Stepping up to the plate II

“The pressure to change the former model of education has largely come from the business world . . . Today, when knowledge is available to everyone on the internet, what a person knows matters less than what they can do with what they know . . . As one business executive put it, you can teach new employees content, but you can’t teach them how to think, or ask the right questions.” [Dr. Beth Day Romulo, Manila Bulletin, 18th Apr 2013] And it brings to mind Einstein’s “The value of education is not the learning of many facts but the training of the mind to think.”

And what about the challenge of stepping up to “reality” – especially when it can hurt? In business that is as constant as the air we breathe and why businesspeople have lots of practice in facing reality. For example, defining a problem is fundamental in business – whether it hurts some or it hurts a lot.

If PHL is to get on the fast-track of economic growth and development, sooner than later, we have to step up to reality? Unfortunately, our knee-jerk is: “We don’t have a perfect system but who has?” And so we miss asking the right question. Neither China nor the US or Singapore or Thailand is perfect – but if they have a common denominator, they all attract investments so many times fold compared to the Philippines. And unsurprisingly we're uncompetitive in infrastructure, in investments, in technology, in innovation as well as in developing talents that have the skill-set to develop products and markets. And that is despite our OFW remittances and growing BPO industry. President Aquino has made foreign investors give us a fresh look but our neighbors are not standing still. The evidence: Vietnam and Cambodia have gone ahead in rice farming, for instance. In Indonesia, "foreign direct investment rose 27 percent in the first quarter to a record . . . [of] nearly $7 billion," NY Times, 24th Apr 2013. "Its GDP has expanded at a steady rate of more than 6 percent for the last 3 years." Will Juan de la Cruz step up to the plate?

“No ‘growth takeoff’ yet . . . THE PHILIPPINES can hit a “growth takeoff” by increasing investments and diversifying its exports, an International Monetary Fund (IMF) official said. “The Philippines’ good performance... hasn’t qualified yet as a country undergoing a ‘growth takeoff,’” IMF Senior Economist Jaime Guajardo said in an interview on Monday . . . The Philippines remains one of the countries with the least foreign direct investments in the region but the IMF official cited ongoing government efforts to address the problem.” [Business World, 17th Apr 2013]

“THE global competitive index of the Philippines is way far behind the majority of Association of Southeast Asia Nations (Asean) members. This was the scenario presented by Dr. Filemon Uriarte Jr., former executive director of the Asean Foundation and former secretary of the Department of Science and Technology.” [Business Mirror, 13th Apr 2013] Citing the government procurement of advanced technology products, it was ranked last year at 107th place out of the 144 countries worldwide. On the quality of scientific research institutions, the country ranked 102nd; on the availability of scientists and engineers it was at 91st; capacity for innovation at 86th; utility patterns granted per million population at 83rd; university-industry collaboration in R&D at 79th; and company spending on R&D at 58th . . . [I]f the country procures advanced technology products, its innovation ranking would definitely rise. The consequence of the Philippines having poor rankings in competitiveness and poor innovation results is low foreign direct investments . . . [A]nd this leads to low trade and low gross domestic product (GDP) that is below the average Asean GDP of $3,601 in 2011.”

“Despite small and medium enterprises (SMEs) dominating businesses in Asia including the Philippines, their contribution to the total economic output has been limited, with the growth of these enterprises not keeping pace with their numbers.” [The Philippine Star, 18th Apr 2013] “The big numbers of small and medium businesses (SMBs) however, don’t fully translate into GDP (gross domestic product) . . . In the Philippines, where most businesses are SMBs, the sector’s share to GDP is only a little over 30 percent.” And from Business World, 22nd Apr 2013, “THE COUNTRY’S small and medium enterprises are hardly ready for the ASEAN Economic Community that will lift trade and other barriers among members of the Association of Southeast Asian Nations by 2015, according to the state think-tank.”

"I am praying for Harvard Business School . . ."

". . . [S]tudents are here to learn what we think they should know," says Professor Clayton Christensen during an interview (http://techcrunch.com/2013/04/06/clayton-christensen-talks-venture-capital-crowd-funding-and-how-to-measure-your-life) at Startup Grind 2013. Christensen sees the emergence of new disruptive business models that is a concern to the HBS (Harvard Business School) model. And he makes reference to online learning and on-the-job education.

“[F]or 300 years higher education was not disruptable because there was no technological core. But now online learning [which Steve Case, the founder of AOL, calls the “second Internet revolution” or “using the Internet to improve the way we deliver things like education and healthcare”] brings to higher education this technological core. And people who were very complacent now are in deep trouble. The fact that everybody was trying to move upmarket and make their universities better and better and better drove these prices up to where they are today. So what do you do about it? I’ll just talk about the Harvard Business School and how hard it is. Because – and this is in most industries – online learning, or the technology itself, is not intrinsically sustaining or disruptive. But how it gets deployed makes the difference.”

About on-the-job education, he would make reference to Intel University and GE Crotonville. “This model of learning is: You come in, we’ll spend a week teaching you about strategy, and then you go off and develop the strategy. You come back for two weeks in product development, and we send you – you know. You use it and you learn it and you do it while you’re employed. It a very different business model, and that’s what’s killing us. And it’s truly what’s going to kill us . . . The job to be done is the employers want people who can – who have the skills to do the job. Universities don’t understand that job. The students are here to learn what we think they should know. And we invest and we subsidize their education in fields for which there are no jobs. I really do think that the more we can link the employers with the people who, online, provide the skills, it really will just cause the world to flip. The scary thing is that fifteen years from now, maybe half the universities will be in bankruptcy. Including the state schools.  But in the end, I’m excited to see that happen. So pray for the Harvard Business School if you wouldn’t mind.”

I am reminded of GE Crotonville, which is the GE management development center, from when they invited other global companies (and I represented my old MNC employer) to join academe, to dialogue with their managers as they were unveiling their then new global strategy – being a largely US-centric enterprise at that time. And many progressive MNCs have created their versions of GE Crotonville. And I constantly talk about my Eastern European friends because what they have achieved in ten years is precisely because of this learning model. For example, strategy or product development (mentioned by Christensen) is not a shallow business subject. Understanding the human being and his or her world is a big part of it because a strategy or a product idea would only succeed if it is relevant to people and their wellbeing. And while a lot of the learning is acquired in the work setting, it is enriched – especially the thinking process – when there is the proper classroom work. [Thus strategy or product development is beyond the pursuit of affordable, so-so products that may or may not find a wide, if not global, market – which we in PHL won’t appreciate if we’ve accepted our role in the global arena as that of a third-party provider, be it labor or semiconductor, for instance. My Eastern European friends, after recently traveling through Asia and the West, are now in the process of pulling together their latest product development game plan in four different but related businesses with the view to competing in these markets. They’ve clearly overcome their old demon: “We’re poor Eastern Europeans”!]

“Why don’t they teach us how to think instead of memorizing a bunch of facts? Well, now, at long last, that is what they are doing. It’s called making students ready for innovation. Today’s high-tech world requires a nimble mind, the ability to solve problems, and the willingness to take risks . . . Today’s young people need creative skills and, even more importantly, motivation. They need to be curious and be able to find new opportunities or create them . . .” [Dr. Beth Day Romulo, Manila Bulletin, 18th Apr 2013]

For the nth time . . . from the ADB

“The Asian Development Bank (ADB) . . . said that revival of the Philippine industrial/manufacturing sector may be critical, since its development has lagged most other larger countries in Southeast Asia. [Manila Times, 10th Apr 2013] In the Asian Development Outlook (ADO) 2013, the ADB explained that the share of manufacturing in the country’s gross domestic product declined to 22 percent in 2012 from 26 percent in 1990 . . . [M]anufacturing in the Philippines provides only 8.3 percent of total employment, “a much smaller contribution than in comparable countries . . . A stronger industrial base, particularly in manufacturing, could generate a wide range of jobs, it said.”

“[T]his will require a stronger push by policy makers to improve infrastructure and the business environment, to encourage manufacturers to locate in the country . . . [S]purring industrial development requires broad-based reform to address the long-standing challenges of under-provision of infrastructure, an unfriendly investment and business environment, and poor governance . . . The ADO . . . cited the recent governance reforms and gradual improvements in infrastructure in the Philippines that enhanced the investment environment. However, it stressed that while such reforms are crucial, these may not be enough to attract substantial new manufacturing investment in the near term, adding that targeted interventions aimed at manufacturers may be also be required . . . [T]he challenge is to identify constraints on the development of particular industries, and formulate policies to deploy against them . . . That requires considerable consultation with the industries concerned.”

And there is another challenge: "Labor cost is just one variable," Arthur Tan told reporters Friday after IMI's [a semiconductor manufacturer] annual stockholders meeting. He said that even if the labor costs in China continue to increase at a double-digit pace--as it had in the last couple of years--manufacturing costs there will still be lower compared to the Philippines because of the lower price of electricity and the well-developed supply chain in China.” [Dow Jones Newswires, 12th Apr 2013] [H]e expressed doubt that the Philippines electronics industry will post exports growth of 6% this year, as targeted by industry group Semiconductors and Electronics Industries in the Philippines Inc., or SEIPI. Shipments in 2012 had contracted 5.2% to $22.56 billion in 2012 . . . I think it's going to be a challenge," said Mr. Arthur Tan, who once served as SEIPI's president. Aside from the weakness in the global environment, he said local manufacturers will also have to wrestle with the high electricity costs.”

Manufacturing, in order to be globally competitive, must be founded on producing competitive products. And IMI in fact reflects that fundamental problem we have in PHL; and that is, our business model in many cases is designed around being third-party providers – like in garments and even in the BPO industry. We are not about developing products that would appeal to the end consumer. And that points to our inherent weakness when measured against the imperatives of global competitiveness: investment, technology and innovation as well as the development of talent, products and markets. Unfortunately, our success model and also our albatross is oligopoly – and by definition is not geared for an open economy and open competition – and as some legislators have revealed, worked against opening up certain industries that could have brought in, beyond foreign investment, technology that we sorely need. And not surprisingly, PHL FDIs have remained minuscule. [I have in prior blogs talked about URC, Jollibee and Splash; unfortunately, while they’ve gone global and aren’t inward-looking, they are the exceptions. We need more of them.]

And so while OFW remittances (“the equivalent to 8.5% of GDP, helping the country to plug its trade deficit and amass over $80 billion of currency reserves,” Manila Times, PH relies more on remittance, 9th Apr 2013) may have impressed Fitch, our inherent weakness remains; and that is, our economy isn’t designed and geared to pursue global competitiveness . . . and accelerate economic growth, which is why we have widespread poverty. 

Changing the Catholic Church

“. . . [T]he lead-animal theory is woefully insufficient for changing large organizations or large parts of organizations. Leaders modeling behavior and talking the case for change can indeed help enterprises transform. But how often is that corporate alpha dog actually sitting among the pack? Most people in large organizations catch a glimpse only briefly, via dispatch or WebEx or the rare visit. Soon, the appearance fades and the banners droop. The workers, the managers, and even the executives look around to see if their environment has changed, if the tried-and-true behaviors that made their world work will continue to do so. If the environment has changed, fine; it's time to adapt. If it hasn't, then why bother to change? How, then, does one lead the changing of an organization, whether it is a company, business unit, service line, department, or work unit? [Gregory Shea and Cassie Solomon, Change management is bigger than leadership, Harvard Business Review, 29th Mar 2013]

“By changing the work systems that comprise the work environment around the people whose behavior is supposed to change. Therein lies the key to successful, embedded, and sustained change: alter the environment, and people will adapt to it. Call it a species strength. We behave based on the reality around us. That is just what Hyundai's Chung Mong-Koo did and the results speak for themselves. He took a carmaker arguably within sight of going out of business in 1998 and led the creation of what Bill Holstein (writing in Strategy+Business) describes as "a coherent mix of quality improvement, design, and marketing that gives Hyundai a clear advantage over its industry competitors."

“At another global organization, the Roman Catholic Church, a change in leadership has many hoping for the revitalization of what some see as a scandal-ridden, unresponsive, and secretive organization. What might a change-minded pontificate learn from Hyundai?”

The authors may have gone one step too many with their audacity re the relevance of their research to the Roman Catholic Church. But should PHL listen to the authors? And so I randomly picked three articles from local papers and quoted them below – and what should we make of them? For example, should we ask ourselves how we get things done? Every time we land at NAIA we truly feel that it’s home and we simply bury the thought of the foreign airports that we’ve experienced – because we don’t want to ask ourselves the hard question: can we even get things done?

“Several Cabinet secretaries hope to work out the concerns of the Department of Finance (DOF) over San Miguel Corp.’s North Luzon Expressway (NLEx)-Skyway connector highway before any problem gets out of hand.” [Philippine Daily Inquirer, 11th Apr 2013] The question to ask in this case is: how can we get this far in the process and not anticipated this snag – and proactively dealt with it? What happened to the economic cluster within the cabinet?

“In an ironic pronouncement, Energy Secretary Carlos Jericho Petilla is now promising stakeholders that his department will be transparent when it comes to policies for the renewable energy (RE) sector . . . This somehow gives hope to the industry that the Department of Energy (DoE) will no longer resort to “unilateral tweaking of policies”, without consulting or even hearing the side of prospective investors, such as what happened with the rules on feed-in-tariff (FIT) availments.” [Manila Bulletin, 11th Apr 2013] Is the job too big for one man? Do we need to hire a world-class consultancy to help us navigate this most critical challenge – of energy – that has contributed to our underdevelopment in more ways than one? And, as foreigners have suggested, allow foreign ownership like Singapore did with Meralco?

“Now it’s rice from Cambodia . . . Cambodia has emerged as a major rice producer in the ASEAN region. The new source of rice to NFA as buyer/importer had experienced several turbulent periods: 1) In April, 1975, Pol Pot’s Khmer Rouge captured Phnom Penh and established a reign of terror that killed an estimated 1.7 M people and hundreds of thousands fled to refugee camps in Thailand, 2) Phnom Penh was captured by Vietnamese troops in January, 1979, and 3) under UN supervision a peace agreement was signed in October, 1991.” [Atty. Romeo V. Pefianco, Manila Bulletin, 11th Apr 2013] We can’t use our past as an excuse anymore? The late Teodoro Valencia comes to mind reading the Harvard Business Review article – i.e., he changed the environment of Luneta and we all adapted made it a showcase.

“God helps those who help themselves”

That’s from Fr. Bel R. San Luis, SVD. One couldn't miss his two successive columns (Manila Bulletin) especially when they appear to connect. "Faith without works is dead" appeared on 6 April 2013 and on the 7th, "After redemption, let's save ourselves." And the point is driven home by the April 5th Manila Times Editorial: “Bad news for our farmers. With less than two years to 2015, the Aquino administration is in a race against time in making the Philippine agriculture sector prepared for free trade under the AFTA.”

It is a race that our farmers are bound to lose as the editorial itself highlights: “[I]t is not uncommon to hear stories of rice farmers still trapped in perpetual debt and poverty, and those selling their lands because they had given up farming for good . . . Also, the Philippines trails its Southeast Asian neighbors in implementing Good Agricultural Practices (GAP). According to a study conducted by the Southeast Asian Regional Center for Graduate Study and Research in Agriculture, the Philippines only has four GAP-certified farms, namely: Del Monte Philippines (pineapple); Basic Necessity, Inc. (lettuce and herbs); Cardava Integrated Inland Farming (cardava banana); and Leonie Agri-Corp. (various vegetables) . . . Meanwhile, Thailand, Indonesia and Vietnam have granted GAP certification to thousands of their farms.”

“Philippine farm output grew only by 2.92 percent in 2012, which means that it did not match the growth of other sectors of the economy in helping the country achieve a 6.4-percent gross domestic product (GDP) growth last year . . . The rather low growth of the agriculture sector last year caught the attention of Socioeconomic Planning Secretary Arsenio Balisacan, who said that sector’s potential as a growth driver and source of poverty reduction is not being maximized. He even cited the potential of the agriculture sector to provide jobs for skilled workers in the rural areas . . . On top of that, the agriculture sector can also be a driver for developing the country’s manufacturing sector, since raw agriculture produce can be processed into various finished products, and not only food products.”

The potential of agriculture is indeed there, yet it will not happen overnight especially when we look at our “four GAP-certified farms” while “Thailand, Indonesia and Vietnam have granted GAP certification to thousands of their farms.” In other words, it is not going to happen between now and 2015 and most likely will not happen within the current administration.

Major undertakings demand more than the politics implied in the Manila Times editorial – i.e., is Alcala right for the agriculture post or is it Pangilinan? It demands national leadership, focus and priority. For example, agribusiness is amongst the seven strategic industries teed up by the JFC (Joint Foreign Chambers) in Arangkada Philippines 2010, but it also includes infrastructure. Which means that we can’t look at agriculture in isolation and while a priority must be part of a sensible nation-building commitment, framework and exercise – and become the platform of PHL industrialization? Put another way, the object of the exercise must be to make the seven industries economically viable and sustainable. And clearly that is challenging enough – and what more if 50 industries all want to be in the mix? That would simply be falling into trap of “crab mentality”?

And which is why the admonition of Fr. San Luis is timely: “God helps those who help themselves.” And that holds true especially given our dismal track record. ASEAN integration, which created AFTA, was signed over 20 years ago and we are merely paying the price very dearly today. And so while as an economist writes in his column that there are positives in AFTA that we can and must leverage despite the time constraints, this is a “teachable moment” that we ought to seize. More to the point, we didn’t demonstrate virtue with our complacency. We can’t be our worst enemy.

Nation building

Is Juan de la Cruz committed to pursue nation-building? This blog has constantly raised our hierarchical culture because having done business in many parts of the world, I wonder if our respect for hierarchy is more deep-seated than most? And if our leadership is not exactly forward-looking, the ship that is PHL will simply be adrift without the sense of purpose and direction? The world has been moving at warp speed and we are still dealing with challenges that are pre-21st century? And it is a reality that we have to come to grips with – like power, basic infrastructure and industrialization, among others?

On the other hand we are good at dissecting our challenges and it is probably because of our “kuro-kuro” culture? But given that the elite class is happy where they are in the hierarchy, are we all the more distant from the pursuit of nation-building? Take charity-giving: it is good but it also reinforces our place in the hierarchy without making a dent on poverty. Because only through nation-building – and thus building the economy – could we in fact address widespread poverty like the world saw in the Asian tigers, and China that is now poised to be the biggest economy and overtake the US?

What do we hold in high esteem, for example? Oligarchy, oligopoly, political dynasty and the church, among others – and all are command and control structures? And not surprisingly bureaucracy and corruption would rear their ugly heads? And which explains why PHL is not characterized by the rule of law? Progressive nations, on the other hand, aspire to be egalitarian – and it is how a nation or an economy becomes inclusive? It is also what nation-building is about? And hence the question: given our acceptance of hierarchy as the norm, could we in fact pursue nation-building?

Outside the Philippines, I have witnessed countless times when ideas didn’t simply come from the top. And that would explain why there is an Apple, a Google or a Facebook, among others. Even in Eastern Europe, despite being under autocratic rule for decades, I have seen ideas coming from below. For example, I was recently so taken by a product idea that at the end of a presentation asked if a patent was being considered only to be told that it was already in the process. And on another occasion I was disappointed with the level of competitiveness of a product category in the portfolio and so I simply asked the group: “how are we going to fix this problem that is staring us in the face?” And a passionate discussion ensued in a language I don’t even speak, and after which one guy said in English: “OK, here is the fix.” And he outlined what they were going to do over what period of time. And he was not even one of the two bosses that were there – the marketing and sales managers. Then a young woman – even lower in the hierarchy – elaborated on what they called “the fix.”

Ten years ago these people were just playing copycats. And so they had to be trained – and they would have more questions than answers. Many of them have heard the story – to encourage them to speak their minds – that in my old MNC employer I was able to move the budget drill from a principally financial exercise to a goal-alignment process; and the president while indeed tough-minded, possessed the greatest listening skills I would ever know. And the bigger story was that at the annual shareholders meeting in New York we would fly the ten employees and their partners that owned the best ideas from around the world as special guests for an entire week. And the shareholders simply loved them.

Institutions and organizations ought to be the market place of ideas – openly and without regard to hierarchy. It ought to be the same for nation-building. And even more amazing is people in an egalitarian environment can come together when there is leadership and a shared purpose.

Leadership, focus and priority

During my early visits to Eastern Europe, I was reminded of “We’re the little brown brothers” every time I heard “We’re poor Eastern Europeans.” And so at every opportunity I would talk about “It always starts in the mind – what you can think you can create, what you cannot think you cannot create.” And ten years later during a recent meeting with the management team, I made reference to it again. As it was ten years ago, their leadership was painting for them the view of the future – moving the organization up another notch that meant competing in parts of the world that they have yet to face. And I could only be proud of the business teams as they presented their plans: "This brand will be at least equal if not better than the competition in every market we compete. These are the global trends and these are the innovations we will introduce this year and the next.” Ten years ago they would simply copy product ideas from the West but their R&D and marketing investments especially have developed to an advanced state that today they have the confidence to compete head-to-head against the world's best.

The noise is getting louder and louder about ASEAN integration in 2015 and how prepared or unprepared we Filipinos are. Recall that the ASEAN Framework Agreement was signed in Singapore on 28 January 1992 or over 20 years ago. [And straightway MNCs organized regional hubs across the region – I was there and hence have firsthand knowledge.] What have we been missing? To be more than “the little brown brothers” means that we would have wrapped our head around the reality that “everything is fair in love and war.” The world still applauds college dropouts Jobs and Gates for following the footsteps of Edison and “writing the rules” that the world would follow.

Has our hierarchical mindset unwittingly transfixed us to a passive state – being the little brown brothers? What are we missing? A leadership – “to take us from where we are to where we have never been before” – that will show us where to focus and how to prioritize? Being true to the hierarchy has always been our mental model that we may have forgotten that freedom and liberty – that we cherish and are proud about – means exploring beyond the here and now? The evidence: we have the least patents among the countries in the region.

We also have to move beyond “reinventing the wheel” – which was what we did with “import substitution” in order to reduce costs. Fair enough but that can’t go on forever – as demonstrated by countries like Japan, South Korea and Taiwan. For example, UP is most likely looking at a lower-cost option and thus would build the Pinoy monorail within the campus – and that is fair. But the monorail is not a new technology and so unwittingly we are doing “import substitution”? A “substitute” implies that the original is far more advanced? The comment is directed at "nation-building." UP could also wear its hat as the nation's brain trust and look into the road map from the JFC referenced below, for instance.

Today's reality is no longer a secret: we have been left behind – and why we have widespread poverty – as we lag in investment, technology and innovation as well as in the development of talent, products and markets. Assuming the monorail project is a one-off shouldn’t we in fact put our minds into pursuing an industry where we have a shot at attaining competitive advantage? And which brings to mind the Joint Foreign Chambers – and the seven strategic industries they teed up. The JFC has given us a road map – Arangkada Philippines 2010 – to leapfrog industrialization by focusing on seven priority industries that will generate $75 billion in foreign investments, millions of jobs and incremental GDP of over $100 billion. But have we grabbed the ball yet? For example, what have we done about the power situation which is pretty fundamental if industries are to be erected? Where is the leadership? Where is the focus? Where is the priority?

Like in the ASEAN integration, we can’t be foot-dragging again? If dynamism is not us, we truly need leadership that will show us where to focus and how to prioritize – and “take us from where we are to where we have never been before”?