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Tag: tangential innovation

Tangential Innovation Communities

In an earlier article (Cluster Funk) I argued that Industrial clusters can lead to stagnation, vulnerability to external shocks, and the erosion of social capital. Since I’m not one to complain without also providing an alternative, this article argues that the future will favor technology clusters rather than industrial clusters.

Make it up as you go along

Technology clusters serve what we call the tangential innovation market – or diversity innovation dynamics. Don’t worry if you have not heard of these things, I’m making this up as I go along.

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.

Why compete when you can collude?

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 Ingenesist Project 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.

New applications of social media will identify other industries that 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.

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 perils of Cluster Funk.

Building a Better Entrepreneur; Google 10^100

Google 10^100 award voting is Launched.  There are two sectors that we believe would have the greatest impact on the greatest amount of people; building a better banking system and funding social entrepreneurs.  You can’t have one without the other – if Google funds these two sectors in concert, the outcome would be incredible.

Build A Better Bank

In the old banking system we assume that we have the knowledge to execute a business plan and we go to the bank to borrow the money.  In the new banking system, we will assume we have the money and we go off in search of the knowledge.  Social Media is an excellent “public accounting system” for knowledge assets.

Our current banking system has gotten it backwards.

Technological change must always precede economic growth. The supranational currency may be backed by productivity and not debt.  Social media provides an excellent platform upon which to design such a banking system. People trade “social currency” at a tremendous rate.  This is evidenced by the amount of destructive innovation is occurring in many legacy sectors due to social media.

Better Banking Tools for everyone

“Partner with banks and technology companies to increase the reach of financial services across the world. Users submitted numerous ideas that seek to improve the quality of people’s lives by offering new, more convenient and more sophisticated banking services. Specific suggestions include inexpensive village-based banking kiosks for developing countries; an SMS solution geared toward mobile networks; and ideas for implementing banking services into school curriculums”.

Suggestions that inspired this idea

1.    Enable prepaid cell phone bank accounts for millions of people working in the informal economy
2.    Create a community-level electronic banking system for rural areas
3.    Build IT-enabled kiosks which provide access to financial services
4.    Create a single world bank or supra-national currency, uniform rules and transparent public accounting

Fund Social Entrepreneurs

Venture Capital is ridiculously expensive. Corporate innovation serves shareholders value over social priorities.  Some say that the financial risk of funding innovation is too high. The top ten reasons why start-ups fail are due to knowledge deficits, not money deficits.  A new banking system that trades knowledge as currency would solve this problem.

The key is to match most worthy knowledge surplus to most worthy knowledge deficit.  Google is perfectly able to build a search app for knowledge assets if there were an inventory of knowledge assets.  With the most worthy match, Risk can be reduced and new financial instruments can be developed such as the innovation bond, innovation insurance, tangential innovation markets, and destructive innovation transition contingency options, etc.

Help social entrepreneurs drive change

Create a fund to support social entrepreneurship. This idea was inspired by a number of user proposals focused on “social entrepreneurs” — individuals and organizations who use entrepreneurial techniques to build ventures focused on attacking social problems and fomenting change. Specific relevant ideas include establishing schools that teach entrepreneurial skills in rural areas; supporting entrepreneurs in underdeveloped communities; and creating an entity to provide capital and training to help entrepreneurs build viable businesses and catalyze sustained community change.

Suggestions that inspired this idea

1.    Provide targeted capital and business training to help young entrepreneurs build viable businesses and catalyze sustained community change
2.    Create a non-profit, venture capital-like revolving fund to invest in high-impact local entrepreneurs
3.    Send young American entrepreneurs to underdeveloped communities to help create small businesses that would economically benefit those communities
4.    Create schools in rural areas to teach local people how to become entrepreneurs
5.    Create a private equity fund to help immigrants in developed countries finance business development in their countries of origin

Social Media Staffing: $3 Trillion Opportunity

As the World Churns:

The cost of placing an employee approaches 30% of that employee’s salary.  In fact, most head hunters charge roughly 30% of the employee’s salary to find the right person to fill the job opening for a client company.  Sometimes the employee is recruited from a competitor causing a net productivity loss in a market due to disruption or “churning”.

The company also has a choice of hiring with the internal HR department.  In this case, they are paying HR personnel to place ads, review resumes, check references, and conduct interviews.  These costs can also run into a substantial percentage of the new employee’s salary.  From previous articles, The Ingenesist Project suggests that these methods may not even result in the best employee selection:

The Unnecessary Market Friction

Text only Résumé is no longer adequate in our complex business environment due to subjectivity, semantic inconsistency, and the time and resources required for fully interpreting the content. The cost of delivering a résumé has been decreased by computers and the Internet while the cost of reviewing the résumé has remained constant.  Keyword search programs often eliminate excellent and creative candidates based on criteria not related to the candidate.   Managers tend to hire what reminds them of themselves – from world that no longer exists.

Estimated wasted productivity:

Suppose that 50 Million professionals; doctors, lawyers, engineers, professors, administrators, managers, and directors are employed in the United States.  Suppose that the average salary is 70,000 per year.  Suppose that they change jobs 3 times in their career and that the cost of placement is 30% of salary, or $21,000 dollars per placement.

The total cost is $ 1 Trillion dollars multiplied by 3 placements in a career equals nearly 3 Trillion Dollars.  Now, divide this by 30 years in a career and we can see that 100 Billion dollars worth of human productivity are spent every year not necessarily matching the most worthy employee to the most worthy employer.  This does not include moving expenses, salary increases, disruption costs, or inflation.

The probabilistic electronic résumé system

The Ingenesist Project specifies a vetted knowledge inventory that resides in Social Media. The knowledge inventory, probabilistic electronic résumé system, and innovation bank together would make the paper and language Résumé obsolete.  The percentile search engine would scan the knowledge inventory of the corporation and scan the knowledge inventory of the labor market and seek matches with high probability of increasing net productivity – not unlike Amazon.com predicts what book you would like to read next.

Options, options, give the market its options

election criteria can be adapted to reflect social priority such as reduced traffic congestion or to reflect strategic objectives such as incremental or blue sky innovation requirements.  Trades across companies and industries can occur opportunistically not unlike interdepartmental transfers or even like trades in professional sports are conducted today.

Companies can manage peaks and valleys in employment by trading across diverse industries. avoiding layoffs all together.  Employees that can stay productive in diverse industries transfer new ideas and discover transferrable efficiencies.  Experience gained would be added to the knowledge inventory to enhance the probabilistic résumé inventory available for continuous improvement and tangential applications of innovation enterprise.

A virtuous circle? … A 3 Trillion Dollar opportunity nonetheless.

The First Mile in Social Media

The Last Mile….

Back in the early days of Broadband, the cost of sending a signal across the Pacific Ocean was negligible compared to the cost of delivering that signal to everyone in town – the problem was called the called “The Last Mile”.

Predictably, companies battled it out in the Dot-Com Wars with a flurry of IPOs and hostile takeovers clambering to fill “The Last Mile” void.  Then the issue largely disappeared.  I guess the cable TV folks figured it out because that is who I send my money to for the speedy bits.  Last week I was chatting with the FiOS folks burying fiber optic cable near my mailbox.  They said it’s going to get faster.

…of Social Media….

Social media currently suffers from “The Last Mile” syndrome.  Social Media applications have enabled me to make friends in India, Israel, Colombia, Mexico, Japan, and everywhere in between. I can shout out to 3 million people with the click of a mouse, but not the wonderful family living a few houses down the street.   I met them while chatting with the FiOS folks who were burying fiber optic cable near our mailboxes.

…is where the rubber meets the road

I really enjoy my online friends and the sharing of information makes me smarter and introduces me to new ideas.  But these ideas are not very productive until I apply them to something that actually touches the ground, like the FiOS cables.  The secret to finding a business case for social media can be found in “The Last Mile”.  It would seem that innovators and entrepreneurs would be strafing each other to fill this vastly under served market and lucrative market segment. This is where the money is. Hello, is this thing on?

But the scalability is lost.

I have found a few applications like Meet-up, Biznik, Ning, Neighborex, Start-up Weekend, etc., but they are just not catching fire like the calculus suggests that they should.  The problem is that the scaling is lost.  The advertising revenue model carried over from radio and TV requires millions of impressions to be viable.  The demographic of “The Last Mile” are groups of 2-8 people living within a few miles of each other – a corporate business model just does not exist to serve “The Last Mile”.

The First Mile…

Meanwhile, the old one-way advertising model is dying off quickly and the two-way advertising paradigm is sending all the major corporations and media outlets to the drawing board looking for the social media strategy.  Corporation are now expected to provide real value to a community, but they can’t figure out how to scale that value. The Irony is that most of those same corporations were started by 2-8 people living within a few miles of each other.  Maybe we should call it “The First Mile” and then re investigate the role of Social Media.

…holds the the secret sauce…

In the future of innovation economics, patents will not be the most valuable object, rather, the secret sauce that comes up with the innovations that will be the most valuable.  Corporation can employ social media to provide a practical and repeatable program that empowers a community.  Corporations can strategically assemble local entrepreneurs into spin-off entities. Corporations could license their IP, open-source their technologies, share internal strategy, and provide executive coaching that helps community teams to form new corporations discovering tangential and future markets.  Corporations should teach people what they do best – making money.

…where the scalability is found.

So where is the scalability?  Hey, let me hop on my new FiOS line with my 8 friends from down the street and we’ll just shout out to our 24 million global neighbors – and we’ll get back to you.

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.

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