Wednesday, July 21, 2010

I roamed the countryside searching for answers to things I did not understand.

Long ago I had read a quote from Leonardo da Vinci "I Roamed the countryside searching for answers to things I did not understand" Leonardo's quote has been at the back of my mind for the last many years. I can't be sure of what he meant but this is how I interpret it in today's context.

Successful organizations and leaders get caught up in their own success and often attempt to make templates or standardize on a few "success models". The end result of a successful endeavour becomes the focal point and the steps along the way get forgotten, rewritten or trivialized to meet the needs of the standardization. In the attempt to standardize "success models" we short-circuit the learning process, hence often depriving organizations and it's leaders the lessons of old fashioned experience.

The French developer Ferdinand de Lesseps comes to mind. He successfully developed the Suez Canal but clearly underestimated the challenges in designing and building the Panama Canal. He underestimated the requirements in design, topography and finally the power of Malaria ridden insects which ended the first attempt at building the Panama Canal in utter failure because he assumed that the success at Suez would automatically translate to success in Panama.

In today's context of a global economy with companies expanding past national boundaries, it is tempting to bucket successful processes or initiatives. We tend to bucket emerging economies together, developed economies together and so on, mostly because it is elegant to do it this way, but the danger is that the important differences are lost and assumptions of things that work in say Brazil would work in India could well be wrong.

To understand the international nature of business it is important to have an international executive team, and an international board. Many companies have figured out the former, but the latter of having international boards is still uncommon. Commonly used management catch phrases like "be close to your customer", "design globally for local needs" sound great in a presentation but often translate into driving agendas that do not add to the core competency of the organization.

Government initiatives also at times fall into the same category. In 2006 I was in a meeting with the development agency in one of the countries in south East Asia as an industry observer. The discussion was about transforming the region into a sustainable innovation and technology centre. The discussions were good and predictable. The actions however were far from good. An example was that the local government decided to give tremendous tax subsidies to multi national companies to set up manufacturing plants and insisted on some percentage of people employed should be of certain educational background (the hope was to increase technological capability in the region). The problem is that this particular region has a surplus of under utilized manufacturing plants and a shortage of factory operators. Instead of giving incentives to start technology centres and incentives to use the existing under utilized capacity in the region they went about creating further capacity and fuelled further importation of labour. The companies got their tax incentives that lasted 5 years and now are looking for more to stay. The region did not develop any core technology capability, and they have even more factories running below capacity!

Roaming the country side is about understanding local competencies and needs genuinely and not necessarily looking for buckets to place them in. You can start by understanding the core competencies of your organization, identify what additional competencies need to be developed and invest in furthering these capabilities. The answers should be directed at developing your business competencies in areas that add maximum value to your customer, employees, and investors.

In 2007, during a conversation with a young CEO of a Technology Company in Singapore with an annual revenue of about 35M:- he talked about the factors that were limiting his growth and about his expansion plans that would help him grow. Almost all the factors centred on engineering talent, time to market issues and the limitations in his sales and marketing channels. However his expansion plans were primarily about increasing his manufacturing capabilities. The end result of his plan would in effect increase his employee strength from 100 to 225 employees. At the time in 2007 they had a 5 member executive management team, 60 product development engineers, 12 operations and finance employees, 8 Sales and Marketing, and 15 people in manufacturing responsible for outsourcing and quality control. His expansion plan would entail a new manufacturing set up that would increase his employee count to 225, and revenue of about 100M. Of the 225 people; 105 would be responsible for manufacturing, 20 for operations and finance, and he would have 75 engineers and 20 people in Sales and Marketing. I told him that to me it sounded like his main inhibitors to growth, and his expansion plan did not match up. Because in his initial problem statement he did not see any issues with the production capability or capacity of his external contract manufacturers, but he had issues with timely product development, product strategy, and the channel. Three years later and after implementation of his plan, the company has a revenue of 35M, a manufacturing plant that is under utilized and is about to be closed down!

Roaming the vistas of technology and business we have to assimilate knowledge and understand human nature and local culture. The current trend of capturing complex systems in finance, and business into mathematical models while ignoring essential elements of human nature including self preservation, greed, and jealousy lead to solutions that do not address the problems.

The second decade of the 21st century will be at the very least interesting. The dynamics in the economy and politics of the world are fairly volatile so as we roam the country side lets hope we get answers for things we do not understand.


Anonymous said...

Very well thought out , diagnosed and expressed.
Every idea can be looked at from different angles and, though your field is management, why not muse on the same sentence from a different angle - say, as an average human being facing day to day problems and share with us your thoughts using your exceptional gift of analysis and expression.

Anonymous said...

Philip Courtois commented on your note "I roamed the countryside searching for answers to things I did not understand.":

""...ignoring essential elements of human nature including self preservation, greed, and jealousy lead to solutions that do not address the problems." Wow, you're so right about this observation. But taking such abstract properties into the business planning process is so far from the common equation-based model that most of today's leaders will not be able to comprehend it. I call what you describe the organic business model - and I agree that it's the key to future success."

Yiannis said...

I spent some time roaming the countryside (since its what I do as a profession anyway) before responding to your blog entry. I believe that the idea of 'template', 'business model', 'business system', 'business process' have been deified as the end all be all of business. The model T Ford and the system of mass production. Business finance formulas for shareholder value creation, ROI, etc. Find the right 'template' and then follow it through to the next $5 Billion. If it worked before it will work again. From there all you have to do is optimize on the way and just run the damn thing.

It worked quite incredibly well - helping the industrialized world rebuild itself after the 2nd world war. There was a huge market to serve- starting form zero and it was a way to do things that worked. I believe the challenge lies with the generation that didn't have to roam the countryside to formulate the right idea from a collection of options, business models, human interactions, philosophies, readings, etc - there is a generation that went to business school - learned the formulas and then all they had to do is pick one and get their organization to follow it. The boards from that generation expect it of the executive leaders (come next week and present us the 'plan') - the executive leaders expect it of their managers (come next week and present me how you will follow my 'plan'). Look around you as Einstein did. The successful business models have reached a level of saturation - the ultra successful businesses consist of entrepreneurial leaders that are creative and work all levels of the organization while being willing to be innovative where the old 'business template' won't work. Maybe its time that we have to accept that the 'ideas' that got us are not the 'ideas' that will propel our future. The big challenge in my opinion is that the leaders necessary for the next step are entrepreneurial leaders willing to risk capital, innovate, listen, inspire and drive forward while having tremendous insight into the details and being avid listeners to their own organization.

Are the private equity, venture capital, government subsidy systems set up to identify and reward those types of leaders? No. Today we reward existing big businesses that have plenty of capital, bankers for helping create a 10x 'derived' economy from the real economy (the derived one from which they get a cut), accountants for helping design a system that gets more and more complex over time, regulators for being slow at introducing speed bumps into the flow of business to solve last year's challenge and lawyers who find ways to take out big chunks out of collected capital from individuals and organizations by crafting a legal position and making up cases.

I believe the formula going forward is simple. Channel capital to the innovative, creative, hard-working, business leader / listeners so that they can get to a stage of self sufficiency. The ones willing to risk their own capital, well-being, comfort zone, etc. That way you will get the next set of 'models', 'templates' and multi-billion dollar enterprises. The first pioneers of Indian outsourcing are good examples. They didn't 'copy' a model. They took advantage of the human resources and potential they had available. The pioneers of network marketing were also good examples - Art Wiliams was a football coach who built the largest life-insurance business in the world within 18 months by 'changing' the model to tap into human capital. I'll close with a small blurb from him:
'When I was a football coach we used to go to something called a football clinic every year. Football coaches didn't go to a football clinic to listen to a band director come tell them how to win football games. Football coaches went to a football clinic to listen to the highest winning football coach come tell them how to win football games'.

Anonymous said...

Prad Narrain commented on the note "I roamed the countryside searching for answers to things I did not understand.":

"...appreciate the above comment.

Additionally, Chandran, the business model expatiated upon may be well and good from the corporate aspect. But how can the common man benefit from it?

Considering Gandhian ideals or those of e.g. E. F. Schumacher i.e. CAT, Wales, which emphasize on sustainability in terms of resources, the multinational company approach may not be necessarily appropriate. Engineering is a noble tradition if ethical considerations are addressed. This is the current trend and, when established, will differentiate the multi's whose main aim is to expand, rationalise and raise the threshold of profit from those few who still adhere to the belief in maintaining the human touch.

The social aspect of the global situation has, regrettably, been pushed into the shadows. What is the ideal of a manager? Efficiency in terms of profit. His mission is to calculate/analyse core competencies, slim production, cut costs etc. to boost company profits. And the price which is paid by the society involved is of no concern to anybody.

The mathematical models used to calculate the damage done by the hurricane Katrina showed that the amount totalled x billion dollars. A hundred thousand chicken would be accounted by x thousand dollars. We all are aware of the fact that a human life cannot be given any fixed value. So, in social/human terms, what do the mathematical models used by so many financially sucessful companies bring to the human beings in the immediate proximity of the actions of the company? At most an infintessimal quantum.

We are entering the second decade of the 21st century and a more humanistic approach is called for. The West has gone through extreme industrialisation, the consequences of which are still to be mastered. Optimisation, that magic word in the world of technology, is the ideal of the day.
Does this really apply to the human being? Can we optimise ourselves completely? Probably not, but we could optimise our social situation. Electricity, security and for example running water? Probably yes.
Think of the Millenium Goals of the UNESCO for example. While talking of CPU capacity being increased in orders of magnitude, is it acceptable that on a global average, a person has to walk 6.8 km to fetch water? For sure this is not the responsibility of the manager, but for any renowned multi it may be a point to consider. so much for self preservation, greed etc.

And the times in which da Vinci lived were tumultuous - his search for answers ought not be understood per se. (Think of the partition of India in more recent times - things happened which were beyond comprehension of a normal human being.) Hence his quotation may be better understood with a good measure of skepticism.

In this context, I think, in view of the volatile situation based on the Great Divide between the rich and the poor, that we do not "get answers for things we do not understand" but it should become our intention to find answers and solutions for things we see and understand in the present. This is where a large part of moral responsibility lies in sucessful multinational companies who should/could contribute their fair share to redeeming the current situation.

Considering the masses of the world in the next decades, there is a necessity for urgency. The past, since Leonardo's times, have shown that extreme disambiguity in social structures and systems invariably end in bloodshed. This is, of course, nobody's intention."

Anonymous said...

Stefano Concezzi wrote:

Reading your thoughts has been always very interesting, educational and a source of new thoughts and ideas. I fundamentally agree with you.
For the love of the conversation I feel that we could counter balance a portion of your "pessimism" with several success stories of multinational corporations that applied successfully world wide models with just a local flavor (from the large distribution to the parcel services, from the automotive industry to the electronic one) or list an incredible number of local businesses that failed to grow locally.

In other words (we agree on the fact that): business success depends on so many variables that is not easy to have a single receipt to replicate it either locally or globally.
I also agree with you completely that a multicultural management team helps any kind of business and it won't matter if the business is only local or global. By the way, it also true the reciprocal statement that local business practises can miss opportunities, miss successes and fail.

Chandran Nair said...

Stefano I agree what one needs is an objective mixture of use of best practices at a global and local level