Tag: vetting

The Value of Social Currency

On July 9, 2009

How big is this opportunity?

Roughly 10% of the US gross Domestic Product can be attributed directly to the process of evaluating or examining transactions. This represents a 1.4 Trillion Dollar of value in a system that may be better organized, captured, and preserved through social networks and the conversations that they produce.

Social vetting on a scale that would allow social networks to monetize would require that communities organize their knowledge assets specifically for deployment to a market. All that an entrepreneur needs to do is fill this need.

What happens if they don’t?

The true cost of vetting may be calculated by what happens in the absence of oversight, transparency, and disclosure. When the vetting process fails, so too does the industry. The continuing financial crisis of 2008 was fueled by a failure to regulate mortgage backed securities. The financial Crisis of 2002 arose from a failed accounting (CPA) profession.

The losses due to the absence of vetting mechanism exceeds by many times the cost of having a system in place. The financial crises of 2002 and 2008 have together wiped out nearly 20 Trillion dollars of value and incurred high volatility to financial systems due to failed vetting mechanisms. The people who held the knowledge about the impending doom had no effective medium to share.

Who vets KNOWLEDGE assets?

The flow of money lives and dies by the vetting mechanism. CarFax, Experian, Ebay, Google owe their existence to the ability to vet information – However, they do not vet knowledge. The ability to deliver the right knowledge asset to the right place, at the right time for the right price is tantamount to being able to “manufacturing innovation”, that is, to print money. Inversely, the ability to foresee the result of specific knowledge assets deployed to specific business conditions is the Holy Grail of entrepreneurs.

Social networks can carry out this very important function of the Innovation economy; organize, locate, and develop knowledge assets in a form which can emulate a financial instrument.

How are things changing?

Emerging ideas such as conversational currency, relationship economics, innovation economics,. nd new ways to value intangibles are appearing in research blogs across the web. Disruptions to Global finance, environmental policy, and the emergence of global currencies are setting the stage for a huge transformation in how society organizes itself. Traditional industries such as print media, advertising, and banking are failing. Nothing is sacred except change.

Where are these communities, and what do they want?

Many communities exist today in a variety of forms and functions such as communities of practice, fellowships, service organizations, professional societies, trades groups, affinity groups, etc. Increasingly they are moving to Social Media such as Facebook groups, Linkedin groups, Affinity groups, aggregation groups, and political action groups. Communities are using social media technology to engage the knowledge domain contained within them.

As such, they will soon have ability to foresee the result of specific knowledge assets deployed to specific business conditions. This is the Holy Grail of modern civilization.

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Social Media Staffing: $3 Trillion Opportunity

By Admin

On July 1, 2009

In General Information

As the World Churns:

The cost of placing an employee approaches 30% of that employee’s salary. In fact, most head hunters charge roughly 30% of the employee’s salary to find the right person to fill the job opening for a client company. Sometimes the employee is recruited from a competitor causing a net productivity loss in a market due to disruption or “churning”.

The company also has a choice of hiring with the internal HR department. In this case, they are paying HR personnel to place ads, review resumes, check references, and conduct interviews. These costs can also run into a substantial percentage of the new employee’s salary. From previous articles, The Ingenesist Project suggests that these methods may not even result in the best employee selection:

The Unnecessary Market Friction

Text only Résumé is no longer adequate in our complex business environment due to subjectivity, semantic inconsistency, and the time and resources required for fully interpreting the content. The cost of delivering a résumé has been decreased by computers and the Internet while the cost of reviewing the résumé has remained constant. Keyword search programs often eliminate excellent and creative candidates based on criteria not related to the candidate. Managers tend to hire what reminds them of themselves – from world that no longer exists.

Estimated wasted productivity:

Suppose that 50 Million professionals; doctors, lawyers, engineers, professors, administrators, managers, and directors are employed in the United States. Suppose that the average salary is 70,000 per year. Suppose that they change jobs 3 times in their career and that the cost of placement is 30% of salary, or $21,000 dollars per placement.

The total cost is $ 1 Trillion dollars multiplied by 3 placements in a career equals nearly 3 Trillion Dollars. Now, divide this by 30 years in a career and we can see that 100 Billion dollars worth of human productivity are spent every year not necessarily matching the most worthy employee to the most worthy employer. This does not include moving expenses, salary increases, disruption costs, or inflation.

The probabilistic electronic résumé system

The Ingenesist Project specifies a vetted knowledge inventory that resides in Social Media. The knowledge inventory, probabilistic electronic résumé system, and innovation bank together would make the paper and language Résumé obsolete. The percentile search engine would scan the knowledge inventory of the corporation and scan the knowledge inventory of the labor market and seek matches with high probability of increasing net productivity – not unlike Amazon.com predicts what book you would like to read next.

Options, options, give the market its options

election criteria can be adapted to reflect social priority such as reduced traffic congestion or to reflect strategic objectives such as incremental or blue sky innovation requirements. Trades across companies and industries can occur opportunistically not unlike interdepartmental transfers or even like trades in professional sports are conducted today.

Companies can manage peaks and valleys in employment by trading across diverse industries. avoiding layoffs all together. Employees that can stay productive in diverse industries transfer new ideas and discover transferrable efficiencies. Experience gained would be added to the knowledge inventory to enhance the probabilistic résumé inventory available for continuous improvement and tangential applications of innovation enterprise.

A virtuous circle? … A 3 Trillion Dollar opportunity nonetheless.

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Is the Corporate Structure Obsolete?

By Admin

On June 24, 2009

In General Information

The Social Media Production System

Social Media has demonstrated in many ways capable of meeting or exceeding the deliverable output of many traditional industries such as advertising, marketing, journalism, human resources, design, community organizing, education, and social vetting.

We have also seen social media form communities that increase productivity in manufacturing processes, software development, and project management. We have seen people self manage in social media to segregate and elevate good information away from bad information. We have seen communities act with logic, tact, and precision previously thought to be the province of top management guidance.

In short, we have seen social media replace or duplicate almost every structural element of the traditional corporation outside of the construct of corporations. Can social media provide a corporate structure in and among itself?

General Accounting Practices:

Corporations have an internal accounting system, internal processes, internal procedures, and often their own lexicon and unique job descriptions relative to their product. This is how a corporation stores knowledge and trades value internally and defends itself from external influence. The common thread is that each department is accounted, assessed, and compared in terms of money. Standard balance sheets are compared by banks and investors.

Social media uses the exchange of information, knowledge and new ideas to store value. Processes, procedures, job descriptions, and accounting are done in a public lexicon that everyone develops collectively. People share, trade, and exchange information, knowledge, and new ideas like tangible property; and they trade options on futures in the same. Increasingly, access to the community knowledge inventory is becoming a means be which people can convert productivity to money.

Standard Balance Sheet for Social Media

Most elements of a corporation can be duplicated in social media. For those parts that cannot, the entrepreneur will soon figure out how they can. The entrepreneur does not worry about money, they worry about productivity and the money always follows. The next paradigm of economic development will reside almost entirely on a statistical game of managing risk and return, matching surplus to deficit, and increasing human productivity in the operating system of Social Media. Every Newspaper that falls to Social Media is simply transferring its value to the new paradigm. That value is still in play. This trend will continue until a new currency representing that value is introduced.

Business Plans of the Future:

As you witness the progression of Social Media unfold, look for innovations that contain incentives for people to reorganize themselves. Look for similarities between new social media developments and traditional corporate departments. Look for businesses and institutions that support social vetting mechanisms, knowledge exchanges, and groups bringing together strategic combination of diverse knowledge assets, not just similar knowledge assets. Most importantly; look for the “Last Mile of Social Media”; diverse groups of 5-10 people living within a few miles of each other forming new enterprise.

Threats:

Finally, look for the threats that can corrupt an innovation economy. Social Media is currently responsible for trillions of dollars of productivity gains – all this money is still on the table for social entrepreneurs to monetize once the integration reaches a tipping point. Be watchful for attempts at censorship, attempts to monopolize information nodes, and the corporatizations of social networks. Wall Street was corrupted when the value of the currency became divorced from human productivity. Don’t let the same happen to Social Media.

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The Trojan Horse; A Classic Social Fraud

By Admin

On January 12, 2009

In General Information

Periods of change in any market open the doors for abuse as control systems often lag behind the waves. This is especially true for social capitalism where the social contract is changing rapidly and the enforcement mechanisms are largely non-existent.

All markets must have effective vetting mechanisms in order for the market to be viable. If the game is not fair – real investors and real entrepreneurs don’t walk, they run…away. While much fraud is obvious and predictable, the most damaging is the type that nobody sees coming but can destroy the standard of trust for everyone, forever, like the Trojan horse.

Hypothetical Case Study:

A self-proclaimed innovation consultant runs a blog out of anywhere USA. They have a catchy domain name and their ranking is unusually high for a 5 month old blog with splashy but infrequent articles.

In the spirit of the X-prize, the blogger promotes an Innovation Contest offering $60,000 dollars worth of his company’s “Marketing Consultation” services as a prize to the next innovation that will change the world! … as judged by a “panel of experts”. The blogger encourages all entrants to send their social network to vote up their innovation as this will weigh heavily into the judging. Many people submit their work and diligently mine their Facebook and Linkedin networks for the vote.

The contest ends and the winning idea earned zero external votes but it is in an industry that is very popular in mainstream media and slated for government stimulus. However, it is clearly not up to par with many of the other entrants. Upon inquiry, the blog author does not specify the criteria for judging, he does not itemize the prize, he does not publish his “panel of experts” and he does not post any dissenting opinions or inquiries submitted to the moderated comments.

A few days later, a press release appears on Google news; “$60,000 dollar innovation contest prize awarded for breakthrough in targeted industry”. Leading tech media pick up the story and the “consultant” is hailed for defending the struggle of the unsung heroes of the innovation economy. It appears to the contestants that the consultant is promoting himself at their expense.

So, what’s wrong with that?

First; for all of the innovators who submit themselves to judgment and expend their social capital on votes, the integrity of the contest must be bullet-proof. The definition of the objective, the judges, and judging criteria must be specified absolutely. Otherwise, good ideas will not be shared.

Second; if potential sponsors of a legitimate X-prize-type contest are challenged in their sincerity to promote world-changing innovation, and instead are accused of self-promotion and media bias, a tremendously valuable resource of the innovation economy will be squandered.

Finally; if a person’s social networks are mobilized to vote in any type of contest – they must know that the time they invest will be respected and valued or they will no longer participate in other contests.

To this day, the clever ruse of the Trojans remains the fraud of choice for new market technologies. It has also marked the standard of trust that we hold forth in our relationships and invitation to our inner circle. Sharing of one’s friends is a deeply intimate act of faith and trust many times greater than sharing one’s ideas. The caregivers, those who hold forth the willingness to nurture that trust, must be qualified as stewards of the public endowment of social capital, creative capital, and intellectual capital.

Social Capitalism depends heavily on the function and performance of communities. A “paranoid bias” could be vastly damaging – possibly constraining the next great paradigm of economic development from achieving critical mass. Social Capitalism is not a game, it’s serious business.

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Social Enterprise; Innovation Clusters

By Admin

On October 29, 2008

In General Information

Innovation clusters are all the rage in regional economic development circles. Actually, they are “industrial clusters” because several companies in similar industries collocate in the same geographical area. The industrial cluster then attracts supporting industry and often causes the migration of educated and motivated people to the prospect of jobs. I suspect the ‘innovation’ moniker comes from the notion that newer industries locate near centers of venture capital, like planets forming from the dust of the cosmos.

There are, however, a few drawbacks to industry clusters; they are vulnerable to stagnation, silos, and external shocks. As companies become organized and technologies mature, patents and trade secrets take hold. As they ‘go public’, SEC regulation effectively places a gag order on everyone and sharing slows while stagnation sets in. Soon after, dozens of nimble companies consolidate into a single giant to achieve economies of scale. Finally, silos form under the weight of multiple layers of management. Then, something somewhere happens to shock the cluster; the end of the cold war leveled the So Cal aerospace cluster. 9/11 busted the Seattle Aerospace cluster. The dot.com bomb stunted Seattle, Silicon Valley, and Route 128. Hurricanes hit the petroleum cluster, stem cell and genetic engineering legislation stalled biotechnology, and corruption continues to shock financial institutions. At the end of the cycle, companies divest, people defect and a new planet starts to form someplace else.

While occasional cleansing, in a Schumpeterian sense, is good for industries, the extreme volatility takes a horrendous toll on that invisible turbine of the economic engine – social fabric. Families, friendships, professional networks are strained or collapse and those who dedicate their life to a career path – the pure innovator themselves – can be left marginalized by obsolescence.

The Calculus of Innovation Economics does not oppose industrial clusters; however, it does favor something called “technology clusters” in a business structure called the “tangential innovation” market. For example; composite materials technology is very useful in many applications like aircraft, medical devices, transportation, recreation, and even musical instruments. The airplane company has no intention of building cellos and the automobile company has no intention of building snow boards. As non-competing industries, they can readily share technology and people. The system is naturally diversified and inoculated against stagnation, shocks and silos; if one industry encounters hardship, people and capacity can shift easily to another industry preserving knowledge and expanding social networking benefit while the damaged industry heals or dies off. Corporations may not like this idea, but social networks should.

The science of Innovation Economics goes a step further by modeling the business structure of tangential innovation markets as an integrated financial system. Suppose and Originator Company has a promising new composite technology idea but is unable to meet the ROI requirements of their stockholders. Today, such innovation would be shelved. In an innovation economy, tangential markets are factored into the business case. The Percentile Search Engine can determine what other industries would be most worthy borrowers of your technology, if developed. The Innovation Bank can estimate the return on investment that can be expected through the tangential market as if it were another customer. The additional revenue projection would allow the originator to meet the ROI requirement prior to committing development funds. Intellectual Property can be managed with contracts enforced through social network vetting. The originator can hold an option to see further development conducted by tangential users effectively multiplying their R&D reach and further adding to the expected return.

Then something magical will happen. At some point, the value of the tangential innovation market would exceed the value of the origination market. The originator will begin to specialize in pure innovation as a primary product and airplane applications as the secondary product. As all industries in the technology cluster begin sharing technology among each other, R&D costs and risks are effectively spread across industries. As risk is diversified away, the cost of venture capital approaches single digit rates.

Then, another magical thing will happen. As the mixing of people and ideas accelerates, the definition of corporate boundaries will become more fluid. Ownership will exist in the form of contracts among entrepreneurs now defined by social networks, options, and derivatives in a diverse innovation enterprise.

The knowledge inventory will house the assets rather than office cubicles. The ‘secret sauce’ of knowledge asset allocation becomes more tangible, safer, flexible, and liquid than any patent could ever be. Innovation will always be proportional to the rate of change of knowledge that the more diverse assets yields. The Percentile Search Engine will match surplus “secret sauce” to deficits of “secret sauce” much better than multiple layers of management in the past. The Innovation Bank will account for all transactions, obligations, and participation and distribute dividends (rather than hourly wages) to the owners of knowledge assets. The system will regulate itself through social vetting rather than supporting a cumbersome HR department.

New ideas will get developed in the technology cluster where they would never have been able to meet ROI in the industrial cluster. The innovation economy induces a multiplier effect on innovation by reducing risk, eliminating barriers to sharing ideas, and lowering the cost of capital.

While the boom bust cycle of Industrial Clusters has brought us a great distance in economic development, technology clusters in an Innovation Economy supported by social networks may turn out to be vastly more efficient at economic growth without the vulnerabilities of industry clusters.

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Social Enterprise; The Vetting Mechanism; #1

By Admin

On October 26, 2008

In General Information

I read many articles with rants like “all this social network stuff is cool – but show us the money”. Innovation Economics offers a way to see new markets and new businesses that are currently hidden by “the old way” of doing things. This article is part of a series called ‘Business Plans of the Innovation Economy” which will identify ways that Social Networks can command huge markets and drive vast revenues – if, and only if, they align themselves in a specific way….

Managers manage through experience. They observe a situation and compare it to prior situations they have encountered. Through a process of intuitive (statistical) analysis, they calculate the probability of success based on the success or failure of prior experience. This is the reason why managers are often older and also why youth correlates with inability to manage. The depth and breadth of one’s experience is often called wisdom.

Today’s problems, business opportunities, technological change, and competitive strategies are so complex and so integrated across the globe that no single person can accumulate in a lifetime the experience needed to manage at what is called a Pareto Efficiency. A Pareto Efficiency, named after Italian economist Vilfredo Pareto, is an economic condition where a one’s actions benefits at least one person while leaving no other person less better off.

The problem with the “top-down” management structure is that the “top” no longer has a statistically relevant sample of prior experiences from which to fully understand the probable future outcome of their actions – the consequence is that someone always gets screwed (Pareto Inefficient).

The concept of Pareto Efficiency may be what people are today inadvertently calling “sustainability”. I recently saw the movie Syriana with George Clooney about the petroleum industry in the Middle East. It was a convoluted mix of 5 different stories. Each story had its hero doing what they thought was in the best interest of those they represent – “the common people”. Yet the combination of actions carried out by these heroes was absolutely disastrous for all of them. So no matter how benevolent one’s intentions are – and I believe that most corporate managers are acting in the highest integrity that they know – this systemic failure of knowledge will always hurt someone, continually adding to those already at the fringes.

The world of imperfect information is therefore the enemy of sustainability. Perfect information is when everyone associated with a business transaction has the exact same information as everyone else. Perfect information is what makes markets efficient and decisions rational. Agreement is perfectly mutual, supply and demand are perfectly aligned, all risks are perfectly predictable and cause and effect are perfectly transparent.

It follows that any business plan that simply improves information in a market can command revenues proportional to the degree at which market efficient is improved. For example; Ebay owes its 50 Billion dollar market capitalization to the feedback system which supplies improved information in a market. Carfax, The FAA, Craigslist, Democratic Government – all have vetting mechanisms that make their prospective markets more efficient.

Likewise, when the vetting mechanisms fail, the market fails. I attended a lecture once with Charlie Munger, CFO of Berkshire Hathaway. Regarding Enron, he said (paraphrase) “It’s tragic enough when the accounting profession goes bad, but God help us if we lose the engineers”.

This brings us back to management. The business plan of the millennium will be the art and science of perfect information. We know that no single human can accumulate enough experience, however, we also know that perfect information can reside in many people – it is simply a matter of finding the perfect group of people who collectively possess perfect information.

This relatively simple task is entirely and irrevocably the domain of Social Networks. Social Networks are sufficiently enabled by current technology to perform this essential and highly lucrative task – if and only if they align themselves accordingly. Social Networks need to hold a complete and detailed inventory of resident knowledge. Social Networks must cooperate to codify social capital, creative capital, and intellectual capital so that computational methods can be used to assemble unique collection of persons holding unique collections of experiences. That unique set of knowledge assets must then be deployed precisely in the market, ideally targeting specific transactions.

If Real Estate Agents can command 6% of a gazillion dollar housing market and bankers can take another huge chunk – and not even do a very good job at providing perfect information – only to get bailed those at the fringes. Social Networking have a moral, ethical, and entrepreneurial obligation to compete in the sustainability game.

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Intellectual Property in the Innovation Economy

By Admin

On September 18, 2008

In General Information

Today there is a big scare that bad people will run off with your intellectual property and make a ton of money with it. Another problem is that the Patent system is so slow and so expensive that the vast majority of innovators simply do not have access to patent protection – many people just keep their ideas secret. This happens in corporations where your ideas are used to advance the careers other people. Often the dominant strategy is to not innovate or keep your ideas secret.

The trend toward open sourcing and crowd sourcing is a real option in the Innovation Economy where Social Network are self regulating. In fact, these articles reference Wikipedia – a community source of definitions.

In practice, If I do dirty deals of Craig’s List, for example; people know where I live….or I get flagged. EBay, for example, produces relatively little to earn their 30B market cap except protect their social accountability system – the EBay feedback mechanism rewards high integrity and punished low integrity. The hallmark of the Web 2.0 is the user generated content as well as the user generated vetting of the content.

This is significant. The efficiency of any market is directly related to the efficiency of the vetting mechanism by rewarding high integrity and punishing low integrity; the FAA vets the airline industry, checks and balances vets democratic government, and the FICO score vets the consumer credit markets. Likewise, things go horribly wrong when the vetting mechanism fails; the accounting profession after Enron, and the sub prime mortgage crisis after loose lending practices, etc. The battlefields of business are littered with similar examples.

In an Innovation Economy, the secret sauce for the production of innovation is far more valuable than any single innovation itself. The secret sauce provides a monopoly on dynamic repeatability rather than some static device. As such, patents can be open-sourced and innovation crowd sourced across a much wider domain of user applications. Such conditions will change the type of innovations that are favored to reflect the broad and sweeping social priorities rather than innovations that are easy to patent, protect, and monopolize – and fear for one’s IP being stolen. Bad people cannot steal your intellectual capital, your social capital, or your creative capital – it is yours, you own it and you have the social network to prove it.

Ownership is the key ingredient of entrepreneurship – everyone owns the innovation economy.

In fact, the objective of innovation economics is for people to take your ideas and make money with them – then give you some of it. Your income arises from collecting royalty payments on your ideas and participation of many ventures. If someone does not play fair, their access to intellectual property and the Percentile Search Engine can be curtailed just like access to credit can be curtailed in modern finance. Therefore, it is in everyone’s best interest to play fair; you may cheat, but only once.

Social Networks are largely self-regulating; no government, Industry, or management is needed. This is efficiency, scaleability, and multiplicity all in one!

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