Around the Corner

Did you see it coming? Some thought they did.

Switzerland is now the most competitive economy in the world. According to the World Economic Forum’s Global Competitiveness Report just released on September 8, 2009, the US is now the world’s second most competitive economy followed by Singapore. Sweden and Denmark complete the top five.

I could say there’s some consolation that we were edged out by only a tenth of a point, but the long predicted decrease in our nation’s competitiveness as reflected in its rank in the Global Competitiveness Index (CGI) should give us reason to take stock of both cause and effect. Have the predictions of the National Academies' Rising Above the Gathering Storm report finally come true? Does the Rand Foundation really wear rose colored glasses as reported by the Information Technology Innovation Technology Foundation? Or can we disregard these warnings and assume that when the global economic crisis subsides the US will once again be the most competitive economy in the world? How important is our competitive rank? Like an athlete, is competitive success about training harder, or as I do on my bike, is it about going back to basics?

The GCI is just one indicator, but the research is well done and a close look at its pillars reveals very useful information about current US competitiveness. The most striking changes are in Basic Requirements and Financial Markets. The US dropped six points in Basic Requirements to 28th out of 133 countries surveyed. Basic Requirements is a sub-index of the GCI associated with low-innovation, factor-driven economies. Its four pillars are Institutions, Infrastructure, Macroeconomic Stability and Health and Primary Education. The global financial crisis resulted in a loss of a full 33 points in Macroeconomic Stability which brings the US down to 93/133. Can you imagine that puts us right between Gambia (92) and the Dominican Republic (94)?

Indicators within each pillar reveal more of the details. Strength of Auditing and Reporting Standards fell by 19, Efficacy of Corporate Boards by 8 and Protection of Shareholders Interests by 14. Troubling losses also occurred outside Basic Requirements. Soundness of Banks fell by 68 points. That puts us at 108/133, just behind Tanzania! Rounding out financial markets, Regulation of Securities and Exchanges fell by 27 points. Two other noticeable changes were a 15 point drop in Business Impact of Rules on Foreign Direct Investment and a 9 point drop in Foreign Direct Investment and Technology Transfer. Whether or not one agrees with these specific measures, it is clear that weak financial markets have taken a toll on U.S. competitiveness.

Despite these losses, the US retains its competitive advantage in the Innovation and Sophistication Factors sub-index. So we can coast, right? No, it’s actually in this pillar that we get our best indicators of how to assess US competitiveness against the National Academies and the ITIF predictions. Overall we lost some ground, but we did gain in one key indicator. We’re now fifth, up one since last year, in Availability of Scientists and Engineers. We lost the top rank to Switzerland in Quality of Scientific Research Institutions. We lost two places in Company Spending on R&D and we’re down one to third place in Utility Patents.

So did we see it coming? Well, we didn’t expect the financial crisis and that’s where the numbers seems to have affected our rank the most. On what we did see, the work of the National Academies and ITIF provide solid indicators of what may become long term trends if not properly addressed through science and technology policy. The good news is that’s already taking place. We haven’t lost much ground yet on these important indicators, but when it comes to competition losing ground is a serious issue. Whether riding my bike, or in national competitiveness there’s usually one safe bet: go back to basics.

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I just returned from visiting Microsoft’s TechFest, an annual event in which Microsoft’s research labs come together to present their most promising new research findings. Microsoft has a big research program—over 850 researchers on six campuses worldwide.

I was interested to observe the progress being made in how people interface with and use computers. There are many alternatives arising to the traditional keyboard/mouse model, including greatly improved speech recognition and speech-to-text capabilities. One demonstration focused on computers that can respond to spoken commands while you are driving, recognizing human language to perform tasks such as sending/receiving SMS text messages, playing songs, and placing phone calls. Check out this video of a virtual receptionist that can recognize spoken requests for help. Another demonstration used a web camera to recognize letters and gestures written in the air, and translate those to text or computer actions.

My main interest, however, was in data center and network technologies. The old data center model, with its rigid topology and high fixed costs for cooling, power and management overhead, is rapidly being replaced by the cloud. Cloud computing is everyone’s favorite new buzzword, but it is not just hype, it represents a very different business and technical shift that is radically reshaping our industry. A paper from the University of California at Berkeley explains the value of cloud computing this way:

Cloud Computing, the long-held dream of computing as a utility, has the potential to transform a large part of the IT industry, making software even more attractive as a service and shaping the way IT hardware is designed and purchased. Developers with innovative ideas for new Internet services no longer require the large capital outlays in hardware to deploy their service or the human expense to operate it. They need not be concerned about overprovisioning for a service whose popularity does not meet their predictions, thus wasting costly resources, or underprovisioning for one that becomes wildly popular, thus missing potential customers and revenue. Moreover, companies with large batch-oriented tasks can get results as quickly as their programs can scale, since using 1000 servers for one hour costs no more than using one server for 1000 hours. This elasticity of resources, without paying a premium for large scale, is unprecedented in the history of IT.

At TechFest, I saw many new developments that will help realize the promise of cloud computing: cheaper, low-powered processors, computers that require significantly less cooling, greatly simplified networks within the data center. Other vendors, such as Sun Microsystems, are producing blackbox data centers, which are sealed, self-contained data centers in shipping containers. These “data centers in a box,” can be assembled like Legos to create larger data centers as needed. The result of all these and other advances will be data centers that run at a fraction of today’s costs, scale and shrink capacity on demand, and are resilient in times of disaster or continuity of operations situations.

We will need all these innovations to stay in front of the growing demand for electrical power supply to the data center. Today’s largest data centers can only be built in select geographical locations, because they draw so much power they must be situated near a large power source such as a hydroelectric power plant. Longer-term, our innovative capabilities will certainly be tested to solve this strategic challenge, but from what I observed this week, there is much reason for optimism.

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Did you know that Ward Cunningham created the first wiki in 1995 ? Why is it that it took more than ten years before the wiki became recognized as an icon for all things 2.0? What makes a technology useful today, that went unrecognized yesterday ?

As I've considered these questions, I've come to recognize both near term drivers and long term patterns of innovation. Today, our values drive technology adoption. We value participation over exclusion. And the availability of technologies like the wiki make everyone's participation possible at a reduced coordination cost. We demand a little less from a wiki than a traditional business application, in terms of rich function and features, but we value more the collaboration and participation that a wiki can provide.

Clay Shirky, in Institutions v. Collaboration, contrasts the effect of these near term drivers on patterns of innovation both within and outside institutions. Shirky explains why we value participation and how it shapes technology adoption today.

Over the longer term, there are recognizable patterns of innovation across industries and markets. Clayton Christensen, the Robert and Jane Cizik Professor of Business Administration at the Harvard Business School, provides insights into these patterns. In the Innovator's Prescription: A Disruptive Solution to the Healthcare Crisis, Christensen observes two patterns. First, a sustaining innovation pattern occurs in the market place when a market leader engages in either incremental investment or breakthroughs. Christensen describes a second pattern which he calls disruptive innovation that occurs when a new entrant undercuts the market leaders at lower cost while satisfying their needs, but with typically lower performance.

Today, wikis and many other 2.0 technologies indicate patterns of disruptive innovation. In parts of the software community where wikis were first developed, simplicity and collaboration became more highly valued than formal planning. Over the past few years the venture capital community has invested heavily in 2.0 technologies. Where do you see these innovation patterns fitting into your Agency?

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