Tag Archives: paul carroll

How Google Is Wrong About the Internet

Eric Schmidt, the executive chairman of Google, said this week that the Internet will disappear — “There will be so many IP addresses, so many devices, sensors, things that you are wearing, things that you are interacting with, that you won’t even sense it,” he said. Now, Eric is a very smart fellow; he’s worth several billion dollars more than I am (the score is Schmidt, $8.3 billion, me, $0 billion); and he even has a better hairline than I do despite being two years older. He made his comments in Davos at the World Economic Forum, known as the gathering spot for very serious people. So his remarks have been getting quite a bit of attention and consideration. 

But he’s wrong.

He’s wrong for the same reason that people have been wrong since I started covering technology for the Wall Street Journal going on 30 years ago. That suggests to me that people will keep being wrong for the same reasons for some time to come, including in the world of insurance, where we are all having to try to figure out how the Internet of Things will play out. So let me point out the two issues that mean that even very smart people in very serious settings can’t just assume the sort of technological utopia that Schmidt is describing.

They are:

  • Decision rights
  • Transaction costs

Let’s look at those issues in the context of an article in the New York Times many years ago that got me mad enough to start thinking about the blind spot in the first place. A very bright reporter, and something of a friend, began by painting an idyllic vision of an automated future: A person hopping out of bed would step on a sensing device that would let the house know he was up. The house would then turn on CNN in the family room, start the coffee and probably do some other things that I no longer remember at this remove.

Nice image, right?

Decision rights

But what if I don’t want to watch CNN? What if I’m more interested in watching ESPN that morning? Or my kids were already awake and watching cartoons — would my stepping on the pad change the channel despite the screams that would surely result? What if I’m heading off to meet someone for breakfast and will have coffee there, not at home that day?

A key question with any sort of automation is: Who owns the decision rights? In the case of CNN and the coffee, do I want the house to have the decision rights, or do I want to retain them?

Transaction costs

How much effort do I have to put into the automation? Is it really worth it to put a sensor under my carpet or even to lay something on top of the carpet? What does that cost? How long does it take me to configure the TV and other systems in the house so that they react appropriately?

Those transaction costs then have to be compared against the benefits, which, in the case of CNN and the coffee, are trivial. It’s just not that hard to pick up the remote and click the TV on or to fix the coffee in the morning (which you would have had to do before going to bed in the automated scenario.)

People tend to get so excited about the George Jetson-like possibilities that they ignore decision rights and transaction costs and paint visions that simply won’t occur in any reasonable timeframe.

That’s how we ended up with:

— The talk back in the early ’90s about “agents” that would pull together what some called “The Daily Me,” a personalized newspaper that would gather all the news that it knew you were interested in and mix it in with your schedule and other things to lay out your day for you. The problem was that these personalized papers took a huge amount of effort and were so inaccurate that no one would turn all the decision rights over to an agent. What if you didn’t have time to read the news that day? What if you had become interested in some topic that you’d never read about before — how would your agent know?

(I took the talk of agents somewhat personally because the three pieces I wrote for the Wall Street Journal that easily got the most response from readers in my 17 years there were about: a time I sailed across the Atlantic in a small boat, having never sailed before, in what turned out to be some monster storms; my two-week career as a professional wrestler; and my mother (a piece written with my younger brother). I guarantee you that no one who picked up the Wall Street Journal the day those pieces appeared was looking for anything about sailing, professional wrestling, my mother or me, so no one would have ever seen them in a world of agents.)

This talk of agents is cropping up again, by the way, and is surely part of the reason that Schmidt wants to talk about having the Internet disappear. Google wants to make search so efficient that its engine knows what you want to find even before you think to look. The company has made impressive strides — if you type in Elm Street while looking for directions on your Android phone, Google Maps usually guesses quickly and correctly which Elm Street you want — but that’s a long way from the world that Google is describing, and the transaction-cost and decision-rights issues will still get in the way.

— The fuss over the “Internet refrigerator” that still crops up from time to time. The idea is that your refrigerator would sense when, say, you were low on milk and reorder it for you. But that requires an awful lot of engineering, both in the refrigerator and in whatever system of grocery delivery would be used, and only makes sense if you’re turning just about all your shopping over to your refrigerator — if you have to go to store anyway, it’s simple to grab some milk.

And there is always the issue of decision rights. What if a family goes on vacation? How long will the refrigerator keep ordering? I have a friend whose 21-year-old son drinks a gallon of whole milk a day. When the son — who is 6’5″, weighs 285 pounds and looks like he could bench press a cow — is home, they can’t buy milk fast enough, but when he’s gone at school they don’t need any. Do they have to let a few gallons of milk sour before the refrigerator figures out the son is gone?

— The excitement about home controls: remote-controlled lighting, the Internet thermostat that will sense who’s in a room and adjust lighting levels and temperature to personal preferences and so on. Those are just an awful lot of work for not much benefit — you can always flip a light switch or adjust a rheostat — and doesn’t resolve the issues that come up when one person likes a room cooler than the other.

Technology will make plenty of tasks disappear, but let’s not be too hasty. We need to think through the costs, the benefits and the potential for errors and conflicts in automated systems, to make sure we don’t fall victim to the seductive tendency to ignore transaction costs and decision rights.

The Internet won’t disappear in my lifetime, which I’m assuming will be at least 30 more years. I won’t even have sensors that turn on CNN and start my coffee when I get out of bed.

Let’s Tone Down Hope for ‘Wearables’

There is an old line in Silicon Valley: “Never confuse a clear view with a short distance.” We should keep that in mind as we think about wearable devices such as the Apple watch that are designed, among other things, to help us monitor and improve our health. The view is crystal clear, but we’re still a long way from getting to the destination.

The vision is idyllic: Some day, a wearable device will monitor all our vital signs and relay the information second by second to a healthcare provider, where some combination of computers and doctors will monitor it. We’ll know two weeks ahead of time that we’re about to have a heart attack and will be able to head it off. Doctors, who currently spend only about seven minutes a year with the average patient, will mine the stream of information, spot chronic issues in more people and get them treatment for, say, high blood pressure. Our knowledge about health will increase exponentially because so many aspects of so many people will be tracked, and in real time.

Researchers say the change in health will be like what has happened with cars. We used to wait until we saw steam coming out from under the hood, then fix whatever was wrong. Those cars lasted 60,000 or 70,000 miles. Now we have sensors all over the place in cars, learn about problems before they become acute and gather voluminous data on what works and what doesn’t, so cars can keep getting better. As a result, many cars last more than 200,000 miles. With people, once we can get those sensors “under the hood,” we should also see huge improvements in health and life expectancy – engine performance, too.

But three major things have to happen before we achieve that idyllic vision, and only one is even close to reality.

The one change that could at least plausibly happen soon is that people adopt wearables en masse. No more of this buy a Fitbit, wear it for a couple of months and then set it aside. At least millions of people, and maybe tens of millions, will have to buy wearable devices and keep them on 24/7 for basically forever, just to really get the movement started. That sort of adoption will require smaller and better-designed wearables and far better battery life – the early line on the Apple watch is that it won’t even go a full day on a charge. Makers of wearables will also have to agree on standards so that all health data can be integrated into any software and analyzed by any healthcare provider. At the moment, every wearable maker wants to own the standard, and standards fights can take years to sort out, but with Apple working its magic on consumers and with Microsoft introducing a well-regarded device, it’s at least possible to imagine mass adoption within a few years.

That’s the easiest problem.

The most severe problem is that wearables aren’t yet close to collecting the really useful information. Wearables can monitor your pulse and provide a reasonable estimate of how many steps you take, but that’s not the good stuff, as far as medicine is concerned.

I got a tutorial on this almost 15 years ago from Astro Teller, who cofounded Body Media, a pioneer in the wearables field. He said the data he really needed was blood pressure and information from blood tests. Astro is a seriously smart fellow – the grandson of the principal developer of the hydrogen bomb, Edward Teller, Astro has since 2010 been directing the Google X laboratory, meaning he has the Google Glass, driverless car and many other cutting-edge projects reporting to him – but Body Media never cracked the code before being acquired by Jawbone for $110 million, principally for its patents, in 2013. While there are glimmerings of progress all over, no breakthrough seems especially close.

Google, for one, has a project in the Google X lab that puts sensors in contact lenses that can measure blood sugar and send a constant, wireless signal to a wearable device, giving diabetics a noninvasive way to monitor themselves. But the technology must now be calibrated for different conditions. What if the wearer is crying? What if the weather is dry? What if it’s raining? It’s not clear how close to market the technology is.

Others talk about having people swallow sensors that would roam the bloodstream and report on all kinds of conditions, including watching out for cancer, but those are far enough out that they still read like science fiction.

A company has a prototype of a device that would measure blood pressure constantly, but, even if that proves workable, the device needs to go through multiple iterations and become tiny enough that it can fit into a general-use device – people may wear one health-related device on an arm, but they won’t wear two or three or four.

The final hurdle that has to be cleared is doctors and other practitioners. When I talk to doctors about the idyllic vision for the future of healthcare, they look at me like I have two heads. They’re feeling swamped just trying to keep up in a world where they see the average patient a few minutes a year, and their problems will only get worse if talk of a physician shortage proves true. Now we want them to go from seven minutes a year to 525,600 (the number of minutes in a year) for each patient? Yeah, right.

Even if doctors and other practitioners sign up for this new world of healthcare, every support system will have to change. Computer systems will have to be set up to do the vast majority of monitoring. Software will have to be written. A new class of data analysts will have to be developed. Health practices will have to reshape themselves around data streams. Insurers will have to adjust coverage. Courts will have to sort out where liability for mistakes falls – with a programmer, a doctor, someone else?

You could start the clock now on all these changes in medical practices, and they’d still take years to sort out.

The key issue to monitor in the progress of wearables is the sensors. Once someone can easily capture blood pressure information or conduct some important blood test without breaking the skin, well, then we’re talking. At that point, consumer adoption will be a solvable problem. So will adoption by medical professionals, though that will be a long slog.

In the meantime, we will soon be able to buy our Apple watches, and we’ll have fun with them. We might even get a little healthier if we keep wearing the things and somehow feel the need to walk a bit more. But that shiny vision of a world where care, insurance and everything else about health changes because of wearables? That’s still a long way out there.

Inoculating Your Wellness Program Against the EEOC

Two months ago, a posting appeared in this column titled: Are Obamacare Wellness Programs Soon to be Outlawed? Truthfully, that headline was picked for its sky-is-falling value, treating one EEOC lawsuit against one wacky wellness program as a risk for wellness programs everywhere.

As luck would have it, the sky just fell yesterday — right on the head of Honeywell — and the EEOC is indicating more lawsuits are to come.

The scary part: Unlike the wacky wellness program described in the column two months ago, Honeywell was in compliance with the Affordable Care Act. Compliance with the ACA doesn’t seem to get you a free pass on the EEOC’s own “business necessity” requirement. Essentially, the Honeywell lawsuit means no company doing invasive biometric screenings and mandating doctor visits or measuring health outcomes is immune to prosecution, even if it is in compliance with ACA.

The even scarier part: The EEOC is correct that, as this column has noted for almost two years now, wellness programs mandating overscreening and annual checkups have no business necessity. In fact, these “employer playing doctor” programs can harm employees, because:

  • A workplace screen can find heart attacks… but at the cost of a million dollars apiece, when emotionally draining false positives and potentially hazardous overtreatment are taken into account;
  • The Journal of the American Medical Association recommends against mandatory checkups;
  • An embargoed, peer-reviewed article that will be published soon in a major journal concludes that the costs and unintended health hazards of weight control programs generally overwhelm the benefits.

Companies could still claim business necessity if, indeed, these programs save money despite the harm to employees. (OSHA might raise issues, but those are hypothetical whereas EEOC is an elephant in the room.) And a few of you might ask: “Didn’t Seth Serxner of Optum and Ron Goetzel of Truven just write a journal article and show a webinar saying: ‘The overwhelming majority of published studies show positive results’?”

Unfortunately, those “positive results” — as is well-known to the presenters, who, after all, have access to the Internet — fail any sniff test.

These two true believers continue to cite Professor Katherine Baicker even though she has stepped back three times from her old (2009) conclusion that wellness provided a significant return on investment (ROI), including a “no comment” to ITL’s own Paul Carroll. More recently, she has, with great justification, blamed overzealous readers for selectively interpreting her findings. Goetzel also continues to cite the state of Nebraska, which his committee gave an award to as a “best practice” despite the revelations that the state’s vendor lied about saving the lives of cancer victims and that the vendor also paid off his award committee with a sponsorship. Likewise, Goetzel’s misinterpretation of a RAND study has drawn a rebuke from the author of the study, in a coming letter to the editor. [Editor’s Note: ITL emailed a link to this article to the press offices at both Truven and Optum on Oct. 30 offering them a chance to respond to the author’s allegations. Both were told that they could either comment at length in this article or could write separate articles that would lay out their position and that ITL would publish. Neither company has yet responded.]

Clearly, the EEOC is on to something about a lack of business necessity, when even the alleged best-and-brightest wellness defenders are forced to rely on misstatements and half-truths. Not to mention selective omissions — the presentation’s extensive section on “critics” had no mention of me, despite a recent cover story citing me as the field’s leading critic, because both these two presenters know my math is irrefutable. These industry defenders also have spotty memories, as when they claim that it is valid to compare the performance of active, willing participants against a control group of unmotivated non-participants and dropouts — forgetting that they gave out a Koop Award to one of their sponsors who showed exactly the reverse.

Inoculating Your Programs

A problem with the EEOC does not have to happen to you or your clients (if you are a broker). Taking three steps — the first of which is free and the second of which costs only in the four figures — essentially guarantees that you will not end up on the hot seat with Honeywell.

First, sign and adhere to the Workplace Wellness Code of Conduct.  This will allow you and any clients to focus your own efforts on avoiding employee harm and creating a framework for business necessity. This document is provided gratis for ITL readers, from the author.

Second, employers who sign this and get at least one vendor/carrier to sign and implement its counterpart, the Workplace Wellness Vendor Code of Conduct, can have their own outcomes validated by the GE-Intel Validation Institute (itself the subject of a forthcoming ITL posting), to create an audit trail that, in fact, outcomes are being measured.

Third, I personally — along with colleagues — will do an in-depth  walkthrough to see if, indeed, your wellness program complies with U.S. Preventive Services Task Force guidelines. If not, we will provide a list of next steps to get into compliance.

The inoculation? A six-figure guarantee that you (or your client, if you’re a broker) will not be the subject of a successful EEOC lawsuit. Besides providing some protection on its own, this level of financial commitment may create a self-fulfilling prophecy. Your actions will be a pretty convincing piece of evidence that business necessity and employee health are the goals, as measured by an objective and qualified third party.

Yes, I know it’s not always about me; you can protect yourself in other ways. My ex was quite clear on the subject of whether it’s always about me.

However, in this case, my ex would seem to be wrong. It appears that every screening vendor, every alleged wellness expert and most of those in large benefits consulting firms have done just the opposite of what I’m suggesting: They have proposed massive wellness programs with hefty financial incentives or penalties that get companies into fine messes like Honeywell’s. But, in case I’m wrong, I welcome names, websites and contact information of other consultants taking the same approach that I am. Please note them in the comments boxes below.  All will be published.

3 Reasons Why Big Firms Should (and Can) Out-Innovate Start-Ups

The chief innovation officer of a Fortune 1000 company relocated to a Silicon Valley outpost far from her New York corporate headquarters. She now spends most of her time holding court with venture capitalists and entrepreneurs about stakes in hot start-ups. It is never clear who is courting whom in those meetings, though the general attitude in the Valley is that there is more dumb money than good start-ups. Her goal is not to maximize financial returns on her investments—even a 200% return would not be material to her corporation’s financials. Instead, she is essentially outsourcing her company’s innovation strategy to start-ups.

Do these stories sound familiar?

Like too many of their peers, these smart and savvy veterans were stymied in their efforts to get their companies to innovate. They resigned themselves to a conventional wisdom that has taken root in recent decades: that start-ups are destined to out-innovate big, established businesses. Consider, such pessimists contend, that 227 of the companies on the Fortune 500 list just 10 years ago are no longer on the list.

Based on personal experience with hundreds of large company innovation successes and failures, and research into thousands more, however, I have found that this conventional wisdom just isn’t true. Or, at least, it need not be. Yes, small and agile beats big and slow, but big and agile beats anyone—and that combination is more possible than ever.

There are three reasons why innovators at large companies should be optimistic about their ability to beat start-ups.

1. Start-ups aren’t all they’re cracked up to be.

Yes, Silicon Valley has the cachet, but Harvard Business School research shows that the failure rate for start-ups runs as high as 95%. Start-ups, as a group, succeed largely because there are so many of them, not because of any special insight.

What’s more, the National Bureau of Economic Research (NBER) found that entrepreneurs are saddled with most of the risk while financiers capture most of the rewards. Entrepreneurs invest their time, reputations and accumulated expertise for modest salaries and long hours in the hope of gaining huge rewards at “exit,” when the start-up goes public or is acquired. NBER researchers found, however, that start-ups rarely pay off for the entrepreneurs who slave away at them. Of companies that reached an exit (after a median time of 49 months from first venture funding), 68% resulted in no meaningful wealth going into the pockets of the entrepreneurs. These numbers add up to pretty long odds for corporate innovators looking to find greener pastures as an entrepreneur.

The story is not much better for strategic investors chasing start-ups through venture capitalists. Numerous studies, including a 2012 study by the Ewing Marion Kauffman Foundation and a more recent one by Cambridge Associates, show that venture capital has delivered poor returns for more than a decade. VC returns haven’t significantly outperformed the public market since the late 1990s, and, since 1997, less cash has been returned to investors than has been invested in venture capital. Risk and reward have not correlated.

Vinod Khosla, a billionaire venture capitalist and cofounder of Sun Microsystems, tweeted a revealing line from an executive at one of his companies in 2012: “Entrepreneurs really are lousy at predicting the future… VCs are just as bad.”

2. Scale is more valuable than ever.

In the context of today’s immense technology-enabled opportunities, large companies have growth platforms that would take start-ups years to build. Incumbents have products with which to leverage new capabilities such as mobile devices, pervasive networks, the cloud, cameras and sensors. Social media can amplify brand power and customer relationships. Large companies also sit on mountains of market and customer data and are therefore in the best position to extract knowledge from big data.

The possibilities are startling. And tapping into them isn’t optional. A perfect storm of six technological innovations—combining mobile devices, social media, cameras, sensors, the cloud and what we call emergent knowledge—means that more than $36 trillion of stock-market value is up for what some venture capitalists are calling “reimagination” in the near future. That $36 trillion is the total market valuation of public companies in the 10 industries that will be most vulnerable to change over the next few years: financials (including insurance), consumer staples, information technology, energy, consumer goods, health care, industrials, materials, telecom and utilities. Incumbent companies will either do the reimagining and lay claim to the markets of the future or they’ll be reimagined out of existence.

3. The roadmap for leveraging scale while avoiding innovation landmines is clearer than ever.

Since the start of the Internet boom some two decades ago, so many companies have looked to information technology to innovate that there’s now a track record showing what works and what doesn’t. The problems that have stifled innovation in large companies are now known and can be avoided. These problems are not inherent to bigness. 273 companies that were on the Fortune 500 list 10 years ago are still thriving and remain on the list. Compare that 55% success rate against the 90%-plus failure rate of start-ups.

Large companies can out-innovate both existing and start-up competitors by undertaking a systematic innovation process of thinking big, starting small and learning fast. I outlined this roadmap for how to—and how not to—innovate in a recent LinkedIn post. It is also thoroughly annotated in my books Billion Dollar Lessons: What You Can Learn From The Most Inexcusable Business Failures of the Last 25 Years and The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups (both written with Paul Carroll).

* * *

I am not arguing that there is no place for entrepreneurship or start-ups. Start-ups as a group will continue to be an economic engine driving innovation, jobs and wealth. But any individual start-up, or even a small portfolio of start-ups, is far from a better bet for corporate veterans seeking better jobs or more successful innovation.

Rather than jumping from the frying pan into the fire, corporate innovators should consider staying put and focus on tearing down the barriers stifling their company’s innovation efforts. Yes, small and agile start-ups look very attractive when viewed from the confines of a big and slow bureaucracy. Big and agile is an even more attractive position.

Do you agree? I’d love to get your thoughts!