Tuesday, October 16, 2012

“Why Sony did not invent the iPod”

That’s from John Kay, “one of Britain’s leading economists, whose interests focus on the relationships between economics and business.” [http://www.johnkay.com/about, 5th Sept 2012.] “Narratives of industry evolution often represent fairy tales constructed by corporate financiers, or ambitious chief executives. They relentlessly seek rationale, however spurious, for the next deal. Remember the cradle-to-grave financial services business that would arise from the merger of Travelers and Citibank? Or the seamless home-to-destination service that would follow from United Air Lines’ purchase of car hire and hotel businesses?”

So why did they not come to pass? The explanation can be found in Clayton Christiansen’s analysis of the innovator’s dilemma. Established companies in an industry are naturally resistant to disruptive innovation, which threatens their existing capabilities and cannibalizes their existing products. A collection of all the businesses which might be transformed by disruptive innovation might at first sight appear to be a means of assembling the capabilities needed to manage change. In practice, it is a means of gathering together everyone who has an incentive to resist change . . . Economic growth is held back by industries where established interests are so powerful that disruptive innovation can be staved off for ever. Financial services is probably one. And education another. I think often of the contrast between the power of information technology to transform the process of learning, and the little progress that has been made towards actually doing so.”

They relentlessly seek rationale . . . for the next deal.” Sounds familiar? Or why in the Philippines our largest enterprises are conglomerates? And we give them standing ovations for their successes but unwittingly as a people we are wedded to bygone days that by default we have been resisting change? Cobbling together different companies or businesses under one roof does not, like a magic wand, necessarily create an innovation culture? Innovation has to be in the DNA of an organization. It may not be there to begin with. But if there is no necessity to develop an innovation culture – because growth could come from the next deal, an acquisition or a new business that will make the conglomerate dominant in the local market – it won’t be spawned? Not surprisingly, we have the least patents to show among the countries in the region. And prospectively are still suspect since we lag in both gross investment and foreign direct investments.

And thus the successes that we celebrate can’t travel beyond our shores (and why only one PHL publicly traded enterprise has made it to the Forbes Asia Fab 50) meaning “competitiveness” to us is still at the intellectual level. We are focused on raising our global competitiveness ranking yet our industry’s success model does not match the demands of the 21st century world! And because of the glaring social chasm we are witness to and the imperative to make the economy inclusive, we are pursuing the next best thing: government (e.g., CCT) and corporate social responsibility (e.g., livelihood projects)? Unfortunately, we are inadvertently fortifying a way of life and a way of doing business and an economic model that is designed to benefit the few. And no wonder the DBM or budget secretary, responding to a Philippine icon, Washington Sycip, says we need to continue with CARP, despite its shortsightedness and failed history, to combat our social ills and communist insurgency. [The Philippine Star, 18th Sept 2012] Sadly, we seem not to have learned and are still fighting the last war. Tokenism and condescension cannot address the root of our problem: a lopsided economy that has stunted economic development and made us economic laggards.

I often talk about my Eastern European friends who still can’t figure out why in the Philippines we talk about communist insurgency. They’ve lived through the backwardness that characterized communist rule and had to dig deep into the human spirit to commit to the egalitarian ways of global competitiveness – because they realized that it is fair and square with no free lunch. They have embraced the imperative of investment: in technology, in innovation, in talent, in products and in markets beyond their shores.

Until we come to terms with what truly ails us we run the risk of barking at the wrong tree – if we aren’t yet?

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