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Cloud Computing Now Makes It Easier (and Cheaper) to Innovate: Study

12 Oct

Who doesn’t want innovation these days?  It’s the new mantra of organizations large and small as they attempt to navigate and get the upper hand in today’s hyper-competitive and unforgiving global economy.

But innovation is not cheap. It can be extremely risky, since  a relatively small percentage of innovations actually deliver results in the end. The challenge is trying to figure out where to invest wisely, and which innovation is the potential winner. The natural reflex in the business world has been to avoid innovation, since means sinking considerable time and resources into ideas that don’t get off the ground.

However, cloud computing technology may be clearing the way to turn formerly hidebound businesses into innovation factories.  That’s because it now offers a low-cost way to try and fail with new ideas. In essence, the price of failure has suddenly dropped through the floor.

A recent survey of 1,035 business and IT executives, along with 35 vendors, conducted by the London School of Economics and Accenture, has unearthed this new emerging role for cloud computing — as a platform for business innovation. Many people these days still see cloud within it’s information technology context, as a cheaper alternative for existing systems. But cost savings may only be the initial threshold of what cloud can deliver to organizations.

The study’s authors. Leslie Willcocks, Dr. Will Venters and Dr. Edgar Whitley — all of the London School of Economics and Political Science — identified three stages cloud computing moves into as it’s adopted by organizations:

1) Technology and operational changes. The one-of-one exchange of traditional applications and resources for those offered as services through the cloud — such as Software as a Service.

2) Business changes. Altering the way companies operate and serve customers, such as enabling faster service, faster time to market.

3) New ways of designing corporations themselves. “For especially forward-looking companies, cloud computing may provide a platform for radical innovation in business design—to the point where executives are actually provisioning and decommissioning parts of the business on an as-needed basis,” the study’s authors observe.

It’s in that third phase where things get really interesting. Cloud computing, the authors point out, enable companies to quickly acquire processing, storage or services as needs dictate. They can just as quickly shed those resources when a project is completed. As a result, companies with more advanced cloud sites are able to rapidly move through experimental or prototyping stages:

“Such a model supports “seed and grow” activities and faster prototyping of ideas. With traditional IT models, a decision to prototype a new system generally involves the procurement and installation of expensive hardware, with the associated checks and delays that conventional purchasing requires. Cloud provisioning, on the other hand, can be implemented rapidly and at low cost.”

An example, cited in the study, is an effort to innovate within processes and technologies related to sales support—for example, tracking contacts, managing and converting the sales pipeline, and generating revenue. Change would be difficult, if not impossible, for processes locked into traditional on-site IT systems. Consider the possibilities with cloud:

“The company could provision a combination of software as a service for sales, along with an enterprise system or financial management system. Sales personnel could have access to specialized sales support over the cloud. This ability to envision new combinations of cloud-based solutions and create new ways of performing end-to-end processes presents companies with new opportunities to be innovative in new-product development as well as in service and support.”

A couple of years back, Erik Brynjolfsson and Michael Schrage made similar observations about technology’s promise to lower the costs and risk of innovation in an article in MIT Sloan Management Review. For example, with a Website, “companies can test out a new feature with a quick bit of programming and see how users respond. The change can then be replicated on billions of customer screens.” This capability can be extended to supply chain management and customer relationship management systems as well.

Implementation of new ideas is blindingly fast, Brynjolfsson and Schrage stated. “When a company identifies a better process for screening new employees, the company can embed the process in its human-resource-management software and have thousands of locations implementing the new plan the next morning.” Brynjolfsson and Schrage also predicted that thanks to technology, many companies will shift from conducting two or three real-world experiments to 50 to 60 a year.

“Technology is transforming innovation at its core, allowing companies to test new ideas at speeds—and prices—that were unimaginable even a decade ago,” they said.  “Innovation initiatives that used to take months and megabucks to coordinate and launch can often be started in seconds for cents.”

We’ve already seen the impact of technology to shave tremendous time and costs in such areas as energy exploration and engineering. But now the ability to quickly test and deploy new innovations is available to all types of businesses. Testing new innovations once cost some companies millions of dollars to perform. Now, new technology approaches, such as online real-world simulations and samplings, reduce the cost of testing new ideas to pennies. Add the ability to provision those workloads to on-demand cloud resources, and many of the cost and risk barriers have been lifted off innovation.

(Photo Credit: Wikimedia Commons.)

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Huge Timber Purchases Make Malone America’s Biggest Landowner

12 Oct

The media business must be nerve-wracking, what with its up-and-down fortunes and constant threat of being outflanked by the next iPad-delivered Internet service. Maybe that explains why Liberty Media’s  John Malonepours so much of his extra cash into land.

Earlier this year Malone passed fellow media mogul Ted Turner to become America’s Biggest Landowner with 2.2 million acres, thanks to a giant investment in timberland in New England. It capped a quick ascent for the cable-television magnate, who joined the list of the nation’s land barons last year, shoving aside ranchers and timber magnates, some of whom have owned their acreage for generations. He entered the list at No. 5 after buying New Mexico’s 453-square-mile Bell Ranch in 2010, then passed Turner earlier this year after buying 1 million acres in New Hampshire and Maine from private equity firm GMO Renewable Resources.

Malone blamed heritage, not nerves, for his love of the asset whose supply will never increase. As he told Forbes writer Monte Burke in March: “My wife says it’s the Irish gene. A certain land hunger comes from being denied property ownership for so many generations.” Turner, contacted by The Land Reportmagazine for its annual list of the nation’s largest landowners, said he was happy to hand over the title. “I consider John a good friend and have great respect for him,” Turner said.

Aside from Malone’s quick trip to the top, the list didn’t change much this year. Compiled by Land Report researchers with the assistance of Fay Ranches, a Western land brokerage, the list includes the usual family timber dynasties as well as the owners of the King Ranch in Texas, once considered unimaginably huge but now, at 911,000 acres dwarfed by the holdings of Turner and Malone.

No. 2, of course, is Turner, the CNN founder who began buying ranches in the 1970s and now controls 2 million acres in New Mexico, Colorado, Montana, Florida and several other states. If $1 billion separates the men from the boys in terms of raw wealth, the new land barons can judge themselves by the number of Rhode Islands they own. Turner has almost three, including the spectacular Vermejo Park Ranch straddling the border of New Mexico and Colorado which is nearly as large as the Ocean State all by itself. Malone credits his fellow media magnate for giving him “this land-buying disease.”

Turner is a dedicated conservationist who has resurrected the American bison on his ranches (he has some 55,000 of the beasts munching his grasslands now). He also formed a partnership with the Southern Co. to build a 364-acre solar site in New Mexico that produces 30 megawatts at times of peak sunlight, enough to power 9,000 homes.

At his customary spot in the Top 5 at No. 3 is Archie “Red” Emmerson, whoseSierra Pacific Industries boosted its holdings to almost 1.9 million acres this year. The forest products company , now entering its third generation of Emmerson management, is the second largest U.S. timber producer and works closely with the U.S. Fish and Wildlife Service to preserve species on its land. Emmerson and his father, Curly, began their march into the ranks of bigtime landowners in 1949 when they leased a California sawmill. Emmerson later borrowed $460 million to buy 522,000 acres in northern California, holdings that have since spread into Washington.

At No. 4 is recent entrant Brad Kelley, a Tennessee cigarette magnate who poured the profit from the $1 billion sale of his company into 1.7 million acres of land in Florida, Texas and New Mexico. Below him by half a million acres is the Irving family of Canada, who own a little less than 1/20th of the state of Maine (plus a bunch more in Canada). The descendants of thrifty Scottish immigrants, the Irvings are in lumber for the long haul; they’ll plant some 28 million seedlings in their forests this year.

The No. 6 landowners are the Singleton family of New Mexico with 1.1 million acres. Henry Singleton was a brilliant engineer who co-founded Teledyne and began buying land in New Mexico in the mid-1980s. Now his heirs run the massive Singleton Ranches, headquartered in Santa Fe, one of the nation’s biggest cattle and horse-breeding operations.

The fabled King Ranch of South Texas comes in seventh at 911,215 acres. Still owned by the descendants of Captain Richard King, the ranch boasts its own breed of cattle, the Santa Gergrudis, which the family developed by crossbreeding Shorthorn and Hereford cattle with Brahman.

The Pingree family of Maine are eighth with 830,000 acres of timberland. Like the King family, the Pingrees started with a patriarch in the shipping business, David Pingree, who correctly foresaw the demise of the whaling industry. He started investing in Maine in 1820, the year it became a state as part of the Missouri Compromise. The family’s Seven Islands Land Co. sold a conservation easement in 2001 for $28 million, or $37 an acre, to prevent any future development.

Coming in at ninth and tenth are Washington’s Reed family, with 770,000 acres, and sports-team owner (and husband of Wal-Mart heiress Anne Walton) Stan Kroenke. The Reeds, who control the Simpson lumber and manufacturing company based in Tacoma, trace their heritage back to Sol Simpson, Canadian lumber raftman who immigrated to Nevada to find gold but made his fortune in Washington timber. Kroenke, who owns the St. Louis Rams and the Denver Nuggets, owns the Cedar Creek and PV Ranches as well as the Q Creek Land & Livestock Co. in Colorado, which with 570,000 acres is the largest contiguous ranch in the Rocky Mountains.  Big enough, in fact, to supply burger meat to his Blue Sky Grill in Denver.

Earnings Derby: Alcoa Strikes Out, Google To The Plate, JPMorgan On Deck

12 Oct

A lack of bad news before the end of trading on Tuesday allowed stocks to maintain their levitation, closing essentially flat for the day and far higher than one week ago.   After the close, however, Alcoa stunk up the joint, kicking off earnings season by missing analysts’ consensus earnings forecast on EPS. Despite topping revenue estimates, the aluminum producer’s shares were tumbling 4.8% in after-hours electronic trading.

Despite the shaky start with Alcoa’s whiff and swift punishment, this earnings season could be a decent one in which companies that beat notched-down sales and profit expectations can see their share prices quickly take flight.

Due to report earnings on Thursday are Google and JPMorgan Chase.   They’re both worth a look–Google for its tendency to crush estimates, and JPMorgan as a speculative financial play that pays you for your time and patience, offering a dividend good for a 3.3% yield.   Fellow financial firms Goldman Sachs and Bank of America don’t report until October 18, and Citigroup reports next Monday, October 17.

Check out today’s Market Blaster video for a look at valuation of GOOG and JPM, and to see how cyclical groups like steel and coal have rebounded mightily and still look like values if the world economy doesn’t slip into the abyss. SLX and KOL are both up nearly 20% in a week.

It’s been a week since last Tuesday and Wednesday when most world stock indexes plunged to their lowest levels since early August.  The S&P 500 SPDR (SPY) ETF was in bear market territory, down better than 20% from its April 29 high at 137, plumbing new yearly lows at 108.

Since then, stocks have sailed higher, with the SPY tacking on better than 11% from intraday lows six days ago.  The appearance of a plan to fortify European (mostly French) banks against losses on bad Greek loans provided the catalyst for an explosive rally off of deeply oversold conditions coming into the first week of October.

Some of the biggest recoveries in the week-long rally have been at the epicenter of the crisis.  BNP Paribas is up 26% in the past week, Deutsche Bank is up 16%.

Country fund ETFs like the iShares series have been a straightforward way to play the pop: EWG (Germany) is up 15%, EWQ (France) higher by 14% since October 3, and the iShares Italy Index (EWI) has blasted 17.5% higher.

Also mentioned in the Market Blaster video, small- and midcap stocks, had been trailing larger, more defensive stocks year-to-date. Since 1999, the large cap SPY has produced a total return of less that 10%, while the SPDR Midcap 400 (MDY) is up 100%. If the market recovery sticks, expect the more volatile but far peppier MDY and IWM to outpace the big boys in the SPY.

Condé Nast Swaggers Into the Entertainment Business

12 Oct

Condé Nast is the luxury sedan of American magazine publishers and they know it. Sometimes that sense of corporate superiority can be a handicap, as when, eight years ago, the company turned down a chance to be a partner in “Project Runway,” unwilling to tarnish the hallowed Vogue brand by associating with a lowly reality show. You know how that turned out.

But a lot has changed since then. Ad spending in print is falling — gradually over the long term, owing to changing patterns of media consumption, and more sharply in the last three months. Meanwhile, the biggest digital media companies — a group that includes GoogleYahoo, AOL and Netflix — are in a mad scramble for high-quality, original video content.

So the same Condé Nast that turned up its nose at one lucrative TV tie-in just created a new division dedicated to nothing but entertainment deals. And you can tell how serious they are about it by the resume of the person they’ve hired to run it: Dawn Ostroff, a former TV executive who ran the CW and UPN networks.

Condé Nast president Bob Sauerberg says he first began talking to Ostroff three months ago, a few weeks after her five-year tenure at the CW concluded. “In my mind, she’s a perfect choice,” he says. “She’s a strategist. She’s got a good production background. She’s a terrific leader. She’s highly respected.”

The particulars of what Ostroff will be doing at the newly created Condé Nast Entertainment largely have yet to be worked out, but in broad outline she’ll be looking to produce content — including TV shows, web series and films — inspired by the company’s journalism, its journalists and its magazine brands, from Vogue and GQ to The New Yorker and Vanity Fair. “What’s most exciting is that Condé Nast has, for the most part, been conservative at looking at what they have sitting inside their company,” says Ostroff. “There are obviously many revenue opportunities as you look at all the different platforms where content is now needed.”

But while Condé Nast may have been conservative, other publishers haven’t always been, and the results of their adventures have been decidedly mixed.

Time Inc. has in the past tried to parlay various brands, including Time and Sports Illustrated, into TV franchises, without success. A decade ago, Tina Brown left The New Yorker to start Talk, where the business plan called for the new magazine’s articles to be pipelined into books and movies to be produced by its backer, Miramax. That didn’t pan out, either.

Sauerberg predicts Condé Nast will succeed where others have stumbled, and not just because the demand for premium branded content, from both advertisers and partners, is so much greater than it was even a year ago. “The environment is different, and having us come to the table is different because not every brand is equal,” he says. “These are very special brands.”

Different era, same sense of superiority.

Disclosure: I worked for Condé Nast twice and have freelanced for several of their magazines.

How Much Gas Is There In The Marcellus Shale?

12 Oct

This is a guest column by Rick Smead, a director in theenergy practice of Navigant Consulting.

In August, an announcement by the U.S. Geological Survey triggered a storm of uncertainty in the natural gas industry.  The agency announcement: that it had increased its estimate of undiscovered natural gas in the Marcellus Shale (which underlies much of Pennsylvania, New York, West Virginia and Maryland) from the 2 trillion cubic feet it figured back in 2002 to 84 tcf today. It was a huge increase, yet on first glance, this report from the USGS seemed to contradict one released just a month earlier from the U.S. Energy Information Administration. The EIA’s report estimated that there were 410 tcf of recoverable gas in the Marcellus. The numbers were so different that there was little surprise when headlines started cropping up with wording like: “U.S. Slashes Marcellus Reserves 80 Percent.” [Editor’s note: the anti-shale gang at TheNew York Times mixed up the story entirely, seemingly on purpose.]

Yet this is all a big misunderstanding. The EIA and the USGS were looking at two entirely different things. The EIA was estimating discovered reserves of natural gas, while the USGS was looking at undiscovered reserves yet to be found. This would suggest that in time some or all of the 84 tcf USGS estimate would be additive to EIA’s 410 tcf.

Contrary to the dire reports from the press, this indicates the potential for tremendous growth in the resource base and that the Marcellus contains enough gas to satisfy U.S. demand (roughly 27 tcf per year) for 15 years. Whether the two estimates are additive is still somewhat unclear, but it is clear that the USGS estimate did not invalidate and replace EIA’s estimate—they are different things.  While this mixup was easy to isolate and understand, it highlights an ongoing issue in the natural gas industry, that has become more and more important as the nation evaluates the unprecedented strategic potential of this domestic energy resource:  Everyone seems to estimate and report the gas resource, and even production, a little bit differently.

There is commonality on the concept of “proved reserves.” These are reserves held in actual, developed gas fields that are certain enough based on drilling results that they’ve cleared the SEC’s hurdles for reporting.  But when we look at EIA, at the Potential Gas Committee (or “PGC,” the group that estimates gas resources for the industry), at USGS, and at the many expert consultants around the industry, we find that sometimes proved reserves are included, and sometimes they are excluded—but we are rarely told which.  Rarely are proved reserves broken down by type, so that the proved amount of shale gas may be readily identified (it’s 35 tcf, by the way, nationwide).  EIA adds to proved reserves “inferred reserves,” that come along with the proved, “discovered but undeveloped” resources, and the USGS estimate of “undiscovered” resources.  However, EIA just does that at the national level in looking at something like shale gas, so the reported numbers such as 410 tcf for Marcellus represent only“discovered but undeveloped.”  The PGC, for its part, also reports “probable,” “possible,” and “speculative,” which then gets added to proved reserves for a total resource base.  The PGC number for the Marcellus – 350 tcf – employs a variety of mean and median values, ranges, etc.  So comparing the PGC resource estimate to the EIA resource estimate or to the many private-consultant estimates out there can be confusing, and really only makes sense at the very aggregated level.

The reporting of gas production and deliverability often suffers from similar confusion.  The primary source there is the difference between dry gas and wet gas (the “wet” hydrocarbons that are removed by processing facilities).  Most raw production estimates, especially by field, tend to be wet, a number that is larger than the dry volume that would relate to national demand for natural gas, or to the longevity of the resource base (which is also usually a dry-gas estimate).    As a result, it is very easy to make apples-and-oranges comparisons that are misleading.  For example, if one adds up the wet-gas production from all the shale-gas plays, the answer would be far in excess of the total dry-gas production nationwide.  Or an industry critic might see a dry-gas report, compare it with another estimate made on a wet basis, and conclude that production is falling short of expectations.  This is especially possible because many reports and charts of production do not say which they are.

Are these communication mismatches important beyond the reporting of industry financial results?  Yes.  There is widespread concern and conflict surrounding the impact of shale gas development. People get agitated about hydraulic fracturing, drilling itself, even truck traffic.  The degree of commitment the nation should make to natural gas as a strategic resource (accepting but managing the impact of development), is very much a function of the size of the prize.  It is thus critical that we evolve to a more universal understanding of how much gas there is, and how soon it can be brought to market.  Conversations between the USGS and the EIA to identify differences in their analytical approaches are underway, and are a good start. What we also need is a common approach for labeling reserves. What’s more, those who report about the industry need to take a closer look at what reports and data really say before drawing erroneous conclusions.

Sony Freezes 93,000 Online Accounts After Security Breach

12 Oct

Sony’s online gaming and entertainment networks are going dark again.

The company said last night that it had shut down approximately 93,000 accounts on its online gaming and entertainment networks after detecting a mass, attempted sign-in by a third party using stolen IDs and passwords.

Philip Reitinger, Sony’s chief information security officer, said in a blog post that the people attempting to break in had obtained the IDs and passwords from another company, website or source — in other words, not Sony’s network directly.

Most of the attempted sign ins didn’t work because the user names and passwords didn’t match, but a tiny proportion did — less than one tenth of a percent, according to Reitinger. Still, Sony has temporarily locked all 93,000 of those accounts (about 60,000 on its PlayStation Network, or PSN, and Sony Entertainment Network, and 33,000 from Sony Online Entertainment) since the third-party at least managed to get the correct sign-in IDs and passwords.

Reitinger says that “only a small fraction” of those 93,000 accounts “showed additional activity prior to being locked.” He added that users credit-card details were not at risk but, as a preventative measure, a small proportion would require password resets.

“We will provide more updates as we have them,” he added.

This is of course not the first time that Sony’s online networks have been breached by cyber marauders. The company was forced to shut down its PlayStation Network for almost a month after hackers compromised about 100 million accounts on the PSN, Qriocity and Sony Online Entertainment networks back in April. This was followed by a series of further data breaches on the company’s web presence by cyber punks like the LulzSec hacker group.

Still, Sony’s customers seem to the taking the news well, with many expressing appreciation for Reitinger’s swift notification of the breach. Sony was accused of dragging its feet to tell customers about its last major breach in April — it didn’t notify customers till a week after it first saw unauthorized activity on its network.

“Thanks for letting everyone know so soon,” said one commenter last night. “It’s better to be aware.”

But some still felt disgruntled about yet another security breach. “This needs to stop,” said one commenter. Another pointed out that while the cache of stolen user names and passwords may have come from another source, they had still originally been stolen from Sony itself.

GOP Presidential Debate Ignores Economic Elephant in Room: High School Dropouts

12 Oct

Conservative scholars and candidates have continually missed opportunities to offer constructive low-cost solutions to the high school dropout epidemic. This was especially true at last night’s GOP presidential debate on the economy and jobs at Dartmouth College in New Hampshire, where a review of the transcript reveals that the words “education,” “dropouts” and “learning” were not mentioned once. While the candidates were busy discussing Herman Cain’s 9-9-9 Tax Plan, they were overlooking how dropouts are a huge drain on tax revenues. Moreover, not one candidate made the obvious connection between an improved economy and ending the dropout epidemic.

Yet, in fact, we can actually balance the federal budget, add millions of jobs, and grow the economy by trillions of dollars over the next several years without spending one additional nickel if we at long last  deal with this economic elephant in the American living room. The Alliance for Excellent Education reports that every year 1.2 million high school students do not graduate with their peers. 30% never graduate high school at all. According to the Alliance’s most recent report, high school dropouts are far more likely to be a drain on the economy. They spend far more time in jail and prison. They depend far more on welfare throughout their lives. Most important, they barely earn a living wage.

According to the Alliance (using 2006 U.S. Census figures), “the average annual income for a high school dropout in 2005 was $17,299, compared to $26,933 for a high school graduate, a difference of $9,634.”  The discrepancy grows even wider between a high school dropout and a college graduate, who typically earns, according to the 2006 U.S. Census, $52,671 a year, or three times more on average than a high school dropout does.

According to research by Princeton Economics Professor Cecilia Rouse, over the course of his or her lifetime, each high school dropout costs this country approximately $260,000. When you consider that dropouts are 68% more likely to rely on public assistance and 20% more likely to engage in violent crimes, and that 75% of crimes nationally are committed by high school dropouts, and the vast majority of young murder victims are also  dropouts (in San Francisco alone, the figure is 94%), you see the connection between high school graduation rates and public expenditures on law enforcement, prisons, health care, welfare, childcare, and more.

According to Professor Rouse, if each of these dropouts, instead, graduated high school, “the net economic benefit to the public purse” would be “$127,000 per student.” Rouse and her fellow researchers arrive at this figure from higher government tax revenues per graduate, “and reduced costs of public health, of crime and justice, and in welfare payments.”

Republican Presidential Debate at Dartmouth College

Extrapolating from Rouse’s analysis, and assuming current rates of government spending, I calculate that if we could raise the high school graduation rate in the U.S. from the current 70% to near 100%, over just a ten-year period we could meet almost every reasonable demand of the Occupy Wall Street crowd, appease the Tea Party diehards with an annual balanced budget (without raising taxes), and warm NeoCon hearts by maintaining our current levels of defense spending. I achieve this result by merely multiplying twelve million dropouts (1.2 million a year over a decade) by $127,000.

But the savings will be far greater, since the de facto dropout rate is undoubtedly much higher than what the Alliance for Excellent Education estimates. First, complicated “leaver codes” obfuscate the epidemic. Secondly, several studies indicate that increasingly easy G.E.D. courses and examinations are far less rigorous than attending regular high school, and, thus, don’t properly prepare students for college or the workforce. Studies show that 15% of G.E.D. recipients who went to college earned a degree, compared to 65% of students who went on to college with a high school diploma. Those with G.E.D.’s historically perform worse economically than those with a bona fide regular high school diploma, who are more likely to be chosen for entry-level positions than G.E.D. recipients.

Also, in our corrupt system of adult education for students needing just a few credits to graduate high school, instructors are routinely informed by administrators that they must give students a score of “IP” (“In Progress”), instead of a failing grade (which, according to several teaching sources, most of these students deserve), so that the school administrators do not have to record a “dropout.” Finally, as the New York Times reported in 2006,  ”Federal data tend to understate dropout rates among the poor, in part because imprisoned youths are not counted.”

Because of these reasons and more, for the past decade I’ve crusaded to make high school dropouts, particularly inner city dropouts, the number one policy issue facing the United States. According to the above New York Times article, “in the inner cities, more than half of all black men do not finish high school.” My documentary, “Crotty’s Kids,” highlights a series of cost-effective ways to solve the inner city dropout epidemic. These solutions include adult male mentoring and rigorous academic sports, such as high-speed policy debate andextemporaneous speaking.

Meanwhile, liberal scholars eagerly and routinely call for far more expensive big-government solutions, such as dramatically extending the deadline for when one’s secondary education funding is cut off, increasing teacher pay, or increasing funding for child-parent centers. In addition, affirmative action apologists call for  ”culturally responsive” programs that make at-risk youth feel “less bored” in the classroom, but which also “dumb down” the educational experience by de-emphasizing reliable benchmarks, such as memorization, critical thinking, composition, math, and, yes, test-taking.

Unfortunately, except in isolated, anecdotal, and largely un-scalable cases, these and other costly “educational interventions” have proven ineffective in dramatically moving the dropout needle. Even Bill Gates, who has donated $5 billion over ten years to improving inner city education, has finally, and reluctantly, acknowledged that the ultimate solution to the dropout epidemic does not necessarily rest in increased funding (whether public or private) for the panoply of trendy top-down policy initiatives, such as improved teacher and principal training and performance review, more technologically advanced schools, single-sex institutions, school uniforms, longer school days, smaller classroom size, smaller school size, and more social workers to help with problem families. Nor does a rising economic tide lift all boats, as the 90s economic boom proved (a time when the U.S. dropout rate spiked dramatically).

Instead, Mr. Gates, along with increasing numbers of education scholars are coming to understand that the root cause of our general education decline, and the inner city dropout epidemic in particular, is cultural. Young people who grow up in homes and communities (of whatever stripe) where a primacy is placed on education invariably graduate high school.

So, how does one create this culture of educational expectation and excellence? A carrot-and-stick approach seems needed and promising. The stick of penalties, where parents are fined if their child is absent from high school, or fails to get passing marks, has worked in several nations. Denying drivers licenses would be a next logical step. We could combine such sticks with the carrot of making high school education more practical (e.g., expanding vocational tech) and flexible, such as providing online education for students expelled from brick-and-mortar schools or whose parents are on the move. Online education has been empirically proven to be far cheaper per pupil than putting a child, especially a recalcitrant one, in a physical classroom.

Also, many schools are finding that summer home visits by school staff and even fellow students are moving more struggling learners into academic support programs. We could combine this nurturing carrot with the stick of making classrooms more rigorous. The San Jose Unified School Districtapplied a college prep curriculum to all students under its purview, and found that dropout rates declined from 21.5% to 13.3%.

Finally, we could apply the techniques that worked for law enforcement in cities like New York City and Los Angeles. This would mean a combination of zero tolerance (e.g., the broken windows theory of criminologist James Q. Wilson applied to dropouts), more honest, transparent, and comprehensive record-keeping on dropouts, more detailed profiling of likely dropouts, and daily monitoring of dropout statistics by city neighborhood, so that school districts can identify clusters of individuals at risk of dropping out in real time and when there is still time for effective intervention.

Armed with this up-to-the-minute data on dropouts or those at risk of dropping out, schools and school districts then can assign one or more dropout specialists to bring dropouts back into the educational fold. This is precisely the “re-enrollment” strategy used by telecommunication companies, media companies, and other high-profile consumer product and service corporations to great effect anytime one tries to cancel a service. Just as we reward corporate salespeople for successful customer retention, we need to reward school districts and re-enrollment contractors for not only bringing dropouts back into the classroom, but, by using the principles of positive deviance, helping them grasp the skills necessary for test-validated graduation.

But all these changes will be for naught unless there is a dramatic change in attitude and approach at the very top, with a genuine “Education President” and a hard-nosed Education Secretary, who together usher in a zero tolerance policy for dropouts and for any administrative shenanigans that over up the extent of the problem in the interest of saving face. Currently, Mr. Obama and Education Secretary Arne Duncan are throwing billions of dollars around for Race to the Top competitions, but they aren’t appreciably moving the needle on the issue that matters most to the future economic well-being of this nation: dropouts.

A welter of evidence now indicates that if they applied a man-on-the-moon effort to just this one specific and pernicious problem, a lot of their current headaches related to budget deficits, tax revenues, health care, and the lack of a trained blue and white collar workforce to fill the 3.2 million jobs that go unfilled in this country every day would dissipate.