Monday, February 6, 2012

Technology Changes Everything

In the not too distant past, though eons ago in the technology age, Big Yellow meant something, just like Big Blue still does. In its day, Kodak, a.k.a. Big Yellow, was one of the strongest and most profitable companies in the world. The company that George Eastman built by telling people that they needed to preserve those family memories on film used to be justifiably proud of the high dividend it returned to its shareholders year after year.


In the beginning of this month, Knowledge@Wharton detailed some of Kodak's many failings. In short, Kodak failed to commoditize their research or intellectual property and was unwilling to introduce new products that would cannibalize the high margins they were getting from film.


Today, search for Big Yellow on Google and you find listings for taxicabs, phonebooks and songs by Joni Mitchell. The digital age deleted Kodak from the S&P 500 as neatly as someone throwing out an old shoebox of photographs. Just as you can create a need from nothing, look at Starbucks's five dollar coffee drinks, tastes change. Companies that failed to adapt perish.


Dunkin' Donuts got rid of Fred the Baker when the company realized that it was in the coffee business and chose not to highlight its freshly baked doughnuts. The company shifted its doughnut making operation from baking all goods on premises to centralized baking.


Some who follow Kodak suggested that they should have shifted some of their R&D facilities to Silicon Valley. Kodak started in the Northeast, in Rochester with Xerox to be specific, and chose to keep its R&D close at hand, ignoring the obvious that while there are great colleges in the Northeast, most of the great companies are now out West.


In the shift to digital, Kodak fell into the trap of homeownership. Tied to mortgages, property owners tend to stay put even when all reason suggests they would find better prospects in a different location. If Kodak were going to compete in the digital world it would have been better for the company to relocate at least part of its brain trust to sunny California. Recent evidence suggests that proximity matters in research. The closer researchers are together geographically, the more likely they are to come up with good ideas. By not moving to California, Kodak missed an opportunity to collaborate with some of the new generation's greatest digital minds.


By the way, venture capitalists invest in companies that have great ideas. Facebook is headquartered on the West Coast and not in Boston because the company was unable to get venture funding here and had to look for it out West. Investors like to keep a close eye on their money.


But if you really want to follow the money and brain drain from the Eastern seaboard, don't stop in Silicon Valley. Keep going west until you reach China, the country that is set to become the world's largest economy. Not content with merely being a source for cheap labor and holders of American debt, China is poised to become an intellectual powerhouse. A scant few years ago none of the top 20 business schools was located on the Asian continent. Now the region has four of the best business schools in the world, and there is no reason to think that number will not continue to grow. As we've seen before, proximity and collaboration provide inspiration.


While we are justifiably proud of our colleges and universities, it may be time to rethink how we do higher education before we fall behind. Former Harvard president Lawrence H. Summers wrote a piece for the New York Times detailing six steps in how to improve higher education. I don't want to provide highlights for you because I think the piece is worth reading if you care about the future of America. Our current education system was built to handle the needs of the industrial age when most people didn't have high school diplomas let alone attend college.


As people moved from farms to factories, the educational system taught them to read and write so they could become productive members of society. Those blue-collar factory jobs have moved offshore and they're not coming back. The jobs that are here, and there are plenty of jobs for people in the IT industry, require education that simply is not being taught in this country. We can point a lot of fingers as to why that is, but I would argue that the biggest crisis in America is not the national debt, it's that we are no longer providing our children with the skills they need to survive.


It is interesting that while there is a political debate about how to bring down unemployment, very little has been said about how to train American youths for the job of tomorrow. If we as a country, don't tackle that problem, which is to say how to make technical literacy as important as Shakespeare, the US could become like Europe, a once great power forced to live in the shadows of others.

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