Work, business & professional services

Stuffed ducks in China

Any mention of China these days is usually accompanied by a statistic to frighten the living daylights of anyone living anywhere else. For example, the number of Chinese university students has increased by more than 400% since 1998 while around 50% of science & technology PhDs granted in the US go to Chinese students.Or how about old chestnuts like China uses 40% of the world's cement or that there are now 440 million cell phone users in China.China has spent the last twenty years putting labels on products that read "Made in China". Are we about to see a shift whereby future labels will also read "Invented in China" ? Maybe yes, maybe no.China is investing heaviliy in R&D. The country recently overtook Japan in terms of annual spending and ranks second only behind the US in R&D spend. However, there are some serious obstacles ahead. First China is using a top down model to foster innovation. Investment in Universities - the breeding ground of much scientific innovation - is significant but Chinese academia is plagued with plagiarism and fraud in much the same way that the government and many state owned businesses are similarly corrupt.Major decisions within academia (for example funding) are made by politicians not academics and government interference is rife. Moreover the Chinese education system as a whole is built on theory and rote learning (a problem in other countries too), which creates what are known as 'stuffed ducks' - students that are clever on paper but defer to authority and have little practical initiative. Research by McKinsey for example states that only 10% of engineering graduates produced by Chinese universities have the necessary skills to work for a multi-national company. Another problem is a financial system that is risk averse. Most large companies in China are state owned and 75% of bank credit goes to these monolithic companies rather than privately owned enterprises or entrepreneurs. However, there are two trends that could operate in China's favour. The first is that foreign owned multi-nationals might provide a springboard for local innovators. Second, boomerang migrants (Chinese returning to their homeland) may bring imported learning about innovation cultures and environments.

Surfing the waves of the future

Trends, like ideas, are everywhere and subsequently have little immediate value.But separating the ripples of the shallow past from the deep currents of history is a profitable business. Indeed, a recent McKinsey survey found that companies that aligned their portfolios with key macroeconomic, business and social trends enjoyed significantly better growth and profits than those that did not. Part of the trick in analysing such trends is to put trends into context. This means analysing various sub and counter-trends and looking in particular at the various interactions between trends. In theory a company's existing portfolio can then be correctly aligned and strategic frameworks can be developed for dealing with emergent opportunities and risks. Of course it's often not this simple. One common problem is that companies fail to make the link between key trends and their financial impact or scenarios are not modelled or tracked financially. In other words scenarios are not translated into strategy. Another issue, in my experience at least, is that the strategic-planning process does not go far enough out either in terms of time or imagination. The planning cycle merely becomes a way to justify budgets and whilst it often addresses short-term incremental needs it often totally fails to anticipate shifts outside the core business - for instance new competition or the impact of new technologies on customer attitudes and behaviour. In other words people get lost in the detail.So what's the solution? One route is to create an ancillary planning process removed from the day-to-day detail and operational constraints of the current business. This has parallels with the idea of creating skunk works to drive radical innovation but is unfortunately even less common.

The myth of precision

Accountability has created a myth of precision. This is the idea that there is always a right answer and that one can measure results precisely. This idea started in business but is now spreading into our schools and beyond. It is an irrational exuberance about testing that forces people (and ideas) to behave in a manner than can be measured even when this will limit growth. The belief is then that when things go wrong this is because individuals do not follow procedure or that the right set of controls are not in place. When complex systems go wrong the solution is always at the next level of detail and control. But the reality, surely, is that we don't really control anything. Moreover, attempts to control the uncontrollable sacrifice innovation, adaptability and ultimately resilience. If someone cheats on his or her expenses it is therefore the fault of the reporting system. In other words this myth of precision ignores human nature and refuses to accept that people work in different ways.Ultimately it drives out human judgement and initiative, which is surely the biggest risk of all.

In praise of just doing it

Open source or distributed innovation is all the rage at the moment but the hype glosses over one important fact - most open source projects are total failures. But this fact is precisely why the open source movement is so important. Within traditional innovation models the cost of failure is very high. As a result stage gates, red lights and funnels are introduced to control the number of ideas being released in to the market. And that's the problem. Nobody can ever know for sure what will work and what won't until an innovation is released into the wild. But with open innovation, researching and worrying about whether something will work is unnecessary because of the low cost of trying. Just do it and you'll find out. There is a parallel here with web 2.0 and online journalism. Previously you wrote or created something, edited it and then published it. These days you just write and publish and the audience (the users) will edit it for you if necessary. The other parallel is perhaps countries like the US and Australia. In contrast to some other countries (Japan and Singapore immediately spring to mind) there is no lasting humiliation in giving it a go. You can fail like crazy and still keep going until you eventually stumble on success. Of course this presents big business with something of a problem. How can companies fail like crazy without looking like idiots? The answer, in open innovation terms, is to facilitate and empower the individual user as an innovator.

Open for business

If you haven't already heard of Mozilla Corp this is the company that's part of a non-profit foundation that's behind Firefox, which is a suite of Internet applications including an Internet browser. The company has 70 employees and almost 200,000 volunteer helpers. Firefox itself has a 15% share of the global browser market and has been downloaded around 200 million times - or about 250,000 times every day. In other words this is a corporation whose main mass-market consumer product is free, that relies largely on unpaid workers and might just be the model for a new type of corporation. Along the way it could also remodel the not-for-profit sector and perhaps even capitalism itself. If you haven't already guessed Mozilla Corp. is run as an open-source corporation. As you'd expect its successful existence raises a whole host of questions about everything from the definition of a corporation to the interplay between a company and its community. It has also, along the way, had to invent or reinvent many of the ideas and assumptions about how companies operate. You might think that leadership within such an organisation is easy but it appears that it's actually more difficult than within for-profit organisations. For example, if workers are unpaid bullying or incompetent managers are not tolerated. Nether are unfair conditions. Instead workers simply walk away. A clearly articulated vision, clear communication and meaningful work are therefore essential. The rules of the game therefore include the fact that the 'best' decisions are those that gain the most buy-in from people. Respect, accomplishment and camaraderie are also more important than salary, titles or holiday entitlements all of which are non-existent. The company makes money too. One deal with Google is worth in excess of US $70 million and there is a similar deal with Yahoo. Of course, like most radical innovations Mozilla came about by accident - in this case an attempt by Netscape to compete with Microsoft - and even the wildly successful Firefox 1.0 was developed, not on purpose, but by two renegade young programmers that went off in the 'wrong' direction because it felt right.

Trends in American entrepreneurship

There are 26 million businesses in the United States and 20 million of these have no employees. The reason is that these are micro-businesses - usually home-based or hobby businesses that provide an income for just one person or perhaps some extra cash for someone that has another job such as looking after their children. A study by the Institute for the Future (sponsored by Intuit) has also found that more Americans than ever are considering starting their own business. Among this group Baby Boomers aged 55-64 are the most likely to start a new business. Their children (Generation Y) also see entrepreneurship as a credible career choice as do women or 'mompreneurs' as they now seem to be known. This latter group is especially interesting because it is the most networked group and most visibly challenges the white middle-aged male stereotype of the sole proprietor. Other findings of note include the prediction that immigrants will play an increasingly important role and will create a new wave of micro-multi-nationals due to their contacts outside the US. Another interesting observation is that many of these small businesses are highly collaborative.

And finally....

It's been said many times that the future isn't what it used to be. A case in point is the fact that the present is starting to look very much like the imaged future past.For example, you can now fly to China via Google Earth and visit a multitude of futuristic buildings that are actually being built in real life. Alternatively you can enter a variety of 3-D metaverses like Second Life and visit a Reebok store selling digital shoes or perhaps visit one of the 24 islands now owned by IBM. So if all this is happening now what kinds of things can we expect to experience in the future? According to 18 leaders (and one duck) featured in Fortune magazine recently the answer includes Cellulostic ethanol (fuel made from grass, wood chips and other under-used forms of biomass), clean coal, mobile media distribution (there are now 2 billion cell phones users on the planet versus just over a billion Internet users). The web itself will shift from a largely text based entity to more of a multimedia base and economic protectionism will also feature more strongly. Shame, I was rather looking to the flying cars and holidays on the moon.