Cities can grow exponentially for very long, so what can organizations learn from it?

Recently, I saw this old but great TED talk by Geoffrey West on the mathematical nature of growth of cities and I can't resist sharing it.  

 

The main insight we can get here is that in living beings and companies, growth is a sub-linear phenomenon and hence it plateaus with increase in size of multi-cellular organisms, animals and companies. This is because their growth is determined by the economies of scale. 

Cities, on the other hand have shown to have super-linear growth patterns because they grow through innovation and wealth creation. The speaker says that the constraints faced by cities are Malthusian because managing the needs of such large populations with limited resources is a big problem. But cities are still able to grow because they are able to innovate their way out again and again from this problem of limited resources. We can assume (at least I assuming) that cities do so by getting either more efficient (cheaper) access to far-away resources or increasing the efficiency of resource utilization. This kind of implies that smart cities is the natural evolutionary outcome for all mega cities that survive.

As we are talking about cities, another study worth noting here is mentioned in the following article:
http://www.citylab.com/housing/2016/06/the-price-of-happiness-in-cities/487823/

It suggests that people living in suburban or rural areas tend to be a bit more happy, probably because of the self-selection effect i.e. non-urban areas tend to attract people who are generally happy with their lives and more agreeable. Maybe they have more aspects in their lives for balancing (e.g. family, preference for leisure, etc) than fast paced young professionals flocking to the cities for greater opportunities. 

The article says it's basically a matter of choice, "At the end the day, the positive characteristics of cities—their fast-paced life, diversity, greater opportunities, and heightened exchange of skills and knowledge—come at a price. It’s up to individuals to decide which ones are worth the price of happiness."

On the whole, my personal take-away beyond these new insights mentioned above is more like an idea for further research or some new hypotheses to test with data. 

To set the background for the research questions I will be proposing later: my assumption is that the sub-linear growth is a result of the extra control required by biological beings and companies for their survival, or thermodynamically speaking, they prefer low entropy/disorder, which means more effort is required to keep the order. This need for extra control over everything increases the costs of coordination to maintain this order/control (or low entropy) - entropy is supposed to keep increasing in a closed system, but we could decrease entropy locally through external efforts (think of AC throwing out the heat from your room by using much more electrical energy to do that task). 

In case of companies, at a high level we will borrow the idea of transaction/coordination costs from the theory of firm by Ronald Coase who got the Nobel prize for his theory which also places limits on the growth or organizations based on the coordination costs. 

Cities on the other hand aren't (or can't be) controlled so tightly like internal body functions of an organism or internal transaction/co-ordinations within a firm. Therefore the costs of coordination are much less (because of higher and always increasing entropy cities enjoy) and hence we can observe the super-linear/exponential growth. Such growth is also a function of the network size (population) and thinking minds we have i.e. emergent combinatorial phenomenon of mixing of different ideas leading to innovation (and wealth creation). 

At the end it is about the evolution of a new type of organism (i.e. cities) which is not tightly controlled (like living beings or companies). Hence its evolution is limited not so much by the inertia (or pull) of the internal coordination costs (or costs of maintaining low-entropy) as much as by the Malthusian resource constraints. So cities keeps growing forward with the evolutionary force of new ideas (i.e. innovation) by pushing this constraints ceiling/limit further and further through efficiency gains in either resource utilization or access.

Firms everywhere also try to keep out-innovating their competition for the sake of survival. So what would happen if we come up with a new type of firm (or legal structure or business models)? Something that doesn't require running a tightly controlled ship or where the coordination costs are decreased significantly (through the use of technology). Could such firms outlive their peers in the market? If yes, then what should be such a structure/entity/model? Or what are the elements that make such enterprises and markets?

Researchers could work on determining whether sharing economy, platform models or on-demand service provider companies have grown fast mostly because of reduced coordination costs (through the use of technology). Or if there are any other type of innovations (except tech innovation) which would allow for the enterprises to grow exponentially in a sustainable manner. 

Also, is technology based reduction in coordination costs an advantage that is sustainable in the long term for a firm to keep out-surviving its competition? What kind of ownership structure should such firms have and how that ownership structure evolves? Would such firms requires different type of markets rules to exist? How to allow the increases in entropy for companies while improving (or at least without diluting) the customer experience of their offerings in the market? What does it mean in terms of the happiness of people who would be working in such organizations and markets i.e. is their a happiness trade-off like it has been observed in urban v/s suburban/rural living?

Another thing I feel is that while some of these questions could be tested on real firm data, probably for internet economy firms, but in most cases simulating such markets using agent based modeling could be more fruitful. Though in that case also I really have no idea right now on how to gather the data for starting set of assumptions or scenarios to be simulated. Hope this could lead to some real research project someday.

Update 8th Sep, 2016: Just now found another interesting (but longish) talk by Geoffrey West that could be interest for this topic.

Will write more about this talk when I get some time.

Politically incorrect speech without proper analysis/thought is the outcome of bad education

The recent incidence of internet trolls harassing the actress Anushka Sharma after Virat Kohli's great performance in the T20 World Cup cricket match against Australia has raised has raised some valid concerns on what is the appropriate way to behave online. The comments of trolls are absolutely condemnable and the way Virat responded later shaming the trolls is the right thing to do. While there is no shadow of doubt in this case regarding what is right and what's not, in some other situations things could be tricky because it is hard to separate the right from wrong. 

There is a critical trade-off between the imposition of political correctness in speech (e.g. how to refer women or other marginalised groups) and the biases that get unconsciously created and strengthened in the minds of people who speak or hear such loose-talk. We don’t want to put restrictions on people's right to free speech (e.g. the comedians, journalists and artists) but at the same time it is painful to see that dumb and trolling statements made by regular folks without fully understanding how that perpetuates the biases and hatreds could really hurt the ideals our societies claim to be striving for - especially when such statements are part of the environment that nurtures kids and youth.

While I have no clear idea of how this dilemma can be resolved through a set of codified rules (or law for that matter) but the experience tells us that the wise minds (ones with a mature mindset or thoughts) have a much better sense of judgment to navigate such situations. At the same time, it is easy for zealots to paint people trying to manage this trade-off better as hypocritical folks, because they don’t appear fully in favour of free speech they claim to revere. 

The mature minds that could exercise good judgment (and restraint on their own speech) in such complex situations are developed through education. Such an enlightening education happens through the life experiences. The problem is that each individuals experiences are different from others, so how can we be assured that the learnings (i.e. experiences) of all individuals would include or certainly lead to a minimal common set of values and beliefs.

I believe that we learn anything because we need to use that particular knowledge or skill to solve a problem that we want to solve, or achieve whatever objective we have set in our minds. So then a good education or society has to ensure that everyone has to tackle a somewhat similar set of situations to realize the value of things like diversity, how humans (or kids) learn and build their understanding of the world around them and how all these things fit into the big picture of sustainable progress of our species in the universe. 

Then we could have a hope that those who believe in such a future (and hence can sacrifice some of today's desires for it), would start sharing the similar set of values. Coming back to where we started from, this free-speech dilemma and many other similar dilemmas could only be solved through better education for everyone (see we are already sounding like the propagandists, or maybe it's just a war of different propagandas - ours v/s theirs or some others'). 

Anyway, for the action oriented folks the interesting question to ponder upon is: In terms of implementation, how the information revolution can offer help/hope for providing such an education to all?

Building innovation ecosystems - ideas for non financial support from the state

Continuing on the theme of ideas for stimulating development of innovation ecosystems, here I list a few ideas which require the support of non-financial nature – especially from the government side or from agencies that exist to support economic development in any region. In the interest of keeping it short, I have excluded a lot many important things than the ones included. I have just tried to give space to the ideas which usually don’t get enough focus.

1) Providing market linkage: Large enterprises could be incentivized to source from suppliers which do direct procurement from SMEs and start-ups at fair prices. Large enterprises can introduce new technologies and better and safer production practices through their influence as a large and stable buyer of the products of small enterprises. Incentives to large enterprises for providing such market linkage could be financial ones like investments, or reputational ones like recognition/ reward.

2)  Safety nets for talent: Human capital is one of the biggest issues faced by the small enterprises. With state supporting/promoting initiatives of this nature, getting both professionals and small enterprises on board would be relatively easy. It could include services like credential verification, joint medical insurance for all candidates hired through system, joint and portable pension accounts, skill trainings, etc. Increase in success rate for small enterprises through this would have positive spillovers in the form of creation of role-models for next generation of entrepreneurs and professionals.

3) Policy advocacy coalitions: There are many issues/problems in the social enterprise sector where solutions would require government partnership, support, interventions or new laws to be passed in state or national legislature. Often multilateral agencies or large non-profits are best positioned to build a coalition of various stakeholders which will deliberate on the entrepreneurs’ difficulties and then advocate for or put forth recommendations to the governments.

4)  IP4Dev: Many business families, SMEs (either formal or informal but reasonably big businesses too) show interest in adopting, investing in and building new businesses on new technologies/products imported from the technologically advanced Western countries. But they find it very difficult to find and acquire such intellectual property and the associated know-how. So creating a platform to facilitate the transfer technology rights and know-how could potentially provide a big boost to the SME development objective and increase the number of SMEs. Coupling such know-how with financing could be even more effective. Such an initiative could also have a big component of South-South cooperation, instead of being only a North-South initiative.

5) Small exits: Innovation ecosystems are well-knit communities (or networks) of all stakeholders. Often smart entrepreneurs, who failed to achieve their planned targets but have provided evidence of hard work, grit and quality ideas, get rewarded by becoming acqui-hires for the bigger firms in that market. They in-turn go ahead and become angel-investors in the start-ups of their promising employees, and so on. Similarly a lot of knowledge sharing occurs during the meet-ups and in cafes or co-located offices. A sense of community starts building up and members of the community are always welcoming and supporting of new-comers. This is a hard to measure phenomenon and there are no fixed steps to achieve this. Still governments should strive to help build such autonomous communities in every possible manner.

If you have read this much, then you must also have some ideas or feedback for me. Please do share your thoughts and I would be highly grateful to you for that.

Building innovation ecosystems - some investment based ideas for governments

Few years back, I was part of a group discussion inside New Delhi office of International Finance Corporation (IFC) about how social responsible enterprises can be supported to grow and become mainstream. I presented some ideas there for discussing. Those were either adopted and modified ideas, or in few cases my own ideas. All those ideas were modified/developed based on my understanding of the situation on the ground, which itself had its basis in my reading and experiences with small enterprises in India.

In this post (and the next), I have taken a few of those ideas and tried to briefly explain those in the context of building an innovation ecosystem for governments i.e. how governments (or their representative organizations) can positively intervene to build a strong innovation ecosystem.

We can usually divide these ideas into two categories (i) investment based ideas, and (ii) non-financial support ideas.

Investment Based Ideas

1. Domestic procurement: Often, strong and competitive teams with good ideas don’t find it extremely difficult to raise funds from angels/VCs. But after having built a product they find it very hard to sell it i.e. often finding the first big (paying) customer becomes the biggest obstacle in growing as a company. So if the governments really want to promote entrepreneurship and reduce reliance on foreign vendors, it has to start with building procurement programs that experiment with a lot of local vendors for pilot demonstrations. Based on the performance in the pilot projects, it can then award bigger deals to the competent local firms. This process would involve facilitating or providing purchase loans to service the orders (i.e. advances to the awardees for delivering) either directly or through banks. It should also include provision of advisory support to meet the quality standards that are expected by the government.

2. Exit facilitation: In this, the idea is to design a new investment instrument, which is like a commitment/guarantee of exit to other funds making investments in start-ups/SMEs if pre-decided milestones are reached and certain conditions are met. This instrument could be made available at the deal basis (or maybe at fund level) and made available to all VC and angel investors in the country or globally at a price. Assumption here is that these funds would follow best rated investment governance e.g. investment criteria, monitoring requirements, Technical Assistance  plan to make their investee companies become investment worthy for the government or its appointed entity (e.g. a sovereign wealth fund) over a period of 3-5 years. This means, the govt. will commit for investments/buy-outs in to specific SMEs/start-ups (i.e. giving exits to funds), if quality deal flow is ensured by the funds buying a right to join such a program.

The rest of these investment based ideas listed in this post are almost always discussed in the circle of individuals/organizations working on building innovation ecosystems talk about. I am still mentioning these because these can’t be ignored as they address genuine needs in the market.

3. Working capital finance: Almost always start-ups and SMEs find it really hard to raise working capital based on their cash flows alone (i.e. without collateral/security) or against the big purchase orders from their clients (becomes idea 1 above, if govt is the buyer). Addressing this gap through some special investment facility or by supporting some independent fund providing such short term loans could provide a great boost to the growth of start-ups and SME which need such debt.

4. Launching Sector/Industry specific financial products: Investments and/or insurance products for different sectors/industries could be designed and rolled out through investments in financial companies willing to provide such offerings. Understanding and managing risks through highly specific financial products is more feasible and sustainable than the generic approaches for all social enterprises e.g. financing scale-up of schools, maternity centers, providing working capital finance to livelihood collectives and insuring players of an industry again regulatory risks, weather, etc.

5. Mobilizing Large Scale Funds for Early Stage Financing: In order to have a steady deal flow of growth stage companies for the VC/PE investors, early stage investments need to happen in much larger numbers. Mobilizing large scale funds from sources which have the appetite to make risky investments (e.g. government, donors) in early stage social enterprises is very critical for building a strong ecosystem for such enterprises i.e creating the required momentum towards making this sector equally attractive as regular businesses for investments in the future. Investment size in such deals is expected to be in the range of $100,000 – 500,000.

In the next post, I will write the little bit I know about non-financial ideas.

Potential Activities for the university based innovation centers

 This post is a continuation of the last post only and lists other activities/programs which an innovation center within a university could take up. 

1. Innovative Communities: Such centers could try to promote building communities of students interested in innovations in different domains to become small think tanks at the campus and encourage informal peer-learning mechanisms. Facilitation support could be provided to get the selected ideas of these groups out in the public domain and to the intended beneficiaries. Here are few potential ideas for starting such communities:

a.      GeekVille: Community of computer programmers at campus willing to make amazing products and applications for fun

b.  Policy Analysis Group: Students gathering feedback through their research and experiences will analyze and discuss policy ideas for various issues of our society and political economy

c.     Robotics/Embedded systems: Electronics and robotics enthusiast trying to compete and build interesting prototypes for fun and learning

d.     Activism through Performing Arts: Community of students who produce street-plays, movies, etc for increasing public awareness on topics which either get ignored or are social taboos

e.   Social innovations group: Similar to policy analysis group but coming up with solutions which could be implemented by NGOs, political activists and social enterprises

2.      Responsible Citizenship Initiative: Students will be encouraged to think about and act upon their responsibilities towards the nation or humanity at large. They will be sensitized to the fact that they are fortunate enough to receive quality education and opportunities to be able to actually do something about the problems of our society. Center will help students plan and implement their ideas to demonstrate their capacity to think and do something about these intractable problems.

3.  Innovation Study Trips: Students will be provided regular opportunities to attend trips to companies, universities, research labs to interact with those who solve real-life problems. Similarly, longer experiential learning trips like village life immersion or slum experience would be organized to let students spend time to understand the challenges and problems faced by marginalized people.

4.    Portfolio Assistance: Similar to what design professionals do, students will be encouraged to build their portfolios during their stay. These portfolios would serve the purpose of showcasing students’ overall skill set and achievements. The center will help students access resources or people required to strengthen their portfolios. This includes building projects or proof-of-concepts of ideas, etc.

5.  Campus ventures: Students will be randomly allotted licenses to operate small ventures in the campus for short durations e.g. conduct a poster auction, manage hostel canteen for a month/semester, run a mess as for-profit venture during vacations, food stalls during events, etc. They can either exchange the licenses or form partnerships with those who have the licenses they want or just sell the license to another student who wants to operate the venture. This is to encourage thinking like an entrepreneur at a very small level. Coordination with campus administration will be orchestrated to ensure smoother execution of plans made by students.

6.   Open Technology Research Initiative: Students and researchers would be encouraged to participate in Open Research Initiatives around the globe. Center in collaboration with researchers on campus would also start such new initiatives to encourage best minds everywhere in the world to submit designs of new scientific experiments, any data collected for these experiments and their interpretations on Wiki like platforms for specific topics/disciplines. Objective of such initiatives would be to democratize research and engage curious minds everywhere in the process of knowledge creation.

7.   Leadership Coaching: In such programs, students will be encouraged to plan out their own leadership training programs and will get support from the center in the form of nudging or facilitation required for achieving their leadership training goals. Students will be expected to maintain a reflective journal for their goals in leadership development, listing – what they achieved and how, etc. This exercise is expected to build their capacity for, or instill the value of being self-critical and open-minded – which in turn would enable them to hone themselves for becoming better human beings, life-long learners and leaders in their fields.

8.      Surprises journal: I recently read a really interesting post on Slate about how the most important skill in research, self-improvement and career is noticing the unexpected or ways in which things went wrong. The approach suggested keeping a journal of how students found some outcomes surprising and this idea was quite successful in making students think about their mistakes in a positive manner. In this initiative, the students were expected to write-down three points about each of such surprises (i) Moment of surprise (ii) Why it was surprising and (iii) What this tells me. You can read the whole article here

http://www.slate.com/articles/health_and_science/science/2015/01/surprise_journal_notice_the_unexpected_to_fight_confirmation_bias_for_science.single.html

If you have been reading this far, then I request to share your thoughts and ideas on how these activities could be improved or what more could be added to this list. Thank you!

Potential Activities for the university based innovation centers: Innovation Practicum

Continuing from the last post, the activities for such centers beyond these standard ones are for building up the entrepreneurial capacity of students in various ways. These ideas might be able to help the center to differentiate and be more valuable to students than most such other university based centers. The most important idea (in my view) which links the curriculum, learning journey of a student inside the campus and building their capacity to become leaders and entrepreneurs is the following: 

1.      Innovation Practicum: One of the key pillars of my approach and suggested intervention to build students’ capacity to innovate would be the idea of a long term trans-disciplinary self-study projects – we could call them “Innovation Practicum”. The idea here is that during the beginning of their first semester/year, students will be expected to come up with a topic of their choice, which may or may not have any relationship with their intended majors. For the duration of their stay in the university, they are expected to keep learning more and more about that topic as per their own plan – which would be a public document they would prepare but it can be edited any number of times. Only expectation from the students would be to give occasional talks/workshops on the topic and be treated like an expert-in-making on that topic in the campus i.e. if any discussion for academic/non-academic purpose on their topic happens on campus, they are expected to lead or contribute. They are expected to know the most about that topic on campus and to provide advice and expert opinion to professors, students and anyone who may need such inputs for their projects/work. Topics chosen could be anything that can be imagined, either a very narrow one or a very generic one or their existing hobby, and ideally something purposeful e.g. design of cars, philosophy in science fiction, cryptography, some centuries old unsolved mathematical problem, Picasso’s paintings, holy grail or robotics.

Objective is to provide an experience of deep commitment and learning about something by themselves, the way innovators usually emerge. To the extent possible, center should help individual students in achieving whatever learning goals they choose for this program, and getting access to resources or people they might need for doing so. Idea is to Learn -> Do (Present or build prototype) -> Teach others (or Do more). Students will not get grades for these projects (i.e. no academic credits), just the goodwill they generate. Optional evaluations could be conducted by one or more faculty or outside experts engaged with the student. Students can change the topics of their research anytime but that is not encouraged. Evolutionary changes in the topic would be accepted relatively easily but student is expected to convince the program coordinators and mentors for that.

There would be a small fund for everyone to share for pursuing the objectives in these projects. Funding for Innovation Practicum from this pool will be allocated in the following manner:

·       It will be a stage-wise and stingy funding process i.e. become scrappy and identify the least costly way and then pitch for getting funds for the nearest possible milestone – which should typically be around the time of next funding allocation meeting.

·        Allocation will be made by all those who apply for funding through a peer review of ideas in a jury format (expert + peer reviews wherever must). Applicants will present their case and reviewers will keep asking questions which applicants need to answer. Reviewers/applicants can’t get out without a final decision from the allocation meeting – however long it takes (hours or even days). Fighting it out to convince everyone should be the motto as these will be consensus based decisions. Inappropriate behavior will not be allowed in such meetings; however it is perfectly fine if the situation becomes highly political.

The idea behind not having any academic credits for Innovation Practicum is to not corrupt the incentives by encouraging students to students to work based on their internal motivations only, but if a university things otherwise then they could have credits assigned too. In such cases, I would recommend caution and careful considerations on how to design such a program for the students that doesn’t lead to misalignment of overall learning objectives. 

In the next post, I will list the remaining ideas for such ideas which I could think of. Obviously it won’t be an exhaustive list but definitely a good set of ideas to select and add more to.

University based centers for Innovation and Entrepreneurship

Two years back, I was asked by the group setting up Ashoka University in India to share ideas on setting up a university based center for innovation and entrepreneurship in their campus. Based on some of the ideas I shared with them, I am writing this series of posts to outline what a university based center for innovation could look like.

  

Humanity’s future progress will be defined in terms of long term strength of value creating institutions (i.e. both for-profit and non-profits), economic growth (which probably would get measured more in terms of complexity than scale), and growth in technology and indicators of social good like justice, equal opportunity, etc. At this ever-increasing pace of change, human systems of organization too are changing to adapt and evolving as we speak.  Future success of India (i.e. both collectively as a society and the success of individuals in their lives), hinges on how well we will be able to cultivate, nurture and grow individual leaders/innovators of tomorrow.

Universities are supposed to be training ground to produce leaders that the India/World of tomorrow needs. Only thing we are certain about the future is that change will always be happening at an ever faster rate in every possible way. Therefore universities need to design a holistic learning experience which would enable individuals to develop into free-thinking innovators and leaders of tomorrow. While students get exposure to the theoretical ideas (and their applications in the real world) in their coursework, a lot of their learning always happens within the environment of university as a whole. So a university must promote both self-learning and peer learning in an experiential manner.

Innovation/ Entrepreneurship centers therefore have to be a vital part of such university experience for the students. These centers should also be the institution’s preferred means to foster engagement of the university community with the world for building and implementing the ideas generated in it. These centers are set-up to take the challenge of creating, nurturing and encouraging innovation and leadership. So they will have to work towards creating the conditions that allow multi-disciplinary dynamic innovation networks to emerge and flourish on their campuses. They have to build catalytic environment that create conditions conducive for students to form hypotheses and test them quickly to judge the real potential of their ideas.

Activities of the Center should also happen in coordination to the curriculum to help students gain maximum in their learning experience. Following could be the objectives of such centers:

1. Create a nurturing ecosystem for the development and realization of innovative ideas
2. Build and strengthen leadership competencies of the student community at the university
3. Make these centers to be “the place” where smart and innovative entrepreneurs from the larger regional ecosystem would aspire to come to for realizing their ideas into ventures

The program to build innovation capacity in students should be rooted in the belief that deep understanding or expertise, developed through self-learning over a long period of time with a sense of purposefulness, will transform the teenagers joining the universities to become innovators/thought-leaders over time.

Building such innovation capacity must be a part of the students’ learning experience – which in turn must be designed by the university as a holistic life experience for students where living and learning are intertwined. Hence any interventions for building and improving students’ competencies for leadership and innovation should be in sync with the curriculum and other activities in their lives on campus.

The broad approach should be to work with the students to:

1. Enable them to become hands-on leaders and innovators through the Center’s interventions
2. Provide access to role models with similar beginnings as themselves to stimulate domino effect
3. Build their capacity to identify and analyze real life problems to be solved, and provide opportunities to actually do so by either venturing or for organizations in those fields
4. Provide multiple types of support (financial/professional/expertise, etc) to students for realization of those innovative ideas which qualify for such support through a selection process
5. Opportunities to interact with highly inspiring leaders and thought leaders from various domains