Department of hell freezing over

I have also learned something about my country. I run a global company, but I am a citizen of the U.S. I believe that a popular, thirty-year notion that the U.S. can evolve from being a technology and manufacturing leader to a service leader is just wrong. In the end, this philosophy transformed the financial services industry from one that supported commerce to a complex trading market that operated outside the economy. Real engineering was traded for financial engineering. In the end, our businesses, our government, and many local leaders lost sight of what makes a nation great: a passion for innovation.

To this end, we need an educational system that inspires hard work, discipline, and creative thinking. The ability to innovate must be valued again. We must discover new technologies and develop a productive manufacturing base. Our trade deficit is a sign of real weakness and we must reduce our debt to the world. GE will always invest to win globally, but this should include a preeminent position in a strong U.S.

Jeff Immelt

The idea of  the CEO of GE writing such a thing 2 years ago would have been unthinkable.

Virtualization versus Physicalization

Data on the overhead of virtualization is hard to come by. Rackable proposes an interesting alternative that they call physicalization. I wonder whether the CPU is the most important resource to multiplex and I remain totally puzzled by the motivation of Intel/AMD in this area.

Organizational man

Irving Wladawsky-Berger started working at IBM in 1970 and retired in 2007 with what is, to me, the smartest corporate response to Linux/OpenSource as his capstone accomplishment.

TG: Sun has committed to releasing all of its code as open source. Do you think IBM will do the same?

IW-B: I don’t think so, because I honestly don’t think everybody wants to see all your code. Remember, the key to open source is not the ability to see the open software, it’s the forming of a community around it that will participate in its development and its maintenance.

You cannot go in your closet and look for old code and throw it out there and tell people to form a community around it. They may say, Irving, that’s legacy code that we have zero interest in working on. We continue to open source quite a bit of code, but we are fairly selective, and we work very closely with communities to decide whether to open source or not. (Guardian)

I think this second paragraph is misdirection, but nicely done – the highly paid corporate officers at Sun watched that zip over the plate, get caught, called strike, and tossed back to the pitcher before swinging wildly and falling over. More interesting, Wladawsky-Berger is thinking about the structure of corporations and the changes of the last 50 years.

The whole relationship between individuals and corporations started to change around twenty years ago because the old ways no longer worked.  Innovation and creativity are now needed more than ever in order to keep up with a continuing stream of technology and market changes.  Enterprises have had to become much more flexible and dynamic in order to survive the intense competition they started to face from companies around the world, large and small.  To do so, they have had to embrace a lot of the innovative entrepreneurship culture pioneered by VC’s and start-ups.

Similarly, individuals can no longer assume that just being loyal to a company will translate into a stable, orderly, life-long employment.  They are responsible for their own careers, and have to look out for their own opportunities. No matter how great a business they work for, they can no longer just rely on the company to take care of them.  Such a culture has much more in common with an entrepreneurial form of capitalism than with the corporate capitalism William Whyte wrote about.

This seems true and perceptive, as far as it goes. But if you read the blog of people at the other end of IBM’s changing business model you get another sense. “Entrepreneur” starts to sound a lot more like  Dickens and a lot less like Serge and Larry make a cool company.  The old corporate model depended on a social contract, that was stultifying, but the new model seems to me to depend on an unsustainable asymetrism of loyalties.  I wonder what Wladawsky-Berger really thinks of the stultifying and terrifying evaluation metrics that keep the company’s workers in line as the nimble behemoth sheds its high paid US staff.  One does not have to be in the grips of a nostalgia for the “organization man” days to wonder about the sustainability of a company that openly tells its workers and host communities that there is no social compact at all.

The train to the terminal station

Digital Equipment Corporation
Silicon Graphics Corporation
Sun Microsystems

One might get the impression that the boards of directors of technology companies have as much ability to intervene to stop suicidal business strategies as the boards of directors of Bear Stearns did.

But business is simple: you always have to look at the business model of the company and of the company management and other employees. In the case of Sun, there has been zero incentive for Sun management to bring in people who would challenge their decisions or the lax process and culture at the company. They get paid, feted, and admired by flunkies without being forced to actually justify their poor results. In the case of the banks, if your management staff and other high executives have the chance to make hundreds of millions of dollars personally by taking crazy risks with other people’s money, what would you expect? One of the things that I find most ludicrous about economics is the implicit theory that corporate employees identify their interests with the interests of the company: only engineers are stupid enough to do that. Once you realize there is a difference between the business model of the company and the business model of the people who run or invest in the company, the underlying logic of all sorts of wacky strategies that leave upper management well rewarded become clear. I used to be puzzled by well financed startups and public companies that motored along, getting new investment or other financing, being cheered on the street, and so on without having any remote chance of ever making any money. But there are plenty of opportunities for the people who manage, advise, and lend and invest other people’s money to all personally do well from such a business.

The cell phone market in brief

Although the payoff of a small niche may be less than that of a large, growing market, the competion may often also be less intense. The majority-fallacy concept states that appraisals of fast growing  segments overlook of minimize the likelihood that many competitors will be attracted. This explains why growth areas often stimulate destructive overcapacity and why a more modest product-market scope may be a preferable choice.

From Aaker, Strategic Market Management.

Venture capital, short term, and India

From Wladawsky-Berger’s blog entry on Carlota Perez’s analysis in 2005:

She mentions three particular structural tensions that we need still to work out in order to move on: investments continue to be focused on short-term gain, not on long-term production and growth; the social system continues to foster an unstable environment in which the rich get richer and the poor get poorer; and there is too much idle money chasing and inflating assets like housing and not going into expanding the demand needed to soak up all the excess supply being produced.”

And from the Wall Street Journal in April 2009:

The Mushahar in Bihar are part of a political and economic shift that is building across the Indian countryside. The transformation, largely driven by development spending by national and state policy makers, will be put to a test starting next week. The world’s largest democracy kicks off a month of polling April 16 in which many of the leaders behind these experiments are seeking re-election.

Growth has slowed in the new India of technology outsourcing, property development and securities trade. But old India — the rural sector that is home to 700 million of the country’s billion-plus people — shows signs it can pick up the slack. The rural awakening helps explain why India continues to grow even as the U.S. recession drags on the world economy.

The very idea of the “elevator pitch” encodes a complex economic theory in which investment ideas are supposed to be reducible to 1minute sound bites that professional money managers have the judgment and expertise to screen.  To me, one of the problems in the US economic system is that too much power is concentrated in the hands of professional money managers – from bankers to venture capitalists to investment advisors.  For 30 years or more, we in the US have been force fed a theory that the government doesn’t have the expertise to pick winners and losers compared to the nimble and efficient market. And certainly, it is clear that the government can blow lots of money on nonsense. But compare the Internet, developed by a government monopoly and by DARPA and then NSF, to Pets.com or, worse,  Countrywide, and ask which was a better considered, smarter investment.