Loose Cannons, Volume 1

September 7, 2009

Dilbert.com

This is my all-time favorite Dilbert cartoon. Anyone who has ever worked in a large corporation like Hewlett-Packard understands immediately what’s going on here.  I always used it in CTO coffee talks when I wanted to show our engineers that I was really one of them — that I  wasn’t from another world (although I  suspected that many of them were already convinced that I was the pointy-haired boss and some thought I was Blob).  After a few hours, like clockwork, the email would start pouring into my inbox.  The subject line was always something like: “From a Loose Cannon.”

Some of the messages were very strange and a few (like the ones talking about contacting aliens from space) were downright disturbing, but most of them were respectful notes to let me know of  legitimate ideas that hadn’t made it through internal management gates.  I knew the engineering managers well.  They were smart and careful and for the most part they were very successful.  I didn’t want to second-guess their investment decisions, but I started wondering whether another sort of investment analysis would give a different answer, because these were obviously colliding worlds.

I was not popular with some of HP’s general managers because I had invented a new sort of escalation path for engineers, inviting ideas that had already been turned down at some point in the management chain.  I created a Technology Council consisting of the CTO’s of each of the major business units, the Director and Chief Scientist from HP Labs and some  HP Fellows to help with technology strategy and road-mapping, so it made a great deal of sense to use this team to take one more look at some of the Loose Cannon Ideas.

One of the Loose Cannons proposed using HP’s Jornada Pocket PC “to control my TV and VCR or other IR devices – that way you could store stuff in there and program those things simply and easily.” Another L-C wanted to create a document management system for the “growing home genealogist market”.

The company already had a rich history of encouraging risk-taking by its technical staff, but at HP business objectives were never far from sight.  There was a 60-year history of combining risk with rational investment.  It was a strategy that worked well.  It was lightweight, and I think that’s why cool new products and sometimes whole new product categories continued to flow out of R&D activities.  I am not only talking about the research labs. At that time there were over  12,000 engineers, many of whom had advanced degrees and were rewarded for patents, publications and other creative work; there was incredible bench strength. I will have more to say in later posts about how this process of identifying and nurturing creative ideas was carried out, but today I want to concentrate on the very specific calculation that virtually all R&D managers in the company learned.  I think that the legendary Joel Birnbaum was responsible for it, but my friend Stan Williams, who for many years now has guided HP’s nanotechnology and quantum computing research nailed the analysis in a dramatic way[1]:

…Why don’t we put together a program to become the world’s best center in quantum computation?

The answer is that even in the research labs we have to be ‘cold blooded’ businessmen…The first question is this: what is going to be the total world market for the technology?…The answer is, looking 15 years ahead, $1 trillion per year…we then have to ask what fraction of the market will belong to quantum computation…Now, how much could HP capture if it went after it very aggressively…[then] the question is if we could sell that 15 years from now that is the appropriate level of investment for that income stream?

Stan then incorporated development costs, risks and barriers and the time value of money to conclude:

…even when addressing a significant share of a $100 billion market that is 15 years in the future, the amount of money we should be spending now is about a million dollars per year.  In an industrial laboratory environment that’s about three researchers with their associated overhead costs.

Every engineering manager in the company knew how to play this calculation in reverse:  if we fund one full time engineer to pursue a new, untested idea, what is the possible income stream we would see from that research 3, 5, 8, or 15 years from now?  Many – maybe most – of the technical staff understood it, too. And yet, there were these L-C ideas that just never seemed to go away. A generation earlier Dick Hackborn had been a management champion for inkjet printing, a crazy, complicated way of spraying colored water on paper, that even today accounts for most of HP’s financial success. As far as I know Dick was not in the decision chain for printing solutions, but he was a very influential guy and his sponsorship swayed many opinions at the topmost levels of management.

So what was the Technology Council’s role in all of this?  The company was much bigger, and a consequence of size is a decreased reliance on individual opinion and an increased reliance on quantitative processes.  As a result new ideas needed to be accompanied by a business case analysis that supplied both the decision model and the critical financial and market parameters. The difficulty was that business managers were making decisions mainly about their markets and their risks which affects the starting point for Stan’s calculation and may dramatically underestimate the role that organizational barriers play in estimating the total risk.  The Technology Council was in a position to combine information from a number of business units and recalculate the business case.

Here’s one example. HP was at that time organized into four large business units:  one for personal computers, one for services, one for large servers, and another for printing.  The software in HP’s most expensive servers was a version of the original Unix developed at Bell Labs in the 1970’s called HP-UX.  It was one of the most important profit drivers for HP’s high performance business systems but it was under pressure from the high volume Microsoft-based market on one side and other Unix variants such as Linux, Solaris, and AIX on the so-called “value” side of the server market. The Printing Group also was in the software business, designing drivers and user interfaces for printers and scanners that were attached to personal computers and workgroup servers.  The focus of printing software was on the large and very profitable market for Microsoft-based PC’s, workstations, and servers.  By comparison, relatively few of the much more expensive HP-UX systems were sold.  The Printing Group did the Williams calculation and concluded that investing in software for HP-UX was not warranted.  The Server Group meanwhile was being starved for printing solutions.  Customers were asking for it.  Lack of HP-UX printing support meant lost sales, but HP-UX software developers would have needed engineering support from their colleagues in the Printing Group in order to make any headway.  Printing did not see enough downstream revenue to justify such an investment.

A Loose Cannon proposed that my office should fund a cross-business initiative in HP-UX printing solutions.  When the Technology Council looked at the opportunities that were being lost, it was clear that even a modest investment would pay off in the very near term.  Although we didn’t realize it at the time, it turned out that HP’s investment in Linux would quickly  take hold in the marketplace, so the investment in HP-UX printing had a big impact on that market as well.

There were worlds smashing into each other all over the place in those days, and there were two organizational decisions that made a difference.  The first was Carly Fiorina’s decision to make the CTO a member of  the company’s Executive Council – the half-dozen executives who ran the company.  This added a technology voice to the most significant decisions made at HP. Having a seat at the table is important when worlds collide, and I will give many examples of this in later posts. The second was the decision to charter the senior technologists in the company to spend an entire day every quarter looking beyond their own business plans for new technologies and products that would have been dropped or gone unnoticed because they had not survived Stan Williams’ cold blooded calculation within a business silo.

Many other developments grew out of these Loose Cannon discussions including HP’s aggressive entry into open source software, supercomputing, and commercial printing.  Successfully bringing Loose Cannons into the fold really requires you to squarely face  two important issues.  The first concerns the role that organizational barriers play in affecting overall technology strategies, The second is why technologists don’t more often have a meaningful seat at the table in executive suites and boardrooms. More on how to deal with these issues later, but I will give you a hint right now: there are no clean solutions because worlds are in collision.

I arrived at HP long after Steve Wozniak sent his letter asking for permission to commercialize “hobbyist” computers (see my last post Proposition 13 and Innovation).  If  he and I had overlapped I wonder if he would have been one of my Loose Cannons and whether his letter would have been needed.


[1] “Nanocircuitry, Defect Tolerance and Quantum Computing: Architectural and Manufacturing Considerations” by R. Stanley Williams in Quantum Computing and Communications edited by Michael Brooks, Springer 1999.

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9 Responses to “Loose Cannons, Volume 1”

  1. rjlipton Says:

    Great post. I do like this Dilbert cartoon. There so many great ones to choose from.

    One question. The overhead calculation on investment does not seem to take into account the negative effect of lost opportunity cost. Does it?

    • richde Says:

      Yes, that’s one of the things that this kind of model completely ignores. It’s just a straight NPV calculation for the future income stream. Besides lost opportunities, it assumes that the probabilities actually make sense. That’s why people like an options model — it expands the space of likely outcomes to include decisions that you will make in the future that you are not in a position to make today. The corresponding question for options is: “What is the level of investment today in order to be in a position to make a decision 3 years from now if that decision is tied to a future income stream?” A lost opportunity is just one example of that.

      I’ll devote several posts to this idea at some point.


  2. […] thought it would be a good occasion to  reflect on how easy it is for Loose Cannons to get smashed by colliding […]


  3. […] thought it would be a good occasion to  reflect on how easy it is for Loose Cannons to get smashed by colliding […]


  4. […] address was that Frosch was talking about something like the “future value of research” (see “Loose Cannons”) until I read the published version of the speech[1]: I have seldom, if ever, met a customer for an […]


  5. […] was leveraged by several years of prior research, and  – refer to my last post “Loose Cannons, Volume 1” — this is the way managers are supposed to select promising technologies. The […]


  6. […] In “Well, what kind of fraud is it?” Edward clearly lived in a different world, and the many “Loose Cannons” who I still hear from were never able to bridge the gulf.  Everyone seems to be a helpless […]


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