Creative Class

Geoff Flood, CEO of T4G Ltd., has 230 employees who develop enterprise software solutions for large organizations. Gordon Pitts of the Globe and Mail recently interviewed him.

Asked about why he has chosen to have development centers in Toronto, Vancouver, and Halifax, he answers:

We have a strategy of locating where smart people want to live. All of these cities, Toronto included, fit that bill. There is a limit to the technology resource in the country, and we need to go where bright people want to live and can thrive.

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For example, our largest customer is in Atlanta and the work is being done in Halifax. It is a good export business; it’s good for the talent in Halifax.

Isn’t that the opposite of the old Canadian model whereby people move to where the work is – whether Fort McMurray or any mining town?

We’re in a business where we can live anywhere and work anywhere, and we don’t really care where it happens. It’s 24/7, it’s fast-paced but if you can do it in your kitchen, we don’t have a problem. We provide communities that have a great living environment with the chance to add new workers.

In Vancouver’s case, haven’t you got some contracts, as well?

We don’t typically look for the customers in the local city. We think it is better to be in the export business and compete on a larger scale, but it’s really nice if you can work at home.

Shouldn’t you be in India, where you can slash costs?

Most people would think there is some sense to doing that. But at this point the pendulum is swinging back. I don’t think the cost advantage is there in the way it might have been 10 years ago. Even for low-cost commodity kinds of work, we’re on about par. And we want to do the hard stuff, the creative stuff, and you tend to find more of the resources to accomplish that in North America.

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We have to be better and so do they. The global competition is wonderful, and it’s something we need to be able to work with. But in the area where we work, we have a competitive advantage.

Flood also mentions being interested in harnessing the talent of Saskatoon and Lethbridge. Seems that rather than going abroad, he’s finding pockets of talent in smaller centers.

Could this be a model for future economic and business development?

At least, ban their use in meetings suggests a Forbes article this week.

Sometimes the cure is worse than the disease. To avoid wasting time in meetings, hardcore multitaskers sit there with their faces glued to their BlackBerrys, reading e-mails while they follow the discussion with one ear. But all they are doing is making the meeting longer for everyone else.

“Being busy and being productive are not the same,” says Denise Landers, a time-management consultant based in Houston. “I definitely believe that banning BlackBerrys from a conference room would lead to shorter and more effective meetings. We simply cannot multitask and perform at 100%.”

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Another recent study, this one by the University of Texas at Austin, offers hope. Titled “The Social Influences of Electronic Multitasking in Organizational Meetings,” this report concludes that people don’t multitask because they have to; they multitask simply because they can. They see other people reading e-mail during meetings, so they do it too. But if the office culture discourages multitasking during meetings, they will stop, and focus on the issue at hand.

Even deeply ingrained habits are subject to change over time, Crenshaw notes. As every fan of Mad Men knows, smokers once routinely lit up during meetings. Now they don’t. The same thing can happen to multitasking.

“I view myself as an evangelist,” he says. “It’s going to take probably another decade of talking about this before people get the message.”

Does your workplace have a Blackberry policy? Do you?

Where I work people rarely if ever use a Blackberry while in a meeting, unless to look something up or to take a quick glance to ensure no emergencies have arisen (a few colleagues need to be available 24/7 to put out virtual “fires”). If the senior people and mentors follow this policy, it seems others stay in line.

Social media, communications technologies, and more flexible workplace attitudes have been driving changes to the way we view our personal and professional lives.

A recent Knowledge at Wharton article examines the evolving etiquette as well as challenges surrounding the rise of mobile technologies, such as the Blackberry, as well as social media websites like Facebook and LinkedIn.

As Facebook, Twitter and 24-hour Blackberry access blur the lines between business and personal lives, managers and employees are struggling to develop new social norms to guide them through the ongoing evolution of communications technology. Wharton faculty and other experts say the process of creating rules to cope with the ever-expanding reach of modern communications has just begun, but will be shaped largely by individuals and organizations, not top-down decrees from a digital Emily Post. Generational differences in the approach to openness on the Internet will also be a factor in coming to common understandings of how and when it is appropriate to contact colleagues, superiors or clients.

The article then details some dilemmas – where do you stand?

1.  First, is there a time when “work” should stop and “personal life” should take over?  From the Wharton article:

For example, a Blackberry can allow parents to attend their childrens’ soccer games while remaining in contact with colleagues at the office in case an emergency comes up. But, [Nancy Rothbard] adds, “you have your Blackberry at your kid’s soccer game. That’s another … line you may be crossing.”

2.  Is it healthy to blur your personal self and professional self ?

…says Wharton marketing professor Patricia Williams, “There is the self we are for our friends, a self for our family [and] a professional self. What’s interesting is the degree to which we are comfortable playing all of those ’selves’ at one time.”

“I’ve heard people say that Facebook is for personal friends and LinkedIn is for professional contacts,” Williams notes. “But many of my Facebook friends are my colleagues – people who work just down the hall – and I don’t have a problem with that. I do, however, have some discomfort being ‘Facebook friends’ with my students, because it gives them access to my personal self that’s not normally available to them.”

3. Are younger people, today’s children up through college students, growing up with no separation between these different “selves”?  And what will this mean for the way we work?

Typically, business norms evolve through official policy disseminated by organizations and by “reality” that bubbles up from the organization’s grassroots. [Wharton Professor Monica McGrath] asks “The question is: How accessible do you want to be? [Today,] young people want to be very accessible, and in an international corporation you are expected to be available [around the clock]. Time zones mean nothing. The norms will continue to develop based upon generational leadership.”

To sum up, I expect that the line between personal and professional will become increasingly blurred. First, knowledge work is highly collaborative and it’s hard to work with people who you don’t like – therefore, people will forge friends through collaboration at work. Second, younger generations will have grown up with limited separation between their different personas.

How do mobile and social media technologies enhance or detract from your personal and professional life?

Many things are interesting, but one of the most interesting is how people use creativity to become more innovative. I call this entrepreneurship. People in all countries are creative and want to make a better life for themselves and their families. How well are they doing?

Over the past few years, my colleagues at the Global Entrepreneurship Monitor have developed a way to measure this activity, and to suggest ways in which countries can improve on their performance. The Global Entrepreneurship Index is a tool that allows countries to understand how your country is doing on a wide range of indicators. You can download a copy for free. While lots of indexes exist, for almost everything, they very seldom allow you to actually see how to improve your current position.

Last week at a conference in Istanbul I presented the index to an audience and suggested how the world would be able to improve its well-being by following along. The results were interesting and over the next few weeks, I will be presenting a step-by-step report on the index, how it works, how it can be improved, and how it can improve lives.

I have been involved with GEM for almost a decade and have helped move this organization toward its present global position. I hope that this new index will propel it to a new level.

Jane Jacobs long ago showed us that cities are complex adaptive systems. Now new research by cognitive scientists at Rensselaer Polytechnic Institute finds that not only are cities organized along the same complex principles as the human brain, but evolve in ways that mirror the brain’s evolution.

“Natural selection has passively guided the evolution of mammalian brains throughout time, just as politicians and entrepreneurs have indirectly shaped the organization of cities large and small,” said Mark Changizi, a neurobiology expert and assistant professor in the Department of Cognitive Science at Rensselaer, who led the study. “It seems both of these invisible hands have arrived at a similar conclusion: brains and cities, as they grow larger, have to be similarly densely interconnected to function optimally.” … “When scaling up in size and function, both cities and brains seem to follow similar empirical laws,” Changizi said. “They have to efficiently maintain a fixed level of connectedness, independent of the physical size of the brain or city, in order to work properly.”

Science Daily provides a fuller summary (via Planetizen). The full paper can be downloaded from Changizi’s website.

Where will the next wave of interesting start-ups come from? For the past four decades, that answer has been a no-brainer. Past performance, however, is no guarantee of future results. Based on the competitiveness of companies playing the technology-driven innovation game, one could imagine an entirely different answer to the “next wave” question over the next half-century.

The Information Technology and Innovation Foundation has released a report benchmarking innovation and competitiveness for 36 counties (pdf). While the focus of the report is EU/U.S. differences, I found two items of particular interest: first, while the United States leads the European Union in innovation-based competitiveness, it ranks sixth overall; and the U.S. ranks last in terms of its preparation to capitalize on the next wave.

Finished Darwin’s Dangerous Idea by Daniel Dennett yet?

If not, begin now and, after that, read The Origin of Wealth and smash the two together. Add a dash of the Santa Fe Institute and you have plenty to think about. Here’s the executive summary:

“Here, then, is Darwin’s dangerous idea: the algorithmic level is the level that best accounts for…the diversity of species, and all of the other occasions for wonder in the world of nature…no matter how impressive the results of an algorithm, the underlying process always consists of nothing but a set of individually mindless steps succeeding each other without the help of any intelligent supervision.” (The Origin of Wealth, p.59)

“Neoclassical theory is in the process of being supplanted by complexity economics…the economy is a complex adaptive system…made up of realistically rational agents who dynamically interact with each other in an evolutionary system.” (Wikipedia)

Over the past three years venture capitalists and analysts have engaged in a great deal of hand-wringing about the state of venture investment: the lack of a robust exit market, declining valuations, fund-raising challenges, and more fundamental criticism that the venture model is “broken.” The solutions range from overhaul of the structural or contractual mechanisms employed by the investors; a return to the (perhaps mythical) halcyon days where venture capital investors were consumed with building businesses rather than generating returns; or even a federal bailout.

Two recent posts – one by Bill Gurley (What Is Really Happening to the Venture Capital Industry) and another by Fred Wilson (The Biggest Loser Can Be The Biggest Winner) – merit closer inspection. In his post, Gurley provides an argument and some evidence for why venture capital will shrink. In his view, institutional investors (the largest contributors to venture) will soon adjust the amount of funds they allocate to venture, and the amount of available capital for early stage investments will shrink. How much? Gurley says by up to half. Wilson builds on this post, suggesting that “the diet has begun” and that shrinking venture allocations is a good thing because the current model “is not repeatable or sustainable at scale.” Wilson reckons that “we need to get the venture capital industry investing less than $20bn a year on a sustainable basis.”

Structurally, it’s not clear at all to me that there is some inherent feature of the venture model that prevents scaling far beyond current amounts of fund-raising or allocations. In my view, as entrepreneurship globalizes, the current industry must evolve to stay relevant as a capital market actor participating in the financing of high-growth firms; and the early data detailing the fund-raising and allocation activity in venture globally tends to support this perspective. Perhaps these two recent posts are talking specifically of the U.S. share of early-stage capital shrinking to some new, sustainable level that represents the natural, normal return to equilibrium in global innovation capability. In this view, venture allocations (and perhaps fund-raising) will shrink in the U.S., and expand elsewhere. Perhaps the U.S. venture industry has something to learn from the U.S. manufacturing sector after all.

What say you?

Yesterday, two of the most interesting economic bloggers, Naked Capitalism and Michael Shedlock, covered the same topic on the web: the hypertrophy of U.S. military manufacturing production and the concomitant stagnation and decline on non-military manufacturing. Each of these bloggers reflects upon what this says about our economy and our future.

I connected this with a program on the history of Sparta that I have been watching on Public Television. Sparta, as we all know, was artistically, and, in other ways, quite uncreative, particularly when compared to chaotic Athens. Is the U.S. increasingly becoming the Praetorian State? How will this affect creativity and innovation?

This past week, I’ve look at the trends in U.S. innovation, commenting on Michael Mandel’s powerful and compelling thesis about the deceleration and interruption of American innovation. With the help of my MPI team, I’ve tracked patent data since 1980, examined patent trends for U.S. resident and foreign, non-resident inventors, and looked at the geographic distribution of patenting.

Overall, the trend in patenting is up – both in absolute numbers and controlling for population. Innovation has increased over the past decade, but not at the breakneck pace of the 1980s and 1990s. There have been two dips in patenting over the past decade – the first in the wake of the tech crisis of 2001 and the second, more recently, concurrent with the onset of the housing and financial bubbles and the subsequent economic crisis.

American innovation has shifted and become more geographically concentrated. Places like Silicon Valley and Seattle have seen a steady increase in innovation while older, industrial centers like Pittsburgh and Detroit have declined significantly. Innovation in large cities like New York and Chicago has stagnated. And American innovation has grown increasingly dependent on non-resident, foreign inventors.

Today, I focus on a broader historical question: How do economic crises affect American innovation? Does innovation slow down or speed up during periods of crisis?

Joseph Schumpeter long ago argued that crises were seedbeds of innovation and entrepreneurship. Innovations developed during crises generate the gales of creative destruction that launch new technologies, remake existing industries, and give birth to entirely new ones – setting in motion new rounds of economic growth. Economists Gerhard Mensch and Christopher Freeman have examined the historical timing of innovations, with Freeman famously arguing that the pace of innovation is actually relatively constant: Innovations bunch up during crises, only to be unleashed as economic conditions are restored.

The graph above is reproduced by economist Alfred Kleinknecht. It shows patent activity from 1750 to 1970. It tracks actual patents granted from 1901 to 2005. There are clear spikes in innovative activity during the Long Depression of the 1870s and 1880s and the Great Depression of the 1930s.

The historical literature also suggests that crises are periods of significant innovation. Joel Mokyr and Naomi Lamoreaux have documented the rise of important innovations like the incandescent light, the steam turbine, and the transformer during the Long Depression. Economic historian Alexander Field finds the 1930s to be the “most technologically progressive” decade of the 20th century.

The chart below, compiled by the MPI’s Patrick Adler based upon a reading of the historical literature, identifies some of the major innovations of the Long Depression and the Great Depression. If the past is any guide, we should expect some acceleration of innovation – and particularly of the dramatic innovation Mandel wants to see – in the coming decade.

The graph below, compiled by my colleague Charlotta Mellander, updates the story, charting patents granted per 10,000 people from the 1890s to 2007. The rate of innovation rose significantly after the Long Depression. It then dipped during the Great Depression before trailing off considerably during the World War II period. American innovation rebounded remarkably in the post-war period before trailing off in the 1970s. Since the early 1980s, however, American innovation has surged to record highs. There have been two dips in innovation in the 2000s. But as of 2006 or 2007, innovation has fallen only slightly from its record pace.

So what’s happened to U.S. innovation? Like virtually every other facet of the economy, it has been – and continues to be – reshaped by globalization. As we saw on Thursday, foreign non-resident inventors have become a key element growing U.S. patenting and a big piece of the American innovation system. Beginning around 1980, non-resident inventors essentially closed the gap with U.S. inventors. By the late 1990s, they had pulled even and were at times outpacing U.S. inventors. This is part and parcel of the globalization of the economy and the fact that the U.S. is the biggest market and most innovative nation on the planet.

This has altered the American system of innovation in a deep and fundamental way – changing it from a system that for the better part of a century was based on producing and commercializing innovations to one that is more attuned to attracting inventors and innovation globally. This shift is also reflected in the changing geography and regional concentration of U.S. innovation – the decline of old, integrated, regional innovations systems in locations like Pittsburgh and Detroit and the rise of new, globally focused clusters like Silicon Valley.

Innovation is no longer an American game – or, for that matter, a game of any one nation. The countries of the world are now all part of a much more global innovation system. Strategically, this shift means from organizing to generate new breakthrough innovations to organizing to absorb innovations coming from many different sources worldwide.

The U.S. is uniquely positioned because of its size, scale, universities, and venture capital system; its sophisticated end-users and customers; and its ability to attract global talent – to harness and reap the benefits of this global system. Its major innovation clusters reinforce this advantage and they will be hard to displace. That said, for the first time, the overall rate of American innovation has come to depend on foreign inventors. Anything that might slow the immigration or inflow of foreign inventors – or redirect their inventions and patents – would undoubtedly damage the rate of American innovation.

The key question for the future is less about the slowdown in innovation and more about which people and places will prosper in this new age of accelerating global innovation.