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Guess Who’s Coming to Dinner

September 22, 2009

In the irreverent, satirical movie Brain Candy the scientist who is responsible for the eponymous drug that takes the world by storm and briefly turns an ailing pharmaceutical company into a global powerhouse is invited along with his team to the CEO’s house for a celebration.  While his nerdy team members are left at a dismal affair of chicken salad and soggy potato chips, the scientist is escorted to the real party, a sophisticated Bacchanalia complete with caviar, Champagne, celebrities, super models,and swimming pools.  Few Champagne-and-caviar parties in today’s corporate climate, but there is still a sense that when dinner is served for top decision-makers, R&D does not have a seat at the table or is – at best – a distraction.  R&D is a somewhat curious, uncomfortable, and frequently unwelcome guest.

There are obvious signals when the worlds of technology innovation and business execution are on collision courses.  There are early warnings that reverberate through organizations, but they tend to go unnoticed because corporations make  it  easy to set up effective filters.  Warnings can show up in the very language that R&D management uses to talk about the rest of the company.  In “Are R&D Customers Always Wrong?” I quote former GM research chief Robert Frosch talking about the

…ocean of corporate problems

as if they were the problems of some alien world into which the GM R&D Center had been dropped.  In “Well, what kind of fraud is it?” Edward clearly lived in a different world, and the many “Loose Cannons” who I still hear from were never able to bridge the gulf.  Everyone seems to be a helpless observer to a catastrophe over which they have no control.

My experience is that senior executives, starting in the boardroom, can too easily focus on events that are rushing at them — too fast for effective reaction — ignoring the events that are still far enough away to anticipate.   There is, for example, an overwhelming feeling  that, since the time of a chief executive  is so precious, every step should be taken to avoid diluting the CEO’s time with minutiae.  To be perfectly honest, technologists tend to do that – passion for a technology project can fill a briefing with flourishes that are meant to be savored and admired by peers, not convey actionable information to decision-makers.  But that doesn’t excuse what in my view has become the regrettable practice in large companies of filling virtually all executive time with managing cash, debt, and other financial indicators of performance.

Financial performance in a technology company rests on other factors, too. Market disruptors, for example, are rarely predicted by financial analysis.  Even annual strategic planning and investment is a barren exercise without the participation of an educated team to make sense of the alternatives.  In an industry with many acquisition targets the ones that should occupy the attention of senior management are not necessarily the ones that have the strongest near-term business cases because those may not be the ones that advance long term goals.  Intel chairman Andy Grove once said that a Board’s responsibility is to

…insure that company success is longer than the CEO, market opportunity, or product cycle.

I will have more to say in later posts about the collision between decisions that really advance long term goals and those that are simply chosen from a list of predetermined alternatives.  What starts in the boardroom is inevitably replicated at other levels.  To deal with all of the important factors that determine success of a technology company  technology leaders must have a seat at the table.  Avoid collisions by inviting them to dinner.

I’ve worked with many senior executives who have set a technology place at the table with oftentimes-spectacular results, but today I want to focus on my Bellcore mentor CEO George Heilmeier, winner of the 2005 Kyoto Prize for his invention of the liquid crystal display.  George, along with Bellcore research chief Bob Lucky and head of the software business Sanjiv Ahuja led the remarkable transformation of Bellcore from an inward looking R&D consortium to the profitable stand-alone supplier of telecom software and services that was divested by the Bell Operating Companies and acquired by systems integrator SAIC in 1997.   Bellcore generated enough cash in the first quarter after being acquired to pay back the entire purchase price. George took particular delight in his mentor role.  Even during his busiest days at Bellcore, he would wander into my office, put his feet up on the coffee table, and ask what was going on in the labs, a conversation that often went on long into the evening.

One of George’s most enduring contributions to the R&D culture at Bellcore (and, as I later found out, to Texas Instruments, Compaq, and DARPA) was the Catechism.  I tried many times to get him to call it something else because I really believed that some in our multicultural environment would be offended by the term, but he always ignored my suggestion and in the end nobody seemed to mind very much.  The Catechism was George’s way of framing every strategic discussion, but he took particular care to make sure it was used to manage technology.  I later found out that others, including former Intel research head David Tennenhouse, who had also been swept into George’s wide path, had also carried the Catechism tradition forward.  According to the Catechism every strategic proposal in the company had to answer the following six questions:

  1. What are you trying to do? (No Jargon)
  2. How is it done today and what are the limitations of current practice?
  3. What is new in your approach and why do you think it will succeed?
  4. Assuming success, what does in mean to customers and the company?  This is the quantitative value proposition.
  5. What are the risks and the risk reduction plan?
  6. How long will it take?  How much will it cost? What are the mid term and final exams?

At Bellcore, George personally ran a Quarterly CEO Technology Council Review, where R&D managers from around the company would present their best ideas – always using the Catechism — for innovations to heads of the strategic business units, sales, and marketing.  Sometimes to the consternation of both the CFO and  the head of sales, George would reward skunk works projects that had terrific answers with additional resources to continue their work.  I wondered many times about the metaphor mixing in Question Six, but again it didn’t seem to both others.  There was no complicated process.  If you answered the questions well and the value proposition made sense, you got enough to get you going.  If the project was a little further along, you needed business unit heads to also buy in, and so on until it made sense to tie cost and revenue goals to the project. By that time the balance of the authority for the project was in a product group so the Technology Council could disengage. Amazing ideas came out of this process including the word’s first e-commerce products and an amazing quality transformation among the company’s more than 6,000 software engineers.

George Heilmeier’s Catechism was the inspiration for my Loose Cannon escalation process at HP.  HP was about 50 times larger than Bellcore so the idea of a quarterly CEO review was not feasible.  However my Technology Council was a direct pathway to the Executive Council so the effect was the same.

I sat down with George last spring for a wide-ranging conversation.  Much of what he had to say about both the Catechism and seats at the table has also appeared elsewhere – most notably in his five public speeches in conjunction with the Kyoto Prize.[1] The work that won him the Kytoto Prize was done in the 1960’s at RCA’s Sarnoff Laboratories in Princeton, where he had recently completed his PhD.   This included the discovery of electro-optic effects in certain kinds of liquid crystals that would be used to build  the first liquid crystal displays.   George always claims that he just “stumbled upon it” but he quotes Vladimir Zworykin, a television pioneer  with commenting:

“Stumbled, perhaps, but to stumble you must be moving.”

Heilmeier became disillusioned with the slow pace of change at RCA and left to spend a year as a White House Fellow, an assignment that turned into an appointment as Special Assistant to Secretary of Defense James Schlesinger and later to his appointment as head of DARPA.  Schlesinger and other White House mentors gave George a seat in senior policy discussions from the earliest day, and his growing comfort with proximity to important decision-making shaped his outlook on the value of a seat at the table. Two lessons stuck with him.  First was the negative power of vested interests:  in times of change those with the most to lose will fight tooth and nail to undermine it and those with the most to gain do not yet realize how much they have to gain.   Second was the negative aspect of “technology transfer”.  George was never a fan of throwing technology “over the transom”.  His commitment to providing an equal voice for innovation grew out of his experience that it was much better to form what he calls an “interdisciplinary team” with representation from R&D, product engineering and manufacturing  (he still believes that marketing is best done organically with all members of the team interacting with customers).   The leadership and balance of this team shifts as time goes on.  This is the dinner table.

In my next post, I’ll give you an example of these principles in action: a transformational event that could only have been successful with a seat at the table and that would have been killed by a distant CEO, undiluted with the minutiae of technological disruption.

[1] A Moveable Feast: Kyoto Prize Lecture (SD Version), 2005

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Are R&D Customers are Always Wrong?

September 17, 2009

One of the reasons that the world of R&D collides with product worlds is that their agendas don’t quite line up the way you might think they should.  There are of course the questions of culture, incentives and time.  I will return to these questions in later posts, but today I want point out something more fundamental that I think helps explain why Alice and Edward in “Well, kind of fraud is it?” lived in worlds that were on a collision course from the beginning: many R&D managers are not even in the same business as their counterparts in product management and sales.

The Industrial Research Institute is an association of 200 R&D-intensive companies and is one of the most important forums for sharing data and best practices.  Among its members are recognizable brand names in consumer products, manufacturing, electronics and pharmaceuticals.  Alcoa, Xerox, and General Motors are members.  It is fair to say that the IRI represents traditional, orthodox R&D management thought.  Microsoft, Google, and Intel are not members.   It is interesting that innovation models based on the Internet, software, nanotechnology and other industries where startups often lead the way and product development cycles are compressed are notably absent from IRI.

The IRI Medal is awarded for impact on R&D in some of the largest corporations in the world, and in 1996 it was awarded to Robert A. Frosch, who for ten years led the General Motors Research and Development Center.  He anticipated by a generation the importance of industrial ecological impact. Frosch is a true visionary.  His Medalist’s Address to IRI was entitled “The Customer for R&D is Always Wrong!”.  It was a fascinating and very influential piece, but, because the IRI membership is not open to individuals, it is hard to find.

My first thought on hearing the address was that Frosch was talking about something like the “future value of research” (see “Loose Cannons”) until I read the published version of the speech[1]:

I have seldom, if ever, met a customer for an application who correctly stated the problem that was to be solved.

Frosch went on to describe many approaches to establishing and maintaining an effective R&D organization, and that’s what I remembered from the address until GM started its public foundering last year.

I started to wonder, “Did the GM R&D Center fail General Motors?”  I don’t think that’s a fair assessment. After all GM had for many years made vast research investments in efficient engine technology, telematics, and safety – many of the component technologies that we now know are important to the automobile industry,   I think the fault lies elsewhere: traditional R&D management often does not know who the customer is.  R&D managers talk mainly to each other, and senior management enables this behavior.  They worry – necessarily so I’m afraid – about sources of funding from the product divisions.  According to Frosch:

The R&D people must swim in an ocean of corporate problems, present and future.

To Frosch and many organizations charged with innovation, the customer is the one paying the bills for R&D not the one buying the products.  This is a bigger deal than you might imagine, because it shifts your perspective.   It helps explain why R&D organizations have been historically ineffective in resolving Clayton Christensen’s Innovators Dilemma[2], and it helps explain why Alice and Edward had such a hard time aligning their goals.

Frosch says that R&D performance should be measured by:

  • Past performance, not promises/predictions
  • Summing the value of the successes and comparing with the total cost of the research lab, not individual projects.
  • Projecting the value of successes ove their product or process life – the internal rate of return can be surprisingly high

These are internal measures, and there are many examples of R&D organizations that continued to be successful even as their parent companies spiraled into the ground. The IRI membership list is impressive but there are also members who make up  a veritable Who’s Who of companies that were stunningly wrong in their assessment of their markets, and had their R&D laboratories been focused on the real customers they might have avoided disaster.

[1] Robert A. Frosch, “The Customer for R&D is Always Wrong!”, Research Technology Management, November-December 1996: 22-27

[2] Clayton Christensen, The Innovator’s Dilemma, Harvard Business School Press, 1997

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“Well, what kind of fraud is it?”

September 15, 2009

Business and engineering goals sometimes seem to be in perfect alignment when just the opposite is true.  When everyone seems to be making progress but the goal is not getting any closer, it might be time to ask whether worlds are colliding.  This happens more often in large organizations, but in fact everyone is vulnerable: if you misread your partner’s agenda there are very few ways to avoid a disastrous collision.

Here’s an example[1].  The project was high profile and complex, but not so complex that it could not be managed by a single project manager – let’s call her Alice — who reported in a line to senior executives.  The ultimate goal was to produce a working prototype based on new computing technology. A successful demonstration of the prototype would almost certainly lead to full-scale development of a new product, a spectacular win and probable promotion for Alice. There were a few nuts-and-bolts engineering goals but the overriding goal was a dramatic safety improvement, and this was how the project was sold internally: a public demonstration that the prototype would function safely under the most adverse conditions. There were many ways to achieve this goal, but Alice had been sold on a radical new technology that would not only leapfrog existing approaches but would be a platform for many future projects.

Alice invested well.  She funded a group of skilled and capable engineers and scientists.  In fact, she funded the team that invented the technology, so her investment was leveraged by several years of prior research, and  – refer to my last post “Loose Cannons, Volume 1” — this is the way managers are supposed to select promising technologies. The scientists were led by Edward, a senior technologist who had guided his R&D team to a string of patents, technical reports and publications that slowly and carefully put in place the building blocks for the prototype.

Under Edward’s supervision, the building blocks for careers were also being put in place.  A PhD dissertation here, a toolkit from a master engineer there, and senior R&D managers whose reputations were to some extent staked on the applicability of the technology to an important product just like this one.  At Alice’s direction, the engineering team focused on near-term milestones.  One was a technology demonstration for a critical component.  Another was the integration of key components.  A third was a real-time simulation of the prototype.  At each step, in careful technical prose, the engineering team reported constant and impressive progress,

But there were internal and external critics who thought that the technology was overly complex and that the claims needed to be more carefully examined.  Some critics, like Bob, were promoting competing technologies.  Others thought, like Charlie, that the underlying approach was flawed and should be discarded.  Others were seasoned but neutral scientists like Doris, who was skeptical of all sweeping claims but had no particular ax to grind.  Even the critics agreed, however, that the engineering team was first-rate and that if the approach could be made to work at all, this was the team that could pull it off. Alice was aware of the critics and to help her balance the technical risks, she invited Bob, Charlie and Doris to serve on her Advisory Board – to become her skeptical insiders for the project.

Quarter after quarter Alice reported both the steady progress and the risks to her management who asked the appropriate questions but gave her the green light to continue, largely on the growing reputation of Edward’s team.  As the project drew to a close, Alice was asked to prepare a balanced summary and recommendation.  Alice scheduled a final project review.  Bob, Charlie and Doris helped select a dozen additional reviewers while Edward began assembling the massive project documentation and preparing his team to brief the reviewers.  Alice’s direction to Edward was this: “We all understand your technology, so you don’t have to educate us about it.  We need to know exactly what was accomplished.”

It took several months to prepare for the review.  About two months before the review date, Alice and Edward scheduled a series of demonstrations at headquarters.  Charlie was there along with a group of a dozen executives including some of the review panelists, but the marketing nature of the meeting was unmistakable.  Sprinkled in the group were senior representatives from customer organizations, government agencies, most of Alice’s managers, and Edward’s boss.  Alice had staked her personal credibility on a successful outcome.  She was confident enough to preview the results and she wanted use that preview to build excitement as the product phase was launched. To the rest of the group – and especially to Edward — she was not Edward’s customer.  Alice was a partner in a new and exciting era that was being launched that day.

The day did not go as planned. The demonstration was a computer simulation of the prototype.  The group crowded around the color monitor (a big deal in those days) as the prototype was put through its paces.  Alice told the group she knew that a live demo was gutsy.  Then the image on the display began spinning and then froze.  Edward rebooted the simulation.  Still nothing.  Alice pushed on as if nothing had happened, inviting the group to a demo at the upcoming project review.  It is not clear that Alice and Edward understood the significance of this episode.

Couriers delivered large review packages to the reviewers’ offices as preparations for the meeting accelerated.  Charlie started receiving phone calls from Bob: “Charlie, I’ve been looking over the reports, and I have some problems with what Edward is claiming.”  “These are based on papers published in top journals,” Charlie said.  “It’s not the scientific claims,” Bob said, “It’s their application to the product.  I think they messed with the experiments to get the result they wanted.”

The review began on Tuesday morning in a large conference room.  Bob’s comments had spread quickly through the Advisory Board and there were perhaps a dozen back-channel conversations taking place about what it meant.  Edward’s team should have been on edge, but, although the atmosphere in the room was tense, the younger team members — buoyed by Alice’s collegial demeanor and Edward’s favorable report to the team of the outcome of the live demo — seemed unusually relaxed.

Over the next two days, every scientific claim was dissected. “Yes, we see what was claimed in this published report, but it looks like a purely mathematical result. What does it have to do with the prototype?”,  said one reviewer.   Several panelists wanted Edward to square published claims with the apparent inconsistency of the disastrous live demo.  Still another rushed to the blackboard and proceeded to find a counter-example to a published claim.  Bob wanted to know how Edward’s team could have pulled off what Bob’s competing team could not do.  This was hardball, but it was nothing that Alice had not expected.

Finally, at the end of day two, William – the youngest member of the Edward’s team  – moved to the podium and began a scientific summary that included his original research and the less technical summaries of it that had been prepared for popular consumption.  It was clear that William’s PhD dissertation had an enormous impact on the course of the project. .

Finally, from the back of the room, Doris spoke up, “I want you to explain this claim right here” pointing to a critical and widely reported result that apparently cleared the way to broad applicability of the technology.  Doris had been nearly silent to that point. The dramatic effect of her question brought everything to a stop.  Edward gave a nontechnical answer.  William jumped in with technical details.  Other members of the engineering team tried to help.  Doris wasn’t buying any of it and brushed aside all of the responses with well-reasoned arguments taken from their own published reports.

Doris said, “I certainly believe William’s claim, here.  It’s a groundbreaking result.  But what I don’t believe is the following report that it was used successfully in the prototype you are showing us today.”  The response was not planned, but William blurted: “It wasn’t.  We used a simplified version of the prototype.”  The room went silent.  “There’s no way we could have used the final version.  It would have been too complex.”  Alice stood up and stared at Edward:  “That’s not what you reported to me.”  At that moment, in Edward’s eyes, Alice, snapped back into focus as a customer, and Edward understood that Alice’s goals were not aligned with his. As the effect of Alice’s words sunk in, the more inexperienced William tried lighten the mood with a little humor: “Look.  Everything we said was true.  It’s not out and out fraud.”

Doris rose.  “Well, what kind of fraud is it?”

It took a long time for the panel’s report to appear. The project was buried, the product was never built and although Alice recovered successfully, Edward and his team were wounded, although William and some of the other engineers went on to careers in pure research, continuing their work on the underlying technology.

Edward’s team had been making progress on technology, and their primary loyalty was to the community of peers who would celebrate their continued success.  The prototype was an interesting but not essential piece of their research program – useful only to the extent it helped advance their research goals.  William’s work was the least tightly coupled to the prototype and in fact his primary interest in the project stemmed not from the prototype but from ideas born years before while he was still a graduate student.  They all interpreted Alice’s support over the years as not only endorsement of the underlying technology but also a kind of professional endorsement of career choices that were tied to scientific acceptance of the research.   Alice interpreted the acceptance of Edward’s team as a validation of her own credentials as a technology leader.

This was Edward’s R&D world that went crashing into Alice’s product world, a world where the prototype had value independent of whatever underlying technology it used.  Alice only too late understood that success in the R&D world had its own set of goals and rules for achieving them and that her support did not necessarily advance her own product goals. The Engineering team saw her as an ally in achieving their goals.  Alice saw Edward as a fellow traveler.  He was not.  Edward was imagining the many future projects that would regard his achievement as an enduring technological innovation.

[1] For reasons that will become obvious, I’ve disguised the names of the organizations and people involved, but I’ve been faithful to the conversations and the underlying message.

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Loose Cannons, Volume 1

September 7, 2009

Dilbert.com

This is my all-time favorite Dilbert cartoon. Anyone who has ever worked in a large corporation like Hewlett-Packard understands immediately what’s going on here.  I always used it in CTO coffee talks when I wanted to show our engineers that I was really one of them — that I  wasn’t from another world (although I  suspected that many of them were already convinced that I was the pointy-haired boss and some thought I was Blob).  After a few hours, like clockwork, the email would start pouring into my inbox.  The subject line was always something like: “From a Loose Cannon.”

Some of the messages were very strange and a few (like the ones talking about contacting aliens from space) were downright disturbing, but most of them were respectful notes to let me know of  legitimate ideas that hadn’t made it through internal management gates.  I knew the engineering managers well.  They were smart and careful and for the most part they were very successful.  I didn’t want to second-guess their investment decisions, but I started wondering whether another sort of investment analysis would give a different answer, because these were obviously colliding worlds.

I was not popular with some of HP’s general managers because I had invented a new sort of escalation path for engineers, inviting ideas that had already been turned down at some point in the management chain.  I created a Technology Council consisting of the CTO’s of each of the major business units, the Director and Chief Scientist from HP Labs and some  HP Fellows to help with technology strategy and road-mapping, so it made a great deal of sense to use this team to take one more look at some of the Loose Cannon Ideas.

One of the Loose Cannons proposed using HP’s Jornada Pocket PC “to control my TV and VCR or other IR devices – that way you could store stuff in there and program those things simply and easily.” Another L-C wanted to create a document management system for the “growing home genealogist market”.

The company already had a rich history of encouraging risk-taking by its technical staff, but at HP business objectives were never far from sight.  There was a 60-year history of combining risk with rational investment.  It was a strategy that worked well.  It was lightweight, and I think that’s why cool new products and sometimes whole new product categories continued to flow out of R&D activities.  I am not only talking about the research labs. At that time there were over  12,000 engineers, many of whom had advanced degrees and were rewarded for patents, publications and other creative work; there was incredible bench strength. I will have more to say in later posts about how this process of identifying and nurturing creative ideas was carried out, but today I want to concentrate on the very specific calculation that virtually all R&D managers in the company learned.  I think that the legendary Joel Birnbaum was responsible for it, but my friend Stan Williams, who for many years now has guided HP’s nanotechnology and quantum computing research nailed the analysis in a dramatic way[1]:

…Why don’t we put together a program to become the world’s best center in quantum computation?

The answer is that even in the research labs we have to be ‘cold blooded’ businessmen…The first question is this: what is going to be the total world market for the technology?…The answer is, looking 15 years ahead, $1 trillion per year…we then have to ask what fraction of the market will belong to quantum computation…Now, how much could HP capture if it went after it very aggressively…[then] the question is if we could sell that 15 years from now that is the appropriate level of investment for that income stream?

Stan then incorporated development costs, risks and barriers and the time value of money to conclude:

…even when addressing a significant share of a $100 billion market that is 15 years in the future, the amount of money we should be spending now is about a million dollars per year.  In an industrial laboratory environment that’s about three researchers with their associated overhead costs.

Every engineering manager in the company knew how to play this calculation in reverse:  if we fund one full time engineer to pursue a new, untested idea, what is the possible income stream we would see from that research 3, 5, 8, or 15 years from now?  Many – maybe most – of the technical staff understood it, too. And yet, there were these L-C ideas that just never seemed to go away. A generation earlier Dick Hackborn had been a management champion for inkjet printing, a crazy, complicated way of spraying colored water on paper, that even today accounts for most of HP’s financial success. As far as I know Dick was not in the decision chain for printing solutions, but he was a very influential guy and his sponsorship swayed many opinions at the topmost levels of management.

So what was the Technology Council’s role in all of this?  The company was much bigger, and a consequence of size is a decreased reliance on individual opinion and an increased reliance on quantitative processes.  As a result new ideas needed to be accompanied by a business case analysis that supplied both the decision model and the critical financial and market parameters. The difficulty was that business managers were making decisions mainly about their markets and their risks which affects the starting point for Stan’s calculation and may dramatically underestimate the role that organizational barriers play in estimating the total risk.  The Technology Council was in a position to combine information from a number of business units and recalculate the business case.

Here’s one example. HP was at that time organized into four large business units:  one for personal computers, one for services, one for large servers, and another for printing.  The software in HP’s most expensive servers was a version of the original Unix developed at Bell Labs in the 1970’s called HP-UX.  It was one of the most important profit drivers for HP’s high performance business systems but it was under pressure from the high volume Microsoft-based market on one side and other Unix variants such as Linux, Solaris, and AIX on the so-called “value” side of the server market. The Printing Group also was in the software business, designing drivers and user interfaces for printers and scanners that were attached to personal computers and workgroup servers.  The focus of printing software was on the large and very profitable market for Microsoft-based PC’s, workstations, and servers.  By comparison, relatively few of the much more expensive HP-UX systems were sold.  The Printing Group did the Williams calculation and concluded that investing in software for HP-UX was not warranted.  The Server Group meanwhile was being starved for printing solutions.  Customers were asking for it.  Lack of HP-UX printing support meant lost sales, but HP-UX software developers would have needed engineering support from their colleagues in the Printing Group in order to make any headway.  Printing did not see enough downstream revenue to justify such an investment.

A Loose Cannon proposed that my office should fund a cross-business initiative in HP-UX printing solutions.  When the Technology Council looked at the opportunities that were being lost, it was clear that even a modest investment would pay off in the very near term.  Although we didn’t realize it at the time, it turned out that HP’s investment in Linux would quickly  take hold in the marketplace, so the investment in HP-UX printing had a big impact on that market as well.

There were worlds smashing into each other all over the place in those days, and there were two organizational decisions that made a difference.  The first was Carly Fiorina’s decision to make the CTO a member of  the company’s Executive Council – the half-dozen executives who ran the company.  This added a technology voice to the most significant decisions made at HP. Having a seat at the table is important when worlds collide, and I will give many examples of this in later posts. The second was the decision to charter the senior technologists in the company to spend an entire day every quarter looking beyond their own business plans for new technologies and products that would have been dropped or gone unnoticed because they had not survived Stan Williams’ cold blooded calculation within a business silo.

Many other developments grew out of these Loose Cannon discussions including HP’s aggressive entry into open source software, supercomputing, and commercial printing.  Successfully bringing Loose Cannons into the fold really requires you to squarely face  two important issues.  The first concerns the role that organizational barriers play in affecting overall technology strategies, The second is why technologists don’t more often have a meaningful seat at the table in executive suites and boardrooms. More on how to deal with these issues later, but I will give you a hint right now: there are no clean solutions because worlds are in collision.

I arrived at HP long after Steve Wozniak sent his letter asking for permission to commercialize “hobbyist” computers (see my last post Proposition 13 and Innovation).  If  he and I had overlapped I wonder if he would have been one of my Loose Cannons and whether his letter would have been needed.

[1] “Nanocircuitry, Defect Tolerance and Quantum Computing: Architectural and Manufacturing Considerations” by R. Stanley Williams in Quantum Computing and Communications edited by Michael Brooks, Springer 1999.

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Proposition 13 and Innovation

September 2, 2009

Innovation works best not when worlds collide, but when they are shared. Sometimes sharing takes place because there are no good alternatives.

At one time the public schools in California were among the best in the nation. No more. In 1978 two-thirds of the voters, in what has become a chaotic practice of bypassing normal legislative channels to amend the state constitution, approved a tax reform referendum known as Proposition 13. Championed by a politician named Howard Jarvis, Proposition 13 or “The People’s Initiative to Limit Property Taxation,” capped property tax rates and required a 2/3 supermajority in both houses of legislature for any future tax increases.  The immediate effect of Prop 13 was a 57% decline in property tax revenues. Despite strong evidence that it is a root cause of the current fiscal crisis in California, Proposition 13 remains a wildly popular measure among Californians.

Less controversial is the impact that Proposition 13 had on the state’s public schools, which on the average lost half of their tax revenue. Before Proposition 13 and a ballot initiative known as Proposition 98 (which had the unintended effect of capping overall school expenditures) California’s per-student annual expenditures were about $400 above the national average.  By 2000, per-student spending had dropped to $600 below the national average. That trend continues, and today a declining percentage of personal income in California is directed to K-12 education.  A 2005 study by the Rand Corporation concluded: “As recently as the 1970s, California’s public schools were considered to be among the nation’s best. Today, however, there is widespread recognition that the schools are no longer top performers. As a consequence, many Californians share a growing sense of alarm about the ineffectiveness of their public education system and the generation of children whose educational needs are not being met.”[1]

This is a dismal assessment. As a former California resident who experienced firsthand the inadequacies of K-12 education in the state I don’t want to appear to be endorsing the gutting of public schools, but the 30-year decline in quality of California’s K-12 public school system had one positive effect on innovation in Silicon Valley, because there was a consequence of Prop 13 that no one could have foreseen.  It helped to flatten what could have easily become an exceedingly hierarchical technology community into a more or less free-flowing social network.

Engineers of all stripes who want quality education for their kids have only two alternatives. They can either fork over a lot of money to a private school or move into a more affluent community where parent associations can raise extra dollars to supplement inadequate public funding.  In both cases, engineers find themselves elbow-to-elbow with industry executives, entrepreneurs, venture capitalists, and professors.  This is one way worlds are prevented from colliding in Silicon Valley.  It’s hard to maintain a strict hierarchy when – as they were in our local elementary school — CFO’s and programmers are working together on the PTA’s next silent auction.  Technologists and business leaders attend the same football games and school plays.  They mingle at holiday programs and parties and first-day-of-school orientations.

Of course, it’s not just schools that flatten the hierarchies of the Northern California technology community.  A young VLSI designer with a newly minted degree from Michigan might find himself seated behind former Sun CEO Scott McNealy at a San Jose Sharks hockey game because McNealy’s seats are in the stands, not a glassed-in corporate box. Sand Hill Road runs for four miles behind the Stanford University campus, so it is not unusual to see a partner in a legendary venture firm wandering the halls of the Gates Building and striking up a discussion with whatever graduate student happens by.  Technology innovators and business leaders serve together on boards of the Tech Museum and the Computer History Museum and the Exploratorium.  The excellent cafeteria at Google’s main Mountain View campus is a virtual soup of corporate leaders, academic celebrities, and undergraduate interns.  There are legendary meeting places.  Il Fornaio in Palo Alto serves breakfast, and sometimes a chance meeting at 9AM can turn into scribbles on napkin that in turn catch the attention of a retired Intel executive at the next table who is happy to spend a few minutes coaching the founders of a new startup.

The definitive answer to why this open culture is a competitive advantage can be found in Annalee Saxenian’s 1995 study of innovation Regional Advantage.[2] Everyone who is serious about building a culture of success should read it, and I am constantly amazed at the number of people leading strategic regional initiatives who are unaware of its existence.  In comparing the economic performance of Silicon Valley on the one hand and Boston’s Route 128 corridor on the other hand, Saxenian notes that social mixing is just one part of an open system of exchange that has not been successfully duplicated in business cultures where vertical integration and clear boundaries are common.  Decade after decade, the blurring of boundaries in Silicon Valley has given it an advantage in the rate of new start-ups and the speed with which new products can be brought to market.

Bill Hewlett and Dave Packard were to some extent responsible for an open corporate culture that welcomed startups even from within the company’s ranks.  While rummaging through some files one day at HP, I came across a series of memos from Apple co-founder Steve Wozniak.  On April 28, 1976, Wozniak wrote: ”I am seeking a written release from HP to market a product based on circuits I designed over the last year.  The circuits were originally designed on my personal time for personal use (hobby)…I “lobbied” for a similar product idea within HP management…without success…I have no objection to licensing the circuits to HP if necessary for any reason.”

A few days later, HP’s General Counsel, replied: “We are happy to release this invention to you subject to a worldwide royalty-free license to Hewlett-Packard Company and its present licensees…”

Wozniak and Steve Jobs set up camp nearby and became part of an innovative explosion that benefited HP and the entire industry.

Digital Equipment Corporation was the closest thing to HP that existed on Route 128, but like many other local businesses its corporate culture was far less open to sharing intellectual property, information, and skills. When Jeffrey Kalb left Digital in 1987 to found a new computer company called MasPar, it was a blow to DEC.  Kalb moved from Boston to Silicon Valley and by implication away from Digital.

Even at this late date, it is still a subject of considerable interest in northern New Jersey, Atlanta, Austin, Raleigh, and Minneapolis how to recreate the innovative environment of California’s Route 101. These are all regions with great universities, access to capital and a track record of building successful businesses.  Atlanta leads in many of the traditional measures of innovation but today lacks even one major source of venture capital. New Jersey was the intellectual center of the telecommunications industry, but there is a wide social gulf between the remaining scientists at the central research labs and the gated mansions of Bedminster.  Like Route 128, Austin, Raleigh and Minneapolis grew around companies with hierarchical cultures. A lesson of looking at things through the WWC lens is that innovation works better when worlds are shared.  Easy social mixing – whether spurred by a common concern for local schools or simply blurred horizontal and vertical boundaries – builds trust and collaborative networks.

In case you think all this talk about culture is some sort of gauzy way to paint contrasts where none really exist, Jeffrey Kalb pointed out one of the enduring business advantages of shared worlds: “There are a large number of experienced people [in Silicon Valley] who have retired but are still active in the industry and are available as consultants, members of boards or directors or venture capitalists…There’s just about anything you want in this infrastructure.”

To the extent that large corporations mimic entire societies, there are sociological reasons why sharing worlds is important for innovation.  Open innovation helps, too.  More about these ideas in later posts.

[1] California’s K–12 Public Schools: How Are They Doing? By Stephen J. Carroll, Cathy Krop, Jeremy Arkes, Peter A. Morrison, Ann Flanagan, RAND Corporation, 2005.

[2] Regional Advantage by Analee Saxenian, Harvard University Press, 1994 (Revised 1995)

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When Worlds Collide

August 15, 2009

When_Worlds_Collide_Book_Cover

Welcome to my blog  about the  interesting things that happen when technology innovation and business execution are on a collision course.  These collisions are not always pretty, but sometimes they have useful outcomes and in my experience they are almost always instructive.

I like to use When Worlds Collide as a metaphor not because the story itself is particularly relevant — I am not really suggesting that we all flee Mother Earth before it’s too late –  but rather because of the classic illustration on the book jacket  of the 1933  novel by Edwin Balmer and Philip Wylie.  It shows the occupants of a space ship watching in helpless horror as the Earth is destroyed in a cataclysmic collision.  I sometimes think that business leaders and innovators live on different worlds.  They are trained to to look at the future differently, and they are rewarded differently.  They think about their relationship to the business in fundamentally different ways.  When strategic choices have to be made, these are the worlds that collide.

We will see our share of businesses that are poised for success but are ultimately doomed by colliding worlds.  “I can tell you about train wrecks that I’ve seen up close,” said a CTO of a major IT company.  “The last thing I want to see is another science fair project,” said the CEO of an East Coast software company. But we will also see examples of technology leaders who took control of business objectives or heads of major business units who realized that today’s immature technology can be the dominating force in a market that does not yet exist.  These are the success stories — companies that prospered even when innovation and execution seemed  hopelessly incompatible.

Business leaders, CEOs, CTO’s, Boards of Directors, Research Directors aren’t helpless observers of catastrophes.  Sometimes — too rarely in my view — general management tries to understand why innovators act the way they do, and innovators channel their creative energy into commercially meaningful pathways.  When that happens,  magic can occur.

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