What design excellent really means

In an earlier posting on the end of Jobs era at Apple, I mentioned that part of the genius of their products was due to the Sir Jonathan Ive. Now Ive has given a long interview with the Evening Standard of London. Lots of interesting tidbits. One I particularly liked was this:

We struggle with the right words to describe the design process at Apple, but it is very much about designing and prototyping and making. When you separate those, I think the final result suffers.

Interesting comment since Apple doesn’t actually make their own products anymore.
Over at Forbes, Lim Yung-Hui has distilled the content down to 7 Lessons That Startups Can Learn From Apple Design Guru Jonathan Ive:
1. Build A Genuinely Better Product: Different does not necessary means better.
2. Make It Simplistically Useful
3. Design Tells Users How Much You Care
4. Be Inspired by Problems and Opportunities
5. Non-Design Skills Required Too
6. Focus Group is Not Quintessential
7. Promote cross-pollination within your organization
Frankly, I think #1 and #2 says it all. Build a better, more useful product. That is what design should be about and is ultimate goal of innovation. As Ive says in the interview:

Our goals are very simple – to design and make better products. If we can’t make something that is better, we won’t do it.

The social era

Over in the Harvard Business Review there is a series of posting by Nilofer Merchant on how businesses can adapt to the “social era.” Worth reading:
Rules For the Social Era: Part 1 — How to get “800-pound gorillas of our day to act more like 800 gazelles — fast, nimble, and collaborative.”
Social Means Freedom, for Better or for Worse: Part 2 — “If you were going to design an organization from scratch today, what would you design for? And the answer is: nimbleness.”
Why Porter’s Model No Longer Works: Part 3 — Beyond the value chain, sort of: “Organizations can be in a constant conversation to learn what is working and what is not, and adapt on the fly.”
Why Social Marketing is So Hard: Part 4 — Old marketing paradigm was to funnel information to passive consumers; new social marketing is to engage in a conversation and relationship.
Stop Talking About Social and Do It: Part 5 — Action items: from paid to purpose-driven; from isolated organizations to communities; from centralized to distributed.
Some interesting insights — even if you don’t buy the whole thing. My favorite idea from the piece:

doesn’t this just mean the “800-pound gorilla” dies? Entrepreneurs and the startup ecosystem who embody fast / fluid / flexible attributes certainly believe that the established players are fated to die. Many think of these big organizations as the dinosaurs of our time. But one can look at the history of dinosaurs and see that dinosaurs didn’t really die. Paleontologists have suggested that dinosaurs are all around us today actually, as birds.

In other words, it’s about transformation, not destruction.

An unprotected intangible asset?

Here is an interesting story from the Economist about the trial of a computer programmer — IT and espionage on Wall Street: Cracking the penal code:

To this footloose community, the case of Sergey Aleynikov, a Goldman Sachs programmer, came as a shock. Mr Aleynikov was convicted in December 2010 of stealing code tied to Goldman’s lucrative high-speed proprietary-trading operations for use by a new employer. On February 16th, after he had spent nearly a year in prison, three judges in a federal appeals court unanimously reversed his conviction in a hearing that lasted just a single morning. Their written opinion is now eagerly awaited.
Mr Aleynikov admitted to taking code with him on his way out of Goldman, but argued successfully that this did not constitute a crime, or, to be more specific, a federal crime. He benefited from the help of a thorough lawyer, who adroitly knocked down two key claims. Because the computer trading system was not licensed or offered for sale, claimed Kevin Marino, the defendant’s lawyer, it was not a product to be bought or sold for interstate commerce, a key provision for a federal case. Because computer coding constitutes intangible intellectual property, Mr Marino said, it did not qualify under the goods, wares or merchandise components that are protected under the corporate-espionage act.
The judges quickly accepted these arguments.

Interesting — intangible intellectual property is not protected under the corporate-espionage act?

Emerging Global Trends in Advanced Manufacturing

There is a new report out on Emerging Global Trends in Advanced Manufacturing by the Science & Technology Policy Institute (part of the Institute for Defense Analyses), done for the Office of the Director of National Intelligence. The study stresses that manufacturing is a moving frontier:

In 20 years, manufacturing is expected to advance to new frontiers, resulting in an increasingly automated and data-intensive manufacturing sector that will likely replace traditional manufacturing as we know it today.

The report highlights five converging trends:
  • Ubiquitous role of information technology.
  • Reliance on modeling and simulation in the manufacturing process.
  • Acceleration of innovation in supply-chain management.
  • Move toward the ability to change manufacturing systems rapidly in response to customer needs and external impediments.
  • Acceptance and support of sustainable manufacturing.
I would note that a number of these trends are not simply technological, but have organizational and business-model focused as well.
On the technology side, they see major advances in two mature areas and two emerging technologies. The mature areas are semiconductor fabrication and advanced materials with a focus on integrated computational materials engineering. The emerging technologies are additive manufacturing (aka 3D printing) and biomanufacturing with a focus on synthetic biology.
As a result of the combination of the overall trends and the technological advances, they postulate the following future scenarios:

Our research into advanced manufacturing points to an increasingly automated world that will continue to rely less on labor-intensive mechanical processes and more on sophisticated information-technology-intensive processes. This trend will likely accelerate as advances in manufacturing are implemented.
Over the next 10 years, advanced manufacturing will become increasingly globally linked as automation and digital supply-chain management become the norm across enterprise systems. This trend will be enabled by adaptive sensor networks that allow intelligent feedback to inform rapid analyses and decision-making.
Countries and companies that invest in cyber and related physical infrastructure will be positioned to lead by exploiting the resulting increased flow of information. The underlying expansion in computing and sensing capabilities will, in turn, enhance the importance of semiconductors beyond today’s computing and information technology sectors.
Advanced manufacturing processes will likely be more energy and resource efficient in the future, as companies strive to integrate sustainable manufacturing techniques into their business practices to reduce costs, to decrease supply-chain risks, and to enhance product appeal to some customers.
From a technological standpoint, advances in materials and systems design will likely accelerate and transform manufactured products. For example, large global vi investments in grapheme and carbon nanotubes for nanoscale applications have the potential to fundamentally change electronics and renewable-energy applications.
Further, self-assembly-based fabrication processes and biologically inspired designs will be integrated into the manufacturing process as technologies advance and cost-effective implementations are realized.
Establishing an advanced manufacturing sector will continue to be a priority for many countries, with progress depending importantly on trends in the private sector, such as the size and growth of the market.
In 20 years, many of the early trends and techniques that begin to emerge at 10 years are expected to be more fully adopted, with advanced manufacturing pushed toward new frontiers. Manufacturing innovations will have displaced many of today’s traditional manufacturing processes, replacing labor-intensive manufacturing processes with automated processes that rely on sensors, robots, and condition-based systems to reduce the need for human interventions, while providing data and information for process oversight and improvement.
Advanced manufacturing will increasingly rely on new processes that enable flexibility, such as biologically inspired nanoscale-fabrication processes and faster additive manufacturing techniques capable of assembling products by area or by volume rather than by layering materials as is done today.
Over the next 20 years, manufacturers will also increasingly use advanced and custom-designed materials, developed using improved computational methods and accelerated experimental techniques. As computational capabilities increase, materials designs, processing, and product engineering will become more efficient, reducing the time from product concept to production In 20 years, synthetic biology could change the manufacturing of biological products. Coupled with advances in genomics, proteomics, systems biology, and genetic engineering, synthetic biology will offer a toolbox of standardized genetic parts that can be used in the design and production of a new system. The catalyst to new products will be increased understanding of cellular functions and disease models.

The report does not have specific policy-oriented recommendations. However, chapter 4 looks at the enabling factors need for success, including the policies of many nations to promote advanced manufacturing. As they point out in their conclusions:

Establishing an advanced manufacturing sector will continue to be a priority for many countries, with progress depending importantly on market factors. Companies will locate in countries that have large and growing markets. Country-specific policies that spur advanced manufacturing will set the stage for manufacturing sectors to emerge in both developed and developing countries.

So, bottom line: manufacturing will still matter, but it will be very different from what we think of today as “manufacturing”.

Losing a key intangible: trust

This morning, the New York Times printed an unusual op-ed. In the piece entitled “Why I Am Leaving Goldman Sachs,” Greg Smith, the now former head of Goldman’s United States equity derivatives business in Europe, the Middle East and Africa, made a very public break with the company. Smith, who is based in London, blasted the company for losing touch with its original culture:

To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.
It might sound surprising to a skeptical public, but culture was always a vital part of Goldman Sachs’s success. It revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients. The culture was the secret sauce that made this place great and allowed us to earn our clients’ trust for 143 years. It wasn’t just about making money; this alone will not sustain a firm for so long. It had something to do with pride and belief in the organization. I am sad to say that I look around today and see virtually no trace of the culture that made me love working for this firm for many years. I no longer have the pride, or the belief.

That issue of trust is at the heart of the adviser-client relationship. Finance today is a complex and not-well-understood activity. Thus the two key intangible assets are the adviser’s skill and knowledge and the trust that the adviser is watching out for the client’s interest. As the New York Times noted:

Mr. Smith is saying publicly what others whisper privately, which is why his cri de coeur may be so provocative. Even on Wall Street — where making money is good, and making more money is better — a few shibboleths still command respect, including the one that the customer should come first, or at least second, not dead last. Since the financial crisis, in fact, nearly all the big banks have claimed to be client-centric as they seek to rebuild public trust.

But Smith states that basis for this trust is gone:

It makes me ill how callously people talk about ripping their clients off. Over the last 12 months I have seen five different managing directors refer to their own clients as “muppets,” sometimes over internal e-mail. Even after the S.E.C., Fabulous Fab, Abacus, God’s work, Carl Levin, Vampire Squids? No humility? I mean, come on. Integrity? It is eroding. I don’t know of any illegal behavior, but will people push the envelope and pitch lucrative and complicated products to clients even if they are not the simplest investments or the ones most directly aligned with the client’s goals? Absolutely. Every day, in fact.
. . .
These days, the most common question I get from junior analysts about derivatives is, “How much money did we make off the client?” It bothers me every time I hear it, because it is a clear reflection of what they are observing from their leaders about the way they should behave. Now project 10 years into the future: You don’t have to be a rocket scientist to figure out that the junior analyst sitting quietly in the corner of the room hearing about “muppets,” “ripping eyeballs out” and “getting paid” doesn’t exactly turn into a model citizen.

Whether Smith’s denouncement makes any difference remains to be seen. Coming from an insider, it may shake up “The Street.” On the other hand, the larger culture in the industry is that “Greed is Good” so his statements may be shrugged off as just the way the game is played. Two outcomes to watch, however: 1) Will this reinforces the calls for outside regulation and restraint? 2) Is Goldman’s reputation damaged enough to cause serious economic pain as clients take their business elsewhere? Goldman may have lost an intangible assets in the form of the public perception of trustworthiness. But the real test will be how clients react. The intangible of trust is not something you necessarily control — it is part of the customer relationship. In the final analysis only the client’s reactions can destroy that trust asset. So watch how Goldman’s clients react – and what price the company pays as a result.

Why intangibles trade can't overcome the goods deficit

As regular readers of the blog know, every month I publish a look at the U.S. trade in intangibles (defined as royalties/fees and business services). And every month I include charts (such as the one below) that show the stark contrast of our trade deficits in goods with our trade surplus in intangibles. I include this chart to show that the answer to the trade deficit lies in coping with the goods deficit – not in hoping intangibles will save us.
To better illustrate that point, my friend Charles McMillion over at MBG Information Services has construction the chart below that shows how much the intangible surplus offsets the goods deficit. In 1991, the intangibles offset about half of the goods deficit. Even in the Great Recession when the good deficit declined, intangibles offset only about about 20% of the goods deficit. The size of the offset has generally moved in the wrong direction.
The problem is not because the intangibles surplus hasn’t grow — it has. But the goods deficit has exploded. As I have argued before, the real power of intangibles in international trade is not confined to the pure trade in intangibles. The power is in the value of the intangibles embedded in the goods. Exporting a high value added good that incorporates a strong design element, for example, is better than exporting that design element alone.
In order to compete more effectively, both domestically and abroad, we need to better utilize the intangibles assets resident in American companies. Thus, we need to both expand intangibles trade and revitalize our manufacturing trade by, among other things, infusing our goods with higher levels of knowledge and other intangibles.
Annual - intangibles v goods 2011 Jan revision.gif

Manufacturing Innovation Institutes – think boldly

Last week, President Obama announced the first steps toward creating a National Network for Manufacturing Innovation with a pilot institute funded jointly by the Defense, Energy, Commerce and NSF. The new pilot institute will established on through a competitive process to demonstrate the feasibility of the new network. According to the budget submission from earlier this year, the National Network for Manufacturing Innovation envisions a set of up to 15 institutions funded at up to $1 billion.
I believe this new networks offers an opportunity to move manufacturing into the knowledge era. The Administration’s announcement was couched in terms of new technologies, such as lightweight materials, additive manufacturing and smart manufacturing using “big data.” As important as these are, I would suggest that the program can go well beyond technology. For example, one of the Institutes could be devoted to the embedding of design thinking in the product development and production process — similar to the work done at the Stanford d-school. Another could focus on the fusion of manufacturing and services from both an operational and a business strategy point of view.
The nature of production has changed and our manufacturing policy should as well. The game is no longer “manufacturing” in old sense of the word, but “production” in the broadest sense. And all forms of production are becoming more knowledge intensive. The National Network for Manufacturing Innovation can be a great step forward in fostering a knowledge-intensive U.S. production base. But only by embracing the larger economic shift and thinking boldly about what it means to produce things in America.

January trade in intangibles – and 2011 revisions

To counter this morning’s good news on February employment comes bad news from the BEA about January’s trade deficit. The trade deficit continued to grow, increasing by $2.2 billion to $52.6 billion in January. Exports were up by $2.6 billion but imports increased by $4.7 billion. Much of the deterioration was due this time to a rising deficit in petroleum goods. The increased in the deficit in non-petroleum goods was only $123 million. On top of the bad January news, the deficit for December was revised upward to from $48.8 billion to $50.4 billion. The January deficit was much higher than the $48.4 billion forecast by economists surveyed by the DowJones Newswire.
In mixed news, our trade surplus in intangibles continued to grow in January, if ever so slightly with an increase of $68 million to $13.726 billion. As was the case in December, the overall increase was due to a growth in the balance of trade in royalties — where exports (incoming payments) grew faster than imports (outgoing payments). The surplus in business services decreased slightly as imports grew faster than exports. This is third straight month that surplus in business services declined.
On a positive note, following December’s trend, our deficit in Advanced Technology Products dropped by roughly $1.2 billion in January. As was the case in December, much of the improvement was due to a drop in information and communications technology imports — more than offsetting a decline in the trade surplus in aerospace. The last monthly surplus in Advanced Technology Products was in June 2002 and the last sustained series of monthly surpluses were in the first half of 2001.
The January data also included the annual revisions for 2011, mostly in the second half of the year. The new data shows lower royalty payments received (exports) and payout (imports) and for private services exports and imports. For royalty payments, the revisions generally balance out. But, in the case of private services imports, the revised data is significantly lower. As a result, the trade surplus in private services is revised upward by $1.5 billion and the overall intangibles trade surplus for 2011 revised upward by $1.6 billion.
Intangibles trade-Jan12.gif
Intangibles and goods-Jan12.gif
Business services-Jan12.gif
Oil good intangibles-Jan12.gif
Intangibles trade-2011 - Jan revision.gif
Annual - intangibles v goods 2011 Jan revision.gif

Note: we define trade in intangibles as the sum of “royalties and license fees” and “other private services”. The BEA/Census Bureau definitions of those categories are as follows:

Royalties and License Fees – Transactions with foreign residents involving intangible assets and proprietary rights, such as the use of patents, techniques, processes, formulas, designs, know-how, trademarks, copyrights, franchises, and manufacturing rights. The term “royalties” generally refers to payments for the utilization of copyrights or trademarks, and the term “license fees” generally refers to payments for the use of patents or industrial processes.

Other Private Services – Transactions with affiliated foreigners, for which no identification by type is available, and of transactions with unaffiliated foreigners. (The term “affiliated” refers to a direct investment relationship, which exists when a U.S. person has ownership or control, directly or indirectly, of 10 percent or more of a foreign business enterprise’s voting securities or the equivalent, or when a foreign person has a similar interest in a U.S. enterprise.) Transactions with unaffiliated foreigners consist of education services; financial services (includes commissions and other transactions fees associated with the purchase and sale of securities and noninterest income of banks, and excludes investment income); insurance services; telecommunications services (includes transmission services and value-added services); and business, professional, and technical services. Included in the last group are advertising services; computer and data processing services; database and other information services; research, development, and testing services; management, consulting, and public relations services; legal services; construction, engineering, architectural, and mining services; industrial engineering services; installation, maintenance, and repair of equipment; and other services, including medical services and film and tape rentals.

February employment

Mostly continued good news in this morning’s employment data from the BLS. Employment rose by 227,000 with jobs being created in professional and businesses services, health care and social assistance, leisure and hospitality, manufacturing, and mining. This was slightly better than the 213,000 forecast by the DowJones Newswire’s survey of economists. The unemployment rate remained at 8.3%
As Erza Klein in the Washington Post and Annie Lowrey in the New York Times have noted, a key indicator of the recovery is growth in the civilian labor force, which would indicated that people are looking for jobs. The civilian labor force increased in Feb.
One possible spot of concern is the slight increase in slack work (individuals working part time because of slack work or unfavorable business conditions). This may be a reflection of slowing demand. However, the number of workers who could only find part time work declined. Thus, the total number of involuntary underemployed declined very slightly. It is still nowhere near the levels of before the Great Recession.