December 2006 Archives

Holiday Greetings 2006

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May the Holiday Season bring you joy and happiness - and to all, may 2007 bring Peace on Earth.

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(Next Christmas we hope not to have to use the white doves on our tree, yet again.)

As the poem goes:
Merry Christmas to all,
And to all, a Good Night

The Intangible Economy will return in the new year.

Gazelles 2.0

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And speaking of entrepreneurship, Entrepreneur Magazine is featuring a preview of what it calls Gazelles 2.0 -- Ahead of the Pack:

These leaders of the pack were dubbed “gazelles,” after a type of antelope that is not only one of the fastest animals on earth, but is also capable of sustaining high speeds for extended periods of time.

In fact, from 1994 to 1998, one of the prime boom times of the ’90s, America’s 288,636 gazelles (which comprised about 2 percent of all U.S. companies at the time) created more than 8 million new jobs, accounting for 68 percent of all net new jobs at that time. After the dotcom bomb, gazelles were still fueling the U.S. economy (creating more than 200 percent of American jobs from 1998 to 2002), but no one talked about them anymore; they became a fond memory of “the good times.”

It’s now time to let the good times roll again. The gazelles are back, and we’ve got them. Granted, they’re not the same old gazelles, so we’re calling this generation Gazelles 2.0.

. . .

A Gazelle 2.0 company is a rare species. Of the nearly 18 million businesses operating in the U.S. today, only 341,000 are Gazelle 2.0 companies. These are the 2 percent of businesses that generate on average a staggering 80 percent to 90 percent of all employment growth. Gazelles 2.0 are also industry innovators. They are the companies that spot unique market opportunities and move rapidly to exploit them. In the process, they revolutionize industries by creating entirely new ways of producing their products or services.

. . .

Gazelles 2.0 are found in every industry. However, within specific periods, Gazelles 2.0 do tend to be found in the more active industries of that time period. For instance, during the dotcom boom, the highest percentage of gazelles was in high-tech. Today, the highest proportion is found in the petroleum industry.

The petroleum industry? Wow - that is a surprise. I can't wait to see the data.

Unfortunately, it will be a long wait. Entrepreneur Magazine won't publish it until its June issue when it revels its Hot 500.

Such a tease!

The other dimension to university's economic development

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Universities have long been seen as key elements in local economic development activities. But most (if not all) of the attention has been focused on the tech-transfer aspect: what new tech ideas are generated and then passed out to the local economy either as patents/license or professor's business spin offs. But this quote from a story about Missouri Southern State University show another dimension to the interaction - and another area of innovation that is often overlooked by policy makers.

“A business school is an important economic-development tool for any community looking to expand its employment base, and have high quality employees to provide for new businesses opening and the expansion of existing businesses,” [School of Business Dean Brad] Kleindl said. “We’ve been able to more fully embrace the vision of helping students move into the job market and helping the economic development in the region. Over the last three years, the faculty has been able to step up their role, not only with students, but with the business community.”

Too often the educational and training activities of our colleges and universities are overlooked in the economic development process. Policymakers focus on world-class research facilities and not the local training activities.

However, at one level training and business preparation has become a hot area: in the community colleges. According to a 2004 study:

Entrepreneurship education in community colleges is growing throughout the United States. . . . The number of course sections has doubled in then years and more than 60% of American community colleges offer at least one course in Small Business or Entrepreneurship

This increased attention to entrepreneurship is a welcome occurrence. And it extends to major universities as well. I am told that the MIT Entrepreneurship Center is the hottest spot in Cambridge now days. Of course, the MIT emphasis is on technology-based entrepreneurship. Down the road at Babson College, entrepreneurship has a long history. There the curriculum includes technological entrepreneurship but is much broader. Countless other universities have their own form of entrepreneurship studies, including non-technological entrepreneurship and innovation.

However, there is still much more to be done to infuse entrepreneurship studies into the higher education system. In part, we need a better differentiation between "small business" and "entrepreneurship." The mechanics of running/managing a small business are not the same as founding and growing a business based on a new idea. They are different enough with different skills that they need to be treated separately.

As Eric Pages of Entreworks Consulting points out is an article aimed at community college trustees:

Effective entrepreneurship education is not just about starting a business. It also teaches creative thinking, opportunity recognition, financial literacy, and the ability to understand and manage risk. These are important for all students, not just budding business owners.

Very well said. Maybe the development of these broader skills in the citizenry (and workforce) will turn out to be the most important contribution of our higher education system to local economic development.

Chinese leadership in IT

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I came across the following quote in "Globalist" -- China's Real Three Challenges to the United States:

It is now almost certain that the next phase of this information revolution will be led by Chinese, Japanese and Koreans. This means that they, not Americans, will own and control the intellectual property and “killer apps” that power it and its evolving technology. We will be paying royalties as we try to catch up with them.

The author, Chas Freeman, is a well respected diplomat and knowable about China. His observation runs counter to the prevailing notion that the US is the font of all creativity. Or at least that India, not China, is the rising IT power.

I'm not sure that the future is a dire as what Freeman points to in this quote. But I certainly would echo the underlying thought. There is no reason to believe that the US can live off of current and future royalties alone. As Andy Grove has said, only the paranoid survive. Unless we continue to promote creativity and innovation in this country . . . [but you have heard that speech before]

Just add this to one more dimension of the problem: what happens when our current surplus in royalty income flattens out or turns down?

India's IT awards

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On the Indian side of the new IT revolution, come this posting on Business Innovation Insider about the recent awards by the IT industry association Nasscom for The best in Indian innovation 2006:

More proof, perhaps, that India is turning into an innovation powerhouse that is creating and nurturing the types of companies that are capable of taking on the likes of Intel and Hewlett-Packard.

To repeat from my last posting, only the paranoid survive . . .

GAO looks at Pharma innovation

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The Government Accountability Office (GAO) yesterday released a new report on New Drug Development. The report was a response to a requested by Senators Kennedy and Durbin and Congressman Waxman, who raised a concern about the process.

The report finds that the effectiveness of pharmaceutical R&D has been declining:

Although the pharmaceutical industry reported substantial increases in annual research and development costs, the number of NDAs [new drug applications] submitted to, and approved by, FDA has not been commensurate with these investments. From 1993 through 2004, industry reported annual inflation-adjusted research and development expenses steadily increased from nearly $16 billion to nearly $40 billion--a 147 percent increase. In contrast, the number of NDAs submitted annually to FDA increased at a slower rate--38 percent over this period. Similarly, the number of NDAs submitted to FDA for NMEs [new molecular entities] increased by only 7 percent over this period.

While it did not undertake its own analysis of the reason for this decline, GAO did systematically solicit the views of experts:
Results from the discussion among panel members, our interviews with drug development experts and analysts, and our review of academic and industry reports identified several factors affecting the types of drugs being developed, and the length, costs, and failure rates of drug development. These factors include limitations on the scientific understanding of how to translate chemical and biological discoveries into safe and effective drugs; business decisions by the pharmaceutical industry that influence the types of drugs developed; uncertainty regarding regulatory standards for determining whether a drug should be approved as safe and effective; and certain intellectual property protections that can discourage innovation. Together, these factors have been cited as affecting the cost and length of the drug development process, as well as the types of drugs being produced. Faced with these issues, some of the panelists, other experts we contacted, and the literature we reviewed, suggested ways to expedite drug development and find more innovative drugs. These include generating greater numbers of scientists who possess the skills needed to translate drug discoveries into effective new medicines; restructuring regulation of the drug review process to allow for conditional approval of drugs for therapeutic areas that currently lack effective treatments based on shorter clinical trials using fewer numbers of patients; and altering the length of patent terms to encourage innovation. Some of the experts have cautioned that adequate measures to ensure safety need to be implemented along with any changes to expedite the regulatory review process.

One of the most intriguing suggestions was to create a variable length patent for new drugs:
The federal government could consider providing financial incentives or disincentives to affect the innovative potential of drugs produced by the industry. The government could achieve this by extending or reducing the period of patent protection associated with a drug based on its therapeutic value. One of the panelists suggested that a patent could be extended to 25 or 30 years for drugs considered innovative, or offering high therapeutic potential; while patents for drugs offering less innovative benefits could be only 10 years.

I don't know whether such a system would be useful or even workable. However, the idea deserves greater attention. It also highlights a broader issue with the patent system: the one-size-fits-all nature of the current system. If a customized IPR system is needed for pharmaceuticals, then we should look at a number of ways to better mold the system to the needs of the specific technology.

I doubt that the unitary patent system will disappear any time soon. But it is clearly time to start serious discussions on how to better customize the system. After all, customization to customer needs is one of the hallmarks of the I-Cubed Economy

Globalization poll - and insecurity

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The Democratic Leadership Council (DLC) last week released a new poll on The Emerging Politics of Globalization. The poll shows decidedly mixed feelings about the future of the economy:

1. Voters do not want to stop globalization entirely, but they are worried about its consequences. They want globalization to be controlled and made to benefit all of society.

2. Globalization is not feared in and of itself but there are rising concerns related to a more global world: child poverty, outsourcing, higher energy prices, greater terrorism, etc.

3. The public currently sees the benefits of globalization primarily in terms of lower prices for consumer goods.

4. Despite cheaper goods, however, voters see very significant costs associated with globalization. These costs include the possible loss of benefits, longer work hours/less time with the family, lower wages, and more job losses.

5. Americans remain optimistic about the future. Nonetheless, a large majority balances that optimism with a belief that a better economic life lies in protectionism and favors job security over income growth.

I noted with interest that the poll gave a generally positive response to the term "information economy": 17% very positive, with total positive of 56% and total negative of only 15%. The reaction to "entrepreneur" was even stronger: 45% very positive, with total positive of 87% and total negative of 7%. That compares to the response for “corporations”: 14% very positive, with total positive of 55% and total negative of 41% and "outsourcing": 4% very positive, with total positive of 22% and total negative of 63%. This is not surprising given that one of the greatest concerns raised about globalization was that companies are moving jobs overseas.

The mixed feelings about the direction of economy come out very strongly in the juxtaposition of two responses. First, an overwhelming 89% agreed with the statement "Americans are optimistic and America is most successful when we view change as an opportunity for success, rather than a threat to be resisted." Yet, a majority (54%) responded that they wanted to limit change when asked the following, "Limit change and competition by ending unfair trade, reducing immigration, and producing more goods at home vs. adapt to changes in global trade, travel, and new technology by retraining workers and specializing in high-tech and information services."

In part I think this dichotomy can be explained by the questions. While Americans are optimistic, they don't believe that the current strategy of re-training and high-tech will work. As the poll points out:

There is no single idea or silver bullet for dealing with the expanse of issues created by globalization. An agenda for coping with the New Economy must include a wide range of programs -- creating expanded 401(k)s, more flextime, incentives for alternative energy, and a greater sense of equity and fairness so that stock and option programs reach down to all the workers in each company.

The high level of uncertainty shown in the poll is not surprising. The I-Cubed Economy is changing people's lives, often in dramatic ways. Yet our policy response has been "get used to it." We throw generalizations at the problem: retrain yourself, educate your kids better. But we have no real strategy for coping or, better yet, guiding the change. High-tech will save us, we are told. But then we see all the electronic consumer goods coming from abroad and IT services jobs in competition from low cost producers around the world. We talk about creating high value added jobs, but the average Joe and Jane asks, "what about me." We seen employment numbers rise, but in the retail and hospitality industries (where there are generally low wages).

As the report states in two separate places, First:

The challenge before leaders is to create an opportunity society in the face of a more uncertain world.
and then in the conclusions:
In the global era, American voters are waiting for a leader and party that can explain how globalization can be made to work for everyone.

That is a challenge we have only begun to address. And one that we really don't yet even understand. We can start by throwing out our old mindsets and begin to think anew about this I-Cubed Economy. As was once said, ideas are like a rudder, a small change can bring about a large shift in direction. Time for that change in ideas.

Political economy of patent reform

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There is an interesting new working paper out from Professor F. M. Scherer of Harvard - The Political Economy of Patent Policy Reform in the United States, published by the AEI-Brookings Joint Center for Regulatory Studies. Professor Scherer is a long time student of the economics of technological change, including intellectual property rights. The purpose of this most recent paper is to look at interesting questions:

the fact that governmental emphasis on patent systems increased in the wake of impressive new findings from economic studies showing that patents played a surprisingly minor role in well-established corporations' decisions to invest in research, development, and technological innovation.

The paper touches upon some of the other factors. These include first mover advantage, the ability to move quickly down the learning curve and superior sales or service efforts.

In looking at his central question, he also looks at the results of the current system, which he finds mixed:

While stronger patent protection per se should have increased the profitability of innovation and hence stimulated R&D expenditures, all else equal, the increased danger from infringing another firm's patents exerted an opposite negative influence.

. . .

the changes brought negative consequences along with the positive. In particular, by encouraging the proliferation of patents covering inventions of dubious novelty and increasing the statistical probability that knowing or inadvertent infringement of patents leads to dire consequences, it increased the risks as well as the rewards from inventive activity. It is far from clear that the positive effects outweigh the negatives. Fortunately, as economic studies have shown repeatedly, patents do not play a particularly important role in most fields of industrial innovation, and equally fortunately, those who advise industrial leaders in their journeys through the patent minefield are adept at negotiating solutions that in most instances avoid serious impediments to the pace of technological progress. It is nevertheless useful to assess the negatives and attempt to correct them through legislative or judicial action. In this, we would be emulating the example of one of the world's most famous inventors, James Watt, who observed "I have been trying experiments on the reciprocating engine, and have made some alterations for the better and some for the worse, which latter must return to their former form."

On the specifics of a reform agenda, there is nothing new in the paper. The changes in patent law he advocates are those coming from the various studies (FTC, National Academy, etc.) - which he cites. Rather, the power of the paper is in its background on the issue and its general framework. In that regard, I found one major weakness: the lack of discussion about the increased importance of patents to a company's secondary income flows. While patents many be less important than other factors for setting the direction and level of corporate R&D and for new product development strategies, they are increasingly important as a revenue stream. In this regard, the studies Scherer cites on the effects of patenting may be more relevant to understanding the past rather than guiding the future.

At another level, however, the paper has a strong message for how we approach the future. I think the Watt quote is especially telling. Our innovation infrastructure (of which our patents laws are a part) should be viewed as constantly evolving. Scherer subtly reminds us that social innovations are subject to the same Schumpeterian dynamics of creative destruction as other areas. It is all one big process of experimentation -- of learning by doing. He also reminds us of the need for empirical evidence as we review our policies. Let us keep that in mind as we move forward.

TIME person of the year

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By now, everyone has probably heard that the TIME "Person of the Year" is "you": people who are using the Internet and other information technologies. Rather than looking for the one or few individuals who changed the world, TIME choose to tell a different story:

It's a story about community and collaboration on a scale never seen before. It's about the cosmic compendium of knowledge Wikipedia and the million-channel people's network YouTube and the online metropolis MySpace. It's about the many wresting power from the few and helping one another for nothing and how that will not only change the world, but also change the way the world changes.

The guts of this selection isn't just the people or the technology. It is about how the rules of the innovation game have changed:

America loves its solitary geniuses—its Einsteins, its Edisons, its Jobses—but those lonely dreamers may have to learn to play with others. Car companies are running open design contests. Reuters is carrying blog postings alongside its regular news feed. Microsoft is working overtime to fend off user-created Linux. We're looking at an explosion of productivity and innovation, and it's just getting started, as millions of minds that would otherwise have drowned in obscurity get backhauled into the global intellectual economy.

The old saying is "two heads are better than one." The new reality multiplies that by a factor of n. This is not to say that all collaborations and group efforts are useful or even wise. Remember "group think"? But the power of groups has always been important. What has been changing is how that power is harnessed: in individuals acting as a collective (tribes, families, governments, corporations, other organizations, etc.); in an agglomeration of individual interactions, aka markets; or in ad hoc, free flowing collaborations.

In every era, new technologies, including social technologies, allow for new sets of individual interactions. These new ways of interacting open up new opportunities and new problems. As TIME has recognized, the 21st Century is beginning to look like the era of collaboration. We are beginning to see both the opportunities (e.g. wikipedia, open source) and the problems (e.g. spam, privacy, piracy, acceleration of rumors and false information). How we deal with both will define the I-Cube Economy well into the future.

The year in design

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Was 2006 the year "design" became a hot economic topic? Maybe. The International Herald Tribune summed it up very nicely in Design in 2006: A year of innovation and utility:

It wasn't a bad way to start the year. In January, design made its debut on the agenda of the World Economic Forum in Davos — and that was only one sign of its growing importance in 2006.

At a time when advances in technology are enabling designers to be more creative than ever, the rest of us are increasingly receptive to innovation. Think of the speed with which MySpace and YouTube have caught on. The developed world is embracing design as a killer weapon in the battle against low cost competition from China, which, like other developing countries, is building new design schools to fight back in the future.

A good start. I hope we can build on this momentum in 2007. There is still a lot of work to be done to help policy makers understand that "design" is the "quality" of the new competitiveness challenge. And there is a lot to be done to help all of us understand what that really means (aside for the rhetoric) and craft workable policy solutions to that challenge.

It's all about branding

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From the Wall Street Journal - What's in a Name: Crabless Crab Legs No Longer Imitation:

If cheese mixed with emulsifiers and other stuff is called "pasteurized process cheese food," what do you call a fish paste made to look like crab meat?

Until now, the Food and Drug Administration has required that the product, known as surimi, be labeled "imitation crab." But after a dozen years of lobbying, the seafood industry has succeeded in getting permission to drop that unappealing description. Instead, it may now use a new, long-winded label: "Crab-flavored seafood, made with surimi, a fully cooked fish protein." The phrase can be adapted for surimi made to resemble lobster, scallops, shrimp and other seafood, as well.

The industry hopes the new label will help increase sales of an odd product that caught on in the boom for ethnic food but which has had flat sales for the past decade. "The word 'imitation' is not as annoying as 'fake,' but we shudder when we hear the word," says John van Amerongen, a spokesman for Trident Seafoods Corp., in Seattle, which sells the Louis Kemp brand of refrigerated and frozen surimi. "Hopefully, people who were turned off by the word 'imitation' will take another look and give it a try." Louis Kemp adds flavor and color to surimi and sells it as Crab and Lobster Delights. Trident also sells the product as Sea Legs.

Maybe Shakespeare was wrong - a rose by any other name might not be as appealing. Thus is the power of brands. Remember that when you are out shopping for "crab-flavored seafood."

Speeding up collabrative research

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From today's New York Times -- I.B.M. and Universities Plan Collaboration:

I.B.M. and seven universities have agreed to embark on a series of collaborative software research projects and to make the results of the work in fields like privacy, security and medical decision-making freely available.

The initiative, which I.B.M. is expected to announce today, is a break with the usual pattern of corporate-sponsored research at universities that typically involves lengthy negotiations over intellectual property rights.

The projects are also evidence that American companies and universities are searching for ways to work together more easily and less hampered by legal wrangling about who holds the patents to research. Those negotiations, according to specialists, can take a year or more — slowing the pace of innovation and prompting companies to team with researchers in foreign countries.

The projects announced today are being done under the guidelines of the Open Collaborative Research program, which began last year with several universities and four technology companies, Hewlett-Packard, Intel and Cisco, as well as I.B.M.

“Universities have made life increasingly difficult to do research with them because of all the contractual issues around intellectual property,” said Stuart Feldman, vice president for computer science at I.B.M.’s research laboratories. “We would like the universities to open up again.”

The current problem, research experts say, is that well-intentioned policies meant to encourage universities to make their research available for commercial uses have swung too far. The shift began with the Bayh-Dole Act of 1980, which allowed universities to hold the patents on federally funded research and to license that intellectual property. Since then, universities have often viewed themselves as idea factories and, like many corporations, have sought to cash in on their intellectual property.

But there is a sense at both universities and corporations that the pendulum has swung too far, and adopting less-restrictive intellectual property policies may benefit both sides.

Done right, IPR can help foster innovation and idea generation. Done wrong, it can foster idea hording. I'm glad to see companies experimenting with new ways to do it right.

New workforce skills report

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This morning, the New Commission on the Skills of the American Workforce released its report: Tough Choices or Tough Times. The Commission (and the report) is a follow up to the influential 1990 report America’s Choice: high skills or low wages! that helped define the "high road" strategy for economic growth.

The new report continues that theme into the new Creative Economy. They argue that the only strategy America can take to be successful in this new economic environment is through creativity and innovation. Routine work will increasingly be done either by skilled people in developing (i.e. low wage) countries or will be automated and done by machines. They define the creative tasks as:
• Research
• Development
• Design
• Marketing & Sales
• Global Supply Chain Management

I can quibble a little about this -- specifically that "routine" work defines how the task is carried out, not necessarily the nature of the task itself. As the report mentions in passing, building furniture can be a creative, rather than a routine, task. This is where creativity and innovation come in to play. The high road strategy includes infusing creativity into otherwise routine tasks in order to make them higher valued added.

The report's recommendations are training and education specific. They explicitly call for a re-design of the educational system as a fundamental change needed to prevent a decline in our standard of living. They include:

• Revamping the high school-college transition. High school would end for most students after 10th grade, when they would take rigorous State Board Exams set to what they should be able to do to succeed in state colleges. Students meeting that Board Exam standard would be able to go directly to state technical schools and colleges as freshmen. But students could choose to stay in high school to prepare for entrance to selective colleges, if they wished.
• Reallocating funds to high priority strategies for improving system performance. The new progression through high school and college would release nearly $60 billion in funds that can be used to make sure that students would in fact be ready for college by the time they are 16.
• Pre-K for all. A third of the savings would be used to provide high-quality early childhood education for all four-year-olds and all low-income three-year olds.
• Redesigning how schools are funded. The last third of the savings would be used to provide more money to schools serving low-income and other disadvantaged children.
• Local funding would be abolished; the funds would be raised and distributed to the schools by the state.
• Redesigning how schools are managed. All public schools would be managed by independent contractors operating under performance contracts managed by the local school districts. Only those schools that succeeded in improving the performance of their students would be funded. Parents would be free to send their children to any of these schools they wished.
• Educating the current workforce to a high standard. Adults who are currently in the workforce would have the right to a free education to the same standard that would be set for high school students under the new system.
• Creating personal competitiveness accounts. Inspired by the GI bill, the federal government would deposit an initial $500 into each account at birth, and these accounts would allow everyone to receive ongoing education and training throughout their lives.

The report seems to be generally on the same track as the recent by the Conference Board (see earlier posting) and was highlighted in a recent TIME cover story (see posting).

With increasing attention to these issues, let us hope that the policy makers and educators are paying attention. I know from personal experience that some of this is seeping down to the grassroots. Last night at a local town hall meeting with the new incoming DC Mayor (Adrian Fenty), parents talked about reinstating a broader curriculum, including arts and music, in the local schools. As more and more people start talking about this, maybe some thing will actually happen!

(Thanks to the blog Convergence for pointing this out.)

Leahy on patent reform

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Yesterday, Senator Patrick Leahy, the incoming Chair of the Senate Judiciary Committee, gave a major speech at Georgetown University on his agenda for the next Congress - Ensuring Liberty And Security Through Checks And Balances: A Fresh Start For the Senate Judiciary Committee In The New 110th Congress. Here is the section on "Patent Reform And Life-Saving Medicines":

Reforming our patent system will also be an enormous, but critically important, project in the new Congress. Our Constitution enshrined patent rights for a reason: “to promote the progress of science and useful arts.” The spirit of American innovation has made the United States the world’s leader in intellectual property. Yet the expressions of American innovation – in the form of patented goods and processes – are only as good as the system that fosters and protects innovation. Our patent system was created in another century, and we need to update it. It must serve the 21st Century industries that have made us the envy of the world, just as it well served the smokestack industries of an earlier era.

Complementing that effort, I intend to redouble efforts to reexamine our patent laws in the hope that by making thoughtful and practical changes we can greatly increase access to essential medicines throughout the world. We can help struggling families in developing nations, while improving U.S. relations with large segments of the world’s population. The current global health crisis is one of the great callings of our time. Whether it is the Avian Flu, AIDS, SARS, West Nile Virus, or the approaching menace of multi-drug resistant bacteria, we need to recognize that the health of those half way around the world now influences our security and affects our lives here in the United States. I want the work of the Judiciary Committee to be a catalyst to help make life-saving medicines more readily available around the world.

None of this is new. The first part of this sounds similar to Leahy's statement last August - Leahy, Hatch Introduce Sweeping Patent Reform Bill. The part about patents and medicines also echoes what he said earlier - Leahy Unveils Bill To Foster Low-Cost Drugs For World's Poorest.

What is important is that the speech confirms that patent reform will be on the Committee's agenda next year. That is good news, given the gridlock of this issue in the recently adjourned 109th Congress.

However, all of this may be premature given the news about Senator Johnson's illness - which could change the balance of power in the Senate and keep Leahy from becoming Chairman of the Judiciary Committee.

On the other hand, the Senate patent bill with introduced by both Leahy and Hatch -- so there is bipartisan interest. I just don't know how high this is on Hatch's agenda.

Stay tuned.

IP in UK

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IPR issues in the United Kingdom took center stage recently when the Treasury released its new report: The Gowers Review of Intellectual Property. Conducted by the former editor of the Financial Times, Andrew Gowers, the review has sparked renewed interest in the subject. For coverage of the debate see: / In depth - Gowers warns companies on illegal file sharing, / In depth - Copyright proposals hit wrong note / Comment & analysis / Letters - Intellectual propriety,

A discussion with Gowers and Ron Marchant, head of the Patent Office - / In depth - Ask the experts: The Gowers review, and

Lawrence Lessig's commentary / In depth - Do not bow down before the famous on copyright.

The Gowers review came up with 54 specific recommendations. I won’t go into them all here; many of them are UK specific. The overall focus of the recommendations is instructing, however. The review came up with the following key areas:
• strengthening enforcement of IP rights, whether through clamping down on piracy or trade in counterfeit goods;
• reducing costs of registering and litigating IP rights for businesses large and small; and,
• improving the balance and flexibility of IP rights to allow individuals, businesses and institutions to use content in ways consistent with the digital age.

There is one suggestion that should be of explicit interest to the US: the review rejects and extension of the length of copyright terms from the current 50 years to match the US’s 95 years. This recommendation seems to have generated the greatest response – from both side of the debate.

I especially like how the review treats strengthening enforcement and improving balance and flexibility as compliments. In the debate in the US, these are too often paired as opposites. If you are worried about enforcement and piracy, you are seen as anti-user. If you are in favor of balance and flexibility for users, you are painted as weak on enforcement. As the former head of the Motion Picture Association of America (MPAA) Jack Valenti used to rail against Larry Lessig, “Why are you in favor of theft?”

Since the Gowers review was specifically commissioned by the Blair government (by current Chancellor of the Exchequer and presumptive future Prime Minister Gordon Brown), it will likely set the tone of any UK IP reform activities. We will see if it may also be instructive to the US debate.

October trade in intangibles

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This morning's BEA trade data was looking pretty good as the overall deficit declined by $5.4 billion to $58.9 billion. Once again, imports declined and oil prices fell.

The surplus in intangibles increased by a healthy $169 million in October as earnings from royalties (exports) and exports of private services increased. Imports of private services also increased, but not as much as exports. Royalties paid out (imports) decreased.

The figures show a major revision in the services trade data. The revisions for April through September 2006 show, on balance, a higher level of intangible exports and a lower lever of imports. However, royalties earnings (exports) were significantly reduced in July, August and September (by $134 million, $164 million and $194 million, respectively).

Unfortunately, the deficit in Advanced Technology Products continued to increase by $640 million to $4.8 billion as imports outpaced exports. Imports of information and communications equipment saw the biggest increase.

All in all, a good report. But not great.

Intangibles trade-Oct06.gif

Note: we define trade in intangibles as the sum of "royalties and license fees" and "other private services". The BEA/Census Bureau definitions of those categories are as follows:

Royalties and License Fees - Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term "royalties" generally refers to payments for the utilization of copyrights or trademarks, and the term "license fees" generally refers to payments for the use of patents or industrial processes.

Other Private Services - Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term "affiliated" refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise's voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.

India design

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In an earlier posting, I mentioned a design conference in India. Business Week now has a summary of the conference, Designing for India's Consumers, which was held last week. While the theme was on both local and global Indian designs, it appears that much of the focus was on designing for the vast Indian market:

Selling products made for American, European, or Korean markets across India doesn't guarantee success. Indeed, it may guarantee failure.

"It is critical to bring realism and relevance to a design world that has become commoditized," says Manoj Kothari, founder of Pune-based Onio Design. So when his studio designed a pen, the cap had a satisfying click sound when it was shut. That went down well with consumers, since Indians relate the click to the closing and preserving of an object (just like Americans and Europeans like a solid "thud" sound for their car doors).

Being too modern and contemporary can be dangerous in the Indian market, says L. K. Das, head of Innovation & Design at the Indian Institute of Technology in Delhi. For example, he points out that Indians understand old fashioned round faucets. But modern day variations leave people perplexed. "The fundamentals of consumerism are built on other people consuming, and when that doesn't happen the design is a failure," says Das.

The vastness of India can also be baffling to companies and designers looking for a focused approach. U.S. retailer Wal-Mart (WMT) may have entered India, but setting up outlets and getting mass consumers to buy from its stores will not be that easy, says San Francisco-based emerging markets strategist Niti Bhan. The trick is to create products that have sales volumes but "resonate with subsets of culture," says Bhan.

With the cultural and communal diversities in each of its 28 states, these subsets are tough to understand even for Indians. "India is not one country but a conglomeration of many countries that people have to recognize," says Bhan.

At the conference, the Indian government announced a new initiative to build up the design sector. I was struck by one comment in the story:

As part of this new campaign, the government will begin to promote more design schools. Today, India has only about a dozen design programs, compared with 241 in China.

That sounds like a major disadvantage, starting that far behind. To overcome that hurtle, the government wants to enlist the help of the country's successful outsourcing sector in building design competencies. An innovative idea. But I'm not sure that the same set of skills in IT outsourcing can be translated into design expertise. Yes, Apple Computer pulled off the iPod -- with a lot of help from a top-notch design firm.

I expect India will be successful in building a design capacity for its local market. Given the size and challenges of that market, designers will have a large business space in which to operate. However, I don't see India yet becoming a global player in design. In part, this is because India is yet to be a global player in manufacturing - unlike the Chinese. Look for the Chinese to lever that manufacturing experience into product development and design. Not India; not yet.

But it could turn out that I am wrong.

Redefining education

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I have long argued that we need to redefine the educational process for the 21st Century. And on the cover of Time is a story about how to do that -- How to Bring Our Schools Out of the 20th Century:

American schools aren't exactly frozen in time, but considering the pace of change in other areas of life, our public schools tend to feel like throwbacks. Kids spend much of the day as their great-grandparents once did: sitting in rows, listening to teachers lecture, scribbling notes by hand, reading from textbooks that are out of date by the time they are printed. A yawning chasm (with an emphasis on yawning) separates the world inside the schoolhouse from the world outside.

For the past five years, the national conversation on education has focused on reading scores, math tests and closing the "achievement gap" between social classes. This is not a story about that conversation. This is a story about the big public conversation the nation is not having about education, the one that will ultimately determine not merely whether some fraction of our children get "left behind" but also whether an entire generation of kids will fail to make the grade in the global economy because they can't think their way through abstract problems, work in teams, distinguish good information from bad or speak a language other than English.

This week the conversation will burst onto the front page, when the New Commission on the Skills of the American Workforce, a high-powered, bipartisan assembly of Education Secretaries, business leaders and a former Governor releases a blueprint for rethinking American education from pre-K to 12 and beyond to better prepare students to thrive in the global economy. While that report includes some controversial proposals, there is nonetheless a remarkable consensus among educators and business and policy leaders on one key conclusion: we need to bring what we teach and how we teach into the 21st century. Right now we're aiming too low. Competency in reading and math—the focus of so much No Child Left Behind testing—is the meager minimum. Scientific and technical skills are, likewise, utterly necessary but insufficient. Today's economy demands not only a high-level competence in the traditional academic disciplines but also what might be called 21st century skills.

Creative skills, communications skills, information skills, people skills, world skills -- that is what is needed in American education. STEM (science, math, engineering and math) are important to our future prosperity. But so are these other skills.

To read the full story, click here.

Let us hope that the new national conversation that the Time story refers to really will change the course of our educational policy.

Update on measuring innovation panel

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The Secretary of Commerce has released the list of appointments to the Measuring Innovation in the 21st Century Economy Advisory Committee. It is a high powered group of academics and business leaders - many whom have been involved in the innovation/competitiveness debate for some time. They are:

Steve Ballmer, CEO, Microsoft Corporation
David L. Bernd, CEO, Sentara Healthcare
James Blanchard, Retired Chairman of the Board and CEO, Synovus Financial Corp
George Buckley, CEO, 3M
Art Collins, Chairman and CEO, Medtronic
Michael Eskew, Chairman and CEO, UPS
Luther Hodges, Jr., owner/manager of Santa Fe Hospitality and the Hotel Santa Fe (and former Deputy Secretary of Commerce
John Menzer, Vice-Chairman, Wal-Mart Stores
Samuel J. Palmisano, CEO, IBM
Carl Schramm, PhD, President and CEO, Ewing Marion Kauffman Foundation
Ashish Arora, H. John Heinz III School of Public Policy and Management at Carnegie Mellon University
Rajesh Chandy, Carlson School Professor of Marketing at the Carlson School of Management, University of Minnesota
Kathleen B. Cooper. Dean of the College of Business at the University of North Texas (and former Under Secretary for Economic Affairs)
Dale W. Jorgenson, Harvard University
Donald Siegel, Associate Dean of the Graduate School of Management at the University of California at Riverside

It will be interesting to see what the advisory committee comes up with. Their first meeting is February 22.

Teaching math differently

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Is the way we teach math the reason why US students are falling behind? The answer is yes according to a report released earlier this year by the National Council of Teachers of Mathematics. As described recently in the Washington Post:

It says the typical state math curriculum runs a mile wide and an inch deep, resulting in students being introduced to too many concepts but mastering too few, and urges educators to slim down those lessons.

Some scholars say the American approach to math instruction has allowed students to fall behind those in Singapore, Japan and a dozen other nations. In most states, they say, the math curriculum has swelled into a thick catalogue of skills that students are supposed to master to attain "proficiency" under the federal No Child Left Behind mandate.

The point of the new Curriculum Focal Points is simply: go deep in a few basic concepts:

An approach that focuses on a small number of significant mathematical “targets” for each grade level offers a way of thinking about what is important in school mathematics that is different from commonly accepted notions of goals, standards, objectives, or learning expectations. These more conventional structures tend to result in lists of very specific items grouped under general headings. By contrast, Curriculum Focal Points for Prekindergarten through Grade 8 Mathematics offers more than headings for long lists, providing instead descriptions of the most significant mathematical concepts and skills at each grade level. Organizing a curriculum around these described focal points, with a clear emphasis on the processes that Principles and Standards addresses in the Process Standards—communication, reasoning, representation, connections, and, particularly, problem solving—can provide students with a connected, coherent, ever expanding body of mathematical knowledge and ways of thinking. Such a comprehensive mathematics experience can prepare students for whatever career or professional path they may choose as well as equip them to solve many problems that they will face in the future.

The report has apparently sparked a reevaluation of the math curriculum in a number of states and a debate within the education community. According to Education Week:

Critics have complained that those standards did not place enough emphasis on essential math skills and basic arithmetic, and instead pushed a “fuzzy math” model. NCTM officials dispute those claims, saying the standards call for both the cultivation of basic math skills and more conceptual understanding of the subject.

The real question of implementation is whether the No Child Left Behind test standards are modified. I hope the Education Department looks carefully at these new standards. It seems to me that this is a reasonable way to improve math teaching.

Now maybe we can also open up the curriculum to examination of all the other subjects - especially those that have been dropped as part of our overly narrow focus on math and science?

Bad sign for next year's competitiveness agenda

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From today's Wall Street Journal - Some Republicans Take a Scorched-Hill Tack

Like a retreating army, Republicans are tearing up railroad track and planting legislative land mines to make it harder for Democrats to govern when they take power in Congress next month.

Already, the Republican leadership has moved to saddle the new Democratic majority with responsibility for resolving $463 billion in spending bills for the fiscal year that began Oct. 1. And the departing chairman of the House Ways and Means Committee, Rep. Bill Thomas (R., Calif.), has been demanding that the Democrat-crafted 2008 budget absorb most of the $13 billion in costs incurred from a decision now to protect physician reimbursements under Medicare, the federal health-care program for the elderly and disabled.

The unstated goal is to disrupt the Democratic agenda and make it harder for the new majority to meet its promise to reinstitute "pay-as-you-go" budget rules, under which new costs or tax cuts must be offset to protect the deficit from growing.

. . .

In the Medicare dispute, Senate Finance Committee Chairman Charles Grassley (R., Iowa) has aligned himself with Democrats against Mr. Thomas and House Energy and Commerce Chairman Joe Barton (R., Texas). Talks continued last night in hopes of reaching agreement this morning on the physician issue and a larger $38 billion tax-and-trade package important to business.

"Failure is not an option," warned John Engler, president of the National Association of Manufacturers. New York City and Wall Street have a major stake in $682 million in tax provisions important to transportation infrastructure and redevelopment of the World Trade Center area. And the trade package, as introduced by Mr. Thomas last night, runs from Vietnam and Andean countries to a set of expired general preferences for developing countries around the globe.

. . .

With Congress turning off the lights this week, there seems no chance of saving the appropriations process. Instead, most of the government will remain on a stopgap bill through Feb. 15, and in kicking this can down the road, the Republican leadership has no idea where it will stop rolling.

This does not bode well for reaching agreement on a competitiveness agenda next year -- an agreement that will require some hard choices on spending issue and a willingness to experiment with new ideas and programs. Let us hope that this is the last gasp of the election year nastiness and that next year some sense of bipartisanship returns to strengthen efforts to deal with our nation's urgent problems.

Chinese R&D spending - part 2

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Earlier this week, I posted a piece on Chinese R&D spending. OECD's latest R&D outlook showed China as the number two spender - now ahead of Japan. This morning I got an email from the Council on Foreign Relations that reads as follows:

China has just overtaken Japan as the world's second-largest spender on research and development, the Organization for Economic Cooperation and Development reports — and its efforts are furrowing brows abroad. Yet spending alone might not be enough to overcome China's deep structural problems in this area. As George Gilboy pointed out in Foreign Affairs two years ago, China has traditionally imported technological processes wholesale, without investing in long-term capabilities of its own, and it has yet to develop a domestic R&D network linking innovative local firms, universities, and research centers. In other words, China is extremely dependent on technology from industrialized states and that could limit the country's growth down the road.

My problem is that I'm not sure the editors of Foreign Affairs get it. Things are moving very quickly in China. As I quoted in my earlier posting, according to Dirk Pilat, Head of the OECD’s Science and Technology Policy division:

some multinationals were beginning to move genuine research to China because of the high numbers of skilled scientists they could recruit in Shanghai or Beijing. “There are some signs that they are starting to do fundamental or breakthrough work in China,” he said.

Other indicators confirm the same message: China is rapidly ramping up their indigenous technological capabilities. The same can be said for their design and product development activities. [Plug: Athena Alliance will be co-sponsoring a conference next spring with the National Academies, the Wilson Center and others on the globalized R&D in China and India. More on this later.]

This is not to say that China is immediately going to become a technological superpower. But they are certainly on the path to a higher level of development - sooner rather than later. And I certainly can not agree with the statement in that essay of two years ago - Foreign Affairs - The Myth Behind China's Miracle - George J. Gilboy that:

China's own choices along the road to global economic integration have reinforced trends that favor the continued industrial and technological preeminence of the United States and other advanced industrialized democracies.

I fail to see how China's push for a higher level of economic development reinforces the current technological preeminence of the developed countries. The notion that some have of a world of "invent here - make there and we collect the royalties" is a chimera. The China of the future will be as one of those preeminent technological and industrial nations. They are not destined to be simply the contract manufacturer of cheap consumer goods. How the global economic system adapts to that reality in a manner which benefits everyone is the key issue in international economics today.

The essay makes a number of good points about the weaknesses of the Chinese economy and about the differences between Chinese companies and multinationals operating in China. Whether or not it is out of date and whether the essay's conclusion about China's future is correct, I 'm skeptical. Those are questions that everyone who reads it can decide for themselves. I do know that many things are moving quickly in China, so yesterday’s thinking may not be applicable to tomorrow.

This is one of those areas where the cliché is appropriate: stay tuned.

Chinese R&D spending

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And speaking of R&D spending (see yesterday's posting), here is news about R&D spending in China - China will become world’s second highest investor in R&D by end of 2006, finds OECD:

China will this year for the first time spend more on research and development (R&D) than Japan and so become the world’s second highest investor in R&D after the United States, according to OECD projections based on recent trends.

“The rapid rise of China in both money spent and researchers employed is stunning,” said Dirk Pilat, Head of the OECD’s Science and Technology Policy division. “To keep up, OECD countries need to make their research and innovation systems more efficient and find new ways to stimulate innovation in today’s increasingly competitive global economy.”

Based on recent trends, China will spend just over USD 136 billion on R&D in 2006, just over Japan’s forecast USD 130 billion. The United States is predicted to remain the world’s leading investor in R&D in 2006, spending just over USD 330 billion. The EU-15, which includes France, Germany and the UK, is predicted to spend just over USD 230 billion.

According to the Financial Times:

Mr Pilat said that the bulk of the spending in China was on development work, to alter products for the fast-growing Chinese market, rather than basic scientific research.

The number of patents coming from China that were registered with the patent office in the US, Europe and Japan is still low and a string of recent scandals over academic fraud have also raised questions about how well the money is spent.

But Mr Pilat added that some multinationals were beginning to move genuine research to China because of the high numbers of skilled scientists they could recruit in Shanghai or Beijing. “There are some signs that they are starting to do fundamental or breakthrough work in China,” he said.

Not completely surprising, given all that I have been hearing about foreign companies investing in China and the Chinese government ramping up its own investments. But I would raise the same points as were raised yesterday: R&D spending does not automatically translate into business success. Nor do these surveys capture informal research.

OECD collects two sets of relevant statistics from nations: S&T statistics and innovation statistics. [Note that OECD simply collates the numbers. The actual statistical work is done by the national statistical agencies using OECD guidelines: the Frascati Manual for S&T and the Oslo Manual for innovation]. Chinese S&T statistics are considered relatively good. However, as far as I know, China (like the US) does not yet collect innovation statistics. The US is moving toward that goal (finally). I can only assume that the Chinese are as well. When we have that data (from both the US and China) we will be in a much better position to understand the competitive dynamics.

Innovation, patents and R&D

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Does R&S spending lead to better profitability? No, according to a study released last month A Select Set of Companies Sustain Superior Financial Performance While Spending Less on R&D Than Their Competitors:

A select group of the world’s 1,000 largest corporate R&D spenders perform significantly better than their competitors over a sustained period while spending less on R&D than their industry rivals, according to management consulting firm Booz Allen Hamilton’s second annual global innovation study. The study found that although R&D spending of these 1,000 companies rose last year by more than $20 billion, money simply can’t buy effective innovation.

The bottom line finding is that more R&D money is not the answer to innovation. The quality of the research and the business operations that turn the research into products is far more important - what they call High Leverage Innovators.

These High-Leverage Innovators use many different models and approaches to outperform their competitors, but are generally noted for their distinctive skill in at least one element of the innovation process and are adept across all of the stages. Google, for example, is known for generating new ideas with blistering speed. Toyota excels at developing its products and processes far more efficiently and effectively than most other companies. And Apple is noted for its well-honed capabilities in project selection and customer understanding.

Much has been made of one of the findings of the study (as quoted in Business Week):

The second annual study examines the link between R&D spending and business performance, and it suggests that some long-held beliefs about R&D and innovation are wrong: for example, that a bigger R&D budget tends to deliver more patents—a common metric for measuring innovation. In fact, there's no correlation between the number of corporate patents and financial performance.

This statement is true as far as it goes. But this misses the key points of the study:

Companies are getting better at squeezing benefits from their R&D spending. Although R&D spending by the Global Innovation 1000 rose last year by more than $20 billion, revenues rose at an even faster rate. Indeed, the most meaningful indicator of innovation investment, R&D spending as a percentage of sales, has decreased steadily since 2001, and by that measure, only 40% of the companies actually increased their spending rate in 2005.

Deep pockets can be dry wells. Analysis of the 2005 Global Innovation 1000 confirms the major finding from our initial study last year: Money simply cannot buy effective innovation. There are no significant statistical relationships between R&D spending and the primary measures of financial or corporate success: sales and earnings growth, gross and operating profitability, market capitalization growth, and total shareholder returns. Gross profits as a percentage of sales is the single performance variable with a statistical relationship to R&D spending.

Bigger can be better. Scale provides advantages to R&D spenders. For the largest 500 companies, median R&D spending was only 3.5% of sales in 2005, compared with 7.6% for the 500 smallest firms.

Patents generally don’t drive profits. Boosting R&D spending can increase the number of patents that a company creates, but there is no statistical relationship between the number or even the quality of patents and overall corporate financial performance.

One size does not fit all. R&D budget levels vary substantially, even within industries, which suggests there’s no consensus on the right level of innovation investment, since companies are using a range of different innovation business models.

Effective innovators excel at four key elements. The high-leverage innovators distinguish themselves not by the money they spend, but by building strong capabilities in the four principal elements of innovation: ideation, project selection, product development, and commercialization. High-leverage innovators listen closely to their customers across the entire innovation cycle. Companies such as Stryker and Black & Decker design their innovation strategy around a keen understanding of their end customers’ needs.

For me, a key finding is the "one size does not fit all". In some case, there is a clear link between R&D and product development, such as in pharmaceuticals. In fact, drug giant Pfizer recently conducted a dog and pony show for analysts and investors touting its R&D and drug pipeline. In other industries, informal research is much more important. If I have a criticism of the study, it would be on its failure to look at informal research spending.

I also have a concern about the use of patents as a metric of innovation. I am not surprised by the finding that patents don't drive profits. My friends in the patent sales game hate this finding. And there is a counter-finding by Ocean Tomo that patent rich companies outperform others. But, as was emphasized at a recent conference on patent monetization, a patent has little value until it is "baked" into a product. What counts is the product development process, which often but does not necessarily include patents.

The Booz Allen Hamilton may be embraced by some and critiqued by other. I hope it will at least shake up this linear model that we have of R&D spending leads to patents lead to innovation. As the song goes, "it ain't necessarily so."

Reactions to financial report

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Earlier this week I discussed ongoing efforts to look at US financial markets. Yesterday, a private group, the Committee on Capital Markets Regulation, released its interm report with a number of recommendations. The recommendations were generally in line with what others, including the Secretary of the Treasury, have been talking about.

Reaction in some quarters has been unusually swift, with some questioning the link between the study and its funding from corporate interests. But the real interesting reaction came more on the substance of the findings, as reported in today's Wall Street Journal

"Some of the specific suggestions are valuable, but the approach goes wrong in focusing so heavily on competitiveness when there is also much that needs to be done to better protect investors and assure the integrity of those who oversee and manage America's largest corporations," said former Treasury Secretary Lawrence Summers. "I hope the Bush administration will focus as intensely on helping the American manufacturing, American agriculture and American health-care industries as it is on this particular aspect of financial services."

While many of the recommendations would require regulatory adjustments, some would require legislation and some lawmakers were skeptical yesterday about the need for broad changes.

Sen. Christopher Dodd (D., Conn.), who is expected to be chairman of the Senate Banking Committee next year, didn't stake out a position on any of the recommendations but suggested he might not support sweeping change. "While we have an obligation to ensure that our legal and regulatory system helps to foster growth and promotes innovation, we must not damage the fundamental rights and protections that underpin the investor confidence critical to the success of our capital markets," he said in a written statement.

New York state's attorney general, Eliot Spitzer, who has taken the lead on several financial service investigations -- often outpacing the SEC -- lambasted the committee's recommendation to limit how and when state law-enforcement can pursue cases against financial institutions as "absurd."

Under the proposal, states could pursue actions if the SEC chose not to, but would be required to notify the SEC of its actions and permit the SEC to have a final say on any settlements that include a structural remedy of national importance. The committee also suggests the Justice Department have the ability to sign off on all state indictments of auditing or financial firms with national clienteles.

"To eviscerate the power of the one set of regulators who did anything is absurd," said Mr. Spitzer, who will become New York's governor in January.

Interesting. I especially liked Larry Summers’ challenge to the Administration to come up with a broader strategy. Should make for a lively discussion next year.

"Good" versus effective design

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Good versus effective. That is the question facing the design community - at least in the UK after a recent awards ceremony - Rewarding Design's Bottom Line:

The Design Effectiveness Awards, run by Britain's Design Business Assn. (DBA) and announced Nov. 27 at a swanky black tie dinner at London's Hurlingham Club, attempt to sidestep the ego-technics by concentrating instead on practical business measures. These awards don't claim to be about "good" or "bad" design.

Instead, submissions are considered in conjunction with cold, hard facts: measurements such as gross margin, increase in market share, share price, and market penetration. And, in contrast to many other design awards, the judging panel itself comprises only those from the client side; commissioners from organizations including Fujitsu, the Orient Express, and Britain's National Health Service.

So far so good. Here comes the problem:
The overall Grand Prix was awarded to beer manufacturer Foster's for its "waterfall" packaging for cases of cans or bottles sold in supermarkets. Impressed by an increase in market share to 29% from 23.7%, the judges considered that the project demonstrated all the qualities necessary to take the sought-after prize for "best in show."

"With what appeared to be no other variable than the design of the pack, sales shot up far faster than the growth of the market," says Raymond Turner, judging panel chairman and a design-leadership consultant. "It showed an intelligent use of design to help to reposition a product with which people had become familiar. It's an excellent example of design working with demonstrable success."

Unfortunately, it's also a rather ugly piece of design. And here's where the intra-industry muttering and grumbling begins, and the claims of not caring whether or not something is "good" or "bad" design run into trouble. After all, what message does giving Foster's the "best in show" accolade send to the business community at large? Should a design organization really be ignoring the basic principles of "good design" in order to prove to the business community that it should be taken seriously?

Well then, what is the purpose of design -- aesthetics or effectiveness? For the bottom line folks, effectiveness is what matters -- and aesthetics is in the eye of the beholder. If it works, who is to say what is good or not.

On the opposite side are those who question whether one should go for the lowest common denominator - which is often the best way to improve effectiveness. Case in point: negative political ads. We all hate them. But politicians keep using them because they seem to work.

I guess I have to question the whole premises of the award. If the sole criterion was effectiveness, then the award misses the point. Design should be about the elegance of the solution, not just the solution itself. Form and function. The award should go to those who can do both – not just one or the other.

Maybe they need to rethink the award.

Design in India and the UK

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Two quick notes on what other nations are doing in the area of design.

First, from India where there will be a major design conference next week:

The conference is the first amongst a series of events being planned to bring together people who share an interest in addressing the challenges and opportunities of designing with India. It is proposed that individuals from diverse fields, who have unique perspectives on the role of design and innovation within the context of India’s participation in the global economy, will share their vision with the attendees.

. . .

The conference will be particularly beneficial for those who are in the process of establishing partnerships in India. The event will inspire the conceptualization of meaningful products and brands for the Indian marketplace, as well as help integrate Indian design sensitivities into an emerging eclectic design ethos that is fast becoming the defining characteristic of products and brands that will succeed in the global economy.
Sponsored by the Confederation of Indian Industry, this conference is part of a larger effort to put India on the global design map.

And from the UK comes word of a new research project on design - CRIC Project - Markets for Creativity: Design Services & Innovation:

This project concerns the role of design consultancies in innovation. Relative to R&D, design has received little attention from innovation scholars. Yet appreciation of the importance of design for UK firms has steadily increased in recent years and is now seen as key especially to low-technology businesses and SMEs, which account for most of the UK economy, as recently reflected in the Cox Review and the parallel study on Design and Creativity in Business Performance by the DTI. The UK design consulting industry is growing – and changing – fast. It comprises over 4,000 firms, with a gross income of £4 billion, including £0.5bn from overseas. Employment in the sector has more than doubled from the mid-1980s and both the technologies and the skills required in the competitive process have changed dramatically since then. Also it client base has expanded and transformed and is now highly diversified.

So, where are the American programs and research projects? Or is our official policy one of simply assuming the US competitive advantage in design will always remain?

    Note: the views expressed here are solely those of the author and do not necessarily represent those of Athena Alliance.

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