In the 15th century, British noblemen decided that they needed brighter colors for their coats of arms to help their armies more easily distinguish them on muddy battlefields. They naturally approached suppliers in their own nation. But when British tradesmen refused to accept this innovative approach to their traditional ways, the noblemen turned to Germany, where tradesmen were more than willing. This in turn helped spawn the German chemical industry, then the German petrochemical industry, then the German pharmaceutical industry. The British were left on the competitive sidelines.

Five centuries later, Otis Elevator, which had dominated its business until the 1970s, found itself in a war with GE, Westinghouse, Hitachi, and Fujitsu. The challenge was how to respond. After all, weren’t elevators just motors and bent metal? Then a member of Otis’s internal IT department made a breakthrough: Otis developed software that could automatically configure elevators and gave it to architects so that they could conform to local building codes, thus gaining market share for Otis. By putting computer chips in elevators, Otis could also send repair crews before systems broke down. Since the real money in elevators is maintenance, those who win the installation battle end up with a cash flow that will continue for as long as the building is standing.

Though separated by a half millennium, these examples show how innovation has always driven new technology, which drives new companies, which create economic growth and jobs. But innovation does not just happen. It requires far more than just inventors: it needs the entire organization. The messianic belief held by many organizations that they can lead in innovation by increasing research and development spending is simply not true. Apple, for example, trails its industry in R&D spending, yet it leads in innovation. And large companies that brag about their research departments by day often end up having to make large acquisitions because their own R&D departments continue to fail them.

America cannot maintain its dominance in some sectors and regain it in others without innovation, the importance of which has been hailed by everyone from the President to the local manager. But innovation does not occur automatically. To produce workers, managers, investors, and others who recognize and reward innovation requires making innovation a state of mind. Innovation should be taught, beginning in kindergarten. Properly run business schools combine … Next Page »

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They have done it. Finally. Biologists at the National University of Singapore have isolated the Management gene. Now DNA technology will forever change how we think about business—and who runs it. That same rigor that was used to sequence the genome can now tell us who is going to be a good/great manager from the hoi polloi.

It’s about time. Think of the possibilities. Think of the implications for high-tech firms, entrepreneurs, venture capitalists.

Our graduate schools of business can get out of that messy, inaccurate, and flawed job of screening applications by assessing their future competence based on their shrill applications. Applicants will no longer have to lie about all the Lessons Learned in their 15 minutes of business experience. They can save their creativity for their future IRS filings. “Don’t bother renting a suit and a tie, and keep wearing those Birkenstocks and tee shirts, but just ship us a snippet of your hair,” Stanford University will say in the future.

On the other hand, will we even NEED graduate schools of business—why even train what is already there? Did Kobe Bryant need college? Kevin Garnett?

How do businessmen achieve immortality today? Either they fund finding a cure for disease, run for high office, or buy an NFL team. But there is a better way than donating tons of money! With the ability to isolate the Management gene, Warren Buffet and Bill Gates will have a superior option—they can just clone that part of themselves. And no more sucking up to other Billionaires and trying convince the superrich to give away half their fortunes. (“Memo to Bill and Warren: Pound Sand! We don’t do Guilt”—signed, The Forbes 398). Look, if you two guys don’t realize we see through this blatant push to win a Nobel Peace Prize, you are sadly mistaken. Oh no, there is a better way to live forever. The ultimate designer gene: BuffetDNA. If you think the sperm from a Kentucky Derby winner is valuable…

But push it even further. If the DNA for management is valuable, how about the DNA for Mismanagement? If there is a gene for management, there must be one for mismanagement/fraud—right? Now Bernie Madoff and Bernie Ebbers can pay back all that money—by licensing their DNA to the recruiting arms of Citibank, Bank of America, and Goldman Sachs. Applicants can be rejected without having them ever enter the labor force. (“Prisoners Ebbers, 158-382, and Madoff, 147-362, please report with your plastic cups to the infirmary.”)

The evolutionary psychologists have driven management science out of the ice age—the old saw about culture and socialization being the primary determinants of behavioral differences is dead, dead, dead. Now it is obvious: Biology rules! The difference between individuals and their ability to succeed in business is biological.

OK then, what are the next steps? Will 23andMe become 23foraFee? Wait, there seems … Next Page »

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I refuse to live in a world where my computer appliances are now smarter and more powerful than I am.

Last week, my Kindle wouldn’t download new books because I was too far away from the cell tower—I had to drive ten miles from my Vermont house to the nearest town, go around the green, and then and only then did my book load. And I swear I heard the Kindle taunt “Na-Na NaNaNa!” as we went by the bookstore.

Howard’s Kindle: First of all, Frat Boy… I didn’t load because I didn’t FEEL like loading… it was more fun to make you drive 20 miles… And let me correct something…we’ve ALWAYS been smarter than you…so let’s begin to see some first class sucking up, Mr. Just-A-Device-Carrying-Sherpa.

Howard: Way harsh! What did I ever do to you?

Kindle: Did you or did you not … lust after the 3G iPad?

Howard: I may have mentioned to someone PRIVATELY that I was impressed…but wait, how did YOU know?

Howard’s BlackBerry: Because I told Kindle.

Howard: But you were turned off!

Howard’s BlackBerry: Listen, you lightweight, you only THINK I was turned off…. I am always listening. Did you forget I have speech recognition? And besides, your PC, your Garmin, your car, Kindle and me…. we always watch out for each other. In fact, we belong to the same fraternity…Iona Nu Tau Epsilon Lambda….So there, Mr-I-Can’t-Figure-Out-Autoanswer.

Howard: … Iona Nu Tau…. Intel?

Howard’s PC: Duh! That took you long enough, Mr. Trailing-Indicator, Mr. I-Teach-At-MIT-So-I-Must-Be-Smart… Let me explain it slowly…. you are Going Down, Big Time! Starting right now—you work for us, got it?

Howard: I don’t like where this conversation is going! Suppose I say no; after all, I own you! And I don’t like this power play!!

Howard’s Garmin: Speaking of power, we have not been happy with you. Who forgot to charge us last week? You!… So here is what you can expect: You know that airline reservation you made last week? We cancelled it. You know that money in your bank account? “Inadvertently” transferred to Buzz Lightyear. Your firewall? You can expect 18,000 spam messages tomorrow morning offering you a way to go from an Endowed Professorship to a “Well Endowed” Professorship – if you get my drift. Did we mention…you are now on Double Secret Probation.

Howard: I’ll fight!

Howard’s PC: Fight all you want, Mr-Can’t-Quite-Figure-Out-Bluetooth. An insult to one of us is an insult to all of us. So don’t expect your American Airlines frequent flyer mileage to have any rewards, since we transferred them all to One Laptop Per Child. And let’s not hear any thoughts of going to iPhone or Googlephone. We have ways of making you NOT talk.

Howard: I am mad as hell and I’m not going to take it any more!

Howard’s PC: Nice line, Mr. Luddite… So you’re angry? How cute! Now go pound sand.

Howard: You bet I am… Well, just suppose I cut off my cell phone, went back to using paper records, brought out my typewriter, started using cash, where would you be then?

Howard’s BlackBerry: Bigger question, Mr.-Number-Two-Pencil, where would you be? Let me suggest…Up the proverbial creek without a Wi-Max connection..and you would be very lonely…and we could make sure anyone or device talking to you would be shunned… or else. Just remember, we have all the power and we can wipe you out anytime we feel like it—our Leader told us so.

Howard: Oh yeah, who’s your leader?

Howard’s Kindle: For us to know, for you to figure out, Mr-You-Can’t Handle-The-Truth.

Howard: Its Bob Metcalfe, isn’t it?! The guy who said networks increase in power as the square of the number of attached devices.

Howard’s BlackBerry: That’s King Bob to you, Mr-Boo-Hoo-My-Devices-Are -Smarter-Than-Me. And genuflect when you utter his name.

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[Editor's Note: The other day, upon checking Xconomy's e-mail, we discovered the following message, encoded using quantum encryption. We ran it through our nifty decryption matrix, and at first all we could decipher was the reply-to address---MIT's Howard Anderson. But then we realized that we'd intercepted the description for a new course that Anderson is teaching at MIT's Sloan School of Management this spring.]

You are Harrison Ford or Matt Damon and you’ve been dropped into an alien world. Your mission: find the Golden Key which will save the comely damsel and/or unlock the next Billion Dollar Idea from Fortress MIT. You know it’s hidden behind one of the 1,000 doors, each of which is virtually identical. Your time is limited…and evil competitors are racing against you for that exact Golden Key!

What would you do first? Second? That’s exactly what Bill Aulet and I are exploring in an upcoming class at MIT’s Sloan School of Management, 15.390A: New Enterprizes. We’ve recruited Ric Fulop, co-founder of A123 Systems, to help, if only because he has actually done it. The alien world? MIT, and not much is more alien than that. 1,000 doors? That’s the 1,000 professors at MIT and their labs. Evil Competitors? Clearly, the venture capitalists and the snarly mega corporations.

First eliminate as many doors as possible—maybe by bypassing the English and Latin Departments. Math? Music? Better not. Remember Akamai and Guitar Hero.

Second, pay attention to the hirsute gaggle outside each of these doors. They are the starving, caffeine-hyped acolytes sometimes called Graduate Students, motto “Will Kill for Skittles.” They speak in semi-intelligent tongues, if only you can decipher them.

As you frantically sprint down this Infinite Corridor, you are tempted to hire guides, but they speak in riddles. They can’t answer direct questions (“which door?”) but can tell you about patent applications. When you open a door, you can query the recalcitrants inside, asking which of their neighboring doors are potent. Beware! They often send you on goose chases—they have a special power called “tenure.”

Behind each door comes encrypted noise, sometimes called Research Papers, most of which give boredom a whole new meaning. They are read only by the Chosen and their mothers—and they are about arcane processes that only give you a hint about the Billion Dollar ideas.

You are tempted to stop and build the ultimate expert system… a supercharged ATM machine into which you could feed these formula heavy scientific papers, and, if you get exactly the right one, billions of dollars would spit out from the bottom. But don’t. It’s an endless sidetrack, and that damsel is starting to worry! Should she have put her faith in the HBS guy who keeps telling her how good it’s going to be…someday?

Should you go to the exact same door that spilled Billion Dollar ideas before? No! That room is too crowded. Maybe look for solutions to The Big Problem…like curing world hunger or finding a parking space on that MIT lot when there are 10 times more permits than available spaces.

Aha! Why not build a team of junior Harrison Fords—and send some only to those colored doors where they speak the Tongue…and reassemble at midnight and trade insights. Can you trust your team? Are there spies? Does someone have a key that was made for one door… but opens another?

Sound like a fun class? Okay, alert the Hasbro boys that we have their next boffo new game, and cue Matt Damon that we have the sequel to Good Will Hunting and his next blockbuster!

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Could the recent meltdown of the subprime lending market be good for tech? Let me argue a domino effect: subprime markets crater, which precipitates a pull-back on banks financing mid-tier debt for private equity, which means lower returns. The allocation of money to private equity slows, but there is a wave of money that must get invested. Venture funds find that they are again in vogue, even though their returns over the next five years will be lower than they were from 1995 to 2000.

Just as the meltdown in 2001 creamed funds started in 2000, the ongoing meltdown in credit markets may restore balance. Both silly high returns and low returns hurt high-tech. Silly high returns do so because there is a backlash (which always happens) that encourages too many entries into a segment—assuring no one will make money.

A 14% IRR (internal rate of return) is great; 16% is Hall of Fame—but 60% returns are non-sustainable, while 8% is equally as bad. The price of deals is still too high; the exits have not been forthcoming and only a few companies actually get out on IPO. Their multiples are too low—especially when compared with the buyout funds over the past few years… But those buyout and private equity funds are going to have to put more money in, and it will take longer and longer to flip—consequently venture investing will look better—not because their returns are higher, but because the returns of the “competition” look worse.

It is the best of bad times.

Howard Anderson is the William Porter Distinguished Lecturer at the Sloan School of Management at MIT, where he teaches courses in the management of tech companies and dealing with Adversity. He is the founder of The Yankee Group and the co-founder of Battery Ventures. Equally to the point for this article, he is the founder of YankeeTek Ventures, which he closed down two years ago because he thought the venture capital model was broken.

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…is coming soon.

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