In search of innovation in firms

Thank you for your concerned messages about my recent whereabouts.

In the last few weeks I have involved in running a RALIS (Rapid Appraisal of Local Innovation Systems) with my colleague and friend John Lawson. This process is focused around three Institutes of Advanced Tooling in South Africa that are based in the Western Cape, Eastern Cape and Gauteng. We are looking at the innovation system around the tooling sector around these 3 centres and their key customers.

A literature search on innovation reveals that product, process and organisational innovation (a.k.a business model innovation) is commonly identified in the academic literature. Innovation does not take place in a vacuum, and a RALIS methodology allows us to better understand the determinants of innovative behaviour by firms. It is important to recognise that while tinkering about in a workshop is great fun, a lot of innovation in firms and between firms cost a lot of money and time, and the outcomes are uncertain. Therefore, we have to understand how and why firms innovate, and how the Institutes of Advanced Tooling can play a role to support innovative behaviour by firms in the South African Tooling sector.

Now many of you will know that my interest in the tooling sector goes back a long time. Firstly, the tooling sector is truly an important sector, as toolmakers make the machine tools and production equipment that is used by the manufacturing sector to produce just about everything that you see around you. Secondly, the tooling sector was one of the two sectors that I used to analyse market failures in a knowledge intensive business service market in for my PhD Thesis.

In the next few posts I will share some of the insights from this exciting process with you!

A tool used to make picture frames
A tool used to make picture frames
Tools and moulds
Tools and moulds

Moderating large events

I have just created a new sub-page on my experiences of moderating large(ish) events. With large I mean events with more than 50 people in, but still not 1000s of participants that Natasha Walker enjoys to facilitate!

There are some pictures on the page of the technology configuration and the role of the moderator in a large event.

Please take a look and contribute your experience of moderating or even participating in larger events.

Change in societies – part 2

In my work with trying to get the private sector to perform better, I often deal with sectors and their support institutions. Very often there are official or recognised industry bodies that are promoting the interests of industry. The least these industry bodies do is to organise an annual golf day, with some even playing an important role to lobby with government. The more organised sector bodies play an active role in sharing information, promoting standards amongst their members, or in some cases actively trying to develop their members or new markets. So these industry bodies often try to affect change in the way I described in the previous post.

But although these organisations are functional units themselves, they are actors trying to promote change in a small part of a society. This means that while they can affect change internal to their organisation through formal change or organisation development methods (using hierarchies, sanctions, incentives and process management), they have to also play a leading role in changing the society around them. The members of the industry body, their supporters and the broader innovation system related to this industry body is not physically part of the organisation, but forms a sub-group of the society around the industry body.

Several challenges arise in this process of trying to get a part of a society to change. The first challenge is that this process of upgrading the performance of industry is often not recognised as a change process. Secondly, societal change is a tough thing to do, and the body of knowledge on how to achieve change in societies is still in infancy. Thirdly, to affect change in a society it is important to appeal to the common identity or value system of the group being targeted, and very often both these factor are weak within industries. For example, some pharmaceutical companies consider themselves to be in the cosmetic sector, while others in health. This means that even if we classify a firm in a given sector, they may still identify more with another sub-group in the society.

For instance, in my earlier post I mentioned the importance of leaders using value systems to lead through example. How can this be related to trying to change the performance or behaviour of an industry? The answer is that we have to make positive examples of those that are early adopters, or leaders. By showing how some firms innovative, or overcome problems through innovative thinking, creates opportunities for others to imitate. Furthermore, industry bodies cannot really use incentives or sanctions to inspire change. However, they can play an extremely important role of communicating why behavioural change or improvement is necessary. If industry bodies cannot build a better case for why firms need to pull up their socks, cooperate better, compete more, innovate or invest, then nobody else will be able to achieve this until it is too late.

Thus, industry bodies have a critical role to play in using their organised members to inspire behavioural change or performance improvement. This process must be understood as a change process at the level of the society. The desired change must be seen in a systemic way to make sure that individuals are not just thinking about measurable improvements (such as time to assemble a gadget) but to also consider the societal change aspects (how to recognise the new values or how to know whom to follow)

Change in societies

The previous post described a typology of competitiveness that spans three levels. In order for individuals, hierarchies (e.g. firms) to improve their competitiveness or performance some kind of change of performance is required. While some of these changes are incremental and takes little effort, it may in many cases require a more concentrated effort to make a significant change. A few years ago Holger Nauheimer introduced me to three different levels of change that corresponds with the typology of competitiveness.

Firstly, there is change in the performance or behaviour of individuals. This may be related to an effort to improve competitiveness, or it may simply be a change of behaviour. Secondly, there are change processes in organisations in order to improve performance and competitiveness. Lastly, there may be changes at the level of the society that results in improved performance and competitiveness.

In the first instance, individuals try to change their performance or behaviour through a combination of self-motivation, self-discipline, practice and concentration. Whether the change is success depends largely on the self-control of the individual, and their own incentives and value system. For organisation to change may require small incremental improvements. In most cases a change process requires proper management, transparrent leadership, transparency and clear communication with staff. Management may decide to use a structured approach, drawing on topics such as organisational development, change management and project management. A combination of sanctions and incentives may be used to shape the behaviour of people in the organisation.

At the highest level, changes occur in societies. These changes typically affect the performance of individuals and organisation, and are also affected by the performance of individuals and organisations in the society. For leaders to influence the transformation in societies, clear leadership with strongly communicated values are required. In my imagination I can think of leaders such as Nelson Mandela and Barack Obama at being particularly good at this. The challenge with change in societies is that it is difficult to manage, due to the fact that incentives and sanctions are weaker. There is also growing awareness of the psychology of crowds and how people in societies create and respond to signals of change. At the same time, we don’t have to think of whole societies changing. Malcolm Gladwell in “The tipping point” explains that when a small enough part of a society change, that it could lead to a tipping point where a larger scale change in behaviour takes place. This activism of change agents in societies are what seems to be keeping many societies in check at the moment, while at the same time promoting ongoing improvement and advancement.

From a systems perspective, the changes in individuals, organisations and societies should be recognised as complex human and social systems. There are many feedback loops, and delays between interventions and results. Furthermore, there are complex dynamics between different elements of the system. Therefore the results of decisions to change are often unpredictable, and care should be taken to create a habit of continous improvement combined with reflective exercises to make sure that the people in the system are able to respond to surprises and changes in the dynamics.

Different kinds of competition

If we assume that competitiveness is essential for economic growth, then it is important to explore the reasons why so many people do not like competition. Perhaps we all work with someone who is very competitive that can turn even getting to the water cooler first into a life-and-death rush.  From a developmental perspective many people are uncomfortable with competition, because we have all seen so many people marginalised because of their uncompetitive situation. This despite the depth of academic literature on the importance of competition in allocating resources to the economic actors most able to convert the resources into goods and services productively.

However, we all love it when our favorite sports team out-compete their competitors. So it seems like we all dislike certain aspects of competition, and yet we also like certain aspects of competition.

To explore this topic more I will discuss 3 kinds of competition:

  • the characteristics of individual competitiveness;
  • the characteristics of organisational or team competitiveness; and
  • the characteristics of geographic competitiveness.

The characteristics of individual competitiveness

For the sake of this discussion I will use an individual athlete as an example. For our athlete to be able to compete in the 3000 meter track item, she needs certain clothes and shoes. She must work on her fitness and diet, and may require coaching to master the technical aspects of her item. But this does not yet make her competitive. In order to be competitive, she needs to practice hard. This requires mental and physical discipline, and would require many personal sacrifices. The more she competes, the more she would have to invest not only in participating in different events, but she may require sophisticated shoes, other gadgets, specialised coaching and other costs known only to athletes!

The characteristics of organisational competitiveness

For an organisation to be competitive, it requires more than the right gear, mental and physical discipline of a few individuals and an exercise programme. Organisations, whether it be private or public, needs more. It needs various management systems, protocols (some kind of a language or common code), and different modes of cooperation between individuals. Leadership, different specialised competencies and technology is used to increase the competitiveness of organisations. Think of a racing team, where even if there is a world-famous driver in the seat, need to operate almost like a single organism in order to outperform the other teams. Here it is not enough for one person to be smart, people need to be smart collectively. Leaders who can empower or develop their staff and that can optimise the talents or resources at their disposal can outwit their competitors through a process of ongoing innovation and investment.

The characteristics of geographic competitiveness

For individuals and organisations to compete, the competitiveness of their geographic environment will start to matter at some point. While a amateur athlete or a bakery can operate in many different locations, their ability to compete with their competitors are influenced by their environment. Michael Porter and other authors have all written about this phenomenon.

Places compete through the combinations and relationships between different individuals and organisations, and places where there is a dense interaction between different people seem to outperform places where the interaction and transactions are lower. There is also a relationship between the ability of firms to compete in their own geographic domains and their ability to compete elsewhere. Furthermore, as firms grow and become more competitive, they become more dependent on specialisation both inside the firm and in their environment. This means that places that cannot offer specialised services, either in the form of direct employment or through specialised providers or institutions, will be disadvantaged. To make this even more complicated, there is a relationship between the competitiveness of firms and individuals and the competitiveness of region, and vice versa. Societies or communities that are able to stimulate a competitive process or debate on different developmental or innovative approaches tend to also outperform regions where there are fewer options available due to an inability to manage the tension of a creative search process for different alternatives. For instance, in Germany, many development agencies compete for public funds through innovative bids, forcing these agencies to be creative in their approaches in order to achieve impact and resource optimisation.

Conclusion

We need to stimulate a competitive mindset both in individuals and organisations in order to strengthen the competitiveness of regions. To achieve this, we need to understand the different factors that hamper or stimulate competitiveness at the different levels, and the relationship between the different factors. Attempting to ignore competition and its role in resource optimisation in societies is futile, so we have to work on getting more people thinking about ways to improve competitiveness. The best thing we can do, is to equip the marginalised with the mental and physical discipline. One of the best ways to get these individuals into the race is through training (education) as this develops both the mental and physical discipline that is required to be part of the competition.

Understanding technology for climate change better

I received a book on climate change last year for my birthday called Ten Technologies to Save the Planet. It was a bit odd to receive this gift, as I don’t consider myself to be a tree-hugger. But my friend explained that this book will change my life and answer the many questions that I’ve been asking about how developing countries can engage in climate technology.

Chris Goodall, is a businessman and author of several books on climate change, including Ten technologies to save the planet. Ten Technologies To Save the PlanetThe book is divided into ten chapters, with each chapter focusing on a range of different technologies that are either developed or being developed to address a specific issue. For instance, there is a chapter on wind power that explains the existing technologies available today to utilise the energy created by the wind. There is also a chapter on alternative fuels that also explain and compare the different feedstock that are available for the production of biofuels.

Unfortunately the book does not deal with issues pertaining to economic development. For instance, I wonder how the global environmental and climate technology revolution that is driven by pro-environmental policies in Europe is going to put European and US manufacturers into the next “industrial revolution” while Africa is still a revolution or two behind?  I also wonder how the new climate market systems where companies can trade carbon credits can be used to get developing regions into the global market system. For instance, we have a lot of sunshine and a shortage of electricity generation capacity in South Africa. How can we solve this problem using some of the carbon credits or off-sets of European firms?

But this book is a must-read for development practitioners that are constantly confronted by dreamers who want to become rich or develop industry through investments into “amazing bio-fuel products”. It is now on the top 10 of my favourite books ever. I cannot wait to assess the next value chain for opportunities to reduce energy consumption or to identify opportunities for manufacturing firms to become competitive through better climate technology applications.

Read more about the book on Wikipedia, or visit the Carbon Commentry website where more information on Chris Goodall and issues around Carbon can be found.

I have uploaded all three the books by Chris Goodall onto the mesopartner store at Amazon.

Interview with Natasha Walker on facilitation

On the right hand bar of this site you will find the link to a LEDCast episode that we have just published. In this episode I interview Natasha Walker on facilitation. Natasha is a real guru on facilitation and visualisation. We discuss the essence of facilitation, and share many tips, tricks and discuss some pet hates. The second part of this episode will be published in a few days time. I would love to hear from you!

Participants exploring a topic visually
Participants exploring a topic visually
Natasha in action
Natasha in action

Human capital development for growth

Very often in training relating to the improvement of regional and local economies we stumble onto the topic of the importance of human capital for productivity and economic growth. This results in three arguments emerging between participants. Firstly, some participants are upset about human capital development, as this often implies a higher level of learning that involves the application of technology or other advanced topics. This is seen as benefiting too few people, especially in Africa where countries are generally suffering from high unemployment and large numbers of under-educated people that are mostly trained into low-technology low-skill (and low wage) jobs. The second argument is about the role of technology in economic growth. Again, people tend to shy away from technological development that is capital (or technology) intensive towards creating jobs for large numbers of people. The third argument is that productivity improvement is not important for growth, as it only benefits the owners of firms and it is according to some people counter-productive for employment creation, as it leads to job losses.

During these arguments it is important to remain calm and clear headed, and to not fall into ideological debates. I will not try to address all three these arguments now except to say that the importance of human capital development is increasingly been promoted by organisations like the Worldbank, the OECD and others (for a great recent report on this click here). This after the topic of tertiary education has received very little attention in global programmes like the Millennium Development Goals and other programmes, with more basic education programmes like universal primary school access receiving more attention. I am relieved that the big guns are now more supportive of tertiary education and its role in human capital development. While I agree that we have to increase employment for large numbers of low-skilled people, we should not behave as if we have endless resources and management capacity available in many developing countries. This means that while we have to create jobs, we also have to be mindfull to constantly work at increasing productivity in order to carefully maximise (or allocate) the resources of the society. I am always amazed at how our politicians in South Africa want to create hundreds of thousands of jobs when we are short managers at almost every level of our society. This means that we may have to settle for less jobs (because we cant manage all these people), and that we better make sure that all the people are in sustainable and productive jobs, within competitive firms in competitive industries. We can not disconnect these different things. In fact, I think we should be calling for far more technology intensive jobs in order to optimise the skills and our resources at our disposal, while not neglecting trying to find ways to get more people with lower skills into the job market.

The times have changed, and being loyal to a country or being comfortable in a society is no longer sticky enough to hold back the increasingly mobile creative talent people of the world. People with talent (or developed human capital) can now work almost anywhere in the world, and then be paid handsomly for the sacrifices of moving. These people do not always leave countries because they are negative about the challenges facing developing countries, although this certainly makes it easier to go and live between a different and often strange cultural group (no offence intended).

I propose that we raise the importance of tertiary education, human capital development and use technological advancement to achieve progress in our developing countries. This will lay important foundations for future economic growth and for the necessary increases in productivity to optimise the resources available to societies.

What do you make of this?

On the ground in Soweto

Early in May  I had the privilage of working with the international NGO Worldvision on a Local Economic Development in Soweto. The objective of the assignment was to assist Worldvision to focus its support activities in Orlando East. Zini Godden assisted me as the co-facilitator, and the method we applied was the PACA (Participatory Appraisal of Competitive Advantage) methodology.

Firstly, family and friends were all very worried about me working in Soweto. This was rather odd, as I have been working in predominately black areas since 2002. It shows that there are still some very large judgements about Soweto. For those that want to know, we stayed in a great guest house in the centre of Orlando East. And we had great food. Actually, there is a whole group of guesthouses in Soweto that are quite busy accommodating international tourists.

Secondly, Orlando East is very busy. It is busy on the surface, with people constantly moving about in the region. But it is also busy under the surface. The tavern that we used as our base during our workshops had a credit card terminal. This may sound odd to my foreign readers, but for a business in South Africa to keep a credit card terminal the business must process at least 3000 euro (R30,000) per month. That is a lot of spending power! At the same time, the new Maponya shopping mall in Kliptown is a must see!!!

Thirdly, there are many committed people working in Orlando East. We refer to them as champions, and they go out of their way to make sure the community functions. I have actually not witnessed this level of community involvement ANYWHERE where I have worked before. Some of these people are ward councillors (yeah, they do actually work in some places), community development workers, social workers and many others. The business people gave a lot of their time during several days of workshops, meetings and brainstorming.

Lastly, there are many untapped business opportunities in Orlando East. Unfortunately, there is also low local savings, which means that there is poor formation of investment capital in the region. At the same time, there is a lack of office space for businesses to start, and most investment is taking place in small spaza shops.

On the topic of spaza shops, I witnessed something really sad while working there. While the economic development unit of the City of Johannesburg was working with community structures and the hawkers to formalise and train the hawkers, the Metro police raided the stands of the hawkers. The heavily armed Metro Police moved in and basically destroyed the stands and confiscated the goods of the hawkers. I was so angry. This is a terrible example of how one unit in a municipality can work against another. Contrary to popular belief, many hawkers have invested ALL their savings in their stands. In same cases I estimate the investment to be in the region of more than R5000 (500 Euro) in several instances R10,000 (1000 Euro). I confronted an official and he told me that they were focusing in unlicensed or counterfeit goods (show me an unlicensed or counterfeit banana and win a prize). The official became aggresive when I took photos and insisted that they have warned all the hawkers in writing!!

Look at these pictures and tell me what you think!

An interesting quote

Here is an interesting quote from Adrian Rogers that I think should be considered by the governments of the world as they try to figure out how to help the poor, especially during these tougher times

“You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it”

Of course governments have an important role to play in the fair distribution of resources, but when the creators of wealth feel exploited it might lead to the situation where the rich increasingly find innovative ways to hide their wealth from the governments.

In the press and development circles there is now increasingly discussions about addressing market failures (cases where markets do not allocate goods in socially optimal ways), but what is not discussed are cases where government failures lead to the poor getting poorer, or staying poor. A simple example is the topic of good quality public education. In todays connected economies government failures in education disproportionately affects the poor, resulting in the poor being trapped. At some point the wealthy may react by saying that they should not be held accountable to continued failures (ignorance or denial) by the public sector, leading to a diversion of profits.

Hey, what do you think about this issue?