Max Marmer

From Eventbrite:

We’re delighted to launch our first 2009 Supernova Mixer event at Wharton Ι SF Campus on Tuesday, August 11, 5:30pm – 7:30pm. Please join us for a lively conversation with Deloitte’s John Hagel and John Seely Brown (Center for the Edge) on The Shift Index — a major new effort to track the real impacts of what we call the Network Age.

In their initial report, they address why most companies fail to harness the “Real Time Web”  and connected knowledge flows for competitive advantage ∙ Return on Assets of US firms is falling even as productivity increases, the gap between winners and losers in business keeps growing ∙ and, big companies are losing their leadership positions faster than ever.

Here is my blow by blow with occasional commentary in italics and insights that resonated with me in bold.

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We’ve become completely fixated on short term measures of our economy.

What are the indexes that business leaders and policy makers look to?

All of the major indexes are short term focused, like unemployment.

We are in the middle of a long term economic shift, there aren’t many indexes to measure how are we doing on the long term shift.

Everyone said this is an interesting project but you’re crazy to take it on.

The Big shift  just looks at the US economy — We look over decades not just quarter to quarter –

What are the dimensions of the big shift? They have 25 indexes. Impact index is the bottom line. I like that — impact is the entrepreneur’s drug of choice.

Corporate performance is measured primarily by return on assets. We wanted a measure that went beyond income statements. We didn’t want to go to return on equity because you can play games on the capital structure to fudge those numbers.

Return on assets has gone down dramatically over the last 40 years.

Labor productivity has increased at a significant and sustained rate. Why aren’t companies able to capture the value of increased labor productivity?

But this is an average and there are big winners and big losers in an average.

So let’s look at how the top quartile has done and how the lower quartile as done.

The “winners” have just struggled to stay the same.

The bottom quartile has gone down a lot.

The topple rate (number of companies in the top quartile who have fallen into lower performance) has increased.

People are so focused on the short term that they’ve never bothered to look at this over the long time. And the conclusion is that business is broken. Public companies in the US are doing worse and worse over time.

If you can make it into the S&P 500 now you can expect to stay 15 years. 1938 you could expect to stay for 75 years. That’s a big change. Isn’t one answer that it’s just time compression? The pace of change, i.e. everything, has increased therefore everything is on a compressed time scale?

Cause: Emergence and proliferation of digital infrastructure.

Barriers to entry are systematically coming down. Competitive intensity increases.

Market is becoming more efficient.

Companies may not be benefitting but customers are benefitting.

Creative Talent: Richard Florida — or knowledge workers — their cash compensation as gone up greatly over the last few years. Anyone who isn’t in that group their return has been going down significantly.

Customers are pulling margins out of business and creative talents are squeezing more capital out and companies are caught in the middle and losing profits.

Knowledge spreads really rapidly. Anything innovative you do inside company walls flows out pretty quickly. The same knowledge flows provide all of us the ability to learn and improve faster.

Public companies haven’t figure out how to take advantage of these knowledge flows to improve at more acceptable levels.

Right now the story is largely bad news for companies and good news for customers. Basically Corporate America is dying and in is ashes startups in bunches will rise, who with 10 people can do what 500 people did before and do it faster and in leaner, more innovative ways.

This is the tip of the iceberg on the kind of analysis that can be done with the work they started with the Big Shift Index.

Shift index is going to be an annual event so they can keep score and see if things change.

They want to start to do comparisons between industries and internationally across countries.

20th century companies became preoccupied with stocks. The shift to the 21st century is away from the notion of the firm that preserves and protects assets and scalable efficiency, and towards scalable learning and participation in knowledge flows.

Very little of the architecture of our firms are structured right.

Q: Could part of this downward trend be because the definition of assets have changed over time

A: Things have pretty much balanced right –

Q: Could you say this is the end of Branding or the end of American Manufacturing?

A: All the elements you have talked about are elements — manufacturing is being sent overseas and branding have less premium than ever before. Companies are investing more and more in branding and their performance is getting worse

Toyota is obsessed with continual learning. There is no reason we couldn’t take Toyota’s strengths for utilizing knowledge flows in manufacturing and apply it to every other dying industry and reinvigorate it. There’s no reason we couldn’t reinvent manufacturing if everyone did that.

How do you move from knowledge creation to knowledge flow? With knowledge creation going faster and faster that increases the rate of tacit knowledge creation. We don’t know much about how tacit knowledge flows, we only know how explicit knowledge flows.

There’s a human element here. One of the indexes is worker passion, not worker satisfaction. A number of the metrics were original survey work.

They wanted to define a logic structure for the big shift: what are the enablers, amplifiers, barriers etc.

They found passion is a really important factor for how we participate in knowledge flows.

People who are passionate are much more active in knowledge flows.

A key in making this big shift is that we have to make our passions our professions. If we don’t we are going to get more and more stressed. If we are passionate it’s only going to get better.

An interesting twist: People who are passionate are not the employees who are the most satisfied. They are the ones who leave.

By far the self-employed are the most passionate about their work. Passionate people are leaving corporations.

The big wild card in all of this is the public policy shift towards economic liberalization. We could go into a period of increasing protectionism. These trends are at least dampened or reversed overall if that happens.

In 20th century the big advances were in communication and transportation. Scalable manufacturing and marketing was for the first time possible. It led to a different set of institutions that captured the economic value of that century.

Similarly, due to digital infrastructure we’re going to see a new set of institutions capture today’s economic value.

As the world gets flatter and flatter in terms of connectivity. Talent density in cities is increasing. Why is business travel actually increasing?

A lot of it has to do with enhancing face to face interaction because that how tacit knowledge flows.

The world can both get flatter and spikier. How do you find the spikes and connect them? That’s what startups try to do?

Hypothesis: So basically we need more passionate young people working on startups that are tacking big problems?

We are basically going to see big companies decrease in effectiveness and startups increase in effectiveness and that trend will only continue with the flow of passionate people into the startup world. So we should encourage this trend by having more startup companies?

What kind of public policies are necessary to facilitate more creative talents?

In any high growth economic situation you’re going to see a lot of inequality. But it’s fluid in equality because the growth is happening as a result of disruption.

Toyota has taken raw assembly line manufacturing job and made it incredibly creative. Anybody can be a creative worker given the right rules and management settings.

Technology has focused more on automation and standardization and scalable efficiency and not on creating scalable peer learning environments were creativity can be harnessed.

We are not going to go completely towards a free agent nation. Because institutions have the potential to dramatically increasing learning and effectiveness. People are fleeing because these institutions aren’t efficient. But you’re going to start to see a trend back towards institutions once these institutions begin to master new dynamics of knowledge flows.

The big shift index doesn’t measure knowledge flow directly it looks for proxies that get a sense of whether knowledge is flowing or not. are people moving, are people connecting with each other?

They want to take this index down to an individual level so that a company can address how they are doing in the 21st century and where their gaps are?

What does it mean to build a talent driven firm? That may be the purpose of the future of our institutions. That’s an approach that may turn out to be more relevant for institutions in the 21st century. (And everyone is a talent).

Great — that’s what F3′s goal is: talent capitalization – more on that in upcoming post.

Leverage in the U.S. is about financial leverage — we all know what that produced in the U.S.

But corporate leverage was different in China. Companies focus on capability leverage — they say is there anybody out there that has assets that are complementary to ours — they did this because they didn’t have a solid financial sector.

Because china didn’t have any IP protection, they had a different mindset about innovation, where what ever they had today they had to get to the next stage because they weren’t safe. While we certainly don’t support abolishing intellectual property laws, we believe this is a more productive mindset for innovation in today’s world.

Q: What advice to you have Obama

Every public policy question should be reframed as a talent development question. Once you do that things start to fall in place.

If corporations suck at talent development how is the university doing? Are they doing a good job of talent capitalization and if they do try to adapt modern methodology  for utilizing knowledge flows are they going to be able to do that faster than new kinds of institutions with less historical baggage?

(Obviously that’s a leading question)

Talent development is performance improvement over time. US companies have recently been increasing performance by squeezing and not developing talent and that’s not sustainable.

There is exponential learning in World of Warcraft.

Talent isn’t something you can do in a quarter.

When John Hagel talks to talks to executives about talent development they ask what training program should they use? They worry if they train them that they will leave.

But if you are training people faster than anybody else why would they ever leave?`