Thursday, November 29, 2007

Grand Challenges, Risks and Visions

I follow Irving Wladawsky Berger's posts on Always On and sometimes comment. In his post on "Innovation and Fundamental Research" he raised the point about getting the universities more involved in the Grand Challenges. At the time of generating my reply I interpreted "Grand Challenges" more in the sense of James Martin in his "The Meaning of the 21st Century" which are much broader than those outlined by the Grand Challenges addressable by high-performance computing which Mr. Berger was actually referring to via the Wikipedia description. My comments to his Always On post on "Innovation and Fundamental Research" are given below as shaped by my interpretation of humanity's Grand Challenges as outlined by James Martin.

Little Reward in Grand Challenges

Encouraging research in the grand challenges is not an easy task when the risk-reward is viewed from the perspective of the individual researcher. Engaging in these Gordian knot problems where political reality often defies common sense seems to offer too little reward to risk one's relatively narrow career window opportunity to come up with breakthroughs that really resolves these challenges. There are far too many tradeoffs to easily find consensus as to acceptable solutions (hence Robert Horn’s interest in Visual Language to help create broader understanding among different perspectives and their tradeoffs).

Let's consider the recent Nobel Prize that was granted to Al Gore and the 1000 or so contributors to the IPCC reports on climate change - and their recently published assessments of the consequences of global warming. I happen to know one of the authors - Prof. Stephen Schneider of Stanford from his mid-70's book "The Genesis Strategy: Climate and Global Survival" (related to dealing with climate variability) that I read while at the National Center for Atmospheric Research in Boulder, CO. Al Gore gets the headlines and these 1000 researchers and scientists are told to now let the politicians decide what to do with their projections of the potential changes and their consequences. To me, that can be interpreted as telling them that the "adults" will now take charge - both for the visibility and for the tough decision-making. If one could trust politicians to be relatively unbiased and appreciative of the science and pragmatic in balancing special interests against the good of the commons, that would be a reasonable solution. But given their dismal public approval ratings, one should not expect too much.

Grand Challenges Need Grand Visions

These grand challenge problems clearly take a systems and interdisciplinary approach and likely require regulatory actions to bridge the long-term time horizon and uncertainties of the challenges compared with the shorter-term nature of human action and investor focus on quarterly profits. Prof. Bruce Lusignan engaged Stanford students from a variety of engineering, business and legal disciplines in grand challenge-like courses as early as the late 1960’s in semester long projects – like “defining a framework for managing the resources of the oceans”. His intent was to foster interdisciplinary thinking among engineers and those who manage the business of society. It is refreshing to see UC Berkeley, Stanford University, MIT and others put more effort today into interdisciplinary collaboration working with industry on smaller than grand scale, yet still complex problems.

We can hope that a political awakening to the need to create visions that capture the imagination and commitment of our citizens will encourage effective collaborative action on these grand challenges. So far we are encumbered by inertia and self-interest of a globalized consumer society and motivated more by sticks rather than carrots because of little pull on the vision side of human motivation. We talk about what we wish to avoid but not what we wish to achieve given the reality of an inevitably changing world and corpus humanity. Perhaps more innovation is required in creating a vision of the future of humanity rather than where my health care will come from or how efficient my carbon footprint is. With a common vision comes focus and commitment from the bottoms up rather than the inefficient top-down hierarchical business model of the 20th Century. Open systems are emerging for a reason. Is someone willing to do a “wisdom of crowds” or “electronic markets” exercise in defining or predicting a common vision or are we too diverse a crowd of micro-markets to permit finding the overarching grand visions that lend to sorting out the many grand challenges?

Recommended reading – James Martin “The Meaning of the 21st Century.”

Wednesday, July 25, 2007

Leveling Wind Power Variability and Environmental Hypocrisy

This is a comment I added to an Always On blog post by Ed Ring titled "The Double Standard" about the conflicts involved among landowners, environmentalists and companies developing wind power. You will find Ed's post and reader comments at

My comment (added to several already posted in response to Ed's short post) is repeated below.


Just a few weeks ago I was driving near Wasco, OR on US97 on the way to northern Idaho. I noticed a wind generator farm not far from Biggs Junction on the Columbia River. Upon doing a little research I discovered that a Scottish company (PPM Energy) has a number of wind farms of which this one is the 24 MW Klondike Wind Farm. You can find an interesting paper on the use of farmland and the benefits to both the company and the farmers at .

What struck me about this was its relation to the problems with green energy and wind power that are nicely highlighted in the book "Heat" by George Monbiot ( He looks at the real challenge of reducing carbon emissions by 90 per cent (using the UK as the example) to be effective in limiting global warming from carbon dioxide emissions without reverting to third world country economies. As noted above and in George's book, the variability of wind makes it unreliable and therefore power companies pay significantly less for a MW of wind power as opposed to a MW from water, gas or coal-generated power. Wind power must have a storage component to improve the availability / reliability of that solution to carbon-free power generation. Now recall Ellensburg and Wasco are near the Columbia River. Doesn't that sound like a good source of storage give the dams that regulate water flow and generate power? It would seem that the combination of water power and wind power in reasonable proximity complement each other, especially when the wind power component is a modest fraction of the water power element. Given that water conservation is also on the global environment horizon, reducing water flow required just for power generation seems to be an added benefit for humans and fish and . . . Obviously the challenge is more complicated that this little thought exercise - perhaps someone can add some additional pro - con facts to my suggestion?

And as for the environmentalist hypocrisy, we all are subject to that failing, especially when our backyard is threatened by something "different". One antidote for "lazy thinking" is more discussion that exposes more facts about the realities. Most people will eventually listen at least a little if approached persistently with good intent. Ghandi illustrated this through his experiments with "Satyagraha" ( and Steven Covey with his insights shared in his "The Seven Habits of Highly Effective People" ( As global warming impacts more people in tangible ways, the motivation to find practical solutions will help overcome our differences in what are reasonable compromises among being in a “consumption economy”, being "green" and being "sensitive" to preserving our natural spaces. We have the tools for the discussion. We need to choose to use them.

Monday, March 26, 2007

Review of The Strategy Paradox

The Strategy Paradox
Why Committing to Success Leads to Failure (and What to Do About It)

A review of Michael E Raynor’s book on creating strategic flexibility.


I highly recommend Raynor’s work as a complement to his joint work with Clayton Christensen The Innovator’s Solution, David G. Thompson’s Blueprint to a Billion, and other works that address developing flexible, innovative organizations, such as Fast Innovation by Michael George. You will regain confidence that spending more time with scenario planning and real options will put your corporate strategy at a more efficient risk-reward location in the production possibility space for your industry. Raynor also describes how to better align Corporate Venture Capital investments so that strategic flexibility allows your CVC to do more than just serve as another investment tool for investing shareholder profits.


Most senior managers have engaged in the corporate strategy creation process at one time or another in their career. The experiences are often less than satisfying as apparently well thought out plans are often derailed by events that were unanticipated or discounted. The difficulty that companies face in developing an ongoing process that creates a succession of insightful strategies is reflected in the statistics of company performance. For example, David G. Thompson in Blueprint to a Billion extracts data from his research on the statistics of company success. Out of more than 7400 companies that went public since 1980 only 387 achieve $1 billion in revenues. In summary, he notes that “… only 5 % of American companies that have gone public since 1980 reached $1B in revenues and these accounted for 56 % of employment in 2005 and 64% of market value.” Only a small percentage of companies drive employment and market value. The rest are placeholders. Raynor suggests many of them could do much more by becoming proficient with strategic flexibility.

Recall that Richard Foster and Sarah Kaplan in Creative Destruction recount how the average life of a company on Forbes100 has declined precipitously since 1927 in performance relative to market average. Only 39 of the 100 companies remained in 1987. And only one of the two companies that outperformed the market through 1987 has continued to do so—GE. Disappointing performance against market averages was also noted for S&P 500 companies from 1957 through 1998. Accelerating change and complexity in our global economy is part of the problem. Part is also related to the difficulty in maintaining successful strategies and contingency plans, and in adapting corporate culture to match changing needs with increased flexibility. These must be balanced with maintaining a focus on managing resources, talent, and relationships that create sustainable competitive advantage and differentiation. Joseph Schumpeter’s observation that capitalism actually thrives on creative destruction by eliminating inefficient and non-competitive companies presumes that companies cannot change fast enough to meet new marketplace needs. Thus, the most effective way to reallocate underutilized resources devoted to a less-efficient company is to simply retire that company from our economic system and encourage others to redeploy those resources.

Raynor revisits tools that we have used in the past—scenario planning and real options—and then suggests a more effective way to apply these tools. First, he notes that commitment to a clear strategic direction is essential for a company to maintain competitive focus. That is why it is hard, for example, to get many groups responsible for technology roadmaps for infrastructure and service delivery excited about projections beyond 18 to 24 months. They want to be aware of potential surprises that might arise in the next 3 to 10 years, but they don’t really want to spend any time or money to obtain that awareness. Given that the future is by nature evermore unpredictable as the time horizon extends, those potential disruptors are only possibilities. Spending more than a very minimal amount to maintain an ongoing scan[1] of these potential disruptors is generally outside the remit of most well-managed operational budgets. The significant downside of this tension between running a well-managed operation and dealing with accelerating changes in the competitive marketplace is that a company will tend to pick a more conservative strategy which results in less differentiation from competitors.

This tendency reminds me of swarm behaviors observed in nature when a school of herring, for example, is attacked by tuna. The herring appear to follow a few simple rules to reduce their risk of being eaten. First, they try to stay close to their neighbor but not too close. Second, they try to move towards the center of the chaotic “tornado-like” swirl of fish that forms. Managers are biased to pick strategies in the same herd-like fashion. This tendency is not surprising because companies are similarly biased to punish competitive shortfalls, even if only by reputation, so unless managers are brain-wired to live on the edge, they will naturally steer to the strategy map’s conservative middle.

The numbers support this explanation. In Thompson’s statistics, only 374 of 7,454 companies reached $1 billion in revenues, while 2,019 disappeared from the public exchanges. That’s a 5-to-1 ratio of dissolution to exceptional success. Because these public companies are most likely managed by smart people who seek good advice and use accepted tools for planning, it seems that these tools often don’t work well. As a result, they are discounted, hedged, and even ignored.

Raynor believes the responsibility for scenario planning and creating real options to generate strategic flexibility falls on the Board of Directors and the CEO. That’s because operating divisions must limit how much they invest in creating strategic flexibility (as opposed to contingency flexibility). The real options that the BOD and Corporate Office cultivate are either discarded, if not needed as the future unfolds, or exercised, if it becomes clear that some division of the company needs to change their strategy and the change should include exercising an available real option. Lacking a real option makes it difficult to implement a strategic readjustment, while having an option makes it easier for the company to successfully adapt to the new environment.

Real options are typically created by forming partnerships, joint ventures, or limited investment in new companies. Each has its merits and shortcomings as described in the book.

Raynor uses examples from Johnson & Johnson, Microsoft, Bell Canada Enterprises, Sony, and Vivendi to show how these companies have successfully used (consciously or intuitively in the cases of J&J, Microsoft, and BCE) strategic flexibility. Unsuccessful examples include Vivendi and Sony: Vivendi’s CEO gambled on one vision of the future that never came to pass. Sony, on the other had, developed perfectly good strategies but not enough flexibility (Betamax, Minidisc, and now maybe the PlayStation 3). He also details Alliant Energy’s use of strategic flexibility. He summarizes their formation of a five axis scenario space and how to reduce the complexity of analyzing the 32 scenarios that defines. This is particularly informative for those of us who have been encouraged to distill scenarios down to two axes and four quadrants of potential futures simply to reduce the complexity of analysis. This has always left me (and others I’m sure) feeling that the baby was probably tossed in bathwater of simplification. So it’s no surprise that many scenario exercises are discounted.

The example companies Raynor discusses typically have more than one operating division. As a result, the scenarios and real options approach is more understandable because it benefits from leverage from both synergies across divisions where appropriate and the likely existence of a Corporate Venture Capital group that can develop investments and relationships to cultivate real options.

How this approach is used in smaller single operating unit companies and startups is less clear. The smaller the company, the more all resources are focused on a current strategy and tactical contingencies. Fewer resources (probably none) are available to develop real options. As Christensen and Raynor note in The Innovator’s Solution, these smaller companies must have flexibility to find where the profits lie before they scale up operations. The primary solution for the smaller companies, especially entrepreneurial startups, is to cultivate very tight relationships with current and potential customers and to understand “the jobs they hire your product to do,” as opposed to making contingent new investments or pursuing partnerships and alliances before identifying successful profit strategies.

Thompson in Blueprint to a Billion does, however, emphasize that small companies who partner with larger companies to create Big Brother alliances have much to gain. The big brother company is probably viewing the smaller company as a “real option” relationship or at least a tactical contingency. Thus, smaller companies should spend at least some time thinking about scenarios and real options to better determine who they should seek as marquee customers and big brother alliances. Whether these steps are part of creating strategic flexibility or simply “must do’s” as part of a well-focused strategy, I believe that, after profit pools are identified, scenario planning with real options thinking should be biased towards creating a perspective from the big brother partner’s or alliance partner’s point of view. This will help filter out those relationships that are more likely to meet the expectations of both companies.

One topic Raynor does not discuss is how these methods apply to developing government policies. Perhaps the number of stakeholders is too large or perhaps those stakeholders are too politically motivated to allow Raynor’s disciplined approach to gain traction in the political arena. Given the scope of challenges facing the world, however, I would hope that some advisory groups are either using similar methods or implementing what Raynor suggests to create strategic flexibility. Recent books such as Planet India by Mira Kamdar and The Coming China Wars by Peter Navarro highlight the pervasive impact a rising East Asia will have on many important aspects of our lives. We should be using the best planning tools at our disposal to produce the most effective strategic flexibility we can to deal with the severe uncertainty of our global future.

In summary, I highly recommend Raynor’s work. It will move scenario thinking and real options higher in your list of useful tools for developing strategic flexibility. For companies that support a corporate venture capital function, this will help address the sobering reality that most CVC’s only survive about three years. Raynor suggests that CVC’s die quickly because their investment focus does not really provide the corporation with strategic flexibility. Instead, the investments generally appear to be just another way to manage shareholder profits. This could be resolved, Raynor notes, by returning those profits to the shareholders to invest more in line with their individual financial objectives.

In short, if you want to know how to improve your strategic planning with scenario thinking and real options so you can better allocate risk and reward, you will find Raynor’s book offers new insights worth exploring.

Michael L Olson, March 2007
[1] SRIC-BI’s SCAN Program is one that enables companies gain early insights into potential social, cultural, technology, business and other trends to maintain a holistic picture of the possible disruptors of the broad array of businesses in the world today. Another is The Map of Decade project annually reinvented by The Institute for the Future.

Wednesday, February 7, 2007

Speculations of a PC Gamer

Computer games have been around for decades. I can remember Pong when it first showed up in the pizza parlors in Palo Alto and a friend noted that there might be a business there. Unfortunately, I was more interested in satellites, systems development and cool technology firsts like using VLF signals for tropical wind-finding to support global weather modeling.

Role forward several decades and I find myself pondering the utility of online experiences enabled by World of Warcraft and Linden Lab's Second Life while at the same time relishing the solo gamer experience on a high end gaming PC (personally built) with dual-core processor, DirectX 10 capable Nvidia graphics, 2 GB DDR2 RAM, Creative SB X-Fi sound, 24 in LCD display, etc.

What's it all mean to me? You will find some commentary in an article on my website on the topic of "Internet addiction" that I made regarding a story about someone who found their "real" life seriously disrupted by hours spent managing a guild in WOW. In short, I believe virtual environments are here to stay. Managing the time and experiences between the real and virtual is just another adaptation we will be making. Take for example that just recently, IBM has let it be know that more than 1600 IBMers are "experimenting" with Second Life as one of their innovation projects. This is only a surprise in that a large multinational is actually encouraging so much employee time in understanding the new rules enabled by virtual environments.

Having worked for a global multinational recently, I can appreciate the challenges of collaboration across time zones among widely dispersed project teams. Communication, and more importantly, the intangible social connections that encourage effective collaboration are very hard to maintain. Good virtual environments allow bringing in the communication tools and scenario simulations (See Fortera Systems Inc.) of the real world along with some of the social features necessary to establish high-performance teams. As one IBMer remarked (paraphrased) "After the SL workshop on Almaden Island, all of us stepped outside the conference hall and had an 'avatar' party for a half hour. It was more fun than we thought." Avatars seem to offer an avenue for personal expression that may actually give a better insight into a person who cannot express the same via their "real" body and resources in the real world.

As the role of virtual world economies become more visible with financial transactions of virtual creations for real world money make the news, it becomes apparent that something is going on that can become a significant part of the global economy with time. This is enabled as communication bandwidth, computing power and effective human interfaces become both cheaper and more powerful. Going into space is very expensive and only a few can be supported to cross those unknown seas - like the sailors of the first millennium and a half. But developing and creating in a virtual environment is much less expensive, and may become even more attractive as real world consumption of real goods expands with the concurrent expense of challenging environmental baggage.

I commented to Jonathan Chapman regarding his early 2007 New Scientist interview article "Better by Design" regarding his book "Emotionally Durable Design" -with the following:

"I also recognize the environmental impact of ever increasing developed world consumption – having some of those habits myself – and see as well that challenge of the rise of consumption in the developing world, especially in East Asia where 2.5 billion potential consumers in China and India are marching rapidly up the economic ladder. One potential safety valve is perhaps shifting the satisfying of human needs per Maslow’s "Hierarchy of Needs" into the virtual environments experience. We now have the ability to create quite compelling experiences in games like World of Warcraft, user-created worlds like Second Life, and even economic transfer of virtual wealth to real wealth. So perhaps much of the human need for changing experiences can be more easily met in terms of environmental impact in the virtual communities on the Web rather than [entirely] in the real world. And what is learned in the virtual, the best of the best, can then perhaps be what is actually built in the real world. So our Darwinian selection [for great products] is done in the virtual world rather than through the trash of the real world. "

Stickiness can be a problem in today's virtual worlds (like early web sites) as the "utility" is far from mature save for maybe some "Serious Games" virtual simulations and entertainment from Massive Online Games like World of Warcraft. However, if you believe computing power and communications bandwidth will continue to follow somewhat exponential improvements described by Gordon Moore, Phil Edholm and Marty Cooper, the barriers to utility will fall with time.

As for me, as I occasionally find time to explore the scenic green and blue archipelago of "Far Cry" (64-bit), the eerie story line in "F.E.A.R.", the expanses of "Oblivion: The Elder Scrolls IV", the stealth challenges of "Hitman: Blood Money" or "Splinter Cell: Double Agent", the City 17 environment of "Half-Life 2", the real-time strategy of "Company of Heroes", the world of aviation with Microsoft "Flight Simulator X" and compare those experiences to Pong of the 70's, it seems clear that Today's teenagers will find virtual environments a natural place for both work and play.

Motivation for a blog on Man and Technology

Several decades ago, I read a book by Jacob Bronowski titled "The Ascent of Man". The experience has long been lost in detail but the impressions it cultivated that have remained are twofold: 1) the fecundity of mankind has been instrumental in his ascent from the apes - meaning diversity is a good thing for survival and 2) Man's powerful tool-making nature and long childhood enabling development our abilities sets us apart in our capability to improve our circumstance. We are naturally "programmed" to extend the boundaries of our capabilities.

Another strong influence has been Margaret Mead whose work in cultural anthropology stimulated an appreciation for seeing the world through the experience of "living another culture" in situ.

These humanistic influences blend with my engineering training in telecommunications and systems to foster speculation on where we are leading ourselves. It is more important and relevant now that "accelerating change" is common in our lexicon and it's exponential nature is debated whether it is real or fictional (See Wikipedia - 'accelerating change').

None-the-less, our own life experience suggests that we are having to adapt faster and faster to new tools, lifestyles, and experiences that are enabled through technology and connectivity.

This blog is a collection of my views stimulated in part by working for several years on "insights into the future of wireless" at a major international mobile wireless company. The opportunities were many during this time to rub shoulders with visionaries at future studies organization, leading universities and technology companies as we discussed the challenges to businesses trying to understand the role of technology in enhancing their customers' lives with useful and valued new capabilities and services.

Hopefully, you will find some of the commentary worth reflecting and, perhaps, acting upon.