Ten critical elements for an open innovation culture

Stefan Lindegaard, INTRAP

In our Leadership+Innovation community on LinkedIn, Chris Thoen who is a R&D Director at Procter & Gamble, asked which elements are needed in order to create an open innovation culture. Our community had an interesting discussion and I want to share the key elements that came up.

- Willingness to accept that not all the smart people work for your company. We need to work with smart people inside and outside our company.

- Willingness to strive for balance between internal and external R&D. External R&D can create significant value; internal R&D is needed to claim some portion of that value.

- Willingness to give part of the control to others. We don’t have to originate the research to profit from it. We don’t need to control everything from the cradle to the grave.

- No need to always be first. Building a better business model is better than getting to market first.

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Useless Innovation

I'm getting irritated by useless innovation. I see it everywhere. My attempt to define it is innovation that adds function or changes form without an increase in utility in order to increase price or comparative differentiation. Seen any of that?

Two American Families: Complexity At Work?

It’s a central premise of the American dream: If you’re willing to work hard, you’ll be able to make a living and build a better life for your children. But what if working hard isn’t enough to ensure success — or even the basic necessities of daily life?

FRONTLINE’s Two American Families follows two ordinary families who have spent the past 20 years in an extraordinary battle to keep from sliding into poverty.

The film, a collaboration with veteran PBS journalist Bill Moyers, who has followed the Stanleys and the Neumanns over the years, raises unsettling questions about the changing nature of the American economy and the fate of a declining middle class.

“He will not be able to see the retirement, you know, that he probably would hope for when he was working at A.O. Smith,” say Keith Stanley, the son of Claude Stanley who was laid off from a steady, good paying job in the early ’90s. “That’s just not a reality. My heart goes out to that generation that was promised something from America, by America, that they would have a better life and that’s not the case anymore.”

Here's my comments on the structural change and the implications if the system that changed is a complex system in a critical state. Click to listen.

The Making of the Atomic Bomb

Really great book - a mix of the history of science and technology with personalities and social-political forces. It reads like a detective story with questions of morality raised but unanswered. The book is long – 886 pages, but it is definitely worth the effort. I’ve collected a few examples from the book that I really liked. I have not put them in quotes but they all come straight from the book. In some cases I’ve added my footnotes to help understand the selection.

I hope that someone writes a screen play around the struggles that the emigrant scientists had with politicians and the military when they tried to convey the potential of the atomic and later the thermonuclear bombs, and their impacts on political systems.

This is a personal selection of excerpts that appealed to me as I read the book. It’s by no means complete. For an excellent review, read the New York Times book review, “The Men Who Made the Sun Rise” by William J. Broad (http://www.nytimes.com/books/99/09/19/specials/rhodes-making.html)

The Making of the Atomic Bomb by Paul Schumann

Complexity and Economic Growth

“Over the past two centuries, mankind has accomplished what used to be unthinkable. When we look back at our long list of achievements, it is easy to focus on the most audacious of them, such as our conquest of the skies and the moon. Our lives, however, have been made easier and more prosperous by a large number of more modest, yet crucially important feats. Think of electric bulbs, telephones, cars, personal computers, antibiotics, TVs, refrigerators, watches and water heaters. Think of the many innovations that benefit us despite our minimal awareness of them, such as advances in port management, electric power distribution, agrochemicals and water purification.

This progress was possible because we got smarter. During the past two centuries, the amount of productive knowledge we hold expanded dramatically. This was not, however, an individual phenomenon. It was a collective phenomenon. As individuals we are not much more capable than our ancestors, but as societies we have developed the ability to make all that we have mentioned – and much, much more.

Modern societies can amass large amounts of productive knowledge because they distribute bits and pieces of it among its many members. But to make use of it, this knowledge has to be put back together through organizations and markets. Thus, individual specialization begets diversity at the national and global level. Our most prosperous modern societies are wiser, not because their citizens are individually brilliant, but because these societies hold a diversity of know how and because they are able to recombine it to create a larger variety of smarter and better products. The social accumulation of productive knowledge has not been a universal phenomenon. It has taken place in some parts of the world, but not in others. Where it has happened, it has underpinned an incredible increase in living standards. Where it has not, living standards resemble those of centuries past. The enormous income gaps between rich and poor nations are an expression of the vast differences in productive knowledge amassed by different nations. These differences are expressed in the diversity and sophistication of the things that each of them makes, which we explore in detail in this Atlas.

Just as nations differ in the amount of productive knowledge they hold, so do products. The amount of knowledge that is required to make a product can vary enormously from one good to the next. Most modern products require more knowledge than what a single person can hold. Nobody in this world, not even the saviest geek nor the most knowledgeable entrepreneur knows how to make a computer. He has to rely on others who know about battery technology, liquid crystals, microprocessor design, software development, metallurgy, milling, lean manufacturing and human resource management, among many other skills. That is why the average worker in a rich country works in a firm that is much larger and more connected than firms in poor countries. For a society to operate at a high level of total productive knowledge, individuals must know different things. Diversity of productive knowledge, however, is not enough. In order to put knowledge into productive use, societies need to reassemble these distributed bits through teams, organizations and markets.

Accumulating productive knowledge is difficult. For the most part, it is not available in books or on the Internet. It is embedded in brains and human networks. It is tacit and hard to transmit and acquire. It comes from years of experience more than from years of schooling. Productive knowledge, therefore, cannot be learned easily like a song or a poem. It requires structural changes. Just like learning a language requires changes in the structure of the brain, developing a new industry requires changes in the patterns of interaction inside an organization or society.

Expanding the amount of productive knowledge available in a country involves enlarging the set of activities that the country is able to do. This process, however, is tricky. Industries cannot exist if the requisite productive knowledge is absent, yet accumulating bits of productive knowledge will make little sense in places where the industries that require it are not present. This “chicken and egg” problem slows down the accumulation of productive knowledge. It also creates important path dependencies. It is easier for countries to move into industries that mostly reuse what they already know, since these industries require adding modest amounts of productive knowledge. By gradually adding new knowledge to what they already know, countries economize on the chicken and egg problem. That is why we find empirically that countries move from the products that they already create to others that are “close by” in terms of the productive knowledge that they require.

The Atlas of Economic Complexity attempts to measure the amount of productive knowledge that each country holds. Our measure of productive knowledge can account for the enormous income differences between the nations of the world and has the capacity to predict the rate at which countries will grow. In fact, it is much more predictive than other well known development indicators, such as those that attempt to measure competitiveness, governance and education.

A central contribution of this Atlas is the creation of a map that captures the similarity of products in terms of their knowledge requirements. This map provides paths through which productive knowledge is more easily accumulated.

We call this map, or network, the product space, and use it to locate each country, illustrating their current productive capabilities and the products that lie nearby. Ultimately, this Atlas views economic development as a social learning process, but one that is rife with pitfalls and dangers. Countries accumulate productive knowledge by developing the capacity to make a larger variety of products of increasing complexity. This process involves trial and error. It is a risky journey in search of the possible. Entrepreneurs, investors and policymakers play a fundamental role in this economic exploration.

By providing rankings, we wish to clarify the scope of the achievable, as revealed by the experience of others. By tracking progress, we offer feedback regarding current trends. By providing maps, we do not pretend to tell potential explorers where to go, but to pinpoint what is out there and what routes may be shorter or more secure. We hope this will empower these explorers with valuable information that will encourage them to take on the challenge and thus speed up the process of economic development.”

From the Preface of The Atlas of Economic Complexity: Mapping Paths to Prosperity, Hausmann, Hildago, et al, http://atlas.media.mit.edu/media/atlas/pdf/HarvardMIT_AtlasOfEconomicComplexity_Part_I.pdf

The Gardens of Democracy

This little book is a "must read" for every thinking citizen of America. It offers some fresh thoughts about the issues we face and potential solutions. In actuality, it is neither liberal nor conservative, but a third position, a new progressive based on the newer sciences, especially complexity. The central paradigm shift described in this book is from "machine brain" to "garden brain".

“The failure of American politics to address and solve the great challenges of our time-climate change, debt and deficits, worsening schools, rising health care costs, the shriveling of the middle class-is not just a failure of will or nerve. It is equally a failure of ideas and understanding. And the failure to address these challenges isn't just a matter of politics, but of survival.

To begin with, we labor today under a painfully confining choice between outmoded ideologies on both the left and the right. On the left, too many remain wedded to paradigms first formed during the decades between the Progressive Era and the New Deal. They are top-down, prescriptive, bureaucratic notions about how to address social challenges. These state-centric approaches made sense in a centralizing, industrializing America. They make much less sense in the networked economy and polity of today.

On the right, we hear ideas even more historically irrelevant: laissez-faire economics and a "don't tread on me" idea of citizenship that might have been tolerable in 1775 when the country had 3 million largely agrarian inhabit-ants, only some of whom could vote, but is at best naive and at worst destructive in a diverse, interdependent, largely urban nation of over 300 million.

Our politics has become an over-rehearsed, over-ritualized piece of stage combat between these two old ideologies. False choice after polarizing false choice emanates from Washington. Both ideologies-indeed, the surrender of American politics to ideology itself, and the abandonment of pragmatism as a guiding political philosophy- make it harder by the day for America to adapt.

We wrote this short book to offer a new way. We aim to reach not "moderates" or "centrists" who split the difference between left and right. We aim to reach those who think independently. That might mean those who claim no party affiliation, though it also includes many loyal Democrats and Republicans. It definitely means those who are uncomfortable being confined by narrow choices, old paradigms, and zero-sum outcomes.

If you can hold these paired thoughts in your head, we wrote this book for you:

• The federal government spends too much money. The wealthy should pay much more in taxes.

• Every American should have access to high-quality health care. We spend far too much on health care in the United States already.

 • We need to eliminate our dependence on fossil fuels. We need to ensure our economy continues to grow.

 • Unions are a crucially important part of our economy and society. Unions have become overly protectionist and are in need of enormous amounts of reform.

 • We need strong government. We need strong citizens.

Contemporary American political discourse sees these pairings as either-or. Independent-thinking Americans see them as both-and. Our goal in these pages is to push past the one-dimensional, left-right choices of contemporary politics-between more government or less, selfishness and altruism, suffocating collectivism and market fundamentalism-and find orthogonal approaches to our challenges. The great challenge of this age-and the point of this book-is to rethink how we as citizens create change, how the economy truly works, and what government fundamentally is for. The great challenge of this age is to change how we see, and by so doing, improve our ability to adapt.”

 I don’t personally think that the metaphors of machinebrain and gardenbrain as all that useful, and may be confusing, if it helps people to understand the concepts, then OK.

 “This is not just about economics or politics; it's about imagination and our ability to conceive of new ways of conceiving of things. It is about our ability to adapt and evolve in the face of changing circumstances and the consequences of our actions. History shows that civilizations tend eventually to get stuck in the patterns that had brought them success. They can either stay stuck and decay, or get unstuck and thrive.

We posit in these pages that this country has for too long been stuck in a mode of seeing and thinking called Machinebrain. We argue that the time has come for a new mode of public imagination that we call Gardenbrain.

Machinebrain sees the world and democracy as a series of mechanisms-clocks and gears, perpetual motion machines, balances and counterbalances. Machinebrain requires you to conceive of the economy as perfectly efficient and automatically self-correcting. Machinebrain presupposes stability and predictability, and only grudgingly admits the need for correction. Even the word commonly used for such correction-"regulation"-is mechanical in origin and regrettable in connotation.

Gardenbrain sees the world and democracy as an entwined set of ecosystems-sinks and sources of trust and social capital, webs of economic growth, networks of behavioral contagion. Gardenbrain forces you to conceive of the economy as man-made and effective only if well constructed and well cared-for.

 Gardenbrain presupposes instability and unpredictability, and thus expects a continuous need for seeding, feeding, and weeding ever-changing systems. To be a gardener is not to let nature take its course; it is to tend. It is to accept responsibility for nurturing the good growth and killing the bad. Tending and regulating thus signify the same work, but tending frames the work as presumptively necessary and beneficial rather than as something to be suffered.

Machinebrain treats people as cogs: votes to be collected by political machines; consumers to be manipulated by marketing machines; employees to be plugged into industrial machines. It is a static mindset of control and fixity, and is the basis of most of our inherited institutions, from schools to corporations to prisons.

Gardenbrain sees people as interdependent creators of a dynamic world: our emotions affect each other; our personal choices cascade into public patterns, which can be shaped but rarely controlled. It is a dynamic mindset of influence and evolution, of direction without control, and is the basis of our future.

 Machinebrain allows you to rationalize atomized selfishness and a neglect of larger problems. It accepts social ills like poverty, environmental degradation, and ignorance as the inevitable outcome of an efficient marketplace. It is fatalistic and reductionist, treating change as an unnecessary and risky deviation from the norm.

Gardenbrain recognizes such social ills and the shape of our society as the byproduct of man-made arrangements. It is evolutionary and holistic, treating change as the norm, essential and full of opportunity. It leads you to acknowledge that human societies thrive only through active gardening.

Gardenbrain changes everything.”

The authors write:

“We acknowledge that we could have written separate books on these three topics: citizenship, economy, role of government. But our aim was precisely to show that these things are connected-not least by a need for new thinking and new seeing. In making our book short, we know that we trade detail for perspective. We simply believe this is a time when perspective matters most.

Thus we close the book by trying to put into historical context the need for America now to grow up-and the need for us to understand freedom not only as personal liberty but also as the collective force that fuels adaption and survival. Our extraordinary experiment in democracy and capitalism is over 230 years old. We Americans are not children anymore. Indeed, some think that the nation is in rapid decline. We completely disagree. We think of America as an adolescent or young adult coming into our prime, full of promise, energy, and enthusiasm for the challenges of our times-but in need of maturation of thought, habit, and awareness. The words enshrined in the Jefferson Memorial, written 40 years after the Declaration and 43 years before Darwin authored Origin if Species, capture this spirit perfectly:

I am not an advocate for frequent changes in laws and constitutions. But laws and institutions must go hand in hand with the progress of the human mind. As that becomes more developed, more enlightened, as new discoveries are made, new truths discovered and manners and opinions change, with the change of circumstances, institutions must advance also to keep pace with the times. We might as well require a man to wear still the coat which fitted him when a boy as civilized society to remain ever under the regimen of their barbarous ancestors.”

Later, they write:

“Our century is yielding a second Enlightenment, and the narrative it offers about what makes us tick, individually and collectively, is infinitely more sophisticated than what we got the last time around. Since the mid -1960s, there have been profound advances in how we understand the systemic nature of botany, biology, physics, computer science, neuroscience, oceanography, atmospheric science, cognitive science, zoology, psychology, epidemiology, and even, yes, economics. Across these fields, a set of conceptual shifts is underway:

Simple → Complex

Atomistic → Networked

Equilibrium → Disequilibrium

Linear → Non-linear

Mechanistic → Behavioral

Efficient → Effective

Predictive → Adaptive

Independent →Interdependent

Individual ability → Group diversity

Rational calculator → Irrational approximators

Selfish → Strongly reciprocal

Win-lose → Win-win or lose-lose

Competition → Cooperation

These shifts, of course, are not as clean or simple as they may appear in such a list. We acknowledge that there are volumes of nuance condensed here. But at a macro level, these shifts are real, consequential, and too often unseen.”

In my opinion, most of these shifts are encompassed by complexity science, game theory and evolution.

A summary of the concepts developed in this book are:

• Self interest: true self interest is mutual interest

• Great citizenship: society becomes how you behave

• True capitalism: we're all better off when we're all better off

• Self government: big what, small how  

The Gardens of Democracy: A New American Story of Citizenship, the Economy, and the Role of Government Eric Liu and Nick Hanauer Sasquatch Books, Seattle, 2011, 173p

Hedy Lamarr: Inventor

Hedy Lamarr(real name Hedwig Kiesler) was an Austrian-American actress celebrated for her great beauty and a major contract star of MGM's "Golden Age". During my childhood, she represented the popular image of beauty.

You can image my surprise to find in reading a review entitled “Brainy Beauty” by John Adams in The New York Times Book Review, 12/18/11 of new book, Hedy’s Folly: The Life and Breakthrough Inventions of Hedy Lamarr, the Most Beautiful Woman in the World by Richard Rhodes, Doubleday, 2011, that she was also an inventor.

She collaborated with George Antheil, known as a musical anarchist, to create new weapons systems.

“What drew Rhodes to the twin story of the Bad Boy of Music and "the most beautiful woman in the world" was their invention of a radio-controlled "spread spectrum" torpedo-guidance system, for which they received a patent in 1942.

That a glamorous movie star whose day job involved hours of makeup calls and dress fittings would spend her off hours designing sophisticated weapons systems is one of the great curiosities of Hollywood history. Lamarr, however, not only possessed a head for abstract spatial relationships, but she also had been in her former life a fly on the wall during meetings and technical discussions between her munitions-manufacturer husband and his clients, some of them Nazi officials. Disturbed by news reports of innocents killed at sea by U-boats, she was determined to help defeat the German attacks. And Antheil, arguably the most mechanically inclined of all composers, having long before mastered the byzantine mechanisms of pneumatic piano rolls, retained a special genius for "out of the box" problem solving.

Over several years the composer and the movie star spent countless hours together drafting and redrafting designs, not only for the torpedo system but also for a "proximity fuse" antiaircraft shell. In reality, their patent was an early version of today's smart bombs. The device as they made it employed a constantly roving radio signal to guide the torpedo toward its target. Because the signal kept "hopping" from one frequency to another, it would be impossible for the enemy to lock onto. To solve the problems of synchronizing receiver and transmitter, Antheil proposed a tiny structure inspired by the workings of a piano roll. This was a feat that years later would be used in everything from cell phone and Bluetooth technology to GPS instruments.

On Aug. 11, 1942, United States Patent No. 2,292,387 was granted to them for their design. But persuading the Navy to take it seriously proved insurmountable~ Pentagon bureaucracy, coupled with the fact that the design's co-inventor was a movie star, resulted in their idea being ignored. Hedy's folly may have been in assuming men in government might overcome their prejudice that a beautiful woman could not have brains and imagination. But she lived to see similar versions of her invention be put into common practice, and in 1997, Hedy Lamarr, at the age of 82, and George Antheil (posthumously) were honored with the Pioneer Award by the Electronic Frontier Foundation.”

Conservative and Liberal Moral Values

Jonathan Haidt on the moral roots of liberals and conservatives

Psychologist Jonathan Haidt studies the five moral values that form the basis of our political choices, whether we're left, right or center. In this eye-opening talk, he pinpoints the moral values that liberals and conservatives tend to honor most.



The Righteous Mind

Bill Moyers and moral psychologist Jonathan Haidt talk about the psychological underpinnings of our contentious culture, why we can’t trust our own opinions, and the demonizing of our adversaries. Also, a Bill Moyers essay on why Newt Gingrich might be afraid of Saul Alinsky.

Creating Jobs

It’s very frustrating listening to all the political talk, commingled with chest thumping, about creating jobs. As it reflects our society, it’s all about increasing, decreasing or allocating taxes and regulations. We’ve created a financial industry based on the same concept – manipulation of money and regulation – that brought us to our knees when the house of cards collapsed, and we’re still in the same position.

The way to create jobs is through innovation that creates wealth and improves the common weal. This requires the ennobling, enabling, empowering and encouraging of the people.

Here are a few suggestions:

• Corporations are very profitable and are sitting on a pile of cash. Invest that money by hiring Americans to work on innovations that create value throughout the world. (Are they sitting on that cash and not investing it because they want an even more laissez faire government?)
• Invest in innovations that enable American workers to create value through innovation
• Reduce the inequity in wealth and income in America so that Americans can buy houses, consume goods and invest in the future
• Stop being a tool of business and start using business as a tool
• Establish the ethos that a corporation is a form granted by and for the people
• Hold business responsible for taking the easy way of reducing costs by out sourcing and off shoring. Have them innovate to reduce costs and invest in the people to produce new value through innovation.
• Just like American citizens have to renounce all other citizenship, American business should be required to pledge allegiance to America.
  

The first part of this post was published 9/8/11. The following was posted on 9/23/11.

Listen to this interview of Michigan's former Governor Jennifer Granholm. She is the first person I've heard that speaks clearly about the problem of creating jobs and makes sound suggestions about how to accomplish that objective.

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Exclusive - Jennifer Granholm Extended Interview Pt. 1
www.thedailyshow.com
Daily Show Full Episodes Political Humor & Satire Blog The Daily Show on Facebook

And, then here's some comments from Elizabeth Warren, former Special Advisor for the United States Consumer Financial Protection Bureau.

Sublime Collaboration

An innovative and beautiful demonstration of international collaboration.


In a moving and madly viral video last year, composer Eric Whitacre led a virtual choir of singers from around the world. He talks through the creative challenges of making music powered by YouTube, and unveils the first 2 minutes of his new work, "Sleep," with a video choir of 2,052.

Lux Arumque

Sleep

Scaling in Biological, Business and Social Systems

There are some extremely powerful and useful concepts only introduced here. This requires more study to really absorb. As I understand it one of the implications of this work is that innovation is key to the survival of cities, but doesn't help much for companies.

Physicist Geoffrey West has found that simple, mathematical laws govern the properties of cities -- that wealth, crime rate, walking speed and many other aspects of a city can be deduced from a single number: the city's population. In this mind-bending talk from TEDGlobal he shows how it works and how similar laws hold for organisms and corporations.

Language as the Root of Cooperation and Intellectual Property

Biologist Mark Pagel shares an intriguing theory about why humans evolved our complex system of language. He suggests that language is a piece of "social technology" that allowed early human tribes to access a powerful new tool: cooperation.

Delivering Happiness

This appears to be customer delight redux from our book in 1994: Innovate: Straight Path to Quality, Customer Delight and Competitive Advantage. To read about our model read:

Stop Trying to Delight Your Customers...Not!

The Colbert Report
Get More: Colbert Report Full Episodes,Political Humor & Satire Blog,Video Archive

Guide to Becoming a Corporate Innovant

Innovation within a corporation (or any other enterprise) results from the productive application of creativity within a box. And, as anyone experienced in corporate life knows, innovating within the box is quite often more difficult than innovating outside the box. And, in truth, most corporations don't want out of the box innovations as they are generally too risky, disruptive and often misinformed.

Sir N. O. Vant originated as part of an innovation enhancement program in IBM in the 1980s. He was devised as a play on words and a metaphor easily recognized, a gallant knight. I apologize immediately to the females of the business world for it was not and still is not my intent to offend anyone or suggest that females could not be innovants. Sir N. O. Vant represents the limits of my imagination to create a character or set of characters that would be gender neutral. So, with apologizes to the women in business who are certainly more than damsels in distress, I offer our gallant knight.

The character of Sir N. O. Vant developed over the seven years that the innovation enhancement program ran, and were a feature in each edition of an internal magazine, Creativity!, with a distribution of over 60,000 technical profesionals. All of the cartoons are creatively drawn by Scott Byers. Each episode features our fearless knight, Sir N. O. Vant, undertaking some perilous activity to bring a new idea into a business. Each is accompanied by a short description expounding on the principle. The colloquialisms represented by the cartoons are drawn from my experience innovating inside IBM, research and experience as a consultant. They began when I was asked to share my personal experiences in IBM as an internal entrepreneur. They were part of a presentation I gave many times within IBM.

The context for these thoughts is an individual inside of a large organization with a strong and resilient culture, often portrayed as the dragon.

I hope in this series of cartoons and brief essays to show that there are some practices you can follow which will help you do what you have resoundingly said you want to do -- innovate, be a change master, an intrapreneur, an innovant.

Some definitions:
Innovant: Having innovations
Innovation: The introduction of something new; something which deviates from an established doctrine or procedure; something that differs from existing forms
Intrapreneur: A person within a large corporation who takes direct responsibility for turning an idea into a profitable finished product through assertive risk-taking and innovation

Paul Schumann
April 1, 2011
Austin, Texas

Guide to Becoming a Corporate Innovant

The Power of the People

The Power of the People, Dave Munger, Seed Magazine, 12/22/10

"Some of the most influential scientists in history, from Franklin, to Lavoisier, to Mendel, weren’t formally educated in their fields of study. They just took an interest, and started conducting experiments, sometimes in their own back yards. But more recently, the specialized tools of science have put new discoveries out of reach for ordinary people. Now that dynamic is beginning to change again.

The internet has spawned a fantastic explosion in science that allows non-experts to actually participate in science by interacting with scientific data itself. I wrote about several such projects last year. Now, in just the past week, two new public tools for analyzing data have been unveiled, from two very different fields of study.

First, the Zooniverse project has released its newest endeavor, called The Milky Way Project. One of the astronomers working on the project, Sarah Kendrew, explained how the project works on her blog last week. Users from among the hundreds of thousands registered with Zooniverse log in to their accounts and are shown images of the Milky Way from the Spitzer Space Telescope. Their job: To identify regions known as “bubbles,” areas of gas and other debris that appear to be arranged in nearly-spherical structures."

***

"But the Milky Way Project was upstaged a bit last week by another project that allows anyone to dig deep into data of a different sort: a significant percentage of the entirety of books that have ever been published. The project’s founders are calling it “culturomics,” and their first journal article on the topic was published last week in Science. The research has been discussed extensively on blogs, but the best way to experience the work might just be to visit the tool Google developed that allows anyone to see a cross-section of a vast dataset: the Books Ngram Viewer. Type in any word (or several words or short phrases separated by commas), and you’ll instantly be presented with a graph showing the how frequently that word has been used over the past two centuries. Here’s the graph I made for macaroni and spaghetti, showing that macaroni was the more popular term until about 1950, and spaghetti was essentially unheard of before 1880."

***

"Projects like Zooniverse and Google’s Ngram Viewer represent crowd-sourcing on the grandest scale yet achieved. What I’d like to see next is an analysis of the crowds who are using these tools. What words do people look up? What methods do they use to identify galaxies and bubbles—and how long do they persist at it? The answers to these questions may, in turn, lead to even more powerful tools—and a greater understanding of our world."

Read More

Here's an example that I tried of the Books Ngram Viewer. I searched for two words that I think should go together: innovation and commons:

You can see that the word commons has been dropping for a long time, and innovation has been rising. Interesting. Don't know what it means but it's another cool tool.

On Competitive Collaboration

On Competitive Collaboration, Rolf Heuer, Seed Magazine, 11/26/10

"Fundamental science drives technology and innovation, laying the foundations for progress and improvement. It’s hard to find a company that does not rely on the fruits of basic research in carrying out its day-to-day business. Basic research is the lifeblood of industry—without it, there would be no science to apply, and any commitment to improving the state of the world would be bound to fail.

The timescale from lab to marketplace is often long, far longer than any political cycle, and for that reason basic science is rarely a top priority for government decision makers. So, under pressure to deliver quick results, science policy frequently strives to identify those areas of applied science that can mature before the next election. Thankfully, humans are curious by nature, so basic research continues to attract some of the brightest minds, and a reasonable share of the funding. It’s just as well, since without it progress would slowly come to a halt."

***

"Science and its technological spin-offs are not the only ways in which the LHC* community can contribute to improving the state of the world. Since taking up my mandate as director general of CERN, I have found myself responding to as many questions about the management of the particle-physicists community as about the science itself. Can you run a $10 billion project with hundreds of partners on the basis of consensus? Does competitive collaboration really work? Are there lessons for the business community in how basic science is adapting to an increasingly globalized world? The answer to all these questions is clearly yes. As well as generating knowledge and driving innovation, the way we manage “big science” can serve as a role model for a wider section of society.

Globalization comes naturally to particle physicists. Traditionally, the big labs such as CERN have provided infrastructure that has been open to scientists from around the world. Typically, there have been at least two such facilities in the world addressing the same scientific questions from different angles and engendering a spirit of collaborative competition—two words that do not usually sit comfortably together. What this has shown is that governance by consensus, fueled by collaboration and competition, can deliver outstanding results.

A deeper understanding of the universe, new technologies, and a role model for managing broadly distributed and culturally varied organizations: These are outcomes of basic science that are valuable to society. And it’s reasonable to expect the scientific community to deliver them in the short term. The most valuable in terms of sustained improvement of the world is the one closest to my heart—understanding the universe and in the process laying down a new seam of fundamental scientific knowledge for future generations to mine. Human ingenuity being what it is, the future will undoubtedly bring applications based on discoveries made with the LHC. Although, as with Newton’s gravity, it may be some time before we’re privy to all of them, and to their implications. For our children and grandchildren, however, I am sure that the wait will have been worthwhile."

Read More

* LHC: The Large Hadron Collider (LHC) is the world's largest and highest-energy particle accelerator. It is expected to address some of the most fundamental questions of physics, advancing the understanding of the deepest laws of nature. Wikipedia

On the Next Internet: Grid Computing

On the Next Internet, Bob Jones, Seed Magazine, 2/9/11

"Charles Curran, a physicist who recently retired as the longtime storage consultant at CERN, remembers the old days of data access: when filling a request from a researcher was often a labor-intensive, daylong misadventure.

In the 1970s, information from CERN’s accelerators and experiments was stored on tapes, held in a huge library in the IT department, originally retrieved manually by operators and then copied to disk for the researcher. Overworked operators fell asleep, went missing for hours at a time, invented trickery to make the machines work faster, and overloaded the conveyor belts, causing tapes to fall off and disappear. Tape-retrieval robots squared off against mice (in one documented case, the mouse was found months later, desiccated) or overheated when they couldn’t reach tapes, melting their wheels in frustration. A request to see a certain tape often took 24 hours to fill.

Now the wait is about two minutes, hardly enough time to get a cup of coffee."

***

"The fundamentals of grid computing, first developed to allow complex physics projects, has led to a related technology known as cloud computing, heavily virtualized distributed computing, which has been adopted for many commercial applications. The public may not know they are using a cloud—but they are. Online banking, photo-sharing sites like Flickr, and web-based email are all examples of heavily virtualized services that exist “out in the cloud.” Making a full cycle, grid computing itself is adopting aspects of cloud technology, making more use of virtualization and setting up grid sites in the cloud. However, true grid infrastructure still excels at collaborative sharing of resources belonging to different institutions; clouds spread the resources of one domain to the rest of the world for remote access. Collaboration is the basis of all the large-scale scientific challenges (e.g., CERN has 20 member states). Projects like the LHC are too big for any one organization or one country to do alone; collaboration is the only option. The same holds for the major challenges facing society across other disciplines (energy, climate change, food production). Now that we have excellent ways to reach and share data, we have a whole new set of problems, albeit more sophisticated. Who owns freely shared data? How long should it be kept? What besides the data must be kept so we can use it? Who pays for the energy to store data? How can researchers or disciplines resistant to sharing—afraid their ideas will be poached—be encouraged in a “publish or perish’’ world?"

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The Big Short: Inside the Doomsday Machine

Felix Salmon in writing a review in Barnes and Noble Review of The Big Short[1] stated, “The Big Short is not the story of the crisis, as the crisis is commonly understood. The failure of Lehman brothers and of Fannie Mae and Freddie Mac; the stock-market crash; the bail-out of Detroit; the fevered all-nighters pulled at Treasury and the New York Fed; the fears that the entire global financial system was on the brink of collapse -- little if any of that is in this book.

Instead, Lewis has found a different story -- one which he started mining for a spectacular cover story in the December 2007 issue of Portfolio magazine, and which has culminated in this book, over two years later. It's the story of what used to be called the "subprime crisis" before it metastasized into something much larger and more dangerous than that. And it's also, like all Michael Lewis tales, a human story, which takes us deep inside unique characters like Steve Eisman and Mike Burry.

On the face of it, there's almost nothing sympathetic about these men. Their social skills are all but nonexistent; they live in a world of arcane financial analysis which might as well be a different planet for all that it has any bearing on the way that most of us live our lives; and they made their outsize profits by wagering hundreds of millions of dollars on the proposition that Americans across the country would end up being thrown out of their homes after they found themselves unable to make their mortgage payments.

What these men did was not "socially useless," to quote the chairman of the UK's Financial Services Authority, Lord Turner. It was worse than that: it was actively harmful, since they provided the fuel which kept the subprime mortgage furnace burning even when the country was running out of new junk mortgages to write.”

This is a well written story that every thinking person needs to read. We have been on a journey for a number of years that has now taken us to the position that we have two economies – the real economy and the financial economy. Coupled with that we have discovered that procedural innovations (changes in the way people interact with people) is a lot easier that product or process innovations. As a result a lot of the creative talent and innovative energy has been devoted to innovations in financial instruments so complex that they have become WMDs (weapons of mass deception). Not only did they deceive the general public, but their peers and themselves as well.

Lewis has a quote at the beginning of the book that touches on the blind faith almost everyone had in these financial instruments:

The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of doubt, what is laid before him.

-Leo Tolstoy, 1897

The unbelievable size of the transactions and greed lead inexorably towards the tragedy it was born to be. Unfortunately, the game was rigged, the ones who perpetrated the deception walked away with tens of millions of dollars while the rest of us paid. And the people who paid dearest were those who defaulted on their mortgages and lost their homes.

Quoting Salmon, the book “is that rarest of beasts in a world drowning in financial-crisis books: a new book which actually breaks news. For instance, Lewis uncovers what could possibly be the single greatest trade that any Wall Street banker ever made: in December 2006 and January 2007, Deutsche's Greg Lippmann paid an insurance premium of 0.28 percentage points to take out insurance on $4 billion of triple-A-rated bonds from Morgan Stanley's Howie Hubler. Less than a year later, that $11 million bet paid off to the tune of a whopping $3.7 billion. I'll save you the math: that's an annual return of more than 33,000%.

There's lots more where that came from: this is an assiduously-reported and beautifully-written book. There aren't many reasons to be happy about the global financial crisis, but here's one: that it brought Michael Lewis back to his roots, to produce what is probably the single best piece of financial journalism ever written.”

Here are a few excerpts from the book:

Whatever Eisman was meant to be doing got pushed to one side. His job became a single-minded crusade against the Household Finance Corporation. He alerted newspaper reporters, he called up magazine writers, he became friendly with the Association of Community Organizations for Reform Now (ACORN), which must be the first time a guy from a Wall Street hedge fund exhibited such interest in an organization devoted to guarding the interests of the poor. He repeatedly pestered the office of the attorney general of the state of Washington. He was incredulous to learn that the attorney general had investigated Household and then been prevented, by a state judge, from releasing the results of his investigation. Eisman obtained a copy; its contents confirmed his worst suspicions. "I would say to the guy in the attorney general's office, 'Why aren't you arresting people?' He'd say, 'They're a powerful company. If they're gone, who would make subprime loans in the state of Washington?' I said, 'Believe me, there will be a train full of people coming to lend money.'"

Really, it was a federal issue. Household was peddling these deceptive mortgages all over the country. Yet the federal government failed to act. Instead, at the end of 2002, Household settled a class action suit out of court and agreed to pay a $484 million fine distributed to twelve states. The following year it sold itself, and its giant portfolio of subprime loans, for $15.5 billion to the British financial conglomerate the HSBC Group.

Eisman was genuinely shocked. "It never entered my mind that this could possibly happen," he said. "This wasn't just another company -this was the biggest company by far making subprime loans. And it was engaged in just blatant fraud. They should have taken the CEO out and hung him up by his fucking testicles. Instead they sold the company and the CEO made a hundred million dollars. And I thought, Whoa! That one didn't end the way it should have." His pessimism toward high finance was becoming tinged with political ideas. "That's when I started to see the social implications," he said. "If you are going to start a regulatory regime from scratch, you'd design it to protect middle- and lower-middle-income people, because the opportunity for them to get ripped off was so high. Instead what we had was a regime where those were the people who were protected the least."

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What prepared him to see what was happening in the mortgage bond market, Paulson said, was a career of searching for overvalued bonds to bet against. "I loved the concept of shorting a bond because your downside was limited," he told me. "It's an asymmetrical bet." He was shocked how much easier and cheaper it was to buy a credit default swap[2] than it was to sell short an actual cash bond-even though they represented exactly the same bet. "I did half a billion. They said, 'Would you like to do a billion?' And I said, 'Why am I pussyfooting around?' It took two or three days to place twenty-five billion." Paulson had never encountered a market in which an investor could sell short 25 billion dollars' worth of a stock or bond without causing its price to move, even crash. "And we could have done fifty billion, if we'd wanted to."

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What struck them powerfully was how cheaply the models allowed a person to speculate on situations that were likely to end in one of two dramatic ways. If, in the next year, a stock was going to be worth nothing or $100 a share, it was silly for anyone to sell a year-long option to buy the stock at $50 a share for $3. Yet the market often did something just like that. The model used by Wall Street to price trillions of dollars' worth of derivatives thought of the financial world as an orderly, continuous process. But the world was not continuous; it changed discontinuously, and often by accident.

Event-driven investing: That was the name they either coined or stole for what they were doing. That made it sound a lot less fun than it was. One day Charlie found himself intrigued by the market for ethanol futures. He didn't know much about ethanol, but he could see that it enjoyed a U.S. government subsidy of 50 cents a gallon, and so was supposed to trade at a 50-cent-a-gallon premium to gasoline, and always had. In early 2005, when he became interested, it traded, briefly, at a 50-cent discount to gas. He didn't know why and never found out; instead, Charlie bought two rail cars' worth of ethanol futures, and made headlines in Ethanol Today, a magazine of whose existence he was previously unaware. To the intense irritation of Cornwall's broker, they wound up having to accept rail cars filled with ethanol in some stockyard in Chicago-to make a sum of money that struck the broker as absurdly small. "The administrative complexity of what we were doing was out of proportion to our assets," said Charlie. "People who were our size didn't trade across asset classes."

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A guy from a rating agency on whom Charlie tested Cornwall's investment thesis looked at him strangely and asked, "Are you sure you guys know what you're doing?" The market insiders didn't agree with them, but they didn't offer persuasive counter-arguments. Their main argument, in defense of subprime CDOs, was that "the CDO buyer will never go away." Their main argument, in defense of the underlying loans, was that, in their short history, they had never defaulted in meaningful amounts. Above the roulette tables, screens listed the results of the most recent twenty spins of the wheel. Gamblers would see that it had come up black the past eight spins, marvel at the improbability, and feel in their bones that the tiny silver ball was now more likely to land on red. That was the reason the casino bothered to list the wheel's most recent spins: to help gamblers to delude themselves. To give people the false confidence they needed to lay their chips on a roulette table. The entire food chain of intermediaries in the subprime mortgage market was duping itself with the same trick, using the foreshortened, statistically meaningless past to predict the future.

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"No," said Eisman. "It's a zero. There is zero probability that your default rate will be five percent." The losses on subprime loans would be far, far greater. Before the guy could reply, Eisman's cell phone rang. Rather than shut it down, Eisman reached in his pocket and answered it. "Excuse me," he said, standing up. "But I need to take this call." And with that, he walked out of the speech. The caller was his wife.

"It wasn't important at all," she says with a sigh. "I was a prop." After that something must have come over Eisman, for he stopped looking for a fight and started looking for higher understanding. He walked around the Las Vegas casino incredulous at the spectacle before him: seven thousand people, all of whom seemed delighted with the world as they found it. A society with deep, troubling economic problems had rigged itself to disguise those problems, and the chief beneficiaries of the deceit were its financial middlemen. How could this be?

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It was in Las Vegas that Eisman and his associates' attitude toward the U.S. bond market hardened into something like its final shape. As Vinny put it, "That was the moment when we said, 'Holy shit, this isn't just credit. This is a fictitious Ponzi scheme.'" In Vegas the question lingering at the back of their minds ceased to be, Do these bond market people know something we do not? It was replaced by, Do they deserve merely to be fired, or should they be put in jail? Are they delusional, or do they know what they're doing? Danny thought that the vast majority of the people in the industry were blinded by their interests and failed to see the risks they had created. Vinny, always darker, said, "There were more morons than crooks, but the crooks were higher up." The rating agencies were about as low as you could go and still be in the industry, and the people who worked for them really did not seem to know just how badly they had been gamed by big Wall Street firms.

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Don’t be surprised if you see this book as a movie. (His earlier book The Blind Side was made into a movie.)It would make a compelling one, and I hope that that happens. This message needs to be understood by a larger audience than the ones willing to read this great book.

By the way, although the book never mentions this, at the core issues resides our friend complexity. But that’s another story.

The Big Short: Inside the Doomsday Machine, Michael Lewis, Norton, 2010, 291pp

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[1] In finance, short selling (also known as shorting or going short) is the practice of selling assets, usually securities, that have been borrowed from a third party (usually a broker) with the intention of buying identical assets back at a later date to return to the lender. Wikipedia

[2] A credit default swap (CDS) can almost be thought of as a form of insurance. If a borrower of money does not repay her loan, she "defaults." If a lender has purchased a CDS on that loan from an insurance company, the lender can then use the default as a credit to swap it in exchange for a repayment from an insurance company. However, one does not need to be the lender to profit from this situation. Anyone (usually called a speculator) can purchase a CDS. Wikipedia