A Value-Destroying Technical Innovation

The important part is not the technology itself. It is how it interacts with its surroundings.

The big Ethereum upgrade (aka “The Merge”) seems to have been successful from a technical standpoint. But it seems that the Ethereum community focused on the enormous technical challenge of merging the existing Ethereum blockchain with another without stopping either. The problem is that changing from proof-of-work to proof-of-stake turned Ether tokens from a currency into a security. When you “stake” your Ether, you earn interest. And suddenly, the Ethereum ecosystem is subject to U.S. Securities and Exchange Commission (SEC) rules. Consequently, Ether is down 26% this week.

You can implement highly advanced technology with enough skill, time, and money. But unless you have someone skeptical think through how your tech will interact with its environment, all of the tech wizardry might go unused. It might even be destroying value as the Ethereum Merge did.

Risk Aversion

In this episode of Beneficial Intelligence, I discuss risk aversion. The U.S. has stopped distributing the Johnson & Johnson vaccine. It has been given to more than 7 million people, and there have been six reported cases of blood clotting. That is not risk management, that is risk aversion.

There is a classic short story from 1911 by Stephen Leacock called “The Man in Asbestos.” In it, the narrator travels to the future to find a drab and risk-averse society where aging has been eliminated together with all disease. People can only die from accidents, which is why everybody wears fire-resistant asbestos clothes, railroads and cars are outlawed, and society becomes completely stagnant.

We are moving in that direction. Large organizations have departments of innovation prevention, often called compliance, risk management, or QA. It takes leadership to look at the larger benefit and overrule their objections Smaller organizations can instead spend their leadership time on innovation and growth.

As an IT leader, it is your job to make sure your organization doesn’t get paralyzed by risk aversion.

Where you Find Innovation

IBM is splitting, placing the boring parts where it actually runs people’s business in a new company and keeping all the buzzwords in the company that will still be called IBM. Meanwhile, Oracle is trying to regain its mojo by buying a cool video app used by teenagers. Neither is likely to work.

You should not look to large companies for innovation. If they have survived and grown for decades, they are likely to have an unparalleled ability to execute, and it makes sense to tap them for running the steady part of your business. But innovation has to come from small, new organizations that have not assimilated a big-corporation culture. Running innovation centers inside the organization is hard – getting innovation from small outside companies is much easier.