November 2016

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Alongside the well-established Thanksgiving traditions of eating turkey and playing touch football exists Black Friday deal hunting. We love a deal, and we really don’t care where that bargain comes from. Incoming President Donald Trump wants to bring manufacturing jobs back to America but our love for cheap stuff might make it impossible.

When cost is not an issue, Americans are very patriotic. A recent survey by Consumer Reports shows a substantial majority asserting willingness to buy an American-made product over one manufactured abroad.

But what is an American-made product? Most of what we consume — electronics, clothing, automobiles and packaged goods — involve multiple steps of production and combinations of raw materials, components and labor.

The value chains, as they are known, are complex for many popular American products. Even for many foreign-manufactured products, a significant portion of their economic value inures to American workers. For example, a recent study by the Wharton School shows that 40 cents of every dollar of imports from Mexico went to American businesses. Another analysis shows that 75 American companies manufacture components incorporated into an iPhone imported into the US from China.

These small data points are part of a larger trend: the merchandise we snatch up on Black Friday — even the imported stuff — usually incorporates the productive activities of our citizens. Identifying where they are involved is salient: from creating and manufacturing complex components to selling and servicing completed products.

Jobs in the middle — the combination of components and American intellectual property — are the jobs being done elsewhere. Companies choose to structure production overseas for a variety of reasons: Labor rates are cheaper, workers have less negotiating leverage, workforce conditions are less stringent and international tax rules encourage allocation of portions of the value chain outside of the United States. In other words, companies are being encouraged to use non-U.S. workers to make the products we consume.

Supporters of international trade point out that this allocation of labor — the separation of roles between the workers who create things, and those who build them at scale — allows for nations and businesses to specialize and be more efficient. This efficiency results in lower prices for the consumer or higher profits to the creator.

And therein lies the reality of the issue. Our workers miss out on manufacturing jobs because the cost of their labor is comparatively expensive. It’s not that we can’t do more manufacturing here, we are simply making a choice not to.

We must accept that many of our products would become more expensive if we kept a bigger chunk of the value chain in the United States. Try telling that to a Black Friday shopper.

Consider how resistant many of our largest employers and political leaders are to raising the minimum wage or encouraging unionization. Would they be willing to pay more to use American labor, or would they expect our workers to be satisfied with the wages and workforce conditions that prevail in India, China or Vietnam?

While American consumers say they want to purchase American-made products, they will only do so if they are priced the same as a foreign-sourced alternative.  A recent Associated Press/Gfk poll shows 71% of Americans would not pay more for a U.S.-sourced product if a cheaper foreign-sourced alternative were available.

Shoppers at the checkout with a flat screen TV or a cashmere sweater for Dad surely realize that low price comes with a cost. We talk a great game for bringing manufacturing jobs home. But are we truly willing to pay for it?

Originally posted in WashingtonPost.com

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Our 45th president will be a businessman who promised to change government, and our nation is poised to find out whether change management principles applied in commerce can work in public office. After years of working to change how government works in relation to technology and innovation, I have some hard-learned perspectives.

Changing large organizations is a tough challenge. Most organizations reach a point in their operational history where they lose their way, and their methods no longer provide the profits and growth necessary for survival. The reality in the private sector is that a business must have profitable growth to survive. Growth creates opportunities for employees and wealth for the owners.

The subtext here is highly important. Growth in business creates personal satisfaction for those involved who feel like what they are doing matters, and that their daily activities have consequences. And, conversely, stagnation and decline cause dissatisfaction and accelerate business decline.

To grow a business, impediments such as unproductive employees, products that are no longer compelling, antiquated technology or unappealing working conditions must be removed and overcome. The status quo must be disrupted.

Organizational change requires a few things to succeed. First, a compelling vision for others to follow. Second, a targeted core group of individuals within the organization excited about the shared vision. Third, a way to restructure the environment around employees to reinforce company goals. And, lastly, the ability to encourage those who do not adapt to change to find employment elsewhere. Simply put, you can change an organization by rewarding employees who “get with the program” and trim those who don’t. That is the nature of business.

Massive change of large business organizations is possible. Consider how IBM modified itself from a main frame computer business to a consulting services and software provider. Or, how Netflix went from a DVD rental business to an over-the-top content provider challenging the primacy of traditional networks and cable companies.

However, changing government is a very different thing, with two types of issues: the mechanics of government —how government benefits such as programs, entitlements and rules are provided to society, and government itself — what is appropriate for government to do.

Resolving both issues involves the interplay of politics and policy. However, only the first is suitable for a business approach to organizational change.

Business principles of organizational change to government were recently applied to the Pentagon’s DIUx or the GSA’s 18F innovation programs. However, the take-it-or-leave-it attitude to resolving the question of what government should do is not an option — it’s not in the nature of a representative democracy.

The U.S. Constitution provides for separation of power and delegation of authority for a reason: we can’t just fire our citizens if they don’t agree with a vision. While that might be great reality television, it’s not how our country works.

This very important distinction is why being the chief executive of a company is not the same thing as being the president of the United States. Change is possible, but it requires finesse and the utmost respect for how government works.

Read column at WashingtonPost.com.

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Entrepreneurs love disruptions. A shake-up in the status quo is when the most inviting opportunities occur. And we can all agree that last week’s election result is shaking up Washington, D.C.

Our region’s innovation community has a chance to grow under the new administration — if we know where to look.

Very few Americans know exactly what to expect after Inauguration Day, but we can infer from president-elect Donald Trump’s campaign and Republican policy goals expressed in the last Congress some important data points — and use them to capitalize on changes ahead.

I’m already on record touting personalized medicine as a specific business opportunity for our region. Now, big changes are promised in the federal government’s role in health care delivery, and the dynamics of health insurance and services could also fundamentally change.

Watch for these changes to drive two big innovation trends. There will be a market to provide more efficient health care to people with less money and at the other end of that spectrum, a growing demand for high value-added health care to those who can afford it. Both trends could be a boom for personalized health care.

Cybersecurity is another of our strengths and this election certainly clarified why cybersecurity matters.

The greater Washington region would benefit from a renewed federal focus on innovation. The Obama administration is tightly integrated in Silicon Valley as a conduit for innovation, with many of the most publicized efforts including government tech hubs called DIUx, 18F and others reflecting this integration. The incoming administration does not have the same level of existing interconnectedness with Silicon Valley, creating an opportunity for a “reset” of the perceived role of our region in providing technology innovation.

Federal spending on national security is also expected to increase, driving opportunities for our region’s federal contracting businesses — particularly the most innovative. Innovation for national security will continue to be important because our adversaries are not standing still, and many national security challenges require small and creative teams in areas such as cybersecurity, artificial intelligence, autonomy and space exploration.

In the past, increased demand for talent in the national security sector crowded out those otherwise available for start-ups. For the greater Washington region, this has been the good news/bad news of proximity to the federal government.

Expected dynamics in the coming years will make this crowding out less likely. First, much of the required agility in innovation is more suited for small teams building technology products. This will drive technology product start-up growth; expect regional government contractors to be more active participants and partners in the start-up community as a result.

Second, promised tax cuts will free up significant amounts of capital to invest. Risk capital is the lifeblood of start-ups.

Third, start-ups will be affected by changes in regulation — or lack thereof — in two unexpected ways. It will be less likely that rules to encourage business competition by limiting concentrations of economic power (think net neutrality or antitrust) will be enforced. This will provide an advantage to large scale businesses operating in maturing industries, and make it harder for smaller businesses to compete and grow in existing industries.

Conversely, the lack of government intervention will allow start-ups creating something innovative to reach customers more quickly. With less friction, nimbleness is more likely to be rewarded.

The Trump administration will change Washington, D.C, and the politics and policies that affect these changes will be profound and likely hard fought.

Our region’s innovation community is used to pivoting, and although we don’t know what exactly will replace the status quo, we do know that the agile will be the winners.

Entire post at WashingtonPost.com.

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The $112 million partnership to bring a University of Virginia School of Medicine campus to the Inova healthcare complex in Fairfax is an important addition to an emerging industry in the greater Washington region. We have given lots of regional focus to cybersecurity, and now, personalized healthcare needs similar attention.

As we look to grow our economy off our strengths, personalized healthcare is an essential opportunity here in the capital region. It delivers therapeutic technologies based on a patient’s genetic and proteomic makeup. It allows doctors to choose medications that work best on a specific patient, and to customize guidance on how to avoid illness and live better quality lives.

As an industry, personalized healthcare shares with cybersecurity certain growth characteristics that make it attractive for our economic development — especially because of how we now know our region innovates and grows winning businesses.

Through Amplifier Advisors comprehensive analysis of our region’s entrepreneurial and innovation ecosystem, we can point to a consistent model of successful D.C. entrepreneurship. Leaders of businesses such as Capital One, AOL, Cvent, and MedImmune grew and successfully sold their businesses by taking strategic advantage of being at the crossroads of a unique entrepreneurial ecosystem that combined capital, talent and proximity to the federal government.

Ample data now supports the conclusion that the cybersecurity industry provides opportunity for D.C. entrepreneurship. Almost 1,000cybersecurity companies in the region, as well as the presence of many federal labs and universities, have created a large, impressive talent pool.

The federal government is both a primary funder of research and development and a customer for cybersecurity technologies. It is also where issues such as privacy, legal liability for corporate boards when data breaches occur and national security coordination of threat responses are determined — issues that must be addressed and resolved for our cybersecurity industry to reach its potential.

Entrepreneurial activity in personalized healthcare is not yet at the level of cybersecurity, however, the growth opportunities are very similar.

The greater Washington region has a large and growing concentration of talent to support a dynamic personalized healthcare industry. The addition of University of Virginia School of Medicine at Inova amplifies existing activities at Johns Hopkins, George Washington University and George Mason.

The federal government is a large funding source for research in personalized healthcare, with the National Institutes of Health being the best known but not sole example. And, as in the case of cybersecurity, resolution of important policy issues is needed for the personalized healthcare industry to grow — issues such as privacy, insurability considering genetic disposition for disease, government healthcare reimbursement and allocation of healthcare resources.
There are two other important reasons our region should applaud efforts to grow more entrepreneurial activity in personalized healthcare.

First, the conversion of research and development into commercial production occurs most frequently in healthcare, especially for university-derived technology transfer. Therefore, by focusing more regional efforts on personalized healthcare, we make it more likely that our universities and supporting organizations will create exciting new businesses that will accelerate regional growth.

Second, the development of cybersecurity and personalized healthcare in the same region will provide an important multiplier effect. Many of the technologies underpinning the medical wave of the future — data analytics, sensors, man/machine interface and artificial intelligence — are also highly relevant to the development of the cybersecurity industry.

And, of course, the concentration of highly confidential patient data is a huge market for cybersecurity technologies.

There is still significant work to be done to integrate our region’s innovators into these opportunities. But, knowing where you want to go is a condition to success. And each day that is becoming clearer.

Entire column at WashingtonPost.com.

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