Transforming Academia

The first universities in Europe — University of Bologna (1088), University of Oxford (1096), University of Paris (1150), University of Modena (1175) — began as private corporations of teachers and their pupils. Soon they realized they needed protection against local city authorities. They petitioned secular power for privileges and this became the model for academia.

The organizational structure of disciplinary departments, schools, and colleges emerged in the process.  The secular independence and this organizational structure represent the first major transformation of academia.  These characteristics of academia have persisted for over 900 years and seem immutable.  Yet, notable transformations of academia have occurred more recently.

Land-grant colleges and universities are U.S. institutions benefiting from the provisions of the Morrill Act (1862), which gave to the states federal lands for the establishment of colleges offering programs in agriculture, engineering, and home economics as well as in the traditional academic subjects.  This transformation more closely linked academia to society and economic development.

Between the 1880s and the 1920s, the German system of scientific research, traditionally dominated by the universities, underwent rapid institutional change and functional differentiation, resulting in the formation of national research institutes that were much more interdisciplinary in nature than typical German universities at that time. It has been argued that this served as an important factor in Germany’s transition from a predominantly industrial to a primarily knowledge-based society.

Several contemporary forces portend another transformation of academia:

  • Information and communications technologies have enabled distributed and relatively virtual organizations, both for education and research
  • Social technologies are fostering increasing collaborative interactions, with implications for education and research
  • Research challenges have become increasingly interdisciplinary, or even transdisciplinary, requiring greater networking among organizations
  • Traditional State and Federal funding sources are under continual stress of demands for resources, heavily constraining support for academia

This Spring, I am teaching a seminar that will address both the history of and prospects for transforming academia.  Students will research the nature of historical changes of pedagogy and inquiry.  They will also study the changing social and economic roles of academia over the centuries.  They will compile lessons learned in terms of driving forces, tipping points, and consequences of change.  Students will then apply this knowledge to formulating scenarios for future transformations of academia, including strategies for institutions to anticipate change, invest in competencies to excel at change, and leverage these competencies to assure a leadership position in the transformation of academia.

Please let me know of any suggestions for the reading list.  I will publish the list that emerges and share it with all of you.

Invention and Innovation

Invention is the creation of a new device or process.  Examples include computers, software products, chemical processes, junk foods, and kitchen gadgets.  Innovation is the introduction of change via something new.  Cable television and video rental stores were innovations, as were overnight mail and communication via fax and the Internet.  Each of these innovations took advantage of one ore more inventions.  However, these inventions were not the innovations.

The vast majority of inventions do not result in change.  Recently, I saw evidence of this conclusion from two sources.  The first was William Rosen’s book The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention, (Random House, 2010).  Rosen chronicles the many inventions emerging during the Industrial Revolution in the 1700s and 1800s, primarily in England but also the United States.  A large number of highly motivated artisans created a wealth of inventions, a few of which converged in steam engines that led to business innovations in manufacturing and enormous economic growth.

The other source was an opportunity to speak to the Inventors Association of Georgia.  I talked for an hour to roughly one hundred inventors on “How to Get Your Ideas Supported.”  Prior to and following my talk, I enjoyed talking to many of these people about their ideas.  Just before I spoke, the host, Dave Savage, asked people about the status of their ideas – was development done, had they secured a patent, and was their revenue thus far sufficient to recoup their development costs.  Many people had patents.  Quite a few were done with development.  One person had recouped his development costs.

In his review of the inventors of the Industrial Revolution, Rosen commented that hundreds of artisans thought they could become rich and famous; a few did.  This has not changed.  The hundred inventors I talked with recently seemed to me to be convinced that great success was just around the corner, yet only one had managed to achieve break even.  The odds of creating a true innovation, not just an invention, were pretty low during the Industrial Revolution and are pretty low now.

I find it interesting that so many people are willing to invest great energy and scarce resources when the chances of success are so low.  Of course, they do not seem to think that their chances are low at all – the statistics only apply to everyone else.  It strikes me that we are very fortunate that many people will take such chances.  The vast majority will fail, but the economy will inevitably prosper, especially if we continue to applaud those who invent and do their best to innovate.

People and Organizations

I have worked with well over 100 enterprises and several thousand executives and senior managers, often focused on initiatives that have the potential to fundamentally change their enterprises.  Somewhat simplistically, these initiatives depended on three ingredients – technology, people, and organizations.  Frequently these executives and managers commented that technology was the easy part.  People and organizations were much more difficult to change, support, motivate, and design.

Let’s consider three examples.  First, many see health IT (information technology) as the means of transforming healthcare.  However, this can only happen if people embrace this technology and organizations are designed to leverage these investments.  Further, the individual and business incentives have to be aligned with achieving these ends.

How about energy and the Smart Grid?  Wind turbines, solar panels, smart sensors and intelligent controls are seen as the means for greatly enhancing energy efficiency.  However, consumers have to be willing to play a central role in managing their energy consumption.  Energy providers have to see benefits from decreasing peak-level consumption, as well as organize around the services associated with motivating and enabling consumers.

Consider education.   Laptops and e-books, for example, are seen as greatly facilitating the delivery of education.  However, students have to be ready, willing and able to gain knowledge and skills in this manner.  Schools have to organize themselves around this means of delivery and assessment.  Teachers need to morph from being “sages on the stage” to “guides on the side.”  This will be particularly difficult for university-level instructors, in part due to misalignment of incentives.

Technological inventions succeed in becoming market innovations when all three elements of success are aligned.  The vast majority of inventions languish on the shelf, or in the literature, because no one has worked out the people and organization issues that must be resolved for success.  These issues should be addressed across all the stakeholders in the success of the innovation.  This includes users, payers, distributors, maintainers, investors, inventors, and so on.

Addressing and resolving people and organization issues often involves subtleties and complexities that cannot be addressed with a checklist.  One needs to understand the concerns, values, and perceptions of each class of stakeholder, as well as their abilities, limitations, and inclinations in playing their roles.  Then one must creatively find the “sweet spot” among all these needs, desires, and constraints that, hopefully, delights the primary stakeholders and gains the support of secondary stakeholders.

One should not view people and organizations as complications that thwart innovation.  Without creatively working the people and organization issues there is no innovation; there is just invention.  Innovation involves creating change in the marketplace.  People and organizations define markets.  Innovation and value are created by inventions that enable and motivate people and organizations to do things better, or perhaps do things they could not do before.  If people and organizations do feel enabled and motivated, no change happens and no value is created.

Change in Science, Technology, the Arts, and Humanities

How does change differ within various aspects of society?  Are differing changes somehow related?  C.P. Snow has argued that there is a chasm between the arts and humanities, and science and technology (Snow, 1965).  However, all of these endeavors are inevitably influenced by the times in which they are pursued.

Consider the late 18th and early 19th centuries.  Richard Holmes (2008) describes the lives and scientific accomplishments of Joseph Banks, William Herschel, and Humphry Davy during the “second scientific revolution” of 1770-1830.  He outlines how their popularization of findings in exploration, botany, astronomy, and chemistry influenced the poetry of their contemporaries: Coleridge, Byron, Keats, and Shelley.

Moving to the later 19th and early 20th centuries, Louis Menand (2001) presents a study of Oliver Wendell Holmes, William James, Charles Sanders Peirce, and John Dewey that shows how these four men developed a philosophy of pragmatism following the Civil War and continuing, at least, until World War I.  Their thinking fundamentally affected America in law, science, and education, reaching far beyond academia.

Finally, considering the early and mid 20th century, Howard Gardner (1994) portrays the 20th century creative genius of Sigmund Freud, Albert Einstein, Pablo Picasso, Igor Stravinsky, T.S. Eliot, Martha Graham, and Gandhi.  Arthur Miller (2002) focuses on just Einstein and Picasso.  He chronicles the impact of Henri Poincaré’s 1902 geometry book La Science et L’Hypothèse on the thinking of these two great geniuses.  The non-Euclidian exposition in this book influenced both the notion that gravity bends light (i.e., relativity) and the Cubist movement in art.  These are two seminal developments in the early 20th century.

Thus, change in one arena can have enormous impacts on other areas, sometimes directly but often indirectly as such changes are manifested in the broader social dialogue.  In this way, the causality of change often functions more like a network of relationships through which change propagates, rather than a simple A affects B.


Gardner, H.E. (1994). Creating Minds: An Anatomy Of Creativity As Seen Through The Lives Of Freud, Einstein, Picasso, Stravinsky, Eliot, Graham, And Gandhi. New York: Basic Books.

Holmes, R. (2008). The age of wonder. New York: Vintage.

Menand, L. (2001). The Metaphysical Club: A Story of Ideas in America. New York: Farrar, Straus and Giroux.

Miller, A.I. (2002). Einstein, Picasso: Space, time, and the beauty that causes havoc. New York: Basic Books.

Snow, C.P. (1965). The two cultures: And a second look. Cambridge, UK: Cambridge University Press.

Investing in People

I am pleased to report that this week John Wiley released “The Economics of Human Systems Integration: Valuation of Investments in People’s Training and Education, Safety and Health, and Work Productivity.”  I edited this book with contributions from many economists, systems engineers, and behavioral and social scientists.  The overarching question that motivated this book was, “Can we attach economic value to investing in people?”

Given that the book was published, the obvious answer is, “Yes.”  However, there are many subtleties.  Most notably, the economic case for investment is most easily made when the organization making the investment is also the organization that receives the returns on the investment.  The case studies in this book illustrate this conclusion very clearly.  We know how to develop the economic models, collect the requisite data, and compute the value of these types of investments.

However, many important investment problems do not fit this template.  Education and healthcare are two significant examples.  The returns on these investments pay off many years after the investments, with returns that seldom directly accrue to the original investors – except, of course, for the educated person enjoying good health.  The investors – often, community, state, and federal governments – do not directly gain returns.  Further, the people making the original investment decisions are usually long gone when the returns emerge.

We used to think of these returns as “public goods.”  The idea is that we are all better off if everyone is educated and healthy.  Such people, it is argued, will be productive and creative, yielding contributions to society for everyone’s benefit..  In the small New England town where I grew up, it seems to me this argument was never questioned.  However, this argument is not as widely accepted as it used to be.

Contemporary thinking seems to be that education and healthcare represent costs that need to be contained or, better yet, reduced.  Monies spent are seen as the operating costs of government, not as investments.  Such expenditures are seen as analogous to paying utility bills rather than putting monies into the social equivalent of a 401(k).  In this way, education and healthcare are being treated as “private goods” – if you want it, you should pay for it.  It is just a consumable like entertainment or sports.

Unfortunately, this is not a useful philosophy upon which to build a healthy, educated, and productive population that is competitive in the global marketplace.  This is especially true when we compare our philosophy to that of other countries that are making these types of investments and still consider the returns to be public goods.  We need to pay attention to the possibilities that these countries entertain and pursue.

Tipping Points

Malcolm Gladwell popularized the notion of a “tipping point,” the point at which something is displaced from a state of equilibrium and evolves, either quickly or slowly, to a new and different state of equilibrium.  For example, my telephone bill used to be something like $20 per month; now it is several hundred.  The capabilities offered by smart phones led me, and many others, to commit to service contracts that increased bills by a factor of ten or more.  What “tipped” me was the iPhone.  For many others, it was Blackberries.  Now, we can talk, text, and email 24 x 7.  We are always connected and it somehow seems like that is the way it should be.

I am not concerned, at least not at the moment, with whether or not 24 x 7 connectivity is a good idea.  Instead, the point is that we somehow have arrived to where we are willing to pay for connectivity amounts of money that we used to allocate for monthly car payments.  In the process, the “equilibrium” that was $20 per month is now $200.  Change has happened and we are unlikely to retreat to past communication habits, in part because the younger “digital natives” never experienced that past.

Most major social and economic changes do not happen because we consciously decide to make a major change.  Instead, such changes creep up on us until a tipping point is reached and, seemingly suddenly, the major change is upon us.  Yet, there were often many, usually unseen, symptoms of these changes manifesting themselves in our social and cultural peripheral vision.  It may be difficult to anticipate what the tipping points will be.  However, it is possible to watch for slowly emerging changes.  Global warming and natural resource depletion are reasonable examples.   Demographic changes are another great example.

The average education level of Americans increased every year for the first 380 years since Europeans first colonized North America.  This level has been decreasing for the past ten years.  The United States was long ranked first in terms of percentage of young adults with college degrees.  Now, we rank 12th globally.  These trends suggest that at some point we will lose the lead in number of patents granted and number of scientific articles published.  Next, we will no longer lead in terms of percentage of Noble Prizes garnered.  There is a tipping point waiting for us out there unless we address these trends.  If we do pursue these trends aggressively, we will not need to know what the tipping point would have been because it will not happen.

Forces Driving Change

I have been reading a lot of history lately, mostly U.S. history from 1620 to 1914, trying to understand the nature of changes that occurred in that period.  The dominant businesses are interesting – cod fish in the Grand Banks, whales in Nantucket and New Bedford, ships for fishing and commerce (including slaves), textiles in Fall River, canals in New York, coal and steel in Pennsylvania, and railroads everywhere.  People migrated for jobs, worked in the same industry generation after generation, and then the economy shifted.  For example, refrigeration was invented and the masses of ice cutters on northern lakes were obsolete.

People were reluctant to change but finally had no choice.  They did not see the changes in the offing and prepare for new vocations.  Consequently, there were often many lean years until they finally moved to where the new opportunities seemed attractive.  I could not find many cases of large numbers of people moving simply for better weather or scenery.  They were usually driven by promised or imagined opportunity.  The next few generations stayed with that opportunity, if it was real, until change was forced again.

Another common pattern was people seeing an emerging trend – cod, whales, canal, railroads, etc. – and thinking that they might catch this trend and become wealthy with minimal effort.  As more and more people got this idea, prices kept increasing.  People began to make lots of money from the speculation itself rather than the canals or railroads.  Eventually the bubble burst and prices plummeted.  As recent history shows, we have a tendency to do this again and again.

There are many forces for change, including technological change, economic need, and outright greed.  Mae West said, “Too much of a good thing is wonderful.”  However, too much harvesting of cod and whales resulted in these industries disappearing.  Too many railroads, or automobile manufacturers, or airplane manufacturers, eventually led to just a few.  Too many houses being flipped depended on continual soaring prices that were unsustainable.  Good things are only really good for a period of time, not forever.

Responding to Change

We seem to be in times of great uncertainty and potentially enormous changes.  I have been wondering how different this is from the past.  To answer this question, I reviewed our country’s first 40 decades – from 1620 until now in the first year of the 40th decade.  How many decades would you guess there has been neither a war nor a financial crisis?  Just seven.  The last decade with neither was 1880!

Thus, it appears that we have always faced much uncertainty and possible fundamental changes.  How have we responded?  Not surprisingly, most people clung to the status quo as long as they could.  Many tried to thwart change.  Those who had invested in capacities to succeed within current business models understandably did not want these capacities to be rendered obsolete.  They argued that the emerging business models would fail, that technologies would not work, and that markets would not materialize.  However, much has changed.

Yet we still have wars and financial crises, if fact with increasing frequency as the decades have gone by and our role in the world has changed from being a distant colony to a world power and, to an extent more recently, the world’s policeman.  How should one respond to increasing uncertainty and likelihood of major changes?  We have been addressing this question by using microeconomic models of firms and markets.  Is it better for the firm to act faster, learn faster, or predict better so as to enable new offerings that will succeed in changing markets?

Acting faster has the biggest impact, but requires the greatest investment.  Learning faster is less expensive, but is only useful if the knowledge gained enables acting differently.  The value of predicting better increases if one can also learn and act faster.  These conclusions seem intuitively reasonable.

However, these conclusions change as markets become increasingly uncertain and noisy.  At some point, the likely error of changing becomes at least as large as the error of continuing to do what you are already doing.  And, what you are already doing probably requires the least investment because you are already doing it.  Thus, the rational, profit maximizing firm will squirrel away resources and wait until the market signals become much clearer.  In such situations, the right response is to do nothing.

Types of Change

It is typical to think about change in terms of intentions and consequences.  We intend to exercise more or eat better to achieve the consequences of weight loss and improved fitness.  The President intends to move the country towards greater use of renewable energy sources to achieve the consequences of greater energy independence and decreased carbon emissions.  Sometimes, these intentions and consequences play out as intended.  However, it seems that, more often than not, things do not work our so simply.

Intended changes can result in unintended consequences. James Burke’s The Pinball Effect (1996) provides a wonderful panorama of examples.   My reading of this book suggests two overarching principles.  First, the primary benefit of a new technology is hardly ever what the originator envisioned. Second, the primary beneficiary of a new technology is seldom the original investor.  The unintended consequences of an invention are, surprisingly often, an innovation that was never anticipated.

A glue is invented that does not dry and create a permanent bond – someone uses it to attach notes to choir books and the result is Post Its.  A substance is invented that results in an unintended and unbreakable bond between laboratory tools and lab benches – some one recognizes this “problem” as an opportunity and the result is Super Glue.

What value did people imagine for telephony?  One possibility was that people would like to listen to live opera in their homes.  Good idea – maybe – but what about people just wanting to talk to each other.  Never happen!  Same results for email, sans the opera.  Early adopters transform inventions into innovations that change the marketplace.  Unintended consequences are pervasive.

Not all unintended consequences are positive. Policies can lead to unexpected behaviors with negative consequences.  President Eisenhower invests in expressways to enable more rapid military mobilization.  People then move out of the cities to buy much more affordable homes.   They also buy cars, often two or more, and need more and more fuel.  We become dependent on foreign sources of fuel.  These sources use their profits, in part, to fund schools that educate people to become terrorists.  This was not what President Eisenhower intended!

We subsidize corn production is the U.S. by providing price supports for corn farmers.  Consequently, corn is really cheap.  Creative folks figure out how to use corn for everything.  Most of the “food” offerings at McDonald’s are primarily corn.  These offerings, by McDonald’s and other companies, provide the best deal in terms of calories per dollar.  Consequently, poor people buy this food.  They become obese, get diabetes, and impose an enormous burden on the U.S. healthcare system,

Some people characterize such unexpected consequences as “higher order effects,” with the first order effects being those expected.  Regardless of terminology, such consequences are usually unintended.  Often, these effects can be characterized as “emergent” changes with unanticipated consequences.  For instance, local change may propagate, e.g., one person’s may idea take off by others noticing and copying it.  On the down side, incremental toxins in the environment may lead to complete disappearance of a species.

Higher order effects and unintended consequences can precipitate the transformation of an enterprise, whether it is a corporation, a political entity, or a natural ecosystem.  We need to pay attention to the changes we pursue, enable, or perhaps hinder in terms of their systemic and perhaps unanticipated impacts.

Collaborative Networks

I am at the IEEE Workshop on the Future of Information at the National Academy of Engineering in Washington, DC.  The purpose of the workshop is to consider how engineers and scientists will access and use information in 2020, including what types and sources of information they will seek and find available.

Yesterday was the first of three days.  The four speakers all focused on the nature of collaboration to a much greater extent that the nature of information.  Computer and communications technologies are rapidly changing the ways we work, as well as how we connect with people personally.

Many discussions lately have revolved around the formation and management of collaborative networks for the purpose of business, research, education, and so on.  The purposeful design of collaborative networks is not as straightforward as we tend to assume.  Beyond group membership and how work gets done, there are issues of financing network formation and operations, as well as incentivizing people to commit to the network’s purpose and fully participate.

My experiences at several universities are that we assume “sweat equity” will be sufficient for financing networks and we totally ignore the incentives issue.  One idea is for universities to take a percentage of their budgets “off the top” to finance cross-disciplinary collaborative networks.  This would, of course, result in budget decreases for traditional colleges, schools, and departments.  In these tight economic times, I would expect immense push back on this idea.

Yet, this would force the traditional organizational entities to compete for the fenced off funds with creative proposals for collaboration.  Foundations and industry might substantially increase these funds if these cross-disciplinary initiatives related to appealing problems and opportunities such as health, energy, and future media.  In this way, the overall university budget might significantly increase.

This possibility brings us back to how best to form and manage collaborative networks.  If universities became frequent networkers, across institutions as well as disciplines, those who became really good at it might become the top universities of the future.  Other institutions would mimic them and, over time, we would all become excellent networkers and cross-disciplinary collaborative networks would become the norm.

Engineering Healthcare Delivery

I am pleased to report that IOS Press released “Engineering the System of Healthcare Delivery” this week in Amsterdam.  Denis Cortese and I edited this 500-page compendium of the insights and ideas of a wide range of luminaries in healthcare.  Our goal was to bring together in one place the thought leaders who are transforming healthcare.

The book includes six sections: 1) issues, 2) information, 3) incentives, 4) engineering approaches, 5) perspectives and, 6) prospects.  Readers will gain two overarching impressions from this book.  First, the complex adaptive system of healthcare delivery in the U.S. is extraordinarily complex.  I have characterized this system as a federation of millions of entrepreneurs with no one in charge.  Information systems that are integrated and incentives that aligned with high-value outcomes will go a long way to overcome this extreme fragmentation.

The second overarching impression that readers will gain is that we already know how to deliver high quality, affordable health outcomes.  There are many provider organizations that deliver very high quality care with costs much lower than the national average.  We know what to do; we just have been unable to get everyone to do it.  Information and incentives are also impediments in this area.

In the concluding chapter of this book, Denis and I consider prospects for change.  We conclude that within 10 years, the U.S. system will include 50-60 large, integrated providers.  Several of them may be federations of smallish practices with standardized clinical and back office systems.  The small 2-3 doctor practices that are common across the U.S. will disappear, unable to afford the cost of playing the game independently.

In 20 years, we see the emergence of “retail health.”  The health consumer will have extensive data and tools available to support decision making, including data on provider performance and costs.  This web-based infrastructure, in conjunction with human health coaches, will enable people to take charge of their own health and care.  High quality care and good services will be rewarded.  Well-informed consumers will not tolerate mediocre care and poor service.

Information and Incentives

In January, I discussed the notion of transforming organizational silos in academia to collaborative networks that can address large-scale research problems.  At the moment, I am sitting in a meeting at the University of Illinois that is, in part, focused on this possibility.  People are discussing the difficulties that they have encountered in pursuing this transformation.

Most of the difficulties can be attributed to the problems associated with incentivizing the silos to contribute to the networks.  Typically, faculty members have appointments and tenure lines in one or more of the academic silos – colleges, schools, and departments.  The silos often see their faculty members’ participation in collaborative networks as threatening their control of agendas and gain of potential rewards in terms of recognition and budget.

Some of these perceptions are certainly warranted, but there are mechanisms for ameliorating these difficulties.  First, the flow of budgets, overhead funds, and other rewards needs to be much more transparent than typical in most universities.  Somewhat simplistically, if all the stakeholders can track the flow of financial, physical, and human resources, and form expectations accordingly, then perceptions will be based on reality rather than rumor.

Once this flow is made explicit, one is in a position to change the flow to create the incentives needed to align the stakeholders in both the silos and the networks.  Succinctly, the silos need to be treated like shareholders in the networks and gain financial returns, and associated non-financial returns, due to their participation and support of the networks.

For this to work, the networks have to be capable of securing resources that the silos could not have otherwise secured.  In other words, the formation of collaborative networks needs to result in “new” money.  To the extent that “old” money needs to be diverted to seed the formation and startup of the networks, the case needs to be made that the likely returns of new money will dwarf the investments of old money.

So, the bottom line is information and incentives.  The organizational system needs to be transparent so that all stakeholders understand how things really work.  This understanding then needs to enable aligning incentives so that everyone can see how the investments they are being asked to make are likely to yields returns in which they will share.

Valuing the Future

I once asked an Assistant Secretary and Chief Financial Executive of a government agency whether he preferred to be in control of all the budget of his agency or to be in control of how the money was counted.  He responded, “If I can control how the money is counted, I don’t need to control the money itself.”  Clearly, how things are counted matters a lot.

How do we count our financial resources as a nation?  We can think about the answer to this question in terms of the national Income Statement and Balance Sheet – two fundamental elements of an enterprise’s financial state.  Right now, the national Income Statement looks pretty grim.  Our expenditures substantially exceed our income by an enormous amount.

How should we think about this situation?  Well, it depends on how the money is being expended.  Are these expenditures increasing the asset values on our national Balance Sheet?  Are we creating assets that will later yield returns that justify the current losses on our Income Statement?

It appears that we are improving the Balance Sheets of the major U.S. banks.  Thus, they may be in better positions to loan money to other enterprises, and they will at least be in positions to provide their senior executives and traders better bonuses.  But, does this improve the national Balance Sheet?

This begs the question of the nature of the national Balance Sheet.  What does it looks like and where is it?  Well, we will not find it in Congress.  They manage using an Income Statement at most and, more realistically, by simply using their checkbook.  They do not think in terms of national assets that will later provide returns.  They do not own the future.

So, who owns the future?  Our children do and, of course, we do too, both in terms of wanting returns on earlier investments and having to pay shortfalls that result from expenditures that do not yield returns.  What kind of assets will best yield returns?  Perhaps it will not surprise you that I think the answer is straightforward – a healthy, educated, and productive population that is competitive in the global marketplace.

Our assets are our people and their abilities to transform expenditures to assets that yield future returns.  We need to invest in fostering these abilities, incentivizing these transformations, and capturing the resulting returns.  We need to keep score on a national Balance Sheet.  Congress will not know what this means, but we will and, as a result, our national Income Statement will look a lot better in the future.

Value of Prevention

Last August, the Director of the Congressional Budget Office (CBO), Douglas W. Elmendorf, sent a letter to Congress informing them that most preventative health interventions tend to expand utilization of services with costs that far exceed the eventual cost savings due to avoiding disease or detecting it earlier.  In other words, he reported that prevention is not worth the investment.

I considered immediately stopping exercising and not worrying about trying to eat healthy.  Based on the CBO’s sage advice, I now knew that it was not worth it.  The money spent on the exercise club and Whole Foods produce would not provide a return on this investment that would exceed the costs.  I even entertained stopping eating because it just increases food costs.

Then it struck me.  The CBO had attached no value to healthy, productive people.  People who are healthy, educated, and productive, and thereby increase GDP and tax revenues, have no value to Congress.  The CBO only counts what matters to Congress – how tax dollars are distributed, not how these dollars are secured.

Of course, as I indicated in an earlier post, another problem is that the “return” on prevention primarily occurs in later years.  No one in Congress owns the future, 5, 10, or 20 years from now.  Thus, despite the fact that relatively small investments in prevention now will contribute to a healthier and more productive workforce in the future, Congress is not concerned with the GDP and tax revenues these people will generate many years from now.

If you and I were to adopt the philosophy that Congress embodies, we would not save for our children’s college education.  We would not pay the exercise club dues or waste time on after dinner walks.  We would avoid expensive broccoli and whole grains and, instead, consume a lot of tasty but poor quality food, made cheap by government corn subsidies.

However, we do attach value to being healthy, educated, and productive.  We also probably attach value to other people being healthy, educated, and productive.  We would like a society where as many people as possible are healthy, educated, and productive.  We know that prevention is worth it, just like we know that eating is worth it, even if it does increase food costs.

Unintended Consequences

Medicare limits reimbursement for healthcare procedures, often below the cost of delivery of these procedures.  Not surprisingly, healthcare providers figure out ways to compensate for these price controls.  They may, for example, bundle other, profitable services with those that they are forced to provide at a loss to get the overall profit margin to be positive.

Another thing providers do is charge non-Medicare patients more.  Consequently, patients with employer-based insurance pay more to subsidize Medicare patients.  I have seen several studies that estimate that employers pay, on average, for 120% of the costs of their employees’ healthcare costs.  In other words, they are paying for 20% of a Medicare patient for every employee and family member they insure.

The result of this is that employer-based health costs are growing faster than the costs of their employees’ healthcare.  This means that employee productivity increases that would have translated to wage growth are instead being used to cover increased healthcare costs for Medicare patients.  Wage levels are, therefore, depressed.  I cannot imagine that Medicare policy makers consciously decided to depress wage levels in the U.S.  However, that is a primary unintended consequence of their price control policies.

Healthy, Educated & Productive

Starting with the overarching objective of a healthy, educated, and productive population that is competitive in the global marketplace, what should be done?  Let’s work through this piece by piece.

Start with healthy.  We are facing an epidemic of chronic disease, driven in part by an epidemic of obesity.  The eventual financial costs of diabetes and all its complications, e.g., heart disease, will be enormous.  The human costs in terms of lost quality of life will also be daunting.

The most important thing in stemming this epidemic is quite straightforward, at least on the surface.  People have to consume fewer calories and/or burn more calories via activity.  Better quality food and smaller portion sizes would help on the consumption side of things.  More physical education in schools, as well as by employers, would help the burning of calories.

One of the problems, however, it that junk food, much of which is corn based, is subsidized by the government via farm price supports. So we have created a food ecosystem where the government invests in the creation of foods that people should not be eating.  However, for poorer people, this food is the best deal in terms of calories per dollar, so they buy it.  We need the government to subsidize broccoli and carrots, not corn.

Next, let’s consider education.  We need literacy and numeracy skills to be increasing, not decreasing.  We need people to understand and be competent with technologies and computers.  The key is making K-12 education motivating and even fun.  Problem based learning could help tremendously.  Perhaps we should eliminate closed-book exams and instead focus on problems and cases that require literacy and numeracy.  A nation of problem solvers will be much more competitive than a nation of memorizers.

Finally, let’s address productivity.  In general, the private sector invests in employees’ productivity via training, education, and technology.  The more output per hour or dollar, the more people are paid.  (Unless, of course, healthcare costs are consuming these gains.)  We need tax policies that encourage employers to make these investments in our healthy and educated problem solvers who can help companies innovate and compete.

So, for health, we need resources focused on prevention and wellness, as well as chronic disease management to deter disease progression.  We need resources for education focused on creating a nation of literate, numerate problem solvers.  And, we need tax policies that motivate employers to invest in their productivity.

Transforming the Debate

The debate in Washington seems stuck in partisan positioning and sound bites.  We have lost track of the fundamental objectives that need to be pursued.  I think the overarching objective should be quite simple – we want a healthy, educated, and productive population that is competitive in the global marketplace.

We do not really want the lowest cost healthcare system or education system.  That would be simple; just zero the health and education budgets.  We really want high value healthcare and education systems.  Value might be defined as the extent to which the overarching objective is achieved, perhaps divided by the cost of achieving it.

Were the U.S. a corporate entity whose CEO could decide what would and would not be done, it would be easier to pursue this objective.  However, the wide range of stakeholders in our society makes the decision process much more complicated.  Two aspects of this process exacerbate the difficulties.

First, we need to invest now for returns many years in the future.  Investing now in preventing chronic disease, e.g., diabetes, will save enormous sums decades from now.  However, the people who would otherwise have to pay these sums are not here now to influence the decision process.  Similarly, we need to better educate our children so they will have globally competitive knowledge and skills a decade or two from now.  But they are not part of the decision process either.

Second, it is often the case that the organization that might invest in the future is not the organization that will gain the returns when the investment pays off.  States invest in services that subsequently save the federal government future outlays, and vice versa.  This creates strong incentives to minimize current outlays, as there will be no direct returns to justify the investments.

What we need is somebody who owns the future – all of it, not just their piece.  They need to be “at the table” and have influence.  They need, for example, to argue for sacrifice now that will enable higher payoffs later.  Sacrifice might be services reduced, taxes increased, or privileges eliminated.  I am less concerned that any particular sacrifice happen, then I am that an influential person or organization be making that argument.

Transforming Academia

The transformation framework from the last post can be applied to thinking through the four scenarios for academia from the post before the last one.  Consider the Network U. scenario.  This scenario basically involves changing offerings across the instruction function and/or organization via process and technology changes.  Put simply, teaching would be quite different.

All students would be taught physics by Richard Feynman and economics by Paul Samuelson.  The fact that both of these individuals are deceased will not matter given the state of digital media technology.  They would even be able to lecture on research results that were not known before they died.

Students would no longer sit in crowded auditoriums while professors lectured on the stage.  The lectures could be viewed when and where students chose.  They could watch and listen to the lectures again and again.  Small groups could gather around the presentation media and occasionally put the lecture on hold and discuss the points just made.

The vast majority of physics and economics teachers would no longer prepare lecture notes and deliver lectures.  Instead, they would meet with small groups of students, say 10-20, to discuss the lectures and talk about the implications of the material.  Most teachers would become recitation leaders rather than lecturers.  They would be “guides on the side” rather than “sages on the stage.”

This would also change the bricks and mortar strategies of universities.  Few large lecture rooms would be needed, but many more small meeting rooms would be required.  Perhaps faculty member offices would become more like elementary school classrooms with a work area to one side and, in the middle, seating for the 10-20 students in each recitation group.  A faculty member might meet with 4-6 of these groups each day.

There would be few teaching assistants because the faculty members would now be responsible for far fewer students.  The demands of correcting exams and homework would be eased by technology, including social technology that would engage students in this process.  Collaborative learning would have become the norm for the generations of “digital natives.”

In parallel, faculty research will also become more networked and collaborative, both across disciplines and across academia, industry, and government.  Funding from industry would have increased substantially, while government funding declined due to other demands on these resources.  Networked collaboration technology will be a great enabler, both for work and for translation of research outcomes to practice.

Transformation Framework

A framework for understanding the nature of enterprise transformation is shown below – it also appears on the cover of Enterprise Transformation: Understanding and Enabling Fundamental Change (Wiley, 2006).  The goal or ends pursued via transformation tends to significantly differentiate initiatives.  The approach or means adopted for transformation pursuits relates to both the goals pursued and the nature and competencies of the enterprise.  The ends and means, as well as extent of integration of the enterprise, influence the scope of transformation.

Transformation Framework Figure

Transformation Framework

The ends of transformation can range from greater cost efficiencies, to enhanced market perceptions, to new product and service offerings, to fundamental changes of markets.  The means can range from upgrading people’s skills, to redesigning business practices, to significant infusions of technology, to fundamental changes of strategy.  The scope of transformation can range from work activities, to business functions, to overall organizations, to the enterprise as a whole.

I have found this framework to provide a useful categorization of a broad range of case studies of enterprise transformation.  Considering transformation of markets, Amazon leveraged IT to redefine book buying, while Wal-Mart leveraged IT to redefine the retail industry.  Illustrations of transformation of offerings include CNN redefining news delivery, Motorola moving from battery eliminators to radios to cell phones, UPS transforming from solely package delivery to being a provider of integrated supply chain management services, and IBM moving from an emphasis on selling computer products to providing integrated technology services.  Examples of transformation of perceptions include Dell repositioning computer buying and Starbucks repositioning coffee buying.  The many instances of transforming business operations include Lockheed Martin merging three aircraft companies and Newell resuscitating numerous home products companies.

The costs and risks of transformation increase as the endeavor moves farther from the center.  Initiatives focused on the center (in green) will typically involve well-known and mature methods and tools from industrial engineering and operations management.  In contrast, initiatives towards the perimeter (in red) will often require substantial changes of products, services, channels, etc., as well as associated large investments.

It is important to note that successful transformations in the outer band of this framework are likely to require significant investments in the inner bands also.  In general, any level of transformation requires consideration of all subordinate levels.  Thus, for example, successfully changing the market’s perceptions of an enterprise’s offerings is likely to also require enhanced operational excellence to underpin the new image being sought.  As another illustration, significant changes of strategies often require new processes for decision making, e.g., for R&D investments.

Four Scenarios for Academia

What will the academic world be like in 25 years – 2035?  Thinking 25 years into the future is quite difficult, as is evidenced by thinking back to 1985 and imagining our current iPhones, Kindles, and pervasive social technology such as Facebook. Nevertheless, it is interesting – and potentially useful – to consider future scenarios.  We know one thing for sure.  Any one scenario will inevitably be wrong.  Thus, we need multiple scenarios.

Driving Forces

Scenario development should be based on best practices on this topic.  All of the pundits begin by defining the forces that drive the future. There are — at least — four strong driving forces that will affect academia’s future:

1. Competition among top universities will become increasingly intense, both for talent and resources — there will be a clash of the titans

2. Globalization will result in many academic institutions, particularly in Asia, achieving parity in the competition — it will become hot, flat, and crowded

3. Demographic trends portend an aging, but active populace leading to an older student population — higher education will need to become a lifespan mecca

4. The generation of digital natives will come of age, go to college and enter the workforce — there will be no choice but become a networked university

We cannot escape these forces; nor can we fully predict the ways in which they will interact to shape the world of 2035.  We can be sure, however, that for academic institutions to compete in this future, their strategies must be sufficiently robust to accommodate these forces.  If, instead, they focus on just one scenario — for example the clash of titans that most closely resembles business as usual, perhaps on steroids — they will almost certainly be at a competitive disadvantage in the future.

Clash of Titans

I have worked at, consulted with, or served on advisory boards of quite a few top universities.  Every one of them pays attention to their U.S News & World Report rankings.  They aspire to battle with the titans of higher education, and hold their own.  This scenario has universities continuing that clash, perhaps clawing their way to higher rankings, albeit in an increasingly competitive environment.

General Description: Academic institutions continue to battle to achieve dominance in various academic disciplines, as well as compete with top universities for overall rankings within the U.S., and with premier international universities for global rankings.

Dominant Issues: The competition for talent becomes fierce, with well-endowed faculty chairs becoming the minimum for attracting talent; top students at all levels expect and get near-free education.

Economic Implications: The top players continue to dominate receipt of Federal funds, with considerable pushback from other players; costs of facilities and labs soar, much of which must be raised from philanthropic sources.

Social Implications: University cultures are sustained, with adaptations for a decreasingly Caucasian male population – for both students and faculty — but one that is committed to the values and sense of purpose that has been central for recent decades; changing demographics impacts how alumni best relate to their alma maters.

Hot, Flat & Crowded

Tom Friedman has argued that the world is flat and we should no longer assume business as usual – his revision of this best seller included a chapter on Georgia Tech and how we are transforming education in computing.  More recently, Friedman has argued that the world will be hot, flat, and crowded.  In this scenario, academic institutions have to compete with a much wider range of players in a global arena.

General Description: Global parity emerges in graduate education in science and technology, particularly for traditional disciplines and subdisciplines; greater collaboration among institutions emerges; demand for higher education in the U.S. will nevertheless increase substantially.

Dominant Issues: Many of the best jobs are in Asia; scarcity and constraints dominate sustainability debates; clashes of belief systems create political turmoil and security concerns; meeting demands presents strong challenges.

Economic Implications: Federal and state support diminish as portions of budget; industrial and philanthropic support are increasingly competitive; sponsors become sensitive to where resources are deployed; undergraduate tuition stabilizes and increases are less and less acceptable.

Social Implications: Global footprints of top universities increase by necessity; social, cultural, and ethnic diversity of faculty and students increases in turn; traditional business practices, e.g., promotion and tenure, must change to accommodate diversity.

Lifespan Mecca

It is easy – and convenient – to assume that the students of the future will be much like the students of today.  However, over the past decade, the number of graduate students 40 years old and older has reached record numbers. From 1995 to 2005, the number of post-baccalaureate students age 40 and older at U.S. colleges and universities jumped 27%. And during the next two decades, the number of older citizens will rise at even faster rates, which suggests that the number of post-baccalaureate students age 40 and over very likely will continue to grow.   In this scenario, universities have to address a “student” population with more diverse interests and expectations rather different from students of the past and current eras.

General Description: Demand for postgraduate and executive education surges as career changes become quite common; demand steadily grows for education and artistic performances by an increasingly urban older population.

Dominant Issues: Two or three MS or MA degrees become common across careers, as do often required certificate programs; multiple artistic performance and sporting events per day become common at any top university.

Economic Implications: Tuition revenues soar for executive programs and graduate education programs popular with elders; revenues from artistic performance and sports venues become significant portions of university budgets.

Social Implications: Median age of students increases substantially, changing the campus culture substantially; older students in particular expect and get high quality, user-friendly services; diversity of faculty increases substantially to satisfy diversity of demands.

Network U.

Technology is increasingly enabling access to world-class content in terms of publications, lectures, and performances.  Higher education can leverage this content to both increase quality and lower costs.  This technology has also spawned the generation of “digital natives” that is always connected, weaned on collaboration, and adept at multi-tasking.  In this scenario, academia has to address different types of student using very different approaches to delivering education and conducting research.

General Description: Social technology prevails; access to the best content and faculty is universal; nevertheless, students go to college to learn and mature; however, the classroom experience is now highly interactive, both remotely and face to face.

Dominant Issues: Students and faculty have broad and easy access to knowledge, often via other people; with the “best in class” universally available, local faculty play more facilitative roles in small (10-20) “high touch” discussion groups.

Economic Implications: More teaching professionals are needed for recitation-sized classes; teaching skills are at a premium; increasing numbers of high quality programs result in strong downward pressure on tuition and fees; faculty research becomes near totally externally funded.

Social Implications: Students and faculty are networkers par excellence; both within and across institutions; students’ evaluations of teaching effectiveness play an increasing role; students seamlessly transition from K-12 to university to lifespan education.


Framing the future 25 years from now is quite difficult.  Yet, this is essential if academic institutions are to focus their competencies and resources on the possible futures in which our students – and all of us – will have to compete.  Our abilities to understand and manage the inherent uncertainties associated with these futures can be an enormous competitive advantage.  We need to enhance these abilities to maintain our competitive position in global education.

Transforming Silos to Networks

I have been a faculty member at four universities – two in leadership positions and two in one-year visiting positions.  Nevertheless, academia is a bit of enigma to me, perhaps because of my thirteen-year “leave of absence” to found and lead two software companies.  In terms of content, in my case science and engineering, universities tend to be hotbeds of new ideas, often expounded by very talented and impressive free thinkers.  However, as organizations, universities are among the most conservative I have encountered.

How can groups of highly educated, mostly liberal intellectuals create such conservative organizations?  In People and Organizations (Wiley, 2007) and Don’t Jump to Solutions (Jossey-Bass, 1998) I addressed this question.  The organizational structure of disciplinary departments, schools, and colleges is almost sacred – having begun with the founding of the University of Bologna in 1119.  The incentive and reward system that totally emphasizes individual accomplishments by faculty members is, in fact, sacred.

I have often used this bit of history to explain the roots of academic organizations.  A few years ago, I encountered a faculty member from UCLA whose specialty is the history of academia.  She mentioned that Bologna formed departments for the specific reason of keeping members of disciplines from killing each other, as they all carried and used swords in those days.  Now, we just use words rather than swords, just as lethal but not nearly as satisfying.

Despite the limitations and frustrations, academia has created some remarkable outcomes in science, technology, architecture, the arts, and so on.  Aided by government largess since World War II, we have become increasingly specialized.  Surely we will soon see whole academic schools devoted to (nano or neuro) (chem or bio) (geno or proteo) (information or computational) technology.  Actually, there are enough combinations for 16 schools here, which could create one to three colleges.

All of these new schools will need enormous human, financial, and physical resources.  There will be long lines at government agencies that fund research.  With the specter of Social Security and Medicare also standing in line for resources, can we expect the government to fund all these new disciplines and subdisciplines?  Can we continue to refine the game defined in Bologna and optimized throughout the 20th century?

Beyond the availability of resources, a key issue is whether or not the old rules of the games will still work in the future.  Bob Lucky, in a recent issue of IEEE Spectrum, contrasted two lists compiled by the National Academy of Engineering – one of the most significant accomplishments of the 20th century, and the other of the greatest challenges of the 21st century.  The 20th century list, topped by electrification, the automobile, and the airplane, mainly included things that had emerged from individual drawing boards, ideas that had made it through the gauntlets of invention, innovation, and market success.  The 21st century list, headed by energy, the environment, urban infrastructure and health informatics, addresses national challenges that we are not sure how best to address.

These types of challenges cannot be addressed by decomposing them into little pieces, each of which is addressed by a highly specialized professor and his or her graduate students – and primarily results in an article published in a highly specialized journal.  A more integrated approach is needed whereby the requirements for each of the pieces are driven by a top-down view of the whole problem and the bottom-up solutions for each of the pieces are integrated into an overall solution.  Without such integration, the whole may be less than the sum of the parts.

To accomplish this integration, we need networks of disciplines working in an integrated manner rather than silos of disciplines working independently of each other.  This, in turn, requires a different organizational model for how universities conduct large-scale research, and how we reward faculty and staff for their pursuit of large challenges.

As a junior faculty member in a Bologna-type system who made it up through the ranks to tenured full professor, the system was great.  There was no doubt about what counted and no doubt about the rules of the game.  If you could publish lots of journal articles, bring in sizable amounts of grant money, and earn above-average teacher ratings from students, your success was assured.

However, incentives and rewards that focus solely on individual accomplishment do not necessarily create great organizations.  They also do not create institutions that can contribute to solutions of complex problems such as embodied by the NAE challenges.  What they do produce, however, are students, especially at the graduate level, who are programmed to recreate the “standard” academic organization wherever they work.  This, in turn, makes it very difficult for academic organizations to face their own organizational delusions.

Beyond reward systems, we need to reconsider how research is funded.  The traditional model involves one or two researchers writing proposals to cover one or two months of their summer salaries plus a couple of graduate students.  These types of grants are great for beginning junior faculty.  However, this model does not scale for addressing national challenges.  Having 100 grants of $100,000 is very different from having one grant of $10,000,000.

To pursue larger funding opportunities, we have to offer more than piles of obscure journal articles.  We need to provide integrated insights and solution concepts for large-scale problems.  Academia need not provide “installed” solutions, but should provide sufficiently proven ideas that industry can run with them, confident that they will work.  Beyond being a key source of ideas, academic research needs to be a means of risk reduction for those who will translate research inventions to market innovations.

The pursuit of larger opportunities will require robust relationship networks and strategic alliances involving academia, industry, and government.  We should not wait to form strong, competitive teams when the solicitation of proposals is about to emerge.  Instead, we need to build and nurture these teams to pursue portfolios of opportunities over many years.  Personnel need to move across the organizational boundaries within the team.  Students graduating provide a great mechanism for this, as do industry and government team members seeking graduate degrees.  Retired executives joining the faculties of universities provide another wonderful mechanism.

All in all, the new game will require some new rules for how we formulate problems, develop proposals, acquire resources, and deploy knowledge.  The strong organizational traditions of academia may undermine our abilities to define and adopt such new rules.  Indeed, as Paul Samuelson, who recently passed away, said in 2003, “Funeral by funeral, theory advances.”  (Samuelson was referencing Max Planck who said in the 1940s, “Science advances one funeral at a time.”)  However, I think that the true leaders among academic enterprises will be those who proactively embrace and create change.  The national challenges we face will not get easier if we wait.

Transforming Air Lines to Bus Lines

I have been a frequent flyer for almost 30 years on Delta Air Lines.  I’ll soon reach 3,000,000 miles.  I’ve been everywhere with Delta, both as my conveyance to adventure and my safe passage home.  I’ve had countless drinks, lots of ice cream sundaes, and many fascinating conversations and heart-felt laughs, all on Delta, flying first class heading somewhere.

During these 30 years, the airline industry has adapted to the deregulation initiated in 1978 in the Carter Administration.  Competition has greatly intensified, helped in part by seat price optimization that enables one passenger to pay $699 for a seat next to another passenger paying $99.  The result is every seat is full, yet the airlines continue to lose lots of money.

Passengers lose too.  People are tightly packed together, waiting like gerbils for their little bag of pretzels.  There is little legroom – guard your pretzels in case the person in front of you puts their seat back.  Luggage compartments are overflowing.  On-time departures are almost impossible as people wrestle their bulging roll-aboards around each other seeking rapidly diminishing opportunities to dock them.

My recent flights, still occasionally in first class, provide astounding contrasts with my memories of Delta before they optimized the “passenger containment units”.  Now, everything feels like McDonalds, from the throwaway placemat to the plastic utensils.  There are two wines – called red and white – and no champagne.  Grapefruit juice is long gone.  The ice cream sundaes seem farther away than my childhood experiences of the ice cream man.  It is upscale coach – maybe.

I’ve heard people say that this is Delta’s natural reaction to the pressures of Southwest, AirTran, and others.  It may be natural, but it does not seem like a prudent choice.  I used to pay more for Delta flights (in inflation-adjusted dollars), never complained, and Delta made money.  Now, I am paying less – sometimes – and receiving much less value and Delta is losing money.  Sure, I get where I’m going, a little compressed sometimes from the lack of space.  But, I get there.  So, why complain?

I’ve looked for the answers in trains.  I never experienced the opulence of trains in the U.S.  My mother had a glimpse, but even by World War II, the experience was fading.  In contrast, I have experienced first class travel on European and Japanese trains.  I love going to the dining car, having a drink and watching the world whisk by.  I expect to sometime see Cary Grant and Eva Marie Saint, or someone like them sharing love, adventure, or simply being scared stiff.  So, I am an incurable romantic, which might reasonably call you to question this whole post.

So, what’s happened to air travel?  Certainly, Delta argues that it is trying to do a good job, as are its pilots, flight attendants, and other employees.  However, the world seems to have changed.  Many people want low-price everything.  Laundry soap, potato chips, and airplane flights.  We want the absolute cheapest, minimal frills, and take the bus travel that anyone can provide.  If you can provide a transcontinental flight for $99, how about $89?

For Delta at least, this is clearly the end of greatness.  Delta has decided to compete in the bus business.  As one Delta executive commented to me, they will continue to pull feathers (i.e., eliminate services) until the goose honks – as I am honking now.  Then we will get used to the bus service from Atlanta to Washington, Chicago, and Los Angeles, and accept the bare-bones everything – all for $89, $79, $69, ….  I once had a great relationship with a great airline.  Now, I take the bus.

Transformation Archetypes — Part 4

A year ago, I bought an iPhone.  About six months ago, I switched from a PC to a Mac.  A few months ago, I began to use texting and now frequently rely on this means of communication.  Now, I am writing a blog.  My colleagues think that I have a chance of actually making it into the 21st century.  I am not sure – I am not that keen on Facebook and I still fancy cars from the 1940s.

Information and communications technologies seem to be transforming how we work and live.  The web is pervasive – right now, I am on a flight to Detroit, answering email on my laptop.  Social technology, smart phones, and perhaps even e-books enable a highly distributed and mobile workforce.  The same technologies enable highly connected personal lives.

Consider this candidate transformation in terms of the three ingredients identified as important to the Renaissance – creativity, resources, and flexibility.  My sense is that we score highly in terms of creativity as Amazon, Apple, Google, and many others provide a steady stream of new possibilities.  Working on a college campus, I see many inventive uses of these technologies, ranging from applications to support chronic disease management to performing arts initiatives.

As for resources, money is quite tight right now.  The investment monies available during the Internet bubble in the 1990s have not been around for this decade – and the last couple of years have been much worse.  While the housing bubble created a lot of wealth, at least temporarily, I don’t sense that the bulk of this flowed into technology investments.  So, we do not score too highly here.

This leaves flexibility.  Clearly, people are quite open – worldwide – to adopting these technologies.  However, are we as a society as open to changes in the nature of work and personal life?  This is difficult to answer in general.  Instead, let’s return to earlier discussions of healthcare.  There are substantial and powerful forces against transformation of healthcare, for example, in terms of information and communications technologies enabling people to play major roles in managing their own health.  We need people to help significantly in managing their chronic diseases, but many key stakeholders see such developments as undermining their sources of revenue.

Many of these key stakeholders in healthcare delivery have made major investments to optimize their business practices for the way that the system currently operates.  Moving towards paying for health outcomes rather than fees for services — enabled by information and communications technologies — is a threatening prospect for many key stakeholders.  They need things to stay the way they are.  This is a hallmark of a lack of flexibility.  There is a similar lack of flexibility in many of our complex public-private enterprises – education and defense, as well as healthcare.

Yet, there are some bright prospects, as illustrated in Tom Friedman’s editorial “The Do-It-Yourself Economy” in last Sunday’s New York Times.  He discusses two companies that had to accelerate change, using the technologies noted above, in order to stay in business – survive.  They changed the ways they did business because they felt they had no choice.  Sounds a lot like the shipbuilders who stopped building with wood because they could not get enough wood any more.  Perhaps the old adage “necessity is the mother of invention” can be morphed into necessity is the mother of reinvention.  If many pundits’ projections are right, healthcare will be encountering lots of “necessity” in coming years, so perhaps a Renaissance in healthcare will emerge.

Transformation Archetypes — Part 3

The Renaissance is typically associated with great works of art and architecture.  As noted in Part 2, Filippo Brunelleschi was an early Renaissance artist and architect.  His dome of the Florence Cathedral was a major engineering feat.  Leonardo da Vinci (1452-1519) was a scientist, engineer, painter, and sculptor, with works ranging from The Last Supper and Mona Lisa to military weapon systems and civil engineering projects.  Michelangelo di Lodovico Buonarroti Simoni (1475-1564) was a painter, sculptor, architect, engineer, whose greatest works include the ceiling of the Sistine Chapel and the design of St. Peter’s Basilica.  Leonardo and Michelangelo epitomize the notion of “the Renaissance man.”

Lorenzo de Medici (1449-1492) is often credited with serving as a primary catalyst of the Renaissance in his role as a patron of arts.  He is recognized as the best example of a second critical ingredient of the Renaissance.  The commerce-oriented nature of Italian city-states such as Florence, Milan, and Venice created wealth that provided the means for the wonderful art and architecture of the Renaissance.  Thus, there were both creative, inventive people and those who were inclined and able to invest in their creations.

There was a third ingredient – a political landscape that was open to change and aggressive in pursuing it.  The leader of the Roman Catholic Church, during a crucial period, was Pope Alexander VI  (1431-1503).  He took corruption to new levels, fathering four children while Pope, and doing his best to assure dominance of the Borgia family, hopefully long after his reign as Pope ended.  His son, Cesare Borgia (1475-1507), was a key element of this strategy, serving as a military general and statesman in the unification of the Romagna region in Italy.  Many citizens welcomed Borgia’s often-harsh arrival because his subsequent political and administrative practices were great improvements over those of the tyrants preceding him.

The sweep of political change, of which Borgia is just one example, was chronicled and studied by the political philosopher Niccolo Machiavelli (1469-1527).  His understanding of the behavioral and social nature of politics, and his writings on this, have led many to term him the father of political science.  He understood how to facilitate political change and played a central role in Florentine politics.  The overall result was a much more flexible political environment, compared to traditional monarchies or traditional conservative Papal rulers.  This flexibility often results in somewhat chaotic progress, but it provided an avenue for new ideas to emerge and succeed or fail on their own merits.

So the ingredients of transformation during the Renaissance included creativity, resources, and flexibility, all enabled by a political and social context that encouraged change, at least much more so than in preceding eras.  In Part 4, I will consider the extent to which it can be argued that these ingredients and context currently prevail and whether we are now in the process of transformation.

Transformation Archetypes — Part 2

A confluence of forces also led to the Renaissance, the highly creative period between the Middle Ages and the Modern Era that began in Tuscany in Florence in the 14th Century.  The origins of the Renaissance are often traced to the writings of Dante Alighieri (1265-1321) and Francesco Petrarca (1304-1374), and the art of Filippo Brunelleschi (1377-1446) and many others.  The Renaissance, as well as humanism, led to the Reformation and Luther’s “95 Theses” in 1517.  The Age of Enlightenment followed the Renaissance and is often dated from Rene Descartes (1596-1650) seminal writings to the French Revolution in 1789.

Why did the Renaissance happen and why did it happen in Italy?  As with the transformation of New England, it was a confluence of forces.  I will discuss these forces and the key players in Part 3 of this discussion of archetypes.  At this point, let’s just address the question, “Why Italy?”  The answer is that the unique political structure of Italian city-states provided a fertile social climate for change.  Monarchs ruled England, France, and Spain.  Germany did not yet exist.  To the east, the Ottomans were in power.  In contrast, the Italian city-states were all about commerce and skilled artisans had some say in what happened.

It seems to me that transformation requires a fertile social climate for fundamental change to be entertained and pursued.  Conservative, centrally managed cultures focus on preserving the status quo, not seeking fundamental change.  Creativity blossoms in places where it is valued and supported.  Creative inventions are more likely to become market innovations when there are lots of blossoms and many bees who are convinced they can and will succeed.

Here are my favorite books on the Italy and the Renaissance.  King (2007) and Strathern (2009) were key to my thoughts on the Renaissance as a transformation archetype.  The books on Brunelleschi, da Vinci, and Michelangelo provide fascinating views of these creative geniuses.   Preston and Spezi (2008) is set in contemporary Florence and therefore is fairly tangential — but it is a great read.

Capra, F. (2007). The Science of Leonardo: Inside the Mind of the Great Genius of the Renaissance. New York: Doubleday.

King, R. (2001). Brunelleschi’s Dome: How a Renaissance Genius Reinvented Architecture. New York: Penguin.

King, R. (2003). Michelangelo and the Pope’s Ceiling. New York: Penguin.

King, R. (2007). Machiavelli: Philosopher of Power. New York: Harper.

Preston, D. & Spezi, M. (2008). The Monster of Florence.  New York: Grand Central Publishing.

Strathern, P. (2009). The Artist, the Philosopher, and the Warrior: The Intersecting Lives of Da Vinci, Machiavelli, and Borgia and the World They Shaped. New York: Harper.

Transformation Archetypes — Part 1

Last Wednesday, I was at the White Mountain School in Bethlehem, NH.  The invited lecturer in earth sciences was Mariko Yamasaki of the USDA Northern Research Station at Bartlett, NH.  She noted that all the forests in New England “from the notches south” have grown over the past 150 years.  Before that, from 1620 to 1860 or 1870 or so – people cleared the land for farming and harvested the trees for what she termed the “wood economy.”  The wood was used to construct buildings and ships, and was the primary source of energy.

Interestingly, only a few of the pre-colonization mammals, birds, and insects became extinct in the process.  The vast majority adapted to loss of habitat and, since the end of that period, have adapted to regaining their habitat, as the remnants of the wood economy have become quite small.  While we have not allowed the re-emergence of habitat renewal via forest fires, we have become much better at habitat management.

So, people transformed rural New England for 250 years, and then nature transformed it back – well, almost — for 150 years and northern New England is now heavily forested.  In the process, we went from a wood economy, to a fossil fuel economy, to an information economy.  Of course, we still are a fossil fuel economy.  We cannot use information for energy – bits cannot equal BTUs.

How did the wood economy transform.  I have not been able to find any august advisory committee that led the way, nor any government agency that provided stimulus funds.  How, then, did change happen?

My mother’s side of the family included many ship builders.  They built ships in southern Maine.  In the late 1800s, they found it increasingly difficult to get the wood they needed for their ships.  Being in Maine was no longer a competitive advantage.  So, they moved to Boston, more specifically Chelsea.

Other things were happening at the same time.  Railroads were replacing steamboats, which had replaced coaches and barges.  Iron was in widespread use and steel was in the ascendancy.  Oil had been discovered in western Pennsylvania.  So, how about iron or steel ships, with new hull designs, and new propulsion systems?  Why not, the old wood-based designs were unsustainable anyways?  A confluence of forces led to a new economy.

Theory of Transformation

In the past 25 years, there has been 200% turnover in the Fortune 500.  Clearly, large enterprises find it very difficult to fundamentally change or transform themselves as technologies, markets, and economies change.  Our studies of this phenomenon led to the following “theory” of transformation that was published in Systems Engineering in 2005, and subsequently in Enterprise Transformation (Wiley, 2006).

“Enterprise transformation is driven by experienced and/or anticipated value deficiencies that result in significantly redesigned and/or new work processes as determined by management’s decision making abilities, limitations, and inclinations, all in the context of the social networks of management in particular, and the enterprise in general.”

The central elements of the theory are underlined.  Value deficiencies, either experienced or anticipate, drive fundamental change.  There has to be a reason – perhaps a burning platform – for change to be entertained.  Value is delivered via work processes.  To change the nature of the value is provided or the way it is provided, one has to reconsider the work done and how it is done.

Value deficiencies and work processes are the technical aspects of the problem of change.  Management decision making and social networks constitute the behavioral and social elements of fundamental change.  I have been in many situations where the technical side of the problem was quite clear, but management was not inclined to make the decisions necessary to proceed.  I have also experienced many situations where the social network rejected the need for change, effectively providing the function of an organizational immune system.

Successful enterprise transformation requires leadership that assures all four elements of the theory are addressed, with appropriately balance across the technical, behavioral, and social dimensions of the problem.  That’s how one stays in the Fortune 500 when your value proposition is challenged.  If this does not work for you, then I suggest you heed Ogden Nash’s advice, “When called by a panther, don’t anther.”

Forces Against Change

The November 12th issue of The Economist and November 22nd issue of the New York Times provide interesting analyses of forces against change.  The Lexington column in The Economist, “Farmers vs. Greens,” outlines rural America’s opposition to anything that will increase the price of fossil fuel.  It notes that senators representing 11% of the U.S. population can block any legislation.  This is a strong force against change.

Tom Friedman in his New York Times column, “Advice from Grandma,” outlines six factors that are pushing our political system towards paralysis.  Money, gerrymandering, cable TV loudmouths, permanent presidential campaigns, web-enabled extreme views, and intense lobbying, especially when combined, are forces against change.

Finally, the Schumpeter column in The Economist, “The Cult of the Faceless Boss,” argues that flamboyant, visionary leaders change the world.  These are the people who create the future rather than just manage change.  The column references George Bernard Shaw’s notion that progress depends on “unreasonable” people who feel no need to apologize for themselves or their calling.  Discouraging such behaviors is a force against change.

Challenges in Healthcare Delivery

We are currently embroiled in two healthcare debates. One debate involves how the costs of making healthcare available to everyone should be apportioned among individuals, employers, and the government. The second debate concerns how to achieve reductions in the high costs of healthcare to provide the best value. Both debates have to be resolved effectively to achieve our goals.  Only addressing one – by, for example, solely making everyone insured – may worsen our cost problems by having many more people demanding very expensive, and sometimes marginally effective care.

Which of the seven challenges is predominant in this situation?  Cost growth is obviously a major concern.  However, we might recast the growth challenge in terms of the extent to which the high costs incurred yield value relative to fostering a healthy, educated, and productive population.  Perhaps this is too grandiose.  Why not just seek the lowest cost healthcare system?  That would be easy.  We might even be able to achieve a zero cost healthcare system.  However, if the consequences of this perspective are not appealing, then we need to address the central tradeoffs between value and cost.

This, of course, begs the fundamental question of what value means in healthcare.  My sense is the highest value healthcare would be such that people would be well and not need attention to debilitating diseases.  I heard this expressed as follows, “I want to die young, as late in life as possible.”  It would be great if the second healthcare debate indicated above could focus on this possibility.

By the way, note that the challenges of focus, change, future, knowledge, and time cannot be central until we agree on the foundation of value that we collectively want.

Essential Challenges of Strategic Management

After working with well over 100 enterprises – large and small companies, government agencies, non-profits, and universities – it should not be surprising that I came to wonder about common challenges across all these types and sizes of enterprises.  Pursuing this idea, I identified seven challenges.

Growth is the overarching challenge.  How can your enterprise increase its impact, perhaps in saturated or declining markets?  For an enterprise to prosper, growth must be your goal.  Whether the metric is revenue, profit, market share or lives saved, any goal other than growth will eventually lead to decline.

Addressing the challenge of value provides your foundation for growth.  This involves enhancing the relationships of your enterprise’s processes to benefits and costs.  This requires a solid understanding of the nature of your processes, the stakeholders in these processes, and how these processes provide benefits and incur costs.

Success in pursuing the challenges of growth and value, requires addressing the challenge of focus, which provides your path from value to growth.  Focus involves pursuing opportunities and avoiding diversions.  It involves reducing or eliminating investments in your old value proposition to invest in the new.

The challenge of change requires that you design the new enterprise for the pursuing the path from value to growth.  This design or redesign should balance competing creatively while maintaining continuity with those aspects of the enterprise you want to preserve.  If you have to change everything, then liquidation may be better than transformation.

Change almost always involves investing in inherently unpredictable outcomes in the future, the fifth challenge.  Articulating your view of possible outcomes and the uncertainties associated with them is key to both your commitment and that of your team.  Keep in mind that many these uncertainties and associated risks cannot be eliminated.  Your goal, therefore, is to be better at risk management than your competitors.

By addressing the challenge of knowledge, you can gain the means of transforming information to insights to programs of action.  This involves understanding the nature and role of knowledge in your enterprise.  Much of this knowledge will not be archival.  Instead, it will be in the heads of the people in your enterprise.

The seventh challenge is time.  This challenge involves carefully allocating the organization’s scarcest resource – the time of the top management team, including you.  This resource is much more scarce than money.  Yet, executives and senior managers often waste their time on the urgent but unimportant quadrant of Stephen Covey’s matrix.

These seven challenges are discussed at length in Essential Challenges of Strategic Management (2001) published by John Wiley.  In many situations these challenges can be addressed by improving one or more elements of the “as is” enterprise.  In some cases, however, there is a need to fundamentally transform from “as is” to the “to be” enterprise.  This is your ultimate challenge.

Fundamental Change Is Very Difficult

When I first got into the strategy and planning business, I complied all the best practices I could find.  You can access these compilations in Design for Success (1991), Strategies for Innovation (1992), and Catalysts for Change (1993), all published by John Wiley.  I realized all this stuff could be quite dry, so I brought it all together into a down-to-earth treatise, Best Laid Plans (1994), published by Prentice-Hall.  This book elaborates the best practices in the contexts of designing and building furniture, planning and taking hikes, and doing business and other adventures in foreign cultures.

Despite all this pithy wisdom, I found that many engagements encountered the apparently insurmountable barrier of fundamental change.  This phenomenon came to fascinate me.  I started to compile historical case studies.  I studied roughly 200 enterprises in the period from 1800 to 2000, focusing on the transportation, computing, and defense industries.  The transitions from steamboats to railroads to automobiles and airplanes led the way, but not by much, for the transitions from cash registers and typewriters to tabulators and computers.  Almost every enterprise failed to transform itself along the way, so most disappeared amidst Joseph Schumpeter’s “creative destruction.”  However, not everyone failed – we’ll return to this later.

These case studies – see Start Where You Are (1996) published by Jossey-Bass, now a John Wiley imprint – led me to wonder why management teams so often avoided recognizing the obvious.  I thought they must have been deluded, which led to another set of contemporary studies and another book – Don’t Jump to Solutions (1998), again published by Jossey-Bass.  This book discusses thirteen organizational delusions that undermine strategic thinking.  These delusions cause enterprises to develop strategies and plans for enterprises that they no longer are – or never were.

By this point, you are probably thinking that my only goal in this process was writing and publishing books.  However, my purpose was much more one of making sense of the intense experiences I was having working with company after company, reading all the latest management literature, and trying to help management teams address the strategic challenges at hand.  Thus, these books were more like reports from the front rather than intellectual treatises.

Welcome to Change

My focus in this blog is fundamental change.  In particular, I will write about fundamental change of complex organizational systems.  Another phrase I like is enterprise transformation.

During the 1990s, in between two stints as a faculty member at Georgia Tech, I founded and managed two research and software companies – Search Technology, Inc., and Enterprise Support Systems, Inc.  The second company created and sold a suite of software tools for strategic business planning, new product planning, market situation assessment, and technology portfolio analysis.  We worked with over 100 companies, including Abbott Laboratories, Coca-Cola, Digital, Honeywell, Lockheed Martin, 3M, Motorola, NCR, Raytheon, Rolls Royce, Rover, Southern Company and many others.

While our focus was on developing and selling software tools, our customers’ focus was on success in investing in new technologies and launching new products.  This quest for success led them to ask for help in employing our tools to develop and evaluate strategies and plans.  I kept track of who we helped and, until I stopped tracking it, we had a spreadsheet with several thousand senior managers and executives that we helped.

One particular thing stuck me in these many engagements.  Many of these enterprises had great difficulty entertaining, addressing, and pursuing fundamental change.  As an outsider, with quite a breath of experience, it was sometimes quite evident to me that tweaking “business as usual” would fall far short of successfully addressing the strategic challenges at hand.  Yet, management teams could not accept the need for fundamental change of their business models.

In this blog, I will discuss how these teams often avoided change until they were out of time and low on resources.   I’ll talk about why I think this happens.  Of most importance, we’ll look in depth at how people avoided this fate.