For several years, I have been embarrassed by our apparent inability to funnel the best and brightest creative talent into technology businesses that really mean something. You might call this a case of confirmation bias, but I found a paper that seems to support my contention. Best of all it is written by two researchers at the Stern School of Business, a well-respected research institution. In addition, it was only by accident that the authors provided the evidence to support my assertion— it wasn’t their primary thesis.
The papers speak to a very interesting problem: Investment no longer seems to be flowing to businesses that contribute to the economic welfare of society—my interpretation of their words. I concede this may be slightly overstated. Said slightly differently, the superstars (the top 20 companies in terms of market value, plus the top four firms within each industry group) of today don’t contribute to the economy the way they did in the past, i.e. the “Superstars” of today are not leading us (on a micro or macro level) toward better productivity, which is the most obvious path toward better lives for us, our children and our children’s children.
What I also found interesting is that the authors found that the superstars of today are no more concentrated in terms of their share of US GDP that they were in 1980. In fact, the authors argue that the importance of the new superstars to U.S. productivity growth is much less significant compared to that of previous generations of superstars.
The research makes one think that the best and brightest aren’t applying themselves to the hardest and most impactful challenges; otherwise we would find a more significant economic contribution from the superstar companies. In other words, our best and brightest are focusing on second and third tier problems and not producing outcomes that make a difference. And, we need to change that!
We need to figure out how to make really hard problems that make a difference “worth it”. It isn’t clear to me that they aren’t worth it in terms of economic return, but that they aren’t appealing in the same way (high profile, i.e. in that their products appeal to the peers of the best talent, i.e. they don’t have the sizzle) that a Twitter or a Facebook are. Textura (the company that I helped found) provided exceptional economic return, made a difference to the industry it supported, but didn’t have sizzle and that sometimes made it difficult to attract top talent.
Additionally, and this is important, hard problems are multidimensional and require not just technical, but also a variety of specific business process experience and related skills. Which indicates to me that we also need to figure out how to bring together diverse talent, in terms of background, experience and work history, f we are going to be able to tackle hard problems that make a difference.
I previewed this post to several people, who all commented, “but what about Amazon?” First, it isn’t clear to me that Amazon has made our economy more productive, although this is yet to be proven, one way or the other. But, even if it has, it is only one of many superstar firms and one example does not make for a good argument the way a quantitative analysis does. That said, I understand my summary here does not make the case either. I therefore provide two links. The first is to a review of work that will provide a nice overview of the work, clearly better than I could have done and focusing on slightly different facets of the research and its implications. The second is to the actual paper (it costs $5) which is well worth reading if you want to convince yourself that the authors have done the work necessary to reach the conclusions outlined in my and/or the Stigler Center ProMarket summary.
Copyright 2019 Howard Niden
— you can find this (days earlier) and other posts at www.niden.com