Wednesday, 30 July 2008

The Greatest Thing Since Sliced Bread!

Posted by: Ian Angell

As a professor in a department that researches innovation, I am increasingly being asked about this hot topic. Rather than giving a bald ‘definition,’ let me talk around innovation, and that may hopefully clarify things.

Let’s get one misconception out of the way immediately: that creativity comes with the lone genius having a flash of inspiration, … the light-bulb moment! It’s a lot more complicated. Innovation isn’t a single event, rather it’s a continuous process. I’m with Thomas Edison: “genius is 1% inspiration, 99% perspiration.”

The creative process was mapped out in three stages by the nineteenth century German scientist, Herman Helmholtz as: Saturation, Incubation, and Illumination. French mathematician Poincaré added the extra notion of Verification.
Saturation: fill the mind with the problem – until the point where extra data won’t take you any further forward.
Incubation: Keep thinking - mental activity must continue, even subconsciously.
Illumination: The ‘light bulb’ comes on. This is not some single moment, but the result of a long drawn out process.
Verification: even then the idea must be checked empirically.

Numerous other authors have extended this list over the years:
First Insight ➔ Preparation ➔ Saturation ➔ Incubation ➔ Illumination ➔ Verification ➔ Evaluation ➔ Elaboration.
Here the original list of four has been topped and tailed with:
First Insight: a vague recognition
Preparation: collecting the necessary resources
Evaluation: is the result of any use/value?
Elaboration: taking it further; adjustment, expanding its utility.

Two further entries hover over the whole process:
Determination: keep going despite frustrations and set-backs.
Context & Timing: being in the right place at the right time, so that you can convince others to use your invention and that they begin to see it as “the greatest thing since sliced bread.”

And what is so great about sliced bread? The great invention shouldn’t be called sliced bread at all, but ‘pre-sliced’ bread. Whatever we choose to call it, its invention exhibits all the above features of innovation.


Otto Frederick Rohwedder, from Iowa, first filed a patent for a loaf-slicing machine in 1912 – he even sold his jewellery business to fund development. Kidney disease didn’t stop him, nor did his workshop burning down, destroying his tools and prototypes. Even so, the world’s first mechanically sliced bread didn’t go on sale until July 7, 1928 with the Kleen-Maid loaf. {For a much fuller description I recommend you read Frank Passic's essay Bread Slicer Inventor lived in Albion at www.albionmich.com/history/histor_notebook/040215.shtml}Rohwedder had met with resistance from bakers, who thought that sliced bread would quickly go stale. That argument faded when in 1928, the Continental Bakery of New York introduced Wonder Bread, an unsliced loaf with a waxed paper wrapper to conserve freshness.

But that wasn’t the whole story. The clincher turned out to be a particular electric toaster invented by Charles P. Strite, although his toaster wasn’t the first. That accolade seems to belong to a British firm: Crompton & Co in 1893. In the intervening years many more types were produced, among the most notable being the D-12 introduced by General Electric in 1909. {Toasters have an absolutely fascinating history, and I wholeheartedly recommend that anyone interested in innovation should visit http://www.toaster.org/, where they will get a dynamic and particular sense of how innovation progresses.}

During World War I, Strite worked in a factory where each day he saw toast being burnt in the cafeteria. The problem was people took their eye off the bread as it toasted. His solution was a toaster that did not require human attention: the Toastmaster! This was a spring-loaded, automatic, pop-up toaster with a variable timer. Sold to restaurants from 1919, it hit the retail shops in 1926.

Using Rohwedder's machine, pre-sliced Wonder Bread was in mass-production by 1930. Sliced bread in waxed paper wed to the Toastmaster was a marriage made in capitalist heaven. Its market penetration following the Wonder Bread advertising campaign is legendary. By 1933, 80% of all the bread sold in the United States was pre-sliced and wax wrapped.

Here we have a clear example of how no product of the creative mind comes into existence in a flash, or in a vacuum – it co-evolves with other artefacts. Every invention and creation stands on the shoulders of past giants; but it also needs the popular acceptance of other prior inventions, which together spark interest in the marketplace. However, if access to those inventions is restricted, then there will be no experimentation, no variation, no creativity.

Most innovations are applications/variations that spring from prior innovations, exactly as Herbert Kroemer, the 2000 Nobel Physics Laureate, explains in his Lemma of New Technology: “The principal applications of any sufficiently new and innovative technology always have been – and will continue to be – applications created by that technology.”

The same can be said of innovation in general. Innovations do not come from orthodox creators, but from users on the margins, who are free to experiment with radical ideas. What Kroemer is implying is that although a technological innovation occurs in a particular context, numerous people must run with that innovation to create a whole raft of derivative applications, which could not even be imagined by the original inventor. If that inventor restricts what can be done with his work, in effect banning derivative works, then he is limiting its potential, and cutting off all future revenue streams.

There is no knowing in advance what the really useful applications will be. There needs to be wide-scale experimentation – the more the merrier. Natural selection will bring the successful to the fore. According to Saul Godin, unless the idea of the innovation’s utility has captured the imagination of the market, unless the idea has spread, then there is no selection – natural or otherwise – and so nothing happens. Over-charging for, or overprotection of intellectual property will ensure that the innovation stays in the wilderness.

Suppose that Crompton & Co. had been allowed to copyright the concept of an electric toaster in 1893 – then derivatives would have been blocked; Strite would not have created the pop-up toaster; and Rohwedder’s sliced bread would not have achieved the status of being “the greatest thing!”

Photo permissions, with thanks:
Otto Rohwedder: Frank Passic; http://www.albionmich.com/
Charles Strite and Toastmaster: Eric Norcross; http://www.toaster.org/


Wednesday, 16 July 2008

No Pearls in this Oyster

Posted by: Ian Angell

On Saturday
 12th July, between 5.30am and 9.30am, at least 60,000 passengers who swiped their Oyster Card, Transport for London’s pre-payment system, had them corrupted. 
To avoid rush hour chaos on Monday, bus and tube commuters travelled for free if 
their cards registered an error.

So the Oyster Card system failed. Surprise! Surprise! The only property that systems have in common is that THEY ALL FAIL … eventually. It’s not a question of if, but when. And the bigger the system, the greater the opportunity of failure.

I and colleagues at the LSE tried to warn government ministers about their national ID card scheme. All we got for our trouble was slander and abuse. Such offence is typical of those who subscribe to the “pixie dust” school of technology: computation is a magic substance to be sprinkled over problems, that, hey presto, vanish.

Systems are much more like a life form: they are entropic, they degrade over time. In the case of databases, they pick up errors, and then data error compounds data error. For instance the DVLA in Swansea admitted in 2006 that a third of entries contained at least one error, and that the proportion was getting worse.

It’s caused by the complexity in the interaction between computer installations and human activity systems. We've all had encounters with computers getting it wrong. For years the banks insisted that ‘ghost transactions’ with their ATM machines were frauds by cardholders, when they were in fact system errors.

Usually the minor day-to-day problems with a system are resolved by a sensible employee, rather than by the managers who administer the system. There's a duty of care for the company to take bus passengers home when they find themselves stranded in a remote spot because their card has unexpectedly run out for whatever reason - especially given that there is no display to show how much is left on their card when they "touch in" on a reader in the middle or at the rear of a bendy bus, or on the card itself. The fact that the cash fare is exorbitantly more than the Oyster fare, bullying any regular traveller into choosing the Oyster, reinforces the need for an on-card readout.

This does raise the question of whether there are other problems with the Oyster Card, but on a much smaller scale. TFL couldn’t deny this weekend’s shambles, but can we be absolutely sure that no previous case of fare dodging was a system failure?

It's the US$ stupid! [Part 1: The Super-shear]

Posted by: Ash Khanna

The recently revealed troubles of the 'BIG DADDIES' of the US mortgage system (Freddie Mac & Fannie Mae) and the subsequent support initiated by both the US Treasury & Fed can threaten the stability of global commerce!

Don’t believe me? Then look at the evidence:

In an extra-ordinary set of actions the US Treasury & Fed worked out a mechanism, over a weekend. Further, Henry M. Paulson, Jr., announced the ‘bail-out’ package on a Sunday to try and prevent further erosion of the market-value, of these over leveraged institutions, before equity markets opened for business on Monday the 14th of July.

On the 15th of July, 2008, for the first time in US history both the Chairman of the US Federal Reserve and the US Treasury Secretary are called by the US Senate House Select Committee on Banking to explain the state of affairs under their executive charge. Further, their boss the ‘chief’ executive, the US President is, in parallel, addressing the press, to infuse confidence into the ‘system’ on their “psychological” assessment of the US economy. There is more, all the ‘global’ news channels were covering this ‘choreography’, live! This is an unprecedented event, three most powerful men in the world, desperately selling to the world - “We are doing ‘exactly what we did and has been done by our predecessors,’ so calm down, PLEASE” – in unison!

The ‘ailment’ is VERY serious!

[Action(s) plan by US Fed & Fisc]
- The US Fed opens the discount window to mitigate liquidity risk.
- The US Treasury pumps in capital ($15 billion(+) each) in exchange for equity to shore up the Capital Adequacy, of these ‘”share-holder” (!?!) owned institutions
- The Treasury lines up $300 billion(+) of ‘available’ credit to mitigate ‘solvency’ risk!
- Still further, the Treasury creates a ‘temporary’ regulatory institution to further guarantee (government protection/‘stamp’) quality of collateral – in effect any paper emerging from these institutions will be like government bonds!

[Effect]
-US M3 money supply increases, further…..
-US fiscal deficit increases, further….
-Dollar slides further...
-Oil and commodities experience the 'predicted' "super-spike", as they tactically become the value investments…..
-“Inflation” soars, further…..
(If I was an oil or commodities trader, I'd be laughing my way to the bank!)
Doesn’t all this sound familiar? US sub-prime crisis, bail-out, and effect!

BUT the real story is going to be about those investment banks that are 'lucky' enough to still have an operational mortgage trading desk:

[Effect continued…..]
-The US Treasury is going to 'stamp' the mortgages held by Freedie Mac & Fannie Mae, hence making them tradable paper, again (the ‘perception of risk’ is in effect lowered)
-Structuring / collateralizing back in - like a tidal surge [any % of $5.3 trillion is massive volumes!]
-These new avatars of CMOs will HAVE TO BE SOLD at HUGE DISCOUNTS to maintain 'cash-flow' of Freddie Mac & Fannie Mae for them to try and stay above water and their executives to still have a job and decent bonuses ;-)!
(The mortgage securities traders are in for a windfall!)

The US Mortgage market is, still, the largest capital market in the world, by far! In effect it is the largest engine of credit production for the world. So the resultant effect of the ‘bail-out’ package(s) will be to add fuel to the US$-credit engine!

Another bail-out cycle, in less than 4 months! The scary bit is that relative to Fannie Mae & Freddie Mac, Bear & Sterns seems so long ago and so insignificant in size. Further, IndyMac Bank’s collapse (the third largest financial disaster in the US) has gotten relegated to a footnote so quickly!

The frequency of these crises is increasing and the size of potential destruction is increasing exponentially – predicted as early as 2002 in the documentary “Commanding Heights” based on a book by Daniel Yergin and Joseph Stanislaw. [
http://www.pbs.org/wgbh/commandingheights/ ]

I acknowledge that the troubles of Freddie Mac & Fannie Mae are only served as ‘circumstantial evidence’ of the under-water ‘super-shear’ that the global economic system is undergoing. But it should provoke policy planners and executives to have the courage to be bold and encourage fresh thinking. They have repeated past-practice too often and for far too long.

The starting point like I have said in my previous blog-post is not purely economic; the starting point is of a political nature:

Does a value reserve system, which permits the monopolistic position of the US$, serve the needs of an increasingly globalizing and inter-dependant economic environment that we are already witnessing at the start of the 21st century?
How do we introduce competition in the value reserve system?

The biggest immediate threat to global commerce is the collapse of the US$, the only truly international value reserve currency.

Do we have a “Plan B”?


(To be continued…..)