Fordlandia: Ford's Utopian Amazon Community

I just finished reading Greg Grandin's book, Fordlandia, The Rise and Fall of Henry Ford's Forgotten Jungle City.  Grandin is a good writer and he brings to life the story of Ford's attempt to build a model Midwestern town in the Amazon jungle.  The rationale that Henry Ford gave to the world for investing in this ill-fated adventure was that he needed a steady supply of latex rubber. The real reasons, as Grandin makes clear, were far more complex.

In the 1920's, Henry Ford was hailed as one of the most influential businessmen in the country. He not only had created the Model T and the assembly line that built it, but he believed that a robust consumer economy depended upon a middle class that earned enough to have buying power.  His Five Dollar workday was one of the major factors in building such a market of consumers.

Ford's massive operations, first at Highland Park and then at the River Rouge plant in Detroit, were models of efficiency. They were also models of how workers could be turned into cogs in a vast and dehumanizing industrial machine.  Fordism, as it was called, was represented by the stopwatch and the check list. No detail was too mundane to not be improved and made more efficient. His vast industrial operations and those of other large corporations drew people to the cities seeking jobs with steady wages. Industrializing America was the nemesis of Rural America.

Ford was born and raised on a farm and he hated it. As soon as he could, he escaped to Detroit to find work in machine shops and later the Detroit Edison before turning his creative hand to automobiles. But as Ford's empire grew, his nostalgia for a simpler past also grew more important to him. To capture this disappearing America, Ford began collecting old machinery, tools, steam engines, pots and pans, sewing machines - anything that represented the past. He kept all his treasure in one of his warehouses at the Highland Park plant. Later, he started collecting whole buildings: Edison's Menlo Park Laboratory, the Wright Brothers bicycle shop, homes of poets, country churches and schools - even his own family's farmhouse.  He needed a place to put all this stuff. In 1929, he built Greenfield Village and the adjoining museum to house his collections.

Similarly, Ford began to build communities from scratch that were models of his vision of the right balance between industry and agriculture. Several of these were in Michigan's Upper Peninsula where lumbering and the sawmill provided the balancing arms of his vision. He thought he could use the same model to improve the Tennessee Valley, and he envisioned dams and hydroelectric stations that would supply him with power -- built next to new, idyllic communities that had the most modern schools, hospitals, and sewage plants. His dream for transforming the Tennessee Valley was thwarted by local and national politicians.  Ironically, it would be those same politicians who later created Ford's vision themselves during the Great Depression with the formation of the Tennessee Valley Authority.

When latex shortages threatened the automobile industry, Ford decided he could kill two birds with one stone by building a model community in Brazil to tap and export latex rubber. The work began in 1928. By 1945, after building Fordlandia and later Belterra, the failed venture was handed over to the Brazilian government and Ford Motor Company left the Amazon forever.  Grandin's book does a great job of explaining the missteps, naiveté, and bad luck that plagued the operation from beginning to end.

Ford was not the first, nor probably the last, to dream of creating his own vision of what a community should look like. Almost all of these visionary industrial communities have ended in failure. One of the most extensive was Pullman, Illinois. George Pullman built this model community to house his workers for his new railroad car workers. The town lasted barely ten years before it was brought down by labor strife. Like Fordlandia, one man's vision of what should happen was a far cry from what did happen.

Grandin, in his epilogue, sums up the issues well:

"Ford, the man who in the early 1910s helped unleash the power of industrialism to revolutionize human relations, spent most of the rest of his life trying to put the genie back in the bottle, to contain the disruption he himself let loose, only to be continually, inevitably thwarted. Born more from political frustration at home than from the need to acquire control over yet another raw material abroad, Fordlandia represents in crystalline form the utopianism that powered Fordism -- and by extension Americanism. It reveals the faith that a drive towards greater efficiency could be controlled and managed in such a way as to bring balance to the world and that technology itself, without the need for government planning, could solve whatever social problems arose from progress's advance. Fordlandia is a parable of arrogance. The arrogance, though, is not that Henry Ford thought he could tame the Amazon but that he believed that the forces of capitalism, once released, could still be controlled." 

Arrogance, naiveté, hubris, utopianism -- you might think we would know better by now. But in some way, I admire Ford's efforts even as I cringe at the outcomes. Ford was a complex man who could easily be both admired and despised. He legitimately earned both.  But to give up on building dreams such as those that Ford dreamed is perhaps to give up on dreaming at all. If I had the choice, I would take the dreamer.

In Defense of Steve Jobs

It seems that everyone with any sort of digital soapbox has felt the need to write about Steve Jobs.  I was particularly interested to read a couple of articles that tried to either make or dispel the idea that his impact on society equalled that of Thomas Edison or Henry Ford.

I think Walter Mossberg of the Wall Street Journal might have started the comparison in a very personal article he wrote about the thoughtful and personal side of Steve Jobs.  Rick Newman at US News and World Report picked up on the theme but threw mostly cold water on the comparison of Jobs to either Edison or Ford. Even the Christian Science Monitor got into the act with a followup article to Newman's.  At this particular moment in time, the loss of a leader in any field is felt acutely and the loss of someone with as many proven leadership skills as Steve Jobs is perhaps all the more strongly felt amongst the rest of us.

Of course, only history will be able to sort out the contributions of Mr. Jobs. But it seems safe to at least question some of the aspersions that Rick Newman made in his piece. Mr. Newman writes of Edison:

By the late 1800s, Thomas Edison developed an electric-lighting system that literally turned darkness to light and ushered in sweeping second- and third-order changes, from the improvement of working conditions in factories everywhere to safer homes no longer lit by candles.

Thomas Edison was a persistent, egocentric, dynamic leader of highly skilled technologists whom he employed to help create his vision for new products. (Sounds kind of like Steve Jobs to me.)  He never pursued anything without thinking about its likely commercial impact. He was a master of managing his image in the media. His work on the incandescent light was innovative not because he found a filament that could endure long durations of being heated, but because he envisioned that to make lighting successful he would have to build the whole system. This included the dynamos, the distribution wiring, the switching, and the end appliance - the electric light. That he pulled it off was a testament to his determination and persistence in the face of many, many hurdles.

Having said that, Edison didn't get it right when it came to extending his vision. He defended his direct current (DC) approach in the face of Tesla's clearly better alternative of alternating current (AC). AC power could be distributed without losses over much greater distances than could DC power. Edison even went so far as to mount a public relations campaign against AC power as being much more dangerous than DC. To prove his point, he was instrumental in the development of the electric chair for executing criminals. In the end, it took another generation of innovators beyond Edison and Tesla to make commercial lighting a reality for most people. Samuel Insull, who made commercial electricity a reality in Chicago, was the first of many of these innovators who built large electric distribution systems to bring power to the people.

Edison didn't get candles out of the home. Most people in the late 19th century were lighting there homes with either piped in gas or with kerosene. Factories were often lit by simply more windows or if night work was required, lighting was provided by arc lamps which predated Edison's invention of the lightbulb.

So who gets the credit?  Edison for the first embodiment of an electric lighting system or Tesla or Insull?  The answer is, of course, all of them, not just Edison alone.  If Edison hadn't developed his system, someone else would have done it within the next five to ten years. It was the focus of too many innovators who wanted to be first to show the new power of electricity.

Henry Ford is a different case but he also shares many similarities to Steve Jobs. Ford was neither a particularly talented machinist or even all that literate. What he did have in spades was the ability to envision a new type of automobile and the charisma and passion which attracted really good engineers to work with him to make it a reality. His first focus was not on a car for the masses but on racing cars (which were the earliest means of demonstrating automotive technology and reliability). He was a partial-founder of two automobile companies that failed to achieve his vision. It was only when he decided to be the founder of his own company - where he controlled the vision - that he began to succeed.

His first cars were not particularly different from scores of other startup auto companies. Everyone was selling to a customer who had the means to spend several thousand dollars on a car. Ford's genius was to see that if the cost of the car could be reduced dramatically, a mass market could emerge for the automobile for the first time. Ford not only hired great engineers, he hired a great business manager, James Cousins, to manage the finances of his company. Ford didn't invent the assembly line. That idea emerged from his engineers touring the disassembly lines of the Chicago meat packing plants. Ford provided the single-minded focus to pursue the dream of a mass market car when everyone else told him he was crazy. The result was the introduction of the Model T in 1908 (This was not his first model. There had already been Models A through S before the T came along).

Ford was a true innovator. He was the first to recognize the value of vertical integration in the automotive industry - owning everything from the iron mines to the steel mills to the final assembly plants in the giant River Rouge complex. Ford pioneered the five dollar day for his workers - not just to have them earn enough money to be able to afford a Model T but to get them to not quit (employee turnover on those first assembly lines was in the hundreds of percents).  Ford's vision proved to be correct and his company dominated the industry. But unlike Steve Jobs, Henry Ford did not die young. He lived long enough to have his initial vision become an impediment to Ford Motor Company's future. He would not give up on the Model T even when it was outdated and sales were plummeting. He micromanaged his son, Edsel's, period of running the company after Henry ostensibly retired. It would take Ford's grandson, Henry II, to put the company back on track.

So the traits that seem to recur in these three men of different eras and different industries are incredible vision, an awe-inspiring sense of determination, dictatorial decision-making, charisma, passion, and an ability to hire the best and the brightest and give them the environment to create. Each had the ability to see a future, not a future that others couldn't see, but a future which was holistic - one that went further than just one product to see what was needed to make it valuable to millions of people.

So in defense of Steve Jobs, I think he will, indeed, go down in history as being in the same league as Thomas Edison, Henry Ford, and a host of other visionaries who have helped to create the world we live in.  His legacy will be felt for generations in the digital devices that are the offspring of the iPods, iPhones, and iPads.  His legacy will be felt in the digital animation studios that come after Pixar.  His sense of what the market needed was truly remarkable. But even more remarkable was his willingness to bet the company on his vision - not once but over and over again.   Steve Jobs was the quintessential American Innovator.  Even though I never met the man, I will miss him.

(Disclaimer: I have been a longtime user of Apple products. I am typing this on my iMac desktop computer.)

That Should Still Be Us

I saw an article in our local paper, the Raleigh News and Observer, entitled, Industries Fear New Wage Rules. The article was exploring the new wage rules that are being imposed by the Department of Labor on industries that hire immigrant workers on H2-B, temporary work visas.  Wages are projected to increase, on average, almost 50 percent - from $7.43 an hour to $11.18 an hour under the new rules. The higher wage is in line with the minimum wage paid in most regions. The reporter interviewed a number of small industry owners such as oyster processors, reforestation services, and even hotel owners for the impact of the upcoming change in the law. Not surprisingly, the owners are not happy, feeling that the increase in the wages they will have to pay will drive many of them out of business. Not a good deal.

But what struck me in the story was a couple of paragraphs in the article:

Employers say that they rely on foreign workers for the dirty, back-breaking tasks that Americans aren't willing to do - even with the current high unemployment rate.  And, they stress, they're required to document their efforts to hire Americans before the government permits them to hire foreign workers.

Further on, the article states:

Susan Pentz, 60, who along with her husband owns the 18-room Harborside Motel on Ocracoke Island, has been bringing in two housekeepers each tourist season for the past decade. She turned to foreign workers, she said, after struggling to hire locals and discovering that those she was able to hire soon quit or showed up only when they felt like it. "The bottom line is, I ended up cleaning the rooms because... no wanted to do that kind of manual labor," Perez said.

I read this article just after I finished reading Tom Friedman's and Michael Mandelbaum's new book, That Used to Be Us: How America Fell Behind in the World It Invented and How We Can Come Back. The authors of the book are trying to get us to focus on the multiple forces are in play that are causing us to slide from the leadership position we have enjoyed since at least the end of World War II.



The Big Challenges in their minds are:

1. Globalization and  the Information Technology Revolution
2. The Return of Strong Middle Class Jobs
3. Rising National Debt and the Deficit
4. The Need for Green and Clean Energy

They spend quite a bit of time documenting each of these areas in what amounts to a rehash of other news articles and their own past opinion pieces. Still, the case is compelling that these are. indeed, major issues that need to be addressed.

To address these issues, they outline what they call the Five Pillars of Prosperity:

1. Providing much better public education for more and more Americans
2. Continuing to build and modernize our infrastructure
3. Keeping America's doors open to immigration
4. Government support for basic R&D
5. Implementing limited but necessary regulation on private economic activity

The authors make the case that we basically got fat and happy when we won the Cold War.  At just that moment, we should have been redoubling our efforts to compete in a global economy. Instead, we borrowed our way to an unsustainable way of life.  But the bills have now come due on both a personal and national level. Worse, the current political system is so broken as to prevent any meaningful action to address the Big Challenges. 

Their solution? They think we need a strong, centrist, third-party Presidential candidate. They acknowledge from the outset that the candidate most likely won't win. But the candidate could force whoever does win to take note of their more centrist platforms. They even suggest three past third-party candidates who did just that - Theodore Roosevelt and his Bull Moose candidacy to continue to build Progressive reforms in 1912, George Wallace in 1968 who forced Washington to pay attention to the South, and Ross Perot in his 1992 bid to address national budget deficits (they didn't mention Ralph Nader).  Each of these candidates caused the incoming President to enact reforms that the Third-Party candidate strongly campaigned to bring to the nation's attention. The authors call this strategy political Shock Therapy. 

And what does all this have to do with the history of technology? Everything. This country was built on the backs of immigrant labor manning the steel mills and garment sweatshops. The entrepreneurs who built American business developed countless new technologies that changed our way of life. Think telephones, automobiles, televisions, personal computers, and cell phones. To make all of these objects that we now take for granted required more and more skilled labor in the factories. A Middle Class with rising expectations that their lives would be better, and their children's lives better yet, was born, at least in part from a strong public education system. By comparison, for the last decade, data indicates that the Middle Class has not advanced economically one dime. In fact, they may be worse off than they were ten years ago.

Technology and democracy have always played key roles in making the United States a place where people wanted to live. For many in the Third World, it still holds that attraction. But I agree with Friedman and Mandelbaum - something needs to change and change fast. We are well past the dithering stage. 

The immigrant workers who come to North Carolina to take temporary jobs are looking for a better life, just as millions of immigrants did before them. They are willing to do what Americans are not, and I'm not just talking about the menial jobs they do. They are willing to leave their home country and families to try to make a little better living than they can at home. How many of our own, even highly-educated people, are willing to leave their country for better opportunities in China or India?  Not as many as those who come the other way for poor wages and lousy living conditions. 

Let's try to get technology back to producing the jobs we need to help all of us be in the position where we can look forward to a better future.  We are still the best hope for a brighter world. 

Fail Early, Fail Often? Not.

Business is full of pithy aphorisms.  One that you hear frequently is meant to be a mantra for innovation: Fail early, fail often.  The idea behind this little nugget is to experiment with many variations on an idea without investing much in any of them.  Get out there and get market feedback as quickly and as cheaply as you can.  Sounds like good advice, doesn't it?

I spent my career working with inventors and not many of them attempted to fail -- early or otherwise.  And they certainly didn't want to fail often.  That was a one-way ticket to unemployment or at least being moved into a position where they couldn't spend the company's money quite so easily.  Inventors work more from the old saw: If at first you don't succeed, try, try again.  The first time out, their invention is a flop.  The second time it might be an even bigger fiasco.  But the dedicated inventor "knows" that their idea is just what is needed to make the world a better place (and make them a boatload of money).  They might finally even get an idea out that does the technical job but the money is another story.

The histories of technology and innovation are filled with stories of inventors who pioneered a new area only to go bankrupt.  Often, a savvy business person was watching in the wings waiting for market conditions to improve or shift.  Then with the biggest risks of invention out of the way, they would turn it into a money-making venture by better marketing or more efficient manufacturing.  And what of the inventor?  Often, these intrepid souls would be on to their next great idea.

Are inventors naive?  Are they over-confident about their ideas or abilities?  Why do they continue in the face of such daunting odds?  It seems to me that inventors have two drives: to shepherd their wonderful idea into the world and to get rich doing it.  At their core, they are made up of creativity and optimism.  They have a great inner eye that lets them see a new and untested idea before others can see it.  Their energy comes from their need to create.  They are more akin to artists than engineers.

But the same characteristics that makes a great inventor makes for a really lousy business person.  The business mind is focused on efficiency, scale, and profit.  Business has its own form of creativity but it shares little with that of the inventor.  Once an invention has proven itself, the business person wants nothing to do with further change.  Change is wasteful.  Change is inefficient. Now the drive is to get it out at the lowest possible cost.

It more often happens that an inventor thinks that he or she can also be a great business person than vice versa.  Business can't be that hard, can it?  The invention is the hard part, right? Most business people that I know don't often mistake themselves to be inventors.  The clear, cold thinking that makes them good at business puts a quick stop to any naive beliefs that they can also excel as inventors.

Inventors need business people to commercialize their ideas.  But without inventors the New New would never happen.  It is a symbiotic relationship.  The business people get most of the money, of course.  But the inventors get something equally valuable to them - the freedom to continue to invent.  And the cycle continues.

When Google and Apple Are as Passe as Ford

Virtually every list of the most innovative companies in the world list Google and Apple in the top two or three slots.  Both companies are there for a reason - their products and services are cutting edge and customers can't get enough of them.   Look at the lines out the door at the Apple Store when the iPad and the iPhone4 were introduced. Look at the ever-increasing reach of Google.  From search engines, it has branched out into operating systems for cellphones (Android), web browsers (Google Chrome), and online office suites (Google Docs), not to mention Gmail, Google Books, Google Maps, Google Earth, Google News, YouTube... you get the idea.

But that edge in the cutting edge moves.  What was the cutting edge one hundred years ago now brings a yawn.  While Google and Apple bask in the warm glow of innovation accolades today, in a hundred years they will most likely be history.  I was reminded of this as I was reading Douglass Brinkley's book, "Wheels for the World: Henry Ford, His Company, and a Century of Progress."  Brinkley writes of the heady days of early Model T production when Ford couldn't build their cars fast enough:

The astounding pace of change at Ford Motor Company in 1914 made it the most glamorous, most widely discussed company in America, if not the world. It was not merely that Ford was trying so many things in so many arenas, nor even that it was succeeding with most of them.  What attracted the admiration and envy of outsiders was the brimming confidence Ford Motor exuded. The public's fascination with Henry Ford's maverick role lay in part in his overt image as an iconoclastic, oddly nineteenth-century presence in the twentieth century's most up-to-date business. It seemed that through modern industry Ford had reopened the American frontier.  His company was more than a profit-making enterprise; it was a pioneer's domain, where old assumptions about business were cast off in favor of new notions.  As on any frontier, money did not make for heroes, and Ford Motor had started with very little money.  The company did not rely on established connections, either, remaining as stubbornly independent as it had on the day it was founded. Ford Motor proved that creating a fresh new world out of the industrial domain rested on only two crucial qualities: competence and confidence. (p. 180)

If you changed Ford Motor to Google or Apple in the above quote, you would have a pretty good description of what makes these companies great today. Henry Ford reminds me most of all of Steve Jobs.  Ford was a megalomaniac with his vision of the car for the masses.  He alienated almost everyone around him including those who helped him form the company.  He began to believe that he alone was the arbiter of automobile innovation.

Maybe it takes that kind of drive and vision to have the absolutely phenomenal results that innovative companies create.  Within ten years of Ford Motor Company's founding in 1903, Henry Ford was second in personal wealth to only John D. Rockefeller.  Ford sold more cars in 1914 than the next ten producers combined!  The Model T changed the face of America as surely as Apple and Google are changing it again today.

[Photo and logos from Wikipedia]

Enabling a Revolution, Enabling Wealth

I saw a column by Rich Karlgaard this morning in Forbes entitled "How the Cheap Revolution Confuses Policymakers".  Karlgaard's title is a little misleading.  His article mostly focuses on how Moore's Law has driven down the cost of all things silicon and made the resulting products cheap.  (Moore’s Law refers to the fact that the number of transistor elements on a chip have doubled roughly every two years.) Making products cheap and affordable has made some people very, very rich.  Karlgaard tries to pull biotechnology advances into Moore's Law. But it is a bit of a stretch to say that biotechnology has made medicine cheap. 

Nonetheless, I subscribe to at least part of his thesis.  Some new technology platforms change everything.  They change how we live, how we work, who is rich, and who is poor.  Some technology platforms are so powerful that they can elevate nations to world leadership and relegate others to a has-been status.  Not all new technologies do this, of course  What sort of technology platforms can have such powerful effects?

The key is to be found in technologies with the broadest power to reach deeply into our world and change areas that would have never even occurred to the original developers. Here are a few examples that pop to mind:

The Printing Press - Gutenberg developed movable type so that he could print indulgences and bibles and make a few bucks. The printing press allowed for mass communication that changed the course of history.  Do you think Johannes could have foreseen the power and reach of his invention?  The Enlightment would never have happened, or happened much more slowly, without the printing press. 

Iron and Steel Processing - The Medieval world was one built of wood and stone. The discoveries (mostly) in England of how to smelt iron and later steel cheaply and in high volume had a dramatic impact that reached into every part of the lives of people in the 18th and 19th Centuries.  Without the ability to produce iron and steel cheaply, there would have been no steam engines, no railroads, no modern bridges, ships, or skyscrapers.  Those who controlled the steel mills became fabulously wealthy.  Those who worked in the mills had lives of misery.

The Automobile - This is an assemblage of inventions and materials (including the internal combustion engine, cheap fuel, steel, and rubber) that gave everyday people the ability to travel where they wanted, when they wanted at very low cost.  Whole industries were created to build and service automobiles and trucks. The highway system changed the face of the country just as suburbs changed the nature of our towns and cities.  Who was rich?  Auto and oil magnates, steel executives, and rubber company CEOs. 

The point I am trying to make is that some inventions have the ability to have very broad utility. They have uncounted ways of being exploited for products and services and hence for profits.  If there is a way to exploit one of these technologies, some entrepreneur will find it.

I would agree with Karlgaard on how pervasive the Silicon technology has been.  Look at who became wealthy.  The list includes chip company founders, personal computer execs, internet execs, venture capitalists, and social networking company founders. Less obviously but just as importantly, the wealth of bankers and financiers is tied directly to the enablement of silicon technology. Without computing, the world of instantaneous and complex finance would be impossible. 

What will be the next powerful technology platform?  If I knew, I would have my money there and I wouldn't be broadcasting my answer.  But I don't know.  I would hazard an educated guess, however.  It will be a new material.  I don't know if that will be a nano-material or a DNA-based, self-assembling material, but it will be some sort of material that opens doors that can't even be conceived of today.  My other prediction is that this next new material technology is a long way off and will take even longer to exploit.  Fundamental technologies are like that.  

Karlgaard writes of the Cheap Revolution but all powerful technologies have made things cheap.  But not all technologies have the capability to create such a profound impact.  That's why when we experience one, it is dubbed a "revolution".  We are still riding the Information Revolution.  Who knows what the next will be called?

[All pictures from Wikipedia]

Bethlehem Steel Blues

I was browsing through a website called SnagFilms which hosts documentaries and I came across a three-minute film on the sad aftermath of the failure of Bethlehem Steel in 2003.  This short video is worth a look.

Watch more free documentaries

The deep sadness in this film piqued my curiosity about this very successful company and its namesake town of Bethlehem, Pennsylvania.  Wikipedia has a great overview article on the company.  Fortune Magazine did a post-mortem on the company's demise back in a 2004 issue which was worth a quick read. 

The steel industry was once the bellwether of American industrial health.  Bethlehem Steel provided the steel for the Golden Gate Bridge and the Empire State Building, among a long list of other American icons.  It was not only one of the largest of the U.S. steel producers, it was also one of the largest ship-building and railroad car manufacturers in the country.  Now, the original steel mill site in Bethlehem is bare ground except for a new casino.  In some bitter twist of fate, the construction of the casino was delayed for a shortage of... you guessed it... steel.

What went wrong?  The answer is both complicated and simple.  The complicated answer involves the emergence of cheaper steel from newly-built mills in Japan and Europe following World War II, the dependence of U.S. industry on trade barriers for protection rather than reinvesting for innovation, arrogant management, huge legacy costs for retiree healthcare benefits, and a steelworkers union that refused to give an inch to a management that was equally obstinate.  The simple answer is that the steel industry ran its natural course and we no longer need to make steel.  That simple answer, like most simple answers, is also wrong.

Lehigh University has done a great job putting together a website called Beyond Steel that goes into many different aspects of the manufacturing and cultural history of the region.  I especially liked this picture of Bethlehem management taken in 1950.

You don't have to see any detail to know that this was an old, white guy's club. 

Unfortunately, we don't seem to learn much from the life cycles of companies and industries.  The early risk takers give way to the managers who drive up efficiency which leads to the management that pays itself enormous salaries for what seems like their God-given success which precedes the bankruptcy experts who dismantle the enterprise after it crashes.  We are seeing it now in banking.  The auto companies have also been recently knocked down a notch by their own arrogance.  The jury is still out  to see if they survive the long term.  After all, it took Bethlehem Steel almost thirty years to die.

But as the first film shows, often the biggest cost to a community is the disruption to families that have lived there for generations.  In the end, when a company fails, everybody loses.  Everybody.  If you look back at that picture of management, you can just make out five little statuettes on the back wall of the auditorium.  They represent the Customers, Employees, Management, Shareholders, and Suppliers.  Every one of them lost out. 

And we are left building casinos on old industrial sites which form a kind of scab on what was once the healthy corpus of our economy.  But, what the hell, this time around, the odds are with the house.

BP: Safety vs Profit

BP has been in the hot seat for their safety record for much longer than just the Deepwater Horizon disaster.  Yet, we hear the management of BP talk about how they have been striving for at least the last few years to instill a corporate culture that places a high priority on safety.  How can there be such a disconnect between what management says it wants and what happens in the day-to-day operations in the company?

BP is a corporation.  Corporations exist to make a profit.  Some would argue that the only reason they should be allowed to exist is to maximize the return to the shareholders.  If they are not making a high enough profit, the shareholders will desert them and the stock price will fall to a level that makes the company a takeover target.  So BP must make a profit to continue to exist.  But profit that comes with too much risk from civil or criminal sanctions or from lawsuits from aggrieved parties is not in the long-term interest of the company.  Safety and corporate citizenship fall into the category of activities that protect the corporation.  No matter how good it looks or how much companies like to tout their citizenship, in the end this is all corporate self-interest.  As consumers and citizens, we understand the bargain because we want the company to prosper to create jobs, support communities, and pay dividends to us as investors.

BP surely has - and always did have - a corporate safety program.  No company of their age and scope could be without one.  There are employees at BP whose only job is safety monitoring and training.  BP facilities world-wide have safety signs on employee bulletin boards and some level of safety training is a part of every technical employee's job requirements.  I don't know this for a fact, of course.  I have never worked for BP.  But I worked for a large multinational corporation for thirty years and I know that we paid a lot of attention to safety because we had to.  The price of not paying attention to safety was risking the corporation's existence.

Employees are not stupid.  They know that accidents are bad for the company and bad for them personally if they are involved.  But employees also know that the next pay raise or the next promotion - or even keeping your job - is based on performance.  Delivering the goods faster and cheaper is always viewed as a positive on the next performance appraisal.  Safety is a box to be checked.  As long as things are going well, there is nothing to be gained from putting safety ahead of profit.  Accidents by their nature are unpredictable.  If people knew there was going to be an accident, they would never cut the corner they are about to cut or take the cheaper, faster route rather than the safer but more costly route.  Employees know all of this.  Every day, people make decisions calculated to maximize their own gain, either in terms of pay or position.  Most of the time, people are not even aware of making the decisions consciously.  They just know that their last performance appraisal wasn't so hot and they feel the pressure to get more work done or they saw a colleague get promoted for taking the faster route.

Somewhere I read that airline safety is built on the graves of the crash victims.  That is true of all safety.  Until we experience the full force of an accident's outcome we cannot know just how bad it is really going to be.  Lots of organizations perform risk analyses on their operations.  NASA certainly did it before the Challenger and Columbia disasters.  But every major accident has a series of unique events leading up to the disaster and each of those events is in itself a small, almost trivial, event.  "For want of a nail... "  

I am not defending BP here.  I am just trying to point out how these things happen.  The thing that matters here is that senior management makes safety a real priority and does not treat it as something that is costly and a nuisance but needs to be done.  BP is experiencing the costs of not just the Deepwater Horizon accident but a culture that goes back years, maybe decades.  It will take a lot of work to change it.   Today is a good day for them to begin taking it seriously.

Technology: The Platform for the Game

I was thinking about the game, Monopoly.  Almost everyone could draw a reasonable approximation of what the game board looks like.  Even the expressions from the game like, "Do not pass Go and Do not collect $200," are understood in our culture to mean you somehow screwed up.  Curious, I checked Wikipedia and sure enough they had an article on the history of this venerable game.

The game as we know it (now owned by Hasbro) was introduced by Parker Brothers in 1935.  The supposed inventor who came up with the game was an unemployed salesman named Charles Darrow.  I was not surprised to see that Darrow was, in fact, only the last in a thirty-year chain of inventors who had contributed to the creation of the game.

The first inventor was a woman named Elizabeth Magie who patented a very similar game idea in 1903.  The picture at the right shows her game board from her patent. She called it "The Landlord's Game." But Lizzie didn't sell the game commercially.  She made her own board and taught her friends and it "went viral", in an early 20th Century sort of way.  The game kept being refined and passed on until it finally made it to Darrow who patented the now-familiar board and then tried to sell it to Parker Brothers.  Like the history of so many great ideas, Parker Brothers listened and then...they turned him down cold.  Darrow persisted and started selling his own version of the game in his hometown of Philadelphia.  Parker Brothers heard it was selling well so they offered Darrow a deal.  Like many ideas, when you look at them a little harder you find that they have many contributors, not just a single inventor.

So what prompted me to be thinking about Monopoly?  I was thinking that it could be a good analogy for the three big forces that make up modern life: Business (or the Economy if you prefer), Government, and Technology.  Of course, this is not all there is to life.  You also have American Idol and Dancing with the Stars.  But I do think these three are the major drivers of the world we live in.  The Monopoly game obviously represents Business or the Economy.  Buying and selling, banking, real estate, transportation - this is the competitive world of free markets. Isn't it ironic that the winner of the game completely wipes out free markets and achieves a complete monopoly?  Government represents the rules of the game.  It sets out what can and cannot be done.  In the parlance of business, "it levels the playing field." Government also runs programs for public safety (the jail) and the entitlement programs like Community Chest.  Government plays a critical function in the game. Without rules, the game would degenerate into chaos.

So where is Technology in my little analogy?  Technology is the platform that the game board sits upon.  It provides the underpinnings for Business.  The Monopoly board is, of course, static, i.e., no new properties can be added to the board.  There is no Google or Microsoft. But in the real world, technology is the one of the greatest contributors to new enterprises (i.e., properties) being brought into the game.  Without technology and innovation, we are stuck in a world which is based almost solely on real estate (kinda like Florida).  There is only so much real estate and the board never gets any bigger.

Many of the troubles we are now facing can be traced to the fact that we are generating new technology at a slower rate than we have in the past.  Our inventiveness is slowing down.  For instance, patent filings in the U.S. declined for the first time in over a decade.

Compared with other countries, we are no longer as innovative as we once were.  That does not bode well for the future.  We need to be doing more to support R&D in both our businesses, our universities, and our national labs.  If we think our economy is hurting now, wait and see what it will be like in another decade if we continue on the current track.  It won't be pretty.

Government can do a lot to help through tax policies, education initiatives, trade agreements, and assuring better broadband internet access.  Business has to get more innovative and be willing to stick its neck out a little further to support new ideas.   We, as a nation, have to try to understand better how the new global game is now being played to see that changes are not just suggestions, but mandates.   Like it or not, technology has been driving our world since the Industrial Revolution began over two hundred years ago.  As we move ever deeper into the Knowledge Economy, we have to do what is required to remain competitive.  Monopoly was invented deep in the Great Depression to provide a game to let people get their minds off their troubles.  We don't want to see our Great Recession become another breeding ground for fantasy business board games.

Inns and Inns

It had been a long day on the road: twelve hours and still going even after the sun faded in the west.  I checked the Accomodations list on my dashboard GPS and saw that there was a Hampton Inn up ahead at the next exit.  I had never stayed there but I liked most of the dozens of others in that chain of hotels where I had stayed on previous trips.  I drove up under the well-lit portico and leveraged myself out of the driver's seat. It was getting harder and harder to drive this far.  I might need to rethink these Power Drives.

The automatic double-doors opened reluctantly and I went into the lobby and scanned for the desk - on the left this time.  There was one lone clerk standing behind the counter.  College student, most likely, on the the night shift.  I asked about a room with a queen-sized bed.  The clerk typed something and said they had several (smoking or non-smoking?).  The rate was $109.  I asked if they had an AAA rate?  More typing (you would think she would know by now).  In fact, the AAA rate was $98.  There was also an AARP rate, a veteran's rate, and five other rates if you knew the Magic Words.  I took the encoded room key and went up to my room.  Same layout as a thousand other rooms.  But at least I could go to bed and drift off to sleep...

[Enter right: stage fog blowing across black space]

In my dream, I was bouncing...hard.  The stagecoach I was riding in had no springs.  Coach springs hadn't been invented yet?  There was barely even a road.  Just some little saplings that had been cut down and laid crosswise across the muck to keep the wooden wheels from sinking even further than they already were.  Dimly, I remembered (through the fog of my dream) that these were called corduroy roads.  I was crammed in the tiny box with twelve other passengers.  We all smelled of three days of body odor, and small talk had long since vanished.  It was pitch black, not even a moon.  I was glad that the driver upon the box seat had been over these roads dozens of times before.

We had set out from New York City for Boston three days ago and we were almost half-way there.  This bone-rattling so-called road we were on at the moment was, however, better than the swamps we had driven through for most of the journey.  We even had to get out and push the coach several times to free it from the muck.

Finally, at eleven, we stopped in front of the Sign of the Cock Inn.  It was a two-storied hovel with a shed out back but at least it was warm and dry inside and the night was getting cold.  We all peeled ourselves out of the coach and headed inside to make arrangements with the innkeeper for the night's lodgings.  I was lucky enough to be first to the bar where he was serving hard ale to a local.

I asked if he had a bed for the night?  Yes, he had one spot left in a four-man bed upstairs.  That meant I had to sleep with three strangers with the bed bugs and their snoring and probably lice.  I asked if he had anything else?  He told me I was welcome to roll my blanket out in front of the fireplace on the barroom floor.  I could see in the dim firelight that there were already a dozen lumps laying on the hard boards in front of the fire.  I told him I would take the spot in the bed.  At least it was soft.

I didn't even ask him what the rate was.  I already knew.  It was set by the colony's legislature.  So was the price of all the drinks, as were the prices for stabling the horses.  Everyone thought this was a good thing.  No gouging tired travelers who had been on the road all day.  No preferential rates for the gentry rather than the common, honest man.  This was what a colonial government should be doing.  It was only fair.  There had been an innkeeper recently that had demanded more than the legal rate and he was arrested and fined.

I dragged myself up to the little room upstairs to crawl into the straw-mattressed bed.  I had to wake the other three sleepers to get them to move over enough to allow me a space.  I laid down, fully-clothed, and tried to ignore the concert from my snoring bedmates to get some sleep.
____________

In fact, my little dream was more-or-less the reality of travel in 1760.  It took five or six days to get from New York City to Boston.  The roads were poor to non-existent (imagine the lesser roads). The governments did, indeed, regulate the room rates.  People often shared the same bed or slept on the floor.  No two inns were the same, as they were all family-owned and operated businesses.  Sometimes the inns might be better, sometimes worse but all had to take in travelers and provide a place for them to sleep indoors if they could pay for the "privilege". I think of all this when I see the Inn part of the logo in the Hampton Inn or Holiday Inn.  Inns?  I don't think so.  More like palaces by colonial standards. The technology of travel by road and putting people up for the night has come a very long way.  Personally, I prefer an air-conditioned, private room (non-smoking and away from the ice machine, if you don't mind).

TBTI (Too Big To Innovate)

TBTF  The acronym, TBTF (Too Big To Fail), is everywhere these days.  It describes in a nutshell the problem with companies, especially banks, that are so large that their failure would wreck the economy.  Fearing that a number of banks fit this category, the Fed and the Treasury bailed them out last fall.  It is puzzling to me how banks that were considered TBTF then could be allowed to continue without restructuring now.  Why would we do nothing to restructure these institutions to bring them down to a scale where they are not TBTF?  No business should be allowed to grow so large that its very size should make it a candidate for a Federal bailout - or threaten the economy as a whole.

TBTI These mega-banks make me wonder about many other U.S. companies that may not be TBTF but are TBTI (Too Big To Inovate).  What do I mean by TBTI?  General Motors is a great example.  GM grew to such a massive size that it was no longer in touch with the market.  The senior executives of GM felt that they set the market.  What was good for GM was good for the country.  The arrogance that comes with size is a classic symptom of companies that have become TBTI.  Innovation died at the hands of finance MBAs who drove the company to make bigger and fancier SUVs, who decried any new approach such as the EV-1 (electric car) in favor of the Hummer.  Who tried to fend off the Japanese automakers with tariffs rather than increase their own quality. Who spouted the corporate line about "increasing shareholder value."  In a nutshell, GM quit listening.  The executives were into complete entitlement - corporate jets, country club memberships, and golden parachutes.  But who would want to bail out?  It was so much cozier inside the corporate tower where reality could be blithely ignored.

But my comments are not limited to General Motors.  Many highly-respected Fortune 500 companies have moved beyond the glory of their growth years and into TBTI.  To be fair, there is a lot of lip service provided on the topic of innovation but most of it is just that.  Whether you think of GM or a host of other American icons, the sad fact is that most of them have become far more interested in "protecting the corporation" than in innovating.  Scale does that to you.  When you are big enough to become a target for significant lawsuit awards, you can't help but develop a hunker-down mentality that keeps you away from anything that might be construed as risky (aka, innovative).  When you become that large, you can't help but develop a bureaucracy and middle management that is more interested in the competition for self-advancement within the company than in serving the customer.  You can't help but develop an organizational structure that walls off departments and makes customer responsiveness way too limited.  You can't help but develop a senior management that wants to hold onto the reins of control in an ever tighter manner lest someone lower in the organization take an unwarranted risk.

TBTI comes most easily when you forget what made you large in the first place.  Growth came from customers who found the company's product or service to be worth the money and better than the competitions'.  Dollars to doughnuts, innovation played a part in that early growth phase.  After the struggle to survive subsided and the first long march to profitability had been completed, management turned its attention to a different task: making more of the stuff that sold so well and making it more efficiently in order to make more profit.  After a long struggle, it is natural to want to take the easy road for awhile.  The trouble comes when you think that the easy road is the only road, when the hard work of innovation becomes too risky, when today's profit is better than next year's growth.  At this point, companies become TBTI.

What to do about companies that are TBTI?  I would suggest a similar therapy to those who are TBTF:  get smaller.   But the kind of getting smaller is quite different between these two corporate pathologies.  For companies that are TBTF, the goal is breaking the corporation up into autonomous pieces that are able to survive independently - and below the TBTF threshold.  The goal for companies that have become TBTI is slightly different.  The corporation as a whole doesn't need to be broken up but the business units within the company need to be segmented down to a size and given enough autonomy that decisions once again happen more at the business unit level than the corporate level.  Innovation is unleashed by giving it oxygen in the case of business units, resources and autonomy.  Businesses that are close to the street will know what is needed to please their customers.  Corporate headquarters will remain largely clueless.  This will, of course, take guts on the part of the senior management team.  It will mean trusting their business unit management teams once again.  It will mean being willing to not have a knee-jerk reaction to protect the corporation first.  It will mean keeping the business units small enough (usually less than 300 people) that the players know each other by first name and know what each is capable of without doing an HR Performance Appraisal.

The irony of radical surgery on the TBTF banks and automakers is that they are likely to become more innovative.  Not in the smoke-and-mirrors innovation of derivatives and CDOs but true innovation that adds value to their customers and not just the management team's bonuses.  I think E.F. Schumaker was right, small is beautiful (not to mention functional, innovative, exciting to work for, and growing).  I don't know about you but I have had enough of Big for awhile. Let's hear it for Small.

The IBM 1401 Computer

Update: I reformatted the video to show the full 16:9 video screen.

My brother works for IBM.  He sent me a link to a video that IBM made to celebrate the building of the IBM 1401 computer.  The picture at left is the control panel for the computer. The 1401 was an all-transistor, medium-sized computer that was one of IBM's most successful products.  Over 20,000 of the systems were manufactured between 1959 and 1971.  The computer could be configured with up to 32K of memory, although most were sold with only 8K or 16K on board.  IBM leased the machines rather than sold them, which was typical of their business model.  According to the company, by 1961, one in four computers in the United States was an IBM 1401.

I really enjoyed the video.  It focuses on the people and their evident pride in what they had accomplished so many years ago.  It reminded me once again of Warren Bennis' work on Great Groups which I blogged about a year ago when I was writing about Oppenheimer and the Manhattan Project.  One of the essential features of a Great Group is that it cannot last.  It is a moment in time in which people come together to accomplish something extraordinary.  That seems to have been the case with this IBM team.  The pride these people continue to feel is palpable.  Maybe, if we are lucky, we will also be part of a Great Group.  The memories last a lifetime.

Miller and Whitney: Early Innovation

"An invention can be so valuable as to be worthless to the inventor."

- Eli Whitney

Every child knows (or maybe every kid used to know) that Eli Whitney (1765 - 1825) invented the cotton gin.  Like most stories of the Hero Inventor, this one is a much-distilled and over-simplified version of the truth.  Cotton gins had been around for a long time before Eli Whitney came along. These earlier gins squeezed cotton between rollers and the friction pulled the seed from the cotton fibers.  The roller gins did a good job on long-staple cotton but there were a couple of limitations.  First, long-staple cotton only grew in the rich soil found near the coast, and secondly, while the roller gins worked, they were slow and favored good fiber over production output.

Eli Whitney was a Yale-educated son of a Connecticut farmer.  He seems to have been quite mechanically inclined from a young age.  After Whitney graduated from Yale, the president of the college, Ezra Stiles, arranged for Whitney to take up a tutoring position in the South.  Stiles put him in touch with another young Yale man, Phineas Miller, who had graduated a few years earlier.  Stiles had previously arranged for Miller to be a tutor in the South at the plantation of the Revolutionary War General, Nathaniel Green.  The general had died around this same time and Miller became not only the tutor to Green's five children but also the plantation manager for Green's widow, Catherine Green.

Whitney traveled with Miller and Mrs. Green from New York City to Savannah and stayed with them for several months.  The story goes that once there, Whitney turned down the tutoring job because of a dispute over the pay and stayed on at the plantation to invent his cotton gin. The exact order of events was deliberately obscured by Whitney and his new business parter, Phineas Miller, in order to facilitate getting a patent and to get a head start on manufacturing machines.  The partnership that was formed was always known as Miller and Whitney (not the other way around).  Once again, we see the indispensable role of the entrepreneur (Miller in this case) in moving an invention towards the market.  Miller not only had more business savvy, he had the deep pockets of Catherine Green's money.  Miller had married her at about this same time.

Miller conceived of a business plan in which their company would manufacture the gins in Connecticut and build service locations throughout the South where farmers would bring raw cotton for ginning.  The ginning mills would also have cotton seed presses to capture this source of revenue as well.  The company would be paid for their services, not in cash (which was very scarce), but by keeping one third of the ginned cotton output.  It seemed like such a great idea but like most great ideas, there were problems.

First, while Whitney's cotton gin did a good job of stripping out the seeds, it left the cotton fibers entangled in little knots called neps which created problems for the subsequent spinning operations to make cotton thread.  Spinning companies in England complained bitterly about the poor quality of the fiber from Whitney's gins.  The second problem was that Whitney's gin was elegantly simple and hence easy to pirate and there was a strong incentive to do so because of the high output of the gin. Many Southerners made copies or improved on Whitney's gin, ignoring Whitney's patent of 1793.  Miller and Whitney fought back in over 60 lawsuits but the number of infringers and the bias of the Southern courts towards helping local plantation owners proved to be too costly to continue.  While they lost most of the cases, Miller and Whitney were eventually awarded some compensation by the legislatures of the states of North and South Carolina (Georgia never did recognize their claims).

Whitney's gin galvanized local mechanics to come up with their own ideas on how to improve his design.  In this way, it was a tremendous spur to Southern innovation. The most common approach was what was called the saw gin in which the individual wire teeth of Whitney's gin were replaced by teeth mounted on a circular saw blade.  Eventually, the designs were improved to the point where the problems with fiber neps were reduced to an acceptable level.  Cotton production exploded because the short staple, green-seed cotton could be grown in much poorer soil conditions in the upland South. With the expansion in cotton production came a massive increase in the number of slaves to work the land.

What became of Miller and Whitney?  Miller died in 1803 having poured most of his money (or rather Catherine Green's money) into the venture. He never recovered his investment.  Whitney, penniless from his cotton gin venture, turned his back on the South and in 1798 went into the business of manufacturing firearms for the U.S. government at a factory in New Haven, Connecticut.  He didn't do as well financially as he had hoped with his new business but he did cement a name for himself as having had a crucial role in the development of manufacturing using interchangeable parts.

Whitney would never have been remembered for the cotton gin had it not been for the motivation and resources of Phineas Miller.  I find this interesting because in most cases in our culture it is the entrepreneur who gets the credit for an inventor's ideas.  Perhaps Miller would have been the one remembered had the company of Miller and Whitney been financially successful.  When it failed and Miller died, Whitney lived on until 1825 to continue to remind people of his patent and his inventions.  Miller was to become only a minor footnote in Whitney's later retelling of the story.

It helps to be the one to write the history of a venture.  You can give yourself all the credit you think you deserve. But I, for one, think that Phineas Miller ought to be up there as the Hero Entrepreneur as much as Eli Whitney was the Hero Inventor.  Invention is a necessary but not sufficient requirement for innovation.  That takes money, business savvy, and often more than a little good fortune.

What Hath God Wrought, the Book

I just finished reading Daniel Walker Howe's recent history of Antebellum America that goes by the title of today's blog.  The book won a Pulitzer Prize in history and it is a mighty read indeed...all 850 pages of it.  But the book, despite its length, was a great read; more a story than a dull historical tract.  Howe makes the premise that two technology revolutions were fundamental to the changes in the United States during the time period he covered: 1812 to 1848.

The first revolution was in transportation.   America moved from the slow plodding of foot and horse travel to the swiftness of canals, steamboats, and railroads.  This tied the ever-expanding geography of the country together.  The plunging cost of shipping (whether raw materials, agricultural products, or finished goods) made a business-driven society possible.

The second revolution was in communications, more specifically the telegraph.  For the first time in history, communications over long distances became instantaneous.  While we often feel like we are living through the biggest communication revolution that has ever happened, I think it takes second place to the telegraph.  Our expectations have always been for instantaneous communications.  But when the telegraph was invented, people had no prior experience to prepare them for such an amazing technology.

The U.S. Government, which initially was reticent to fund the telegraph, finally put up seed money to build the first demonstration line.  On May 24, 1844 Samuel Morse (pictured at right), in the offices of the Supreme Court in Washington, D.C. typed the message, "What hath God wrought", to his colleague in Baltimore who echoed it back to him within a minute.  Observers understood immediately the significance of the invention.  The message, by the way, was chosen from a biblical text (Numbers 23:23) and was selected by Nancy Goodrich Ellsworth, who suggested it to her daughter Annie. Morse was in love with Annie and was hence disposed to listen to her suggestion.  (Nancy Ellsworth's husband was Henry Levitt Ellsworth, head of the patent office and a friend of Morse.)

The telegraph was used immediately by business  for stock and commodity prices, the news establishment (it led to the Associated Press being formed in May, 1846), governments, and finally private citizens.  Markets in cities like Chicago and New York could start to transact business on a near real-time basis.  The railroads soon picked up on the technology to schedule the smooth flow of trains.

But I digress.  The point is not to focus on the telegraph but rather on Howe's book and its central hypothesis that technology shapes history.  Howe didn't say this but I might wonder if these two technology revolutions accelerated the gap between the mercantile North and the plantation and slave-owning South, making the Civil War all the more likely.  Technology can have far-reaching effects, often created by the Law of Unintended Consequences.  Today, the Web is creating similar far-reaching changes and we cannot foresee what the unintended consequences may yet be.  It would be interesting to get a peek at the history books that will be written in another hundred years to see what comes of it all...or, maybe not.

Blinded By Technology

Last night, the Frontline series on PBS featured a new program entitled The Warning. It was a revealing look at the long-percolating financial crisis and the role that one woman, Brooksley Born, played in trying to sound the alarm. This was not a story about the meltdown of 2007 - 2008. The program focused on the long-ago era of the Clinton Administration, which carried forward the previous Republican administration's posture on financial deregulation. In a nutshell (if there is such a thing when it comes to these complex events), a crisis was caused by the refusal of the Fed or the Treasury to consider regulating Over-the-Counter Derivative trading. Born, then the head of a minor federal agency called the Commodities Futures Trading Commission, tried to put forth regulations because she alone, it seems, saw that a meltdown in OTC Derivatives could cause a cataclysmic failure in the banking system. Her seniors in the administration, Alan Greenspan, Robert Rubin, and Larry Summers successfully crushed her efforts and neutered her agency. Within six weeks of the showdown in Washington between Born and Greenspan, Long Term Capital Management (LTCM) went into free fall on their derivatives business.

For those who don't know that much about economics, and I include myself in that group, LTCM was founded by the technology wunder kids of economics. They had developed highly sophisticated mathematical trading models that supposedly allowed them to make enormous bets with minimal risks. Some of their senior people were Nobel Prize winners in economics. For a while, it seemed to work and LTCM made terrific returns. Everyone wanted in on the action including over a dozen of the largest Wall Street investment banking houses. There was just one catch: the LTCM money machine was a Black Box and no one outside LTCM was allowed to see how they were making their money. It was a "Trust me or don't play" model. Worse yet, each of the banks was told that they had an exclusive deal with LTCM. When the walls came tumbling down because of a financial crisis in Russia in 1998, LTCM fortunes went south big time. Everyone wanted out and that is when the banks found out they had been snookered. In the end, the Fed and the Treasury called all the bankers together and told them they each had to pony up $300 million to buy-out LTCM and save the financial markets from imploding. The banks did what they were told and the crisis passed, but not without extreme anxiety both in Washington and on Wall Street.

The Frontline program focused on the need to regulate OTC derivatives - which remain unregulated to this day. There are now over $500 trillion in derivatives in the market. At the time of the LTCM fiasco, there were $17 trillion at risk. The stakes are obviously much higher today. Derivatives, of course, are only part of the problem that we are currently facing. Securitized mortgages and lax lending standards have caused an even bigger mess than we faced in 1998. But for me there is a technology story in all this and that is one of hubris. It is the folly to think that someone has figured out how to model the financial markets so perfectly that they can ignore unforeseen and unplanned events that can make the model so much worthless software code. No system as complex as world markets can be modeled today with that kind of accuracy. The arrogance of LTCM and the ignorance of the bankers who bought LTCM's Black Box is appalling. Yet, it shows the faith we are willing to place in "the best and the brightest" who seem to have all the answers...without any caveats.

Don't get me wrong. I am not saying we shouldn't try to build models to understand complexity, whether it is in financial markets or global climate models. My belief is that we should expose any model upon which very significant decisions are being made to outside review. As we now have the tools to tackle evermore complex problems, we need to remain aware that every model starts with assumptions. And you know the old saw about the word "assume"...it makes an Ass of You and Me.

If you missed the Frontline program, you can see it streamed on the web.

Can You Teach Innovation?

[Picture: Thomas Telford's Pontcysyllte Aqueduct from Wikipedia]

I follow a number of blogs and newsfeeds about innovation. Most of these stories lament that if business was only more innovative we would be out of the economic woods. I just saw such a lecture given by Tim Brown of IDEO to MIT's Sloan School of Business that makes the case for "design innovation". It's an interesting talk but I have my doubts it is the answer. Bookstore shelves creak under the load of business titles on the subject of innovation. Roundtables and blue-ribbon panels on innovation are convened at national conferences. The audience is busily planning new ways to come up with the next spontaneous innovation.

Somehow, the whole concept of "teaching innovation" by recipe seems unlikely to produce much real change. It seems too much in the realm of theory and not enough in the reality of practice. I thought about how I learn something new. Reading tops my list if I want background information. For a specific skill, structured lessons followed by repetitive practice usually work well. Music lessons come to mind. Being a music student is the simplest form of apprenticeship, which also works well for learning more complex skills such as auto mechanics or brain surgery. Almost all complex skills demand an apprenticeship. Is this true for innovators? Do you learn how to innovate by being an Apprentice Innovator? I think so.

I know innovation when I see it... and so do most people. So you want to learn how to innovate? Find someone to work for who is really skilled at it. Do your job but watch the innovator closely. Being under the wing of an expert innovator can help you learn how to deal with challenging problems. They can help you learn how to build the sponsorship that is critical to getting around the bureaucratic roadblocks that are always present. And perhaps most importantly, they can challenge you to stretch beyond your self-imposed limits to reach what you really are capable of doing.

The innovators of history were talented, thick-skinned, and they had a knack for developing sponsors, They had a burning desire to make their marks. Often, they would start in one field where they learned by trial-and-error in a small arena and then moved on to the field where they made their name. Most were hands-on from a very young age, learning the fundamentals of their craft whether technical or business. Formal education played a smaller part in their ultimate success than did energy and tenacity. The people we think of as today's icons of innovation (Steve Jobs, Bill Gates, and Larry Page to name but a few) fit the description perfectly.

Here's an historical example I just came across. Thomas Telford (1757 - 1834) was one of the most innovative civil engineers in the history of Great Britain. He was a great civil engineer before they even had schools for civil engineers. Telford was a Scot raised in a very poor family. At 14, he was apprenticed (hands on) to a stonemason in Edinburgh. He was good at it. When he was 25 (notice he spent nine years learning his basic craft), he moved to London to seek his fortune. He gradually moved from being a stonemason to being responsible for the specifications, and the overall control for his projects. He was gradually moving from stonemason to being an on-the-job-trained architect. When Telford was 30, he met Sir William Pulteney, a member of aristocracy and a Member of Parliament. Pulteney recognized Telford's talent and became his sponsor, opening the door for Telford to take on increasingly more responsible projects for local governments. Because of that sponsorship, Telford started work on the Ellesmere Canal at age 35. Even at this stage, Telford was under the tutelage of a more senior and experienced civil engineer named William Jessop. Jessop taught Telford all he knew about canal building and supported Telford's innovative design concepts. Telford built a thousand foot long canal aqueduct 126 feet above the Dee River valley. The Pontcysylte (the spelling is Welsh) Aqueduct is still operational today, two hundred years after it was built. Telford had previously built a more modest aqueduct using similar design principles so he was confident that his larger design would work. Telford went on to a long and very successful career of building roads, canals, and bridges throughout the British Isles. When he died, he was buried in Westminster Abbey.

[The photo is of the Menai Suspension Bridge built by Telford in 1826. The bridge still carries automobile traffic.]



My point here is that Telford succeeded because he had developed a natural talent, he was ambitious, and he had a series of mentors and sponsors who opened doors for him. As far as I know, he didn't read books or go to conferences on how to innovate. The few books that were available to him talked about the designs that had been done before, even back to antiquity. More importantly, he could go see real bridges and canals to learn from what others had done.

Maybe the conferences and business books can work and I am just a curmudgeon. But I feel more hopeful when I see hands-on apprenticeship programs where real-world problems are being tackled. Start-up ventures and new product programs teach in ways no amount of reading can replace. Sometimes these ventures fail but this can be the greatest learning experience of all. A good mentor or sponsor is there to make sure you take what you learned and 'get back on the bike'. In the end, the great innovators would not be bounded by the limitations of their current situations. They were willing to head out on their own when it was the best way they could pursue their dreams.

We live in very different times than did Thomas Telford. I am not suggesting that everybody ditch their current company and try to start a new venture. Not that many people in Telford's day left the security of their situations. But enough did to make the difference. Telford was not reckless or arrogant. He got where he did through a series of incremental, hands-on steps. And the result is still some of the most innovative engineering of his day...and even ours.

[Bonus: If you want to see how Telford actually built the aqueduct, check out this terrific 3D computer animation of it here.]