology Management Program, he has observed Toyota closely for than a decade. The book takes a wholistic approach to Toyotas approach to manufacturing, something which the American auto companies are trying to replicate.

Before we get to the book, here is some background on the company from Business Week, which recently named Kiichiro And Eiji Toyoda among its Great Innovators:

One was the zealous mentor, the scion of a prominent clan with a vision that stretched far beyond the family business. The other was the younger cousin, a protg who knew how to make that frustrated vision come alive. Both thought they had the makings of a great company. But on that day in 1938 when Kiichiro Toyoda, the founder of Toyota Motor Corp., instructed his understudy, Eiji, to build a factory on land cleared from a red-pine forest in central Japan, neither realized they were about to make history. That plant, located in what is now called Toyota City, pioneered concepts such as just-in-time inventory control, kaizen continuous improvement, and kanban parts labeling — all disciplines common today in factories from Detroit to Stuttgart, and essential to the Toyota Way.

By the late 1930s, Kiichiro had launched his own company — the name was changed to Toyota, which is written with eight brush strokes, an auspicious number in Japan — and found a soulmate in Eiji, who had followed in his footsteps at Tokyo University. By 1935 the pair had developed a prototype called the A1, a Chrysler DeSoto Airflow knock-off. To hold down inventory, Kiichiro shortened the supply chain so parts were delivered just in time for assembly. But passenger-car production didn’t get off the ground until 1947 and success came too late for Kiichiro: He was forced out after a strike in 1950 and died two years later.

That was hardly the end of the story: Eiji became a managing director and was sent to the U.S. to study Ford Motor Co.’s River Rouge plant. He came back impressed by Ford’s scale but scornful of the inefficiencies. So he and a veteran loom machinist, Taiichi Ohno, fine-tuned Toyota’s own operations. Eiji and Ohno came up with the kanban system of labeling, an early precurser to bar codes, to keep the flow of parts smooth. They also perfected the art of kaizen, constantly adjusting the manufacturing process to achieve savings and quality improvements.

Eiji’s first export effort to the U.S. fizzled when the Toyota Crown proved too slow for American highways. Eiji pressed on, exporting the compact Corolla in 1968, a year after becoming president. Detroit laughed. But the Corollas proved popular with baby boomers looking for cheap, reliable vehicles. Hooked on solid quality and high resale values, the boomers stayed loyal, trading up to the Camry and Lexus — another brainchild of Eiji, who stepped down from Toyota’s board in 1994 at the age of 81. By then, Detroit execs were making pilgrimages — to Toyota City.

As India seeks to build its manufacturing expertise, there is a lot to learn from Toyota.

Tomorrow: The Toyota Way (continued)

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