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Some tools for innovation come with a very large price tag attached… a very very large price tag!  

Consider LHC – large hadron collider. Hadrons are protons and neutrons, in the language of physicists. Collider – well, the device smashes them into one another at almost the speed of light. Beams of hadrons are sent in opposite directions around a circle, bent by huge supercooled magnets. At 99.9999991% of the speed of light, they collide and self-destruct. Large? How about a 17-mile-long circular tunnel? The LHC is now under construction beneath an area on the Swiss-French border. It should be called VELHC – very expensive LHC, because it will cost between $5 and $10 b. (nobody knows for sure yet). 

It is part of CERN, the European Center for Nuclear Research, and when completed it will depose America from its top ranking in particle research, as the Fermilab accelerator near Chicago will no longer be world class. 

You could do a whole lot of science with that $10 b. So what is the justification for LHC? 

Basic science in physics has a way of producing inventions that make our lives better. Consider, for instance, the exotic “giant magnetoresistance” effect, discovered by Albert Fert and Peter Grunberg (for which they won the 2007 Nobel Prize for Physics). 

Magnetoresistance is the property of a material that changes the value of its electrical resistance when an external magnetic field is applied to it. Applications of this phenomenon have led to techniques for retrieving data from hard disks – one of the very first commercial applications of nanotechnology, used in part to create better read-out heads for iPods and similar devices. 

So – what will LHC contribute to humanity, when it is completed? No-one knows yet. I expect we will get both fruit and light. Light – in terms of understanding how the universe was created in the so-called Big Bang, which the LHC will partly simulate. Fruit – in terms of basic physics principles that brilliant entrepreneurs will turn into great devices like iPods.  

And, incidentally, don’t eulogize “Old Europe” (in George Bush’s phrase) just yet. Europe is putting large resources into basic science. In time those resources will lead to powerful commercial innovations. Both America and Israel should take notice.

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All eyes are focused on the global credit crunch and financial crisis, and the rapidly declining dollar. A Wall Street Journal editorial asks, The Buck Stops – Where?

Some commentators are optimistic, taking a long view and suggesting that America will bounce back from this short-term cyclical decline. America, they note, is the still world’s technology leaders. America will rebound.

But a study done by five Georgia Institute of Technology scholars, widely reported, and released in January, suggests otherwise.

They measure a variety of technology and competitiveness indicators for a cross-section of 33 countries, going back to 1993 and going up to 2007. For the “technological standing” indicator (which measures “a country’s recent overall success in export high technology products”), they present what they euphemistically call “quite interesting results”:

* The U.S. peaked at 95 in 1999, and is now down to 76.1; America is no longer first.
* China has increased from 22.5 in 1996 to 82.8 in 2007. It is now in first place.
* Japan peaked at 93.9 in 1996 and is now down to 66.0. (“Recall,” say the authors, “that the indicators are relative”). 

The countries showing sizeable declines in 2007 include “the two traditional leaders, USA and Japan, note the scholars.”
 
And another worrisome postscript: Israel’s Technology Standing score is only 25, ranking Israel well behind, for instance, Malaysia and Mexico. Moreover, Israel’s competitiveness between 1993 and 2007 has declined, according to the researchers.
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A. Porter, N. Newman, X. Jin, D. Johnson, J.Roessner, “High Tech Indicators: Technology-Based Competitiveness of 33 Nations”, 2007 Report,  Georgia Inst. Of Technology, Jan. 22/2008.

Toner is one of the world’s least green, environmentally friendly products. It is generally produced with toxic chemicals. But Xerox, whose Palo Alto Research Center (PARC) once led the world in innovation (the mouse, PC, early version of  icon-based operation system, and many other ideas), is now, under its CTO Sophie Vanderbruck, getting a second wind. Rather than focus all its R&D efforts in one site, as it did in Palo Alto, Xerox is dispersing it, among several geographies, including Grenoble, France, and Canada, and is intensively partnering with universities around the world. Among its latest innovations: ‘green’ toner.

Xerox, world’s largest toner producer, has built a new $60 m. 100,000 sq. ft. plant near Rochester, NY to produce this product. The new product is backed by over 300 patents. According to Xerox:

In addition to producing better quality prints, EA Toner is significantly more environmentally friendly. Unlike traditional toner, which is created by physically grinding composite polymeric materials to micron-sized particles, EA toner is chemically grown enabling the size, shape and structure of the nano-particles to be precisely controlled. This Xerox-developed technology leads to improved print quality, less toner usage, less toner waste and less energy required for manufacturing and for printing. 

It is significant Xerox built the plant in the U.S. and not in Asia, leveraging the steep fall in the dollar relative to other major currencies. Xerox holds a portfolio of over 8,000 patents. 

Interviewed on BBC, Dr. Vandebroek spoke with vigor and energy about the renewed creativity at Xerox. She was appointed on Jan. 1, 2006, taking over from Dr. Herve Gallaire. Vandebroek, born in Leuven, Belgium, was previously Xerox’s chief engineer. She is 45 years old. 

Science fiction writer Arthur C. Clarke died yesterday. He was 90 years old.

Readers will recall the movie: 2001: A Space Odyssey, which Clarke co-authored together with director Stanley Kubrick. 
I often quote Clarke, including his statement: “Truly advanced technology is indistinguishable from magic.”

In 1945, in one of his books, Clarke proposed the concept of communications satellites – satellites that would be in ‘geosynchronous orbits,’ keeping them in a fixed position relative to the ground. The world’s first such satellite was launched 29 years later, on Dec. 17, 1974!
  
Some science fiction writers write pure fantasy. But some, like Clarke, are visionaries who see the future and describe it vividly. Such authors, I believe, are must reading for innovators, if only to peek into the workings of superbly imaginative and flexible minds like that of Clarke.
 
Clarke was co-commentator, along with Walter Cronkite, on the first Apollo space flight – a brilliant, and uncharacteristic,  idea for the American TV network CBS.   

“…the tough get going,” goes the saying. Does this hold for innovators and R&D?  Apparently not.

According to the Financial Times (Monday March 17), America’s 10 leading technology companies are reining in their R&D spending in the face of the American and global economic slowdown. Last year, 2007, these companies spent $40 b. on R&D, out of $426 b. in revenues, or less than 10%. While revenues rose by some 9%, R&D spending grew only by 4%. Look for further restraint on R&D this year, as the dollar plunges and global markets become more uncertain. 

An exception among the ten was Google, which raised its R&D spending by 73% last year, to $16 b. That sum, however, is small compared to the R&D spending leader, HP, where over $100 b. was invested in R&D. 

Years ago, TIM took a group of its startup companies on a benchmarking visit to Boston. We went to Teradyne, leading supplier of semiconductor equipment. There were told that Teradyne maintained its R&D spending in the face of a drastic drop in revenues in the wake of the 2000/1 recession.

Why? Simple, we were told. Recessions are an ideal time for great companies to gain market share, by boosting its innovation efforts while others are cutting back on them. It worked. Teradyne today is stronger than ever.  
As we face a global downturn, companies would do well to maintain and perhaps even increase their R&D budgets. Especially when it appears that most R&D-intensive firms are doing the opposite. 

This is straight from science fiction.

The Masters of the Universe, Bear, Stearns, fifth largest investment bank in the United States, whose stock price once soared well above $100, is out of business. Last March 12, its stock was worth $63.50; by March 14, it had fallen by half, to $30. And yesterday March 16, it was announced that their arch-rival and competitor, J.P. Morgan-Chase, bought all Bear, Stearns shares for… $2 per share. Some $20 b. in paper wealth went up in smoke. Investors pulled their money out of Bear, Stearns so fast the Fed did not have enough time to reliquify the bank. Bankruptcy happened at the speed of light.
Innovation is to blame.

Creative financial engineers found unique innovative ways to combine bad mortgages (the euphemism is “sub-prime,” but that means bad) with good ones, mixing them in complex ways that disguised the high risk involved, and revealed only the relatively high return (rate of interest). Most of the banks and investors who bought these so-called “collateralized debt obligations” (packages of mortgages that became collateral for bond issues) neither fully understood them, nor understood the risks involved. As often happens, when investors fail to adequately measure, manage and understand risk, the risk chickens come home to roost. People failed to pay, as interest rates rose, and the house of cards built on this financial innovation collapsed.

Alan Greenspan says we are now having the worst financial crisis since WWII – basically, since 1929. At that time, people yanked their money from banks and banks went bankrupt. It is now happening again. And, alas, financial innovation is to blame.

As a long-time runner, I am keenly aware that one day my knees will no longer agree to let me run any more. One bout of arthroscopic surgery (to repair torn cartilage) helped, but, for many of us, the knee handwriting is on the wall. Recently, on a trek to climb Kilimanjaro, one member of our team named Jim revealed that he had almost no cartilage in his knee. His climb was his last adventure before a dreaded but essential knee replacement.

Essential? A remarkable innovation, reported in the latest issue of The Economist, by the leading American biotech company Genzyme promises to help those facing aching knees, or knee-joint replacements. Here is the idea:

Genzyme‘s approach takes a small sample of healthy cartilage cells from the damaged knee and uses them to grow millions more cells in a laboratory. The doctors then insert the new cells. In most cases, the implanted cells grow without rejection, since they share an identity with nearby cells. The trial showed that almost a decade after the initial surgery, nearly 90% of the patients who had shown an early positive response to Carticel (about three-quarters of the total) still enjoyed those benefits.

Like all great ideas, one asks – why didn’t they think of that before? Huge resources have been invested fruitlessly in trying to invent artificial cartilage. Cartilage cells, it turns out, are among the most amazing of the body’s cells – able to expand, contract, and grow when needed, cushioning joints and enjoying appreciation only when the cartilage wears away and leaves us with severe pain. Genzyme has found a way to let the body use its own cartilage cells. Potentially millions of people will be eternally grateful.

Some readers may recall Errol Morris’ Oscar-winning 2004 documentary The Fog of War, comprising a long interview with Robert McNamara, Presidents Kennedy and Johnson’s Defense Minister and former CEO of Ford. Always off-screen, Morris simply films and interviews McNamara and brings his words of wisdom to the viewer.

Here are McNamara’s 11 lessons of life. He applies them to his experience in government, specifically to the Cuban Missile Crisis (1962) and the Vietnam War. But they are equally applicable to innovators and entrepreneurs:

THE FOG OF WAR is built around eleven lessons from the life of Robert McNamara.

Lesson #1: Empathize with your enemy.
Lesson #2: Rationality will not save us.
Lesson #3: There’s something beyond one’s self.
Lesson #4: Maximize efficiency.
Lesson #5: Proportionality should be a guideline in war.
Lesson #6: Get the data.
Lesson #7: Belief and seeing are both often wrong.
Lesson #8: Be prepared to reexamine your reasoning.
Lesson #9: In order to do good, you may have to engage in evil.
Lesson #10: Never say never.
Lesson #11: You can’t change human nature.

Empathy is vital – not only with your enemy (competitor) but with your customers. America won the 1968 Tet battle, some 75,000 Vietnamese soldiers died – yet scenes of carnage on US TV catalyzed opposition to the war. In this sense the battle was lost. Failure to empathize with both friends and enemies was fatal.

Rationality is overplayed; people usually behave, if not irrationally, then non-rationally. Try to understand this non-rationality and employ it. Proportionality is important, in business and in war. Using your time and resources in proportion to priority, urgency and potential is important. And basing decisions on real data, especially in product design, is often underplayed. Be skeptical – even what you see may be misleading. Challenge your beliefs constantly; ‘read’ human nature, you probably cannot change it. And, of course, never use the word ‘never,’ because never is never forever.   

What would Google and its ‘do no evil’ say about you may have to do evil to do good? Perhaps, in defending a nation, this may be true; but rarely if ever, in business. 

Arie Rutenberg, former student of mine at Technion, went on to build Israel’s leading advertising agency Kesher Bar-El (now, McCann-Erickson). He has now embarked on a new career. His new venture is called Club 50, founded together with Amnon Herzig, and offers a variety of services to those over 50 who seek to build a second productive life. It already has 150,000 members.

Ruttenberg enlisted Carlo Strenger, Tel Aviv University psychologist, as co-author. Their new book Life Take 2: The Freedom of Midlife will appear soon, and their Harvard Business Review article “The Existential Necessity of Midlife Change” has just been published.  

“Roll up your sleeves,” they advise. “Midlife is your best and last chance to become the real you.”  

We often believe that innovation and entrepreneurship are only for the young. But take, for instance, Shimon Eckhaus. A successful serial entrepreneur, he embarked on his career only after retiring from Rafael (Weapons Development Agency).  He attributes his success to his age. “I did not have time to fail,” he says. So he looked for product ideas that were very practical, met a need and could bring immediate revenue. For him, “Life Take 2” brought adventure and satisfaction.

My friend and co-author D.V.R. Seshadri provides another example – an Indian ophthalmologist, who instead of retiring to a rocking chair, ‘rocked the world’ with a new business design for cataract surgery that restored sight to many many thousands of Indian villagers. Here is the story, in brief, as recounted in Seshadri’s case study:

In 1976, Dr. G Venkatataswamy, popularly known as Dr.V, retired from Government service as Professor of Opthalmology in Rajaji Medical College, Madurai. On retirement, … he returned to Madurai to devote himself to the mission of eradicating preventable blindness among the poor in the immediate geographic area, southern Tamilnadu. He established an 11-bed facility in rented premises – the Aravind Eye Care Clinic, with support from his family members and other well-wishers.  They adopted a model that judiciously combined both business and social orientations – in which one paying patient would subsidize TWO free patients. This has resulted in a SUSTAINABLE organization which generates enough surpluses to fund its own expansion activities, with minimal external monetary support. It has expanded throughout India, became the gold standard of eye care for the poor worldwide, and restored sight to many many thousands of Indian villagers suffering from cataracts. 

What does the success of several Japanese baseball players in America’s Major League Baseball (for instance, Ichiro Suzuki, only major leaguer to have 200 hits or more in his each of his first seven seasons) have to do with innovation?

According to the International Herald Tribune (Monday March 10, p. 17), the answer is: a combination of a creative master coach, American Lou Piniella (former Yankees star and now a manager), and the discipline of Japan’s culture, expressed in its hitting stars.

Japanese batters in America, along with Piniella, have developed an innovative hitting style. They stand closer to the plate, and instead of stepping toward the pitcher when swinging the bat, they step toward first base (when hitting to right field), or toward third base (when hitting to left). In this way, they can hit the ball wherever they wish, almost. This hitting style requires many many hours of practice, and great discipline. The Japanese players have it. It is part of their culture. Together with the innovator who developed the approach, creativity and discipline make a winning combination. Recently Kosuke Fukudome has followed in Suzuki’s footsteps. So has the Yankees’ great hitter Hideki Matsui.

“Japanese players are taught to hit, not to ‘slug’,” Piniella says. He thinks it would be “hard teaching their style to our [American] hitters.”

Perhaps this applies to innovation. Creative ideas are the easy part. Disciplined operational excellence in implementation is the hard part. If only Israeli innovators could be as rule-breaking, creative, and unconventional as Israelis – and as disciplined and methodical as Japanese. If they could, they would hit many more startup ‘home runs.’

hideki21.jpg
Hideki Matsui, hitting in the 2003 World Series
 

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
March 2008
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