Here's an Idea: Let Everyone Have Ideas (NYTimes, 03/26/06)

March 26, 2006
Under New Management
Here's an Idea: Let Everyone Have Ideas
By WILLIAM C. TAYLOR
LIKE many top executives, James R. Lavoie and Joseph M. Marino keep a close eye on the stock market. But the two men, co-founders of Rite-Solutions, a software company that builds advanced — and highly classified — command-and-control systems for the Navy, don't worry much about Nasdaq or the New York Stock Exchange.
Instead, they focus on an internal market where any employee can propose that the company acquire a new technology, enter a new business or make an efficiency improvement. These proposals become stocks, complete with ticker symbols, discussion lists and e-mail alerts. Employees buy or sell the stocks, and prices change to reflect the sentiments of the company's engineers, computer scientists and project managers — as well as its marketers, accountants and even the receptionist.
"We're the founders, but we're far from the smartest people here," Mr. Lavoie, the chief executive, said during an interview at Rite-Solutions' headquarters outside Newport, R.I. "At most companies, especially technology companies, the most brilliant insights tend to come from people other than senior management. So we created a marketplace to harvest collective genius."
That's a refreshing dose of humility from a successful C.E.O. with decades of experience in his field. (Mr. Lavoie, 59, is a Vietnam War veteran and an accomplished engineer who has devoted his career to military-oriented technologies.)
Most companies operate under the assumption that big ideas come from a few big brains: the inspired founder, the eccentric inventor, the visionary boss. But there's a fine line between individual genius and know-it-all arrogance. What happens when rivals become so numerous, when technologies move so quickly, that no corporate honcho can think of everything? Then it's time to invent a less top-down approach to innovation, to make it everybody's business to come up with great ideas.
That's a key lesson behind the rise of open source technology, most notably Linux. A ragtag army of programmers organized into groups, wrote computer code, made the code available for anyone to revise and, by competing and cooperating in a global community, reshaped the market for software. The brilliance of Linux as a model of innovation is that it is powered by the grass-roots brilliance of the thousands of programmers who created it.
According to Tim O'Reilly, the founder and chief executive of O'Reilly Media, the computer book publisher, and an evangelist for open source technologies, creativity is no longer about which companies have the most visionary executives, but who has the most compelling "architecture of participation." That is, which companies make it easy, interesting and rewarding for a wide range of contributors to offer ideas, solve problems and improve products?
At Rite-Solutions, the architecture of participation is both businesslike and playful. Fifty-five stocks are listed on the company's internal market, which is called Mutual Fun. Each stock comes with a detailed description — called an expect-us, as opposed to a prospectus — and begins trading at a price of $10. Every employee gets $10,000 in "opinion money" to allocate among the offerings, and employees signal their enthusiasm by investing in a stock and, better yet, volunteering to work on the project. Volunteers share in the proceeds, in the form of real money, if the stock becomes a product or delivers savings.
Mr. Marino, 57, president of Rite-Solutions, says the market, which began in January 2005, has already paid big dividends. One of the earliest stocks (ticker symbol: VIEW) was a proposal to apply three-dimensional visualization technology, akin to video games, to help sailors and domestic-security personnel practice making decisions in emergency situations. Initially, Mr. Marino was unenthusiastic about the idea — "I'm not a joystick jockey" — but support among employees was overwhelming. Today, that product line, called Rite-View, accounts for 30 percent of total sales.
"Would this have happened if it were just up to the guys at the top?" Mr. Marino asked. "Absolutely not. But we could not ignore the fact that so many people were rallying around the idea. This system removes the terrible burden of us always having to be right."
Another virtue of the stock market, Mr. Lavoie added, is that it finds good ideas from unlikely sources. Among Rite-Solutions' core technologies are pattern-recognition algorithms used in military applications, as well as for electronic gambling systems at casinos, a big market for the company. A member of the administrative staff, with no technical expertise, thought that this technology might also be used in educational settings, to create an entertaining way for students to learn history or math.
She started a stock called Win/Play/Learn (symbol: WPL), which attracted a rush of investment from engineers eager to turn her idea into a product. Their enthusiasm led to meetings with Hasbro, up the road in Pawtucket, and Rite-Solutions won a contract to help it build its VuGo multimedia system, introduced last Christmas.
Mr. Lavoie called this innovation an example of the "quiet genius" that goes untapped inside most organizations. "We would have never connected those dots," he said. "But one employee floated an idea, lots of employees got passionate about it and that led to a new line of business."
The next frontier is to tap the quiet genius that exists outside organizations — to attract innovations from people who are prepared to work with a company, even if they don't work for it. An intriguing case in point is InnoCentive, a virtual research and development lab through which major corporations invite scientists and engineers worldwide to contribute ideas and solve problems they haven't been able to crack themselves.
InnoCentive, based in Andover, Mass., is literally a marketplace of ideas. It has signed up more than 30 blue-chip companies, including Procter & Gamble, Boeing and DuPont, whose research labs are groaning under the weight of unsolved problems and unfinished projects. It has also signed up more than 90,000 biologists, chemists and other professionals from more than 175 countries. These "solvers" compete to meet thorny technical challenges posted by "seeker" companies. Each challenge has a detailed scientific description, a deadline and an award, which can run as high as $100,000.
"We are talking about the democratization of science," said Alpheus Bingham, who spent 28 years as a scientist and senior research executive at Eli Lilly & Company before becoming the president and chief executive of InnoCentive. "What happens when you open your company to thousands and thousands of minds, each of them with a totally different set of life experiences?"
InnoCentive, founded as an independent start-up by Lilly in 2001, has an impressive record. It can point to a long list of valuable scientific ideas that have arrived, with surprising speed, from faraway places. In addition to the United States, the top countries for solvers are China, India and Russia.
Last month, InnoCentive attracted a $9 million infusion of venture capital to accelerate its growth. "There is a 'collective mind' out there," Dr. Bingham said. "The question for companies is, what fraction of it can you access?"
That remains an unanswered question at many companies, whose leaders continue to rely on their own brainpower as the key source of ideas. But there's evidence that more and more top executives are recognizing the limits of their individual genius.
Back at Rite-Solutions, for example, one of the most valuable stocks on Mutual Fun is the stock market itself (symbol: STK). So many executives from other companies have asked to study the system that a team championed the idea of licensing it as a product — another unexpected opportunity.
"There's nothing wrong with experience," said Mr. Marino, the company's president. "The problem is when experience gets in the way of innovation. As founders, the one thing we know is that we don't know all the answers."
William C. Taylor is a co-founder and founding editor of Fast Company magazine. He lives in Wellesley, Mass.

A Sharp Debate Erupts in China Over Ideologies (NYTimes, 3/12/06)

March 12, 2006
A Sharp Debate Erupts in China Over Ideologies
By JOSEPH KAHN
BEIJING, March 11 — For the first time in perhaps a decade, the National People's Congress, the Communist Party-run legislature now convened in its annual two-week session, is consumed with an ideological debate over socialism and capitalism that many assumed had been buried by China's long streak of fast economic growth.
The controversy has forced the government to shelve a draft law to protect property rights that had been expected to win pro forma passage and highlighted the resurgent influence of a small but vocal group of socialist-leaning scholars and policy advisers. These old-style leftist thinkers have used China's rising income gap and increasing social unrest to raise doubts about what they see as the country's headlong pursuit of private wealth and market-driven economic development.
The roots of the current debate can be traced to a biting critique of the property rights law that circulated on the Internet last summer. The critique's author, Gong Xiantian, a professor at Beijing University Law School, accused the legal experts who wrote the draft of "copying capitalist civil law like slaves," and offering equal protection to "a rich man's car and a beggar man's stick." Most of all, he protested that the proposed law did not state that "socialist property is inviolable," a once sacred legal concept in China.
Those who dismissed his attack as a throwback to an earlier era underestimated the continued appeal of socialist ideas in a country where glaring disparities between rich and poor, rampant corruption, labor abuses and land seizures offer daily reminders of how far China has strayed from its official ideology.
"Our government only moves forward when it feels there is a strong consensus," said Mao Shoulong, a public policy specialist at People's University in Beijing. "Right now, the consensus is eroding and there is a debate over ideology, which we haven't seen for some time."
The divide does not appear likely to derail China's market-led growth. President Hu Jintao, in what Chinese political experts and party members said was a clear reference to the debate, told legislative delegates last week that China must "unshakably persist with economic reform."
China has generally stuck by its market-opening commitments to the World Trade Organization. Wen Jiabao, the prime minister, has allowed billions of dollars in foreign investment to flow into the once tightly protected financial sector.
Legislative officials insist that the proposed law, which has taken eight years to prepare and is intended to codify a more expansive notion of property rights added to the Constitution in 2003, will sooner or later be enacted, though possibly with some significant modifications.
But Mr. Hu and Mr. Wen wittingly or unwittingly invited the debate when they made tackling growing inequality a center of their propaganda efforts, political analysts say. The state-run news media are abuzz with calls to make "social equity" the focus of economic policy, replacing the earlier leadership's emphasis on rapid growth and wealth creation.
Since his rise to power in 2002, Mr. Hu has also tried to establish his leftist credentials, extolling Marxism, praising Mao and bankrolling research to make the country's official but often ignored socialist ideology more relevant to the current era.
He told party leaders in 2004 to study how Cuba and North Korea maintained political order, party officials say. And he has tried to distance himself from his predecessor, Jiang Zemin, who invited private businessmen to join the Communist Party and was viewed as permitting well-connected officials to enrich themselves with public property at the expense of the poor.
"Hu is himself a centrist who is not really pursuing one agenda or the other," observed a party official who said he could be punished for talking about leadership politics if he were quoted by name. "But he did pull us to the left to restore balance, and that gave the old guard an opportunity it has not had in years."
As a result, analysts say, the leadership may find it harder to pursue market-oriented solutions to some pressing problems, like providing health care to rural residents, grappling with rampant corruption in the state sector, expanding access to education and overhauling banks, insurance and securities companies.
Beijing's new plan to address its rural woes, labeled "building a new socialist countryside," promises an infusion of government cash for peasants and rural areas. But it steers clear of tackling some restrictions on economic activity, like a ban on private land sales in the countryside, that many pro-market economists say have left peasants economically disenfranchised.
"My impression is that allowing an expanded role for the market in education and health care is off the table," said Mr. Mao, the People's University policy expert. "Rural land ownership is also too sensitive to consider now."
The tensions reflect rising concern that breakneck growth averaging nearly 10 percent annually over 20 years has left China richer but also dirtier and, by the standards of the one-party state, politically volatile.
Corruption, pollution, land seizures and arbitrary fees and taxes are among the leading causes of a surge in social unrest. Riots have become a fixture of rural life in China — more than 200 "mass incidents of unrest" occurred each day in 2004, police statistics show — undermining the party's insistence on social stability.
Many Western and some Chinese experts have argued that these problems stem from China's authoritarian political system, and that they will not easily go away until people have a greater say in how they are governed. But the Communist Party and many left-leaning scholars reject that view. They say the ills are caused by capitalist excesses and rising inequality, which they say requires that the government reassert itself in economic affairs.
One measurement of inequality, the gap between the average incomes of urban and rural residents, has risen to about 3.3 to 1, according to the United Nations Development Program, higher than similar measures in the United States and one of the world's highest. A study by the party's Central Research Office estimates that the ratio could rise to 4 to 1 by 2020 if current trends continue, a level some Chinese economists say could incite wider social turmoil.
Such political fears seemed to give an opening to critics who felt economic policies had strayed too far toward capitalism. The strength of leftist opposition had faded throughout the 1990's after Deng Xiaoping, who called economic development "hard truth," and later Mr. Jiang tolerated little ideological discussion of the direction of changes.
Liu Guoguang, a Marxist economist and a former vice director of the Chinese Academy of Social Sciences, stimulated an outpouring of opinions about inequality last summer when he gave a private talk that was transcribed and posted on the Internet. His talk supported the emphasis on growth and development but called for a much larger role for the government in managing economic affairs.
In a subsequent interview with Business Watch, a state-run magazine, Mr. Liu said, "If you establish a market economy in a place like China, where the rule of law is imperfect, if you do not emphasize the socialist spirit of fairness and social responsibility, then the market economy you establish is going to be an elitist market economy."
He has been joined by other scholars, including Mr. Gong, whose incendiary polemic on the property law prompted a succession of sympathetic essays and study sessions.
Also contributing to the response is the Hong Kong-based economist Lang Xianping, who has used a television show to pillory what he describes as raids on state assets by managers and foreign investors.
One top official who has come under scrutiny is Zhou Xiaochuan, the central bank governor and a promoter of market initiatives. Mr. Zhou attracted foreign investment to the financial sector, partly delinked China's currency from the United States dollar and steered the three biggest state-owned banks toward stock market listings overseas.
Mr. Zhou was attacked directly in a widely circulated Hong Kong newspaper article and indirectly by commentators in Beijing, who accuse financial officials of selling China's most valuable assets too cheaply.
Ji Baocheng, president of People's University in Beijing, criticized Mr. Zhou's banking changes in a public session of the legislature last week. He cited the big Hong Kong stock market listing of China Construction Bank, which was completed after the government injected billions of dollars to clean up its balance sheet.
Mr. Ji said the government priced shares in the bank too low, given the fresh infusion of capital, and he accused officials of "blindly sacrificing the interests of China and its people."
The government defends the overseas listings as a necessary step to raise capital, attract foreign experts to the boards and executive offices of the troubled banks and put the financial system on sounder footing.
Some pro-market economists, who seemed ascendant in the 1990's and early in this decade and now often sound defensive, have denounced the leftist revival as dangerous. Many also criticize the Hu-Wen administration for micromanaging investment and bank loans, tinkering with property and stock markets and declining to extend market-oriented policies to the countryside.
Zhou Ruijing, a retired newspaper editor associated with the pro-market camp, captured the sentiment in a January magazine essay.
"A widening gap between rich and poor is not the fault of market reforms," he wrote. "It's the natural result of them, which is neither good nor bad, but quite predictable."