“Half a century ago, when the Soviets beat us into space with the launch of a satellite called Sputnik¸ we had no idea how we’d beat them to the moon. The science wasn’t there yet. NASA didn’t even exist. But after investing in better research and education, we didn’t just surpass the Soviets; we unleashed a wave of innovation that created new industries and millions of new jobs. This is our generation’s Sputnik moment…. We do big things.”
President Barack Obama, State of the Union, January 2011
The State of the Union address articulated one big thought: a Sputnik moment for our generation that unleashes a wave of innovation and millions of new jobs. And what Tim O’Reilly liked most in the speech was the companion idea: “We do big things.”
To do big things, however, as Umair Haque pointed out, you have to have big thoughts. The sad truth is that the thoughts about what to do in response to our Sputnik moment need to be bigger if we are to have a genuine wave of innovation that creates millions of new jobs.
What the evening boiled down to was President Obama saying that we should invest more in new energy and new infrastructure, while the Republican response was essentially: let’s spend less. The two thoughts are not necessarily inconsistent, if investment is judicious and budget restraint is real. The larger problem is that neither thinking is big enough to create a wave of innovation and millions of new jobs.
The heart of the economic problem
Most of the positive examples given the President’s speech from small organizations or startups. Yet we know that this is not where the problem in the US economy lies. The problem of the economy lies in the large companies—the Fortune 500.
Thus in the period from 1980 to 2005, firms less than five years created 40 million net new jobs, while established firms created zero net new jobs. Yes, zero. Moreover the rate of return on assets of 20,000 US firms is today one-quarter of what it was in 1965. Yes, one quarter. And the life expectancy of the firms in the Fortune 500 is down from around 70 years half a century ago to less than 15 years today, and heading towards five years, if things continue as they are.
The brutal truth is that the Fortune 500—the engine of the US economy—is in decline and is failing to generate a decent livelihood for the country’s citizens. These problems have been in the making for decades, through both Republican and Democratic administrations, and have little to do with investments in infrastructure or deficit spending by the government.
As a result, President Obama’s call for more investment and the Republican call for budget restraint both miss the point. Doing more of the same is not going to solve the problem. Instead we need to be think bigger thoughts. We need to think different.
A genuine Sputnik moment for our generation would have four components. It would involve a commitment to reinvent the Fortune 500, reinvent government, reinvent education and reinvent health.
Reinventing the Fortune 500: The Fortune 500 are becoming increasingly unproductive because they are run as hierarchical bureaucracies. These firms are looking from the inside-out, producing their products and services to make money for shareholders, doggedly tweaking their value chain, parsing and manufacturing customer demand, trying to find ways to lower costs, looking for economies of scale. They are "pushing" their products and services at customers. They are living in the world of managerial capitalism with a goal of making money for their shareholders. They are filled with disgruntled employees: only one in five is fully engaged in his or her work. Some firms may be making money, but it is on a long-term declining trend. Their life expectancy is limited. These are organizations of the 20th Century.
The Fortune 500 must become organizations of the future, focused on looking from the outside-in, understanding the people with whom they might do business, comprehending their hopes and dreams and problems and goals, and trying to find ways to delight them. Everyone in the firm must be focused on this goal. Rather than "pushing" products and services at customers, they are deploying the power of "pull". They must recognize that we are living in the age of customer capitalism. The value of firms that do this is growing exponentially, like Apple or Amazon. These are the organizations of the future. The Fortune 500 must become like them.
The irony is: we know how to do this. So why don’t we get on and do it?
Reinventing government: No one loves the government and efforts are under way to change it. “Government 2.0” has been much talked about as the application of technology to government as we now know it: the use of social media by government agencies, government transparency assisted technology. As so conceived, Government 2.0 has much in common with the Fortune 500 of yesterday. It's grinding out existing services with somewhat better technology.
Reorganizing government, as proposed by President Obama, is even more problematic. Vast amounts of energy will be spent rearranging the deck chairs, while the ship continues to sink. Jokes about smoked salmon can’t hide the fact that reinventing government means changing the way it functions, not re-arranging the bureaucracy and reporting arrangements.
As properly conceived by Tim O’Reilly, reinventing government is much more than those things. It is a government stripped down to its core, rediscovered and reimagined as if for the first time and focused on delighting its primary stakeholders. It is government aided and abetted by technology, but technology is a means, not the end. It means shifting the idea of government from shaking the vending machine to get more or better services out of it, and over to the idea of government building frameworks that enable people to build new services of their own. Again, we know how to do this.
Reinventing education: Graduating more students is important but it’s not nearly enough to respond to a Sputnik moment. The reality is that the education system is a test-driven bureaucracy that is not fitting our students for the turbulent unpredictable world that lies ahead. Real education reform means a system that is not run for the convenience of the administrators and the teachers, but rather a system that genuinely puts “students first”, and instills a love of learning that lasts a lifetime. Here too, we know how to do this.
Reinventing health: While political arguments rage about the health insurance mandate or the public option, the bigger issue is that the health system is on course to bankrupt the country within a few years, quite apart from the recent health reform law. The health system is infected with the same bureaucracy that has hamstrung the private sector and the government. Real reform in health means transforming a system that is run for the convenience of the administrators, the insurance companies and the health professionals and turning it into a system that is truly focused on “patients first”, with genuine patient-driven care. Here again, we know how to do this.
A genuine Sputnik response
President Obama is right: we are facing a Sputnik moment. The needed response to deal with it requires big thoughts: reinventing the Fortune 500, the government and the education and health sectors . We know how to do all those things. What we need is the courage to take on the challenge. Fifty years ago, another generation faced a similar challenge and stepped up to it. The question is: will we?
To learn more
To learn more about how organizations are being reinvented, read books such as The New Capitalist Manifesto by Umair Haque, The Power of Pull by John Hagel, John Seely Brown and Lang Davison, Reorganize for Resilience by Ranjay Gulati, Leadership in a Wiki World by Rod Collins or The Responsible Business by Carol Sanford.
For a comprehensive review of the principles and practices involved in reinventing management, read my book: The Leader's Guide to Radical Management: Reinventing the Workplace for the 21st Century.