The Stranova Blog – Strategic Innovation

What Happens When Your Competitor Does Your Marketing For You

Apple’s iPad® tablet computer is coming.  And so are a lot of others who would like you to buy their tablet computers instead.  Including a certain company called Google with either its Android or Chrome Operating System, that other software enterprise called Microsoft, and a wide range of strategic partners.

In classic business jargon, what these others are doing is called the “fast follower” strategy.  Compaq did it early in the world of computers, taking what IBM’s early personal computer group created and following on quickly with their own line of high-performing PCs that often outsold those of its groundbreaking competitor.  In the Japanese consumer electronics industry, Sharp Electronics learned quickly what sold well from innovator Sony and quickly flooded the market with colorful and fun alternatives of its own.

If you are the innovator, being first to market brings with it the opportunity to set the rules of the game, especially if you are changing the way an industry does what it does.  If you are far enough ahead of your competitors, you can even tie up some of the key strategic partnerships long before others can even realize what partnerships are needed.  You can also lock up important intellectual property to block others from entering the field.  Add all that to strong execution and you can hold your lead position for years.

This has been the story of Apple with its iPhone, which introduced its game-changing product only a few years ago and has taken massive market share especially in the U.S.  They are now under attack as virtually every major mobile phone manufacturer has begun to flood the market with its own touch-screen enabled handset and even its own cellular-network driven “App Store”.  But in spite of such strong competition, Apple’s continued innovation juggernaut, strong relationships with key strategic partners in both sourcing (including music, video, and even the App Store itself) and distribution looks like it should enable it to keep its lead for a long time.

So if the Apple iPad is the innovator in the latest generation of Tablet computers, what does past history and theory say about the likely competitive scenarios involving other tablet devices running either an OS from Google (Android or Chrome) or Microsoft Windows?  Wouldn’t we see history beginning to repeat itself?

The early answer appears to be no.  The why behind that conclusion comes in three parts.

The first is that the iPad, at least as currently unveiled, is nowhere near as innovative a device as its iPhone sibling. It uses basically the same OS as the iPhone, with a more elaborate touch-screen system and probably a few tricks Apple has not unveiled yet.  It still runs basically only one App at a time and all Apps must be purchased and/or downloaded via the Apple-controlled App Store.  So even if it picks up iPhone-like calling features, it still isn’t doing things significantly differently than the iPhone device.

The second is that system concept for the iPad, which it is true might be fun for browsing, playing larger format games compared to the iPhone, running single-point business applications, and reading books, is really an odd combination of features.  You cannot multitask, something that to me is a major barrier to utilization of the larger-format device, and the restriction that all apps come through the App Store makes this way too controlled to be used as a general-purpose computer device.

So on this second point, the big question is really why someone would buy a larger-format device like the iPad and be willing to accept the many restrictions involved, especially when a laptop computer would seem to offer much more flexibility and the ability to install virtually any type of application you might want.

The third problem is that both Google and Microsoft are far from your usual fast follower types.

Google in particular is actively targeting this part of the market with its new Chrome OS (not to be confused with its Chrome Browser), has its own growing “App Store” enterprise (developed for Android, but likely easily repositioned for Chrome), has a powerful set of cloud-computing fundamental business applications at its disposal, and strong strategic partners.

Microsoft, the other contender in this game, is also working this market in several ways, including its recent release of Windows 7, the first of its Operating Systems that has multitouch control capabilities built into the core functions of the OS.  And, perhaps even more so than even Google, it has the financial resources and marketing clout to do just about anything its sets its mind to.

So as Google and/or Microsoft decide to go head-to-head with Apple in this category (in partnership with a wide variety of licensed hardware partners), they can easily come up with not only credible but also possibly much better product offerings than Apple’s iPad(including multitasking and flexible app sourcing) as early as only a few months from now.  The market share is more theirs to lose than necessarily all that tough a battle.

In addition there will be the side effect that Apple’s own iPad marketing campaign iPad(which will likely help drive demand for the entire category of Tablet computers) will have had the inadvertent effect of encouraging demand for its competitors’ products as well.

Now don’t get me wrong.  Apple will likely do quite well with this new product because its business model leverages high revenues from the App Store and iTunes side of things.  The product is also going to be beautiful, with that attention to industrial design that does set Apple products apart, and that alone will drive some demand.

But as a standalone device Apple’s iPad should be watching its back.

2010’s Sustainability Summits

There is only one catch to this incredible event:  you can’t actually GO to the conference.  At least not in the normal sense.  No one is going to get on a plane to attend,  No one is going to have to fight for a taxi to get to the conference center.  And not a single hotel room will be booked.

Silicon Microwires:  A Powerful Lesson in Technology Strategy

As the world’s supplies of conventional energy sources run lower and the problems of greenhouse gas emissions have become better known, the business opportunities for alternative energy sources have skyrocketed.

The challenge with many of those opportunities, however, is that they often have significant environmental costs of their own that must be dealt with.  As a well-known example, nuclear power, however clean it might be able to operate provided all safeguards are considered, still leaves a mass of nuclear waste to dispose of in the long term.  As another example, the battery systems of hybrid cars may present toxic disposal problems at end of their lives — and become a costly accumulation as adoption rates for these kind of vehicles increase.

Though these examples are fairly obvious, one of the surprises to many who begin to investigate the full lifecycle issues with many so-called “green” or “low carbon footprint” technologies is how dirty some of those really are, especially as compared to the amount of energy they can provide.

As one recent study looking at alternative energy in the U.K. recently noted, if you consider full lifecycle carbon footprint implications (including all emissions from initial manufacturing and/or harvesting of raw materials all the way to eventual waste disposal), direction combustion of grass (for bioreactor energy) contributed almost 80 grams CO2 per kWh of energy eventually delivered.  On the other end of the spectrum, Nuclear Energy produced only around 5 grams CO2 per kWh of energy.

Perhaps those numbers aren’t a surprise, but one that certainly will be to me is that current Photovoltaic Cell technology is actually fairly high in carbon footprint, with some 58 grams of CO2 produced per kWh of energy for installations based in the U.K.  (The reference to the U.K. location is because total energy produced by solar cells is a function of how much sunlight is available for the cells to receive.)  Comparatively, then, using a so-called “clean” solar cell produces almost 75% of the CO2 that burning grass in biomass reactors would produce.

Why are the Photovoltaic numbers so high?  Because it takes a great deal of energy to produce solar cells in the first place.  Once produced, the carbon emissions are lower, but the carbon footprint is already established and the damage is done.

To improve on this, many companies and research facilities have investigated the making of ultra thin film Photocell technology, which of course lowers both costs and overall carbon footprint.  According to the Department of Energy, conventional single-crystal silicon cells produce approximately 10 X the energy required to produce them.  Multicrystalline silicon can produce between 12 X and 16 X the energy required to produce them, depending on whether or not they are in a ribbon form.

Those are mportant steps forward, but perhaps one of the most exciting of recent strategic innovations in this field is the one recently announced by graduate student Michael Kelzenberg and other materials scientists at CalTech in the February 14th issue of Nature Materials.  (See also the related Scientific American article about the same work.)  Their system reforms silicon into vertical “microwires” of crystalline structures (shown in the attached picture here).  These microwires, which also include embedded nanoparticles of aluminum oxide to reflect more light inside (and therefore increase the efficiency of the systems), capture as much as 85% of the available solar spectrum while requiring only around 1% of the silicon conventional wafers would need.

This is of course only an early result and will take some time before moving from the lab to production reality.  It is, however, an example of how asking the right strategic question of precisely the right group of people can make the biggest possible business impact.  We look forward to hearing how this breakthrough innovation develops over the next few years.  It will likely make a major difference in all of our lives — and make this part of “Green Technology” even greener than ever before.

With over 8 million cars recalled worldwide, what appear to be big and systemic design flaws that will take significant work to completely overcome across virtually all their major product lines, and a bill to fix all of that running as high as $2 billion in some recent estimates, Toyota has definitely had better times than in the last several months.

Hundreds of class-action lawsuits from people allegedly badly injured or who have lost family members because of these problems are in the process of being filed.  The U.S. Congress is holding continued very damaging hearings into Toyota’s knowledge of and process of dealing with complaints.  In addition, criminal charge filings are apparently looming for Toyota as well.

In spite of all that, because of Toyota’s long past reputation for building some of the highest quality cars in the business, a much better mix of products than most of its competitors, and deeper pockets, it would seem that Toyota should be well-positioned to drive its way out of this particular road hazard in the long run.

February 2010’s sales figures for Toyota, for example, although not stellar, were only 9% down from February 2009, a month which should have seen the full impact of the hit on Toyota’s quality reputation.  Toyota is also seeing its stock move back up slowly and is getting what seems to be strong support at home.

The recalled cars are also slowly but surely making their way through Toyota’s service bays and back onto the road.

With that as backdrop, Toyota is getting its next move in gear, offering a slew of incentives to attract buyers back into the fold.  There are Zero Percent financing packages now available for up to 60 months on many of their models, 2 years of free maintenance for new buyers of Toyota, Lexus, and Scion vehicles, and cash rebates of from $500 to $3,000 being paid out as well.

Toyota will get its market share back, for certain.  Eventually even the massive recall, the class-action lawsuits, the Congressional hearings, and the criminal cases will all be put behind them.

For me, however, the real damage here is that in the process of all this coming to light we have also learned way too much about the underlying values of how Toyota seems to be run.  There are way too many allegations of Toyota having known of problems and having pushed them aside and/or withheld documents from the public, according to a recent series of articles published in The New York Times and The Wall Street Journal (WSJ).  The WSJ also reports Toyota is spending considerable effort working to blunt the credibility of alleged whistleblower Dimitrios Biller, a former Toyota lawyer, by attacking him on personal grounds rather than on just on the facts of the case.

In the long run, it is in these issues that you can begin to see Toyota’s most serious strategic problem.  They have great products, a track record of automotive innovation that leads the world, and the money to fund their way out of the immediate current crisis.  But if behind this is an immoveable corporate culture which is unwilling to face the truth of its own internal problems, this once great company will begin to fall apart from inside, long before anyone on the outside realizes that something is happening that is far more serious than the current crisis.

The real strategic issue then is not about Toyota finding ways to stave off the lawsuits, convince Congress that they are truly serious about fixing the cars, and entice its once-loyal customers to come back to the fold.  It is instead for Toyota to learn to embrace and support its own internal critics, which doubtless include many executives and engineers who at least had some good questions about product integrity but were not able to make their voices heard.

It may be tough to listen to sometimes, but often one of the most important assets a company has is the ability of a company’s employees to challenge each other forcefully.  Only in such a culture can a company truly achieve its highest possible potential.

Yesterday’s big news proudly declared U.S. Retail Chain Store Sales were up 3.7% in February, the strongest year-to-year gain in sales since November 2007, according to a recent survey of the International Council of Shopping Centers.  So although we may not be done with real winter yet, the question on the table is whether or not we are on our way out of our economic blizzard.

That 3.7% gain in sales compares to a 4.3% drop year-to-year back in February 2009, and the highest number since November 2007’s 4.9% “last gasp” before the current recession started just a month later.

That gain beat analysts estimates of a 1 percent growth estimate.  It was also the third straight month in a row of retail sales gains.  Even more impressive, it was remarkably strong across-the-board, with high-end retailers such as Nordstrom and Neiman-Marcus growing at 10.3% and 5.1%, respectively, alongside discounters such as Ross Stores and Kohl’s at 11% and 3.7%, respectively.  As examples of other major players, Costco grew at 9% and Target at 2.4%.  Altogether a strong showing.

In the midst of real snowstorms, unemployment rates that keep rising (although slower than before), January new home sales at record lows, and rising foreclosure rates, this was a welcome breath of warm spring air. Enough so you are probably going to be hearing a great deal more about this over the next several days as the pundits pounce on this as a key sign the economy is truly on the mend.

If you read a bit more about the details behind this, however, the substantial sales increases were in food and household essentials, with clothing and furniture sales about the same as last year.  In an economy still reeling with record (and still growing) unemployment, January new home sales at record lows, and the Conference Board’s Consumer Confidence Index® having declined dramatically from January’s 56.5 to February’s 46.0 (where 1985’s value was 100) [see link for details], this is still a bit of good news.  But it does have to be balanced against these other realities.

Reading between the lines, what appears to be happening is that the economy is bottoming, not getting particularly better and not getting particularly worse — on an average basis over the last several months.  After months of stretching every dollar, people are beginning to spend on necessities, as these recent retail indicators demonstrate.

It does appear that inventories are shrinking somewhat and companies are beginning to hire again, another good sign.  Actual Jobless Rates are to me somewhat of a difficult indicator to calibrate since many without work are either no longer counted in the unemployment rolls (because they’ve stopped looking) or were never listed in there in the first place (such as in the substantial underemployed consulting groups in places such as California, where some estimates say real unemployment figures could be several percentage points higher than presently calculated).  But nonetheless the bad news does not seem to be getting much worse and there is some sunshine emerging from the clouds.

What does it all mean to those of you working your strategies for the coming year or even the next few months?  For me, caution for one thing, since the bumps on this particular ride are clearly far from over.  More importantly, though, from what we have seen of how consumers have survived this particular storm, people have begun what appear to be major shifts in both what they buy and how they buy, with both opportunities as well as pitfalls emerging at the same time.

In the near-term, consumers are for a large part holding to what they must purchase rather than making larger bets on their economic future, whether those long-term bets are in terms of home purchases or durable goods.  They have also learned on a broad front and sometimes through very hard experiences the last few years, that home ownership is not the guaranteed path to long-term wealth (or even shelter) that it once was.  So as the economy moves forward, they may make very different choices that could have significant long-term implications for sector-by-sector strategies in the future.

These same consumers are also learning to drop things they once thought of as necessities, such as dropping conventional home phone service in favor of unlimited minutes on their mobile phone accounts.  And they are also changing how they buy, with companies such as Circuit City going out of business and consumers who once would have gone there shifting not to competitors like Best Buy but instead to internet sales options such as Amazon.

What this means, even for the retail world, is that although the economy that emerges from all this may eventually have strong numbers associated with it, what people spend their money on as well as how they buy is probably going to look different in some very significant ways.  And those who plan strategies to support those changes are going to be some of the most successful in the (hopefully) more booming years to come.

The European Union said yesterday it has a bit of a problem with the $7.4 Billion merger between Oracle and still-industry-giant Sun Microsystems over anticompetitive issues.

There may indeed by issues regarding decreased competition as a result of the merger, but the reasons the EU’s Executive Committee cited in their November 9, 2009, statement of formal objections have it wrong. But that they have it wrong isn’t really the biggest story here; the big issue is about how “old school” approaches to thinking about antitrust do not apply any more in our modern world of global innovation and Open Source software.

What the EU complained about is the potential antitrust issue of bringing Sun’s MySQL database software under the same ownership as Oracle’s own powerful and dominant corporate database software.

At a surface level, that just might sound logical. After all, Oracle had about 43% of the corporate database market in 2008 according to a Gartner research study. And Sun’s MySQL database is the most popular open-source database software in the world, with over 60,000 downloads a day. Oracle’s database systems drive decision-making at massive corporate enterprises on a massive scale worldwide. And with its ubiquitous presence, the MySQL database system works on an equally massive scale on a micro market, powering everything from internal business database management systems to even the very blog entry you are reading right now.

The problem with claiming this is a major anticompetitive deal is the EU is trying to say that Oracle’s ownership of both its globally dominant proprietary Oracle database software with Sun’s “open source” software makes for a new lock on the database industry.

Even on a pure numbers basis the argument does not make sense because, for all the penetration of Sun’s MySQL database, its share is only 0.5% of the worldwide database market — again according to Gartner. So is an increase in share from 43% to 43.5% really an problem?

Ah, but this is about the brave new world of the internet and cloud computing markets, the EU might argue. MySQL is clearly the wave of that future and even if the numbers are small now, we are talking about the long-term future, after all.

Nice argument, but Open Source software is a completely different product offering category than Oracle’s proprietary “closed source” database product. Open Source software may have a single company behind it as a guiding force, but the licensing provisions of Open Source (unlike those of proprietary software) allow for others to modify, reuse, and republish the software more or less at will around the world. So even if Oracle were to attempt to use its control of MySQL to attempt major anticompetitive moves, the broad worldwide user base would likely just take its own version of MySQL and happily (and legally) propagate it elsewhere.

As someone who has overseen the move from closed source to open source product lines himself while running the Graphics organization at Silicon Graphics, I can assure you that trying to wield too much authority as the corporate parent of an Open Source product is like trying to hold tightly onto a greased pig. You get messy and the pig still ends up running where it wants to.

I agree there is something to consider here in how antitrust rules apply in a new world with a wide variety of Open Source applications. It does and will justify further study, both in the Universities who help us model such things and in the Courts who judge them.

But just as in the case of the greased pig, in this situation it is time for the European Union to let go and allow a merger with much potential to go forward.

July 7, 2009 — Mark today’s date on your calendars

July 4th may be Independence Day for the American people, but computer users may come to see Tuesday, July 7, 2009 as a standard for independence in the future. Google has just announced a new project of theirs, to develop an open-source Operating System called Chrome OS that will be available in the second half of 2010. It should boot up and run fast, be lightweight, and “start you up and get you on the web in a few seconds” as Google’s official blog says in its July 7th blog post describing the project and why they launched it.

You’ll see it first in netbooks, but with the clout of Google behind it to push industry-compatible solutions for all kinds of related software, this is a major strategic kick in the pants to both Microsoft and Apple. It is going to move fast into all the other places PC Operating Systems show up, with the only major exception probably being in the server market.

What Apple will probably do is focus yet again on its tight integration and brilliantly user-friendly applications. Based on past history, they’ll also probably find a way to create some important strategic partnerships with Google on this, at least as much as they can without — not kidding here — getting inadvertently accused of an antitrust action. This kind of approach is something Apple is very good at.

The fun begins with the other guys. So do watch carefully for what Redmond does here, and know that what they may say at the beginning of the public discourse on this is going to mean little. Because this is an even bigger threat than being “asleep at the switch” when Microsoft way-too-calmly watched Netscape almost take over the Internet browsing business. And remember how methodically and, many would say, ruthlessly Microsoft devoured its competitor.

Also note I’m not exactly rooting for Google on this either. Like Microsoft, they have their own agenda for world domination also, just of a different sort. But this is the kind of street fight that could, as they say elsewhere, make things very interesting for all of us.

Microsoft just announced that its online encyclopedia MSN Encarta will cease operations by the end of 2009, except for the Japanese edition (which I expect will shut down shortly).

Many are writing about this today as a symbol of what happens when one dares to fight the internet. The message seems to be that Wikipedia, an encyclopedia edited and managed by its global readership, has won a sort of David-versus-Goliath-like battle with the Redmond behemoth Microsoft. If you dare fight “free” and if you dare fight “the power of the masses”, both of which are characteristics of the admittedly highly innovative concept of Wikipedia, you are doomed, it would seem.

From my perspective, the message is actually more subtle and more profound all at the same time. And that message is that any business model will eventually die unless in a constant state of regenerative growth.

At the beginning, Encarta launched by introducing its own new business idea for what an encyclopedia could be. The concept was that by providing a more user-friendly form of access to information (in the form of beautifully-illustrated CD-ROMs in the earliest incarnations), tools to allow ready cross-connecting between articles, and the always powerful stimulus of charging a much lower price than say, the Encyclopedia Brittanica, people would flock to the new publication.

Microsoft itself initially bought content for the online publication, first acquiring rights to the old Funk & Wagnalls Encyclopedia, which some of you may remember from earlier days where you purchased a volume a week at your local grocery store. They immediately added some of their own content, then augmented it again with purchased content from Collier’s Encyclopedia and the New Merit Scholar’s Encyclopedia.

Over time, Microsoft Encarta evolved into a dazzling DVD-ROM version, first as a standalone version, then with regular disc-based updates, then with integrated online and DVD versions, and pure online versions as well. It was magnificent, well (enough) researched, and my guess provided the basis for at least seven years of background content for tens of thousands of high school and college research papers. It was also fun.

What happened? Competition. Some people are blaming Wikipedia for the competition, but the true competitor is probably the search engines of Google, Yahoo!, and others, along with, of course, the wide variety of content available today on virtually any topic imaginable. Wikipedia, with its more structured gathering place of user-generated encyclopedic content, may also have sealed Encarta’s fate, but I think pointing at Wikipedia as what brought Encarta down is missing several important points.

What are some of those key points?

One is that however Encarta may have changed the details of its content over time, other than moving to combined web/CD/DVD and web-only versions it never dramatically updated its business model after the first few innovations.

A second is that, in an internet world where people demand the most up-to-date information at any given time, Encarta was still stuck in a (more or less) old-fashioned approach to presenting information that was gathered, digested, re-crafted, and disseminated very slowly.

A third is that, once again, Microsoft missed the opportunity to harness the power of social networking and information sharing. They started by first underestimating the importance of the Internet (by almost letting Netscape take over leadership as the platform of choice), then later by jumping in too late on innovations such as the Digital Music Downloads market (scooped by Apple’s iTunes), web-based telecommunications (via tools such as Skype and even now Google Voice), and even major social networking communities such as MySpace and Facebook.

So how can a company avoid this kind of fate for their own products? Clayton Christensen’s disruptive technologies model might argue that, for someone as big as Microsoft it is almost unavoidable because of the many internal barriers to considering truly revolutionary changes in a business model. I would argue instead that, by designing product categories like Encarta where every aspect of the value-adding chain involved with the product is constantly being regenerated, this could have easily been avoided.

To explain further, If you think of Microsoft’s Encarta product of having, at a simple level, a value-adding chain flowing from how content is gathered and extending to how it is distributed, you can see where Microsoft’s innovation drive was focussed: how the information was accessed, displayed, sampled, and distributed.

Where Microsoft missed a critical opportunity was in considering how important it would be to innovate at the very beginning of the value-adding process — at the point at which new information would flow into the Encarta article directory. If Microsoft had experimented with allowing for at least some degree of user-generated content to be included, that could in and of itself have provided the impetus for further innovations that only a company with Microsoft’s financial reserves could have brought to such a solution.

There is, of course, the additional issue that Wikipedia is free, but I still believe there are other ways to re-market and reuse content of the quality that Encarta could have been presenting (even from a user-generated basis). This is also a place where targeted advertising would probably pay off well, since those doing research (such as in encyclopedias) tend to stay on sites longer than for others.

Having said all that, a logical question is as to whether there is something that will eventually put Wikipedia out of business. The answer, without question, is yes. Whether it is a tool such as James Burke’s “The Knowledge Web” where knowledge connections may build deeper understandings of any, or perhaps new immersive online learning and research environments that are still yet to be developed, something will come. And yes, Wikipedia itself could benefit from looking at a regenerative approach to its own “business model” as it looks to stay ahead in the future — because even non-profits do have a model to nurture. But as with all things there will eventually be a new idea that will come forward that will make Wikipedia look old-fashioned on its own.

Please take a moment of silence to memorialize the gentle passing of Encarta in 2009, and to honor the creativity and vision that brought it into place in the first place.

Comments and questions? Write a comment below, or contact us directly at ideas@stranova.com.

This is for all of Congress and the new Obama administration: It is time to stop bailing out companies and start demanding strategic change in the way our economy works.

Perhaps I am stating the blindingly obvious, but if your ship is leaking badly, just bailing it out is an exercise in futility. Further, even if if you patch the leak, if the reason why the leak happened in the first place is still there, it is going to leak again. You have to do something more, something systemic, to change the future course of events.

And, with all due respect to the experience and sincerity of those leading our current economic fix-it programs, we are not only doing a poor job of bailing out the current economy, we are also laying the groundwork for an even bigger mess in the future.

Yes, there is an economic crisis out there well beyond the ability of any individual to possibly comprehend, and emergency measures were called for. I get that. Many banks and other financial institutions are falling apart, triggered in part by the domino effect of bad mortgages, the layering of complex financial instruments on top of each other, and complicit greed at every level of the structure. The stock market has plummeted, free cash is drying up, small businesses and individuals can’t get credit, and job losses are staggering.

There is also a corresponding crisis of confidence in what lies ahead for all of us, very much in part because the economic mess is so complex to understand.

All of which is why the vast majority of the American public was in agreement with the initial authorization of bailout funds when Congress voted for them. Something had to be done. Quickly.

As time has moved forward since those funds were approved, two things have become very clear. The first is that releasing them quickly (and moving rapidly to deploy them) has indeed probably kept many banks from failing. The second is that it we seem have done almost nothing to deal with the underlying processes and root causes that catapulted us into this particular mess.

Think about it. One financial enterprise begins to tip and the Fed arranges a shotgun wedding to merge it with a bigger enterprise, again and again. Weakened companies are grabbed by other, temporarily healthier, entities. Bank of America acquires Countrywide, one of the home mortgage companies that started the dominoes falling. JPMorgan Chase acquires Washington Mutual. Wells Fargo buys Wachovia. Bank of America comes back again and acquires Merrill Lynch. We may be preventing bank failures but we are building larger companies which could fail just as easily some time in the future.

One of the major complaints about those institutions that received the money and the mergers that happened in parallel is that there was no requirement to have these companies actually help out the American public in the process. Helping out could mean lower interest rates for mortgages and credit cards, plus easier access to loans both for individuals and small businesses, and — with no requirements tied to the bailout funds — very little of that has happened, apparently. Credit card and loan rates appear to have dropped primarily because the Fed has reduced its own rates, while the lending institutions, if anything, have actually increased the margins on their customer base.

Meanwhile, these now even-bigger enterprises have announced major layoffs, with Citigroup saying it would jettison 50,000 jobs, and Bank of America up to 35,000 jobs, among others. Further, as of early 2009, as the economy continues its decline and the combined debts of the new merged companies are beginning to be fully tallied, bond ratings for these enterprises are being projected downward — fast. Oppenheimer’s analyst Meredith Whitney, quoted in an article in Reuters on January 7th, 2009, expects to see substantial increased losses by JPMorgan Chase, Bank of America, Citigroup, and Wells Fargo, which in turn will put pressure on capital markets and the U.S. government to find other ways to keep these leaking vessels afloat. She is far from alone in these predictions.

As serious as these concerns are, to me the bigger issue is that, even as we may find ways to continue to patch the new leaks to appear, we are just building bigger boats (with more weight to put pressure on the temporary patches our government is applying) while missing the chance to make major strategic change in how our financial systems — and other companies (such as the automobile industries) — will operate in the future.

Within the corporate turnarounds I have been involved with (through strategic realignment, targeted product innovation, and focussed tactical plans), crises of any kind represent a rare opportunity for strategic transformation of their businesses. There is broad acceptance that something big is wrong as well as that something even bigger is needed to change their future. Just getting the next product out or landing the next customer is understood almost never to be a solution to this scale of an issue. It is easy to get the attention of the management team and to launch big initiatives.

Unfortunately, the most we seem to be doing with our current government approaches is, after banks and others have received their bailout funds, to threaten them either not to give any more — or to take take away what has already been awarded if their situation doesn’t improve (as they have told the auto companies).

What we need instead is first to launch a high-level strategic effort to reshape the fundamentals of our economic structure. We need to tell the companies that have received these bailout funds that they must disclose previously privately-held information in order to assist that strategic effort. We need to form teams to support this which include both those who understand the system intimately as well as brilliant strategic thinkers who come from outside the existing system, so we do not get stuck in a quicksand of old ideas. And we need to prepare the American public that we are going to be shaking things up in a way never seen before.

The Titanic is sinking, people. We should insist on far more than just paying for new patches to keep it afloat.

We are running out of Renaissance People, it appears. And if the trend keeps up, the pace of true innovation in technology companies may slow to a virtual crawl.

According to a research study entitled “The Burden of Knowledge and the ‘Death of the Renaissance Man’: Is Innovation Getting Harder?”, presented by Ben Jones of Northwestern University in September 2005 — and referenced by a short article in the December 2008 issue of The Atlantic, we are in trouble.

The thesis put forth there is that technologists need to learn a great deal more than ever before in order to be put together that true breakthrough product idea. This means either more formal education and related study just to keep up with a given technology area, or becoming more narrow and specialized in one’s work. More often than not nowadays, the choice is to narrow one’s studies.

Becoming more specialized makes the learning challenge more manageable, but with that specialization comes also a critical lack of knowledge of alternative technologies and ideas. And in that vacuum one tends to see all solutions as tied to the knowledge one does understand well, just as, as the old saying goes, “when the only tool you have is a hammer, everything tends to look like a nail”.

As one who has had the privilege of leading many highly innovative teams — and continues to innovate himself — I would agree with Mr. Jones’ conclusions, amplified even more strongly than he has made them. To me the issue is even more serious because, as we’ve chased deeper understanding of the fringes of technology, we’ve not only lost critical breadth in our technology understanding, we’ve also lost the strong cross-field connections (whether with different technologies or perhaps between technology and the humanities in general).

I personally come from an unusual educational background where my undergraduate technology college, Harvey Mudd, insisted on — and still requires — a very high percentage of non-major course work. I, for example, majored in Physics and minored in English Literature (a serious pursuit that I’ve continued over time, even if it doesn’t bring home the income that the major has). My graduate work was focussed solely in the specific disciplines of Optical and Electrical Engineering (for two different degrees), but even then I was allowed considerable freedom to explore a wider range of topics within those disciplines than is true today.

With the increased emphasis on specialization, organizations of all kinds that require high innovation to stay ahead in their fields try to make up for this by bringing together people from different areas of specialization in intense collaborative efforts. Online collaborative technologies of all kinds are helping bring these people together, and companies also harnessing what is referred to as “Open Innovation”, to leverage ideas from customers, strategic partners, and even what were once thought of as pure competitors to assist in innovating. Many people, such as in the recent New York Times‘ 12/5/08 article entitled “For Innovators, There is Brainpower in Numbers”, applaud these approaches.

All of this works to some extent, but I still believe the strongest innovations are ones where individuals are trained broadly enough so they can sense into where the edges of one technology (or business) ecosystem might just flow nicely into the edges of another such ecosystem. You’ve probably seen it yourselves in your own business, when one of your brighter employees takes the time to investigate something they’ve never explored before. They suddenly have insights and new ideas they would never have considered before. Just bringing highly-specialized people together has nowhere near the same innovative potential.

There are ways to work with this within your existing groups. The most innovative companies, such as Google (in Information Technology), IDEO (in Industrial Design), and Apple (in consumer products) make building these cross-discipline bridges a critical part of their creative process.

But if we continue down the path Mr. Jones warns us of in his research paper, we are going to end up with fewer and fewer of the true “Renaissance People” that in the past have been the source of our most brilliant innovations. Neither Soichiro Honda, the Wright Brothers, Thomas Edison, nor Isaac Newton could have done what they did without broad cross-discipline understanding. In the present day, I would argue that the founders of most modern technology businesses would never have made their companies what they are today without such an understanding as well.

And for them, as with the esteemed Leonardo da Vinci whose face graces the beginning of this article, it all started with the educational process and from the earliest ages. We must insist on a return to those cross-disciplinary explorations as part of our fundamental learning processes if we are to stay truly competitive.

Finally, within the organizations we lead and with those we employ now, we should insist on taking some of the best and brightest in our midst and giving them the opportunity to play in areas they’ve never touched before. Because it may be that only by doing so will we continue to make the breakthroughs that can solve the critical problems of global warming and global health issues, among others, while at the same time enabling us to continue to enjoy the increasing quality of life that we hope to leave for future generations.