Some things change slowly

Apologies for being so silent. I am currently leading a team that is analysing the innovation system in the electronics sector in South Africa. I cannot help but feel inspired to meet such brilliant business minds. And they all want to share, they all want to help to grow the country. It is so sad that many people see the succesful business people as the enemy in my homeland.

In the meantime, I quite Cicero. Listen to this wisdom from 55BC.

“The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.”
– Cicero – 55 BC

A journey to change change

Holger Nauheimer and a small group of people are changing the way we see change in organizations! I am participating in the change journey, and so should you. Head over to the Change Journey now and share your experiences (or just learn from others)!

Take a look at the text below for an announcement about important training events on change.

Global Change Journey training courses: Join us for a fresh view on change in organizations

We all know that 60-80% of all change projects fail. It is time to change how we see change.

Holger Nauheimer, worldwide known as one of the key innovators in the change management field, has recently announced a new approach to change in organizations: The Change Journey. The concept radically departs from the blueprint approach of traditional change management models and is based on the fact that no two change processes are alike. Each organization that decides to embark on a change initiative has to reinvent itself and find its own path while mastering the uncertainty of the process. Holger and his colleague Vesa Purokuru have designed a tool that serves as a guide through such a journey – the Change Journey Map. With the Change Journey Map, individuals, teams and entire organizations are enabled to

  • initiate an open dialogue about the required change,
  • find common ground on the principles of the transformative process,
  • identify priority areas for intervention,
  • select the appropriate tools for driving that change, and
  • create a list of required actions in order to make change successful and sustainable.

The Change Journey Map is a tool for change leaders. It helps to refocus on the essential skill of facilitators: to ask questions which matter and which open up new perspectives. The Change Journey concept is compatible with any other organizational development philosophy and can be enriched by all other existing change management toolkits.

Learn more about on how change can happen in the 21st century and participate in one of the global workshops in Brussels, Amersfoort (NL), Los Angeles, Seattle, Washington D.C. and New York: http://www.changejourney.org/page/global-workshops.

The Change Journey supports 1WE (www.1we.com): For each workshop, course organizers will sponsor a rickshaw for a family in Bangladesh (http://www.1we.com/web/show/id=59754/langid=42).

Best wishes,

Shawn

Why the theories underlying economic development matters

I have been accused on several occasions of being too theoretical in my training approaches. These comments typically come from highly experienced development consultants and not from the target groups of my training, namely government officials, development facilitators and experts based within developmental organizations. I am not denying that I like to raise some more nerdy-like topics during my training, but this is based on my belief that you cannot be a developmental practitioner without understanding what the deeper knowledge bases are that we are working with.

I am always amused by this negative attitude towards of theoretical bases, especially when these consultants themselves start blurring the lines between the bases that they work from and the outcomes that they prefer.

Why do theories matter?

Bodies of knowledge, or theoretical basis are useful to development practitioners and are not only the domain of clever academics. Not only does a body of knowledge or theory provide us with some guiding principles, it also provides us with lines of inquiry or research questions. A theory also provides a boundary which typically explains what a theory does not cover. You could say that each theoretical base has its strengths (which means that it can structure, explain or questions certain phenomena) and its limitations (which means it does not provide structure, explanations or questions for other phenomena). So the main point is that a theory gives a development practitioner guidance as to what a theoretical base can inquiry, what questions it can find answers to, and which topics it does not provide much insight into. The main function thus of a theory is it helps us structure questions so that we can develop robust answers.

The importance of questions in development practice

Very often we find that developmental practitioners have posed very weak or generic questions at the start of a project or intervention. For instance, the question “how can we help the poor in this region?” is a poorly defined question as you will not be able to deal with the hundreds of answers ranging from “they must do it for themselves” all the way to “we must do it for them“.

Einstein is quoted as saying “if I had an hour to solve a problem and my life depended on the solution, I would spend the first 55 minutes determining the proper question to ask, for once I know the proper question, I could solve the problem in less than 5 minutes“.

So we have to ask more specific questions that lead to more precise questions. These questions are shaped by our theoretical bases. For instance, someone from an engineering background (using an engineering base) will ask that question slightly differently than someone from a business background (using business management) or a social worker (using certain social subjects).

The result of blurring the lines between theories is that questions becomes blurred, leading to vague answers. When questions becomes blurred by experienced consultants, manipulation may occur.  This can be achieved by sequencing questions in a way that people (beneficiaries, donors, organizations, political interests) are lead into one or two “solutions” or conclusions. These conclusions, recommendations, or solutions (call it what you will) are also sometimes known as “magic bullets” or recipes for success. We all know that magic bullets are blind, because they are so dependent on a specific context or the experience of the expert advising them.

You should never trust the answer of a research study or report if you do not understand which questions were asked to guide the study. Despite the content of the research, the questions gives an important hint as to which theoretical bases where used, which also provides us with a clue to the limitations (or blindspots) of that theory.

I am not arguing that we cannot combine theories, rather, I am arguing that we should always remember which theories we are combining in our work. For example, if you are promoting value chains and you are not basing your questions on business management theories (including production, industrial, strategic and other forms of management), then on what bases are you relying for your questions? Are you depending on gut feel, past experience, anecdotal experience, ideology or personal value systems? Or even worse, do you see value chain promotion as an answer to an unasked question? (What was that question again?). And let us say you are depending on the example I provided of business management as a basis for value chain promotion, then what are you blind to because of the choice of theory? Business management theories provide very little insight into social issues, market functioning (not to be confused with marketing management) poverty alleviation, or more technical or scientific issues that you are typically confronted with when working with value chains in a developmental context. I could have of course used another example, but this is one that I am frequently confronted with.

Perhaps it is worth your while to reflect for a few moments on which bases you draw when you come up with recommendations or are confronted by a specific problem. You will be surprised to find that there are many other bases that will provide you with different questions that you might want to consider reading up on. Perhaps you will even find some explanations why some of your favourite viewpoints seems to be so vulnerable or prone to failure within certain contexts, or why people resist some of your ideas. Let me know what you find!!

Link to evolution for everyone

Thank you Michael Meadon for sending me the link to the Evolution for Everyone blogsite by David Sloan Wilson. In a series of blog articles David describes evolution in economics from different perspectives. Reading these articles made me realise why local stakeholder groups are so ineffective in promoting or driving local economic growth. Very often the social dynamics and social power plays are ignored. We have to find better ways of recognising local initiatives, but we also have to be aware of the social selection process that allows for this emergence.

Lessons on leadership from a shirtless guy

Those of you that follows literature on the wisdom of crowds probably know of the video clip of this shirtless guy dancing in a crowd at a festival.

Derek Sivers recently dedicated a TED talk to this guy, and narrates some excellent leadership lessons. The video clip can be seen on Youtube, and a transcript of the narrative can be found on Derek’s site.

Thank you Tim Hadingham for bringing this clip to my attention!

Local economic development as an evolutionary process

Modern evolutionary economics is about 20 years old now, and many research programmes continue to add to the content of the subject. I think that development practitioners have a lot to learn from this subject. When we work at the local level, with local stakeholders and local resources, we are often confronted by the failures of traditional economic models (for instance the obsession with supply and demand). For instance, traditional economics often focus on distribution or allocation of wealth, while in evolutionary economics the focus is more on wealth creation. Traditional economic models assume that you can use the data of the past to make reliable predictions about the future. Just this simple insight will already change many LED approaches that emphasize working with the youth and the marginalised (solving an allocation problem) towards understanding the systemic interaction of economic technologies, social technologies and physical technologies that co-evolve to create wealth.

To be more precise, an economy should be recognised as a complex adaptive system (Beinhocker, 2007; Ramalingham, Jones, Reba and Young, 2008). This means that the economy is a system of interacting agents that adapt to each other and their environment in a complex way. Complex adaptive systems are sub-systems of open systems. It recognises that change and advancement are forces within the system created by the agents, and that it takes energy to create and process information, and to create order.

Dosi and Nelson (1994) explains that “evolutionary” implies a class of theories that tries to explain the movement or change of something over time. It furthermore involves both random elements which generate or renew some variables, as well as mechanisms that systematically create variation. Central to these theories are the concepts of deductive and experimental learning and discovery.

Beinhocker explains a simple formula that is common to all evolutionary systems. Firstly, a system needs to create variety (for instance through many innovators trying new things), and then there must be some selection or fitness criteria (often this is provided by markets). Next there is a selection process, where the ‘best’ or rather most-suitable designs are selected, and thereafter these choices are amplified or repeated (also known as imitated).

So if you think of your local economy, then consider how certain businesses came about. The variety of businesses is a direct result of novelty or variety creation, and how they ‘fit’ to the criteria of local consumers,resulting in these business models being ‘chosen’. Every now and then, a business person with a new or different idea comes along, and this in many cases may even result in local consumers changing their fitness criteria. This describes a process where economic resources (as well as labour and technology) are continuously being allocated to those who are able to combine or create new ideas, new products, and new business models.

In the next few posts I will try to delve deeper into this topic, as I believe that it holds many important insights to why local economies grow in such an unpredictable and dynamic way, and why so few local governments or organised business in Southern Africa struggle to have any real positive and leveraged effect on local economies.

References and additional reading:

BEINHOCKER, E.D. 2007.  The origin of wealth. Evolution, complexity, and radical remaking of economics`. London: Random House.

DOSI, G. & NELSON, R.R. 1994.  An Introduction to Evolutionary Theories in Economics. Journal of Evolutionary Economics, Vol. 4(3).

NELSON, R.R. 1995.  Co-evolution of industry structure, technology and supporting Institutions, and the making of comparitive advantage. International Journal of the Economics of Busienss, Vol. 2(2) pp:171-184.

RAMALINGHAM, B., JONES, H., REBA, T. & YOUNG, J. 2008. Exploring the science of complexity. Ideas and implications for development and humanitarian efforts.  Working Paper 285, London: Overseas Development Institute.

Bring back the ox and plough….Are you serious?

This morning I read the announcement by the Director General of Rural Development and Land Reform, Thozi Gwanya, that small and rural farmers should revert to the proven method of ploughing with oxen. My first response was “oh, come on! This is 2010!!!”. While making coffee to recover from my initial shock I started to doubt my own response.

Why my initial shock? Well, it seems like going backwards to return to such an age-old method. But then, I have also

Indonesian farmer with ox and plough

visited several rural farms where land transfers are taking place, where farmers were sitting on un-used lands because they were waiting for a ‘tractor’ contractor. The same happens with small farmers supported by several municipalities. So in these cases, using oxen to plough would already be a step in the right direction. However, then the Director General motivates this advice on the basis that using a tractor to till a small piece of land will emit to many gases. I am not so sure that many poor farmers would just give up farming with a tractor on this argument alone….

Furthermore, the news article makes reference is made to India. Well, I have seen farmers ploughing with oxen in Thailand and Indonesia as well. As long as they can keep their production costs below market prices, I guess it is worth pursuing. A huge visible difference between Southern Africa and Asia is that farmers in Asia seem to get by with extremely little government support, agricultural extension and modern farming equipment.

OK, so now that I have my cup of coffee in my hands I am willing to reconsider my initial response. Perhaps the Director General should have said “instead of waiting on someone else, use oxen!”.

Can any of the readers of this blog with more experience in rural development perhaps comment or contribute on this issue?

Stimulating the formation of manufacturing business in South Africa

My international readers must please forgive my focus on my beloved home country in this post. But this is a topic that is close to my heart that we have to resolve in South Africa to secure the wealth and prosperity that our nation so desire. But perhaps you have faced the same challenges wherever you work.

I receive many requests to assist with the ‘creation of industrial businesses’ in South Africa. As this is a topic that is close to my heart I usually respond very enthusiastically to these requests. But in the last year or two the reality of the difficulty of establishing these kinds of businesses have dawned on me. Let me take you through my thinking.

Lets look at what it takes to start a manufacturing business. Firstly, you need an entrepreneur. This person must take the lead and mobilize and marshal the right resources, people and processes to take advantage of some opportunity. I think you would all agree with this statement. But if you unpack this sentence then you find three potential bottlenecks:

a)      you need an entrepreneur;

b)      this person must take the lead and mobilize the right resources, people and processes

c)       you need an viable opportunity

Point a) is a challenge. To start a manufacturing business the entrepreneur stands a far better change if the individual has technical or scientific competency or experience in the industry. With the current incentive environment many black or female candidates with the required competencies are better of in the corporate world, where large salaries and other perks are available. With the shortage of experienced or highly qualified advisors, most white candidates that meet this requirement have incentives to rather provide consulting services to government or large business. Many development programmes try to work around this problem by taking young inexperienced people, or even worse, vulnerable unemployed people, and try to establish them as entrepreneurs despite the fact that they would prefer employment rather than being a business person. I can go on for pages about this issue, but let me stop here.

Point b) is a second challenge. The role of an entrepreneurs goes beyond having a bold vision or being able to spot a great opportunity. The entrepreneur must mobilize resources and recruit sufficiently experienced or qualified people to work towards exploiting the opportunity. It doesn’t end here, as the most important role of the entrepreneur is to use their leadership skills to organize their mobilized resources and people into business and manufacturing processes. The latter is really difficult if the entrepreneur does not have management or manufacturing experience. Of course, we can all think of examples of individuals who have built viable businesses without management or technical skills. These cases are rare for many reasons, and it often depends on the character of the individual and the tolerance of their customers to pay for the steep learning curve that small under-resourced or under-managed enterprises have to go through. Say for instance, an entrepreneur can secure enough capital to start a manufacturing business, but they do not have any manufacturing experience. Unless they are able to recruit and trust a suitable qualified and experienced person that can take the responsibility on the technical side of the business, their investment is doomed. The inverse is also true. When a person that is technically competent starts a business, they might have trouble with the management of the administration and business processes of the enterprise unless they are able to recruit staff with sufficient experience to reduce the risks on that side of the business.

The third point is around the opportunity, and the ability of small enterprises to pursue them. One of the huge business process innovations of the last decades is the emergence of franchises. In a franchise, a proven and tested business system is replicated throughout a market. Think of a car-rental business. If you wanted to start a car rental business 15 years ago, you would need finance for several cars, staff at your outlet, technical staff, and cleaning staff. Now the likes of AVIS and others have mastered their business and technical systems to the point where a franchise in a small town can use tried and tested methods to run an office. The person managing the branch or franchise earns far less than you would be satisfied with, and plugs into a national (or even global) administrative system that manages salaries, vehicles, insurance and logistics. It would take a very brave business person to try and compete with such a hugely refined and efficient business system. And if you think of it carefully, then some of the basic rules of economies is that these kinds of system makes a society wealthier, as the productivity of each person working in that franchise branch is much higher than it would have been in your independent outfit. To compete against these business innovations (the innovation of a decentralized management and administrative system backup up by a highly efficient logistical system) you would need to have a highly differentiated business with many innovations. I am not saying it is impossible, I am simply saying it will not be easy.

OK, that is a service business example. For an entrepreneur to pursue the manufacturing of almost any product, they need suppliers, service providers, process information, marketing channels. The days where a single business making a completely integrated product are over, as these opportunities are often only profitable in a large scale. Manufacturing now takes place in ‘value networks’. So if I wanted to manufacture speakers, I have to establish myself within these networks. Despite the fact that almost an electronic student knows how to create a set of speakers, without knowledge of these networks and industrial systems it would be very difficult to establish a profitable and competitive speaker manufacturing business. So unless my product is completely unique or differentiated, I have to depend on existing systems to build my business.

Why are there so few serious entrepreneurs pursuing detergent mixing, or candle making or many of the other business formats that are often promoted by small enterprise promotion agencies? I think the main reason, is that the opportunity to build a business where a viable return on investment can be secured is limited. This means that vulnerable people are being helped to establish businesses where most sensible investors would not even venture into. If anyone can copy your business model even without acquiring the right skills or technical competencies, then how would you secure your investment?

We need to rephrase the objective of small enterprise development in South Africa. What we need to promote in South Africa is that experienced and technically competent people working in large corporates must have incentives to quit their secure jobs in order to pursue higher risk business opportunities. We need people with management skills, or with scarce technical skills, to start tinkering and designing new businesses, new products, new management systems in order to gain an advantage or an ability to secure a return on investment. Let these people create the jobs for the people that are lacking entrepreneurial skills or technical skills.

Let me know what you think!

January lazy linking

Excuse me for being a bit slow….but I cannot shrug off the holiday feeling yet.  So to make up I provide you with links to some interesting articles in other blogs that I have read in the last few days:

Urbanisation,complexity and poverty – or why aid agencies should be reading Jane Jacobs

This is an excellent article about the famous Jane Jacobs and how she described cities as living ecosystems. The author describes several insights that development agencies should learn from Jane Jacobs and other complex systems authors.

The author of the “Aid on the edge of chaos“, Ben Ramalingam, is also the lead author of a fantastic paper  of a 2008 Overseas Development Institute working paper ‘Exploring the Science of Complexity: Ideas and Implications for International Development and Humanitarian Efforts’.  This is a publication worth reading!

By the way, you will see me post more on the topic of complexity, as my December reading list finally convinced me that traditional economics cannot provide the answers to the complex and adaptive economic system that we are part of.

Finance now SA’s biggest sector

In a new report by the SA Institute for Race Relations (SAIRR), it is reported that the financial sectors contribution to the country’s GDP in 2008 was 22%, the manufacturing sector 19%, while government itself added 15%. Mining is at 9.5% and agriculture at 3.3%. The report confirms statistics from Statistics South Africa that shows that Gauteng now contributes 34% to the national GDP, with KZN at 17% and the Western Cape with 14.5%

Traditionally the manufacturing sector is the largest contributor but over the last decade this contribution is declining, while the business and financial services sector grows. If you think of it, South Africa has a really advanced knowledge intensive business sector, and strangely this sector is not recognised as a strategic asset by the government. This business and finance sector is closely related to manufacturing, as well as other financial services. Aside from this 1st class service sector, there is a whole consulting and NGO sector that has emerged to supply state-subsidised services to small enterprises. Unfortunately, the services of these service providers, nor the customers that they serve, are competitive.  And because these services are often driven by templates and recipes, they are not knowledge-intensive. For small enterprises to take markets from larger competitors, or for local firms to excel in the region and globally, they need knowledge intensive services. Something that is expensive, but valuable. OK, I got a bit side tracked there!

The point is that the knowledge intensive inputs into manufacturing is increasing. This implies that South Africa is shifting from simple manufacturing (where few intermediary services are required) towards integrated or advanced manufacturing, where a lot of business service (or intermediary) inputs are required. My research earlier this year showed that some manufacturing enterprises in the electronics and metals sector are depending on more than 50 of their product value from contributions from specialised service providers. Wow!

So if you are working with manufacturing enterprises, wean them from wanting to use free or subsidised services and get them to engage with specialists. There is no other way to compete!

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