Wednesday, January 28, 2009

Can IT lead the U.S. out of the recession?

The U.S. economy in deep recession which hasn't been seen since the great depression, and it been forecast by many to last at least until the end of 2010.  Can IT sector of the economy signal the recovery of the economy has a whole? I recently read a McKinsey Quarterly published a study that showing five downturn and recovery from recessions (1973-75, 1980-82, 1990, 2001) and the current recession recovery which began in Q3 2008. The sectors of the economy listed in the study were:

Consumer discretionary
Health care
Information technology
Telecommunications services

Each of the above sectors of the economy was given four sequences (Lead, Lag, In line, No effect) related to how they performed in the recovery phase.  According to McKinsey Quarterly history suggest that in three of the four most recent recessions, higher consumer discretionary and IT spending led the way to recovery and the current recession seems to be following a similar pattern. Looking at the IT sector companies earnings before interest, taxes, and amortization (EBITA) will be carefully watched by executives across all industries and market watchers.
As an avid follower of business news, I noticed business news focus on the earnings of Cisco (CSCO).  Many analyst view Cisco as a bellweather/ground hog of the tech industry and the economy as a whole thus it should indicate the start of a recovery.  So keep an eye on Cisco earning (EBITA) for the near future.

Tuesday, January 13, 2009

Success, Failure, learning and Innovation (Part 1)

I recently had a epihany will reading a blog posting by Miko Matsumura of the website formerly known as the SOA center. Innovations is a by product of Power distribution, which more recently popularized in Chris Anderson's book the Long Tail.   I propose that break thru innovation can follow the power curve distribution.  Consider the following.
Power law graph

Thomas Edison supposedly had 1,600 experiments fail before he invented the light bulb, but a friend asked him why he was wasting so much time on the project when he wasn't accomplishing anything, Edison replied, "Of course I'm accomplishing something. I've learned 1,600 ways it doesn't work!"

Edison's "failures" if graphed would look like the yellow long tail of the above graph with the successes in the green area eventually leading to the invention of the light bulb.  Another less visionary way of looking at Edison's innovation is the "80-20 Rule" which stated simply is that approximately 80% Edison's experiment failed (ways it didn't work) and 20% meet with some degree of success before his ultimate success.  No one knows for sure what the actually distribution of Edison's experiment were, but this my theory of how innovations occur over time. More examples to follow this post.