Is Procter & Gamble too complex?

Analysts say “some investors believe the company is ‘too complex’ and that more focused competitors will perform better in the future,” reports the Associated Press, 27th Jan 2012. The CEO of the world's biggest consumer products maker was asked if the company would do better if it were broken into separate units. And he argued that the company has been more focused as major portions of the business have been taken off the portfolio. Still, an analyst went so far as to "downgrade its rating from "Buy" to "Neutral" citing an array of concerns about the company's culture, strategy and potential . . . It has limited its ability to meaningfully change how it does business."

P&G is recognized as one of the most progressive global enterprises with a track record spanning almost 200 years. Yet it is not shielded from the pitfalls that come with complexity. Economies and nations are more complex by nature and which is why strong leadership, driving a clear vision and congruent values would characterize the efforts of those that elevated themselves to model economies. In short, they succeeded in overcoming complexity and pursued a more focused development path. No wonder Myanmar is tapping Singapore’s expertise.

Until Juan de la Cruz learns to focus and prioritize, we would be economic laggards – with Myanmar soon breathing down our neck? Everything starts in the mind and a complex mind finds comfort in complexity? The writer is chatting with a Filipino grammarian from the media industry. As a writer he easily grasps varying perspectives and realizes that Juan de la Cruz is not predisposed to change. He takes his hat off journalists that he believes are mavericks if not radicals but the common denominator is still Juan de la Cruz operates in his comfort zone.

Even in a high-stake legal drama complexity does not have to be the bottom line. Writes CJ Artemio V. Panganiban on the Corona impeachment trial: “I think it is best to be transparent, open and forthright, and to abandon the use of unnecessary technicalities, remembering always that impeachment belongs to the people, not just to lawyers. Our people simply want the truth. Anything that prevents its discovery merely incenses them all the more. The best strategy is really simple and is captured in lyrical Filipino, “Walang taguan, walang takipan. Katotohanan lamang ang panalo sa bayan.” (Rough translation: Hide nothing, cover up nothing. Only truth will win the people.) [Philippine Daily Inquirer, 28th Jan 2012]

A relative visited with the writer’s family over the recent Christmas holiday and traveled with them to the Dominican Republic. And the one thing he would notice was the pace of life – and he was talking about the New York metro area and Puerto Plata, a laid back seaside community. “Waiters in Manila can’t survive this pace,” he says. But 10 million OFWs, including those in restaurants and hotels and on cruise ships, are viewed as models and clearly the pace of work doesn’t bother them. Unfortunately, when we’re at home and in our comfort zone, we do as the ‘Romans do?’

Does it explain why we’re economic laggards? Even a simple chore as waiting in a local restaurant could be complicated by the Pinoy mindset – i.e., they are simply not focused and thus slow? And back in Manila, the writer and wife unconsciously were wondering why the waiters were taking their sweet time – and the relative’s reaction was confirmed.

We must take note that even a world-class and very successful enterprise like Procter & Gamble could be criticized for not being as focused as the competition – and for its culture and its strategy and potential! And thus Juan de la Cruz must recognize such pitfalls otherwise he would simply be at home in his comfort zone. And whether it is the chaotic traffic or the lack of sensitivity to the environment or simply respecting time and space, indeed we have an uphill battle. We want to provide an efficient, rapid transport system within the Makati central business district, but how are we populating Fort Bonifacio? We would not replicate Makati’s immense density – and pollution – and chaotic traffic in an area where we have all the time and the chances to do good?

‘Cause and effect’ II

The nearest the writer could translate it in the vernacular is "puno't dulo." And in a culture that is spontaneous – and concededly a fun place – it is taken for granted. While it is imperative to be focused, it is necessary to establish an end goal – “a vision," if you will – otherwise we could find ourselves simply spinning wheels. On the other hand, it does not have to be the source of complexity. For example, there are reports on the road map that will guide our fisheries and aquaculture industry – and ideally there must be an effort to reduce it into a simple, actionable plan: who will do what, why, when, where and how?

It appears that local enterprise Alsons has gone full circle in its aquaculture business – from development to international commercialization, i.e., China. In the private sector a similar experience would rate as best practice – and progressive, globally competitive enterprises spare no efforts to replicate best practice models in rapid fashion. And so the news about Myanmar tapping Singapore’s expertise in economic development should put ‘a fire in our belly’ – i.e., benchmarking must become instinctive to Juan de la Cruz, and “to shamelessly adopt success models!” The object is to be globally competitive.

One of the strategic industries we know we must pursue is tourism – and indeed we must. Yet there are critical parameters we must bear in mind so that we don't stray from "puno't dulo." The JFC (Joint Foreign Chambers) has identified 7 industry winners that must be our priority. But of course given our instinct of inclusion we want 13! Try prioritizing 7 and we could still be tripping all over as we are witnessing in the mining industry. What more of 13? And so a columnist offers to start with three: tourism, infrastructure and agribusiness. Yet we must sharpen the parameters of strategic and priority industries. For example, sustainable efforts and competitiveness – not just ‘a flash in the pan’ – must always be paramount. We gave jobs to lots of people when we ventured into garments and likewise our OFW focus. What have we learned? Simply, just to talk about jobs could be short-sighted! It means going beyond prioritizing the agenda of the poor – and beyond setting very low expectations that generate insufficient yield, and being a victim of crab mentality.

Thus Obama’s oratory is not for us! The US is a fully developed economy but the imbalance makes unemployment a major issue. Our own imbalance is not caused by full development but in fact by underdevelopment. And thus our priority must be development. We keep talking about growth but growth beyond form . . . is substance. And what we’ve labeled growth for decades was more form than substance – with due respect to cheerleaders of past administrations. Substance on the other hand would have elevated us to first-world nation by now – after over half a century. It is not a subtlety – it explains why we're economic laggards! ‘Pinoy abilidad’ is not straightforward and is in fact complex, to the point of inaction. It explains the gross and utter neglect of progress and economic development. And worse, corruption and abuse thrive in an environment of complexity. And which also explains why we can't find resolution and agreement in most things critical to nation-building. We must thus seek clarity and simplicity – i.e., it’s not about perfection which has also become our defense mechanism for inaction. The evidence: NAIA, power generation, mining, etc.!

Greece has a well-developed tourism industry accounting for 15% of GDP, more than the 10% accounted for by our OFW remittances. What must we learn? Greece, explained the writer’s Greek friends themselves, has not developed a competitive economy – or generated products and services that are competitive which would find markets overseas. Unsurprisingly, they are a big headache for the EU. Tourism is a low-hanging fruit and thus in our case, the JFC talks of 7 industry winners. Simply, we must prioritize industries that we can translate into sustainable efforts and competitive advantage. With due respect to a priest (understandably expressing compassion) tourism is good but it is not nirvana.

On the other hand, the Alsons model is a good one because it demonstrates the confluence of investment, technology, innovation, and talent, product and market development. But they can’t sleep on their laurels either – i.e., continuous improvement. Still they present a classic example of cause and effect or in the vernacular "puno't dulo." We must move beyond 'Pinoy abilidad' – and recognize the critical pieces we must assemble and the dynamic they must generate.

Understanding competitiveness

Simply: “Find lines of attack . . . rattle [the competition] . . . carry the fight directly to [the] opponent . . . The results of that strategy, carried out by a veteran squad of strategists and operatives assembled by Mr. Romney . . . have been on striking display here . . . By this weekend . . . [they] were on the offensive and increasingly confident . . . His team suggested that it had learned a lesson about never letting up on rivals . . .” [NY Times, 28th Jan.]

“Dr. Norio Usui, an economist of the Asian Development Bank (ADB), shared with DTI and BOI officials his research . . . His main thesis is that the Philippines was unable to reduce poverty and unemployment despite steady growth for three decades because of its failure to diversify and upgrade its products, particularly in its industrial sector . . . Usui explains our failure to upgrade and diversify industrial production is one of the fundamental reasons why our economic growth has not produced the job opportunities for our people, reduced poverty levels, and generated more investments in our economy . . . Diversifying products simply means not to “put all your eggs in one basket,” and instead, to capitalize on existing capabilities developed in making a successful product to create new products within the same industry and in other industries that require the same set of skills and tools. If you can make a pair of pants, then with some adjustments, you can make a pair of shorts, and so on . . . This is how other countries like Thailand and Indonesia have outperformed us. This is why, according to Usui, successful economies have expanded their scale of diversification, leaving us behind.” [Legos and Two Legs, Adrian S. Cristobal Jr., WHAT’S IN A NAME? Business Mirror, 29th Jan.]

Competitiveness requires bulking up – and then some – to be able to stand up and win against the competition. It does not mean being a conglomerate – which generally thrives when the competitive arena is confined and weak as when capital is light and investment and innovation levels are low. Ergo: promote a restrictive economic policy and protectionism. Unfortunately, that is our instinctive success model, including its element of rent-seeking. We find comfort in a business that is guaranteed by a franchise, for instance, which lends itself to crony capitalism; and its equivalent in the export arena is our dependence on contract manufacturing and outsourcing. Our mindset and business model can only be characterized as passive – when competitiveness by definition is proactive. With due respect to our optimists (which we mischaracterize as patriotism) competitiveness demands action – beyond emotion! And the reality is we have been kicking up a perfect storm – from setting very low expectations owing to crab mentality to inefficiency if not inaction driven by a lack of commitment to the common good – that has put us on a downward trajectory! And until we open our eyes to that reality we shall be unable to call on the human spirit . . . to reinvent ourselves. Incremental change is not what we need though radical change would be unmanageable – if not worse than the status quo that nurtures our bias for hierarchy! It is purposeful change that we need!

The Lego analogy made by Dr. Usui is the day job of marketers. They typically develop a product architecture in order to figure out how to move up the value chain, recognizing that the consumer has needs that she may or may not readily articulate, yet could be “divined” from her lifestyle. And as the world knows, Steve Jobs was a master. And as marketers pursue value-added product elements like Apple does, they develop depth of knowledge, experience and expertise, and above all financial wherewithal – thus competitive advantage.

We must challenge our mindset – learn about the imperatives of change – instead of feeding and reinforcing our comfort zone. Which we instinctively do whenever we celebrate our "Dutch disease" – i.e., represented by OFW remittances and our oligarchy whose influence over media adds insult to injury. It is not about misguided optimism either but the necessity of recognizing reality! We must seek to understand and embrace the art and science of competition like our neighbors do. We can’t leave stones unturned. We must identify the key, priority factors (c/o Kurt Lewin) that could truly drive or hinder our efforts; and doggedly address them, meaning as our national agenda instead of thriving in our highly political culture – of impunity. As Vice-President Pelaez sighed, “What is happening to our country?”

Finding the common ground for the common good

It appears the bishops' conference could be a template in finding the common ground for the common good. "Filipino bishops seek to stay clear of impeachment trial," says the National Catholic Reporter, 25th Jan 2012. Their common ground: "All of us [bishops] still believe in the separation of the church and state, and that means all the bishops respect the right of the state to run the country in regards to temporal matters."

Yet individually the bishops retain their strong feelings. The bottom line: the bishops are demonstrating maturity! There are those "who are sympathetic to the Chief Justice, and believe that the Hacienda Luisita decision is the why of the impeachment trial. While others maintain that it is part of a larger effort to probe allegations of corruption and anomalies of public officials and to hold accountable those responsible." Thus the bishops are pulling out the big guns in the name of evangelization, and that is, for the dioceses to activate the BECs - Basic Ecclesial Communities.

“BECs are small groups of Christian neighbors who regularly gather for Bible sharing and the Eucharist. The grassroots communities, which are united with pastors but ministered to by lay leaders, share a sense of responsibility for one another and integrate liturgy with reflection and action on socioeconomic concerns of the community, said Fr. Amado Picardal (Executive Secretary of the CBCP Committee on BEC).

"We have a split-level Christianity," he said, citing anonymous government workers who are "very religious, like Arroyo and Corona," but who have confessed to him about accepting bribes and kickbacks and their participation in other anomalies . . . A lot of corruption happens in the local level, and BECs can and have been able to stop these by monitoring the use of [community] and provincial government funds and money for road and other construction projects," Picardal said. [Said another: "We see people going to church, but the vital question is, How much does their faith influence their important decisions in life? Are God and his commandments still important to them?"] In 1987, a BEC he worked with in San Fernando, Bukidnon, fought to stop illegal logging that was causing flooding and droughts in the southern Philippines town.”

If Juan de la Cruz could only follow the footsteps of the bishops – and seek the common ground – we can once and for all address the fundamental failings that have stunted our development all these years: power supply, basic infrastructure and strategic industries.

The power supply issue is complicated no doubt given the new challenges as well as opportunities presented by renewable energy. Mining as a strategic industry is mired in controversy. And in basic infrastructure, to name just one, given this is the 21st century, we can’t remain wedded to the infamy of our international airport – which is being complicated by the opportunity presented by Clark but with the attendant imperative and challenge for a rail system between Manila and Clark.

We must turn things around and cease tolerating inaction – being victims of conflicting ideas and beliefs. We can't mirror the failure of our judicial system, for example, that has turned its back on something very fundamental: justice delayed is justice denied – as suffered by the coco farmers, for instance. Put another way, we can't remain indifferent to the pursuit of economic development – yet claim we are concerned with poverty. That is synonymous to what the good pastor says about our split-level Christianity!

The bishops have set an example – we can likewise subordinate our own held beliefs and seek the common ground for the common good! "Even if Corona is found guilty and is ousted, it doesn't mean corruption will end if people, the culture and bureaucracy will not reform," Picardal said.

Good news, bad news

“The prospects look good for a growing economy in 2012 and I think foreign investments will increase substantially,” John Forbes, senior adviser of the American Chamber of Commerce, told the Business Mirror on 24th Jan 2012 . . . He said the growing optimism was mirrored by the rising number of foreign companies asking how they could move their operations here.”

On the same day, the writer was with a friend in the BPO business and with them was an American who was setting up, for the umpteenth time, a local operation for his American principal. It stemmed from a decision to move their India operation to the Philippines. Not surprising given what Gerardo P. Sicat wrote:

“National economy: one part world class, the main bulk is uncompetitive.” The Philippine economy is made up of two parts. One part is world class but the main bulk of it is uncompetitive . . . Let’s first take the bulk of the nation’s economy. Four-fifths of it is burdened by high costs. In general, public utility services are sold at high unit costs. Public infrastructures are inadequate, overstressed and underinvested. The business regulatory framework is impeded by corruption, rent-seeking, and involves multiple steps that jack up production costs. All these make operating enterprises weighed by high costs . . . One-fifths of the economy is world class. Here, firms are generally profitable, workers have high productivity and raw material inputs are available at world prices. As a result, the enterprises operating in them are lean, mean, and highly competitive. These enterprises are located in special economic zones . . . But this world class segment is also burdened by the inadequacies of the larger component of the economy. Infrastructure services and other non-traded goods add to the burdens of these world class components and chip away partly on their performance.” [Crossroads by Gerardo P. Sicat, The Philippine Star, 25th Jan.]

Juan de la Cruz is neither here nor there? "The slow pace in the integration of renewable power sources into the overall power supply of the country is also not the fault of Almendras. As we have underscored a few times, he is facing formidable opposition in his bid to push the country’s renewable energy program which PNoy has advocated . . . Given the names behind the move against renewable energy, we can only sympathize with Almendras. Among these big names are former energy secretaries: former President Ramos’ energy czar Delfin Lazaro and the Arroyo administration’s Raphael “Popo” Lotilla.” [Hidden Agenda, Mary Ann Ll. Reyes, The Philippine Star, 25th Jan.]

Do we have the capacity to move the Philippines forward as an economy? This was lurking at the back of the writer’s mind given all the above. He was talking to two physicians and in jest the writer said he was not even smart enough to be a doctor. (But why are you in the BPO business?) It only confirmed we've mismanaged our economy so bad for decades that doctors out of our premier university (UP) would not be practicing their profession. And they would add: “We would be doing others a favor, particularly nurses, if we train them in medical coding! These nurses pay tuition to get practical experience in a hospital with no guarantee of employment. If we could get them jobs . . . that will be a big plus.”

The writer was wondering if he was still jetlagged hearing all this. And he could only think of Warren Buffett – who says he is willing to pay more taxes because he's born lucky. “I am lucky to have won the ovarian lottery, and doubly lucky that I was born in this country.”

And the writer tells the two Filipino physicians that he would help them develop a product architecture and product portfolio – i.e., competitiveness is simply that their mindset and business model aren't stuck in passive mode, but ratcheted up to proactive mode. They had explained that the medical transcription business has been overtaken by technology. And the writer was truly impressed that indeed these UP grads are smart. They engaged him on specific ways to move their BPO business up the value chain. If we could only focus on the four-fifths of our economy – and fix them in short order we could truly predict boom times! Until then, we’re simply crying wolf!

Competitiveness efforts moving along

It is encouraging that our competitiveness efforts are moving even beyond the critical “support systems” – e.g., education and human resource development, performance governance system, business permits and licensing system, Philippine business registry, etc. Reports Business World, 19th Jan 2012: “THE NATIONAL Competitiveness Council (NCC) will unveil later this year a 20-year road map in a bid to sustain business and economic reforms to be accomplished in the medium term . . . The public-private council in the next few months will focus on establishing regional competitiveness committees and co-developing industry road maps as two of the building blocks of the long-term plan . . . [The regional competitiveness committees] should be able to monitor their performance against other non-capital regions within the ASEAN, not just within the country . . . Examples of sectors to create their own decade-long plans include agribusiness, business process outsourcing, electronics, mining, shipbuilding, metal and steel fabrication, tourism, renewable energy, automotive parts, and housing . . . Each industry road map should identify revenue, investment, and job generation targets as well as the vital policy environment and infrastructure to support such goals.”

Economic and industry development is not a cakewalk. The good news is we're taking off parochial blinders, benchmarking against our neighbors, and focusing like a laser? Yet as in any undertaking, things could fall through the cracks. “While Benigno Aquino III is aggressively pursuing the past administration for its transgressions, his economic team has fumbled with the economy. Of the agencies entrusted with economic development, three are populated from either a coterie of campaign benefactors or culled from classmates. Among the most critical letdowns is the energy portfolio . . . Following privatization in the electricity sector and deregulation in the oil industry, while the Department of Energy (DOE) has been practically reduced to one that can do little more than monitor tariffs, even on that simple charge, the department has been an abject failure.” [Why the DOE is inutile, Business Mirror, 19th Jan]

The importance of power supply reliability at competitive rates cannot be overemphasized. We can't be uncompetitive in this arena; and it is noteworthy that media is keeping us informed – e.g., following privatization, rates have gone up with three local interests controlling power supply. Unsurprisingly, our version of the free market – which in fact is crony capitalism – gives it a bad name. Corruption in its many forms indeed continues to enrage people. Influence peddling and corruption comes up every time the writer and wife meet with friends. They are so endemic that to say "syndicates" are operating both like a shadow structure within and in parallel with the government is an understatement. The rules of the game are very simple: “what's in it for me, you scratch my back and I scratch yours,” explains one. “And at an even higher level it means influencing and undermining the common good like power generation for the benefit of the few. And to add insult to injury we hold them in high esteem as pillars of industry!”

To lighten the conversation the writer shares a couple of 'pedestrian examples' one could encounter in the States: They can mess things up too like the US Postal Service, especially given its current cost-reduction regime. [Apparently with people paying their bills online, the revenue of the Postal Service has drastically dropped – payments by mail were once a major revenue generator.] For example, a property tax bill and driver-license renewal did not get to me. But in both cases, we were able to get things done in a matter of minutes. We went to the city assessor’s office and the two-step procedure was over in a flash: they print out your bill and in the next window you pay. With the driver’s license, AAA is an accredited service-provider and the three-step procedure was over in a flash: they pull out your record, you pay, your photo is taken . . . and presto, out comes the new driver's license!

Efficiency means getting things done without undue delay which is what productivity is about. And the mantra of efficiency severs the ugly head of corruption. That said the US still lags Singapore and Hong Kong in competitiveness – i.e., we better recognize the reality that against our neighbors we have our work cut out for us! But we're playing it smart; we’re not clueless – because the more backward and impoverished we are the more the spoils work in our favor, at least for the few of us? And so we predict boom times? And which is why in a democracy we get the leaders that we deserve!

Kudos to The Manila Times Editorial

“. . . When rational decision-making is undermined republicanism and democracy too are subverted. For the success of a republican democracy requires that citizens be fully and wisely informed. Otherwise they cannot perform their essential function of voting for better representatives or officials and choosing the best option for the common good . . . And in a free society it is privately owned mass media that has the burden, more than government-run media, of performing the function of informing—and informing toward wisdom . . . Responsible journalism is always truthful. Putting a spin in news reports, using the news pages for propaganda in favor of one side in a controversy, is an act against truthfulness. It is irresponsible journalism . . .” [The Manila Times Editorial, 18th Jan 2012]

The editorial gives us hope that journalism is still functioning in the country. Consider: Marcos and People Power, the Estrada impeachment trial, the Arroyo election and now corruption prosecution, the Corona impeachment, just to name a few, would give a sense of what unfortunately defines us as a people. Is spin confined to news in politics? Given we now appear to recognize how much we've lagged our neighbors as an economy through several decades, should our national agenda take a new tack? For example, we all rallied behind an OFW- and consumption-driven economy, while our neighbors pursued foreign investments and technology, and tapped the global market; should we then craft our national agenda accordingly instead of staying with our comfort zone? Simply, if we tolerate more of the same, how do we expect to better the wellbeing of Juan de la Cruz?

But it doesn’t appear we are anywhere near displaying maturity in representative democracy? The Aquino administration is pursuing foreign investments yet our actuations say the opposite? How many foreign investors have been burned dealing with us? The latest are the folks behind mining? The industry is controversial, that is a given. But even developed nations are in the industry. Australia and Canada are performing better than other developed nations despite the global recession and mining is a major contributor. To simply invoke populist sentiments is again more of the same. To simply be against anything ‘big and foreign’ is again missing the fundamentals of economies of scale, efficient market economy, sustainability and competitiveness – the reality that the writer’s Eastern European friends learned the hard way. These are the very same elements that our neighbors leveraged and capitalized that elevated them to Asian tigers.

We can’t seem to have a national agenda. If our journalism is spin and populist values undermine economic development, how could we move the nation forward? There is no such thing as perfection in this world! We can’t seem to find common grounds because we believe in absolutes? Our faith may be absolute but we are also commanded to give to Caesar what is Caesar’s. And Caesar isn’t perfect! Thus the key is to find a common ground for the common good especially in economic development – which we’ve messed up for decades. Poverty is the reality or simply the effect of our mismanagement of the economy. But our braggadocio hasn’t ceased?

Writes the master of perspective and geometry, da Vinci: "Perspective, therefore, must be preferred to all the discourses and systems of human learning." How do we find the common ground and the common good? For instance, the 80-20 rule (employed in major enterprises) simply means that absolutes can’t be the platform of decision-making and human undertakings – which given scarcity of resources must be characterized by prioritization. But we struggle to focus on the vital few? There will always be winners and losers especially in ideas and advocacies. To expect everyone to be winners is precisely what our crab mentality is about – everyone is clawing everyone to come crashing down? What is sad is the church could be unwittingly fuelling crab mentality in the spirit of compassion? But the church may not have the expertise to assess an industry. In selling its game plan – especially the pursuit of strategic industries – it behoves the Aquino administration to edify the nation so we don’t end up being our worst enemy.

We need to develop a deeper understanding and commitment to representative democracy. And the operative word is representative which by definition is not absolute! And journalism is not a bad place to start.