Lean by Design

I just came across an interesting business today that I thought was worth sharing. If you have followed this blog at all, you know that I am interested in the importance of technology and business innovation, as well as the changing sources of that innovation. This particular business caught my attention for three reasons.

1. First, the business leverages the increasingly popular concepts of social networking and crowd sourcing to drive product and business innovation
2. Secondly, the founder has done one of the best jobs I have seen of effectively harnessing these concepts, and
3. Thirdly, I was blown away by the degree of savvy sophistication demonstrated by the founder, considering his youth and limited experiences.

Take a look at the following video, where he explains the genesis of his business idea.

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This month the McKinsey Quarterly published a brief article on ‘The productivity imperative’, siting the need for significant productivity improvements in developed countries over the coming years in order to sustain wealth and standards of living. The authors did a commendable job pointing out some of the many challenges in achieving the necessary productivity improvements, but I do take exception with what I believe are some common mistakes made by writers when reporting on productivity concerns.

Firstly, the authors highlight ‘a growing skills mismatch’ – which anyone hiring talent will attest to – but they naively attribute this gap to the belief that we simply have too many people trained for factory work and not enough trained knowledge workers. This situation has not generally been the case for many years now. I have encountered numerous experienced knowledge workers (in technology) who have dropped out of the work force in frustration because they were not able to find jobs. This, at a time when technology positions were going unfilled. The problem is not that we have too many factory workers, and/or not enough knowledge workers, rather the issue is that rapidly shifting market needs and new productivity tools are demanding an ever changing, and greater skilled workforce – knowledge workers and factory workers alike. In fact the distinction between knowledge workers and factory workers, itself, is flawed. The New York Times reported this week that in the face of a return of factory jobs, employers are having trouble staffing those positions. This is due to the fact that they can’t find people;

who can operate sophisticated computerized machinery, follow complex blueprints and demonstrate higher math proficiency than was previously required of the typical assembly line worker

So factory workers need to think more and be higher skilled as well as so-called knowledge workers.

The article also supports the common wisdom that it is new IT tools that will have the most profound impact on productivity. Despite my tech background, I find myself strongly disagreeing with this proposition. No doubt new devices and software will be help support the changes that are required to improve productivity, but they are not the key enablers, and focusing on technology of this sort will just delay progress. The three areas that were identified as being most in need of productivity improvements were:

• Health care
• Government
• Education

In each of these cases it is changes in the model of how these services are delivered that will revolutionize productivity. The basic technology exists to provide dramatic changes today.

In the case of health care, the business of providing it has to move to more of a self serve model, that would make use of remote monitoring devices, automated diagnostic assistants, and cloud based patient record management systems. Greater use could then be made of self diagnosis, more empowered paramedics, off-shoring medical expertise etc. to drastically reduce health costs and improve the timeliness and resulting quality of health care.

Similarly the service model associated with Government could be altered to dramatically reduce costs. Regarding Education, tremendous momentum is building behind some innovative approaches to offering education and educational content that could revolutionize the industry and dramatically cut education costs. From a new YouTube service that aggregates education content, to the Khan Academy, an innovative service pioneered by a young entrepreneur, the future of education is being trail blazed with existing technology.

As these innovations prove; it is not so much break throughs in information technology that is required, but rather breakthroughs (and the will to carry through) in service delivery and/or business model innovation that is needed.

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When I was growing up in Ottawa, Canada, my parents and grandparents always reminded me that if I worked hard I could be any thing I wanted to be. It was a concept that I took for granted. I was blessed to have been born into a free and relatively prosperous society, and so within the limits of my own inherited capabilities, what my family was telling me was largely true. I was also raised with the Judeo-Christian belief that it is important to make the most of one’s gifts in life.

I view institution and national productivity in the same way. It is important that institutions make the most of the assets/resources that they have. Productivity improvement is then a measure of how well a nation – and its institutions – have done to improve economic performance with the assets it is blessed with, and to do so in a sustainable fashion. Economic improvement certainly isn’t the only consideration to improving one’s standard of living. In fact, it may not even be the most important. It is, however, easy to measure, and is critical to support most improvements in other areas of living standards.

Within this context, R&D simply represents the investment expended to improve future productivity in some way. Unlike most other expenditures we make as part of economic processes, it doesn’t yield certain, or immediate benefits. And for those of us who have spent much of our lives managing it, we know, it is hard to do effectively! It is, however, a necessary part of improving our economic condition in a sustainable fashion. It is possible to rely on ‘lady luck’ and the good fortune one inherited or may have borrowed, or even some other temporary advantage that was gained in the past, but sustainable productivity improvements and resulting economic well being demands investment in some form of R&D. And because effective R&D is complex, involves hard work and takes time, continual investment in R&D needs to be at the core of any health and sustainable economic policy – whether corporate, institutional, or on the national level.

The following chart illustrates the percentage of R&D spent against per capita income at the national level.

It is instructive to explore the differences between national economies of countries with high national per capita income and relatively low rates of R&D investment. Norway and Ireland are the obvious outliers, but Canada, HongKong and others may also be included in that category. Norway has for the last decade benefited enormously from wealth being generated by their offshore oil resources. These resources are in decline and it will be interesting to see if Norway becomes the ‘poor cousin’ to the other Scandinavian countries over the coming 10-20 years as their off-shore oil is depleted. Ireland benefited from a relatively brief period of enormous investment in the country as they attracted business with an unsustainable relative tax advantaged regime. The precariousness of their situation has been demonstrated over the past year, and now they are considered at significant risk of suffering a currency crisis that could gravely impact their economic well being.

Effective R&D is the work necessary to improve corporate and/or national productivity, and productivity improvements are key to sustainable economic well being. There are few corporate and/or national priorities that should be rated more highly.

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