Vinod Khosla is a prominent Silicon Valley venture capitalist who recently posted a penetrating analysis of why big companies can't produce breakthrough innovations and why the US is faltering in the worldwide cleantech race: http://www.khoslaventures.com/presentations/Innovation_9_8_11.pdf
Tail risk -- the rare but high impact technologies that might disrupt business as usual -- is systematically ignored, although disruptive Black Swan technologies happen all the time. For a big company trying to stay at the crest of emerging technology in its sector, the analytical apparatus from business school education effectively ties decision-makers' shoelaces together. The use of discounted cash flows and rosy scenario business-as-usual plans to estimate present value is founded on the false assumption that there will be linearity and predictability to future income streams. Black Swan technologies have a nonlinear payoff, which is as incalculable as the weather, so the development of a Black Swan in a big company is unlikely because the calculation of present value for money spent in getting it developed is impossible and therefore not even attempted. The false assumption of a linear future for business as usual and the treatment of sunk costs for technology development "disadvantages every capital-intensive platform investment and supports anything that prolongs the life of aging assets." (p. 13). And then there is the earnings per share pressure on management each quarter, which discourages any investment in breakthrough (nonincremental) technology that will only bear fruit some years in the future. It incentivizes cutting down the orchard for firewood. The business schools that have given America a gutted industrial base, a casino economy, and a hostile climate for engineering and innovation have a lot to answer for.
__________________
"Education is lighting a fire, not filling a bottle." -- Plutarch
|
Comments rated to be Good Answers: