30 April 2016

An Excerpt from The Fourth Economy (on this, Claude Shannon's 100th birthday)

My book The Fourth Economy includes the stories of Henry VIII and Henry Ford, Pope Boniface and Andrew Carnegie, Galileo and Wilhelm Humboldt. To be mentioned in this book that covers 700+ years of history is a big deal. Claude Shannon - who today Google is honoring for his 100th birthday - made the cut. Here's an excerpt from the book in a section explaining the third, information economy, that includes mention of Shannon.

Knowledge Workers Create IT for Knowledge Workers

Bell Labs – named after AT&T founder Alexander Graham – employed 25,000 employees at its peak, including 3,300 PhDs.[1] Bell Labs was a paragon of knowledge work, a place where people were paid to think. In 1947, the lab produced two innovations that became the paragon of information technology.
The first innovation was conceptual. Claude Shannon coined the word “bit” in an attempt to do something no one had ever done. His was the first attempt to quantify information. With the right pattern, 1 and 0 could be used to describe any letter or number (a combination that would come to be known as a byte). This was interesting.
Then, in that same year, Bell Labs produced another innovation that would – when coupled with Shannon’s bit – enable the computer.
Three of its employees would eventually share a Noble Prize for inventing a product Bell Labs thought might might “have far-reaching significance in electronics and electrical communication."[2] The transistor was a simple replacement for the bulky vacuum tubes and given it could easily be turned on or off, it could easily be made to represent a 1 or 0 – a bit.
By the 1960s, multiple transistors were joined together on a computer chip, the heart of a computer. No invention would better define information technology.
Yet even with the advent of this new technology, something was missing. Technological invention alone is rarely enough; to make real gains from the computer chip required social invention, a change in corporate culture.
One of the three co-inventors of the transistor began a company to exploit this new technology.
William Shockley (1910-1989) was co-inventor of the solid-state transistor and literally wrote the book on semiconductors that the first generation of inventers and engineers would use to advance this new technology. He had graduated from the best technical schools in the nation (BS from Cal Tech and PhD from MIT), and was the epitome of the modern knowledge worker.
Shockley hired the best and brightest university graduates to staff his Shockley Semiconductor Laboratory. Yet things were not quite right. It was not technology, intelligence, or money that his company lacked. It was something else.
To answer what it was leads us to the question of why information has so much value.
One of the beliefs of pragmatism is that knowledge has meaning only in its consequences. This suggests that information has value only if it is acted upon. Information that is stored in secret has no consequences. By contrast, information that informs action needs to be both known and acted upon. The more people who have access to this information and can act on it, the more value it has.
What was missing from Shockley’s approach to this brand new technology was a management style that took advantage of an abundance of information. He did not like to give up control or information but that was exactly what this new computer chip he’d helped to invent was perfectly made for. Largely because of this, it was not Shockley who would become a billionaire from computer chips. Instead, it would be a few of his employees.

The Summer of Pocket Protectors

1968 was the kind of year that would have made even today’s 24-7 news coverage seem insufficient. In January, the North Vietnamese launched the Tet offensive, making it all the way to the U.S. Embassy in Saigon; this might have been the first indication that those unbeatable Americans could be beaten. Civil rights demonstrations that devolved into deadly riots were the backdrop for Lyndon Johnson’s signing of the Civil Rights Act. Martin Luther King, Jr. and Robert Kennedy - iconic figures even in life - were assassinated within months of each other. The musical Hair opened on Broadway and Yale announced that it would begin to admit women. For the first time in history, someone saw the earth from space: astronauts Frank Borman, Jim Lovell, and William Anders became the first humans to see the dark side of the moon and the earth as a whole, an image that transcended differences of borders and even continents. Any one of these stories could have been enough to change modern society. Yet in the midst of all these incredible events, two entrepreneurs quietly began a company that would transform technology and business, a company that would do as much to define Silicon Valley as any other.
Gordon Moore (b. 1929) and Robert Noyce (1927-1990) founded Intel in July 1968. Moore gave his name to “Moore’s Law,” a prediction that the power of computer chips would double every eighteen months. Here was something akin to the magic of compound interest applied to technology or, more specifically, information processing.
Moore and Noyce had originally worked for Shockley, but they left his laboratory because they did not like his tyrannical management. They then went to work for Fairchild Semiconductor, but left again, because, “Fairchild was steeped in an East Coast, old-fashioned, hierarchical business structure,” Noyce said in a 1988 interview. "I never wanted to be a part of a company like that."[3]
It is worth noting that Moore and Noyce did not leave their former employers because of technology or funding issues. They left because of differences in management philosophy.
Once when I was at Intel, one of the employees asked if I wanted to see the CEO’s cubicle. Note that this was an invitation to see his cubicle, not his office. We walked over to a wall that was - like every other wall on the floor - about five feet high, and I was able to look over the wall into an office area complete with pictures of CEO Craig Barrett with people like President Clinton. In most companies, one can quickly discern the hierarchy based on dynamics in a meeting. The level of deference and the ease of winning arguments are pretty clear indicators of who is where in the organizational chart. By contrast, I have never been inside a company where it was more difficult to discern rank than Intel. Depending on the topic, completely different people could be assertive or deferential. One of Intel’s values is something like “constructive confrontation,” and this certainly played out in more than one meeting I attended. When a company makes investments in the billions, it cannot afford to make a mistake simply because people have quaint notions about respect for authority. Intel’s culture seems to do everything to drive facts and reasons ahead of position and formal authority. This egalitarian style probably traces back to its founders rejection of the management style of their former employer, Shockley.
Shockley Labs no longer exists. Intel has a market cap of more than $150 billion.[4] Intel’s net profit in the most recent year was over $11 billion, and it employs more than 100,000 people worldwide. Moore and Noyce’s open culture made a difference.
Information technology has little value in a culture that hoards information. Information technology makes sense as a means to store, distribute, and give access to information and has value as tool for problem solving and decision-making.
The pioneers of information technology, like Moore and Noyce, understood this and realized - at some level - that it made little or no sense to create hierarchies where information was held and decisions were made at one level and people were merely instructed at another. The knowledge worker needed information technology as a basis for decisions and action. Before 1830, up until the time of the railroad, the information sector of the American workforce was less than 1 percent.[5] By the close of the 20th century, nearly everyone seemed to need technology for storing and processing information.
By paying double typical wages, Henry Ford created a new generation of consumers for his car. Moore and Noyce did not just help to create information technology; they helped to popularize a management culture that took advantage of this amazing new technology.

[1] Time, Jon Gertner, “How Bell Labs Invented the World We Live in Today,” March 21, 2012. http://business.time.com/2012/03/21/how-bell-labs-invented-the-world-we-live-in-today/
[2] James Gleick, The Information (New York: Pantheon Books, 2011), 3.
[3] Daniel Gross, ed., Forbes: Greatest Business Stories of All Time (New York: John Wiley & Sons, 1996), 251.
[4] This taken from stock market quotes at end of 2014.
[5] Beniger, The Control Revolution, 23.

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