Andrew Hargadon

While we were waiting for the google of electric cars...

While the DOE was out investing in startups like electric car manufacturers Tesla ($465M) and Fisker ($528M)—or rather guaranteeing loans, the equivalent of investing minus the equity—the regular old car companies were not sitting on their hands. In fact, while Tesla has ramped up production of its $109,000 Roadster to roughly 100 units per month, Nissan has announced its new $25,000 electric car, which will go on sale in the U.S. in December.

According to the AP (Nissan), 

The Leaf, a four-door hatchback, will have a base price of $32,780, but it's eligible for a $7,500 federal tax credit for electric vehicles. That will make it cheaper to buy than electric vehicles coming from rivals and may force competitors to cut prices. But the Leaf's limited range of just 100 miles per charge for its lithium-ion battery could be a dealbreaker for some motorists.

Customers can start reserving a Leaf in the U.S. on April 20 and Nissan is aiming for 25,000 orders by December. It hopes to build and sell 50,000 of the cars around the world during the first model year. Production is starting at an existing factory in Oppama, Japan, south of Tokyo, and will expand to Nissan's factory in Smyrna, Tenn., in 2012.

It begs the question—do we really need a silicon valley startup to produce electric cars? In many ways, Microsoft, Apple, and Google were revolutionary.  These companies were uniquely configured to design, build, and sell products and services in ways that were fundamentally different from then current market leaders.  And so they led revolutions in the personal computer, software, and internet markets.  

Is a wholly new business model required for leading a revolution in electric cars?  Yes, the drive train is different, but does building electric cars, marketing electric cars, selling electric cars, and servicing electric cars require fundamentally new organizational structures, skill sets, or business models.  

If Nissan can introduce an all-electric car with the capability of producing 50,000/year (or 4,116/month), where is Tesla's advantage?  As Tesla attempts to introduce a $50,000 sedan, where will Nissan be—let alone Honda, Toyota, and who knows how many other car companies who already have the supply chains, production lines, and distribution and sales to move their own models.    

The clean tech revolution will not be fought and won where the incumbents's business models can remain intact.  If we're waiting for the google of electric cars, it's going to be a while.

The future of organizations

A friend recently asked me where I thought the future of organizations was heading.  It was one of those deceptively simple questions on which few professors can resist taking the bait.  And, like any good speculative sociologist, I think not in outcomes but in the opposing forces shaping those outcomes (letting me make forecasts without making predictions). My quick response hinged on how technology and organizations interact over time, and so was worth exploring further. 

Two of the major technological forces shaping the future of organizations today are (1) the centralization of information (enabling the flow of decision-making, coordination, and control to the core) and (2) the decentralization of capability (enabling more potent actions at the periphery)

Organizations are increasingly able to channel information to the very top levels. Those movie scenes in which White House politicians watch, in real time, the actions of soldiers in the field are not unrealistic.  Through the miracle of enterprise software, top executives at retail chains, for example, can watch and respond to the daily revenue numbers of individual stores; sales executives can track daily progress of their salesforce.  Large organizations like Walmart can now respond with a speed and flexibility unheard of for their size, or for any size 10 years ago. 

At the same time, individuals and small teams at the periphery of these organizations can now take actions that control the fates of those organizations. Two traders, Michael Swenson and Josh Birnbaum, were able to save Goldman Sachs from the subprime meltdown (Goldman's traders, not bosses, deserve credit). And Andrew Hall, a trader at Citigroup whose small group (Philbro Corp.) was able to make big bets on energy prices and, by being right, generate 10% of the net income of Citigroup for 2007 ("Trader hits jackpot in oil"). Citigroup's response reflect the dilemma posed by these opposing forces:

"Questions about the future of Phibro could add to the problems facing Citigroup and its new CEO, Vikram Pandit. A sprawling company with 300,000 employees, Citigroup is trying to nurture entrepreneurial talents like Mr. Hall, while curbing risk-taking elsewhere. The bank can ill afford to lose top performers after a tough 2007, in which it wrote off billions of dollars in failed mortgage bets." [by rogue traders, no doubt -ed]

And this is not always a good thing. Individuals and small groups at the periphery are also becoming capable of toppling those same firms. The Cavelese disaster, in which a single pilot flew recklessly low, severing a gondola cable and killing 20 civilians, triggered an international incident.  These actions, while tragic, seem to pale in comparison to business, where we've seen "rogue" (but nevertheless junior) traders like Nick Leeson and Jerome Kerviel take down  longstanding and well-respected financial institutions (Barings and Societe General).  Increasingly, we're seeing these demonstrations of the power and capability that has been created at the periphery of organizations today.ves viable.

The Red Queen within

Between these opposing forces of centralization and decentralization we have, in essence, a red queen effect.  The Red Queen is named after a character in Alice in Wonderland.  As Lewis Carrol wrote.

"It takes all the running you can do, to keep in the same place."

The Red Queen describes positive feedback loops in competitive systems--where each side advances (sometimes very rapidly) in response to each other's advances. Or, as the poet Robinson Jeffers wrote:

"What but the wolf's tooth whittled so fine
The fleet limbs of the antelope?
What but fear winged the birds, and hunger
Jewelled with such eyes the great goshawk's head?"
                (Robinson Jeffers in "The Bloody Sire", 1941)

The flow of information and decision-making to the core and of capability to the periphery in many ways reflects a Red Queen effect--a set of interdependent evolutionary forces that, by interacting with each other, creating rapid change in organizations.

The more capability flows to the periphery, the more effort will go into providing the core with control over those frighteningly large peripheral capabilities. Conversely, the more coordination and control at the core, the more the organization creates capability  on the periphery. Control without the capacity for action is wasted, and action, by definition, lives on the periphery.

This Red Queen effect has forced large organizations to simultaneously centralize decision-making and decentralize raw power. And so with all the running they must do, they are in the same place--no less secure for all of their centralized control and distributed capabilities.

And so it seems that one of the most important lessons we can be teaching our next generation of leaders is to understand and manage what will become an increasingly unstable aspect of organizational life.  The illusion of control over resources that can, on any given day, bring  the entire organization to its knees.

McCain, Ethanol, and the politics of technology

Again, there have been plenty of calls for a Manhattan project for energy. However, there is a singularly fatal flaw underlying the idea that the federal government could and should pick and back winners from the constellation of emerging technologies: politics.

When it comes to large-scale technological choices, there is too much at stake for incumbent corporations to set aside their own self-interests and pursue technologies that threaten to disrupt their comfortably ways. But corporations are not alone in pursuing their self-interests. There are always plenty of other constituents doing the same. This reality showed up again in the debate over ethanol, and Fortune caught it nicely (McCain on Ethanol).

In 2003, McCain said:

"Ethanol is a product that would not exist if Congress didn't create an artificial market for it. No one would be willing to buy it, yet thanks to agricultural subsidies and ethanol producer subsidies, it is now a very big business - tens of billions of dollars that have enriched a handful of corporate interests - primarily one big corporation, ADM. Ethanol does nothing to reduce fuel consumption, nothing to increase our energy independence, nothing to improve air quality."

Yet on an August trip to Iowa (land of corn producers and early presidential primaries), McCain said:

"I support ethanol and I think it is a vital, a vital alternative energy source not only because of our dependency on foreign oil but its greenhouse gas reduction effects"

Politics and Technology make dangerous bedfellows.

Evolving metaphors

Mike at Life on the Road has carried the conversation about MySpace in an interesting direction (see his post as well as his comments to my previous post). One of his central arguments is that social networking sites are not all that different from most other "destination" sites: places where people come to connect with similar people.

I agree with this line...in it's extreme, social networking sites are just another kind of chum to draw users in (to sell them ads, goods, and services). It's a particularly convenient kind of chum, as the users develop it for you.

Prodigy, as one of the first ISPs, started life thinking they were part mall and part newspaper--meaning they thought they were going to make money by selling ads and getting commissions on third party internet sales. Instead, users flocked to their message boards and email and, in so many words, used it as a social networking site. Prodigy's response was to begin charging by the email and by the hour for their message boards. Users left, and Prodigy never got them back.

One of the reasons to question MySpace's metaphor is to better understand what business they're in--what value they're in the business of creating--and what business they want to be in. Are they the new Viper Room, the new Mickey Mouse Club or the new NBC?

Google, as Mike notes, has done a very good job of not allowing its original metaphor (an index on steroids) to become fixed in its users' minds. Instead, their continual introduction of new tools has forced users to continually revise their assumptions about what Google is and does. More so than any one feature (like mail or calendar or maps) this series of new tools ensures that Google remains a living and evolving business concept. And its users never pigeon-hole them.

It's up to MySpace to think past the initial metaphors (their own and their users'), use the current traffic to shape a new form that is more defensible and adaptable than the current one.

MyTwoCents on MySpace

So here's a question: What is MySpace?

Aristotle once said:

The greatest thing by far is to be a master of metaphor; it is the one thing that cannot be learnt from others; and it is also a sign of genius, since a good metaphor implies an intuitive perception of the similarity in the dissimilar. (De Poetica)

Organizations--especially startups--must also master the metaphor.

I'll be the first to admit that emerging technologies are tethered to the market's dominant metaphors, which are built from people's current and past experiences. We make sense of the new only in terms of the old.

But I have also argued the issue is not whether new technologies are interpreted through old frames, but which old frames. This weekend, after reading both a WSJ story on MySpace (MySpace, ByeSpace) and a parent's experience with facebook.com (Facebook... ), I saw the enormous leverage of a good metaphor in business.

So what is MySpace?

Is it the next media platform--a new company with the reach and influence of an NBC? Does its phenomenal ascendance and enormous population of demographically perfect users mean it is the platform that will usher in a new golden age for marketers. What they last saw in the 1950's with television and its ability to reach 75% of the viewing audience at a single moment? Is MySpace the next television?

Or it is not the network but rather the hot show--the Mickey Mouse Club or Davy Crockett that sold millions of mouse-eared hats and coon-skin caps. The kids across America who watched these shows were the canaries in the marketing coalmines (pardon my own metaphors), giving advertisers a glimpse into the power of that new medium to create and drive buying behavior from the ground up. Before then, kids were an elusive target and, a few decades later, were so bombarded with advertising that no one message carried as much weight. Is MySpace a glorified, 24/7 Mickey Mouse Club?

What I realized this weekend, reading both the business press and a parent's account of these social networking sites is that, to me, these social networking sites are exactly that. When I was a junior in high school, after basketball games we would all meet at the nearby McDonalds (Mickey D's). When I was a senior, we shifted to Burger King (the BK lounge). Why the shift? As Yogi Berra would have explained, "Nobody went to McDonald's anymore, it was too crowded." The same flocking behavior accounts, on differing scales, for shifting fortunes of the club scenes in LA and New York.

MySpace is the new BK Lounge. Granted, a national one, but it's the place kids go to see and be seen.

The discerning teenager--and when it comes to social networking, perhaps nobody is more discerning--now talks candidly about where they choose to spend their online time and why. Kids talk about how MySpace is getting too crowded, too mainstream, and they are looking for somewhere else to hang out. Somewhere with a bit of cachet. And for this reason, the club/lounge seems the closest metaphor for social networking sites.

The problem with this metaphor is that, while it accounts for the phenomenally easy growth of MySpace, it also predicts an equally easy abandonment by its users. Time will tell.

In defense of ethanol

While I had to turn comments off (another victim of spam), I received this post from Brian Glassman via email and feel compelled to post it:

Dr. Hargadon illustrates an important point which has been downplayed in promotions for Ethanol, E10, and E85 fuels, that they are not equivalent in their mile per gallon to gasoline. The Ethanol industry in general has been pushing away from this fact, by promoting ethanol’s greener side and hoping that while they publicize its’ eco-friendliness, researchers and producers will drive the manufacturing costs down to the point were it can compete on a cost bases with gasoline. Fortunately, the recent research push has done just this. Researchers like Michael Raab, and others are coming up with new innovative ways to reduce ethanol manufacturing cost. I was recently part of a group who were among the few to attack the low fuel mileage aspects of E85 and E10, by creating a bio-based fuel additive to boost mpg, with the goal of making it comparable in mpg to gasoline (first link below). However, this doesn’t escape the final point that Dr. Hargadon makes and that I agree with: “the less glamorous solutions like energy efficiency through improved mileage, better public transportation, smarter commuting” are just practical and definitely attainable and should not be ignored.
Thank you
Brian Glassman

http://www.pratt.duke.edu/pratt_press/web.php?sid=333&iid=38
http://www.technologyreview.com/read_article.aspx?id=16408&ch=biztech
http://www.technologyreview.com/TR35/Profile.aspx?Cand=T&TRID=436
http://www.agrivida.com/news.html

Not one to squelch debate, me. Though I remain skeptical that we can successfully coincide the development of low-cost cellulosic ethanols (made from stalks and other ag by-products) with their boosting, their distribution and their broad adoption and resulting engine optimization. All of this in the face of new eco-diesels from Mercedes and Honda that show both reduced emissions and tremendous efficiencies.

Many technologies make their greatest performance improvements only when competing technologies arrive on the scene--witness the Welsbach mantle increasing the performance of gas lamps by 6-fold when the light bulb first reached the market, and the steam engine doubling in efficiency in the years after the internal combustion engine. What is in store for the ICE when alternatives truly become a threat?

All of which is to say--innovation means progress. Whether the alternative fuels win or traditional gas and diesel wins, we will be better off than if these challengers weren't around.

Greenwashing, or racing the organic train, part II

Good article in the NYT (A Milk War...) today about the entrance of Walmart's private label organic milk, Great Value. Walmart gets this milk from Aurora Farms:

Activist groups, as well as some organic food retailers and dairies, contend that the company where Wal-Mart and the other big retailers get their milk operates large factory farms that are diluting the principles of organic agriculture and delivering customers a substandard product. They argue that Aurora’s cows do not spend any significant time roaming pastures and eating fresh grass; instead they live on a diet high in grains.

I wrote about this briefly when I found a box of Kellog's Organic Rice Krispies in our cupboard (Racing the organic train). As promised, Walmart has indeed brought out low-cost organics. The race is between organic going mainstream and organic getting so watered-down as to become nothing but a marketing term.

As Melanie Warner writes,

The controversy turns on how closely Aurora adheres to the principles behind the organic food movement. Many organic farmers say grass feeding is essential for organic dairy production because it is part of a cow’s natural behavior. Milk from grass-fed cows, they say, is also higher in beneficial fatty acids than milk from cows fed grain, making it more nutritious.

At Aurora’s Platteville operation, about 40 miles north of downtown Denver, 4,000 cows are put on grass only when not being milked or when they are nearing the end of a lactation cycle. That totals about two to three months a year. The rest of the time they stay in dirt-lined outdoor pens where they eat from an ample trough filled with a mixture of hay, silage, corn and soybeans.

It's still early in the race, but right now "greenwashing" is in the lead.

Gotta love anomic social networks

BusinessWeek has just added another article to the pile of observations on the increasing popularity of social network sites: "Social Networks: Execs use them too". Anyone who knows me knows I like social networks. The current trends in social network technologies, however, are disturbing.

Namely, networking technologies are seeking to automate the acquisition and use of one's broad-ranging social relationships in the same ways that organizations have automated the acquisition and use of the local relationships needed to get one's work done.

There is an irony that, by providing the product--a new network tie--these technologies are bypassing the need to personally build and use your own existing social network.

In other words, instead of calling your friends to see who might know someone who knows someone who can give you an trusted opinion of someone else, you log into LinkedIn, avoid all those messy and time-consuming phone calls and immediately jump to the right "connection." And, by doing so, you let wither all of the actual relationships you built that were based on actual, mindful, and interactive contact with others.

Here's an analogy: between commuting, email, and television, we spend a lot of time sitting. Then we collectively head to the gym for an hour of intense standing, climbing, riding or whatever. For most of us, organizational life has taken away much of our need to actually stand or walk around (unless we're scrambling to get a PO signed late on a Friday).

In the same way, organizational life has taken away much of our need to "network"--to actually meet new people, engage with them, form productive and reciprocal relationships, and maintain those relationships over time and distance. Instead, most people drop into pre-established organizational networks ("this person will tell you what to do; that person will do what you tell them"). We then bemoan the static nature of our social networks and go to "networking events" where for an hour, like on a stairmaster, we push ourselves to hand out business cards and make untenable lunch plans.

Our fascination with networking technologies reflects two increasingly apparent problems with organizational life. First, the loss of our own abilities to build and mantain meaningful and mutually productive relationships with others. And second, like the unrealistic body images that drive too many middle-aged men and women to the gym every night (you too can have abs of steel and two kids under 5), executives have unrealistic network images that suggest you too can have the contact list of a Hollywood producer.

In an ironic twist--our increasing emphasis on social networks may come from the decreasing nutritional content of our own social networks. To me, the whole thing smacks of anomie and, thanks to Wikipedia, I can wax learned on the subject without truly understanding what I'm saying:

The nineteenth century French pioneer sociologist Durkheim borrowed the word [anomie] from the french philosopher Jean-Marie Guyau and used it in his book Suicide (1897), outlining the causes of suicide to describe a condition or malaise in individuals, characterized by an absence or diminution of standards or values (referred to as normlessness), and an associated feeling of alienation and purposelessness. He believed that anomie is common when the surrounding society has undergone significant changes in its economic fortunes, whether for good or for worse and, more generally, when there is a significant discrepancy between the ideological theories and values commonly professed and what was actually achievable in everyday life.

Anomie essentially represents the lack of meaningful social relationships that connect individuals to their surrounding community. The term was picked up by Robert K. Merton:

Robert King Merton also adopted the idea of anomie to develop Strain Theory, defining it as the discrepancy between common social goals and the legitimate means to attain those goals. In other words, an individual suffering from anomie would strive to attain the common goals of a specific society yet would not be able to reach these goals legitimately because of the structural limitations in society. As a result the individual would exhibit deviant behavior.

Through the miracle of modern technology, we can embrace social networking software that simultaneously increases our connections and decreases their meaning and value. We are perfecting the anomic social network.

Life in the Long Tail

Not to belabor the point, but WSJ had an interesting story about life in the "long tail" (Famous, Online) in describing several small bands and their use of the Internet to generate and tap a following without the traditional scaffolding provided by the established record labels. In my last post on this, I mentioned the risk to established producers of low-cost and lower-expectation competitors:

For established companies, selling one thing is bad business. For the guy producing an album in his bedroom, selling one thing is good business. And soon, according to the Long Tail, big companies will be competing with millions of these smaller producers, who would each be quite happy with an extremely infinitesimal piece of the pie.

Elizabeth Holmes writes about several such "amateur bands" as the duo, The Scene Aesthetic, who had "2.3 million visitors and more than 124,000 'friends'" on MySpace. Here are some interesting numbers describing their career...

• Using an amateur booking agent to book a national tour


• Promoting their tour on MySpace


• Booking every night in July and August (at pizza parlors and teen centers)


• Gettting up to 200 people a night


• Making about $600/gig (plus t-shirt sales)


• Sleeping on fan floors when they can't afford hotel rooms

Granted, this is not living large, but then again, there's an authenticity to it that reminds me of the Beatles' early days in Liverpool and Hamburg. Not that The Scene Aesthetic is the next Beatles, but that such a life can be pretty good when your cash needs and aspirations are aligned.

Is this the Future?

Will big companies, like big record labels, increasingly face competition from many small firms who have low capital requirements and less aspirations for corporate expansion? Yes. But will it cause a problem? Only for those companies who refuse to acquire or in other ways partner with these smaller firms. Though even these companies will find partnering less profitable than it once was--as they're buying proven commodities.

That's because what the long tail provides is a fertile space for small bands, brands, and business to establish a niche and grow to the point of proving they found an unaddressed need. No corporate fat-cat will be able to pretend their house brands are better simply because they control the only access to the market.

The Scene Aesthetic is not alone--there are thousands of such bands living online, hosting their own pages, posting their own songs promoting their own gigs for little or no cost. And this long tail has its own long tail: PureVolume, a song-posting site, says of the 300,000 bands posting songs, only 2% have more than 5,000 plays.

The long tail is a work-around for the relatively inefficient filter that is BigCo's ability to spot and acquire hot new businesses. Eventually, good bands will rise to the surface, unaided by talent scouts and undeniably desired by fans, the same way local bands like the Beatles and the Stones and so many others emerged in the late 1950s playing local clubs (before producers started replicating the formula).

AS this model increasingly applies to other markets, we may be facing a potentially great Cambrian experiment in business evolution.

McDonalds with a purpose.

Govindappa Venkataswamy, an opthalmologist, passed away July 7th. He's not an American icon, but could (and should) be for his entrepreneurial ways. The WSJ just began a weekly column honoring the passing of prominent business figures, and Dr. V's passing is an especially nice way to inaugurate the column.

Dr. V Started the Aravind Eye Care System with an 11-bed clinic in 1976, and has since grew it into a five-hospital system. The Aravind system provides affordable surgery for the masses--quite literally--and now impoverished cataract patients can have their eyesight restored for about $40--and if that's too much, for free. It also proved that there was a way to make money at the bottom of the pyramid; the free are paid out of the profits of paying patients.

What makes the Aravind system interesting to innovation is the origin of its success:

He was inspired, Aravind says, by the assembly-line model of McDonald's founder Roy Kroc -- learned during a visit to Hamburger University in Oak Brook, Ill. ... "Can't we do what McDonald's and Burger King have done in the United States?"

Sound familiar? In 1910, when Ford's engineers came back from studying the assembly lines of the Chicago meatpacking plants (first publicized in Upton Sinclair's 1906 book, The Jungle), one of his chief engineers said "If they can kill pigs that way, we can build cars that way." From food to cars to food to the operating rooms of Tamil Nadu:

The assembly-line approach is most evident in the operating room, where each surgeon works two tables, one for the patient having surgery, the other for a patient being prepped. In the OR, doctors use state-of-the-art equipment such as operating microscopes that can swivel between tables. Surgeons typically work 12-hour days, and the fastest can perform up to 100 surgeries in a day. The average is 2,000 surgeries annually per surgeon -- nearly 10 times the Indian national average. Despite the crowding and speed, complication rates are vanishingly low, the system says.

What if the best ideas of modern economies were, with care, put to better use? As Dr V said, " Intelligence and capability are not enough. There must be the joy of doing something beautiful."