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Global Crisis Blog

Black Swan Society: Nassim Taleb’s 10 Principles, or

“In French socialism 1980’s, the government takes over the banks; in the U.S. 2000’s, the banks take over the government….” – Nassim Taleb 

By Shlomo Maital




Nassim Nicholas Taleb is the author of The Black Swan: The Impact of the Highly Improbable, a New York Times bestseller published in 2007 just before the onset of the global crisis.  Taleb has now done a second edition with a new section titled “on robustness and fragility”.  It includes “The 10 Principles for a black-swan-robust society”, originally published as an editorial in the Financial Times in 2009.   In a footnote, Taleb notes that the FT editor changed his own original title to “Black-Swan-proof”, something which he says does not exist.

    Here is a brief version of his 10 principles that can help societies cope with the aftermath of crises that are inevitable and always will be:

  1. Let what’s fragile break early, while it’s small.  “Nothing should ever be too big to fail”.
  2. Do not socialize losses and privatize gains.  “Whatever needs to be bailed out should be nationalized”.
  3. Don’t let people wearing  blindfolds drive buses ever again.  “The economics establishment should be ignored [forever]”.
  4. Forbid people with ‘incentive’ bonuses from managing your financial risks. “Odds are they will cut corners to show ‘profit’ in order to gain the bonus”.
  5. Compensate complexity with simplicity.   “Complexity is a form of leverage”. Avoid it.
  6. Do not give children dynamite sticks.  “Ban complex financial procedures that nobody understands”.
  7. Governments should never ever need to ‘restore confidence’. 
  8. Don’t give addicts more drugs if they are in withdrawal. “Using leverage to cure excess leverage is pure denial. The debt crisis is not temporary, it is structural and requires rehab”.
  9. Citizens should not use financial assets as a repository of value and should not rely on fallible ‘expert’ advice for their retirement. “Economic life should be definancialized”.
  10. Make an omelet with broken eggs. “Remake the system before it remakes itself (through crisis).”   

 Innovation Blog

Secrets of the REAL Start-Up Nation: Inside Israeli Innovativeness 

by Shlomo Maital







   Start-up Nation is  a best-selling book about Israeli innovativeness by Dan Senor and Saul Singer.[1]   This  book has aroused enormous interest in the source of Israel’s boundless creativity, mainly in the U.S. but in other countries as well.  Thousands are reading the book to learn how Israel invented the cell phone, Copaxone, Azilect, a kind of heart pump, drip irrigation, the Given Imaging pill that ‘broadcasts’ your intestines’ condition,  the Pentium and Centrino chips,  drip irrigation, cherry tomatoes, and a thousand other life-changing inventions,  while fending off enemies and squabbling endlessly with one another.  Former NBC TV anchor Tom Brokaw wrote,  “There is a great deal for America to learn from the very impressive Israeli entrepreneurial model… START-UP NATION is a playbook for every CEO who wants to develop the next generation of corporate leaders.”

     “What is driving (Israeli inventiveness),” Senor recently told the cable network CNBC, “is a national ethos, resilience, the fight for survival.”   The book itself stresses two qualities embedded in Israeli culture:  Hutzpah (brash impudence, willingness to challenge anything) and leadership experience gained in the Israeli Army.

       Start-Up Nation’s stories about Israeli entrepreneurs are truly wonderful.  But can we dig deeper beneath these stories and find empirical research that illuminates this phenomenon?

   With the aid of Shlomo Gradman, founder of the Israeli Semiconductor Club, we asked those who registered for the club’s inaugural event to answer a brief questionnaire: “”Invest” 100 shekels in  some 13 innovation factors (personal, cultural, contextual) according to their relative importance”.   We received nearly 50 responses, out of 200 registered participants.  They came from a slice of Israeli high-tech industry engaged in innovative chip design.   A summary of the responses is shown above in the diagram and below in the Table.

Table 1.   13 Innovation Factors, by Rank and Mean Score.

             RANK FACTOR     MEAN
1 Resilience   13.75
2 Stubborn Persistence   10.75
3 Role models   9.93
4 Desire to change the world 9.25
5 Lack of fear of risk   8.59
6 Desire for wealth   8.14
7 Willingness to break rules  6.7
8 Desire for independence 6.23
9 Willingness to challenge authority 5.45
10 Hutzpah     5.16
11 Army technology experience 4.93
12 Army leadership experience 4.32
13 Desire for fame   2.48

 Three of the top five innovativeness factors are “cultural” in nature, deriving from Israeli culture:  Resilience, stubborn persistence and lack of fear of risk.  One is contextual (role models – other Israeli entrepreneurs who have done great things), and one is ‘personal’ but with a strong cultural element (desire to change the world).  It is interesting that army experience in both technology and leadership, cited as strong factors by Start-Up Nation, ranked 11th and 12th out of 13. This may in part reflect that respondents are chip designers, a technology not central to IDF R&D efforts.   

[1] Dan Senor, Saul Singer, Start-up Nation: The Story of Israel’s Economic Miracle: Published by Twelve (Reed Elsevier), 2009.



Innovation Blog

Drake Equation: The Biggest Question of All, or:

Is There Life in the Universe? (Is There Life on Earth?)

The Answer is 10

 By Shlomo Maital



Frank Drake

  In academic research, as in innovation, creative people dare to take huge gambles, by asking very hard, big humongous questions, questions whose very nature discredits their rationality.    Here is an example, featured on the wonderful Discovery program on BBC.

    Almost 50 years ago, a young astrophysicist named Frank Drake dared to ask the question, how many other civilizations exist in the Universe, apart from life on earth?  Until Drake, that question was regarded as whacko by astrophysicists, and those who researched it generally used methods that were, well, also quite whacko.  Drake endangered his career by tackling it. But he was driven by curiosity and passion.  So he tackled it anyway.  And then, the U.S. Science Foundation (which also thought it was a key question – these were Cold War days, what if Aliens contacted the Russians first instead of the Americans???) asked him to convene a conference on the subject, inviting the top experts.  So Drake called a conference to be held in Green Bank, West Virginia, attended by a dozen top astrophysicists, including the celebrity Carl Sagan. 

     Now, a conference has to have an agenda.  So Drake sat down, and built an equation that included the seven key factors that would determine how many civilizations there are in the universe that potentially could be contacted,  equal to “N”.

The Drake equation states that:

N = R^{\ast} \times f_p \times n_e \times f_{\ell} \times f_i \times f_c \times L \!

 where:  N = the number of civilizations in our galaxy with which communication might be possible;  and  R* = the average rate of star formation per year in our galaxy; fp = the fraction of those stars that have planets; ne = the average number of planets that can potentially support life per star that has planets;fℓ = the fraction of the above that actually go on to develop life at some point; fi = the fraction of the above that actually go on to develop intelligent life; fc = the fraction of civilizations that develop a technology that releases detectable signs of their existence into space; L = the length of time such civilizations release detectable signals into space

      Drake’s values give N = 10 × 0.5 × 2 × 1 × 0.01 × 0.01 × 10,000 = 10

      The universe is very large.  And very old. Our sun is 4.5 billion years old. Other suns are as much as 10 billion years old.  So these 10 civilizations are likely very very far away.  Millions of light years.  So messages sent from Earth by the SETI Study of Extra Terrestrial Intelligence are very unlikely to be answered in our lifetime.  But SETI’s listening program – if other civilizations have sent us messages, or simply use electro-magnetic radiation to communicate – might hear something interesting. 

       Imagine the scene. SETI radio telescopes get a message. It is from Civilization #9. 

       It says:   “We need to talk”. 

Innovation Blog

Do You Know the Difference Between Height and Weight ? A Prayer for Innovators

By Shlomo Maital 





  Reinhold Niebuhr

   “G-d grant me courage to try to change what can change, serenity to accept what cannot,  and wisdom to know the difference.”  –   Reinhold Niebuhr, 1937

   Recently  I took part in a program whose front end featured a talk by Joseph Ackerman, CEO of Elbit Industries, a leading Israeli defense contractor.  Ackerman spoke about innovation in management, his own philosophy, and illustrated his approach with the H W principle.

    On the screen he showed a large “H” and a large “W”.  “H” stands for height.   You can do nothing about your height, he explained. You are born with it, it is determined by your genes.  Accept it, live with it.  “W” stands for weight.  You CAN do something about your weight.  If you are underweight, you can fatten up.  If you are overweight, you can exercise and slim.  It is not easy, but it is possible. 

     In innovation and in management, he explained,  it is hard sometimes to tell the difference between “H” and “W”.  What can be changed, and should?  What cannot be changed and must be accepted?   If you waste energy on “H” problems or issues, you will have insufficient resources for “W” problems. 

     In his brilliant 1993 book[1], psychologist Martin Seligman cites conclusive evidence that “W” (weight), too, needs not courage but serenity.  In truth, weight is very hard to change.  Studies show obese people in general consume no more calories than the rest of us. And a huge proportion of those who diet and lose weight gain it all back within a couple of years. An enormous diet and diet food industry exists that perpetuates the myth of weight loss.   So, Seligman notes, “W” is probably in the “H” category.  The title of his chapter is sardonic:  A Waist is a Terrible Thing to Mind.

    I think the H-W distinction is crucial for innovators.  Innovation begins with a deep passion to change the world, by identifying major issues or problems or needs that must be solved or met.  The goal of the innovator must be big enough to be meaningful but not so huge as to be unachievable – in other words, “W” rather than “H”.  And knowing the difference is very very difficult.   Jim Collins’ BHAG – Big Hairy Audacious Goal – must  be not so audacious as to be unachievable.  Perhaps it should be called Big WARY  Audacious Goal, BWAG, instead of  Big HAIRY Audacious Goal  (to stress the W rather than the H).

     Some 73 years ago, the German Protestant theologist Reinhold Niebuhr wrote the famous Serenity Prayer in one of his newsletters.   I would like to propose a different version, the Innovators’ Prayer:

      Lord,  give me courage, passion and creativity to innovate what can and must be innovated; serenity to accept what cannot be innovated; and wisdom to tell the difference.     

[1] Martin E.P. Seligman, WHAT YOU CAN CHANGE…AND WHAT YOU CAN’T: The Complete Guide to Successful Self-Improvement,  Fawcett Columbine: New York, 1993.

Innovation Blog

Mommy, Daddy, Tell Me A Story – Forget It, I’ll Tell My Own! 

By Shlomo Maital






Daniel Kahneman


    “What matters in life is not what happens to you but what you remember and how you remember   it.” ~ Gabriel Garcia Marquez

    Almost a year ago, on Nov. 4, 2009, I wrote a blog with the title “Mommy, Daddy, Tell Me a Story!”,  that began thus:

  Do you want to build a powerful business innovation? I ask my students.  If you do — tell me a story.  Build a powerful narrative that has real people in it, a plot, conflict, a story line, and above all, a happy end.   These are all elements of  every great children’s book, stories we all grew up on,   Good Night, Moon,    Where the Wild Things Are,  and so on.  Children make meaning out of the world through stories.  So do we adults, it seems.   War and Peace, Anna Karenina — great novels are all great stories

   Writing in an Israeli daily newspaper Haaretz, [1] journalist Ron Pressler describes pathbreaking work by Nobel Prize Laureate Daniel Kahneman, a cognitive psychologist who won the Economics Nobel Prize in 2002.  Kahneman has for many years been studying how we remember our everyday experiences.   He has shown that there are two separate selves, “the experiencing self” and the “remembering self”.  The second is utterly different from the first.   The remembering self remembers key high points, and ignores many dull moments the experiencing self goes through.  The remembering self constructs a plot, a key part of which is the end.  “…The story we construct is usually influenced by one or several things on which we focus, and on whose importance we tend to exaggerate.”  A major thing is the end, whether it is happy or sad.

     I personally have experienced this dual phenomenon.  And I have applied it. Often, in experiencing an activity or event, I ask myself, how will I remember this in 5 years?  I try very hard to shape a happy end so that it will be remembered positively instead of traumatically.

     Innovator:  As you work on your innovation, think about the script you are writing.  Think about the high points.  Tell yourself the story as you are living it.  Make sure it is as positive as you can make it.  Even if it fails, you can still shape your story as one to be remembered positively – for example, dramatic all-night efforts to rescue a failing project.  

     Tell your own story, innovator.   Shape it as you are living it.   It is quite possible to transform a traumatic failure into a heroic drama while it is ongoing.  Bad memories can be forestalled, good ones can be strengthened.  

    The film-maker and storyteller Shekar Kapur once said, “We are the stories we tell ourselves.”  I would strengthen that.  “We are the stories we tell about ourselves, to ourselves.”

     Innovator:  What stories do you tell about yourself, to yourself?   Do you like these stories? Are they good, strong, energizing, positive, inspiring?  If not – rewrite the old ones, and reshape the new ones you are living at present.  And as you live them, think about the script you are writing and will remember.  In 10 years, you will be grateful you did. 

[1] “Living the moment, remembering the high points”, by Ron Pressler.  Haaretz Weekly Magazine, Friday Sept. 17, 2010.

Global Crisis Blog

Benchmark Estonia:  It’s Run Like a Business

By Shlomo Maital

   Little Estonia, population 1.3 m., will dump its currency and join the 16 countries in the Euro bloc next January.   This has become near-certain following the EU announcement that Estonia has met the Masstricht fiscal preconditions for Euro membership, noting that “Estonia stands out… fulfilling the criteria clearly”.  The European Commission was far less upbeat about several other large Eastern European countries waiting to adopt the euro, such as Poland and Hungary.  The last nations to join the euro were Slovenia in 2007 (another smart small country with about 2 m. people),  Cyprus and Malta in 2008 and Slovakia in 2009. 

   Estonia has been hard hit by the global crisis, and by the EU recession; it has 18 per cent unemployment. But despite this, its budget deficit is modest (less than 3 per cent) and it has a Balance of Payments current account surplus.   By embracing the euro, Estonia integrates its capital markets with the EU and trashes all the many problems related to having a weak unstable currency. 

   Some years ago,  I brought a group of Israeli managers to Talinn on a benchmarking trip. We were amazed.  Estonia has first-rate IT capabilities. It is even one of the first countries to run elections on-line.  And you can file your annual income tax report on-line, too, in 20 minutes, and most people do.  Cabinet meetings are held electronically, with absent or travelling ministers joining through their webcams.   Estonia has closely integrated its economy with Finland, acting as a kind of off-shore “China” for that country. 

    Recently, NYT columnist Tom Friedman quoted an expert who said that it is hard to compete with China, because that country “is run like a business”.  Estonia, too, is run like a business, by its clever political leaders.  Let Poland, Hungary, Bulgaria, the Czech Republic,   Latvia, Lithuania, Romania and Sweden – the remaining countries struggling to fulfill Masstricht requirements – study Estonia carefully. Let them try to run their countries properly, as businesses. 

Innovation Blog

  Innovation Management: Still Sub-Par

By Shlomo Maital

  A 2007 survey of global executives by McKinsey Global Research on innovation reveals a paradox that most managers keenly understood already:  As the importance of innovation grows, the quality of innovation management remains low and perhaps even declining.

    Notes the McKinsey survey:

1.    Innovation leadership is weak; though leaders seek breakthrough ideas, nonetheless innovation efforts are focused on products and services:

   “ ….companies often seem to isolate innovation projects within business units, even when they see bigger opportunities. When asked where change would produce the greatest improvement in performance, for example, top managers rank product and service innovations much lower than breakthrough ideas.  Yet a majority also say innovation at their organizations is primarily focused on developing products or services and that dedicated teams within business units are the most common way they develop and commercialize new ideas (Exhibit 2). Less than half of top managers say they frequently define themes for breakthrough innovations.

 2.   Innovation leaders  are not an integral part of the innovation process in their organizations.

 “… top managers indicate that they are isolated from the innovators within their companies. Most often, top managers get their new ideas from informal, external sources (such as discussions with peers and interactions with consumers), not from the business units or formal teams where innovation tends to occur

 Three years later, in 2010, after a global crisis, the question arises:  Has the innovation management process been repaired?  In particular, does the organization’s leadership truly lead and drive the innovation process?    I am skeptical.  The paradox remains. Innovation’s importance grows day by day.  Innovation management remains highly flawed. 


Global Crisis Blog

Don’t Laugh:   “US Toughens Tone on Chinese Currency”

By Shlomo Maital

     That headline is real. It is from the Global New York Times, Sept. 17, p. 15.

     The gist is this:  America is this time, for real, we’re not kidding, better take us seriously, make no mistake, this isn’t playing games, we mean business,  …. getting tough with China regarding its manipulation of the renminbi.

    What manipulation?

    Perhaps, the manipulation that involves China buying $1 b. DAILY of dollar-denominated securities, or $365  b. annually, to keep its exchange rate from appreciating, and thus making its exports more expensive.  Perhaps, the manipulation that keeps China’s exchange rate today at RMB 6.83 per US dollar, compared to RMB 6.95 in 2008,  a level that according to The Economist and even The World Bank and IMF,  undervalues China’s currency by about 50 percent (that is, the true economic exchange rate would be about RMB 3.5 per dollar, if the exchange rate were allowed to be determined by market forces alone, without the Bank of China).  Perhaps the manipulation in which China has accumulated way over $2 trillion in reserves through daily purchase of dollar assets. 

     If China’s exchange rate were indeed allowed to rise to RMB 3.5 per dollar, suddenly all its exports would cost double.  Perhaps then global rebalancing could begin – with fewer goods flowing out of China, and more goods flowing into it. 

   For how long has China’s Renminbi been undervalued?  Would you believe 15 years?  The exchange rate was RMB 8.35 per dollar in 1995.  It stayed at that level until 2004.  The exchange rate was then allowed to appreciate very very slowly and gently, to RMB 8.19 (2005), 7.97 (2006), 7.61 (2007), 6.95 (2008) and 6.83 (2009).  At that rate,  excruciatingly slow Chinese ‘water torture’,  global rebalancing will be completed by the year  ….  6583.   

    U.S. Treasury Secretary Timothy Geithner is talking really tough. The Treasury “would take China’s actions into account as we prepare the next Foreign Exchange Report”, he said; the Report is due Oct. 15.  America is threatening to declare China a currency manipulator!  China?  I have no doubt the entire nation is shivering with fear.  

    Wake up, America. China has been manipulating its currency for 15 years. And you,  America,  you are an active partner in crime, because you have been living beyond your means with the money China lends you and loving it, and you still are, and there is no real sign whatsoever that your politicians are willing to even begin inflicting the pain (lower living standards) that is required to end this impossible situation.  

    So, forgive me if I read the headline and chuckle sadly.  The last President who talked tough to a trading partner was Ronald Reagan, who read the Riot Act to Japan in the 1980’s. Since then, they’ve all been marshmallows.  The result: Global disaster and America’s hollow economy that is unable to create new jobs.


Global Crisis/Innovation Blog

Productivity: Good News or Bad News?

By Shlomo Maital

    There are endless numbers of awful good news/bad news jokes.  Here is one of the worst.  Doctor: I have good news and bad news. Patient: What is the good news?  Doctor: You have 24 hours to live!  Patient:  THAT’S THE GOOD NEWS! WHAT IS THE BAD NEWS?  Doctor: I forgot to call you yesterday.

   In today’s global economy, productivity growth is one of those jokes.  The good news is that unlike all other global or local recessions, productivity in most countries has continued to grow strongly.  The reason:  Companies have been very quick to fire or lay off workers, right from the start, and the remaining workers, fearing for their jobs, have worked far harder and far smarter. 

  This is also very bad news.  Why?  

   It is true by definition that GDP growth is identically equal to a) the rate of growth in GDP per worker (labor productivity) plus the rate of growth in the number of (employed) workers.   If labor productivity grows as fast as GDP, then there is no need to hire more workers.  And that is precisely what is happening, in the US, Europe and China.

  The data?  The IMF has revised its 2010 GDP growth forecast upward for the world, to 4.1 percent.  Good news.  Almost all of that growth will come from productivity growth, rather than from new hires.  Bad news.

   In China labor productivity growth for 2010 is forecasted to grow at an astonishing rate of 7.7 per cent.  GDP will grow by 8 per cent. That means that employment will barely grow at all.  The upside of this is that employment will at least remain steady, without massive layoffs.  The downside is that there will be few new jobs for migrants coming from the West. 

  In the US, 2nd Q. 2010,  business-sector output grew by 3.7 per cent (good news) and all of that increase came from increased productivity (bad news for workers). 

   The implication for individuals all over the world, especially young people entering the labor market or planning to, is rather cruel:  Darwin’s survival of the fittest has come to global labor markets. In future, you will have to navigate your skills flexibly and rapidly, change them often, learn new skills and abandon old ones, and stay a step ahead of the rapidly changing labor and goods markets.  Those who fail will be unable to find gainful employment, and if they remain stuck in old patterns and old skills, they may never work again.

Innovation Blog

Innovating During/After a Recession: A Three-Pronged Plan

By Shlomo Maital

Global managers need to come to terms with the fact that the ‘recovery’ will be weak, perhaps indistinguishable from recession.    Whether GDP in the US and EU grows at 1% or 1.5% is immaterial.  It still means that for many businesses sales will remain flat – unless the ‘three-pronged plan’ proposed by Dartmouth’s Tuck Business School Professor Vijay Govindarajan is implemented (or at least, a version of it.)[1]

First Govindarajan recommends setting up a Dedicated Team, dedicated solely to the goal of strategizing the post-recession period.  Let the team come up with an innovation, and then implement it as they would conduct a scientific experiment. Why? Because until you get that innovation out into the hands of users, you will lack vital information.

Second, he recommends three steps:

Formalize the experiment.   List hypotheses.  Define how you will test them.  For instance:  In a post-recession period, price sensitivity remains high.  Hypothesis: “We will test a very low-end product with low price, and check very carefully whether demand is price sensitive, so that volume increases more than price falls, to compensate for the lower prices. Our hypothesis is that it will.”

Break down the hypothesis. Simplify!  Identify the most crucial hypothesis, or hypotheses, and focus on them.  Is it price? Is it some new feature that is being added?

Seek the truth. Jim Collins calls this “face the brutal facts”.  Innovators who invest the company’s hard-earned cash have a vested interest in putting a rosy glow on test data.  Make sure the company has a pervasive culture of ‘telling the truth’.   Companies that delude themselves will pay heavily. Remember, if you launch full-scale a bad product, not only will the product fail, but you have lost valuable time that could have been invested in launching a successful product.

Govindarajan again stresses the obvious point that innovation is more about implementation than inspiration.  While readers may be utterly tired of hearing this again and again, it is so important that it is worth repeating, in his words:

“There is too much emphasis on ideas and not nearly enough on execution. As a result, most corporations have more ideas than they can possibly move forward. Too many promising ideas on paper never become anything more than … promising ideas on paper.”

Screen your ideas, pick one or two, set up a team, give it some money – and execute.   Make sure you take seriously a scenario in which there is weak economic growth for several years to come.

[1] Bloomberg Business Week,   “How to innovate after a recession”, Viewpoint September 7, 2010

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
September 2010