It is a harsh winter this year, one that presents us with opportunity unprecedented in recent memory.
In the agrarian age, harsh winters broke the ground and enabled farmers to shift crops, enrich the soil, and change the routine; it killed the mold and mosquitoes. Even today, winters are about reflection and rebalancing. The harsh winter of 2009 can be an opportunity for us to rebalance and realign ourselves and our priorities, to prepare ourselves to thrive in a world that has changed and will not be the same again.
The financial and credit crisis was inevitable. Its magnitude was not. I’m in the camp that believes a significant part of the problem was the confident over-reliance on a complex mathematical model and the consequent suspension of good business judgment. Senior Finance managers thought that they did not need to fully understand what was actually in their portfolios because they had a single magic number, the Value at Risk (VaR), which “measured” the overall risk to the bank and was supported by global regulators. The VaR measures the risk over short durations, assuming normal markets; 99% of the time it is a measure of the downside for the next 24 hours. Developed in the 1990s at J.P. Morgan, the VaR quickly became the industry standard metric for risk. The history is well described in the Sunday New York Times of January 4, 2009) But as Taleb writes in The Black Swan, the greatest risks are never the ones you can measure, they are the ones outside the range of normal probability. It is worth noting that in December 2007, the executives at Goldman noticed that for 10 days in a row, their mortgage business lost more money than the VaR would have suggested; management judgment took over and they reduced their exposure. And as we know, many other institutions missed the warnings.
This is just one example of how we had gradually been lured—with affluence, with technology—into a world where insight and judgment seem to have evaporated; we got smarter and smarter about less and less. As home-owners we did not know to whom we were paying our mortgages (most of us still don’t). And the financial institutions betting on us did not know who was at the other end of their bet. As executives, we were paid and incented to focus on the current quarter, almost to the exclusion of the ongoing business and market environment. The 2009 strategy for a company in South Carolina, which was presented to their board, did not even mention competition or long-term positioning. The excuse – “The board is primarily interested in quarterly results.”
When such crises occur, leaders are jolted out of complacency, and societies are willing to try new things. New opportunity arises, and societies can take radical turns, for better or worse. Peter Drucker maintained, for example, that it was the Great Depression and the resulting economic dislocation that facilitated Hitler’s rise to power. Naomi Klein writes about this phenomenon globally in her book The Shock Doctrine. She argues that taking advantage of those moments of crisis and shock in countries and communities was at the heart of Milton Friedman’s philosophy. For example, after Katrina and the flooding in New Orleans, Friedman began writing about the need to throw out, not fix, the public school system. His prescription of vouchers was followed. Friedman believed that without the shock, vouchers never would have happened in New Orleans.
Despite the tremendous dislocations it has caused, the current crisis came at the right moment.. The basic model for economic entities—from sovereign governments to private enterprises, and everything in between—is changing. So much has changed in the past two decades, and we need this winter of discontent to reflect, to set our priorities straight and move forward through what will understandably be a challenging year.
What Is Different: Our Interconnectedness And Access
On Sunday evening in Rio de Janeiro, it is the middle of the night in Johannesburg, and, in both places, people are sitting on their computers trading stocks on diamonds, discussing the U.S. automotive crisis, and moving equity; these actions will affect financial markets tomorrow morning in London, Shanghai, and New York. The global flow of information, money, and ideas has made national and cultural boundaries so permeable as to threaten their very existence at every level:
Enterprise. More than simply communication, instant information has made possible a Lego world in which entities (businesses, not-for-profits, government, and academia) can join together to apply their different strengths to a business opportunity or social objective and decouple when it’s time to move on. So, manufacturers enter logistical partnerships with retailers, competitors team up to build a powerhouse approach to a single account, and Pro Mujer (a Latin American microfinance operation) works with Microsoft to provide PC training to its borrowers.
Commerce. Perhaps no business has changed as radically as retail. With my Google phone, I scan the UPC code of a camera I am looking at in Best Buy. In 20 seconds my phone identifies a store about 3 miles away where I can buy the same camera for $40 less and a website that offers it for $47 less.
In all of our daily lives. Electronic payment modes now enable us to breeze past a tollbooth and to pay for almost anything with a quick swipe of a card. The results of this electronic streamlining are not necessarily to our liking. In Chicago, video cams mounted in key intersections record every car that runs a red light and electronically generate and mail citations; last year hundreds of thousands of unsuspecting motorists received $100 tickets in the mail!
New impacts of our increased interconnectedness crop up every day, some of them surprising in nature. For example, truthfulness and integrity are increasingly seen as essential not for reasons of rectitude but because in this era of instant information, duplicity is difficult to conceal, and covering up a lie is so much work that, as McKinsey’s Marvin Bower used to say, telling the truth is the easy thing as well as the right thing to do. Trust is equivalent to time in the new world.
We have access to and can learn from the best solutions found anyplace in the world. We have broken generational poverty for millions of people around the world, with micro loans in Bangladesh, expanding businesses in India, a charter school in Harlem, and so on. We also have a new leader in the U.S. who seems not only open-minded but anxious to change the way we work. It is a great moment in our history.
How This Affects Our Lives: Motivating And Enabling A New Modes Of Collaboration
As we face the current economic crisis, we have unprecedented access to knowledge and information of every possible variety, and an increasing worldwide awareness of the global nature of our society, problems, and resources. We are part of a bigger globe and can collectively do something about it.
From the Lego world to the science lab to the telecommuting knowledge worker, our global interconnectedness enables unprecedented collaboration—e.g., healthcare, energy and resource management. New forms of collaboration are fundamentally changing scientific and medical research, which has long been not only solitary but highly competitive, with findings closely guarded to protect the discovery credit. Increasingly, however, research is moving beyond this competitive mindset into new realms of collaboration, with powerful results. For example, in 2003 the Allen Institute for Brain Science began to map an atlas of gene expressions in the mouse brain, which it completed in just 3 years and posted on the internet, making the atlas available to anybody for free. It took a while for people to trust the information, but it is now being used to research Alzheimer’s disease, bipolar disorders, Down syndrome, and Parkinson’s disease, among others. The institute’s efforts to post brain and spinal cord atlases have democratized the scientific landscape; more people are entering the conversations, and the result is a massive saving in research time. New incentive models are being tested. Open collaboration and data-sharing will speed up the process of understanding many of the diseases being investigated and devising treatments. And the Allen Institute is not an isolated instance. The power of collaboration is nothing short of mind-boggling.
T.J. Rodgers, CEO of Cypress Semiconductor Corp., recently unveiled Envirosystems, a smart thermostat application, and commented, “We need 10,000 other ideas like this to collaboratively solve the energy crisis,” adding that semiconductor technologies are now, more than ever, enabling new power-wise products, portable medical devices, battery-management devices for electric cars, solar panels, etc.
Our Opportunity And Challenge: Fostering collaboration worldwide and contributing to it
We have the access and interconnectedness required, but we still need to learn to be collaborative– not only to reap the best of collective thought and action but to be the most economically efficient in a financially-constrained world. It is a mindset, not a philosophy. For example, at P&G they assume that every problem has been solved already and seek to find who has solved it rather than try to solve it themselves.
At this point, many of us are independent members of collaborative teams trapped inside corporations still very focused on getting a bigger piece of the pie than anyone else, or inside departments vying for a larger slice of the corporate budget. Competition is a healthy social force and an intrinsic human instinct, but we can’t afford to let it eclipse collaboration. We need to change our mindset and rebalance our incentives so that collaboration can happen at every level—individuals, businesses and not-for-profits, and whole nations and cultures. We need to tap everyone’s ability—to focus on results with a broader view of what we are trying to accomplish and an honest appraisal of the ongoing impacts of our actions. Where to start?
For the individual: To step up to the challenge of collaboration, think of yourself as your own enterprise. Understand your strengths. Invest in yourself. Elevate your expectations of yourself and help others do the same. Find something you care about and then find out where and how you can join a collaboration of like-minded people. Do not hold back, thinking you need to come to the table knowing all the answers. Do not be afraid of being creative, of experimenting. One of my favorite role models in this regard is Sue Lehmann, who is passionate about educating all youth. She is collaborating with many like-minded institutions—New Visions, TeachforAmerica, YouthNoise, Harlem Children’s Zone. She continually brings in other collaborators, elevates the thinking, and contributes in a thousand ways. Or, as Malcom Gladwell might say, she is a maven, a connector, and a salesman for something she is passionate about.
For the enterprise: The challenge is to build a for-profit or a not-for-profit enterprise that works, to be a force for innovation, satisfaction, and progress. Shift your mindset and identity from being a product and/or service provider to serving as a marketplace that attracts ideas and people to create a mass that matters. Rebalance your mission to emphasize the non-financial, to refocus your people on what they’re accomplishing rather than what they’re getting. Be more open to new ideas, new resources, and new ways than you’ve ever been. Old habits are being repudiated, and it’s a great time to push new ideas. The Grameen Bank’s work with Groupe Danone is a great example of collaboration. As Frank Riboud, Chairman and CEO of Groupe Danone, explained to Muhammad Yunus, “We don’t want to sell our products only to the well-off people in developing countries. We would like to find ways to help feed the poor.” They are now collaborating on a journey toward that goal. In the new world we inhabit, the most open enterprises will be the most attractive and the most fun. We’ve all had our hats handed to us this past year, and leaders need to figure out ways for everybody to win.
For governments: Collaboration happens within your communities as well as globally. For example, the Yeong Deung-po ward was given a creativity award in Korea for developing a solution that enabled the community to manage construction sites collaboratively after a department store collapsed. The government had a history of being lackadaisical on public construction with tight budgets. The solution relied on remote cameras, rotating 360 degrees, to survey every construction site, with graphs and quality management to follow progress. Experts and the public have access to the cameras, and many third parties add useful comments. The community is able to watch the construction and feel certain that quality and safety standards are being met. Construction is faster, with higher standards and zero tolerance for faults. Delegations are coming over from Japan, Sweden, and Australia to benchmark the solution.
Despite decades of calls for greater international cooperation, we have barely tapped into the potential for collaboration among countries As Peter Drucker said to me in 2005, the biggest challenge for the United States in the years to come will be learning to be a player of influence, not the big gorilla. One highly productive way for us to do so is to be the force that brings the world together to address the challenges we face as a species and a planet. The world is open to dream, to embrace challenge. We will create our future collaboratively.
P.S. My New Year’s Resolution: Post at least one blog a month. Collaboration will continue to be the focus of my blog in 2009 – next month I hope to bring you some concrete examples at the individual, enterprise, and government levels that marry collaboration and economic efficiency.
Notes from January’s Blog
Some of the feedback and examples of 21st century collaboration, I have learned about are included in the following:
Neocollect — Contributed by John SallayDescription:
- A new website for collectors of fine and decorative arts, antiques, and other high-value collectibles.
- The password-controlled gate was just pulled down, so the public can now view collections.
- Lets collectors display their items – it is almost like contributing to a museum.
- Creates a community of collectors and facilitates shared collections and expertise.
- Easy to use.
First International Robiotics Corporation — Contributed by Stephen N. Oesterle, M.D., SVP , Medtronic
- Established to inspire kids to learn robotics, engineering, CAD, and business.
- Envisioned by NASA, MIT, and inventor Dean Kamen (inventor of the Segway, among other things).
- A great example of public/private collaboration.
3 years ago there were 2 teams, and this year over 1,400 high schools from around the world participated.
Medtronic and Boston Scientific co-sponsor events.
Negotiating the Tokyo Round of Multinational Trade Negotiations — Contributed by Al McDonald, Chairman & CEO Avenir
- Was quite a contrast with regular non-collaborative negotiations.
- In 1978, the trade negotiations were quite a contrast with historic negotiations. The economy was stressed and, rather than protect interests, countries collaborated for the whole. It was a remarkable meeting and resulting collaboration. Some sense of what went on at that meeting is reflected on the Japanese website.