Intel-AMD case

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The lawsuit between Intel and AMD was settled a few weeks ago, five years after it was first filed by AMD. This was a private civil lawsuit; various government investigations are still going. According to reports, Intel agreed to pay $1,250,000,000, and to extend various license agreements with AMD. ($1.25 billion)

I was an expert witness on the case, which was an interesting experience to say the least. As an academic, I wish there were a way to use the data from civil lawsuits  cases for academic research. Of course, the confidential data itself has to be kept secret, but in principle it should often be possible to find ways to provide high-level analysis without revealing anything private.  As far as I know, though, this is never done. Certainly the standard agreements for using the data don’t allow it, and in practice it would probably take an agreement by both sides. The companies don’t seem to have much incentive to allow this. (I’m not speaking of AMD or Intel  or anything about this case in particular.)

There’s one  situation where some of the data does come out, namely if the case actually goes to trial. An example was the US vs Microsoft case in the late 1990s. But this is very rare – most cases settle before trial, and even when they don’t I gather that agreements to seal the data are standard.

The Economist praises a dangerous and obsolete management concept

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The Economist just published a short article in praise of the experience curve. Even the first sentence is wrong . Here’s their lead-in.

The more experience a firm has in producing a particular product, the lower its costs

The experience curve is an idea developed by the Boston Consulting Group (BCG) in the mid-1960s.

Actually, no. The experience curve, known as the learning curve, goes back to the aircraft industry before World War II. (An excellent review of the history and application to management up to 1980 is J.M. Dutton, A. Thomas, J.E. Butler, “The history of progress functions as a managerial technology,” Business History Review 58 (2) (1984). )

Here’s my comment on the Economist article:

It’s sad to see such an obsolete and downright dangerous theory get this favorable write-up. BCG (and later Bain) ruined numerous businesses by persuading them to blindly follow “the experience curve.”

The danger in the Experience Curve concept is that it claims that improvement is _inevitable_ and _ the same for everyone in an industry_. Neither of these is remotely correct. If it were correct, the biggest firm would be able to reduce its costs faster than everyone else, and would become unassailable. This was exactly the theory behind BCG’s matrix, and it’s WRONG. General Motors was bigger than Toyota until 2008, but Toyota had lower costs, and faster declining costs, since at least 1965 or 1970. For decades GM claimed this was due to lower labor costs, but that was refuted in the book The Machine That Changed the World, which showed that Toyota (and others) were much more efficient than US auto makers per labor hour.

It’s certainly true that, properly managed, experience can facilitate improvement. But there’s been 25 years of research now showing that improvement requires deliberate effort, and that the improvement process takes careful management. Toyota, through JIT and “The Toyota Production Process,” essentially invented a system for making more rapid improvement – hence it surpassed GM and everyone else, while a fraction of their size. The semiconductor industry had its own epiphany about the folly of the experience curve, when a major research project run out of Berkeley surveyed a variety of fabs and found vastly different performance that had little  to do with scale or cumulative experience.

Even BCG no longer claims the experience curve is valid, as far as I know. (I’d be happy to hear from others who have experienced BCG’s views in the last 5 years.)

I could go on and on (and I did, in stuff I wrote 20 years ago on this topic)!  We need to drive a stake through the heart of this idea. It’s not that it’s totally and utterly wrong, because the learning curve  has some ex post validity. But it has little predictive power, and even less as a normative theory of how to manage learning!

Immigration and high-tech startups: not correlated, after all?

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Some colleagues have just published a new analysis of high-tech entrepreneurs, and the results are  surprising. There has been a lot of talk  lately that high tech firms are disproportionally founded by immigrants.  But according to my interpretation of this new, and more carefully done, study, that’s  not true.  Here’s my summary of their results:

Only about 3 percent  of the founders of high-impact, high-tech companies are foreigners (about 60 out of 2034).   97 percent are US citizens, and specifically 87 percent are US-born, while 10 percent are naturalized US citizens.    Furthermore, most foreign-born founders lived in the US for decades.  These founders are statistically very similar to the average US population in terms of birth and immigration status.

What’s the evidence? The study is by David M. Hart, Zoltan J. Acs, and Spencer L. Tracy, Jr.High-tech Immigrant Entrepreneurship in the United States A summary of their report is at http://www.sba.gov/advo/research/rs349.pdf

Here’s the odd part: the authors draw a rather different conclusion from their data than I do. Specifically their lead is “The central finding of the study is that about 16% of the nationally representative sample of high-impact, high-tech businesses that we surveyed count at least one foreign-born person among their founding team.” And indeed, their data does say this. But they failed to make a comparison to the US population in general. And classifying as “immigrant founded” a firm with any foreign-born founders is inherently biasing the results toward a higher number. They report that “of the 205 Immigrant Founded Companies in the sample, more than half [ie. at least 8% of the firms in the sample] were founded only by foreign-born entrepreneurs,” which seems to me more informative than the 16% number.

For what it’s worth, I’m very sympathetic to the view that immigrants have a positive effect on technology and entrepreneurship. My nationalistic perspective is that we (the US) should educate in our universities the smartest kids we can get our hands on worldwide , and then keep them in the US.  We’ve always been a nation of immigrants, and there is no reason to change. Of course, there are many nuances and ramifications of this debate.

Here’s my comparison data on the general US population, based on latest-available information from US Census.  In 2003  about  11.7 percent of the population was foreign-born.    (http://www.census.gov/prod/2004pubs/p20-551.pdf)  Of these, only about 40 percent are naturalized US citizens (http://www.census.gov/prod/2003pubs/c2kbr-34.pdf). But corrected for the same average age (or residence time in the US), it looks like very roughly 70 percent of immigrants are  naturalized.  And, if we adjusted for region of residence, since startups and immigrants both disproportionally reside in some regions, the fraction of immigrants in their sample would probably be even lower than the general population in the same region.

On the other hand, it might be more relevant to look at the status of company founders in the year of founding, rather than today. Presumably fewer of them were US citizens at the time (although the percentage foreign born would be the same). But a similar correction would apply to the immigrant population of the US as a whole, so it’s still not clear that the two would differ meaningfully.

Finally, this research looks well-done to me. It’s only their spin on the executive summary  that I disagree with. They seem to have done a much more careful job than previous analysis on this topic, and if you read their report carefully they don’t overstate their results.

[A good comment on this research is at http://www.usnews.com/blogs/capital-commerce/2009/07/16/immigrants-a-driving-force-behind-innovative-firms.html#3323010 . The commenter has delved into the report and extracted some numbers I didn’t notice, that support the view that this research is NOT pro-immigration, at least not directly.]