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Tag: r&d

The Weakest Link; Advertising

ChainAs an Engineer, my respect for the Advertising/Marketing/PR, as an industry, is diminishing daily.  I see what is gorged behind the curtain and I see what is reguritated in front to the curtain.  The degree of hypocrisy defies social responsibility.

While many Marketing and PR professionals have a deep commitment to social values and the empowerment of people and their communities, many also see society as a big fat consumption machines whose collective minds can be mapped and channeled into “basic-needs” reactions designed to ultimately meet Wall Street priorities over social priorities.

Meet your maker

It is also not surprising that the advertising industry is also on the front line of social media where savvy gamers call themselves strategists, gurus, and experts over the very game that they cannot control.  They are quick to define “Social Media Innovation” as new ways to penetrate the hearts, minds, and eyeballs of people and their paychecks.

Oh, What a Semantic Web We Weave

Innovation Economics:

is the conscious practice of investing in innovation as a method for driving economic prosperity.  Innovation is the science of change and economics is the science of incentives.

Money is fictitious:

Money does not represent gold or silver, it represents your productivity.  The value is held in the productivity, not coins or bank notes.  Debt represents future productivity and savings represents past productivity. It’s very simple.

So if the word “money” and the word “productivity” mean the same thing, they should be interchangeable. Right?

As a test, try the following:

Every time you hear someone use the word “money”, simply insert the word “productivity”.  Try it with the kids, your boss, the news broadcast, or your favorite politicians.  If their statement still makes sense, then it is likely a logical statement.  If the statement is confused, reversed, or makes no sense whatsoever, then this is where we need Innovation Economics.

The Reversal:

  • “Mom, can I have some [productivity] to buy an ice cream cone?”
  • “We don’t have enough [productivity] to invest in R&D”
  • “There isn’t enough [productivity] in the budget so we must cut education programs”.

The Confusion:

  • “It concerns me that Facebook has yet to find a [productivity] model that seems likely to secure its future.”
  • “Icelandic [productivity] collapse is heard around the world”
  • “Global Warming costs too much [productivity] to solve”

The Ridiculous:

  • “Wall Street Executives earned excessive [productivity] in 2008”
  • “State of Washington opens more liquor stores to raise much needed [productivity]
  • “Lawmakers from both political parties have criticized banks for failing to use the taxpayer [productivity] for lending to help stabilize the hard-hit U.S. economy”.

It’s really fun to play this game when you start getting bored with the endless dribble of spin.  You can even go backwards; hear “productivity” and insert “money”. Pour yourself a glass of wine, sit back to the nightly news and you may start noticing some interesting trends.

Discussions related to engineers, infrastructure, airplanes, teachers, doctors, police and firefighters, etc., tend to get The Reversal. Discussions related to innovation industries such as social media, environment, and social causes tend to get The Confusion.  Discussions related to gambling, marketing and advertising, money shuffling, law suits, Wall Street, and various forms of speculation, are simply The Ridiculous.

It will make you wonder why we would need a Web 3.0 Semantic Web.  We really need a Web 3.0 de-Semantic Web.

(Picture from Charlotte’s Web; a story about a dinner pig who makes friends with a spider who comes up with a plan to save the pig by writing words in her web.  All the town’s people thought that the pig was special and his life was spared. The farm animals knew that it was really the spider who was special – she was an innovation economist)

Social Media; the Integrator of the Innovation Economy

Where are the gray suited diplomats holding each others forearms against a world map backdrop vowing to correct the world’s innovation system?  Where are the politicians joining across party lines about how to inject 700 billion dollars to fix the nation’s innovation system?  When will the Federal Reserve Chairman find the flaw in our national innovation system?  Hey, when will someone notice that we don’t have a national innovation system?

Schumpeterian Economics argues that corporations represent our nation’s innovation endowment. However, the primary function of a corporation is to make money, not explicitly to innovate.  Sure, they innovate if they must – most likely to beat down a more innovative competitor.  But, as soon as bad times hit, most will shift money from R&D to marketing.

If we look back only 400 hundred years, everyone on Earth lived on an average of about 500 dollars per year.  Then the innovations from the prior 2,000,000 years started to converge.  Counting backwards; the knowledge economy was “derived” from the information revolution, which was derived from the manufacturing revolution which was “derived” the Industrial revolution which was “derived” from the scientific revolution, which was “derived” from the agrarian economy.  Each revolution “Integrated” the tools of the prior revolution; The Knowledge economy integrated the tools of the information age and the information age integrated the tools of the manufacturing economy, etc.  By the way, the term “derived” is related to the term “derivative” – the primary hedging tool integrated in our current financial system.

Each economic revolution was marked by a tremendous increase in human productivity – we no longer need to milk our own cow. Victoria trades a dollar’s worth of her time as an airplane engineer for a dollar’s worth of the Robert’s time as an agricultural engineer.  Bill Gates is worth 50 billion dollars because he increased the productivity of a minimum of a billion people by a minimum of 50 dollars each.  I save 5 dollars in gas by not driving to the library when I can just search Google or Wikipedia.

The only way to “make” more money is to increase human productivity and the only sustainable way to increase human productivity is to find better ways of doing things.  Anything else is simply a transfer or redistribution of money.  Both are important – but often we confuse them under the same terminology: “making money”.  Or, we reverse the two by literally making (printing) money and then transferring it to corporations under the assumption that they will innovate enough to support everyone else plus the debt.  This system worked great for many years and in many political forms – it brought us from living in caves to a 65 trillion dollar global economy.  But like the economic revolutions before it, the current economic structure will soon give way to a new paradigm as we are forced to reach for higher productivity.

What the brilliant economist, Joseph Schumpeter did not have in his time was the technological breakthrough of Computer Enabled Society.  Taking a hint from the past; the new economic paradigm will be derived from the knowledge economy by integrating the tools developed during the knowledge economy. That is why we now have Linkedin, Facebook, YouTube – and all the rest.

Everyone agrees that information, knowledge, and innovation are profoundly related.  In fact, we can say that knowledge is derived from information and that innovation is derived from knowledge.  The new paradigm will be called the Innovation Economy and it will arise from the integration of the tools of the knowledge economy using social media. We see terms like open-sourcing, crowd sourcing, social networking, groundswells, innovation exchanges and a host of new Social Media Internet applications.  All of these have one thing in common; the tangibility of human knowledge.  This is the Holy Grail of modern finance and it is not a coincidence – it is now within our grasp.

In the past, human knowledge was only tangible inside the construct of a corporation – the corporate structure integrated knowledge assets to make things people want and need. However, with Social Media, knowledge assets will become tangible outside the corporate structure and integrated by knowledge communities, social networks, crowds, groundswells, etc. Knowledge communities will mix, combine, interact, and share knowledge; inevitably the end result is innovation – to make things that people want and need. These knowledge communities will become the next “corporation” acting directly as the integrator of human knowledge.  Ironically, Social Media “outsources” management.  Traditional corporations will not disappear as the agrarian economy never disappeared – they will just integrate.

Ideally, Wall Street is a simply a horse race where money is bet on corporations to fund innovation.  There is nothing wrong with that.  We don’t need a new financial system; we need a new and improved innovation system.  We have the technology; all we need now is the “integrator”.  The Ingenesist Project is the only viable comprehensive integrator now being proposed.  Perhaps it is not perfect, but the next economic paradigm will be certainly be derived from its improvement.

Social Enterprise; Innovation Clusters

Innovation clusters are all the rage in regional economic development circles.  Actually, they are “industrial clusters” because several companies in similar industries collocate in the same geographical area.  The industrial cluster then attracts supporting industry and often causes the migration of educated and motivated people to the prospect of jobs.  I suspect the ‘innovation’ moniker comes from the notion that newer industries locate near centers of venture capital, like planets forming from the dust of the cosmos.

There are, however, a few drawbacks to industry clusters; they are vulnerable to stagnation, silos, and external shocks.  As companies become organized and technologies mature, patents and trade secrets take hold.  As they ‘go public’, SEC regulation effectively places a gag order on everyone and sharing slows while stagnation sets in. Soon after, dozens of nimble companies consolidate into a single giant to achieve economies of scale.  Finally, silos form under the weight of multiple layers of management.  Then, something somewhere happens to shock the cluster; the end of the cold war leveled the So Cal aerospace cluster. 9/11 busted the Seattle Aerospace cluster.  The dot.com bomb stunted Seattle, Silicon Valley, and Route 128.  Hurricanes hit the petroleum cluster, stem cell and genetic engineering legislation stalled biotechnology, and corruption continues to shock financial institutions.   At the end of the cycle, companies divest, people defect and a new planet starts to form someplace else.

While occasional cleansing, in a Schumpeterian sense, is good for industries, the extreme volatility takes a horrendous toll on that invisible turbine of the economic engine – social fabric.  Families, friendships, professional networks are strained or collapse and those who dedicate their life to a career path – the pure innovator themselves – can be left marginalized by obsolescence.

The Calculus of Innovation Economics does not oppose industrial clusters; however, it does favor something called “technology clusters” in a business structure called the “tangential innovation” market.  For example; composite materials technology is very useful in many applications like aircraft, medical devices, transportation, recreation, and even musical instruments.   The airplane company has no intention of building cellos and the automobile company has no intention of building snow boards.  As non-competing industries, they can readily share technology and people.  The system is naturally diversified and inoculated against stagnation, shocks and silos; if one industry encounters hardship, people and capacity can shift easily to another industry preserving knowledge and expanding social networking benefit while the damaged industry heals or dies off.  Corporations may not like this idea, but social networks should.

The science of Innovation Economics goes a step further by modeling the business structure of tangential innovation markets as an integrated financial system.  Suppose and Originator Company has a promising new composite technology idea but is unable to meet the ROI requirements of their stockholders. Today, such innovation would be shelved.  In an innovation economy, tangential markets are factored into the business case.  The Percentile Search Engine can determine what other industries would be most worthy borrowers of your technology, if developed.  The Innovation Bank can estimate the return on investment that can be expected through the tangential market as if it were another customer.  The additional revenue projection would allow the originator to meet the ROI requirement prior to committing development funds.  Intellectual Property can be managed with contracts enforced through social network vetting.  The originator can hold an option to see further development conducted by tangential users effectively multiplying their R&D reach and further adding to the expected return.

Then something magical will happen. At some point, the value of the tangential innovation market would exceed the value of the origination market.  The originator will begin to specialize in pure innovation as a primary product and airplane applications as the secondary product.  As all industries in the technology cluster begin sharing technology among each other, R&D costs and risks are effectively spread across industries. As risk is diversified away, the cost of venture capital approaches single digit rates.

Then, another magical thing will happen. As the mixing of people and ideas accelerates, the definition of corporate boundaries will become more fluid.  Ownership will exist in the form of contracts among entrepreneurs now defined by social networks, options, and derivatives in a diverse innovation enterprise.

The knowledge inventory will house the assets rather than office cubicles.  The ‘secret sauce’ of knowledge asset allocation becomes more tangible, safer, flexible, and liquid than any patent could ever be.  Innovation will always be proportional to the rate of change of knowledge that the more diverse assets yields. The Percentile Search Engine will match surplus “secret sauce” to deficits of “secret sauce” much better than multiple layers of management in the past. The Innovation Bank will account for all transactions, obligations, and participation and distribute dividends (rather than hourly wages) to the owners of knowledge assets.  The system will regulate itself through social vetting rather than supporting a cumbersome HR department.

New ideas will get developed in the technology cluster where they would never have been able to meet ROI in the industrial cluster.  The innovation economy induces a multiplier effect on innovation by reducing risk, eliminating barriers to sharing ideas, and lowering the cost of capital.

While the boom bust cycle of Industrial Clusters has brought us a great distance in economic development, technology clusters in an Innovation Economy supported by social networks may turn out to be vastly more efficient at economic growth without the vulnerabilities of industry clusters.

The Capitalization of Knowledge – The Virtuous Circle

We have set up a new game for entrepreneurs to play called Innovation Economics. We have defined a currency and an inventory where knowledge is visible outside the construct of the corporation – and resident in social networks. We have also described a way for entrepreneurs to visualize the knowledge asset and the supply and the demand for knowledge assets. We have given them a tool for matching assets for profit. We have described how social networks will keep the game fair. We have outlined the structure of new business plans; the brain storming session, product development cycle, the neural network, and the multiplier effect. Future businesses will be built upon combination of these four structures and whatever else entrepreneurs can dream up.

We have described all of the pieces needed to form a new economy. Now we need to connect with the financial markets so that knowledge is readily convertible to other currencies.

For review;

With the financial bank, the entrepreneur assumes that they have the knowledge to execute a business plan and then they look for the money. The risk is that the entrepreneur does not in fact have enough knowledge.

With the Innovation Bank, we assume that we have the money, and we go to the bank to search for the knowledge. The risk is not having enough money to purchase sufficient expertise.

With both banks acting together – the risks cancel each other out and the innovation economy tends toward a ‘risk free’ cycle; the more knowledge you can assemble, the more money you can borrow. The more money you can assemble, the more knowledge you can assemble.

Now we have a virtuous circle. The more knowledge you have, the more money you can borrow; and the more money you have, the more knowledge you can borrow.

There is no shortage of money circling the globe – only a shortage of risk free places to put the money. The innovation economy is an environment of very high return for a very low risk and will attract a great deal of money to fund innovation enterprise.

Earlier we demonstrated that money represents human productivity. It follows that the places that have the greatest potential for increasing human productivity can create the greatest amount of wealth. Therefore, poor areas and marginalized economies with under utilized knowledge inventories or the injection of specific knowledge inventories, become the highest ROI centers in a risk-free system; a condition the explicitly favors the wealth equalization rather than wealth disparity.

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