Our mental model . . . and assumptions

Do they explain why we take it for granted, and live with low investment levels in our economy and industry?

The writer’s Eastern European friends weren’t perfect – had a ‘less-than-progressive mental model’ and yet could provide some insights? It’s budget time and he’s overseeing their budget process. And that includes benchmarking against global behemoths and a sprinkling of local ones. And the writer, while reading a Philippine business periodical, also compared them against three Philippine companies: two were at least 50 years old and the other 25. They were a cottage industry 8 years ago and today are more profitable than all three Philippine businesses. Over the next few years, they could be well ahead – reminiscent of how our neighbors went ahead as economies? We know all about benchmarking – and so let’s use it to our advantage? (What we don’t know won’t hurt – but can sink – us?)

Just like us, the Eastern Europeans did not think big although in fairness, dreamt big. For example, their entry into the market was via very low-priced products. And as they got their products into store shelves they started dreaming big. Not so fast – first they had to be profitable or they could run aground! What did they need to change? (We have a well-developed marketing discipline in the Philippines and know that fundamental in marketing and business . . . is the product. Or why product development has to be top of mind. Yet product development and low investments are the biggest negatives of the Philippine economy and industry?)

The Eastern Europeans had to understand the business they were in – their reason for being. And that their dreams would come from the products they develop. Thus their next lesson was to grasp the fundamentals of a product architecture; that Maslow’s hierarchy of needs is the platform of market segmentation; and that lateral thinking is a tool to translate ‘moving up the value chain’ into reality. For example, IBM met a dead-end with big box computing and had to move lateral into software, storage and servers while leveraging scale – before it regained its footing, its market cap.

(If an IBM isn’t ‘entitled to deference’, what does it say of our model? Consider: We value hierarchy – e.g., monopoly, being one of its highest forms; it reinforces oligarchy – instead of honing the nation’s competitive instinct; it encourages deference – instead of nurturing dynamism; it could take generations to undo – while undermining our global competiveness; and worse, foreign investors could sense that the deck is stacked against them? Why do we have pitiful investment levels, a third-world GDP and massive poverty, again? And our best shot is CSR? That’s to start an exercise in lateral thinking, not to discourage us!)

Just like us, the Easter Europeans were thinking: low investment . . . low prices . . . cheap equipment and factories. And so they had to ‘go to school’ – to learn about business drivers. For example, where the consumers are mostly low-income or poor develop the appropriate product, and optimize volume and pricing dynamic. And if the financials still are unfavorable, to develop higher value-added products for the pricier consumers; but then again optimize volume and pricing dynamic . . . And to do the exercise until the length of the value chain is adequately covered – meaning, the company is able to compete across several segments and is more competitive. And when the home country has limited purchasing power, the goal is to target the region and then the world! (But the value chain is not static because of ‘man’s ever changing want’, i.e., product development is dynamic! Or why Silicon Valley is home to venture capitalists.)

The same thought process applies in R&D and manufacturing. Hire the best talent to run R&D – and in the case of the Eastern Europeans, a talent from the West. And with manufacturing they had to continue their ‘schooling’: ‘run the numbers and tell me if you really want to invest in cheap equipment’. And lo and behold, they proudly told the writer they would be acquiring state-of-the-art equipment from the West – i.e., it would generate the best margins, which they have done across four business units. The Christian growth model – be an agile competitor not a domineering oligarch?

And the thought process continues. They had to invest heavily in marketing and distribution – which has become affordable because of healthy margins. (Or why values like investing are critical in an economic activity!) But in fairness, these people had the talent to create great advertising.

Our business education is not mediocre – but what about our mental model . . . and assumptions?