One less use for corn?

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Consumer reports came out with a very interesting study recently, The Ethanol Myth, which compared the gas mileage of cars running petroleum-based gasoline versus running on E-85, which is a gas (15%) and ethanol (85%) mixture. The interesting finding had nothing to do with whether ethanol would reduce our nation’s dependence on imported oil, whether it would reduce greenhouse gas emissions, forestall global warming, or help deter terrorists.

Instead, it asked a simple question: is ethanol-based fuel as efficient in existing cars as gasoline. The finding: “you’ll get cleaner emissions but poorer fuel economy … if you can find it”

CR was motivated to do this study because:

The Bush administration has been pushing ethanol as a renewable, homegrown alternative to gasoline. Now, the auto industry is abuzz with the promise of its flexible-fuel vehicles (FFVs), which are designed to run on either gasoline or the blend of 85 percent ethanol and 15 percent gasoline called E85.

So they ran a test using a 2007 Chevy Tahoe FFV (designed for ethanol). They found there are two problems with ethanol.

First, it reduces your gas mileage by about 27%, “from an already low 14 mpg overall to 10 mpg.” Not surprising since a gallon of ethanol has about 70% of the energy of a gallon of gasoline. Now if engines were optimized for ethanol, they could be as efficient as gasoline engines are today. But so might gasoline engines if they were truly optimized for efficiency instead of acceleration and other factors.

Adding to this problem is the considerable debate raging now about exactly how many gallons of gasoline it takes to grow, process, and distribute the ethanol (if Wikipedia is good for anything, it’s for putting the debate on center stage: Ethanol Fuel). Critics claim upwards of 1.5-2 gallons of gas are neeed to produce a gallon of ethanol (in the US, which uses corn).

There is a race to find the processing methods that are more energy efficient, but it will be a happy day when it takes less than one gallon of gas to produce one gallon of ethanol (which, remember, is still the equivalent of 0.7 gallons of gas). But this may require the maturation of cellulosic ethanol production (which uses farm residue rather than traditional product).

Second, they found that, because ethanol is produced and sold in the Midwest, it’s not widely available elsewhere. So maybe the reduced mileage won’t affect many of us, since we’re not going to be able to use E-85.

In any case, the argument for ethanol just got a little muddier. It’s a heck of a lot better when you compare it to the emissions of traditional gasoline. But since it’s the cure du jour for our energy woes, it’s worth kicking the tires–if only to see what needs to happen before we can seriously takes our eyes off of more attainable, if less glamorous, solutions like energy efficiency through improved mileage, better public transportation, smarter commuting.

Designing Innovation: Something old, something new

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Apple’s new iTunes music store feature, iTV, is an attempt to revolutionize the video distribution world in the same way that iTunes disrupted the music industry (and created podcasting). And Apple did it in a beautiful and–as to be expected–customer centric way.

The danger with all radical innovations is that customers’ understandings rarely change as fast as the technologies do: Natura non facit saltum (nature does not make leaps)–and this rule applies for human nature as well.

Apple’s designers have developed (or at least borrowed) a beautiful web interface for presenting consumers, used to buying their DVDs from Walmart, with a look and feel that mimics the familiar experience of roaming the store shelves (pictured above). It’s a beautifully analog display disguising the digitization of the product. As you move the scroll bar, each new video takes center stage, just like it was in your hand.

Yellowlees Douglas and I wrote about this (Robust Design) in describing Edison’s efforts to domesticate the electric light by making it as similar to the incumbent gas lighting as possible. From the street, one positive New York newspaper reviewer write, the electric bulb was indistinguishable from a gas lamp. The same must be done for any drastically new technology–not set it apart from what’s already there but the opposite, make it look as similar as possible.

Greenwashing, or racing the organic train, part II

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Good article in the NYT (A Milk War…) today about the entrance of Walmart’s private label organic milk, Great Value. Walmart gets this milk from Aurora Farms:

Activist groups, as well as some organic food retailers and dairies, contend that the company where Wal-Mart and the other big retailers get their milk operates large factory farms that are diluting the principles of organic agriculture and delivering customers a substandard product. They argue that Aurora’s cows do not spend any significant time roaming pastures and eating fresh grass; instead they live on a diet high in grains.

I wrote about this briefly when I found a box of Kellog’s Organic Rice Krispies in our cupboard (Racing the organic train). As promised, Walmart has indeed brought out low-cost organics. The race is between organic going mainstream and organic getting so watered-down as to become nothing but a marketing term.

As Melanie Warner writes,

The controversy turns on how closely Aurora adheres to the principles behind the organic food movement. Many organic farmers say grass feeding is essential for organic dairy production because it is part of a cow’s natural behavior. Milk from grass-fed cows, they say, is also higher in beneficial fatty acids than milk from cows fed grain, making it more nutritious.

At Aurora’s Platteville operation, about 40 miles north of downtown Denver, 4,000 cows are put on grass only when not being milked or when they are nearing the end of a lactation cycle. That totals about two to three months a year. The rest of the time they stay in dirt-lined outdoor pens where they eat from an ample trough filled with a mixture of hay, silage, corn and soybeans.

It’s still early in the race, but right now “greenwashing” is in the lead.

Gotta love anomic social networks

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BusinessWeek has just added another article to the pile of observations on the increasing popularity of social network sites: “Social Networks: Execs use them too”. Anyone who knows me knows I like social networks. The current trends in social network technologies, however, are disturbing.

Namely, networking technologies are seeking to automate the acquisition and use of one’s broad-ranging social relationships in the same ways that organizations have automated the acquisition and use of the local relationships needed to get one’s work done.

There is an irony that, by providing the product–a new network tie–these technologies are bypassing the need to personally build and use your own existing social network.

In other words, instead of calling your friends to see who might know someone who knows someone who can give you an trusted opinion of someone else, you log into LinkedIn, avoid all those messy and time-consuming phone calls and immediately jump to the right “connection.” And, by doing so, you let wither all of the actual relationships you built that were based on actual, mindful, and interactive contact with others.

Here’s an analogy: between commuting, email, and television, we spend a lot of time sitting. Then we collectively head to the gym for an hour of intense standing, climbing, riding or whatever. For most of us, organizational life has taken away much of our need to actually stand or walk around (unless we’re scrambling to get a PO signed late on a Friday).

In the same way, organizational life has taken away much of our need to “network”–to actually meet new people, engage with them, form productive and reciprocal relationships, and maintain those relationships over time and distance. Instead, most people drop into pre-established organizational networks (“this person will tell you what to do; that person will do what you tell them”). We then bemoan the static nature of our social networks and go to “networking events” where for an hour, like on a stairmaster, we push ourselves to hand out business cards and make untenable lunch plans.

Our fascination with networking technologies reflects two increasingly apparent problems with organizational life. First, the loss of our own abilities to build and mantain meaningful and mutually productive relationships with others. And second, like the unrealistic body images that drive too many middle-aged men and women to the gym every night (you too can have abs of steel and two kids under 5), executives have unrealistic network images that suggest you too can have the contact list of a Hollywood producer.

In an ironic twist–our increasing emphasis on social networks may come from the decreasing nutritional content of our own social networks. To me, the whole thing smacks of anomie and, thanks to Wikipedia, I can wax learned on the subject without truly understanding what I’m saying:

The nineteenth century French pioneer sociologist Durkheim borrowed the word [anomie] from the french philosopher Jean-Marie Guyau and used it in his book Suicide (1897), outlining the causes of suicide to describe a condition or malaise in individuals, characterized by an absence or diminution of standards or values (referred to as normlessness), and an associated feeling of alienation and purposelessness. He believed that anomie is common when the surrounding society has undergone significant changes in its economic fortunes, whether for good or for worse and, more generally, when there is a significant discrepancy between the ideological theories and values commonly professed and what was actually achievable in everyday life.

Anomie essentially represents the lack of meaningful social relationships that connect individuals to their surrounding community. The term was picked up by Robert K. Merton:

Robert King Merton also adopted the idea of anomie to develop Strain Theory, defining it as the discrepancy between common social goals and the legitimate means to attain those goals. In other words, an individual suffering from anomie would strive to attain the common goals of a specific society yet would not be able to reach these goals legitimately because of the structural limitations in society. As a result the individual would exhibit deviant behavior.

Through the miracle of modern technology, we can embrace social networking software that simultaneously increases our connections and decreases their meaning and value. We are perfecting the anomic social network.

What are colleges for?

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The Washington Monthly published a wonderful “College Ranking” study this month (its 2nd annual) that asks an interesting question–and makes me wonder why nobody asked this before: what are colleges and universities for? In other words, if college rankings are so important–what are we ranking these institutions on?

What are reasonable indicators of how much a school is benefiting the country? We came up with three: how well it performs as an engine of social mobility (ideally helping the poor to get rich rather than the very rich to get very, very rich), how well it does in fostering scientific and humanistic research, and how well it promotes an ethic of service to country. We then devised a way to measure and quantify these criteria (See “A Note on Methodology“).

Such an obvious question…in hindsight. And it turns out that asking the question this way gives you a ranking that barely matches the traditional rankings. While the other yardsticks describe the advantages that go to students attending particular schools, they miss the true contribution of the particular schools to those advantages.

Huh? To bite on my argument, you need to first buy the difference between intellectual capital and social capital. Simply put, intellectual capital is what you know, social capital is who you know. Some people are smart, others are well-connected (and some are both). Who wins in the end? You probably can guess the answer. There is hope that the best people become the best connected, but there is hope of winning the lottery too.

The study hit home for me because I had just read a wonderful post by Clarence Fisher on how computers and the internet (and internet blogging) reduces the distance from rural schools to the kind of social connections traditionally found only in metropolitan areas. Clarence cited an Economist article, The Invisible Hand on the Keyboard, that wondered why academics blog. A tangential point in the article is the diminishing benefit of connections that top schools provide as the ability to communicate easily across distance took hold:

With professors spending so much time blogging for no payment, universities might wonder whether this detracts from their value. Although there is no evidence of a direct link between blogging and publishing productivity, a new study* by E. Han Kim and Adair Morse, of the University of Michigan, and Luigi Zingales, of the University of Chicago, shows that the internet’s ability to spread knowledge beyond university classrooms has diminished the competitive edge that elite schools once held.

Top universities once benefited from having clusters of star professors. The study showed that during the 1970s, an economics professor from a random university, outside the top 25 programmes, would double his research productivity by moving to Harvard. The strong relationship between individual output and that of one’s colleagues weakened in the 1980s, and vanished by the end of the 1990s.

In this case, the professor’s intellectual capital (their smarts as measured by publications) depended significantly on their social capital (their networks of colleagues down the hall).

So would the same benefit seem to apply to the students taking classes with those same professors? Better performance comes from better connections.

You can’t argue with that–who doesn’t want better performance? But very interesting lessons might be learned if you try to separate out the advantages that go to students attending particular schools from the true contributions of those particular schools to creating those advantages. It might change our ideas about what we do, what we teach, and why.

Life in the Long Tail

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Not to belabor the point, but WSJ had an interesting story about life in the “long tail” (Famous, Online) in describing several small bands and their use of the Internet to generate and tap a following without the traditional scaffolding provided by the established record labels. In my last post on this, I mentioned the risk to established producers of low-cost and lower-expectation competitors:

For established companies, selling one thing is bad business. For the guy producing an album in his bedroom, selling one thing is good business. And soon, according to the Long Tail, big companies will be competing with millions of these smaller producers, who would each be quite happy with an extremely infinitesimal piece of the pie.

Elizabeth Holmes writes about several such “amateur bands” as the duo, The Scene Aesthetic, who had “2.3 million visitors and more than 124,000 ‘friends'” on MySpace. Here are some interesting numbers describing their career…

  • Using an amateur booking agent to book a national tour

  • Promoting their tour on MySpace

  • Booking every night in July and August (at pizza parlors and teen centers)

  • Gettting up to 200 people a night

  • Making about $600/gig (plus t-shirt sales)

  • Sleeping on fan floors when they can’t afford hotel rooms

Granted, this is not living large, but then again, there’s an authenticity to it that reminds me of the Beatles’ early days in Liverpool and Hamburg. Not that The Scene Aesthetic is the next Beatles, but that such a life can be pretty good when your cash needs and aspirations are aligned.

Is this the Future?

Will big companies, like big record labels, increasingly face competition from many small firms who have low capital requirements and less aspirations for corporate expansion? Yes. But will it cause a problem? Only for those companies who refuse to acquire or in other ways partner with these smaller firms. Though even these companies will find partnering less profitable than it once was–as they’re buying proven commodities.

That’s because what the long tail provides is a fertile space for small bands, brands, and business to establish a niche and grow to the point of proving they found an unaddressed need. No corporate fat-cat will be able to pretend their house brands are better simply because they control the only access to the market.

The Scene Aesthetic is not alone–there are thousands of such bands living online, hosting their own pages, posting their own songs promoting their own gigs for little or no cost. And this long tail has its own long tail: PureVolume, a song-posting site, says of the 300,000 bands posting songs, only 2% have more than 5,000 plays.

The long tail is a work-around for the relatively inefficient filter that is BigCo’s ability to spot and acquire hot new businesses. Eventually, good bands will rise to the surface, unaided by talent scouts and undeniably desired by fans, the same way local bands like the Beatles and the Stones and so many others emerged in the late 1950s playing local clubs (before producers started replicating the formula).

AS this model increasingly applies to other markets, we may be facing a potentially great Cambrian experiment in business evolution.

Stepping on the long tail

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There is an interesting kerfuffle brewing about the Long Tail phenomenon, and whether it’s all lies, damn lies, or just statistics. Thanks to Lance Knobel (Davos Newbies) to turning me on to more of the reactions to Chris Anderson’s new (and clearly provocative) book, The Long Tail.

Reading the online debate about whether 20% of the glass is 80% full or 80% of the glass is 20% empty will soon make dancing on the head of a pin sound like fun.

In any case, the Long Tail idea has the ring of truthiness about it. So let’s accept it for the sake of discussion as there seems to be an important question smack in the middle of the idea: Is the long tail good news or bad (or no news) for established businesses? The answer, of course, is it depends.

It seems to depend, mainly, on whose side of the supply chain you’re on. At its simplest, the Long Tail is good news if you’re selling what others are making and bad news if you’re making what others are selling.

If you’re an aggregator (i.e., retailer), the long tail can help you (presuming you can fit within the constraints of low-cost inventorying, customer acquisition, marketing, etc…) because it means you are able to offer a greater variety of products, catering to many small niches where there is less competition and better margins.

If, on the other hand, you’re making products, it means there’s plenty of room in the long tail for selling one of something. For established companies, selling one thing is bad business. For the guy producing an album in his bedroom, selling one thing is good business. And soon, according to the Long Tail, big companies will be competing with millions of these smaller producers, who would each be quite happy with an extremely infinitesimal piece of the pie.

But all is not lost. Most big companies, however, are some combination of aggregator and producer. Even manufacturing firms have established capabilities at the downstream end of the supply chain (like how they aggregate, distribute, and sell their back catalog products). So companies will have to think hard about the implications of the Long Tail trend for the different parts of their business–or, in other words, what long tails do they have, and what long tails are they competing against?

The long tail seems to be bad for companies who invest a lot in product development and manufacturing commitments, but great for those who can develop and produce a variety of products cheaply (where they can experiment with emerging niches). It’s bad for companies that rely on others for distribution and sales (where they may wind up in someone else’s long tail), but good for those with established networks whose long tails they can harvest.

Like most good books with great ideas, the theory behind the Long Tail has already leapt the bounds of its original context–retail–and been applied to everyone everywhere. I’m working on my long tail now. Aren’t you?

McDonalds with a purpose.

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Govindappa Venkataswamy, an opthalmologist, passed away July 7th. He’s not an American icon, but could (and should) be for his entrepreneurial ways. The WSJ just began a weekly column honoring the passing of prominent business figures, and Dr. V’s passing is an especially nice way to inaugurate the column.

Dr. V Started the Aravind Eye Care System with an 11-bed clinic in 1976, and has since grew it into a five-hospital system. The Aravind system provides affordable surgery for the masses–quite literally–and now impoverished cataract patients can have their eyesight restored for about $40–and if that’s too much, for free. It also proved that there was a way to make money at the bottom of the pyramid; the free are paid out of the profits of paying patients.

What makes the Aravind system interesting to innovation is the origin of its success:

He was inspired, Aravind says, by the assembly-line model of McDonald’s founder Roy Kroc — learned during a visit to Hamburger University in Oak Brook, Ill. … “Can’t we do what McDonald’s and Burger King have done in the United States?”

Sound familiar? In 1910, when Ford’s engineers came back from studying the assembly lines of the Chicago meatpacking plants (first publicized in Upton Sinclair’s 1906 book, The Jungle), one of his chief engineers said “If they can kill pigs that way, we can build cars that way.” From food to cars to food to the operating rooms of Tamil Nadu:

The assembly-line approach is most evident in the operating room, where each surgeon works two tables, one for the patient having surgery, the other for a patient being prepped. In the OR, doctors use state-of-the-art equipment such as operating microscopes that can swivel between tables. Surgeons typically work 12-hour days, and the fastest can perform up to 100 surgeries in a day. The average is 2,000 surgeries annually per surgeon — nearly 10 times the Indian national average. Despite the crowding and speed, complication rates are vanishingly low, the system says.

What if the best ideas of modern economies were, with care, put to better use? As Dr V said, ” Intelligence and capability are not enough. There must be the joy of doing something beautiful.”

A grain of salt for the long tail…

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Guy Kawasaki offers a good counterbalance to the hype surrounding (or soon to surround) Chris Anderson’s new book, The Long Tail. The idea of the Long Tail is that, in a single market, the combined size of many niche products can be as big as from a single (or relatively few) mass-market products. Anderson’s original idea stemmed from comparing the sales of pop hits and artists to niche songs and singers on iTunes and Amazon. Of course, this was also how General Motors ate Henry Ford’s lunch in the 1920s, by introducing multiple makes and models against the mass market-driven Model T.

The threat: Big companies are caught between a rock and a hard place. On the mass market side, Walmart and others are squeezing their margins to nothing. On the other end, smaller companies are increasingly stealing away niche chunks of their more profitable, lower volume products.

The promise: Companies that master the long tail will see their revenues and share grow where those that can’t will watch theirs wither.

The grain of salt: The long tail may hold vast riches in many markets but, as Guy points out, before a company can exploit the long tail, they (and their market) must meet a serious set of requirements…read his post for these.

However, I think there is one area where the Long Tail still may hold promise for big companies: The back catalog. The hundreds, if not thousands, of SKUs that companies have maintained if only to avoid the trouble of formally killing them off. These are the countless products dating back decades which someone, somewhere still needs or wants.

It may be difficult for a company to find, contract for, or develop new products to build themselves a brand-spanking new long tail. But the ideas behind the long tail may still enable companies to find new value in their back catalogs in the same way that eBay has enabled so many of us to find new value in our attics and garages.

The trick will be finding those customers you had neglected before–the mom & pop shops, the weekend users, the 40-year old virgins, who still want whatever you first sold them 20 years ago.

Finally, and unrelated to the rest of the post, Guy utters a classic line:

“Everyone knows that the innovator’s dilemma is to find a tipping point in order to cross the chasm.”

Sums up management thinking in the 1990s.

A call to action, not theory…

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Bob Prosen just published a very nice book, Kiss Theory Goodbye, on the need for action–and actionable advice–rather than another theory of how business works. It’s refreshing in its call for returning to the basics, sort of like how I imagine Bobby Knight might view management: if you can’t dribble with both hands, master the bounce pass, and shoot the jumper, all the rest doesn’t matter. After my post on “How to read a business book”, we got to talking. Here’s the jist of the conversation:

1. If you could ask one question (or look at one behavior) to gauge the “execution” skills of an individual, what would it be?

I would ask this simple question, “Can you tell me your top three objectives and, as of today, how are you performing against each of them?” Every leader should be able to answer this on the spot without hesitation.

2. If you could measure one behavior to gauge the “execution” skills of a company, what would it be?

The most important measurement is the company’s track record at meeting their profitability objectives. Increasing positive net cash flow is king of the hill. A great way to gauge a company’s execution skills is the number of “effective” meetings they have. If meetings have an agenda, are time bound, action items are captured and completed on time and people are willingly offering assistance to one another, that’s a company focused on results.

3. You’ve spent a lot of time working with individuals and organizations–helping them be more effective. What have you learned about making your own consulting more effective?

Two important things come to mind.

  1. Pick the most important things to work on and see them through to completion. Don’t get distracted. Stay focused on the significant few, not the important many.

  2. Do what I do best. In other words, only work on customer opportunities that are right in my “sweet spot”. And, outsource tasks to other professionals whenever possible so I can spend my time doing what I do best–teaching and speaking.

4. Your book focuses on managing execution in existing companies–what are the critical execution skills in managing innovation, where clear directions and constant measurement can run up against uncertainoutcomes, productive failures, and non-linear progress?

Great question. In some areas such as R&D, measurements and results are applied a bit differently. First, it’s important to determine how many resources will be devoted to these areas. This allows boundaries to be established and expectations to be set. Goals such as the number of patents received, papers written in top journals, and new products brought to market on time are potential areas to measure. Often, it’s best to measure these items over time to evaluate the trend. This allows for the inevitable swing in results inherent with innovation. Another way to evaluate performance is via reviews. This allows the company’s manufacturing and development groups the opportunity to evaluate if products were delivered as agreed. Customers can assess quality and usability and, senior management can see if the ROI is meeting expectations. Even thought it may be hard to apply traditional productivity measures, companies still need to hold the leaders ofinnovation accountable.

5. What’s the most important execution skill every MBA should graduate with?

As you know, I’m fortunate to teach the nation’s only EMBA business execution course at The University of Texas – Dallas which provides me a unique perspective on this question. My advice for MBA grads is to understand and maintain the proper balance between planning and doing. Leadership is the relentless pursuit of vision and results. Both are needed. Perhaps the best way to sum it up is “At the beginning of the day, it’s all about possibilities. At the end of the day, it’s all about results”. Finally, be hard on performance and easy on people. Done well, people will judge us as someone who is fair (Here are some comments from recent EMBA grads).