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A rhyming Hebrew cliché says, mi shematzbia — mashpia. Roughly translated: Those who cast — last.  
On Tuesday, as Israel endures its ritual held every two years since 1996 — national elections — a large minority of Israelis, perhaps as much as one-third, will choose not to vote at all. And if the weather forecast is accurate, predicting heavy rain, the turnout may be even lower. It may be as low as 63%, or lower, which is the percent of eligible voters who voted in America’s November 2008 Presidential election. The difference is, 63% will be close to the lowest turnout in Israel’s history, while 63% ranked as the highest American turnout since 1960 (when Kennedy was elected).

Many of those choosing not to vote will be younger voters, who see no difference between the leading parties and candidates and no real discussion of issues. I can’t blame them.

What can be done? I cannot transform Barak, Livni and Bibi into Obama. But perhaps I can make a modest suggestion for an innovation.

Two years ago we brought TIM managers on a benchmarking visit to Estonia, the tiny Baltic country a short ferry-ride southeast of Finland. There, Prime Minister Andrus Ansip himself told us that Estonia had held the world’s first comprehensive on-line ballot. Estonians voted from home, via computer; 3.5% voted online, on February 2007. It was the second time they did; the system was tried in municipal elections in 2005.

There are two major advantages. First, nations that aspire to be technology leaders, like Israel, should walk their talk. Second, on rainy days, like Tuesday, those who might be reluctant to go out in the rain, or who need to travel distances to vote (because they’ve changed their residence and did not update their voting information) will vote in two minutes from their armchairs. And young people, especially, are more likely to vote if they can do so while surfing the Net. 

Here is what WIRED magazine wrote about the Estonian innovation:

“The system, first tested in local elections in 2005, requires the use of a national ID card held by about 1 million of the country’s 1.3 million residents, which includes an electronic chip identifying its owner. Card readers were available from retailers before the elections for about $8, or are given away free by banks for use with e-banking applications. Election officials don’t know exactly how many people have the readers, but the number has grown sharply in recent months as prices have fallen, Koitmäe said.

And by the way — Estonia leads the world in on-line banking. Few Estonians actually visit their branch. Ansip holds cabinet meetings with absent ministers joining by Web, wherever they are in the world.  

There are technological and security problems to overcome. But, says Tarvi Martens, the person who built the Estonian system, “You trust your money with the internet, and you won’t trust your vote? I don’t think so.” 

Surely a nation as advanced as Israel in Information Technology can surmount them. Let’s bring the mechanism of casting a ballot into the 20th century (not to mention the 21st). Why is the ballot the last place that technology has yet to visit?

Turn threats into opportunities? Or, in Spanish, amenaza, no, opportunidad, si!

Here is a rather extreme example.  

Mexico suffers from widespread drug-related violence. Thousands of people have been killed. While El Paso, Texas, is one of America’s most peaceful cities, in Ciudad Juarez, Mexico, just across the Rio Grande, people are shot and killed daily.

Pretty threatening?

A boutique in Mexico City thinks its an opportunity. It sells only bulletproof clothing, including shirts and jackets.  True, their stuff is a bit pricey — say, up to $7,000. But hey, it’s a matter of life and death, literally. Apparently, their clothing is bought by Venezuelan President Hugo Chavez (just because he’s paranoid doesn’t mean they aren’t trying to get him), royalty and movie stars. 

How does the boutique know they are not selling to bad guys?

They run checks, using American databases. And they have little tracers in the clothing. If the clothes are used to commit a crime, the buyer can be traced. 

The boutique demands that its employees take bullets while wearing the clothing to prove it works. This brings new meaning to the “take a bullet for the team” phrase.  

“It feels like a punch,” some employees report. Those who live to comment, at least. Those who don’t? Well, nothing’s perfect. Employees reportedly love learning the high school physics equation: momentum equals mass times velocity, on their chests. Bullets have a lot of velocity: some travel 1,000 ft. a second, or 12 miles a minute.  

The boutique is especially hard to rob. If  robbers threaten employees with loaded pistols, the robbers are perplexed. The employees just say, hey thanks!  

Mexico allegedly spends $18 b. annually on private security. Can we hope for a bulletproof fashion show, in Tijuana, with the world’s top supermodel Gisele Bundchen (who made $35 m. last year) walking down the runway while taking  0.45 caliber bullets in the chest from fashion writers seated alongside?   

Beretta anyone?

How can you tell a good idea from a bad one? 

The way innovators answer this question is crucial. I caution my students and managers that  Type I errors (or “false positive”), or implementing a bad idea on the theory it is a good one, are far far worse than Type II errors, or rejecting a good idea on the theory it is bad.

Why? Because you can waste years of your life on a bad idea, a cost far worse and far dearer than wasting money.   And if you reject a good idea, well, there are thousands more like it.  So, invest considerable time and effort in checking out ideas; avoid Type I at all cost.

So, how can you tell a good idea from a bad one?  

A blog in Business Week’s “Innovation Engine” department (Jan. 27) by Michael Maddock and Raphael Viton, recommends — fun and laughter. Maddock and Viton run Maddock Douglas, a company that invents, brands and markets products for innovative firms.

For years I have told students — if your friends laugh at your idea, know that you are on the right track. Now Business Week’s experts validate that notion. 

People who work for Maddock Douglas meet daily at 9 a.m. for 9 minutes. They call it the ‘daily huddle’. The agenda: Share news. Maddock and Viton try to make the meetings fun. 

“There is a lot of silliness”, Maddock writes,” and a lot of laughter. Much of it has led to jokes, observations and comments that have in turn led to ideas that have directly impacted our clients and company.” The daily huddle, they relate, was invented by Verne Harnish, CEO of Gazelles, an “outsourced corporate university for midsize firms”,  based on his study of John D. Rockefeller.

The authors write:

Fun is the antidote to fear. If you are an innovation leader in a company that has become fearful, your people are on the road to failure unless you can change your culture. Cue the music,  it’s time to infuse some fun into the workplace.

In today’s global crisis, fear prevails in many organizations. Fear of job loss. Fear of error. Fear of mistakes. Fear of bankruptcy. 

Fear kills hope. Worse, fear kills ideas. 

Take the “F” in fear. Save the “F”. Strip the ‘ear’. Use the ear to listen. Do you hear fear? If so — add a “U” and an “N”.  Create fun.  

When was the last time your organization had a collective belly laugh?

It is high time for some innovative thinking about how countries deal with their financial collapse and collapsing banks.

Here is a number that should cause some lost sleep. Capital losses in the United States so far totaled, according to NYU Professor Nuriel Roubini, $3.6 trillion (one fourth of America’s GDP). Of that, $1.8 trillion occurred in the banking and financial services sector. Since the total capital (net worth) of the banking sector was $1.2 trillion, this means that the entire sector is insolvent, with negative net worth or capital. (See Table below).

Under former Treasury Secretary Hank Paulsen, America has put hundreds of billions of dollars into the crumbling banks — so far, without effect. The banks aren’t lending the money, as hoped, because they need the money itself far more than they need to lend it, because their assets continue to shrink, their liabilities remain large, and hence their capital shrinks daily. Bailout money is pouring into a black bank hole.

Can history help us? No. We have never had a crisis of this nature. Even the 1930’s was different (though equally serious). Then, people pulled their money out of the banks and the banks went bankrupt; all the deposits were lost. We are not there — yet.

Let us “think different”, as Apple says. Bolivia and Poland (and Israel, in 1984) had hyperinflation — uncontrolled inflation. How can hyperinflation be stopped? We know today, because we have experience and history. It can only be stopped by ‘shock therapy’ — radical drastic measures that balance budgets, raise interest rates, inflict pain — and begin building for the future.

Today we have hyperDEFLATION. This is a new concept. We have not experienced it before, even in 1929 (then, it took about 16 months for U.S. stocks to lose proportionally what has been lost in equities in the past 12 months.) In the global economy, everything is accelerated). Hyperdeflation is a rapid collapse in asset prices, accompanied by rising unemployment, falling prices, GDP decline and shrinking trade.

How does one cure hyperDEFLATION? Same way we cure hyperinflation: Shock Therapy. Here is one version of such shock therapy. Writing in the New York Times, columnist Thomas Friedman writes an imaginary speech by newly-elected President Obama:

“Ladies and gentlemen, this crisis started with you, the bankers, engaging in reckless practices, and it will only end when we clean up your mess and start afresh. The banking system is the heart of our economy. It pumps blood to our industrial muscles, and right now it’s not pumping. We all know that in the past six months you’ve gone from one extreme to another. You’ve gone from lending money to anyone who could fog up a knife to now treating all potential borrowers, no matter how healthy, as bankrupt until proven innocent. And, therefore, you’re either not lending to them or lending under such onerous terms that the economy can’t get any liftoff. No amount of stimulus will work without a healthy banking system. So here’s what we’re going to do: We’re going to unclog the arteries. My banking experts have analyzed each of your balance sheets. You will tell us if we’re right. Those of you who are insolvent, we will nationalize and shut down. We will auction off your viable assets and will hold the toxic ones in a government reconstruction fund and sell them later when the market rebounds. Those of you who are weak will be merged. And those of you who are strong will receive added capital for your balance sheets, after you write down all your remaining toxic waste. I am not going to continue rewarding the losers and dimwits amongst you with handouts.”

This is shock therapy for hyperdeflation. It is the only bailout plan that has a chance of working. It HAS been done before. Sweden did it during their banking crisis in the 1990’s. It is what America itself did during the S&L (Savings & Loan) crisis of the 1980’s.

But will it happen? Only when political leaders understand what has to be done, and when their advisors tell them what has to be done. Shock therapy.

I think the chances this will happen in the near term are about 10%. Things will get much much worse before the real illness is diagnosed and the real cure administered.

Market Value of Leading Global Banks, Q2 2007 vs. Oct. 20 2008

Innovation occurs not only in products and services, but in theories. And right now, today, this minute, what the world needs is a brand-new economic theory about recessions, their causes and cures. Because the old theory is utterly useless.

I have come to realize that what is happening now in the global crisis is not another business cycle, downturn or recession, but a global paradigm shift. And at its heart is the issue of trust. Trust is the currency, the fabric, the DNA of global markets. Trust keeps people’s money in the bank, and keeps supply and demand of financial assets in balance. Trust is vital and crucial, yet usually ignored, taken for granted like the love of a spouse or a monthly paycheck — until it disappears or is removed. Ordinary people, managers, leaders, poor and rich, have lost trust in the system. The damage caused by scoundrels like Madoff, who stole and destroyed $50 b., is incalculable. Trust me, he said. We did. And look what happened.

Until public trust is restored, the crisis will go on, and will get worse.

Here is how brilliant New York Times columnist David Brooks describes it, in his column today:

“…an economy is a society of trust and faith. A recession is a mental event and every recession has its own unique spirit. ….You can run up gigantic deficits, hire road builders and reduce the unemployment rate…but insecure people will still not spend and invest.”

So — what is the key question? It is not, how can we pump money into the system, or create demand, or get the banks to lend? 

The question is — how can we restore public trust in a system that betrayed them, lied to them and in some cases ruined their lives and took away their homes?  

No existing economic theory has the answer.  

In the 1930’s, John Maynard Keynes built a new theory to respond to the Great Depression. He was a bit late. His book was published in 1936. It came too late to influence policy.

I expect we will see new economic theories emerge. But they will appear in time to respond to the next global crisis, not to this one.    

________________________________________

Outgoing U.S. Treasury Secretary Hank Paulsen’s TARP (“Troubled Asset Relief Program”) is a failure, perhaps even a disaster. It has streamed hundreds of billions of dollars into failed financial institutions. And still, they sink. The latest is Bank of America and Citigroup, in America, and Barclay’s in Britain.  

Why did TARP fail?

It failed to address the issue of trust.  

Banks continue to stall for time, hoping that global capital markets will recover and improve their asset position.  They delay reporting write-offs and huge losses. When people discover those impending losses, they lose credibility and trust in the banks, and dump their stock. All three banks mentioned above protest loudly that they are sound, that there is no reason for people to dump their stock. They don’t get it. It’s not about numbers. It is about trust. We just don’t trust the bankers.

What TARP should have done is split the failed banks into two pieces: “Toxic” (which is what the “T” in TARP really stands for, not troubled), or worthless, and “Non-toxic”. Keep the non-toxic. Sell off the toxic. Relaunch the bank, with only healthy assets.

This is what the Japanese should have done after their property bubble burst in 1990. They did not do it. The result: a 15-year recession. The world cannot afford a 15-year recession in America. Japan’s economy is a third the size of America’s. 

By following this approach, there is at least a chance that public trust in banks and in the financial system will be partially restored.

Without it, the crisis will be long deep and dark.

Wikinomics: How Mass Collaboration Changes Everything, by Don Tapscott and Anthony D. Williams, December 2006. This book explores how some companies in the early 21st century have used mass collaboration (also called peer production) and open-source technology such as wikis to be successful.

Strategy guru Gary Hamel constantly warns us that it is not competitors’ product or service innovations that can ruin our businesses, but rather business model innovations. A new business model can quickly make our entire business irrelevant.

In a previous blog, I wrote about the ‘wiki society.’ (From Wacky to Wiki – Jan. 4).  The wiki society apparently has come to business. In this fascinating book, Tapscott and Williams show how companies expand the borders of their business to include their clients and customers, as active and creative members of their innovation system. 

Wikinomics includes some really insightful economics. They site Coase’s Law:

A firm will tend to expand until the cost of organizing an extra transaction within the firm become equal to the costs of carrying out the same transaction on the open market.

In the wiki society, the Law is inverted, the authors believe:

A firm will tend to expand until the cost of carrying out an extra transaction on the open market become equal to the costs of organizing the same transaction within the firm.

What they mean is that with the cost of communication and networking dropping rapidly, what was done outside the firm can now be done more cheaply by the wiki principle: organizing communities of users and clients, and expanding the borders of the firm. Recall Gary Hamel’s 4-box theory of strategy, which included “configuration,” or what the company does internally and what it does externally, linking its core strategy with its strategic resources.   Suddenly, with the wiki (user community), the borders of the firm expand dramatically. And the core strategy must change equally dramatically.

Has your business created a wiki? If not, can you? How? What will its goals be?  

If you have not begun to grapple with these questions, it is already very late.

Innovation is not just about services, products and processes. Ultimately, it is about how we organize our society. The collapse of global capital markets in 2007-8 has generated a need to rethink and innovate our economic and social organization. But how? 

The form of “capitalism” embraced by the world in the past two decades spun out of control. One reason is that it was controlled by a tiny handful of greedy individuals who acquired billions in wealth and who invested our money recklessly, without our knowledge.  

That system has crashed and burned. Good riddance. The system, both in Israel and abroad, was not truly capitalist.  Capitalism in its purest form is about creating value for others, not about grasping short-term high-risk profits for ourselves.

I recently took part in a panel on the global crisis. Next to me sat Florence Devouard, a founding member of the Wiki foundation, which runs and funds Wikipedia.  

As panel participants dripped gloom, and offered analyses of problems but no solutions, I turned to Florence and asked:  

Can we rebuild the system as a wiki? 

Yes, of course! she responded.

A wiki society is one based on the following principles. Individuals commit themselves to helping daily friends, neighbors and strangers who have less than them. We accept personal responsibility for each other’s wellbeing and do not expect government to help much. We do this especially in our neighborhoods, to rebuild our sense of community. We each volunteer daily non-random acts of kindness. We receive as well as give. We do this with minimal organization and zero bureaucracy, using Internet technology for communication and coordination.  Indeed, as NGO’s (nongovernmental organizations) blossom daily, a kind of wiki society is being born as we speak. 

In the panel, Giora Yaron, a brilliant and successful entrepreneur, responded to my wiki society idea by calling me “my friend from HaShomer HaTzair” (a left-wing youth group). He meant that the wiki society idea was hopelessly idealistic and utterly socialist.

I laughed and remembered that in the American presidential campaign, when candidate Barack Obama suggested slashing taxes on the middle class, Republican John McCain called him a ‘socialist.’   

What a huge misunderstanding! Socialism means relying on the government for everything. In the wiki society, we rely only on each other, and on innate human goodness, energy, generosity and initiative. 

We now understand world  markets were whacky. It is time we turned ‘whacky’ into ‘wiki.’

In 1972 psychiatrist Irving Janis published a fine book, titled Victims of Groupthink (Boston. Houghton Mifflin Company). Janis used ‘groupthink’ to describe the dynamic that afflicted the Kennedy administration when the president and a close-knit band of advisers authorized the ill-fated Bay of Pigs invasion in Cuba in 1961. The president’s view was that the Cuban people would greet the American-backed invaders as liberators who would replace Castro’s dictatorship with democracy. His advisors ‘heard’ only reports that confirmed this view. The result was a disastrous wrong decision to invade Cuba.

Formally, “groupthink”  is defined as a type of thought exhibited by group members who try to minimize conflict and reach consensus without critically testing, analyzing, and evaluating ideas. Individual creativity, uniqueness, and independent thinking are lost in the pursuit of group cohesiveness, as are the advantages of reasonable balance in choice and thought that might normally be obtained by making decisions as a group. During groupthink, members of the group avoid promoting viewpoints outside the comfort zone of consensus thinking. Groupthink may cause groups to make hasty, irrational decisions, where individual doubts are set aside, for fear of upsetting the group’s balance.

Avoiding groupthink is absolutely crucial when teams engage in innovation. There exists a difficult inherent paradox. Teams strive for intense smooth collaborative interaction. Often, friction, disagreement and contentiousness are frowned upon. Yet, when consensus is sought too quickly and too single-mindedly, the creative juices arising from fierce debate and conflict evaporate. 

Ask yourself: In your teams, and in your organization, is there a strong groupthink mindset? What are the inherent dangers? Has groupthink led to bad decisions in the past? 

How can you dispel groupthink by encouraging dissent, without ruining teamwork and cohesion?

In this, as in other areas of innovation and creativity, there are no pat answers. Each manager must find his or her own solution.

One approach used successfully at TIM is scenario planning. By encouraging team members to develop alternate, different scenarios,  the groupthink tendency to zero in on a single forecast can be avoided.

Some of you may be considering preparing a list of New Year’s resolutions.

Here is a suggestion. Rather than do a conventional list, most of which we fail to implement, why not do the following:

Ask yourself: What is the one thing in my life, as I currently live it, that I can take away (remove, do away with, eliminate), that will make a substantial, significant improvement in the quality of my life? What one thing will make me happier, if I can dump it?

Here are a few suggestions.

Access: Some years ago, I lost my cell phone (it was actually stolen by some painters, when we repainted our house). I found that not having a cell phone was a ‘subtraction’ that vastly improved my life, because suddenly I was transformed from being a ‘public good’ accessible to all, at all times, to a ‘private good’ able to better control access to my time and attention. I never replaced it. 

Smoking: nothing can improve your life and health more than quitting, if you smoke. There are many aids that can help. At the least, cut your cigarette consumption in half. Life is so wonderful, why shorten it by actions that you yourself control? 

Stuff: Do we really become happier by acquiring growing amounts of stuff, bought in forlorn visits to crowded shopping centers populated by equally forlorn people seeking happiness futilely by buying more and more unnecessary stuff?   

GDP: Our son, a ‘green advocate involved with plans for building ecologically-sustainable houses,  insists on buying and using used articles (when available) rather than buying new things and using up scarce resources. Of course, in doing this, he is reducing the Gross Domestic Product. Will, one day, the world shift to a vision and goal of ‘less GDP’ rather than the constant drive to grow GDP,  so that we can sustain our existence on this planet?

Time: Apart from our relationships with friends and family, time is our most valuable asset. And we squander it as if it had no value. I have stopped attending meetings, wherever possible, finding them frustrating and unproductive. The saving is twofold: Valuable time, and valuable mental energy saved from dissipation in endless, futile meetings that go nowhere and achieve nothing.   

So, as you make your New Year’s Resolutions, try this new approach.

Ask, what one thing can I remove from my life, that will greatly improve it?

And, why not do this now?

Picasso

In John Maeda’s book, the first of his 10 “Simplicity” laws is “Reduction.” Israel-based SIT Systematic Inventive Thinking teaches that ‘subtraction’ (removing features from products) can be a powerful tool for innovation, when most of us try to practice ‘addition’ (adding new features on). 

Here is an interesting example, found in a bank not generally noted for innovation.

Israel’s Bank Leumi will open an exhibition this very evening titled “Secret Art.” The 250 works of art are all unsigned. They carry price tags of  NIS 2,000, NIS 4,000, NIS 6,000 and NIS 8,000. The money from each work that is purchased goes to the artist. 

Generally, we assume that the name of the artist is an inseparable part of the work of art itself. Obviously we need to know who the artist is. And generally, the name, as a brand, strongly affects the market price. 

But why? Why not remove the name, and let people judge based on the work itself? Why not subtract something assumed to be highly essential – and see what happens? 

If you live in Tel Aviv, you can view the exhibition until Jan. 2 at the Leumi Mani building, on 34 Yehuda HaLevi St.