China: Scaling The World’s Highest Innovation Peaks

In a world of statistics, here’s a number that stands out: 71. That’s how many times the word “innovation” was mentioned in a communiqué issued after the Chinese Communist Party’s recent plenary meeting, which focused on China’s next five-year plan.

It’s clear why China is concentrating so many words — and so much energy and effort — on innovation. Indeed, as a recent McKinsey report points out, to keep its economic expansion on track, this nation of 1.3 billion people must generate two to three percentage points of annual GDP growth through innovation.

The return on this investment could be substantial. By 2025, these innovation opportunities could contribute as much as $1-$2.2 trillion a year to the overall Chinese economy.

After spending several weeks visiting legions of Chinese innovators — entrepreneurs, companies, educational institutions and government officials — I believe that these ambitious numbers will be reached.

And the reason is that China uses monumental scale and massive scaling to innovate, something that no region or country in the world — including the United States — can currently match or replicate.

With more than four times the population of the U.S., and more than one out of seven people on the planet, China has a tremendous advantage based on the sheer size of its rapidly urbanizing consumer market. This helps Chinese companies develop and deliver new products and services quickly and on a huge scale.

The world’s largest manufacturer, with 150 million factory workers, China also has a supplier network that is five times larger than Japan’s. This encourages and enables Chinese companies to trigger continuous cycles of widespread innovation.

China is leveraging the profound power of scale and scaling.

 

A good example is high-speed trains. Over the past seven years, a determined China — the private sector with help from the government — has built ever-improving next-generation technology in this vital global transportation sector. The result? A cutting-edge manufacturing product set that has accounted for nearly 90 percent of the worldwide growth in high-speed trains since 2008.

Aggressive and real breakthroughs like this contradict the long-held conventional wisdom that China is simply an innovation sponge that absorbs and re-purposes inventions and ideas from the U.S. and Europe.

The danger is that this traditional thinking is becoming increasingly outdated, obscuring the all-important fact that China is leveraging the profound power of scale and scaling to accelerate its bid for global innovation leadership.

To be sure, wherever you look in China today, there are gargantuan innovation processes and programs in progress and in place that require radically new approaches to technology product development, financing, manufacturing, marketing and logistics.

Without these groundbreaking systems, it’s impossible to grow 10x year after year, a goal that scores of Chinese companies set as the norm. And, unlike many technology enterprises in Silicon Valley, which are expanding their businesses virtually, a number of China’s fast movers are growing physically in the real world.

I’m not disparaging Silicon Valley’s innovation excellence in any way, but I am trying to put China’s significant advances in perspective. When we innovate, we create an idea and go (using venture capitalist Peter Thiel’s definition) from zero to 1.

When scaling happens in China, the assumption is that this is not real innovation, but, instead, a scale-out of technologies, 1 to n, using that same definition. My contrary observation is that true innovation is, in fact, growing in China, and, to achieve scale on many new technologies, there’s absolutely an element of zero to 1.

That’s a big difference, and an entirely different way of viewing innovation — one that we need to acknowledge and learn from. Put another way, if we want to compete with China in the rest of the world, especially in potentially giant markets like India, Africa and China itself, which represent three of the most fertile commercial opportunities of the 21st century, we need to start innovating at scale.

Innovating on this vast and sweeping level won’t be easy — because we haven’t done it yet, and because China has a new cadre of hungry and experienced entrepreneurs who want to innovate and scale quickly on just about every continent. These world-tested entrepreneurs don’t need permission to experiment, and they aren’t afraid to adapt or fail.

Alibaba’s transactions last year totaled nearly $250 billion, more than those of Amazon and eBay combined.

 

Last year, for example, Baidu, the Beijing-based technology giant that was once seen as China’s Google but has since expanded into hardware and software research in areas like natural language processing and image recognition, hired a new Chief Scientist named Andrew Ng. Born in the U.K., Ng was a Stanford University professor who launched Google’s artificial intelligence program and co-founded Coursera, a high-profile online education company.

Frank Wang, the 34-year-old founder of Dajiang Innovation Technology (DJI), which accounts for 70 percent of the consumer drone market, is another strong-willed new-breed Chinese entrepreneur who is intent on taking the world by storm.

Launched out of a Hong Kong dorm room nine years ago, DJI and its global workforce is expected to generate $1 billion in sales this year. But, more importantly, the company has dominated the worldwide consumer market in aerial photography, and recently released an innovative flying platform for third-party software developers to add new functionality, like thermal scanning.

When you’re talking about Chinese entrepreneurs like Wang, who use innovation at scale to command a market, the conversation also must include Pony Ma, the co-founder and CEO of Tencent Holdings, which now presides over a mobile texting service that is actively used by 600 million people (or approximately half the population) in China.

WeChat, as it’s known, isn’t just about texting, however. Functioning more like an extended operating system, it deftly blends elements of Twitter, Facebook, LinkedIn, Skype and PayPal, a combination that may ultimately make it onerous for those vaunted off-shore companies to truly penetrate the large and lucrative Chinese market.

Amazon also could possibly fall victim to muscular Chinese innovation at scale. The Seattle-based company appears to have achieved victory in the e-commerce markets of North America and Europe. And its sales are growing in India. But China is a different, and more difficult, challenge, because that’s the home base of Alibaba, the world’s largest e-commerce company in the world’s fastest growing e-commerce market.

Founded by high-profile Chinese entrepreneur Jack Ma, Alibaba’s transactions last year totaled nearly $250 billion, more than those of Amazon and eBay combined. And on Singles’ Day — November 11 — which celebrates the unmarried, Alibaba generated more than $14 billion in sales, more than all Americans spent online and offline over the post-Thanksgiving weekend.

Uber may run into the same type of roadblock in China, as a result of innovation at scale. This time, though, a mega-merger between China’s two biggest taxi apps — Kuaidi Dache (backed by Alibaba) and Didi Dache (backed by Tencent) — has created a formidable obstacle in China’s trillion-dollar car-sharing and taxi-hailing service market. The resulting entity, Didi Kuaidi, is currently doing 3 million rides a day in China, versus 1 million for Uber.

Looking beyond the numbers, Didi Kuaidi, led by president Jean Liu, a 12-year veteran of Goldman Sachs, is now rolling out a series of innovative new products and services designed to further distance China’s emerging transportation giant from vigorous foreign competition.

For its part, Chinese automaker BYD is innovating at global scale to thwart its rival, Tesla Motors, in the race to build the best — and most — batteries for electric vehicles around the world. Backed by Warren Buffet’s Berkshire Hathaway, BYD is more than tripling its capacity over the next four years.

China is creating sweeping new commerce models.

 

Most of the state-of-the-art production will be in China, but the company is also adding a major new factory in Brazil and will scale up manufacturing in the U.S., where Tesla is based. BYD, which has plants in Southern California that produce electric buses for public transportation, is also growing this cutting-edge investment.

In addition to developing new products and services and rolling them out at scale anywhere and everywhere in the world, China is creating sweeping new commerce models that have the potential to change the way global business is conducted. A good example is the Online-2-Offline model currently being championed by Alibaba’s Ma because it finds consumers online and brings them into real-world stores.

This is all part of an unspoken, and even free-form, emergent strategy being embraced by so many Chinese companies today. Dexterously pursuing a host of different solutions and adding many seemingly disparate pieces, these intensely innovative enterprises are pulling ahead of their foreign competition as they integrate all the complex parts and forcefully scale in an effort to reach some of the highest business peaks in the world.

The challenge for many large-growth companies in the U.S. over the next few years will be climbing the same commercial mountains as the Chinese. Regardless of whether a trans-Pacific strategy of collaboration or competition is adopted, one of the best ways to do this is by learning how to innovate rapidly and at global scale.

Why is Einstein famous?

Albert Einstein announced his greatest achievement, the general theory of relativity, in Berlin a century ago, on November 25, 1915. For many years, hardly any physicist could understand it. But, since the 1960s, following decades of controversy, most cosmologists have regarded general relativity as the best available explanation, if not the complete description, of the observed structure of the universe, including black holes.

And yet, even today, hardly anyone apart from specialists understands general relativity – unlike, say, the theory of natural selection, the periodic table of the elements, and the wave/particle duality in quantum theory. So why is Einstein the world’s most famous and most quoted (and misquoted) scientist – far ahead of Isaac Newton or Stephen Hawking – as well as a universal byword for genius?

Einstein’s fame is indeed puzzling. When he gave lectures about general relativity at Oxford University in 1931, the academic audience packed the hall, only to ebb away, baffled by his mathematics and his German, leaving only a small core of experts. Afterward, a cleaner rubbed the equations off the blackboard (though thankfully one blackboard was saved and is on display in Oxford’s Museum of the History of Science).

Yet, when Einstein and his wife appeared as the personal guests of Charlie Chaplin at the 1931 premiere of Chaplin’s film City Lights in Los Angeles, they had to battle their way through frantically pressing and cheering crowds (on whom the police had earlier threatened to use tear gas). The entire movie theater rose in their honor. A somewhat baffled Einstein asked his host what it all meant. “They cheer me because they all understand me, and they cheer you because no one understands you,” quipped Chaplin.

In the 1940s, Einstein told a biographer: “I never understood why the theory of relativity with its concepts and problems so far removed from practical life should for so long have met with a lively, or indeed passionate, resonance among broad circles of the public… I have never yet heard a truly convincing answer to this question.” To a New York Times interviewer, he disarmingly remarked: “Why is it that nobody understands me, yet everybody likes me?”

Part of the reason for Einstein’s fame is surely that his earliest, and best known, achievement – the 1905 special theory of relativity –seemed to have come out of the blue, without any prior achievement. Like Newton (but unlike Charles Darwin), he did not have anyone of distinction in his family. He was not notably excellent at school and college (unlike Marie Curie); in fact, he failed to obtain a university position after graduation. He was not part of the scientific establishment, and worked mostly alone. In 1905, he was struggling as a mere patent clerk, with a newborn child. Regardless of whether we grasp relativity, his apparently sudden burst of genius inevitably intrigues everyone.

A further reason for Einstein’s fame is that he was active in many areas far afield from physics, notably politics and religion, including Zionism. He is best known in this regard for his open opposition to Nazi Germany from 1933, his private support for building the atomic bomb in 1939, and his public criticism of the hydrogen bomb and McCarthyism in the 1950s (J. Edgar Hoover’s FBI promptly launched a secret investigation of him). In 1952, he was offered the presidency of Israel.

Clearly, Einstein’s turbulent later life and courageous stands fascinate many people who are bemused by general relativity. According to Bertrand Russell: “Einstein was not only a great scientist, he was a great man.” Jacob Bronowski proposed that “Newton is the Old Testament god; it is Einstein who is the New Testament figure…full of humanity, pity, a sense of enormous sympathy.”

Arthur C. Clarke believed that it was “Einstein’s unique combination of genius, humanist, pacifist, and eccentric” that “made him accessible – and even lovable – to tens of millions of people.” Richard Dawkins calls himself “unworthy to lace Einstein’s sockless shoes….I gladly share his magnificently godless spirituality.”

Such a combination of solitary brilliance, personal integrity, and public activism is rare among intellectuals. When one adds Einstein’s lifelong gift for witty aphorism when dealing with the press and the public, his unique and enduring fame no longer seems so puzzling.

After all, who could fail to be charmed by his popular summary of relativity: “An hour sitting with a pretty girl on a park bench passes like a minute, but a minute sitting on a hot stove seems like an hour.” And then there is my own favorite: “To punish me for my contempt of authority, Fate has made me an authority myself.”

Unicorns and delusions in Silicon Valley’s tech bubble

Shortly after the late 1990s technology bubble burst, many cars in Northern California sported a bumper sticker pleading, “Please God, just one more bubble.”

Those prayers have been answered. The signs of a new tech bubble are everywhere: easy money, widespread exuberance, hidden leverage and mass participation by amateur investors. Many believe it’s different this time, insisting that valuations are reasonable and that Tech 2.0 companies have real business plans that will generate real profits

How did we get here? Broader economic forces are one reason. With interest rates at unprecedented lows even after the Federal Reserve’s recent hike, many investors have been forced to take on extra risk to generate returns. Fast-growing tech companies offer the prospect of tremendous rewards. “It only takes one,” the venture capital guys say. The collective valuation of the 142 unicorns — private companies valued at $1 billion or more — is around $500 billion.

Another phenomenon, the involvement of large mutual funds in private investments, is a contributor. T. Rowe Price, Blackrock, Fidelity and Wellington — four firms that offer open-ended investment products with daily liquidity — have pumped significant amounts of capital into late-stage private tech firms. Two thirds of unicorns have a mutual fund, hedge fund or bank as a major investor.

But as the music stops, retail mutual fund investors may find hard-to-value illiquid assets — that is, assets that cannot easily be sold without a substantial loss in value — getting rapidly marked down, possibly forcing indiscriminate selling of allegedly “safe” assets. As Warren Buffett put it, “It’s only when the tide goes out that you can see who’s been swimming naked.” Recent reluctance to go public and valuation markdowns suggest we’ve reached high tide — and we’re about to discover who’s most exposed.

Recent reluctance to go public and valuation markdowns suggest we’ve reached high tide — and we’re about to discover who’s most exposed.

For investors frustrated with the challenge of generating returns in today’s climate, the hopes offered by opaque private markets are more appealing than the reality presented by transparent public ones. Just consider two firms that operate in cloud storage: Box and Dropbox. Dropbox is private; Box is listed on the New York Stock Exchange. For no obvious reason, Dropbox garners a significant premium compared to its public peer. T. Rowe Price and BlackRock invested in Dropbox at a $10 billion valuation. But if it traded at the same revenue multiple as Box, the company would be worth $3 billion. What’s the difference? When reality isn’t sexy, investors throw money at potential.

Over the summer, BlackRock marked down its valuation of Dropbox by 24 percent. Then, this fall, Fidelity marked it down as well, along with its stake in Snapchat by 25 percent and its stake in Zenefits, a maker of online human resources software, by 48 percent. More recently, Fidelity marked up its stake in these three companies, but not enough to recover the losses of recent months, highlighting the radical uncertainty surrounding such valuations. Moreover, following its IPO, Square was trading around $12 per share, well below the $15.46 investors paid in the last private round in October. Gilt Groupe, once valued at over $1 billion, is now trying to sell itself for about a quarter of that. Valuation volatility is rightly leading many to question how many unicorns are overvalued.

And consider the over-the-top confidence of Silicon Valley employees. They’re commanding ever increasing wages, with reports of $500,000 annual pay packages offered to recent college graduates. Interns are making $7,000 or more a month. Expectations for such sky-high pay have become both inevitable and unsustainable; they’re reminiscent of the $1 million pay packages promised to Wall Street associates in 1999. By 2000, once the party had ended, annual bonuses were being replaced by pink slips.

Financiers are so convinced that the good times are here to stay that they’ve begun lending money against overpriced and illiquid private stock or employee options. Paper-rich, but cash-poor employees are borrowing money (that they can’t repay without a company sale) from specialist funds that have arisen for just this purpose and even from banks. In effect, the “cash buyer” of a multi-million dollar property in San Francisco may actually be using 100 percent borrowed money.

So let’s get this straight: Higher valuations drive higher incomes that drive higher housing prices using lots of debt. Seems fair to assume that lower valuations will drive lower incomes and lower housing prices with — uh oh — under-collateralized loans. The dominoes are lining up.

One of the telltale signs the end of a bubble is near is popular obsession with get-rich-quick investing opportunities. Back in 1999, even taxicab drivers were doling out stock tips based on overheard conversations. And because the 1990s tech bubble was in publicly-traded stocks, and online brokerages made investing accessible to all, E*Trade and Schwab were opening accounts at dizzying rates. Today’s equivalents are the crowdfunding campaigns, like those on Kickstarter, that allow companies to raise equity from Joe and Jane Sixpack. Since September 2013, investors have used crowdfunding platforms to pump more than $700 million into over 1,700 private companies.

There’s no doubt that today’s resurgence of tech start-ups will generate world-changing companies. But with all the unicorns roaming in subprime valley, the fantasy grows more obvious by the day.

As with any proper bubble, there are rationalizations galore. Of course, it’s different this time — it always is. Uber is attempting to disrupt the entire global transportation system. Airbnb is permanently changing the way people procure temporary housing. And both companies are unlocking the productive potential of otherwise stranded capital in depreciating assets. Why have your car sit idle or your apartment empty when either (or both) can generate a return?

All of that may be true. But what happens when competitors enter the market and, say, do away with surge pricing? Or taxis respond with apps of their own, as they have in New York? Or states and countries start regulating Uber and Airbnb? Or the notoriously fickle millennials get bored of the platform and move on to the new new thing?

There’s no doubt that today’s resurgence of tech start-ups will generate world-changing companies. But with all the unicorns roaming in subprime valley, the fantasy grows more obvious by the day. As with all good fantasies, it’s easy to lose yourself in the story. But the story’s almost over.

Victim of Sucess: The rise and fall of Blackberry

Though BlackBerry has less than 1% of the smartphone market share today, it once had more than 50%. The question is how such a successful company could fall so far. Journalists Jacquie McNish and Sean Silcoff provide many of the answers in their book, Losing the Signal: The Untold Story Behind the Extraordinary Rise and Spectacular Fall of BlackBerry.

Wharton marketing professor Americus Reed recently had an opportunity to talk with McNish about what we can learn from the rise and fall of BlackBerry.

An edited transcript of the conversation follows.

  

Americus Reed: I want to start off with some questions about what drew you to this topic. Tell us a little bit about why you wrote this book, Jacquie.

Jacquie McNish: It started with an investigation I did when I worked at The Globe and Mail here in Canada with my colleague Sean Silcoff. The great untold story in Canada in the technology sector globally was how the maker of something that we loved so much and that we were so addicted to — the BlackBerry – could fail so quickly. It was an enduring mystery that was very hard for any business journalist to crack: [Research in Motion (RIM), was a] very, very insular company based in Waterloo, Ontario, outside of Toronto, [with] a very small business feel to it despite its global reach. We spent a lot of time trying to crack it.

We were finally able to talk to some of the principals and did an investigation for the Globe and Mail that led to a wonderful agent in Washington, Howard Yoon, calling up and saying, “You guys should write a book,” and that’s how it all began.

Reed: What do you think sets this book apart?… Tell us a little bit about why this particular book should be on people’s must-read lists.

McNish: We live in an era of constant disruption. No matter where you are, there’s an algorithm or a new way of doing something that’s more efficient, that challenges the old way of doing things. We will look back on this period as being as significant socially and economically as the industrial revolution.

“In this era of disruption, the mother of disruption stories is the BlackBerry story.”

In this era of disruption, the mother of disruption stories is the BlackBerry story. A company that introduced the BlackBerry in 1998 became a $20 billion company from nothing in less than a decade. Then four or five years later, it was back down to a $3 billion company, gasping for breath. It’s not only a disruption story; it is a story of the speed of the technology race today. There has not been a technology that has so quickly penetrated the consumer market as the smartphones did with the BlackBerry being the innovator. Not since the television in the 1950s. We’ve never gone from zero to more than 50% of the consumer market so quickly.

Reed: When I look back on the heyday of the BlackBerry brand, I’m reminded of those images of how deeply it was connected to the business community. In other words, it was seen as a symbol as those who had made it professionally. I remember very vividly our President at the time holding up his BlackBerry and saying, “I cannot live without my BlackBerry,” very much in line with what you were describing with respect to this iconic rise of such a great brand. Tell us a little bit about the genesis of this rise. What were the key business moments that precipitated this rise to greatness for that particular brand?

McNish: Timing is everything, and coming from an outside perspective is very important in innovation. At the time, in the 1990s, a lot of people were racing in the handheld device space. I remember when the Palm was the “It” thing. That only synced your calendars and your contacts with your desktop, but it was the hot thing then. The other hot thing was Motorola’s Tango, the one-way pager that you could [use to] send a few messages … but they were very distant and very unreliable because of their big network.

You had IBM trying to do stuff. You had Ericsson as well strapping … a very successful cell phone onto a very tiny keyboard. If you had fingers the size of a squirrel, you might be able to tap onto it. So all these people were racing to get into that space, essentially with products they already had. Even Apple tried with the Apple Newton with the stylus; that was a disaster because the software just wasn’t right.

BlackBerry looked at this market and came at it from a very different point of view, and this is the key thing about successful innovation. You’re not only offering new innovation, you’re changing the rules of the game. What none of the competitors, the big players, understood was that at that time in the 1990s, bandwidth was very limited for data transmissions. Mike Lazaridis, the founder of Research in Motion, which was BlackBerry’s founding name, understood … how limited the bandwidth was at that time. So he created an instrument that parceled out bits of data communications … so that it would not overtax the networks, whereas everyone else wanted to charge you $4,000 for something that the networks could barely function to transmit. They had that simplicity of design [and] the conservation of the data being transmitted.

The final wonderful thing was that everyone was using their little squirrel keyboards. He said, “What if we create this kind of arched keyboard where you could use opposable thumbs?” That was just one of those breakthrough moments he had one night. That’s the innovation side of the story.

The other side of the story is staying alive because then you’re a small company from Waterloo, Ontario, that’s struggling to make it. You get something right like the BlackBerry, and the big players want it. Some of the big players were there from the beginning. Palm tried to buy them. US Robotics, when it was making modems for mobile data communications, placed a big order and then withdrew it, nearly killing the company because they took on debt to meet that order…. That was managed by Jim Balsillie, a Canadian businessman who went to Harvard, who came back and decided that technology was going to be the key to his success. The two of them were a powerful combination in the early days….

Reed: Can you speak a little bit about the particular strategies that were being pursued at that time by the company?…

McNish: [RIM] did something very innovative. They created these guerilla marketing teams…. They threw boxes of BlackBerrys in the back of their cars, and they went to conferences, they went to airports. They specifically looked at airports for people who were carrying back then the big, heavy laptop computers with the large modems that may or may not have worked, and said “Here, try this.”

“Everyone was using their little squirrel keyboards. He said, ‘What if we create this kind of arched keyboard where you could use opposable thumbs?’”

They called it the Puppy Dog Routine. They said, “Give us your card. You can have this free for a month. Let us know what you think of it.” They were so successful at it, and they had such a small back office that for years, people were using their BlackBerrys for free because they couldn’t figure out who their clients were because they were handing so many of them out spontaneously.

Reed: They had that much faith in the power of the technology that they were literally willing to let people just try it to form an impression.

McNish: That’s right…. Word of mouth was very key. Early adopters were Michael Dell and Jack Welch. Just as you described, the CEO of your company says, “Wow, I love this thing, I’m addicted to it,” and everyone wants to have it … and it ripples down the organization….

Reed: Talk a little bit about the BlackBerry brand and how it was part of this calculus associated with the business strategy.

McNish: This company grew so fast that I don’t think they even thought about brand. That’s the amazing thing, and they could do that as long as they had the technology…. Their main clients, and the people who mattered the most, were the carriers. They had to convince the carriers to sell it, and then they entered this new world where they’d be offering discounts on the smartphones, which really sort of juiced sales and put them in the hands of a lot of consumers.

That was an advantage in the early days, and then later as things started to fall apart, a lot of people believed that one of their biggest problems was they didn’t fully understand who their consumers were because they had to spend so much time making the carriers happy.

It was a very limiting relationship because, again, back in the days of limited bandwidth on the networks, the carriers were very rigorous about what they would allow, and Steve Jobs said for years, “I will never make a smartphone.” He called the carriers the “four orifices”; you couldn’t get anything down their pipeline without their permission. Only when he saw the success of BlackBerry, which leapt to control right away, 58% of the smartphone market, did they set their sights on that market, and then they reinvented it on their terms….

Reed: You talked to some extent about this notion of this rise to greatness and its equally iconic fall, if you will. Can you talk a little bit about that? What was it that was behind this kind of deceleration? Was it a series of events? Was it death by a thousand cuts? Was it something foreseeable? Give us some insight into that.

McNish: The pivotal moment is January 2007 when Steve Jobs walks onto the stage in San Francisco and holds up that shiny glass object that we all [now] know and love so much, and says, “This is an iPhone.” It brings you computing, it brings you the Internet and it brings you email — three things. The interesting thing is that he not only brought on the prototype for the iPhone, and said “I’m going to change the world,” he also brought on stage the head of AT&T Mobility. This is where he changed the rules of the game because really the iPhone is just an iteration of the smartphone that BlackBerry started, only they added more.

“The race is faster than ever. It never ends, and the people who are the leaders today will most likely be the followers tomorrow because it’s very, very difficult to stay ahead.”

They brought the AT&T executive onstage, announced a five-year exclusive contract, and that did two things. It gave AT&T the incentive to spend billions of dollars on upgrading its network, and it made every other carrier nuts because they wanted to have the same thing, and they all went out looking for an antidote to the iPhone. The really compelling part of the BlackBerry story is how they reacted that day. Over in Mountain View, California, you had the folks at Google under a secret project. One was for a new keyboard phone and the other was for a touch screen phone that was going to be run on Android. The minute they watched that live, streaming on the internet, they realized that their project keyboard was dead, and they immediately shifted everything to the touch screen phone….

Mike Lazaridis looked at this announcement, looked at what Steve Jobs was offering, and said, “This is an impossibility.” Again, the conservative engineer brought up on conservation said, “The networks won’t be able to carry this. It’s an impossibility. It’s illogical that anyone would even propose this.” He was right for the first two years. Remember all the dropped calls, all the frustrations, all the lawsuits against Apple and the carriers. It didn’t work….

But then it did, and RIM got it wrong. Two years is a lifetime at a technology rate, and by the time they realized what a serious threat it was, they were at that point followers.

Reed: What do you think is the public’s greatest misconception about the BlackBerry story?

McNish: A lot of people think that Mike and Jim and the folks at the senior offices in BlackBerry were arrogant and didn’t understand iPhone and just focused only on BlackBerry. There is an element of truth to all of that. Yes, they missed the turn, but they were missing the turn at a time when they were going from zero to $20 billion. They were growing at a rate of 25% every quarter. You talk to any business person, that’s an impossibility.

They were expanding in Indonesia and India, in other parts of the world. They were huge. They couldn’t keep up with the demand, and they were coproducing new factories everywhere to keep up with it. So imagine going to your board of directors or your shareholders because you’re a publicly traded company and saying, “You know this BlackBerry thing? It’s probably going to be history in a couple of years. We’re going to stop making it, and we’re going to regroup and move into something we know nothing about.” When you have that kind of momentum, it’s really hard.

Reed: It’s hard. You become a victim of your own success in some senses.

McNish: Exactly, exactly…. When you’re a publicly traded company, your options are pretty limited. What I would layer on top of that is they had a series of really unfortunate events. Everything from a horrific and badly managed patent battle in the United States [to] the three-day outage of 2009, which made everyone question their faith in the BlackBerry. We all remember where we were for those three days….

Then there was the Playbook, and then there were other phones. There was just one disaster after another, and this is how businesses fail. At first it’s slow, and then it’s very fast.

Reed: John Chen is now charged with the difficult task of turning this thing around. What are some of the broader takeaways and learnings that you think are critical from having written the book?

McNish: The thing that I take away, and we conclude with, is that the race is faster than ever. It never ends, and the people who are the leaders today will most likely be the followers tomorrow Twitter  because it’s very, very difficult to stay ahead. It is so easy today to innovate…. In the old days when you were a GE factory or an auto factory or a parts supplier, there were huge barriers to entry because you were spending hundreds of millions of dollars on plants. You were pretty well assured that there wouldn’t be an excess of competitors.

Today, that’s disappeared. There are groups of kids coming out of Stanford, out of Waterloo University, all these technology companies. All they have to do if they’ve got a Visa card is rent server time, set up an office, get some people with code experience…. Those barriers don’t exist anymore….

These days you’re an algorithm away from some pretty serious competition. Look at what Apple is trying to do with payment system. I wouldn’t want to be a bank right now. It’s a lot of disruption, and the worst mistake you can make is think that we’re better, we can out-muscle them or we can buy them or handle that competition. I don’t think you can.

How Stockholm Became a ‘Unicorn Factory

What do Silicon Valley and Stockholm have in common? Spawning billion-dollar tech companies. After Silicon Valley, the Swedish capital produces the highest number of so-called “unicorns” per capita than any other global city. With a population of less than 900,000, Stockholm has birthed prolific global brands like Skype, Spotify, Minecraft and Candy Crush Saga. In fact, American interactive entertainment firm Activision Blizzard has just purchased the makers of Candy Crush Saga for $5.9 billion.

Experts say a number of factors — including the global success of well-known Swedish companies, government foresight and infrastructure planning — have fomented an environment that has fostered 22,000 tech businesses in the city alone. “Sweden has developed a human, social, educational and corporate infrastructure that supports start-ups Twitter ,” notes Wharton management professor Exequiel Hernandez.

The kind of spotlight that Stockholm has attracted is also fueling more investment. In terms of global cities leading the way in deal growth, Stockholm is second only to Beijing, according to CB Insights. Last year, $788 million of venture and growth capital, excluding private equity deals, was pumped into Swedish companies, the research firm notes. Venture capital investments have increased 338% from last year, and Stockholm commands 15% of the total foreign direct investment poured into the European technology sector. For a high-income country that’s comparable to Switzerland in size, the Swedish are doing well in the start-up scene, notes David Hsu, Wharton management professor.

  

Certainly, American investors are taking notice. “Sequoia Capital; Kleiner Perkins Caufield & Byers; and Google have all invested in [Swedish companies]. It won’t be long before the rest do,” says Tyler Crowley, an American consultant who moved from “Silicon Beach” in the Los Angeles area to develop the Stockholm start-up scene for the city government.

Spotify, a music-streaming service that may be one of Europe’s most high-profile start-ups, reached an $8.53 billion valuation this past year. Swedish telecom company TeliaSonera poured in $115 million, receiving a 1.4% stake. Think of it as the “pensioner meets the teenager,” says Martin Carlsson-Wall, a Stockholm School of Economics accounting professor. “The deal is a way for [TeliaSonera] to build its brand and associate itself with a younger, innovative and faster-growing company. At the same time, Spotify is perhaps too small and can build on the strength of a big company.”

“The notion of the entrepreneur in the garage or the small warehouse is romantic and true in many ways, but that doesn’t happen without a lot of other infrastructure.” –Exequiel Hernandez

Predecessor Swedish tech enterprises have set the pace for successful start-ups. In 2005, Swedish telecommunications company Skype was bought by eBay for $2.6 billion. Microsoft then bought Skype for $8.5 billion in 2011 in the largest takeover acquisition in Microsoft’s history. Swedish software company MySQL was bought by Sun Microsystems for $1 billion in 2008 and is now owned by Oracle.

A Candy ‘Crush’

The recent news about Swedish success is the record sale of King Digital, which developed Candy Crush Saga in Stockholm before the company relocated its headquarters to Dublin, Ireland. Around $3.6 billion of the purchase will be from offshore cash, and Activision Blizzard, makers of the Call of Duty video game series and the Skylanders franchise, would have lost more than $1 billion if the company had repatriated the funds, notes Ian Bogost, Georgia Institute of Technology professor of interactive computing. King Digital went public on the New York Stock Exchange for a valuation of $7.1 billion in 2014 but has struggled to come up with another successful game. “Investors want growth. If you’re a company that has one massive hit … [you have] got to be reaching the limits of what you can do,” adds Kevin Werbach, a Wharton professor of legal studies and business ethics. Selling the company may be the best business solution to appease its backers, while Activision Blizzard gains entry into the mobile gaming space. (Werbach and Bogost discussed the deal during a recent appearance on the on the Knowledge@Wharton show on SiriusXM channel 111.)

Earlier this year, another successful Swedish gaming developer, Mojang, makers of Minecraft, was bought by Microsoft for $2.5 billion.

A few more unicorns are on their way, says Joseph Michael, business development manager at Stockholm Business Region Development, a government enterprise. Audio streaming service SoundCloud started in Stockholm before moving to Berlin, Germany, and was valued at $700 million at its last funding round. TrueCaller is an app that finds phone numbers and blocks spam calls, backed by two Silicon Valley investors, Kleiner Perkins Caufield & Byers and Sequoia Capital. Users are mostly located in India, Lebanon and Jordan, and 200,000 are joining each day.

Recently, mobile payments company iZettle raised $68 million on a $500 million valuation, led by Intel Capital, the investment division for the U.S.-based chipmaker. The Stockholm start-up makes payment card-reading devices that attach to mobile devices. The devices incorporate a secure chip-and-pin technology used primarily outside the United States.

Another company to watch out for is Tictail, an e-commerce company whose employees have used English instead of Swedish in their internal communications since it was founded four years ago. English is the language of tech in Sweden, says Crowley. “All their start-ups are in English. Sweden is small, so entrepreneurs are forced to think in English from the beginning, unlike France, Germany and Poland,” he adds. On the other hand, Carlsson-Wall points out that his students have a difficult time getting a job in Sweden if they don’t speak Swedish.

What Gives?

For a Scandinavian country with a population of less than 10 million, a little more than the size of New York City, Swedish businesses have always had to think outside the country’s borders. Companies like Volvo, Ikea, H&M, Absolut Vodka and telecom company Ericsson have paved the way for global success. A Swedish company typically begins to expand globally within a couple of years of its start. Sweden is so small that internationalization of companies is quite normal, notes Carlsson-Wall.

“The government played a very proactive role early on in shaping the technology ecosystem in Sweden.” –Kartik Hosanagar

“Sweden does have the legacy of its Volvos and Ericssons. They realize that start-ups can be successful and diversify their economy,” says Hsu. “A whole spectrum of companies can help a country be resistant in times of downturns.”

When Swedish multinationals became successful in the past, they contributed a lot of tax money to finance infrastructure and entrepreneurship ventures, says Carlsson-Wall. Hernandez explains: “Start-up and tech hubs don’t emerge in a vacuum. Even though we hail the young start-ups, they usually feed on the presence of large and established organizations that provide the technology and human talent required for the next big thing.”

To that end, Stockholm built the world’s largest open-fiber network in 1994 with 100% of businesses and 90% of homes tapping into that infrastructure today. More than 94% of the population is online with the fourth highest usage in the world. Over 91% of the population accesses the Internet at least once a week.

Kista Science Park, where Ericsson is headquartered, is also home to 700 tech companies with enough fiber-optic cable to circumnavigate the Earth 30 times. “The notion of the entrepreneur in the garage or the small warehouse is romantic and true in many ways, but that doesn’t happen without a lot of other infrastructure,” says Hernandez.

Back in the 1990s, the Swedish government even offered a tax break for residents to buy personal computers. “People could pay for computers with pre-tax money and employers would supplement the costs,” notes Kartik Hosanagar, a Wharton professor of operations, information and decisions. “This led to a huge influx of PCs in homes, which led to really high PC penetration. The government played a very proactive role early on in shaping the technology ecosystem in Sweden.” Founder of Klarna, an e-commerce firm that provides online payment services, 33-year-old Sebastian Siemiatkowski says this subsidy helped him become an early technology adopter at the age of 10 when his family couldn’t afford a computer, in an interview in The Independent.

It comes as no surprise the most common job in Stockholm is programmer with 18% of the city employed in the tech sector. University education is free as well, and institutions are starting to foster start-up clusters. Daniel Ek came up with the idea for Spotify during his first year of college at Stockholm’s Royal Institute of Technology, which graduates one-third of the technical expertise in Stockholm.

This kind of government planning has created a whole generation of highly educated digital natives who have grown up with a familiarity with computers and broadband. “The whole mindset has led to a very tech-savvy population,” adds Hosanagar.

According to Hernandez, the Swedish start-up community has built on the strengths that Sweden has to offer, such as a highly educated population, social and political stability, and extremely high openness to new ideas. “One of my pet peeves is that many places are trying to be like Silicon Valley. But nobody can do that because Silicon Valley was the product of unique historical and social circumstances,” Hernandez notes. “That’s usually the genius of a start-up or tech or industrial hub. It can’t be replicated because the founding conditions are idiosyncratic. So the main lesson may simply be to build on existing strengths and focus on what is unique. That will prevent any geographic or local advantage from dissipating when others try to imitate.”

Moreover, work-life balance is integrated into the culture, with the tradition of all Swedes taking a multi-week vacation over the summer. In addition, Sweden has one of the highest female and maternal employment rates in Europe. Day care costs are subsidized by the government, making it extremely affordable. Men normally take paternity leave. “In Stockholm, it would be considered very conservative if fathers don’t stay home with the kids,” says Carlsson-Wall. Marta Sjögren of venture capitalist firm Northzone, who backed Spotify, said in The Telegraph, “The whole freezing-your-eggs thing would never happen in Sweden,” a benefit offered to Facebook and Apple female employees. However, Crowley said he notices that there are fewer women in the Swedish tech scene than the American tech scene. “As progressive as Swedes are about gender issues, they’re a bit behind with female tech engineers,” he says.

“Small innovations with really good user-friendly designs will be important, and Sweden has a really good leg up in that respect.” –Kartik Hosanagar

Overall, the start-up scene is starting to gel and the next generation of Swedish tech companies is beginning to crop up in a “virtuous cycle,” notes Hernandez. Indeed, Skype founder Niklas Zennström went on to start Atomico, a venture-capital firm based out of London that funds many Swedish start-ups.

More to Come?

While Stockholm’s success in the start-up space is impressive, there are a few negatives when it comes to attracting outside talent, Hsu notes. The cost of living is high, in terms of taxes and housing. Also, landlords have to obtain special permits, driving the cost of subletting even higher.

Income taxes are notoriously high, though university tuition and health care is free. Carlsson-Wall says there is proposed legislation to attract expat workers by classifying them as “foreign experts” so they can pay lower taxes. Even stock options, a popular incentive for tech workers, are taxed before and after they cash out.

Gabriel Karlberg, a doctoral student at the Stockholm School of Economics, adds that if a company goes bankrupt and a person has served on its board or as the CEO, the bankruptcy becomes registered in that person’s personal credit rating for life and becomes a personal liability, making it more difficult to get a mortgage or a loan for another start-up where the bank might do a personal credit check as an extra precaution.

“Swedish society in general needs to understand that a bankruptcy sometimes is a necessity and that some firms need to fail and that the persons on the board or the CEO might still be great entrepreneurs,” Karlberg notes. “The risk of getting a bankruptcy on your records makes people more reluctant to launch a company and take risks, since the failure could hurt you as much as the economic losses from the bankruptcy many years after it happened.”

Overall, the Scandinavian start-up scene is still burgeoning, particularly the one in Stockholm. “Stockholm is the only city with a population of less than one million people with any unicorns. It’s a unicorn factory … and they’re not slowing down. There’s more in the works,” says Crowley.

Hosanagar agrees, noting that “there will be more and more coming out of Sweden.” One important reason, he adds, is that future start-ups will be less about tech and more design conscious. In the last 20 to 30 years, Apple, Microsoft and Google have made enormous strides with technology. Sweden has always had a really strong design sense with iconic brands like Ikea and Volvo. These days, success can be measured by how intuitive and convenient it is to use a particular piece of software. “Small innovations with really good user-friendly designs will be important, and Sweden has a really good leg up in that respect,” Hosanagar says.

Health Care Innovation Doesn’t Have to Be Driven by Profit

As health care reform evolves, large public institutions that offer a health safety net have some advantages over privately owned enterprises. That may sound counterintuitive, but it’s true.

For many years, private-sector providers and other business interests have responded to a combination of patients’ actual needs and market opportunities while trying to optimize earnings. When the type and amount of health services largely depend on independent providers’ discretion, care becomes more fragmented and costly. But large, publicly supported safety-net institutions are driven less by external payers and market forces, and more by patient and community needs — and clinicians often participate prominently in decision making. Those are all assets in an era of health care reform.

I head one of these institutions: Dallas-based Parkland Health and Hospital Systems. A county network of 12 community-based primary care clinics, 95 specialty clinics, an inpatient hospital, an ambulatory surgery center, and 12 skilled nursing facilities, Parkland has the mission of caring for all Dallas County residents regardless of their ability to pay. The medical staff is either employed by or contracted through our academic partner, the University of Texas Southwestern.

As a public safety-net provider, Parkland has several built-in advantages:

An ACO before ACOs existed. In recent years, the Centers for Medicare and Medicaid Services (CMS) has given hospitals, physicians, and other providers incentives to form accountable care organizations (ACOs), with responsibility for outcomes and costs held by a single entity rather than diffused across independent providers. Parkland has operated like an ACO since establishing its community-based primary care clinic in 1989 — out of necessity. Patients generally need proof of insurance to access outpatient clinics, and Parkland was serving a large volume of uninsured people as inpatients — so it extended preventive care and management of chronic conditions into the outpatient arena, much like an ACO. We still operate that way today.

A mission-driven payer mix. Parkland receives 36% of its hospital operating budget ($535 million in FY2016) from county funds, not for episodes of care (as in the insurance model) but to design and provide the best possible care for our population. Our patient mix — 48% uninsured, 30% on Medicaid — may scare hospitals that must turn a profit. But it greatly simplifies our decisions about what services to provide and how to organize them. Other systems typically structure services according to a predicted number of insured patients and the rates they can secure from insurers. By contrast, nearly every program at Parkland “loses” money (if you think in typical hospital-finance terms). For example, our new tele-dermatology service allows patients to see dermatologists remotely and, therefore, more quickly, conveniently, and cheaply. However, because nearly half of our patients are uninsured, the service’s overall costs exceed revenues. In calculating return on investment, we don’t just do simple math — we figure out the most patient-centered, efficient way to spend our finite funds to care for our population. 

Affinity for care coordination. In the 1990s, when many hospitals began acquiring physician practices to support earnings with a steady stream of hospital admissions, Parkland’s safety-net system was already creating a coordinated web of care. Our physicians and hospitals still share inpatient and outpatient electronic medical records, and they document measures of quality to ensure patients receive the best need-based care for the cost. Our CMS-reported hospital measures of quality for Medicare patients are comparable with state and national averages. And Medicare spends less per patient for an episode of care initiated at Parkland ($18,419) than it does across all hospitals nationally ($20,025

Effective coordinated care must be team-based and span inpatient and outpatient settings. For example, our physician-led diabetes program sets standards of care throughout the institution, from establishing multidisciplinary group visits for outpatient chronic-care management to implementing standardized protocols for titrating inpatients’ insulin dosing to manage blood-sugar levels. This effort has reduced the average number of episodes of critically low blood sugar among all inpatients from 13 per month to less than one per month. We improve care for patients like these (with diabetes and many other conditions) by using electronic decision support, tracking outcomes, and sharing the data with providers.

Ability to resist reimbursement pressures. In 2010, while overseeing Louisiana State University’s 10 public safety-net institutions, I faced an interesting dilemma. A physician-owner of a hyperbaric oxygen therapy (HBOT) program was relentlessly trying to get us to adopt this expensive treatment, even though for some of its common uses (such as foot ulcers) it has less proven benefit than cheaper therapies do. Yet a leading hospital-industry advisory group made this endorsement: “HBOT can be a substantial driver of volumes for not only a hospital’s wound care center, but also downstream lab, radiology, and surgery services.” That might make sense for a health system that is driven primarily by volume of procedures and reimbursement dollars, but not for ones like LSU and Parkland, which target limited resources to be maximally effective and efficient for patients. Unfazed by this kind of pressure, we simply declined. 

Population-driven innovation. In 2009, on any given day, Parkland had about 20 patients who were in the hospital solely to complete a four- to six-week course of intravenous antibiotics. If they had Medicare or other insurance, they would go home and receive their medications with the assistance of a home health nurse. A Parkland physician developed a program to train uninsured patients and families to administer IV antibiotics at home, with regular follow-up in her clinic. By 2014, more than 1,100 Parkland patients had been safely treated this way. And the hospital readmission rate is now lower among the patients who have been trained to self-administer IV antibiotics than among patients with insurance who receive home health care assistance. The uninsured patients go home earlier than they used to, and the hospital has saved nearly $40 million. Imagine the cost savings if we applied this program nationally to all patients who need prolonged IV antibiotics.

Despite these advantages, operating as a public entity comes with challenges:

Limited resources to meet unrelenting demand. In 2011, Parkland added an urgent care center on its main campus to divert less-severe cases from the crowded emergency room. We now see 65,000 visits per year in our urgent care center, but our ER visits did not go down. That’s because Dallas’ overall population (including the uninsured segment) is growing and because our added capacity attracts patients who had been deferring needed care. Some of our specialty clinics have wait times of up to six months for new patients.

Uncertain planning. With nearly 80% of our patients either uninsured or on Medicaid (which pays below cost), we depend on county and state budget and policy decisions, which can change from year to year. Long-range (and even short-range) planning can be difficult under those conditions.

Patients who need more than health care. Being a safety-net provider means caring for people who face challenges in all areas of their lives — physical, mental, financial, and social. These patients often have exhausted all other health care options and may need resources as basic as food and shelter to ensure their well-being — resources that extend well beyond our walls.

Public health systems will always face obstacles like these. But they also know — from hardscrabble experience — how to serve diverse patient populations well at modest costs. As David Blumenthal and Sara Collins wrote in the New England Journal of Medicine in 2014, “Developing and spreading innovative approaches to health care delivery that provide greater quality at lower cost is the next great challenge facing the nation.” Large public systems have a leg up because they have been confronting this challenge for years.

GE Wants To Move All Your Health Data To The Cloud

In this day and age, you can easily share photos through Dropbox, notes in Evernote, or spreadsheets via Google Drive with anyone. But good luck helping two doctors at two different hospitals to see the same patient records online. Instead, when a patient goes to a medical center for the first time, they often have to repeat tests they've undergone before—such as a computerized tomography (CT) scan, which uses X-ray technology to produce cross-sectional images of the body.

"The holy grail of medical informatics right now is to have a cloud-based place where patients' info can live," says Dr. Alexander Baxter, an assistant professor of radiology at NYU who practices at Bellevue and NYU hospitals in Manhattan. "So that if you go to one hospital, and you get a CT scan and you go to another hospital, you don't have to get the same CT scan again. This happens all the time at Bellevue." That doubles the cost and the dose of radiation.

Images from a GE Health Cloud 3-D visualization app using CT scan data.

GE Healthcare just introduced its candidate for that holy grail: a service called GE Health Cloud that will link up medical devices around the world, process the data, and store patient records securely online so they can be viewed from anywhere. The company, which promises Health Cloud meets U.S. HIPAA privacy requirements for healthcare records, is launching the new service in late spring of 2016 with radiology devices like CT, ultrasound, and MRI scanners, and starting off with 500,000 of GE's machines. The company plans to expand the service to cover other aspects of healthcare, says Jan De Witte, president and CEO of GE Healthcare IT.

Health Cloud is the first industry-specific project using GE's new Predix Cloud for connecting and mass-processing data from industrial machines online. Health Cloud promises not only to allow people to access radiology records from anywhere (even on mobile devices), but also to pool resources from GE's 400 computing centers to crunch data radically faster than the desktop computers that hospitals are currently using.

That could save time and money—and could also save lives, says De Witte. A patient with an ischemic stroke—a clogged blood vessel in the brain—can often survive without major damage if diagnosed and treated within three to four hours, says De Witte. But an important diagnostic tool that turns CT scans into a 3-D animation of blood flow can take four to five hours to render on a desktop computer. Health Cloud can do the same job in five minutes, he says. It also gives doctor's more flexibility. "You can let loose two or three algorithms on the same data set, where before you could only do one," says De Witte.

Health Cloud isn't limited to GE devices, says De Witte. It may not be so easy to overcome rivalries, though. "What all these [radiology] companies want to do, as far as I can tell, is dominate a single hospital, so that everything they buy is from GE or Siemens or Toshiba or…Philips," says Baxter, who has no affiliation with any healthcare equipment or software companies. Signing on to a rival's cloud service and making devices interoperable won't necessarily serve this goal.

One thing in GE's favor: The bar for UI design isn't set very high in the medical record world, according to Baxter, who notes the frustration he experiences with electronic health record systems from companies such as Epic and McKesson. "These things were invented to justify billing for medical procedures," he says, "and their interface is terrible, just appallingly bad." For example, he usually has to navigate past tons of unimportant nursing notes just to get to the specific record he needs.

Currently, it's also a hassle to view scans from other hospitals, even when a patient is lucky enough bring him a copy on CD, since each scan requires its own proprietary viewing software. "Every time I look at [the records] I have to figure out how to operate [the software], and I've never seen it before," says Baxter.

GE promises to avoid this problem with Health Cloud by making data available in standard formats such as the DICOM image file (radiology's version of a JPEG) that any company's software can read. The cloud-based apps (made by GE and third parties) will be viewable in any web browser without requiring special software. Health Cloud will also be accessible in apps for Android, iOS, and Windows mobile devices.

De Witte says that medical centers will pay for Health Cloud either per item, such as for each 3-D rendering, or subscribe to a volume of activities, like a certain number of scans uploaded per month. He claims Health Cloud will more than pay for itself due to savings on purchasing and running computing systems in each hospital. And the service brings high-end computing power to smaller facilities that can't afford to buy their own equipment.

Health Cloud also allows these satellite centers to bring in experts from major hospitals in the same network. In the U.S. especially, hospitals are moving to a hub-and-spoke system, says De Witte, with specialists in the main medical centers on call to assist teams at the smaller facilities.

Medical centers can keep copies of data on their local machines and also download it from Health Cloud at any time, but De Witte envisions them increasingly moving everything to the cloud. That raises the issue of reliability. As any company that runs on Amazon Web Services or other outsourced IT systems knows, cloud outages happen. "You really need to have enormous reliability and redundancy for these things," says Baxter. "No one is going to want to hear, oh our system is down, you can't get anything for the next five hours."

GE is yet to specify the level of reliability it will guarantee its clients, though De Witte says he expects it to be at least 99.9%. He boasts that GE can do a better job than a typical hospital can. "The argument to the CEO of a hospital is, do you really think that the server that's running in your basement has a better performance, has a better uptime, and has better cybersecurity than the cloud services you can buy from big, capable cloud operators?" he says.

Baxter calls Health Cloud "a good idea," and says that GE is a capable company. "They are quite good. They have a lot of money and good engineering." But getting enough medical centers to sign up for the service will be a major challenge. "One hospital may want to pay for it, another may not want to pay for it," says Baxter. "Unless you have something that all hospitals have to connect with, by law, it's very hard to imagine any kind of a cloud system working truly well for all people in America

GE’s Immelt talks analytics and the future of innovation

In the exhibit halls at RSNA over the years, technology advancements were often touted based on the number of CT slices or an MRI’s bore size. Now, though, the future of radiology lies in the innovations that are being made in analytics and information collection, according to Jeffrey R. Immelt, chairman and CEO of GE.

“The biggest technical theme in the world today is the merger between machines and data,” declared Immelt during the New Horizons Lecture at the annual meeting of the RSNA. “If you think you’re an industrial company, you’re really a data company.”

In his talk, which bounced between discussions of the wider healthcare landscape and how GE specifically fits in, Immelt highlighted a number of advancements.

Precision medicine and the development of radiogenomics loom large in radiology, according to Immelt, as does the merging of the fields of radiology and pathology.

Mobility is also highly sought after, and while Immelt says GE isn’t in the consumer-focused mobile space, the company remains focused on developing diagnostic tools that are mobile

Underlying the lecture was the idea that everyone at the conference—providers and vendors alike—has a role to play in the future of healthcare. Physicians will depend on industry to deliver the tools, while radiologists will continue to focus on improving outcomes and patient satisfaction.

"We're going to be working on this the rest of our lives in terms of how to improve healthcare outcomes, costs and quality,” said Immelt, who stressed that no single law or magic button will provide the ultimate solution.

“All of us have the responsibility to control costs, to bring care to more people.”

Shifting back to the technology, Immelt also mentioned the GE Health Cloud, a platform that can be leveraged by radiologists to study and share images. “The information created by radiologist is the most valuable in the hospital,” said Immelt.

Despite the advances, radiology and healthcare in general are still in the beginning stages of utilizing analytics and advanced communication tools. Immelt said the industry as a whole will have to learn how to adapt and grow together.

The lecture was dedicated to Ferenc A. Jolesz, MD, director of the MRI Division and the Image-Guided Therapy Program at Brigham and Women's Hospital. Immelt, formerly head of GE’s Medical Systems division (now known as GE Healthcare), called Jolesz a friend. Jolesz passed away Dec. 31, 2014.