Connecting the dots: Europe, Italy, innovation

Today is Sunday, and therefore I would like to share few thoughts derived from both the economic and political news of this week.

I will first share what is derived directly from the news, and then something that I was preparing, on “connecting-the-dots”, and has been relaunched by a discussion that I had online yesterday with a friend.

Europe and Italy

Few days ago I posted online an article (Converging Europe- what the numbers say) following some number crunching that I did on few indicators. Aim? Have a simple visual perspective on how much few European countries are converging.

As for Italy, I waited few days- first, to see the results of the recent administrative elections and its immediate political fall-back, then to observe the June 2nd National Holiday, and finally to see the “ground level” reactions- the people.

Actually, to prepare that article, I had also tried to get an historical perspective- and this included re-reading, for the first time since February 1990, a collection of articles and speeches written from the former Governor of the Central Bank of Italy, Guido Carli.

Why did I chose his writings? Because he covered a significant chunk of the economic history of my birthplace, Italy, from the early XX century, until the late 1980s, right before the “Clean Hands” investigation (about massive corruption) had a significant impact on the existing main political parties.

I had posted at the end of April an article (Balance of Power) on the forthcoming nomination of the new head of the European Central Bank.

When, weeks later, I reread the writings of Mr. Carli, I found an interesting quote, about how 1960s Italy and Germany had what I could call an “entente cordiale” between Mr. Carli and Mr. Blessing, the then Bundesbank President.

And that included defending the choice to stop converting dollars into gold, to avoid undermining the currency markets.

I was reminded of that choice over the last few days, when Greece was supported by other Euroland countries.

Then as now, a shared, long-term political goal (as well as the memories of the past) helped to steer the choice.

Italy

On a smaller scale, Italy had a round of administrative elections, elections that were announced by the President of the Council of Ministers, Mr. Berlusconi, as a poll on his popularity.

And resulted in the loss of a major town (Milan, the financial capital) to the opposition, while they confirmed also Turin (the industrial capital, my birthplace), and Naples (the most important town in the South) was won by an opposition party (albeit switching party within the Centre-Left coalition, as the town had already been under the same coalition).

Are the confirmation of the current Governor of the Bank of Italy to the ECB and the political successes of the ruling Government coalition in Italy interconnected?

Not necessarily, as the Bank of Italy has been long considered one of the few independent and continuously respected institutions in Italy.

And this despite the recent indictment of the previous Governor, Mr. Fazio, for some preferential treatment given to few banks, that affected also foreign banks, such as ABN Amro.

Including one close to a member of the Government coalition, the Northern League- Italian banks had often been treated as a political pork barrel, and not only after WWII, as proved by the Banca Romana scandal at the end of the XIX century.

As another former Governor, Luigi Einaudi, wrote in 1943: “La produzione, la quale è la combinazione di elementi produttivi, non è un fatto materiale, è invece soprattutto un fatto spirituale”.

You can use GoogleTranslate, but the meaning is quite simple: you have to make choices on “how” you assemble the components concurring to the economic results- and those choices are not merely a technical issue.

Converting an industrial economy

On the economic side, as I was reminded yesterday (Infographic: The Resurgence of the American Auto Industry), and earlier by Mr. Marchionne, FIAT’s CEO, few positive signs, as Chrysler paid back the loans six years ahead of schedule, and therefore FIAT is on track to take over Chrysler.

Yes, we Italians are usually proud when fellow Italians, companies or scientists, are successful abroad.

Pity that often we forget that those successes abroad (e.g. Nobel Prize winners in various scientific disciplines) did have to expatriate to find the environment where their potential could be exploited.

But this (foreign) success was partially overshadowed by few losses: Parmalat, gradually recovering from the financial mis-management of Mr. Tanzi and his clique (in relative terms, larger than Enron), will probably end up in foreign hands, while one of the largest retailers, La Rinascente, has now a new owner, from Thailand.

The other retailers? Look online who are the largest Italian retailers- and you will find foreign companies and partnerships.

On the industrial side, between others, Bialetti, a company long associated with what is typically Italian (maker of expresso machines) said that it will shift to selling coffee, after selling the industrial activities abroad.

The side-effect of these changes? Italy lost the possibility of a competitive devaluation by joining the Euro, has long being converting its industrial base into a service and maintenance industry, and transferred abroad the control of its retail industry- with obvious side-effects on their supply chain.

You know probably Benetton, Zegna, Armani- but probably you do not know that in Italy there used to be a “vertical integration” within each industry, where a company such as Benetton was actually near-sourcing its production, and entire villages used to live on the side-effects of this widespread approach: most of the fashion and luxury goods industry had created a local ecosystem, ranging from schools to brands.

I was reminded recently that within the old industrial heart of Italy, Piedmont, there are over 200 research centres (Turin is its regional capital) but that, at the same time, Piedmont is losing its larger companies (banks included).

While larger companies could afford their own Italian research centres (e.g. FIAT, or, between the foreign ones, IBM, and, in the past, Motorola and Alcatel), the increasing number of small and tiny companies will have a tough time in sustaining, all by themselves, a significant R&D infrastructure- to say nothing about the associated “knowledge infrastructure” (the ever increasing number of universities).

Why? Because even a company with 100 employees (and most innovative Italian companies are smaller) cannot cope with the paperwork and bureaucratic issues usually associated with the use of a shared R&D facility supported by public funding.

You just need to look (as I am doing now) at the companies involved in EU-funded projects on innovation, e.g. on the future of networking, to see that, beside few large companies here and there, while the other countries have a varied and assorted group of contributors, smaller Italian entities seem to be few- and appear more than once- specialized in attracting funding.

If you are interested on the source: “Future Networks, FP7 ICT Call 4 Projects Portfolio

But, question, on what should Italy (and, by extension, Europe, or at least Euroland) base its own industrial and economic development policy?

Does it make sense to continue to split scarce resources between an increasing number of research centres that often are built around the ego of one or few individuals, while the “chain belt” that should support them, industry, is moving abroad, and the needs of the typical Italian company are for something more flexible, and more integrated with their own “knowledge supply chain”?

And this brings the last point: how to support innovation, also when the innovator is a tiny company unable to “make it happen”.

Connecting the dots and innovation

Yesterday, I had an interesting exchange with a friend on Facebook- interestingly, it overlapped with the preparation phase for a short Saturday article, on “connecting the dots”.

As I wrote before (e.g. in Social stasis and Peter’s principle), I have no qualms about acknowledging the contribution of others- or when others act as “catalysts”- see at the bottom of this article the long series of exchanges: public, as published on Facebook.

The discussion started as a comment on a new user interface, i.e. using our own hands as a “virtual” smartphone.

Maybe you saw examples such as the virtual keyboard, a beam of light projecting a keyboard over a flat surface, or the demo from a famous company showing how your conversation can follow you through peripherals while you are walking in and out your home, car, office.

As often happens, we started shifting the discussion on something related- generating and attributing ideas, and intellectual property rights.

I think that it makes more sense to add this as an introduction, and the let the exchange talk by itself.

In the end, all our discussion came to a point: when you “connect the dots” before others do, who is or should be the owner of the value added that is generated when the idea (or even a prototype) is converted into a product, service- or even a social change?

If I look at what I did over the last couple of decades… my specialization is in connecting the dots, and then transferring the “map” created to somebody else.

Usually each activity was linked to a budget, a beginning, an end, and sometimes generating a repetitive activity or a new organization- a service, if you want.

Therefore… the ancillary skills became business analysis, budgeting, project and change management- and, of course, the ability to transfer knowledge, either through formal training, workshops, brainstorming, or coaching.

Anything else, including technologies and business methods? Transient knowledge, whose continuity implied finding somebody focused on a specific issue- in the end, I just emulated the “focal point” approach that I learned with my first employer over 20 years ago, where I had a similar role on a technology called DSS (and the ancillary skills of discovering and modelling decision making processes).

The interesting part was: I met in my activities people who, after working like me, developed new ideas- thanks to their multiple experiences in various organizational environments, they were able to “connect the dots”, find that common thread that could be a new product or service.

And then, they wanted to “make it happen”.

My experience is limited to Europe, and startups mainly in Italy.

Frankly, our system does not acknowledge the value of innovations that are created by “connecting the dots”- unless it all gets through a formal R&D activity, or you have the funding and abilities to make it happen.

But considering a more constructive approach, it would be interesting if somebody where to acknowledge that, while the execution converts a potential into the value that is added by the entrepreneurial activity, maybe, until a sustainable knowledge market is developed, some fiscal and social incentives could enable to extract value from the aggregated experience of those who, by working in their own activity, could actually identify potential innovations- also if they lack what is needed to create an enterprise or even just a product around that idea.

And, this way, avoid wasting “startup support” funding on those who are shrewd enough to scout for ideas, “package” as required by the relevant funding authorities, and then just burn cash’ until they find somebody else procuring another idea, and begin again the cycle- as they are good at “packaging for funding”, but not really able to create and develop.

Frankly, I met few real “serial entrepreneurs” and plenty of “serial fund burners”, whose specialization is only in knowing how to time their “exit strategy”.

In a time of scarce resources, isn’t it better to “seed” to avoid middlemen whose “value added” is only in using a tiny amount of money (the typical “angel” or “white knight” investment), to then attract funding on a significantly larger scale- and move on?

And this is not only an Italian issue- I was in contact or met other startups whose plan did not fly- but who were able to, say, attract over 1 million EUR with an initial investment of 50k EUR or less- on something that, from day one, should have been clear to anybody involved that either did not fly, or was already competing with existing solutions, without adding any value; if I could say “no, thanks” years before, how could others get duped so easily?

My personal choice is described within the conversation.

And then? Then, move onto connecting more dots.

Have a nice Sunday!



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