Tag Archives: Business

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.

CISPA and the problem with volunteering data

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So, CISPA, Cyber Information Sharing and Protection Act, is the newest cyber bill on the block. There is a difference between this and the other laws though. In SOPA and PIPA the laws were mandatory, and the government could simply act. In CISPA companies can willingly filter material and this may be based upon information the government provides as a threat. This was a bad situation and internet companies seem to like this law. Facebook and Microsoft are straight up supporting the law. There is uncertainty in the public if Google is or not.

So, in this law the government and internet companies can voluntarily share information about cyber threats and suspicious activities online. However, the problem with voluntary sharing programs is that they can turn into “voluntary” programs. What do I mean? Well, if the government is not required to give the information to all parties that could be affected in some sort of terrorist act the government could decide to give information to companies that are sharing information with the government. Additionally, the government could punish companies, like Twitter, that fight the government over privacy issues by not sharing information.

These are pretty obvious problems with this type of law. It assumes that each event is independent and previous actions have no consequent. This is a faulty premise. If this is viewed as a multi-turn prisoner’s dilemma, it’s obvious that with repeat interactions the best actions will always be to share. This will likely lead to sharing when there are cases of doubt over if the company should share or not. Companies will fault on the side of security over privacy, because the future benefits outweigh any punishment the users can enact on the companies.

These types of pseudo quid pro quo is impacting the US government in other ways including lobbying. It is likely that this information exchange will be used by companies whenever there are negotiations for future laws. They will be able to say, “you need to respect our rights to X, look how friendly we’ve been with the government” and then show a list of times they voluntarily gave data to the government. This was a tactic that Ma Bell used to keep their monopoly as long as they did. Because the company was providing the government with extra public goods (military research), the government was willing to over look the fact that the company was a monopoly and perhaps should be broken up.

CISPA is a dangerous law that we need to carefully weigh accepting. We need to pressure internet companies to step away from the law. We also need, if it passes, better understanding of when companies hand over data willingly and for what reasons. We should also be notified any time a company hands over our data about us to the government for any reason.

Entitlement for copyright owners

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Business Insider had an article today about Reddit’s FIA. In my article in the Urban Times last week I addressed some of these issues before he wrote this article. However, he raises points that I don’t mention there and I feel that it’s extremely important to discuss them.

First he says that the law would make the internet “Hugely Difficult to monitor.” This raises a few questions. What does he mean by the internet? I helped define that in FIA, which I defined it as any data network including the web, social networks, FTP, peer to peer, email and a slew of other things. If he means this; then do we want the web to be easy to monitor? He trots out the case against it as child pornography of course, which I addressed in my Urban Times article. It’s a powerful argument because it hits upon two competing sets of social norms, rights of privacy and abhorrence to child abuse.

The use of child porn is a technique that is designed to end the conversation and shut down dissent. It places supporters of privacy in a position that is not congruent with their belief system. Additionally, the connection between copyright and child porn mixes different issues and seriously different belief systems. This difference is extremely important as there have become two different competing sets of norms. The incumbent belief that copyright is stealing, and the one new that has been developed by Web Kids.I strongly suggest reading the previous link as it provides powerful arguments for the changing sets of norms that my generation and younger entail. (I’d be on the rather old side of that generation).

Using a somewhat bad analogy, we’re using the “internet superhighway” and like the real highway people don’t want everyone driving by to know what you have in your car. Even if you aren’t doing anything illegal, do you want the cops to know that you have 5 cases of beer in the back and are going to be floating down a river all day? Probably not, cause they have no reason to know what you’re doing. Now, our data is similar to those cases of beer. Using encryption puts that into the back of the trunk where a cop is required to have justifiable cause (in the US) to inspect it’s contents. The person looking at the data would know the general direction your going and some of the ways you’re getting there, but nothing more. Yes, it makes it more difficult to identify bad stuff, but it’s difficult to do that on a real highway too. Just ask boarder patrol, and they have the right to inspect whatever they want.

Second, he essentially argues that copyright owners should have their content monitored by others. This is a huge subsidy for the copyright industry that will be paid for by other services. I’m going to use a physical world comparison, it doesn’t work perfectly but it works reasonably well. Let’s say that YouTube is similar to a Wal-Mart, or even Amazon.com. The author is arguing that YouTube needs to monitor as soon as the video is put on the web to ensure it is not infringing on copyrighted material. This would be similar to requiring Wal-Mart or Amazon.com to search for patent infringing technologies.

Why does this analogy work? In both cases these rights are state sanctioned monopolies. In both cases they are protecting a manifestation of an idea. Something that needs protection because it is extremely easy to protect. However, in Patent suits things are extremely different. The owners of the patent are required to sue companies that infringe on the patent. Wal-Mart and Amazon.com are both protected from the suit.

If Apple was allowed to sue Wal-Mart for the fact that an infringing technology is being sold there, Wal-Mart would have to bear the cost of policing their inventories for infringing material. In addition it would be in their benefit to be overly caution and remove potentially infringing products before anyone can see them. Part of the cost of owning a patent is the cost of policing products that may be infringing. By removing that burden from the copyright industry we are reducing the cost of the ownership of copyright and placing it on services like YouTube. This stifles innovation in services like YouTube because they have to include the extra cost of policy copyrighted material. A competitor to YouTube has a huge hurdle to overcome before they can even open.

Finally, he argues that the bill supports file sharing. I don’t think that it does other than being based off of a different set of norms. I’d argue that the bill supports innovation over old business models. You can disagree with me on this, however it’s been shown in several studies and some anecdotal evidence that increasing legal access to copyrighted content reduces pirating. If it is easier for a company to create interesting ways to provide access to content while paying the copyright industry then everyone wins. However, as Falkvinge puts it, “I don’t care about industry profits.” Realistically, I don’t care about most companies profits, because I’m only dealing with the company to buy a product or service I want at a price that I believe is reasonable. If all the legal sources that are available to me to watch a show or listen to a song when a person wants to, it is not unreasonable for them to look for it elsewhere and then try to find it legally later if they liked it.

If the company is making bad choices for their business, why should the law change to improve their business model’s chances of surviving? Anyone that supports free market capitalism should be horrified by this sort of industrial policy making. Essentially, these companies are being faced with disruptive technologies and working to push the government to protect them. It’s similar to what has happened with the auto industry in the US.

In closing, FIA represents a dramatic change from the current norms and aligns more directly with a younger generation. This generation does not understand why companies prevent them from viewing content that they want to see. While being an open generation on Facebook, they also understand the importance of protecting the data that has been given to companies. They choose what information they share and with whom. They want an open internet so they have the ability to innovate like their parents generation. They believe that it should be a fundamental human right to have access to data and communicate with whoever they want. An industry that is not innovating should not have the ability to destroy the internet.

Did yesterday’s internet black out save the internet?

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I’ve seen a lot of commentary about how the web may have been saved because of the internet’s “abuse of power.” How parts of the internet shut down for a day. I’m sure this impacted a great deal of people, may have actually hurt our economy a little bit. However, one day of action won’t save the internet.

I’ll agree it made a huge impact as support for SOPA/PIPA has plummeted. Yes, this round of attack by the MPAA and RIAA may have been twarted, but this is just the beginning of the fight for the internet. Ars Technica, has an excellent write up for a plan for how to address some of the concerns of copyright holders in a much better fashion. A manner which would not destroy the internet like SOPA/PIPA.

However, I think that this is a case of industrial policy legislation that is picking winners. In several blogs and posts at the Urban Times, I have written in favor of using some policies to enact changes of behavior. However, in these cases it’s because a novel technology isn’t being adopted that leads to benefits for the social good. In the case of copyright holders, these policies aren’t for the common good, but are being put into place to protect an aging business model that is not innovative. The policies I recommend are to help innovators compete against the status quo.

Data has shown that increasing the availability or decreasing the availability impacts the rate of piracy for television shows. Which indicates to me, policies should be striving to push companies to increase access to copyrighted material, not to go after pirating website. The responsibility for dealing with pirates should be with the copyright holder. They have the means to actually reduce piracy through reducing the amount of licensing fees and increasing accessibility.

We should be pushing our government leaders to put initiatives in places that require massive concessions from copyright holders, if they abuse their copyright position, including losing that copyright. Subscription services like Spotify and Pandora allow users to get access to content either free, with ads, or for a small price. However, these services don’t allow users to access everything. This leads to frustration. If I was able to listen to whatever on Spotify, there’d be no reason to pirate.

What does this mean? Well, we can celebrate the change in positions of congressional members, however this isn’t over yet. OPEN act may be the next step in this battle. Free internet should be our goal, free as in speech not beer. However, people are willing to pay and I think in this case, business models need to catch up with technology.

China, Technology and creativity

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Sorry I’ve been away for so long. I’ve been hanging out with my Awesome wife! She gave a talk in Ireland, which I went to for most of a week. It was a good time. She then came here to Eindhoven for a week and had an interview. So that’s why I haven’t been updating. Sorry faithful readers.

At a party on Saturday, I got into a fairly active discussion with 4 PhDs and myself. They are all engineering PhDs, so they understand research and how technology works rather well. We got into a discussion on if China was going to actually really over take the US in scientific research. I said I think it’s likely, but there were many arguments against that likelihood. I didn’t really get to finish my argument on why it’s possible. So, I’m going to do that now.

Basically, some of the core arguments against China being able to overtake is us lack of creativity. China is a country of followers, not a country of creative leaders. Another argument was the lack of high quality education and research centers in China. I’ll address the second argument first and then discuss the first argument.

Americans know that we educated a lot of foreigners at our universities, 2008 was an all time high for the number of international students. In fact my roommate at one point explained to me that one of the groups at the University of Texas was comprised entirely of Chinese students. They conduct their meetings and research all in Chinese and, in fact, leave the US speaking worse English than when they arrived. But why are they leaving? The link above notes that there simply aren’t enough H1B Visas or green cards for them all to stay. Effectively we’re throwing out the people we educate. Over time enough good scientists and engineers will be sent back and will start teaching in China. China has big ambitions and has been creating universities as fast as it can. Using an evolutionary perspective, we can see that it’s likely they will continue to create variation and students will be selecting the best universities. One of them is likely to start producing more science and better science than another. This will lead to the best students and best researchers going to that school. One or two could become the Chinese version of MIT, Berkeley or Harvard. I think it’s clear that education won’t hold them back. Eventually, they will have several universities in the top 200 list according to the Times Higher Education ranking.

The second argument is a little tricker to argue against. The Chinese aren’t creative enough to create radical innovations. First, I’m sure that the Chinese I know would object to this blanket statement. However, let’s assume for the moment that’s it’s some what correct. There’s a culture that doesn’t reward creativity and rewards conformity. I can think of two countries that have similar types of culture that have been creative and are excellent centers of research and innovation, Japan and South Korea. Now are they as good as the US at innovation or research, No. However, they have had some great innovations and do great research.

When it comes to patent research there’s something called a Triadic patent. It’s a patent that is filed in the US, Europe and Japan. Europe and Japan have higher standards for patents than the US and are more difficult to acquire. Why does this matter? Well effectively Japan is the only country in Asia that would fit better with the European countries in terms of GDP per capita, protection of IP and research.

Both South Korea and Japan have a few companies that are on the leading edge of their respective fields. Samsung is in a huge number of different areas and is the world leader in many of them. Japan has Nikon, Sony, Toyota and a few other big companies that are on the cutting edge in research, design and innovation. So, I don’t accept the argument that the Chinese couldn’t be creative.

Another point I was trying to make, is that over time as a country becomes the center of manufacturing and incremental innovation on a product, it’s likely that they are going to be able to create the next radical innovation in that field. There are two things that support this. First, in a book by Andrew Liveris, the British CEO of Dow Chemical, there is anecdotal evidence to support bringing manufacturing back to the US along with the R&D that goes with it. The other argument is based on the research of Cesar Hidalgo of MIT that shows through network theory, that to become a leader in technology you have to build your way through a series of other technologies. It helps explain why it’s so hard for countries to pick up creating semiconductors. However, as a country develops the technological capability to work within a type of technology they are likely to create innovation and changes in that technology.

China has effectively been given the ability to manufacture just about everything through outsourcing. They have the technological capabilities to build and design new technologies. China also has the resources devoted to it. They created a five year plan where they are going to invest $1.5 trillion in 7 science sectors. Because of these factors I believe that China is a real threat to US and European leadership in research and technology. For any one to dismiss China because of cultural reasons or technological capabilities is making a mistake and is likely to be surprised in 20 -30 years when China becomes a leader in at least one field, likely more than one.