The Anthropology of Innovation panel

September 19th, 2012

Last week, the Computer History Museum hosted a panel on “The Anthropology of Innovation”. I had to attend since I’m a fan of anthropology, I’m fascinated by corporate culture and how it leads to goals like innovation, and the panel featured Genevieve Bell of Intel, who Jofish and Janet interned with in Portland one summer. I discovered once I got there that the panel also featured George Kembel, a co-founder of the Stanford d-school, which is an institution I admire. I wasn’t as impressed with the third panelist, Laura Tyson, despite her impressive resume including being Clinton’s Chief Economic Advisor

This post is mostly a transcription of my scribbled notes so I have a searchable way of referring to them in the future. It will be even less coherent than my normal posts, as my notes are mostly quotes I found interesting. C’est la vie.

Gillian Tett, the moderator, is an anthropology major turned journalist. She started off the evening with a few remarks on her observations of innovation in society and in companies:

  • Every society has a cognitive map.

  • “The blank spaces are important.” I think this referred to the idea that the things we don’t talk about provide clues to the assumptions that are taken for granted and could be fertile areas for questioning.
  • Companies are organized by silos – increasingly interconnected but also increasingly fragmented
  • Innovation is about silo busting.

George Kembel then spoke from his perspective as a former entrepreneur turned educator.

  • He said innovation is “thinking freely in the presence of constraints”. The constraints are important as they bound the problem and create the opportunity for innovation. No constraints means you could do anything.

  • To answer the question of “how do you innovate?”, he observed that design thinking is not just about designing products – you can be creative in everything you do, whether it’s designing business models, new processes, etc.
  • He thinks of as a “school crossing” where they can integrate different points of views, existing outside of the traditional “schools” of engineering, science, arts, etc.
  • He mentioned that when they started, they were looking for faculty support for their interdisciplinary school, and they had expected the young up-and-coming professors to be their advocates. But those younger professors were all trying to establish themselves in their field and earn tenure, so they couldn’t take risks by going outside their field. Surprisingly, it ended up being the long-established tenured professors who were more willing to take the risks of crossing between fields. Interesting observation of incentives and constraints there.
  • Pay more attention to people, not technology.
  • When you’re not sure of what to do, try lots of experiments.
  • On the topic of how the encourages innovation, he said that the focus is on the student as an innovator – it’s getting the person to innovate, not about creating a process of innovation. Teaching students to break barriers, to find new ways of looking at the problem, that’s where the innovation will come from. The teacher does not have all the answers, but is more of a coach and facilitator. I like the human-centered approach, which recognizes that each person is dealing with unique situations, so no standard process will work for all of those situations, but teaching the person techniques will allow them to address their own individual situation.
  • One suggestion was for students to get a “shared experience of the user whose life they wanted to make better”, as “the biggest barriers to innovation are our own biases and assumptions.” A great story here – the man leading the GE MRI division was really proud of the great technology he had built that saved lives. After going to the, he realized he had never seen an MRI machine in a hospital, so he visited his local hospital. He saw the machine and it was glorious and a shining beacon of technology. And then he saw the little kid who was the next patient, who shrieked in terror at this ginormous scary instrument and sobbed and wouldn’t let go of her parents. And he realized that technology wasn’t the only factor to consider. After some more work, he developed a program with the hospitals where they turned going to the MRI into a camping adventure, with camp counselors instead of nurses, and with the MRI machine decorated as a tent for them to hide in. This program, while it was better for the kids, also improved his bottom-line instrument throughput, as the kids were eager to get in and didn’t hold up the process. Nifty story to demonstrate how a user-focused approach can lead to breakthroughs in how you perceive a problem.
  • To innovate, you must be “willing to invite discomfort into your life” as you realize your biases and assumptions might be wrong. “Don’t just accept the problem as it’s framed.”
  • “Our experts are our liabilities”
  • On K-12 education, he said the question isn’t how to teach innovation, it’s how to preserve the creativity of kids – they have it, we just have to not crush it out of them.

Genevieve Bell’s comments:

  • She started with the great story of how when she was hired at Intel, she asked her manager what she was supposed to study. Her manager said “Women.” Genevieve said “Um, women? You mean, all 3.2 billion of them?” “Yes, we don’t think we understand women.” “Okay….anything else?” “ROW” “What does ROW mean?” “Rest of World.” “So….World in this case means?” “The US” “Oh, okay, so everybody on the planet outside the US, plus women. No problem!”

  • One of her rallying cries is “That may be your world view, but it’s not everybody’s”
  • She said one of the reasons she was successful was “sheer stubbornness”, and that “people measure me by my being difficult”. One such story was where she told Paul Otellini, the CEO of Intel, that he was just wrong at a meeting. She could feel everybody around her internally gasping at her audacity, but Otellini asked her why, and she provided him with her data and supporting arguments and changed his mind. Yay anthropology!

I submitted a question that was selected by the panel moderator which was that in an increasingly specialized world where companies are looking for a specific skill set, and with innovation depending on busting silos, where does the generalist fit in? Genevieve had a great response, which was that a “generalist” adds value if they can “curate the conversation from multiple points of view”. She suggested that I was limiting myself by calling myself a generalist, and needed to re-brand and re-imagine my role to create an specialization that companies would value (e.g. “curator”). George said something similar, where he recommended thinking of myself as an integrator, not as a person outside of specialization. Another point he brought up when I approached him after the panel was that the idea of being T-shaped, with both a broad awareness and a deep area of specialization, is somewhat outmoded – we actually need more people who can integrate different viewpoints by having a certain level of depth in multiple fields, rather than just a shallow awareness in several and a deep expertise in one.

The final discussion was interesting, where an audience member asked about how to apply these ideas to health care. Laura suggested taking George’s viewpoint of focusing on the patient, and re-centering everything in the business around the patient. Instead of having specializations where each doctor was only responsible for their area leading to patients getting passed all around the hospital from doctor to doctor, re-design the whole process around making the patient experience better. George expanded upon that by suggesting that we don’t think of patients as sick, but as healthy people who are temporarily un-well, and thinking of medicine as the process to accelerate them back to their normal selves as quickly as possible.

Genevieve then blew my mind by asking if we could take a similar approach to government, where we put the citizen in the middle and organize the government around enabling the citizen. She didn’t exactly know what that would mean, and it depends on the idea that citizens embrace their role as representing their country. People would have to go beyond thinking of themselves as tax-payers who get services from their government (police, army, social security, etc), towards being citizens who embrace their role as representing the government. It was an interesting thought-experiment and a great way to end the night.

Nifty ideas all around. Fun thought-provoking evening, and I’ll have to think more about my generalist branding given the feedback from the panel.

The limits of rationality

September 12th, 2012

I’ve started occasionally listening to Rationally Speaking podcast, a production of the New York City Skeptics. What’s funny is that part of the reason I listen to it is that I get into arguments (in my head) with the hosts of the show, who are dedicated to the idea that rationality will lead people to better lives. One of the hosts, Julia Galef, has even started a Center for Applied Rationality to teach people to think more rationally and thereby improve themselves.

And I get that. Heck, I wrote a post eight years ago where I say that “one of the greatest problems facing this country right now is the lack of critical thinking skills. People don’t know how to evaluate information.” And I still believe that critical thinking is an important skill that more people should develop.

But I also have learned to recognize the limits of rationality in driving consensus and agreement. In particular, if two people are starting with a different set of assumptions, no amount of rationality will get them to an agreement – they are living in two different worlds. A mathematical analogy would be the difference between Euclidean and non-Euclidean geometry – the system of proof is the same, but you get different results if you change Euclid’s parallel postulate.

I’ve observed many instances of this over the years, where two people are trying to convince each other with logical, rational arguments, and are unable to do so because they don’t realize they are starting with differing assumptions. They are muttering “Why can’t you be rational about this?” but they need a common starting point or set of axioms before the rules of rationality can help. I’ve touched on this before in regard to the multiplicity of goals one can design a system for and how a religious system is optimizing for different goals than a rationalist system. That doesn’t mean things are hopeless when assumptions differ: Getting to Yes is all about working to shift people’s assumptions so that an agreement can be found.

I also think that rationality is often ineffective, despite being “right”. George Lakoff suggested in 2004 that the Democrats were making that fatal mistake – that “if you just tell people the facts, that should be enough – the truth shall set you free. All people are fully rational, so if you tell them the truth, they should reach the right conclusions. That, of course, has been a disaster. ” All the rational and well-constructed arguments in the world are not as effective as a well-constructed story in getting people to change their behavior, as described in Made to Stick.

So while I applaud those who champion the cause of rationality and critical thinking, like the Rationally Speaking podcast hosts, I think that reason is not enough (hence my mental sniping back at the podcast when I listen – to be fair, I’m setting them up as a straw man in this post). Even in a rational world, people will have different assumptions necessitating a discussion of what is truly axiomatic. And for all of our striving to be rational, it’s much more effective to convince people with a story than with a rational argument, because the story resets their assumptions and encourages their brain to fill in the blanks in a different way.

To tie this back to yesterday’s post on Principled Leadership, a fully rational approach to running a company would be having a strict hierarchy and process, with the reasons for each optimized decision laid out for employees. What I like about leaders modeling guiding principles is that it demonstrates a way of driving a common set of assumptions across the company, and providing stories that people can use to drive their own behavior. It may not be strictly “rational” or optimal, but it may be more effective.

drive their own behavior: I heard a story at one training on purchase orders where Patrick rejected a purchase order for $2,000 because it hadn’t been taken out to bid and there was no way for him to know that Google was getting a competitive price. Let me tell you that every time I looked at a purchase order after that, I paid attention to whether Google was getting a good deal, no matter how small the purchase.

Principled Leadership

September 10th, 2012

I like thinking about how to scale a company without making it feel like a big company. The standard way to scale a company is to use hierarchy and process to manage the larger scale – big decisions get passed up the chain to an appropriate decision maker, and little decisions are handled by a process that has been standardized.

But I have always disliked this approach, as it removes the initiative of smart and independent thinkers at all levels of the organization. Why hire smart people if you won’t let them think for themselves? I have long been fascinated by different management structures or bossless companies that trust their employees to make the right decisions. None of these organizations have been proven to scale past a few hundred people, though.

So how can we build companies that give autonomy to small teams while scaling up to thousands of people? Or to put a finer point on it, how can Google really be run like a startup?

As I watch the leaders at Google, I’ve realized that part of the answer is that the leaders tend to be consistent and principled. I work in the finance department, and Patrick Pichette, our CFO, is a master of this. He tends to ask the same set of questions:

  • How much investment will you need?

  • What does Google get out of that investment? (Is it revenue, cost savings, user growth?)
  • What do I have to believe? (what assumptions are you making to model the returns on the investment?)
  • How will you measure success? (what metrics will you show me in three months to demonstrate you’re on the right track?)

That’s it. He’s so consistent that I feel like I can project his voice into a meeting, and so I have become an extension of him within the org. I understand the principles he uses to make decisions and can therefore give others a good sense of how he’ll react before they go into a meeting. I can also anticipate the questions he is likely to ask, and make sure that my team has good answers beforehand so we’re not scrambling afterwards.

What’s interesting about this to me from an organizational design perspective is that Google is not depending on process or hierarchy to guide me. The thing that keeps the finance org aligned is a consistent set of principles modeled by the CFO, who then trusts employees to use their judgment in applying those principles. That is an organizational model that can scale.

And when I thought about the rest of Google, I realized that’s a lot of what makes it work – each of us Googlers has an internal model of key decision makers (Larry Page, Patrick Pichette, Nikesh Arora, Susan Wojcicki, Jeff Huber, etc.) and has a good idea of how each of them would react to a proposal. That enables us to make decisions without having to pass them up the hierarchy and without having an explicit process, and still be confident that the decisions will be consistent with the corporate direction.

I think this is how a lot of other great companies have worked. Whether it’s Walt Disney or Steve Jobs or Herb Kelleher at Southwest, their people knew how their leaders would react and could act more independently because of that knowledge. It’s not quite a cult of personality, because that would imply that the followers have no independent thought and are only doing what they’re told. It’s more like teaching a team a playbook and letting them figure out how to apply it in their particular situation. I also read once that the military does a good job of this, making sure that everybody knows the overall strategic goals for an engagement, such that if the situation changes, they don’t blindly follow their orders to “Take that hill!” if it doesn’t help with the overall strategic goal (some Googling reveals this is called Commander’s Intent).

I like this idea of scaling by trusting your people to do the right thing while not hog-tying them with a process. It lets them adapt the leaders’ guiding principles to their individual situations such that they have autonomy, but without having the organization dissolve into chaos. It does have the challenge that it won’t work if you have bad people in the org, but my guess is that pretty much no management tactics work if you have bad people – they will circumvent your process.

Anyway. I’ve been mulling this over for a while, and figured it’d be a good topic for my first blog post in nearly a year. Work has actually been calm for a couple weeks, so I have finally overcome my activation energy to post. I need to make the time to do it more often, as I have dozens of post ideas floating around, and I like myself better when I’m writing regularly.

Encouraging useful failure

November 13th, 2011

One particular issue I’ve been thinking about with startup vs. big company culture (and that is referred to in a comment on my last post as well as comments over on Facebook) is how to encourage useful failure – failure where you learn something and then apply what you learned to improve next time.

This sort of grit to struggle through failure (what Seth Godin calls “The Dip”) to find the next level of success is rare in a big company. As is typical for me these days, I would argue this is an issue of incentive alignment.

At a startup, walking away from a failure means quitting and finding a new job, whereas pushing through to find the bigger success (what Marc Andreesen has called product-market fit) has the potential for tremendous upside in the form of stock options. The risks are higher, but it’s worth it.

Big companies and their annual performance reviews tend to reward piling up little successes rather than long struggles with a big success at the end. Sticking with a project that isn’t working can lead to a bad performance rating, so people look for a quick transfer to a different project where they can ride on somebody else’s coattails to success and keep their ratings up. Those that do stick around and try to turn a failing project around rarely benefit from the upside if they succeed – maybe they get one good rating that doesn’t make up for the previous poor ones.

At an organizational level, it’s also easier for the big company to walk away from a “failure” because the company has other projects and revenue streams. As The Only Sustainable Edge points out, companies that only do one thing (e.g. startups) are driven to be the best in the world at it because they have nothing else to fall back on. That lack of a safety net drives further achievement than they would achieve if they could give up more easily.

Another perspective comes from this description of successful startups from Glenn Kelman (CEO of Redfin): “They weren’t afraid of failure, and they didn’t “pivot” when faced with their first setback”. And sometimes by having the grit to stick with a project that they were initially doing for their own passion without regard for commercial potential, they found a way to inordinate success.

How can we instill that kind of grit and passion into a big company? I can think of a few cases where a strong leader has bet the company on a change of direction (e.g. Bill Gates’s Internet memo, Steve Jobs turning Apple into a consumer electronics company, Jeff Bezos mandating that Amazon transform its infrastructure into a service-oriented architecture, Larry Page trying to focus Google on social), but this can also backfire (e.g. Elop’s “oil platform” memo). And these cases are more about a top-down change in direction rather than creating a new culture.

On the topic of encouraging useful failure, I could see some ways of trying to design an incentive system that would encourage people in that direction. Unfortunately, I think the people who work at a big company would rarely agree to such an incentive system. And in my experience, the people who would like such a system will try to do the right thing regardless of the incentive system.

So to re-state the question in a different way – is it possible to create more “startup” people who are willing to take chances and struggle through failure? I wonder if it would involve a re-design of our education system – the US education system is designed to reward people who follow directions and respond to incremental incentives (aka grades), and punishes those who fail even intermittently. Could any incentive system be powerful enough to overcome a lifetime of cultural conditioning?

Hard questions. I don’t have any answers. And, obviously, a lot of digressions. But I’ll keep exploring these sorts of topics over the upcoming weeks. Let me know if you have any thoughts.

Startup vs. big company culture

November 9th, 2011

Since Larry Page became Google’s CEO again in April, his focus has been on “making a company of more than 24,000 employees act like a startup“. And because of my interest in mapping out organizational space and understanding the different ways in which people can organize themselves, I’ve been trying to figure out what, exactly, differentiates a startup culture from a big company culture.

My current theory is that the difference is in incentive alignment. At a startup, it is difficult to be individually successful while doing the wrong thing for the company, because if the company fails, everybody is out of a job. At a big company, though, fiefdoms can develop, where within a fief, people can get promoted for improving the position of that group despite being obstructionist to the rest of the company. This is often what people disdainfully refer to as corporate politics.

This reminds me of Mancur Olson’s book Power and Prosperity, where he describes how it makes economic sense for special interest groups to subvert democracy in harmful ways – if they represent 1% of the population and push for an action that will benefit them while hurting the overall democracy, they reap 100% of the benefit but only feel 1% of the pain. A similar dynamic is at work for groups within big companies, where they push for their own agenda even when it might hurt the overall company’s position.

This difference in incentives drives many of the differences in behaviors between startups and big companies. At a startup, nobody says “That’s not my job” when asked to do something that’s critical to the company’s success, because they won’t have a job if the company isn’t successful. At a startup, people have an understanding of what drives the company’s success and re-prioritize on the fly if necessary if market conditions are changing. Everybody is invested both economically and personally in the startup’s success, and that drives a unity of purpose that overrides individual agendas.

At a big company, people want to avoid risks and perpetuate the status quo, because creeping up the corporate ladder is the safer path. It’s easier to say no than yes, leading to the big-company phenomenon where every new project has to be signed off on by 10 different departments (legal, finance, security, PR, marketing, sales, engineering, etc), creating 10 opportunities for “No” without having a single person that can say “Yes” and have it stick. It’s possible to get promoted and get paid more without doing anything to benefit the company, if you are advancing your group’s agenda and hitting your individual targets even if the targets are no longer meaningful.

So what does it mean to have a big company with a startup culture? Part of it is figuring out how to get everybody at the company aligned on what the priorities of the company are (this is incredibly difficult at a sprawling company like Google), and rewarding them appropriately. Part of it is to encourage appropriate risk-taking – rewarding those who said “Yes” when it was the right thing to do even if the project failed. Part of it is creating a more risky environment in general – the people who are attracted to safe big companies with a well-defined ladder are not the people that will function well in a startup culture where things are changing fast. And I’m sure there is lots more that I haven’t figured out yet.

I’m fascinated to be part of Larry Page’s Google experiment on creating a big company with a startup culture. I’m not sure it’s possible without addressing the questions of incentive alignment and risk I raise here, but I want for it to be possible. The scale of projects that can be done at a big company are mind-boggling, but I also miss the free-wheeling all-for-one-and-one-for-all culture at the startups I’ve been at in the past. I will be watching closely and looking for opportunities to help with this culture shift as somebody who has startup experience and is interested in these sorts of culture questions.

Griftopia, by Matt Taibbi

October 31st, 2011

Amazon link

Matt Taibbi is angry. He is a Rolling Stone columnist who spent the last several years covering the financial crisis, and as an outside observer, is far more negative about the finance industry than anybody associated with it. Griftopia is a collection of columns and other research put together as a striking condemnation of what has happened to America in the last twenty years.

Taibbi’s main thesis is that the finance industry has, rather than produce real value, chosen to exploit value created by others by creating financial instruments. He digs into the mortgage crisis, the commodities bubble, urban privatization and health care and shows how these are all different facets of the same attitude – make a quick buck for yourself, and damn the long-term consequences. I don’t know if all of Taibbi’s allegations are accurate, but he strings his observations together into a compelling story of a country headed into oblivion, because we are letting these jerks get away with it.

Here’s Taibbi’s description of the bubble economy:

Imagine the whole economy has turned into a casino. Investors are betting on oil futures, subprime mortgages, and Internet stocks, hoping for a quick score. In this scenario the major brokerages and investment banks play the role of the house. Just like real casinos, they always win in the end – regardless of which investments succeed or fail, they always take their cut in the form of fees and interest. Also just like real casinos, they only make more money as the number of gamblers increases: the more you play, the more they make. And even if the speculative bubbles themselves have all the inherent value of a royal flush, the money the house takes out is real. … Bettors chase imaginary riches, while the house turns those dreams into real mansions.

Now imagine that every time the bubble bursts and the gamblers all go belly-up, the house is allowed to borrow giant piles of money from the state for next to nothing. The casino then in turn lends out all that money at the door to its recently busted customers, who flock back to the tables to lose their shirts all over again. The cycle quickly repeats itself, only this time the gambles is in even worse shape than before; now he’s not only lost his own money, he’s lost his money and he owes the house for what he’s borrowed.

Taibbi shows how this played out in the subprime mortgage crisis, but also in several other areas:

  • Commodities trading used to be about hedging risk, where a corn farmer could lock in a guaranteed price at market. The government used to enforce position limits, to ensure that “the trading on the commodities markets would be dominated by the physical hedgers”. However, in the 80s and 90s, the government issued exemptions to those position limits to several banks like Goldman Sachs, leading to 2008, when “80 percent of the activity on the commodity exchanges was speculative”. Instead of creating and maintaining real value from real crops, the commodities market became just another casino. This played into the oil price craziness of 2008, which exacerbated the slide into recession.

  • He also tells the story of how Chicago leased its parking meters for 75 years to an Abu Dhabi coalition for a lump-sum payment to cover a budget deficit – they essentially securitized the parking meter income stream. The downside was that the new lessors immediately raised prices and extended the meter schedule to start making a lot more money than originally projected in the lump sum payment, and left Chicago in worse shape than when it started.

Taibbi uses several more examples to demonstrate that Wall Street is a parasite getting fat by sucking profit out of others. It’s a short-term attitude that destroys value, rather than create value by producing goods and services. He ends the book by describing Goldman Sachs as a “vampire squid”, entwined with every aspect of the American economy and sucking value out of all of it without creating any value itself.

Griftopia is a withering tirade against what Wall Street has done to the American economy, and how the government and we, the people, have allowed it. It’s a quick read, and I recommend it for a different perspective on the recent financial crises than what is reported in more typical news channels.

Understanders vs. Fixers

June 26th, 2011

I was having a conversation with a friend the other day about what we thrived on in a job, and it was interesting to see how our perspectives differed. She talked about the thrill of fixing a problem, of figuring out what was happening, and designing a process or system to solve the problem forever. I talked about how I love the challenge of understanding how all the different parts of a system fit together and figuring out what actually matters. The conversation was a good reminder for me of how important it is to have the right mix of people to get things done in an organization.

I’ve been thinking about this recently as I start a new role at Google where I am trying to articulate to my new team the value that I bring. My strength is as a systems analyst – understanding all of the different parts of a complex system, seeing how they inter-relate, and being able to describe the levers that drive the whole system. This applies whether the system is conversation, corporate culture, or the intricacies of Google’s revenue. I believe that my ability to both understand the big picture as well as the details allows me to extract insights that other people could not from just one level. And I am driven to keep on poking at the system until I feel I understand which stimuli will provoke which responses. The collection of observations on this blog over the years is a reflection of my drive to understand.

However, I struggle in taking the understanding I develop and doing something about it. I can understand how the system is put together and where the friction in the system is, but not how to fix those things. Part of understanding the whole system is understanding why different design decisions were made in the construction of that system, and that understanding sometimes makes it difficult for me to envision a different way of doing things that would solve the issues I identify.

My friend is more pragmatic as she is more interested in fixing important things that are broken. She has worked in a couple different industries, and in each case, it was more about identifying the systemic things wrong with her company, and figuring out how to make them work better by instituting a new process or a new system element. She also has a good understanding of systems, as she wouldn’t be able to fix things effectively if she didn’t. But for her, it’s the fixing that matters, not the understanding.

I think both roles have value to an organization. And a particularly good combination is to pair an understander with a fixer so that the system insights that the understander develops can be fed to the fixer. An understander without a fixer identifies problems but those problems linger since nothing is being put in place to counter them. A fixer without an understander is sometimes fixing symptoms rather than the underlying problems that are driving problems in the system. Together, though, they can be a truly powerful force.

P.S. There are a few other themes inspired here that I’m going to set aside for a future post:

  • Good managers understand the strengths and motivations of their people such that they can (a) keep their people happy by giving them the types of problems that interest them and (b) combine their people in ways that complement each other.
  • The “fixer” trait fascinates me because I don’t have it. I know many people who see something wrong in the world and are not satisfied until it is corrected (most hackers are like this). I figure out what’s wrong and then work around it, because changing myself is easier than changing the world. But I’m working to develop this trait.
  • There is probably a Myers-Briggs or other personality trait that I am describing here – if you happen to know what archetypes I’m describing, please share in the comments.

The value of finance teams

June 3rd, 2011

When I was considering whether to take a job in Google’s finance department, a successful entrepreneur friend of mine told me I was making a mistake. He felt that designers and engineers added value to the world by creating new products, but the only thing finance people did was to say no. Given the pride I had taken over the years in creating valuable products like the CellKey system, I wondered whether I was making the right choice.

After a couple years here at Google, I agree with my friend that there are far too many people within corporate finance departments that are beancounters. Their only goal is to make sure the sums add up and that the processes are being painstakingly followed. Anything that disrupts their routine is fought with every fiber of their being. I made a mistake last fall that meant that Google had to pay out invoices faster than net 30 terms, and I spent weeks begging the team in accounts payable to vary their process this one time. Other finance teams have frustrated me by sticking resolutely to their quarterly plans even when the environment had shifted since those plans were made.

That being said, good finance people provide a level of clarity and objective vision to the executives. Finance takes a separate look from outside the product domain to review revenue and cost trajectories, as my team at Google does for the Revenue Force team. Our CFO, Patrick Pichette, asks every product leader what they’re going to get done next quarter and what resources they’ll need to get there, and then he follows up the following quarter by evaluating their success on achieving those goals with those resources. By having that outside check, it forces product teams to re-evaluate their own success every quarter rather than trying to launch at all costs.

Finance can also help the executives make decisions across product lines. Product people often want to invest in all the cool ideas they have and won’t prioritize to make the hard tradeoffs, because it’s like choosing one’s favorite child. The finance team can provide a framework to the execs for valuing the different product initiatives for the company to help the execs make those tradeoffs at the corporate level. This doesn’t necessarily mean making decisions purely based on profits – corporate objectives might include other metrics like user adoption, as is the case for Google products like Chrome and Android. But having a consistent framework makes it easier to compare products across the company.

Evaluating the business model for a product is also part of finance’s responsibility. Even if a product is technically excellent, the business model surrounding it may not be successful (e.g. Signature going bankrupt despite the CellKey instrument being on the path towards success, or Google Wave). Good finance people understand the product vision and the potential market, but can tie those lofty goals back to the prosaic P&L statement, and provide a viewpoint on whether the assumptions embedded in that model make sense and are achieving corporate objectives.

Lastly, great finance people can change the way executives think by giving them a new way to frame their businesses. Because the finance team is looking at things from a different perspective, they can provide insights that the executive team might be missing. It means going beyond the numbers to provide strategic insight that changes the priorities of the executives. I’ve been fortunate enough to see my manager do this a few times with the Google execs, and the value of providing that new perspective is huge.

This vision of a good finance person is actually well aligned with the value I provide as a generalist, connecting different perspectives and providing new viewpoints based on integrating those perspectives together. So while I agree with my friend that product people are creating value in a more concrete way, I believe that finance people can create value through changing the way the rest of the company thinks about the business. We’ll see if I can start changing the way product people think about their counterparts in finance.

Action despite uncertainty

June 2nd, 2011

Scott Berkun just posted about situations in life where good data is impossible, which reminded me of a quote I’ve been meaning to share.

I once went to a talk by Bob Sutton where he cited a quote by Andy Grove, CEO of Intel:

“I think it is very important for you to do two things: act on your temporary conviction as if it was a real conviction; and when you realize that you are wrong, correct course very quickly.

Investment decisions or personnel decisions and prioritization don’t wait for the picture to be clarified. You have to make them when you have to make them. You take your shots and clean up the bad ones later.

(So you have to keep your own spirits up even though you well understand that you don’t know what you’re doing)”

I think this is one of the hardest things to learn as I progress in the business world – many situations I’m asked to handle are novel, because routine decisions are handled by bureaucracy in the form of established processes or at a more junior level. Taking action when I know I don’t have enough data requires a leap of faith that I’m best positioned to make a decision anyway.

The Master Switch, by Tim Wu

March 13th, 2011

Amazon link

Subtitled “The Rise and Fall of Information Empires”, Wu has no lack of ambition as he addresses how information and communication companies such as AT&T, Paramount Studios, NBC, and CBS have dominated our discourse over the past century. The title comes from a quote illustrating the perils of such domination: “At stake is not the First Amendment or the right of free speech, but exclusive custody of the master switch.” (Fred Friendly). When a single company can determine what innovations are pursued or whose message gets transmitted, it has potentially negative consequences on our society.

The book is primarily a history of the telecommunications industry in the twentieth century, as Wu examines how each new technology innovation (telephone, radio, movies, TV) arose in a spirit of changing the world, before eventually getting subsumed into a monopoly or oligopoly, created with the tacit assistance of the government, either through regulation or patent enforcement. Wu calls this “the Cycle”, and the underlying question of the book is whether the Internet will be subject to “the Cycle”, or whether this time is different. I thought that Wu had to stretch to make the case that each of these industries followed the same pattern, but it was interesting to me to read the history of each of these industries, as there was much I didn’t know.

I liked how Wu demonstrated how technology innovation was never enough to up-end an industry. Because of the nature of innovation, several independent inventors often came up with the next step at roughly the same time (e.g. Alexander Graham Bell is known as the inventor of the telephone, but Wu points out that Elisha Gray, Johann Reis and Daniel Drawbaugh also had created primitive telephones, or the various number of people who invented television). The difference in the one that we remember as the inventor is that he partnered with a business person who ruthlessly pursued the goal of creating a company based on the invention (e.g. Theodore Vail creating AT&T based on Bell’s work, or David Sarnoff creating NBC by undermining Philo Farnsworth). There is a myth of technological determinism in Silicon Valley, that the right technical innovation “naturally” becomes the dominant one, but Wu’s book shows how the right business strategy (and good timing) is also necessary.

Another good insight was the natural tendency of these telecommunications technologies to centralize because of economies of scale. Once AT&T had a set of long-distance lines in place, it was prohibitively expensive for anybody else to lay lines, so the government essentially traded AT&T a monopoly in exchange for providing universal telephone service. Once media industries realized the potential of advertising, the nationwide networks had a huge advantage in that they could spread their costs over much larger audiences. And even though AT&T was broken up into AT&T and the Baby Bells in the early 1980s, the tendency towards centralization has been demonstrated as those Baby Bells have now merged and re-merged until there are only two descendants of AT&T, the re-formed AT&T in the west, and Verizon in the east.

The centralization of these industries also deterred innovation, as the companies involved didn’t want to risk the (massive) income stream that they already had. For instance, while AT&T, and particularly Bell Labs, was the source of many great innovations including the transistor and UNIX, the company also squashed anything that might threaten telephone usage. Wu tells the story of Clarence Hickman, an AT&T engineer who created an answering machine with magnetic tape audio recording… in 1934. The technology was buried, and magnetic tape recording would only be discovered decades later. Why? Because AT&T worried that the ability to record a conversation might keep people from using the telephone and “render the telephone much less satisfactory and useful in the vast majority of cases in which it is employed”. The story of the Hush-a-Phone is also instructive, where AT&T sent dozens of lawyers after an independent inventor who dared to create a phone attachment to keep one’s conversation private. Insane in retrospect, but once a monopoly is created, its primary purpose is to perpetuate its monopoly and therefore eliminate any potential threats.

Another danger in creating such centralization is there becomes a single point at which pressure can be applied to restrict communication. For instance, I had known about the “Hays Code”, which prevailed from the 1930s to the 1950s, and ensured that only “moral” things could be shown in movies. I had always assumed that was a law or regulation. Instead, what happened was that a “Legion of Decency” threatened to boycott any theater that showed “immoral” movies. The movie industry by that point had been concentrated into the few studios that still dominate today (Paramount, Warner Brothers, Universal and Fox), and those studios had full vertical integration, owning everything from the production to the distribution to the theaters where the movies were shown. All that the “Legion of Decency” had to do to get its way was convince the CEOs of those few companies that their profits would be threatened by boycotting the theaters. So a “code” that could never be passed into law due to the First Amendment was allowed to censor the industry for three decades until the vertical integration of the movie industry was broken up such that “the studios lost control over what the theaters showed”.

As can be seen, Wu has concerns about “the Cycle” with respect to telecommunications and media industries. Such industries tend to centralize quickly into one or a few companies that create efficiencies by monopolizing the industry, but that same centralization also has deleterious consequences for innovation and free speech in our society. In today’s world, we face similar questions about net neutrality (whether Verizon or Comcast can decide which content goes over its wires) and openness (the openness and chaos of the Google Android system vs. the closed but polished iPhone system from Apple), and Wu hopes that we can learn from history to make better decisions today.

Wu’s proposal is to create a “Separations Principle” that would prevent the development of vertically integrated companies in these industries. “It would mean that those who develop information, those who own the network infrastructure on which it travels, and those who control the tools or venues of access must be kept apart from one another.” If each layer of the information economy was kept separate, Wu believes that the dangers of concentration would be minimized, as innovations in one layer would not be suppressed to continue the dominance in another layer. Wu defends it as being a less subjective principle than antitrust, which has been the only tool to use against such companies to this point. I’m not sure I entirely agree with his premise, but I do think some clear guidelines on what kind of integration makes sense will be useful. And since he recently took a position as a senior advisor at the Federal Trade Commission, he will have the chance to make such recommendations. It will be interesting to see what happens.

I recommend this book if you’re interested in these sorts of issues. While Wu falls short in his attempt to draw together the overarching narrative of “the Cycle”, I appreciated the chance to learn more about the history of the telecommunications and media industries in an easy-to-read form.

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