I have always believed that in making good business decisions one goes back to the applicable theory. For example, to price an option one applies Black-Sholes formula or to determine the number of truck bays in a warehouse one uses queing theory. Applying the theory forces one to more carefully collect the information related to the problem and to better understand the risks.
Of course, theories evolve and are tested, frequently through academic scholarship. Academic scholarship takes many forms--"doctrinal, empirical, theoretical". I have found a renewed appreciation for academic scholarship in writing my second book on entrepreneurship. Part of the book deals with defining a non-profit organization and some of the best writing on the subject comes from law reviews. Law reviews brings us to the topic of this post.
In the blog Concurring Opinions, there is an interesting post about Chief Justice Roberts' opinion of legal scholarship. He finds the research "worthless to real lawyers". A response to that position is here.
The question that I would ask of Justice Roberts is how would he plan to train aspiring lawyers if we forego academic legal research. While some scholarship has little practical application, other research provides seminal insight on an issue...including the law.
The New York Times is reporting that the CEO of UBS, Oswald Grubel, is resigning due to losses of $2.3 billion from a fraudulent trading scheme. Mr. Grubel had assumed the position in 2009 after the bank replaced the former CEO for losses in trading sub-prime mortgages.
UBS appears to have a record of holding the CEO accountable for poor performance, particularly when it is attributable to control weaknesses. I think that this approach is fair, although I would expect that every manager between the rogue trader and Mr. Grubel should be relieved of their position.
The digital age is facilitating communications between all stakeholders in a corporation--employees, suppliers, customers and investors. Recently there have been a group of articles advocating for a very open communication policy. The first noteworthy article is by Mozilla Product Evangelist Paul Pouget. The second article is by Paul Weiss, a Partner at VC firm Andreessen Horowitz and a third is on opensource.org here. All the authors are advocating for very open information exchange,and various writers advocate for open financial information, product roadmaps, meetings and strategy discussions. In the case of Mozilla, this type of information is open to the world without restriction.
In certain cases, such as a pending IPO, certain authors advocate for more restricted information policies to comply with securities law in the U.S. The irony here should not be lost on the reader.
The argument that these authors and many others make is that open communications fosters better collaboration. I learned management processes and methods in the era before the digital age. I admit that the more modern technologies make it easier to communicate, but it is not obvious to me that easier communications should lead to more widespread disbursement of information in order to facilitate collaboration. We collaborated before email and Facebook and even managed to create such worldwide powerhouses as Wal-Mart, Coca Cola and Telmex. I have not done the analysis, but I suspect that much greater economic and social benefit was created before the digital age than after it started. In other words, we collaborated successfully before the digital age.
The concept of collaboration interests me, but the larger concept of how digital technologies will affect management organization, methods and processes is of much more interest. I will return to this theme in future posts because I want to think through these themes in greater detail.
In April 2008 I wrote a post on a new business opportunity. Essentially I was suggesting that the preparation of the MD&A section of SEC disclosures 10-Q and 10-K could be automated with the current technology available.
I have continued to believe that artificial intelligence technology combined with certain technology to curate information would produce automated systems to generate high quality text. The NYT reports in this article that my idea is much closer to reality. A project launched from Northwestern University, Narrative Science, has secured venture funding and ten clients. Narrative Science has a product to mimic human reasoning and produce the resultant text using artificial intelligence.
Harvard Business School produces a lot of high quality research, frequently distributed through their own publications such as Harvard Business Review. Some of it is thought provoking and some of it is seminal work in the field. Examples of seminal work would include the early work of Michael Porter and Clayton Christensen.
The article states that market capitalism may breakdown within the next 25 years and become disfunctional for the following reasons:
Increasing inequality in wealth distribution
Increasing immigration to rich countries
Fragile financial systems
Climate change and environmental degradation
Continuing degradation in education and healthcare
Increasing government corruption that disrupts free markets
The traditional protectors--business, government and international institutions--can no longer manage the problems
While this analysis may appear to just be the liberal thinking of a few academics, the near collapse of world financial markets in 2008 suggests to me that the professors should not be ignored.
The proposed solution is "the creation of entities that can organize large-scale collective action" that disrupt markets through innovative solutions. Implicit in this proposal is rejection of the idea that only governments are responsible for collective action. The historical black and white distinction between government and businesses in determining the "public interest" must be loosened. According to the article, many business leaders are afraid to wade into the area of the public interest, perhaps more comfortable operating only on the basis of self-interest. The authors conclude that capitalism may be lost if business leaders cannot change to take a more active role in the "public interest".
The seminal idea is to develop a framework that facilitates this change in business thinking to embrace the public good without abandoning responsibilities to shareholders. Some may think of Porter's "shared value" as a solution, but I think his approach is merely incrementalism. Rather than starting from Porter's perspective of competitive advantage, the framework needs to start by defining the public good. Economists have argued about the definition of public good for centuries, but businesses rarely discuss the theme. We do not need to reconcile the views of Hayek, Friedman and Keynes. Perhaps all we need is a definition that businesses can accept and an HBS framework that helps CEOs to understand the issues and act to solve the wide ranging problems before it is too late. A thoughtful discussion of the public good would also probably lead to a re-definition of the role of government and a more effective and smaller style of government. That would be a daunting task but maybe business could frame the issue in terms of the public good. My thoughts on public good are here.
Note: Porter's "shared value", the article discussed above and the work of Christensen and others at HBS in education indicate a new trend at HBS which has not been much in evidence in HBS publications for the 30 years I have been a reader. Simply put, I think the professors at HBS are encouraging capitalists to take over many of the traditional roles of government or at least to pursue profitable opportunities that previously were government responsibilities. I very much like that idea if my interpretation is correct.
A friend sent me this joke. It's been too long since I posted something I found funny. Posted from N 25-43, W 80-12.
A woman in a hot air balloon realized she was lost. She lowered her altitude and spotted a man in a boat below. She shouted to him, "Excuse me, can you help me? I promised a friend I would meet him an hour ago, but I don't know where I am."
The man consulted his portable GPS and replied, "You're in a hot air balloon, approximately 30 feet above ground elevation of 2,346 feet above sea level. You are at 31 degrees, 14.97 minutes north latitude and 100 degrees, 49.09 minutes west longitude.
"She rolled her eyes and said, "You must be an Obama Democrat."
"I am," replied the man. "How did you know?"
"Well," answered the balloonist, "everything you told me is technically correct. But I have no idea what to do with your information, and I'm still lost. Frankly, you've not been much help to me."
The man smiled and responded, "You must be a Republican."
"I am," replied the balloonist. "How did you know?"
"Well," said the man, "you don't know where you are or where you are going. You've risen to where you are due to a large quantity of hot air. You made a promise you have no idea how to keep, and you expect me to solve your problem. You're in exactly the same position you were in before we met, but somehow, now it's my fault."
The word entrepreneurialism bugs me every time I see it. Why not just use the noun entrepreneurship? Based on two hours of investigation I conclude that this ugly word is synonymous with entrepreneurship.
The reasons I do not like the word:
It sounds pompous and entrepreneurship is not about pompous (maybe VCs but not entrepreneurs)
The word is nearly unpronounceable and I am a native English speaker
The only people who use the word seem to be writing from outside the U.S., which always makes me suspicious (of a word)
Really, I just dislike this word. I cannot think of another word that I actually dislike. Now that that's off my chest, I can hopefully return to more serious tasks.
This post was prompted by this story which I could not bear to read.
The U.S. military is a popular target for criticism and worse. This is especially true during the current two war period. What is frequently forgotten is the social contribution made by the U.S. military. In my lifetime I would point to two major accomplishments:
In the 1950s the U.S. military was the first major organization to eliminate segregation and foster an environment of non-discrimination
In 1969 DARPA, a part of the Defense Department, began the research that lead to the Internet
Today the military is at the forefront in research and development of unmanned aircraft and vehicles. I believe that such equipment will be commonly available to citizens for their every day use within twenty years.
Despite the controversy over global warming and Washington's unwillingness to address the problem, the military is aggressively expanding its use of solar power. This story from Fast Company highlights Project Solar Strong (ok-the name is a little hokey). Solar Strong is a project to provide solar power to 160,000 military residences in the U.S.
One could argue that all this technology was originally developed for war fighting, but that misses the point. The U.S. miliatary is a major force for positive change in the U.S. and much of our way of life is due to their leadership in our society.
Much speculation surrounds the recent acquisition by Google of Motorola's cellular business. In my opinion Google has not yet disclosed a cogent strategy for the acquisition. Some facts are starting to emerge, such as this story in the Calgary Herald. This newspaper reports that two weeks ago Google licensed certain patents (including Motorola patents) to HTC, the large Taiwanese cell phone manufacturer, to use in their ongoing lawsuit with Apple.
The Calgary Herald concludes their story by citing this licensing transaction as evidence that patents are the motivation for the Google acquisition of Motorola. The newspaper failed to point out that such a licensing agreement also goes a long way toward reducing HTC's concerns about the acquisition and the future of Android.
Recently there have been several articles about the characteristics of entrepreneurs and how to develop the necessary traits in children. A post from the Equity Kicker is here, the Wall Street Journal opines here, the accounting firm E&Y adds to the topic here (FR) and HBS professor Rosabeth Moss Kanter's article from HBR is here. The notion of how to develop children as entrepreneurs is a particularly engaging idea. It may become a very fashionable topic of discussion as the U.S. looks for a solution to what may become a long term economic malaise.
While this post could easily become another article on education or a critique of the articles mentioned above, I prefer to just list the seven traits we need to foster in children for them to become entrepreneurs and to suggest some ways to develop these traits.
Creativity
Creativity is the foundation of invention and innovation (invention commercialized). I think that creativity is very hard to teach, despite some great thinking on the subject by Austin, Hamming and Minsky to name a few. However, creativity can be learned, most easily by fostering an environment of discovery for the child. Also, much creativity is found at the intersection of multiple disciplines, so I think we should encourage children to develop multiple passions. Rather than having a child devote their entire youth to being accepted at Juilliard or Harvard, we need to encourage deep dives into 2-3 areas. A Montessori education may be another alternative, as this post shows. I also like "project based learning" as a way to develop creativity.
Critical Thinking
Critical thinking is a systematic way to analyze and understand complex subjects and draw original conclusions. I think focused study in subjects such as philosophy, economics or political science should be encouraged at a much younger age. These subjects are complex, notable in the number and quality of their theories and marked by centuries and centuries of brilliant thinkers with conflicting views.
Communications
Rare is the successful entrepreneur who is not a captivating storyteller, able to motivate and engage employees, shareholders and customers. To foster communications skills I would encourage activities for children that require public speaking. Teaching is also an excellent way to develop better communications skills. Humans are the only animal that can teach yet educational methods rarely encourage children to teach as a way to better understand a subject and communicate effectively.
Collaboration
Collaboration, or teamwork in the vernacular, is something I avoided until I built a large company. Complex ideas and tasks require multiple inputs to reach a high quality result. While many experts advocate for team sports as a means to develop collaboration, such approaches rarely develop techniques for intellectual collaboration. To foster intellectual collaboration perhaps more science fairs should allow team entries, perhaps more debate teams should be encouraged and perhaps the use of wikis should start with younger children.
Self-reliance and Determination
It may appear that I have just contradicted myself after addressing collaboration, but in the end someone needs to take responsibility to complete the task and make a decision. Many have written about the loneliness of entrepreneurship and it is self-reliance that gets one through the tough times. To develop the qualities of self-reliance and determination in youth, one technique would be to encourage individual sports such as sailing, rock climbing and long distance running. A ten year old sailing an eight foot pram in 30 knot winds has achieved a high level of self-reliance and determination.
Leadership
Leadership is the definition and achievement of a mission through an appropriate mix of self-interest and morality. While early education at a military school might develop leadership qualities, such an approach may not have widespeard popularity. Readings on leadership might be a less threatening way. Practice as a leader is the way most of us learned it.
Morality
Morality is generally based on one of the great religions of the world. Many children learn about morality through religious training and many learn simply from the example of their parents. Regardless of the method, great entrepreneurs are usually focused as much on the social benfit as the economic return and this belief is ultimately grounded in a well developed moral compass.
One last thought on raising entrepreneurs. Very often entrepreneurs are unconventional in their interests and social behaviors. Excessive concern about conforming the child to "accepted norms" may snuff out the budding entrepreneur. If the behavior is not illegal, a little tolerance will go a long way toward letting the entrepreneur emerge.
