SOPHISTICATED FINANCE

Self-organizing Systems

For some time I have been looking for a phrase that describes what I think is the future direction of software. Frog Design provided the phrase in this story, "We Are the Builders of Tech Revolutions. Why Are They Still a Surprise?" Frog predicts that software will be "self-organizing" by ~2030. Whether Frog and I agree on the meaning of self-organizing is not important.

I define self-organizing to mean that the software has sufficient data about the user combined with well developed artificial intelligence sufficient to predict an experience equal or better than the user could do. The experience might be a purchase such as a vacation trip or a list of recommended books to read or know who of your friends to send an article to. In the work environment your archive of information would dynamically connect with co-workers around the world who show the same degree of seriousness about a subject and create meta tags (or whatever is in use then) so that similar articles are more easily available to you regardless of how one person tagged them.

The information capture about you is already there. Note the Facebook ads you keep getting until well after you buy the new bag you researched at Michael Kors. The AI software probably needs a bit more time to reach the standard of designing a vacation as well as you would do it, but another ten years should be sufficient. A lot of data is being run through that AI software in ten years and the software keeps learning.

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Encryption vs The Government

Fred Wilson has an interesting post this morning about whether the government should have back doors to access information in matters of extreme need (child kidnapping, etc.) http://avc.com/2016/02/end-to-end-encryption/ I am strongly in favor of encryption with no back door exceptions for government. This is Tim Cook's position and I think Apple is right. My reasoning:

• why should we assume that the government will always be semi-benevolent (remember the American Indians, the Japanese interned in WW II, the torture at Guantanamo, etc.)
• we should manage our lives to vigilantly protect our loved ones and not operate with the expectation that the government will step in to help us in times of extreme need.and therefore need a backdoor
• when you look at President Obama's gun control plan the timing makes no sense and suggests to me an unstated ulterior motive; perhaps there is an unstated motive for the government backdoor

For the first time in my life I have lost confidence in the government. Maybe I read too much FA Hayek, maybe it's that I have not liked a U.S. President since father Bush and maybe I am just right to be suspect of government backdoors.

What I learned at MIT this year

For the last six years I have taught at MIT Sloan School of Management in January. Always the theme of the course is social entrepreneurship. Over the years the emphasis on entrepreneurship and scalability has increased and the thought of the government as a partner is now discouraged. My version of social entrepreneurship--"using entrepreneurship to solve a social problem" ........is probably toward one end of the range of definitions of social entrepreneurship. However, it appears the students appreciate the simplicity of approaching the social problem as simply a new business venture. I think they find it simpler than wrestling with the hundreds of social issues that one might consider in other approaches. 

So what did I learn:

1. Students no longer are just trying to understand what social entrepreneurship is but rather are looking for tools that they can apply to their own social ventures
2. Students are coming to realize that a business can relax the profit constraint in order to share value with customers, suppliers, employees and other stakeholders. Milton Friedman's "maximize shareholder wealth" was a formidable obstacle but it looks like capitalism may be mellowing to consider a wider group of beneficiaries. (According to a 2011 Harvard study of 180 large U.S. companies, the stock price of companies with robust [Corporate Social Responsibility] programs outperformed those with a low CSR commitment by 65 percent over an 18-year period (1992-2010.)
3. Talking about social entrepreneurship in terms of business model appears to help the creativity of the students. Breaking the business down into parts makes it easier to see opportunities for innovation and value creation.
4. We can teach entrepreneurship to younger and younger students. The undergrad students in my class had no business background and did just as well as the graduate students. 

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