Category Archives: Innovation

All posts that talk about innovation theory and technological innovations

Evolution and Innovation

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Apparently I published this before I meant too. Anyway, today in Techdirt, they published a discussion on copying, innovation and evolution. Basically, a biologist argued that we are evolutionarily predisposed to copy and use group learning to develop new tools. What this means is that instead of going out and developing something out of the blue we first have to see what someone else has done and then we copy whatever they did, then in a parasitic way, make marginal improvements on the original. We’re nothing but freeloading copiers that make things a little better.

Techdirt completely disagreed with this point of view. They argued that simply copying something or a part of something doesn’t mean you’re freeloading. You can add a great deal to something to the point that whatever you copied simply becomes a part of a larger whole.

Anyone should know from my writing that I support Techdirt’s perspective. This comes from several several different arguments. The first is from the evolution of technology. If you ignore some of the human motivation behind the changing technology itself and focus on the selection process, you can see that technology changes through incremental adjustments. These changes are selected by the market or in primitive societies by the end result of an improvement. Spears that last longer, less energy expended on making new spears, spears that can be thrown farther, less danger from the animal being killed, or sharper shovels, less energy spent gathering food – more food. This selection process is a very natural process. Additionally, there would be some specialization of skills even at this point in our history. Some people would have been better at making spears and in a collaborative environment, because there were no patents and sharing was for the best of everyone, many people could experiment with new spear designs. This innovation while based on copying is a very real form of innovation that likely lead to gradual improvement over a great deal of time.

The second argument that supports innovation after copying is the argument of Cesar Hidalgo, which argues that looking at what countries are currently producing you can see a relationship with their innovative ability. By looking to see what technologies they import and export you’re able to see how well they have developed scientifically and in the manufacturing world. For example you can expect to see more advanced products come out of a country if they got into producing fertilizer very early in modern times. This typically leads to a general chemical industry which can lead to pharmaceuticals and semiconductors. Why? Well developing a strong base in chemistry with fertilizers can be expanded into drugs and as a base for semiconductors.

How do new countries move into these fields? Essentially, they have a knowledge transfer from a country that is already doing it. This can be done in two ways, one is the easy way: have a multinational company set up a manufacturing then R&D facility in your country. This allows a direct flow of knowledge on how to manufacture the material, which increases the rate of copying. Would allow the country to be a fast follower but will still require significant time for them to eventually innovate on that technology. Having an R&D facility would increase this rate, because local scientists would have already been trained on how to innovate in that field. They would have already been doing research in that industry and would more easily be able to innovate if a spin-off was created (or if the state nationalized that part of the multinational). The second manner is much slower: repatriating of knowledge workers. This is essentially what has happened in Taiwan and India. Educated Indians or Taiwanese returned from the US and created spin-offs and became professors at the local universities. This isn’t always successful.

Saudi Arabia is trying to develop a third way, which is having some success. They are recruiting experts from around the world to develop their own universities and companies. This is having mixed results and education and industry needs to pay attention to these attempts to see how well it plays out in the long run.


Copying is extremely important in education and is required to develop new industries in a country. Technology evolves through copying previous technology, recombining with new learning from other fields and from experimentation within the current field. Without copying there cannot be innovation. The more people participating in an economy where innovation through copying is rewarded, the greater our culture and the greater or technological evolution will be. Biology needs to take a lesson from Evolutionary economics.

Lean as a tool for new and mature companies

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Today, I finished the book “The Lean Startup” by Eric Ries. Despite the focus on entrepreneurship, I think this book has applications at many levels. First though, I must say that I’ve been using Lean for several years and I walked into this book with an understanding of Lean and how  to apply it at a company. What does Lean mean though? Well, it certainly doesn’t mean cutting staff, reducing the amount of money you have or anything along those lines. It’s a methodology for managing projects, processes and products. It does this by basing decisions on actionable data.

What is actionable data? Well, it’s data that you can do react to quickly if the data is showing trends. This could be a positive trend or a negative trend. If you see something going well and a process is improving over time, (which is abnormal processes typically go out of control over time) then you want to understand how and why it is improving. If it is getting worse over time, you want to understand why and work to improve the process. This isn’t just for machines but also for business processes.

Once you have valid metrics there are several different things you can do. You can simply jump in and try to fix whatever problem is there or you can take a different track. The other track is to do some root cause analysis of the situation. This is called the Five Whys. This is a series of questions that ask Why to understand the real cause of the problem. In one case you may have had a new employee upload something to the production server and it kills the production server. Understanding why might not be as simple as saying, don’t do that again. First you might want to know why the action of the employee took down the server, was it something he did that no one else would have done or was it something else. As you dive down you may realize part of the problem was lack of training but there were issues that would have arisen eventually from someone else. This deeper understanding allows you to make changes at multiple levels rather than installing knee jerk reactions.

That’s a reactionary use of Lean, some other interesting uses of Lean have to deal with experimenting with your product. Ries argues that most companies wait to long to engage customers and put too much effort into the first version of the software. He argues that a company should create a minimum viable product that can be tested to get the basic point across of the end product. Doing this early allows for experimentation with customer feedback. In the software world this is pretty easy to do. You can get to something that early adopters can use and then test changes. As you can route different users to different versions of your website for the product you can have slightly different tests to see what increases the metric that matters. Getting people to continue using your product, but you need to have very targeted metrics to understand what is actually happening with your software. If you use the incorrect metric you will do a lot of work that isn’t driving usage and isn’t driving your revenue.

If you decide to change the way users interact with your GUI, it would be useful to have a goal metric to truly understand if the GUI is an improvement over the previous GUI. This could be tracking the number of clicks it takes to get to an important function. The number of times the user uses your product, the number of times a new user uses the product, but stops using a specific GUI. Once you see your metric moving in the correct direction and you can be sure that it is the result of your changes, then you should end you experiment understand why the users reacted the way they did and try to learn what you should test next.

The early goal is rapid experimentation with purpose and data to back up the decisions you make. These techniques will work with any company, but will also be very successful for a startup.

Facebook, IPO and valuing a company

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This week we’ve been hearing about the debacle that was the Facebook IPO.Which has revealed that some of the underwriters for the IPO were doing shady things. Matt Taibbi believes that this indicates that there are essentially two markets. One for the insiders and one for the schumcks, the every day investors.

Why is this important? Well, based on the discussions I’ve read online, there’s a lot of concern of the validity of the whole IPO process, the valuation methods of companies and how investors think of companies. The valuation of Facebook had a great deal of discussion before the final IPO price of $38/share, this was partially driven by two articles that came out. In the first one it was mentioned that GM was pulling it’s account because “Facebook ads don’t work.” The other article of note relates that researchers found that 44% of Facebook users will NEVER click an ad. This research is important because some of the valuation is based on the conversion rates of ad views to ad clicks. On average Facebook was only able to earn around $4.34 per user. The valuation of $100 billion puts the life time earning potential per user at $100 (at 1 billion users). This is pretty low, but at the same time, if only 560 million users ever click ad, that pushes means the people that do click ads need to be earning Facebook roughly $200.

MIT Technology Review discusses how this is an unsustainable growth model for Facebook. Essentially, Facebook will begin to drive down the cost per view for their advertisers to try to increase their total revenue. This falls into the race to the bottom mentality that crushes industries. Advertisers will be able to say to any website, why should we pay you x amount per ad when we only pay Facebook y there is no way that you can get me more views than Facebook. The only way that a site could get more revenue if they can show data for a higher click through and conversion rates than Facebook. That might be tough. The Review article argues that this will eventually kill Facebook and a lot of the ad driven website business models.

The other aspect of the IPO is a difference in the way that business and technology media are reporting on Facebook. Things have shifted from all the non-business related activities to focusing solely on this aspect of Facebook. This will likely shift over time, but I believe that these considerations will be discussed in any article related to Facebook. If Facebook wants to remain a haven for activists it will be difficult if there are potential suits over people being activists. There will be an increase of risk aversion within the “owners” of the company as there will be influence from investors.

Zuckerberg has said that he plans on doing what is best for the long term and try to ignore the demands of investors. He might be able to do that because he still owns 57% of the voting rights for the company. However, it will be difficult for him to avoid the influence of the discourse of media outlets. Even if he gets all his news from his friends on Facebook, there will likely be articles posted that will give him news about the company and things that he probably won’t want to read.

Essentially, discussions will shift from being about the risk of privacy for users to how changes to Facebook will impact investors bottom line. I don’t think this is healthy for businesses, consumers of Facebook or the general public. There are other things companies do that are unrelated to investors that are important for society as a whole. The Facebook coverage really indicates that we don’t look at businesses in a long term sustainable manner. We need to change this if we want to save capitalism.

Continual improvement, Innovation and Modularity

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I’ve been reading Internet Architecture and Innovation which has gotten me to think a great deal about system’s architecture and innovation (shocking I know), but it has also gotten me to think about continual improvement as well. The perspective that Schewick takes for innovation in a system is actually based off of stock options. If you aren’t aware there are two types of options. Each is used in a different circumstance to sell at a certain price or to buy at a certain price. This has been used in some innovation theories for a while it’s called real options, or taking financial options and using them in a similar situation in real life. The differences is that it’s a go/no go choice instead of buy/sell. In terms of innovation it would be a choice between pursuing a new innovation in a system or not. For example. Let’s say you have a watch and you are trying to improve the time on the watch. Using the reals option approach you could figure out how much money you’d have to have for a return on your investment in the innovation, per watch, and figure out how many different types of crystals you would test to improve the timing mechanism. Another example could be a car, where you’re trying to reduce the drag on the car, which could dramatically change the full shape of the car. Whereas with a watch you may only be changing the crystal. 

Essentially, what this means is that you have two different ways of innovating within a system. Change the full system (car) or change a single module of the system (watch). Reducing the drag on a car could require a full system overall, because you’ll be changing the size of the front end, which could impact the maximum size of the engine (or shape of the engine), or could impact the maximum headroom of the vehicle. So, you could have a radically different looking vehicle from model to model. In fact we can see this if we look at the evolution of the car (below). This change is extremely expensive and requires a huge amount of work. It’s not likely that a company would pursue multiple designs beyond the drawing board or initial mockups. It would simply be too expensive to build multiple prototypes that are fully functional.
Evolution of Lamborghini
With watches you could have the exact same watch with several different materials to ensure the watch keeps proper time. In terms of watches there have been several radical innovations, including the wristband and digital. However, if the watch is not digital, the changes in some parts of the watch are extremely easy to test and compare on the market. For instance many pocket watches use rubies to protect the metal pieces in a watch from rubbing against each other. In this case it’s possible to test many different gems to protect the components, it’s also extremely cheap and if something fails completely it would never move into production. However, you could test hundreds of types of gems (sizes or whatever), at a significantly lower cost than testing many different full system designs.
So what’s the difference between the two? In this case we’re changing a full system compared to a module within the full system. Of course changing the gear structure of a watch would require a full redesign, but there are many parts that can be changed independently. In many aspects this can happen with a car, but there are limitations as well.
This modularity allows designers to innovate on separate aspects of the product without decreasing the quality of the overall system. This same idea can be applied in other business settings in terms of rapid and continual improvement processes. Many business processes are systems that integrate many different groups and aspects. Splitting the system into modular components allows continual improvement on many different aspects of the system at the same time. This modularity decreases the cost of improving individual aspects of the system as well as allows for more improvement projects throughout the system. 
Why would the costs be lower? Well, as I mentioned with the watch, it’s cheaper to test different components for the gems, time keeping crystal and face glass than to test a change in drag for a car. The change in drag could require changes to the seat heights, new design for the windshields, possibly an entirely new chassis. In the case of reduced drag, if the design works you may have to redesign all these other components. In the case of the watch finding out that the new glass face doesn’t work wouldn’t impact which crystal works best. This reduces the costs for testing the improved system.

Are we talking past each other with the net neutrality debate?

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I started reading (yes another book) “Internet Architecture and Innovation” on my flight to Portland Tuesday night. It’s going to be a really interesting read, if you like the internet, economics and innovation of course. One of the first parts discusses the history of the internet and a design principle called end to end. This means that when something is transmitted certain events must happen. There are two meanings to the same principle though, which complicates things. In one version only peers can “talk” to each other and share the information. This isn’t exactly literal, because if I’m skyping the data isn’t just between skype on my pc and yours, it goes through many, but the idea is that only your pc and mine know we are skyping. In the second method, some intermediaries might know that we are skyping, through something called deep packet inspection where a router is able to read the information it processes. Both ways are still called end-to-end. Which is obviously a problem.

Another easy example. One version would require equal up and download speeds, the other doesn’t. Let’s say you have a picture and want to upload it, in the one version it would take you the same time to upload as to download it the next day back to your pc. We know this doesn’t happen.

Until reading this book I really thought that the internet was truly designed in an equal and neutral manner. However, this isn’t the case. Using these two design principles results in an internet that looks very different and we would expect it to evolve differently based on which understanding was applied.

It’s obvious that for consumers the first option is better. Where the network behind the internet is neutral and a “dumb” pipe. Why is it better? Because no one would be able to intercept your data or change the speeds you get your information or even cap your data downloads. This is bad for network owners because they can’t charge or filter as easily for specific content. They simply become a pipe that information flows through.

The differences in incentives and contexts which the design rules are applied drives this discussion. Since the participants believe they are talking about the same thing there is confusion over the disconnect. This leads to an obvious other problem, our clueless elected officials. They don’t understand how the internet works at the simplest level, let alone the esoterics of the minute differences in this argument. It is no wonder they have tried to do back door deals to get this topic to go away.

This also has led to confusion within the internet community of how the telcoms can say that the internet wasn’t developed as a neutral platform. In a way they are correct, in other ways they are wrong. It was just a matter of what was being discriminated. Before it was up vs down speeds, now it could be content. Which to them is no different. For us, it matters a whole lot more.