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Global Crisis Blog

China’s G-String at the G-20

By Shlomo Maital

As the G-20 ministers meet in Toronto and Huntsville, Ont., creating massive havoc in downtown Toronto,  China again shows its skill in sleight-of-hand diplomacy.  China is dressing up its apparent willingness to contribute constructively to the global crisis and restore global balance — but in fact, all China is wearing is one thing G-string, and maybe even not that.

With exquisite timing, China announced prior to the G-20 and G-8 meetings that it will allow its currency, the yuan, to appreciate (rise in value) relative to the euro and to the dollar.  This, in order to help reduce China’s huge trade surpluses with the West and restore balance to the totally unbalanced global trading system, a system in which paradoxically rich countries borrow heavily from poor ones (like China) by running persistent large chronic trade deficits.  Despite the recession and the crisis, America’s trade deficit remains in the order of $500 b. annually, an unsustainable level.

With the announcement, the yuan appreciated by a miniscule 0.4 percent (China’s currency is undervalued by at least 50 per cent — in other words,  if the current exchange rate is about 7 yuan per dollar, it probably should be 3.5, to reflect its purchasing power, a rate that would double the dollar price of all China’s exports.     This tiny appreciation will indicate to the G-20 that China is indeed moving in the right direction and is working to contribute to global stability as a good citizen. But this is an illusion.  China’s undervalued currency will remain undervalued, and once the G-20 meeting is over, watch the yuan-dollar rate freeze again.

Writing in The New Republic, Clyde Prestowitz argues this:

At the G-20 meeting, the administration’s first step should be for the President to ask his colleagues to cooperate in bringing about a 25 percent to 40 percent revaluation of manipulated currencies in relation to the dollar[i.e. yuan] within the next three years. The president should warn that if such an agreement cannot be reached, he will have no choice but to launch a full-scale effort in the IMF, WTO, and elsewhere to halt the mercantilist manipulation of currencies. He should leave no doubt that he will do whatever is necessary, including even taxing certain capital inflows, to achieve substantial currency adjustments.

What are the chances that President Obama will actually take such decisive action?

Less than zero.

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Innovation Blog

See, Think, Wonder: What Innovators Can Learn from Kindergarten

By Shlomo Maital

My grand-daughter Agam is six years old, and is finishing kindergarten; she will begin Grade One in the Fall.

Agam’s kindergarten is first-rate.  One of the things she learned there (in addition to reading!) is an exercise known as See Think Wonder.  A variation of it is Feel Think Wonder.

Here is how it works:

1. See.  REALLY LOOK at something.  Mostly, we look at things, but we do not see them.  REALLY see them.  In every detail.  Practice SEEING!  See things we miss normally, out of haste.  Have you really seen your eyebrows lately?  What did you miss?

2.  Think.  Think about what you see. Reflect on it. Ponder, analyze, compare, contrast, examine.

3.  And most important:  WONDER!   That is, imagine and dream. What if it were different?  What if it were impossibly amazing?   What if I looked at myself in the mirror, and became 6 feet 6 inches tall?  WONDER — leading to action!

Here is Agam’s process, for a bit of a shrub, not worth even looking at (?)

* I see a little bit of gray and brownish.   * I see that this one is like a palm tree.  * I think it is not doing so good.   * I WONDER if when it grows, it’s a plant that you can eat.    And that WONDER leads to a small vegetable garden Agam has in her backyard.     Six-year-olds are terrific at see-think-wonder.  They also are great at feel-think-wonder, which involves our emotions:  Feel an emotion, think about it (why it happens, what caused it), and then, wonder…    As adults,  feel an motion (deep passion about something), think about its origins, and then wonder, what if we spent our lives pursuing that passion, instead of shuffling papers for high salaries in a bureaucratic stifling job within an elephantine organization?

Innovator:  Do you truly see!?   Do you think about what you see, but deeply, analytically?  And, most important, do you WONDER?!   Do you imagine, dream, and then, try to implement what you wondered?

If only we could all become six-year-old’s !  The world would be swamped with super-creativity.

Innovation Blog

The Innovation Desert in the Gulf of Mexico: BP’s Busted Process

By Shlomo Maital

An Op-Ed piece in today’s (June 23) Global New York Times by Christopher Brownfield, former nuclear submarine officer,  rightly attacks outgoing BP CEO Tony Hayward’s admission that BP has given up — it has no further plans or ideas for plugging the horrendous oil leak.

BP’s Board and Chair finally have realized Hayward is a walking PR disaster and are removing him from control of the disaster.   Hayward is a huge disappointment. He was brought in to replace legendary CEO John Browne, as an operations expert, someone able to shape up a crumbling system that was inefficient and dangerous.  But he failed. Perhaps no-one could have succeeded.  When operational bumbling is sufficiently entrenched,  it is difficult to cure.

Brownfield understands underwater explosives. He suggests blowing up the well, even if a small tactical nuclear weapon is needed.  This is not a bad idea.  Use of tactical nuclear bombs has been discussed in the context of, for instance, building large-scale canals, e.g. a canal from the Mediterranean Sea to the Dead Sea, to generate power for the Mideast.  But even conventional explosives can do the job.  By blowing up the well, many tons of rock can plug the blowout and stop the leak.   It is at least worth a try.  Let the US Navy try it, Brownfield says; they have vast experience both with explosives and with underwater demolition.  Anything would be better than BP’s impotence.   There is doubtless an innovation desert in the waters of the Gulf of Mexico.  But it can be fixed.

Faced with the inevitable ecological disaster now unfolding in the Gulf,  BP’s impotence is unacceptable and criminal.   I hope that in the end,  America’s Justice Dept. brings criminal charges against BP and others responsible, and not just a civil suit, that will take two decades to unfold and in the end preserve injustice.   Why not convene, tomorrow, a world gathering of experts, from all disciplines, to brainstorm possible solutions?   Why not choose, say, ten of the best ideas, prioritize them, and try each in turn.  Why not remove BP utterly from the picture, because it is doing damage rather than helping?   Why not appoint a Crisis Czar, one single person with responsibility to take rapid action (the current system, with a US Coast Guard official working in tandem with BP officials, and other federal officials, simply is unworkable; nobody really knows who is in charge or who makes decisions).

BP is perfectly right to say that we are all to blame, because the world’s insatiable appetite for fossil fuels has directly led to the oil spill.  Giving up addiction to oil will be painful.  But the alternative is even worse, as we are seeing in the Gulf of Mexico.   As part of the Gulf spill process, let’s work on ways to deal with fossil fuel addiction,  and not just clean up the messy damage this addiction has created.

Innovation Blog

Be Big, Think Small: How Apple Retains its Startup Culture

The Three Things Steve Jobs Did

By Shlomo Maital

In a recent Bloomberg Business Week article by Nilofer Merchant, Steve Jobs is portrayed as saying that Apple’s culture is “that of a startup”.

Really?  At a time when Apple’s market capitalization has overtaken that of Microsoft’s?  (At $250 b., Apple surpassed Microsoft on May 26).   Considering that Apple was at the brink of death a decade ago, with only $150 m. in the bank, this is amazing.  Apple — a giant startup?  Startup giant?

What is the startup culture?  Can you be big and still think small?

Merchant quotes David Caldwell, professor of management at Santa Clara University, who says “culture is a shared understanding of assumptions and expectations among an organization’s members, and it is reflected in the policies, vision, and goals of that organization.”

Merchant says Jobs, when he returned to Apple, focused on doing three things well.

“1. Sharp laser focus:   He refocused the strategy to be about one thing. That meant he killed off even good things. Merchant notes that she led server channel management at Apple when Jobs returned to the company in 1997, and  was there when he made the decision to shut down big portions of revenue-generating businesses (including her division) because they didn’t fit with his vision for the company.

2. He eliminated passive aggressiveness and encouraged debate when new ideas were forming. When you are thinking about difficult problems together with exceptionally bright people, there are going to be disagreements. But it is through the tension of that creative conflict that new ideas get born, new angles get explored, and risks get mitigated.

3. He set up a cross-disciplinary view of how the company would succeed. This holistic vision means there is cohesion throughout the company, from concept to product to sales. For example, the retail strategy could have been a separate or disparate part of the whole, but Apple has made its retail strategy part and parcel of its overall promise of ease of use.”

These three changes in culture are easy to define but extraordinarily difficult to implement.  Jobs’ force of personality did it.  “It would be easy to count any revenue as good revenue, to allow a few people to stay even though they were rotting the culture, or to allow the different parts of a business to act in their silos”, Merchant says. Jobs would have none of this ‘path of least resistance’.

One of the toughest managerial and entrepreneurial tasks around, maybe THE toughest, is to retain entrepreneurial culture while leveraging and organizing disciplined operations and economics of scale.  Very few companies succeed.  Apple seems to be one.  It is a case worth careful study.

Innovation Blog

SHREK and Innovation:

Are you bringing your “A” game?

By Shlomo Maital


SHREK

James Lipton and his Actor’s Studio have brought a remarkable series of in-depth interviews to television, interviewing virtually every major actor and actress, to understand the creative process inherent in their craft.   The audience is composed of Actors’ Studio students, who have the chance to ask the celebrities questions.  I love watching these interviews, because the creative styles of great actors and actresses are so diverse, proving that effective creativity machines must be carefully tailored to individual personalities, histories and preferences.

A recent guest was Canadian Mike Myers, of Austin Powers fame (“Mojo”).   Myers is the voice of Shrek, the ogre, now appearing in Shrek III.   He told a small story that I believe is revealing for innovators.

Originally, he completed the entire Shrek sound track, as Shrek’s voice, using a Canadian accent.

He then reflected, and decided that it would be more appropriate for Shrek to have a Scottish accent (which Myers can do perfectly).  Why?  Well, the Scots are a nation of a great many ups and downs.  Shrek too has ups and downs.  Better to make him a Scot.

He contacted the producer Steven Spielberg,  and without fear said he wanted to re-record the sound track — at huge cost.  Most producers, 99/100, would have said, forget it.  Good enough.  But good enough is not good enough for creative people.  Spielberg said, sure.  So he invested in Myers’ new Scottish accent.  I think this was crucial for Shrek’s success.  It made this animated ogre much more believable and human. (In general — have you noticed that sometimes animated characters are far more real than the one-dimensional stupid stereotyped characters Hollywood produces, in movies?).

Later, before the movie became a success, Spielberg wrote Myers a letter.  It wasn’t:  Damn, you cost me!  You cost us!   Instead it was simply,  “Mike, thank you for caring”.

“People pay you a lot of money,”  Myers says, referring to Hollywood actors.  “So you better bring you’re A-game.  You better respect your audience.”

This applies to innovators.  Bringing people anything less than the very best you can offer is a mark of disrespect to your clients.   Remember Mike Myers’ Scottish accent.  If you have to, re-do your development work, re-do your product’s design, packaging, everything.   Anything less is a B-game, and dishonors your clients.

Innovation Blog

SEED Charter School:  Scale it Up!

By Shlomo Maital

Vinnakota and Adler

Many countries are aware that their educational systems are in huge trouble.  America is one.  The first step taken by President George W. Bush after his election in 2000 was to initiate and pass the No Child Left Behind Act, which implemented a long series of metrics to measure school achievement.  The result:  School teachers taught kids to study to pass the tests, rather than to learn.  And worse — many countries, including Israel, are in the process of imitating America’s mis-step.

A CBS TV 60 Minutes segment reveals an innovative educational experiment that works.  It should be scaled up, not only in the US but abroad.   (The founders are starting a new SEED school in Baltimore, and then will open one in Cincinnati).   Here is how it works:

The school is called SEED.  It is sited in one of the worst slums in America, downtown Washington, D.C., an area ridden with crime and drugs. (This area is unimagineably awful; and it is within hailing distance of the Capitol, where America’s elected representatives and President meet.  It is a permanent unforgiveable blight on America, a rich country that regularly leaves behind many of its children and dooms them).    It is the first urban public boarding school.  Kids are chosen by lottery from those living in the district.  And the success rate is stunning.   Four years out of the last five, every graduating student was accepted for college.  Children enter at 7th and 8th grade.  They are almost all underperforming, because of where they live and go to school.  They quickly aspire to college. Many become the first in their families to graduate from high school, let alone college.

The school was founded by two businesspersons,  Raj Vinnakota and Eric Adler, who quit their jobs 13 years ago to pursue their dream.  They raised the money to start the school.  Operating expenses are covered by public funds.  It is expensive.  Annual cost for one child is $35,000.   But the investment is worthwhile; the human capital it creates is enormous.  The children who complete SEED go on to become creative productive citizens, rather than be doomed to a life of drugs and crime.

Vinnakota told 60 Minutes:

“There’s boarding schools for rich kids; why aren’t there boarding schools for poor kids?” Vinnakota said. “The intense academic environment, the 24-hour aspect and constant access to role models. Why wouldn’t all of those things be just as important for poor kids as it would be for rich kids?”

“We believe very strongly that there is a group of kids for whom the answer is a 24-hour supportive educational environment. And they’re not gonna have a shot if we don’t give it to them,” Adler added.

This is creative thinking.  It examines basic assumptions. It is assumed, naturally, that boarding schools are for rich kids.  Why?  Why not for poor kids?

The boarding aspect is vital.  Children rise early.  They start classes at 8 a.m.  They finish at 4. Then they have study hall.  They have ‘lights out’ at 9 pm or 10 pm.   They have no TV’s in their rooms, and no Facebook.  They have to read 45 minutes a day.  And they are taught not only ‘stuff’, but also life skills:   communication, speaking, social interaction.

The aspirations of the children are unlimited. But so are those of their teachers, who put in long long days, sometimes until after 10 pm.  And the principal is often the last to leave.

Many experts will say that an expensive model that costs $35,000 per child does not scale.  For poor neighborhoods, I believe I can prove that in the long run, social saving on prevented crime, drugs and incarceration more than justifies the investment.   But the issue here is not even economic or budgetary.  It is immoral to permit neighborhoods to exist where those born into it have zero hope.   Especially in wealthy countries like America.  Put a SEED school into every inner city slum.  Then another.  Then, watch America revitalize itself with the energy of those born into despair who suddenly are given hope by an understanding innovative society.

Innovation Blog

Why Did Motorola Drop the Cell Phone Ball?

By Shlomo Maital


Marty Cooper

A fascinating segment on the CBS program 60 Minutes features Morley Safer’s interview with Marty Cooper, whose Motorola team built and demonstrated the first cell phone, in 1973.     There is no question that cell  phones have changed the world, and that their influence is just in its infancy.  With over 5 billion cell phones now operating worldwide, this appliance has had more powerful impact on society than even, perhaps, computers. And of course, cell phones are now becoming computers.

What is Cooper’s take on cell phones today?   It is worth hearing:

“Technology has to be invisible. Transparent. Just simple. A modern cell phone in general has an instruction book that’s bigger and heavier than the cell phone. That’s not right,” Cooper said.   Call it the complexity or confusion factor.   Cooper argues that cell phones designed to do everything – take pictures, play music and videos, surf the Web – don’t do any of them really well. He thinks the buyers should be dictating exactly what they want.
“The consumer is king. The consumer ought to make the decisions. And not, certainly not the engineer,” Cooper said. “Engineers tend to get enchanted by the technology itself.”

I wish Morley Safer had asked Cooper the $640 b. question.  Why did Motorola drop the ball?  Why did Motorola pioneer the cell phone, prosper because of it for a time (remember RazR ?), then almost disappear?  I don’t know the answer.  I wonder if Motorola does.  But, how often do we see a brilliant entrepreneur lead a small team to world-changing innovations, only to have the surrounding bureaucratic organization fail to realize its full potential?

I believe Marty Cooper is one of those few individuals who are super-creative — their creativity machine is permanently turned on, they ‘get it’, and produce an endless stream of wonderful, simple practical world-changing ideas.

What is Marty working on now?

So it seems only natural that the latest gadget developed by Cooper and his wife is a retro cell phone called the “Jitterbug.” It’s a basic phone – there’s no camera, no music. Any idiot can operate it.  It sounds simple enough: if you can hear a dial tone on the Jitterbug, you can make a call. “If there’s no dial tone you can’t,” Cooper explained. CBS) His next target are lost calls, also known as drop outs. Atop his office building, ugly conventional cell phone antennas are disguised as flagpoles.   He’s developing so-called smart antennas that can cut through all the competing noise in the radio environment to get your call through.
“And what they do is when we transmit, we send the information only to your phone,” Cooper explained.

Innovation Blog

Tiny Slovenia: Small is Beautiful

By Shlomo Maital

I write this as I watch Slovenia’s football (soccer) team play Algeria in the World Cup.  So far, they seem to be controlling play.  (Slovenia just scored:  1-0, in the final moments of play….  3 great points, meaning Slovenia may advance to the next round!).

Slovenia is by far the smallest country to qualify.  Its population is exactly 2 million — less than the rounding error of a small Chinese city.  Once a part of Yugoslavia, it gained independence in around 1990, when it saw that the countries comprising Yugoslavia were heading for bloody bitter ethnic war — and declared it was seceding.  Yugoslavia sent troops to Slovenia’s border, but realized there would be a hard fight and decided it wasn’t worth it.  As a result, Slovenia’s citizens were spared the terrible war crimes that plagued Bosnia & Herzegovina, Montenegro, Albania, Kosovo, Croatia and the entire Balkans.

Slovenia has GDP per capita of about $27,000 (ranking 25th in the world), and has attracted over $10 b. in inward direct foreign investment (FDI), or about $5,000 per capita.  In 2008, not a great year for FDI, Slovenia pulled in $3 b.  It has low unemployment (about 6 %) and strong political leadership.     Its secret?  Superb human capital.  As a former socialist country, Slovenia has an excellent educational system.    Its capital is Ljubljana.  Slovenia attracts many tourists and is physically beautiful.  It leverages its borders with Italy, Austria and Switzerland to good advantage.   Its full membership of the European Union freed it from a weak local currency, and the cheap euro gives it competitive advantage for exports.

In qualifying for the World Cup, Slovenia defeated Russia, a country with a population 70 times larger!  The score was 2-1, and the defeat was a huge surprise, and shock, for the Russians.

If I were running a small country (like, say, Israel, whose land area is exactly the same as Slovenia’s, 20,000  sq. km.), I would spend a lot of time in Slovenia, learning its secrets.  For Slovenia, small is indeed beautiful.   Had its neighbors, like Croatia and Bosnia, done so, perhaps they could have avoided the disastrous internal wars.   Slovenians have boundless self-confidence, and are certain they will advance to the next round of the World Cup.  I would not bet against them.

Innovation Blog

Nickel Pig Iron (NPI):  Here come the Chinese, We told you so!

By Shlomo Maital

I hate people who say, “I told you so!”.  So do we all.

But, hate to say it,   we told you so.    We told you the Chinese were hell-bent on moving up the industrial food chain, to higher-value-added innovative products.

Here is an example.

According to the Toronto Globe and Mail  (B1, B4,  Report on Business Weekend, June 12/2010),   Chinese iron producers have found a way to capture the $21 b. nickel pig iron business, taking business away rapidly from large producers like those in Canada’s Sudbury region.

The Chinese use electric furnaces, rather than blast furnaces, and cheap ore,  to produce pig iron with 10-12 per cent nickel content.  This is vital for making high-qualty stainless steel.  Normally  the product is sold for its nickel content, and stainless-steel producers add their own pig iron to it.  But the innovative Chinese process provides the nickel, and throws in high iron content for free.  It’s a winning value formula, one that is hard to compete against.   China’s thousands of stainless-steel producers now buy their nickel pig iron at home, rather than import it.    Chinese producers’ production costs are now as low as $7 – $8 per pound, and there are now 70 firms producing the innovative nickel pig iron.

Why did not the large nickel iron producers abroad innovate, when supposedly, China is traditionally a low-cost commodity producer?

What we see in nickel pig iron will replicate itself across a great many industrial products in the near future.   Those Western producers who are sound asleep will get a rude awakening, and soon.   China is not just about low cost.  It is now about value-added innovation.

Innovation Blog

How that last link in  the chain can murder great innovation

by Shlomo Maital

Life isn’t fair.

Take Apple.  This company has come back from the dead, and its market capitalization now exceeds that of Microsoft!  It has leveraged great innovation in the iPhone, iPod, and now, iPad.

But its business model is threatened.

The iPad is manufactured by Foxconn, a Taiwanese company that runs enormous plants in China.  We visited one, with a group of Israeli managers, and were stunned by the scale!  There were 20,000 workers at the plant, and it was one of Foxconn’s smallest!

The media reports a wave of suicides at a Foxconn plant.   Why?

“I do the same thing every day,” one worker says, quoted by Bloomberg Business Week (June 7-13, 2010, p. 35).

Foxconn has reportedly raised salaries by 20 per cent.

It’s that old déjà vu all over again.  In the early days of Henry Ford’s Industrial Revolution, when he invented the mass production assembly line,  his system was threatened with early death because workers quit just when their skills become sharp and productive, because they could not stand the boredom.  Ford solved the problem. A notorious scrooge, he doubled wages, from $2.50/hr. to $5.00.   For that workers were willing to stand the boredom.

Foxconn has done the same, to some degree.   But the insight remains — great innovation requires, in the end, that efficient dedicated workers produce high-quality products without defects, at enormous scale and speed.  If you fail to share the fruits of your innovation with those workers, they will despair and some will kill themselves.   In your innovative business model, highly customer-centric, make sure your business design is also worker-centric.  If you don’t,  you will face crises like that of Henry Ford (1909) and Foxconn (2009-10).

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
June 2010
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