Fortune 500 . . . a model for development

(Or why the writer uses them as models)

One of the first efforts Clinton pursued after the family relocated to Washington from Arkansas was to meet a group of Fortune 500 CEOs – to pick their brains. (In an earlier article the writer talked about Clinton’s “marching orders” to his team flowing from his mantra, “It’s the economy, stupid”.)

The writer remembers following developments in Washington on CNN in a hotel room in Ho Chi Minh City. And one of the topics from the Clinton meeting with the Fortune 500 CEOs was his sponsorship of Vietnam’s accession into the WTO. Lo and behold, soon after, flights from the US to Vietnam accelerated in frequency – and not surprising, today, Vietnam has greater foreign direct investment than the Philippines. (The country then hastening its way to progress that directly impacted the writer: in earlier visits not long before, he was billeted in a modest-sized house – where he bumped into a San Miguel manager, keeping an eye on the Vietnam business – that was made into a hotel by an Australian entrepreneur. But by the time Clinton moved to the White House, Ho Chi Minh had built a handful of business-friendly hotels.)

To draw the parallel between the private and the public sector, the writer in earlier articles pointed to the similarity in focus: revenues, margins (or balanced-budget for public admin) and efficiency.

In the efficiency dimension Fortune 500 firms are easier to manage than governments – obviously businesses are governed unlike democracies. Efficiency, which impacts both revenue- and margin-generation, is in reality the outcome of the myriad of human conditions – from instincts to culture to heritage to language to religion, among other things – that come into play when two or more people are organized into a unit. And given the human tendency to take the path of least resistance or seek harmony, it is much easier to traverse the wide and crooked as opposed to the straight and narrow – inefficiency is predictable and expected. (Friends in the New York metro area had requested the writer to suggest for GK to invest in upgrading efficiency in the planning, execution and monitoring of its projects. This is as far as the writer is going – for now or until he gets more details from these friends.)

And precisely given the above challenges, the public sector needs to adopt the private sector’s model of simplicity, clarity and leadership – it needs them in spades: to mitigate human conditions that become barriers, especially where harmony as opposed to efficiency appears the dominant trait.

For example: It is not surprising why, even in the private sector, the Japanese, despite their prowess in electronics . . . “can’t make their smart phones go global . . . Japan’s handset makers must focus more on software and must be more aggressive in hiring foreign talent, and the country’s cellphone carriers must also set their sights overseas – the industry turned increasingly inward . . . and increased the country’s isolation from the global market . . . Japanese cellphone makers need to either look overseas, or exit the business”. See: http://www.nytimes.com/2009/07/20/technology/20cell.html?_r=1&ref=business

Given our state of affairs, that we are the economic basket case of the region (translation: alarming poverty), we can continue down the easy path of the wide and crooked, and wave the flag of deference to our culture, and look inward – or we can adopt what we learned from our faith and traverse the straight and narrow, seek efficiency, e.g., like the Protestant work ethic? And not allow culture – or our comfort zone – to take precedence?

From “bangus” . . . to semi-conductors

(Are we alone in our faddish culture?)

35 years or so ago Laguna Lake made us bangus (milkfish) country. We also went from poultry breeding to “lechon manok” to tilapia to shrimp country. In parallel we went from garments to semi-conductors; and it appears garments are making a comeback. Grey or white, we are proud of Filipino “abilidad” and creativity – driving our economy.

Today we are talking – but not yet stampeding? – about medical tourism, logistics and of course, tourism in general, i.e., nature’s gift to us. Fads are not our monopoly. The world has witnessed a number of them: from the gold rush to the tech bubble to the housing bubble, in tandem with hedge funds and derivatives.

But what separates winners from losers? Goldman Sachs last week reported their best ever profit performance. Their supporters point to the quality of their management – characterized by long-term thinking; yet detractors credit their access to power as the true driver of their success. In one word, ideas separate winners from losers. For example, despite the tech bubble Apple and Google continue to be very successful.

Proctor & Gamble’s biggest brand is Pampers. Can we imagine that diapers which are ordinary products will be the biggest brand of such a global behemoth – that one brand’s global revenues alone are equal to roughly a 5th of total Philippine exports?

Wall Street analysts who do analyses for a living don’t or can’t influence P&G on what products to develop – they are not tapped into product architecture modeling given the many categories or sectors they analyze. The moral of the story: whatever products or services – electronics, agribusiness or BPOs, etc. – our exporters are thinking, so long as they understand the elements of competitive advantage, they should be gung-ho with their ideas, i.e., that the products generate healthy margins to support aggressive investment spend or marketing. (Or why Germany, the world’s biggest exporter, is fortunate: Italians are very creative – we associate them with fashion; and they do produce Ferraris and a host of state-of-the-art industrial products – but where there’s less association, i.e., they can use more marketing efforts.)

The writer is offering his time gratis (specifically January/February timeframe when he is in Manila) to our exporters if they are keen on product architecture modeling and are committed to marketing beyond our borders. Filipino marketers can likewise demonstrate to our exporters how they can employ product architecture modeling in product development, i.e., the writer has no monopoly on this tool that global marketers use to their advantage.

On the other hand, government agencies (tasked with providing leadership in trade and industry especially exports) and legislators should pursue requisite legislations to ensure that our exporters have access to industry- and economic development-enhancing initiatives, e.g., strategic infrastructure, laws that encourage and facilitate competitiveness and efficiency, including openness to foreign direct investment – beyond soliciting foreign aid we should be aggressively soliciting foreign investment, use it or lose it.

Likewise, government needs to provide leadership to manage parochial tendencies that remain very strong – or why Obama seems to be still in campaign mode. And this is where media can help – via educational-type documentaries and/or analyses that can succinctly explain why we have been left behind in economic development. Or more to the point, why we have alarming poverty, i.e., our GDP is meager.

Kudos to Inquirer.net and Bernie Villegas

(Why the writer started a blog)

It was Holy Week a year ago when the writer started engaging columnists and editors about the Philippine economy. He was driven by the feelings expressed by friends and relations about the sorry plight of the country.

“Thinking Global” is an apt title for new the column of Bernie Villegas, addressed to OFWs – given that everything starts in the mind. And the acknowledgement of the need for us “to think global (even as the OFWs necessarily have to act local”) speaks volumes about the object of the column. (See: http://globalnation.inquirer.net/columns/columns/view/20090715-215555/Greetings-to-All-OFWs)

The writer just spent a week in the San Francisco area and met with Filipino-Americans. (And in these gatherings the Philippines is obviously the topic of conversation.) Two of them were recently in the Philippines to explore retirement options: Love of country was palpable but so was the disillusionment about the way things were done. They were strongly offended by what they learned dealing with government agencies – that it could be a nightmare: “Why is corruption so endemic? Why should people be harassed when paying taxes?” (The writer has heard a similar story.) And so the writer shared that he had started a blog precisely to offer his two-cents, if indeed love of country was strong – we have to help fix it, not simply criticize. (Of course, no one wants to be at the receiving end!)

Since the writer had discussed competitiveness in earlier articles, he would this time talk about competitive advantage: Put simply, it is the most efficient sourcing and use of scarce resources (input) while generating the most preferred products and/or services (output); net, healthy market shares and margins. That is not a quotation; like product ideas or ideas to elevate our GDP, we have to keep defining (e.g., healthy) and redefining (e.g., dominant) our desired output or outcome – but the simpler the better, i.e., to sharpen the clarity of our purpose and facilitate our problem-solving and execution. For example, we are fixated on OFW remittances being the engine of our economy – we have to get past that given our GDP is way below desirable levels. Hence our definition must focus on: (a) efficient sourcing of capital (to access technology, talent, etc.) irrespective of country of origin, and (b) driving business revenues especially exports via the most preferred products & services (in earlier articles the writer talked about product architecture modeling, i.e., beyond industry-scan to leverage creativity); with the caveats: (a) a commitment to balanced-budget (higher business revenues raise tax collection) and (b) efficiency (reduces costs). Economic development is competition at the highest levels – tinkering or playing for survival within our parochial confines will not cut it, i.e., good enough is never good enough at these levels of competition.

The typical business in the Philippines hires agencies – not directly, janitors and security guards. We understand the acid test of “make versus buy” – the imperative of competitive advantage. Apple is very good at it: they buy (outsource) manufacturing as opposed to making their products – but they make (while “buying” open-sourced software) the ideas – from the Mac to the iPod to the iPhone to the Mac Stores . . . and are growing despite the global recession.

“Make versus buy” applies to sourcing of capital and in marketing too. For example: San Miguel sells close to 50% of San Miguel beer to Kirin. GE Capital sells Philippine banking unit to BDO, while acquiring 1.5% equity in BDO with an option to raise holdings to 19%. We can push the envelope further, for instance: BDO and San Miguel partnering with GE Capital and Kirin, respectively, to market overseas. GE Capital and Kirin have established markets overseas, i.e., they have a better shot at competitive advantage in a bigger (international) market than BDO or San Miguel standing alone. (That is the model China adopted when they opened their market to foreign investors that paved the way to what they are today in global trade. Unfortunately, our parochial mindset robs us of the perspective.)

More about competitiveness in future articles. But the point to make is: keeping it simple is key.

“Sacrosanct” undermines our creativity

(Creativity is a gift to the Filipino that we must harness)

If Eden had the forbidden fruit while being paradise, our romanticism has serendipity while being the fountain of our creativity.

A columnist talked about the Thais apparently copying our economic blue print and succeeding in the execution while we did not. Is it because we are intellectual and creative yet our instinct turns us fatalistic and less passionate about execution? Or is it because we have been working, fishing all night yet still without our rightful catch that we feel exhausted? And so we fall back to praying and hoping? But as the apostles learned, we ought to keep trying and casting our nets again and again and again.

Nice guys finish last – it is not about wanting to be first, it is about working to be first. Nor can we rationalize our failings by pointing to the shortcomings of others – those bully-countries and neighbors in recession. It is not about rationalization, it is about doing our problem-solving and executing.

Similarly, our hierarchical culture instinctively makes us deferential – to the church, the elite, and the wealthy, among others? Yet we are equals . . . brothers and sisters . . . and sinners alike: “He who is pure cast the first stone.”

The Pharisees were proud of their knowledge of the teachings of the Master. And so they were quick to emphasize that sinners were the cause of the curses the community was experiencing. And it angered them that Christ chose to hang around with the evil ones instead of the “chosen ones”. (Full disclosure: the writer: (a) had a confessor-friend (may he rest in peace) who was a moral theologian, (b) is a born again and had ministered a Christian community; (c) comes from a family that produced a nun, and was recognized model Catholic family some years back.)

Problem-solving demands our reservoir of creativity – it has no respect for sacred cows. Piling do’s and don’ts in our psyche has undermined our ability to produce tangible solutions for our challenges. We similarly pile do’s and don’ts in our execution efforts . . . if we ever get to that point. Most times we are left spinning wheels or navigating around sacred cows like they were booby traps.

As we defer down the line of our social structure we are left with a very narrow playing field to do problem-solving – that there is no room to cast our nets? And with of our instincts of inclusion and compassion, we swing the pendulum to the opposite direction and ensure we take the poor into account as well. (Full disclosure: the writer regularly supports the family’s favorite charity efforts.)

And given our romanticism we find ourselves leaning towards serendipity instead of exploiting our creativity. For instance, instead of focusing on how we can move forward, we keep dissecting the liabilities of other countries and the shortcomings of the free-market system. We can be productive and relevant by directing our analyses on the net worth of these countries and what we can learn from them. Likewise, the democratic, free market’s ideal is majority rules – in elections and markets – not everyone. And predictably it has produced progress with its own shortcomings. Socialism wanted to top that ideal and failed. We have to move forward and snap out of our serendipity and focus on lifting our economy. Our economic development is adolescent – we need to provide it adult supervision.

The bottom line: whatever firepower is left for us to address our challenges has been reduced to a dud. We have punctured so many leaks into our fuel tank and yet expect us to get from point A to point B?

Bill Gates and Tiger Woods were in awe!

(And learned how not to be like kids in a candy store)

It is human nature that when presented with a myriad of challenges and options that “we want to take them all in”.

Yet, Bill Gates is quoted in Fortune magazine; July 6, 2009: The best advice I ever got: “. . . I’d say one of the most interesting (talking about getting a lot of great advice from Warren Buffett) is how he keeps things simple. You look at his calendar, it’s pretty simple. You talk to him . . . And if it gets less complicated, he feels like then it’s something he’ll choose to invest in . . . he’s got . . . a model that really is predictive and that’s going to continue to work . . . And so his ability to boil things down, to just work on the things that really count, to think through the basics – it’s so amazing that he can do that. It’s a special form of genius.”

And similarly, Tiger Woods is quoted: “. . . My dad’s advice to me was to simplify. He knew that at my age (he was 6 or 7 then) I couldn’t digest all of golf’s intricacies. He kept it simple: If you want to hit the ball to a particular spot, figure out a way to do it. Even today, when I’m struggling with my game, I can still hear him say, “Pick a spot and just hit it.” When I’m making adjustments during a round, I know some of the TV commentators theorize that I’m changing this or moving that, but really what I’m doing is listening to Pop.”

As often as the writer can, in the articles in his blog, he talks about keeping it simple, both in the private and public sector – having himself gone through an evolution over 4 decades: (a) from thinking strategic planning to goal alignment, (b) from thinking managerial skills to leadership skills; the keys to execution, as well as from actually executing to consulting – under different markets, conditions, countries and cultures; and from a small family to global business, including ex-communist countries now doing business reminiscent of “western imperialists”. (Full disclosure: the writer had participated in contemporary strategy and leadership graduate programs and worked with leading thinkers, including The Conference Board, a US think tank – confirming research versus reality, among other things.)

The writer remembers being amazed at the host of statistics in both academic and government websites in the ex-communists countries (no different from the Philippines) where he was doing consulting.

And his Eastern European clients (who were expecting to be told “secrets from the West”) were underwhelmed when the first thing the writer asked were the margin numbers; and then quizzed them on the businesses they were in. Then the revelation: the exercise was for them to: (a) appreciate and (b) more importantly . . . discover . . . what businesses they were in as opposed to the businesses they should be in.

The realization narrowed the focus of the organization. And the next step was to figure out what other businesses they could pursue. But with the imperative that they must attain competitive advantage in short order, meeting newly established margin hurdle rates, i.e., value-added will generate volume. And the need to muscle up the portfolio with the right products was a requisite to do business successfully overseas. (Thus clarity of purpose was sharpened and it facilitated thinking and execution – from consumer insights to R&D . . . and all the way to logistics. In the Philippines acquiring totally unrelated businesses is celebrated, i.e., building on sand. And then we assemble commissions to figure out why we’re uncompetitive – it is predictable!)

The bottom line: they are today in a very narrowly-defined set of businesses but with the portfolio bulked up to be regionally competitive, for now. They can still make mistakes – like everyone does – so the next thing they have to learn is to look forward and unfreeze, not sulk, i.e., spend thinking time productively by problem-solving and executing; and managing their romanticism – leverage creative element and deemphasize serendipity.

Sounds like Clinton’s “It’s the economy, stupid”? (See: http://phileconomy.blogspot.com/2009/07/there-is-always-market.html)

“Don’t cry for me Argentina”

(Our inward-looking culture – fed by politics, power and parochialism – undermines the economy)

Change is extreme sport. And the human tendency to take the path of least resistance makes it all the more daunting. Yet practice makes perfect.

Argentina seems unable to meet the challenge. We never were like Argentina, once amongst the top economies of the world; although we once were the most promising in the region – and so the community of nations voted Manila to be the ADB’s headquarters.

The Europeans and the Americans had their own moments of self-doubt. But they have since moved forward: The Europeans despite the continuing challenge of uniting themselves under the EU opt to slog it out. The Americans have done it a few times: from Pearl Harbor to overcoming Japan Inc. to the current global economic crisis – even more times for both if we turn the clock back further.

Our glass is neither half-full nor half-empty notwithstanding the debates between apologists and critics of the current administration. Our glass is filled to the brim . . . and overflowing; it is overflowing with politics, power and parochialism – hopefully different from Latin America’s banana republics?

Politics, power and parochialism don’t drive products and services, the components of GDP – ideas do. They are negative influences though – they nurture monopolistic attitudes especially as we celebrate them like they did in the Gilded Age. As marketers know, even dominant global brands are not monopolists – they must meet their challenge at all times, i.e., keep renewing their ideas to sustain success or perish. In the process they become more formidable.

The monopolist safe option is to cede the global market (and why our R&D is underdeveloped and we’re uncompetitive – we are who we think we are) and stay local – where politics, power and parochialism are the staple and nurturing; and reinforces the structure of haves and have nots, and entrenches our hierarchical culture? Yet politicians and voters (with the participation, if not imprimatur of the Church?) are of the same mind – perpetuating paternalism, the core of our hierarchical culture? And the vicious circle makes us one big happy family – the well-off are delighted, the poor begs and the wealthy (with a little prodding from the Church) gives, so what’s the problem? If we can tolerate split-level Christianity we can tolerate whatever – e.g., being the least competitive that it will take 175 years for us to attain our economic potential, says the ADB.

The bottom line: we are focused on the wrong drivers, not the ones that drive GDP and bring prosperity to Juan de la Cruz – or why we are where we are versus the region, GDP- and competitiveness-wise.

How do Westerners deal with the challenge of change? They understand the need to (what psychologists call) unfreeze – that means to empty their glass and to refresh it with the right elements to face and meet their challenge. And guard against evolving from frozen to fossilized – or why they ran away from Old Europe to New Europe.

We cannot unfreeze (which is not heresy, as psychologists can attest – and global marketers use it to their advantage, and Steve Jobs is a master) because our knee-jerk is on autopilot – to wave the flag of deference: to our culture, our heritage, our religion, our language, our history, our heroes, our this and our that – and protect our pot of soil? (We have scores of young, smart Filipino marketers – they need to project their skills to the national agenda, i.e., overcome the social structure and tell their elders, like Christ did, where they are messing up, and they’re messing up plenty in competitiveness, stunting economic development by 175 years!)

Politics . . . power . . . parochialism . . . dominate our daily life – fill our glass to the brim, undermining the economy!

Will we unfreeze and refresh our glass instead . . . with ideas that drive products and services – and lift our GDP?

There is always a market . . .

. . . for ideas that travel

Unfortunately, we have been occupied nursing our little pot of soil in our desire to protect it that we may have missed: (a) that “we can’t have our cake and eat it too” and (b) there are larger pots to tap that we have unwittingly ceded to others? Fortunately, there is no such thing as being too late – as the good thief experienced during the Crucifixion. Nor is the global economic crisis a barrier to all as reported by Jollibee Foods Corporation: “Jollibee aims overseas branches to equal local stores”. (See: Jollibee)

There is always a market for ideas that travel – products & services, the components of GDP, are driven by ideas. (See: Ideas/Houston, we have a problem). While the West wants Asian tigers to follow their lead and step up local stimulus efforts given the contraction of the world economy, it does not mean that Germany and Japan will cease exports – the largest exporters and truly export-driven economies. And given: (a) our miniscule GDP per person, (b) our OFW/consumer-driven economy, (c) deficits and (d) poverty rate, we are NOT in the same boat as the Asian tigers. That means it is foolhardy if we don’t step up our competitiveness, and seek markets wherever they are.

But to change course is never easy especially with the success of our largest enterprises, bred by our inward-looking culture. And we don’t have the experience to rapidly exploit the global market. But we can take the first steps: (a) sharply define the products/services with the biggest bang and (b) identify and mobilize requisite private and public sector support, for example – which we are doing but we need to do more: clarity, passion and efficiency.

The need to problem-solve and execute is something we know in private business but still that has been limited to the local market. And this ability is not as developed in the public sector especially as it relates to our economic development.

To be sure, it is extremely difficult to problem-solve and execute in a democratic system. But Bill Clinton and Barack Obama have demonstrated it in different yet still similar ways. Clinton sharpened his focus even more (“It’s the economy, stupid) after he realized that his other programs like health care would undermine his ability to deliver on the economy. So he demonstrated focus and leadership in a very narrow area and succeeded in balancing the budget (that included welfare reform to manage costs though politically unpopular) and generating surplus that unfortunately the successor blew away. And Obama is likewise demonstrating leadership: he is on TV practically everyday driving his programs and explaining how he is doing it while allowing himself to be grilled by the press.

Focus does not mean ignoring details necessary for execution; it is to sharpen clarity of purpose. And this may be our biggest dilemma given we’re not Anglo-Saxons or why Clinton succeeded, i.e., with our own instincts of inclusion and compassion – yet we have not stemmed poverty, for example. We must focus on economic development to bring prosperity to Juan de la Cruz.

If a typical Fortune 500 company is focused on revenues, margins and efficiency, public sector efforts can be focused on revenues, balanced-budget and efficiency – the “marching orders” from Clinton to Greenspan, Rubin and Gore, respectively. (Of course, acknowledging that the Fed is an independent body.)

The bottom line – the challenge to our leadership and to us as a people:

1. We need to as quickly develop the confidence to exploit the global market
2. We need to cut to the chase: focus on the vital few drivers of the economy – we cannot be all things to everyone
3. The narrower the focus, the sharper the clarity of purpose and the greater our ability to execute will be

Romanticists . . . we are?

(We are intellectual yet instinctively express emotions, imagination and creativity?)

Romanticist – it is probably an attribute we share with Eastern Europeans. The traits the writer encountered during his early visits made him reflect on the core of the Filipino: They could spend hours in a café or bar dissecting problems but not coming near any resolutions; and openly proclaim their romanticism – yet the writer has never worked with all these mathematicians around him, and it is fun to get them run number scenarios; and their help desk is second to none that Bill Gates marvels at them – and put money where his mouth is.

Reading news articles and commentaries from the Philippines online would give those outside looking in a sense of who we are. And this was brought to life by a columnist writing about what he read (on a flight to Amsterdam) in a foreign newspaper: “. . . Amid the blow-by-blow coverage (of a sex scandal) by television, radio and Internet news websites, one could have been forgiven for thinking that nothing of any significance was going on elsewhere. Even politicians who did manage to tear themselves away from the show seemed more interested in trading barbs about the implications of a recent merger of the country’s two biggest political parties ahead of the 2010 presidential elections. Nobody seemed interested in the economy. This was despite the announcement that gross domestic product (GDP) had risen a mere 0.4 percent year-on-year, the slowest in a decade, and much lower that most economists had expected . . .”

We are intellectual yet instinctively express emotions, imagination and creativity? In another article, the following appeared: “. . . globalization, or the liberalization of the country’s key economic segments, is one of the likely effects that may explain the increase in poverty incidence studied by the National Statistical Coordination Board (NSCB) . . .“ In fairness, the article also pointed at our low investment in infrastructure.

The basis of the article may have its merits . . . but what it misses is: cutting to the chase – our GDP per capita and consequently our poverty rate, i.e., cause and effect. Our GDP per person is less than 40% of Thailand’s and less than 22% of Malaysia’s. Ergo: our poverty rate (30%) is 3 X and 6 X that of Thailand’s (10%) and Malaysia’s (5%).

The issue of globalization vis-à-vis poverty can be raised by Americans given that their GDP per person is $47,000 while their poverty rate is 12%, worse than both Thailand and Malaysia. Yet their GDPs (per person) are a mere fraction of the US’s.

We are a third world (GDP) country and should expect third world poverty rate – palliatives will not sustain cure; nor can we window-dress or tweak. Let us bring our GDP up first like what Thailand and Malaysia have done, and we can leave the US with their own issue – horses for courses; and they’re big boys and girls? Let us focus on our economy and tamp down on politics – and we’d have a better chance of getting there?

And here we go again: talking about debt default – on the one hand we want to inculcate personal responsibility as an antidote to corruption, yet some are espousing the exact opposite? Argentina has been through this route many times over and they’re still at the bottom of the barrel – debt default is no panacea. They were fortunate during the global expansion that despite themselves – or their economic mismanagement – they still partook of the spoils.

Where we could employ our romanticism is in creative idea generation as it applies to product development – which is what the Bulgarian company the writer had written about has done. But because “good enough is never good enough”, the writer’s challenge to them remains: keep sharpening product-idea definition for the outcome to be gem-like, the key to ideas that travel. (To them socialism is history if not a bad dream, not an ideal – they cherish motivation instead.) See: Ideas that travel