Two links for your reading pleasure

Here are two articles for you to consider.

The first is an article by Thomas Fisher on Place-Based Knowledge in the Digital Age. Anyone working on local economic development, regional development and also technological innovation should take a look at this article. Thank you Liza for sharing it with me.

 

The second is an article by Edward Carr on the difference between innovation and technology in development. In my own words, his article highlights how the development fields focus on solutions might actually worsen the problems.

Let me know what you think.

Competitive advantage? Just how competitive are you.

I am working every day with businesses that are denying that the game has changed. Many believe it is just the government that is inventing new rules. This is true in some cases, but in most the government is also simply responding to global changes. The benefit of working outside of South Africa sometimes is that I get to see the domestic manufacturers from another angle. And the truth be told: South African firms are not as competitive as they would like to believe. Yes, there are exceptions, and we hail their achievements.

Tim Kastelle published an article today titled “here’s why you need to build your innovation capability“. When my eye caught the first sub heading I almost stopped reading. It shouts “Competitive advantage is dead. Or at least dying”. Blink. I believe in competitive advantage, and I believe that firms must figure out what it is that they have to do to remain competitive. I also know that once you found a gap in the market it takes hard work to remain competitive. Being a follower of his blog I plowed on.

Wait. Don’t let me spoil a good post. you have to read Tim’s argument for yourself. He argues that it is more important to become innovative than to have a competitive advantage. This is not a new argument in itself, but I like his angle on this. He then provides some simple steps that a manager can take to become more innovative even within a rigid organizational context where innovation may not necessarily be appreciated. His logic will also apply to not-for-profit organizations that don’t believe they compete even though they have to be able to compete for funding.

Reading this article also made me think of how we idolize some of the very famous firms now, but how we tend to forget how many great firms have dissolved here in South Africa and in other developing countries. It usually starts with a refocusing, then with selling off under-performing or non-core units. Then a merger of the remains with another firm with a “strategic fit”. Then, the end. They just slip from our conscious into the past.

Let me not close so depressing. Let me rather ask: how can you use the environment as an constraint that you have to consider in your business model and your innovation process?

If it constrains you it must constrain your competitors. Can getting around this give you an edge? In other words, can you put the constraint between you and your competitors?

Then ask: what are the constraints that are on the horizon, and how can I anticipate these constraints to get them between me and my competitors?

Thinking about this often might save you the anguish of trying to adapt while under pressure to also deliver.

I wonder how your answers will challenge your current view of how competitive you really are, and how innovative you are to respond to the changes in the environment.

Absorbed into the networks behind the systems we see

Its been a while since I have last posted here. The reason for my absence is two-fold.

Firstly, I am busy with a course offered by Coursera and the University of Michigan about Social Network Analysis (SNA). My business partners and one of our associates in Mesopartner are participating in this course. The course is 9 weeks long and I must admit that it is taking much more of my time than I originally anticipated.

The second reason I am hardly online is that the industrial policy in South Africa is starting to have positive effects on local industry. As I work mainly with the manufacturing sector on topics like innovation systems, industrialization, identifying and addressing market failures, and the competitiveness of regions, it means that there is suddenly an upsurge in demand. The demand is lead by state owned companies that are suddenly obliged to procure manufactured content locally, and by local industries that realize that years of underinvestment and fighting to survive against cheap and sometimes lower quality goods have left many sub-sector uncompetitive.

But these two reasons are also having an effect on each other. I have been applying many of the principles and tools of Social Network Analysis in my diagnostic work for the last 2 years, and for the last year I have been using SNA as my main diagnosis instrument. This recent course have simply forced me to read up more and more on many of the theories and the concepts behind the instruments I have been using. I am still trying to figure out how to do this kind of diagnosis fast, and how to teach these instruments and theories to the practitioners that we (Mesopartner) are working with around the world. At this moment the diagnosis that I am doing in valve, pump, tooling, automotive and industrial equipment is still slow and it takes all my attention.

What is the benefit of taking a SNA approach to sub-sector development?

1. Well, firstly, a network diagnostic very quickly reveals whether there is a cluster or even a value chain. We often assume that these constructs are real, but in the last few years we have learned that just because all the actors that should be in a chain are there doesn’t mean that a value chain exists. Same goes for a cluster, just because all the elements are there doesn’t mean there is a dense network of cooperation, knowledge exchange and systemic competitiveness.
2. Secondly, a network view assists with understanding the deeper relationships, trust patterns and information flows in a small part of a real system. These relationships makes it possible to predict how information flows, who the thought leaders are and how influential institutions, leaders, officials and business people are. This is directly relevant for my work with innovation systems.
3. Lastly, Social Network Analysis also highlights how complex even a single link in a value chain can be. When you look at the spider web of relations, ownership structures, communication channels and knowledge spillovers, then you see how traditional development interventions have completely missed the leverage points.

All I can do at this moment is to commit to blog more frequently once this course is done. I will share some of the results of the industrial diagnosis that I am currently busy with in a few weeks time. Below I will give a sneak preview of the network map of the valve manufacturing cluster in South Africa. You will immediately see that some manufacturers (in red) and some foundries (in blue) are more connected than others. The yellow dots are valve manufacturers that are not yet part of the formal valve cluster structure. Hardly any additional analysis is needed to show that the more connected firms are the ones we should work with.

However, the additional analysis that we can run on this cluster further narrows the choices of whom to work with to get both the highest impact (in terms of both ability to grow their business, increase employment and meet customers needs) and in terms of getting the highest demonstration and spill over effects. The latter is important, because when you want to upgrade an industry you should prioritize firms that are able to create positive spillovers and that others are willing to follow. To do this kind of analysis we need a combination of qualitative and quantitative information, and we use specialized software applications. But more about this in a future post!

Help – the industry I am working with is uncompetitive and many do not care

In most strategic management textbooks 4 generic factors are identified that can be used to build competitive advantage: efficiency, quality, innovation and customer responsiveness. These four factors are highly interrelated, as an improvement in customer responsiveness for instance could result in improved quality and better efficiencies. By addressing these four factors a business can reduce its costs and can create a differentiated position in a market. Let me briefly expand on the four factors.

• Superior efficiency: a manufacturer converts inputs into outputs. Inputs are basic elements such as land, capital, labor,raw materials or knowledge. Firms that manage this conversion by constantly trying to find better ways to reduce costs, improve throughput and reduce wastage tend to be able to be more price competitive.

• Superior quality: means that products are reliable and that they can do the job that they were designed for, meeting the specifications and performance requirements of customers. In most cases it is difficult to ensure consistent and reliable products without a system in place to control quality
• Superior innovation: This is about the novelty of the products, process or services of the firm. It is not just about the great design of the product, but about the total offering and how customers can interact with the firm. Thus it includes how the company thinks about its own structures, internal systems, relations with markets and customers, use of technology and product development.
• Superior responsiveness to customers: A firm that is highly responsive to its customer not only meets their requirements, it strives to anticipate and exceed those requirements. Although this could be about flexibility to respond to customers demand, in most cases it is not. It could simply be to find a way to respond the needs of customers in a creative way.

Enough of the strategy lesson. Back to the real world where we are all trying to use our own limited resources to promote particular industries or regions.

Here are the questions that keeps me awake about this project:

What if the industry that I am working with do not seem very eager to develop any real advantage around any of these four factors?

What must I do to improve the competitiveness of the region if the firms do not seem to even care about their own competitiveness?

For the last few weeks I have been wondering about these questions as I visit a range of manufacturers as part of a process to stimulate a regional innovation system in an industrial area. By visiting many firms in this region I noticed a big gap between those that are  are differentiated or excellent and the rest. The gap is so big that I sometimes wonder if it ever would be possible to move or support firms to cross over the empty space between those that can be described as “excellent” versus the “average”. Knowing that I only have a limited time, and the organization that I am supporting (An University) only has limited resources, I started worrying about helping all the firms. But this is not possible nor is it desirable.

All the average firms can offer many arguments for their current state. They lay the blame at policy uncertainty, high costs of borrowing, crime, political interference, expensive employees, low skills and many more. Many would say that they are component manufacturers that depend on the strategies and innovations of their customers (we just make what they want how they want it). Very few firms ever acknowledge that their current state is a reflection of past strategic choices taken deliberately or that played out to the current status because of not making decisions.

Yet, almost each of the excellent firms that we come across in our fieldwork focused on getting some basic principles. Many started monitoring their costs and wastage to try and improve their efficiencies. They focused on equipping their staff to understand the business, the products and the process, resulting in lower failures and higher quality. They spoke to their customers to find out how they can offer better services and products, even when they were just manufacturers of components used in someone else product. They focused on the quality of their products by looking at the quality of their process, their equipment, their systems and their management.

Those that are excellent are not necessarily better educated, better off financially, or better engineers. They just took charge despite being in the same economy, the same reason and even the same sector, with all the same environmental factors that the average firms use as a reason to do nothing. Sometimes the firms that are now excellent where started by disgruntled employees quitting the average firms. Or in other cases, the excellent firms were started by people from outside the sector moving in with a different perspective and approach.

What bothers me is the way the public sector responds to the manufacturing sector with their funding, support interventions and incentives. The strange thing is that most public sector interventions are aimed at the average or below average performers. It is almost as if the logic is that they are weaker and therefore they need protection and special care. Well, if economics is the study of how humans allocate scarce resources, then we should be very worried about directing too much of our scarce resources to firms that cannot use the resources the society endow them with (capital, labour, land and knowledge). Of course there are exceptions, but the problem is finding a fair way of deciding when it is justified to protect a firm and when it is best to let a struggling firm fold in so that the resources can be redeployed to other people that are able to use these same resources in a better way.

So what can we do when we are faced with this situation? Here are some of the ideas that we are working on now.

Lets say, of the 50 manufacturers we want to work with, 5 stand out as trying harder than the others. Perhaps another 5 or so are ambitious but they just don’t seem to know where to start, who to work with or where to go. We argued that we start with the first 5 (already good) and the 2nd five (the almost there). Then we invited any of the willing from the rest of the group (3 more stepped to the front). Now we have a core group to work with. Now we are trying to find ways to better connect them with each other, trying to get them to identify their own and their common competencies and opportunities. We have arranged a few pilots to support some of these firms to try and improve their own performance, and we have arranged some events with experts to discuss common issues.

But we have to remind ourselves that we cannot create competitive firms if they do not at least work on the four generic advantages outlined earlier. We cannot improve the competitiveness of the region without being able to show firms that are excellent. Trying to get these generic factors under their control is a minimum requirement. We should never use public resources to support firms that are not serious about improving their overall performance. Furthermore, everything that we do should become public knowledge in this industry and perhaps in the downstream customers, perhaps one of the other firms or even a customer decides to step up and form part of our initiative.

• Have you also had an experience like this? The firms you are expected to work with just don’t seem bothered by their current status or improving their game?
• Hey, what else should I do?

• How do we use the principles of innovation systems and good development practice to get firms in a region to work together to improve their competitive performance in order to improve the economics of the region?

Making science and inquiry interesting to a younger generation

One of the challenges that we have to deal with when trying to Universities to work closer with industries in South Africa is a general lack of “inquisitiveness” by younger students. They want management jobs, not jobs in factories, research labs or out there. Well, I guess the problem start at a younger age. But just before you call me a stereotypical or a racist, consider this: Its not only happening here in South Africa. Other countries have the same problem.

So how do we make children more intrigued in science? Well, good teachers sounds obvious. Interesting school projects is another. But how about the media, television and all the other signals that a society broadcast? Here in South Africa, the air is thick with politics and bad news. Our family cannot even listen to the radio on our way to school.

So with all of this said, lets give credit to NASA for this parody on Gangnam Style (for older readers, Gangnam Style is a song that has become one of the most watched videos of Youtube). It explains the work of NASA and several science principles.

Last year in November I had the privilege to take my family to Washington DC. After 6 days of visiting mostly free museums, like the Smithsonian Air and Space museum, I have 2 eight year old scientists in my house. I confess I also bought several books and gadgets, but hey. THE KIDS want to investigate things. Everything. They want to understand things. They argue about how to solve problems. Although they are in a good school and we try to raise them to be inquisitive, nothing prepared us for this excellent exposure in Washington DC.

So perhaps we should make funny video clips like this one too, targeted at younger people. Lets get younger people to WANT to visit factories, research institutions, universities and labs. Lets get cameras in there and get the message out that we too are working not just on social problems, but also on scientific problems! Science is not just a subject or a project in school, a scientific approach opens up the beautiful mysteries of our world.

2013 – Setting some direction

Perhaps I am taking a risk by publishing some of my resolutions for 2013 here. But this post will probably help me to connect my own learning with those of my close friends, partners and fellow adventurers that follow my blog.

During 2012 my focus shifted strongly into the manufacturing sector where I am working on improving innovation systems, building domestic  industries, strengthening the role of universities and research organizations to create new platforms from where to compete. This is stimulating work where I combine my interests in engineering and science, with soft issues such as networks in industry, market signals and systems and innovation. I also find that my ability to work both with business people, academics and researchers is handy. Take a look at my page Stimulating industrialization, science and innovation to see some of the activities I have been involved with in 2012 in this area.

In 2013 I want to increase my focus on the manufacturing sector. Key research questions for me are:

• How does competencies learned by organizations such as firms become developmental platforms for industries?
• How can I use the insights from complexity to accelerate the formation of new industries, new markets and deeper industrialization?
• How can new technologies, questions, ideas be used to upgrade traditional industries?
• What is the role of universities and research organizations to upgrade the industries around them?
• How can learning and experiments in firms be disseminated to accelerate exploration and exploitation of ideas?

As much of my work in this area is focused on Southern Africa, I am also keen to see how some of the insights from here can be tried elsewhere.

As far as my academic research is concerned (I have a post doctoral research fellowship position with the Vaal University of Technology), I must concentrate more on my academic publications and feeding the insights gained in working with industry back into the formal university system. Here my work will be focused on understanding how technological competencies can be created or leveraged to create new markets and new competencies. In the image to the right I show the technological choices that a particular group of enterprises that I am working with face.

Of course, the manufacturing sector is a clumsy way to draw a boundary around a system, so just to put some of your concerns to rest, I am still committed to the knowledge and service sectors, technological intermediaries and the local economies in developing countries. I have found that these are useful perspectives to look at manufacturing activities and how it evolves. Manufacturing to me is not only about making products, it is also about matching competence with opportunity within a given societal context. It connects wealthy people with poor people, clever dreamers with needy users, highly qualified people with poorly educated people, nerds with geeks, domestic ideas with international realities.

What makes my approach different is that I am working from demanding customers and markets back to the basic operations, and not from suppliers towards markets. I am not doing marketing promotion, I am developing supply side based on current and future needs. It means that I will help to better articulate demand criteria, and will then try to shape the institutional system and manufacturing capacities to work towards these needs. Central to all of this are developmentally minded organizations like universities, industry bodies and even consultancies that wants to develop a particular sub sector, technological competence or outcome.

In 2013 I undertake not to be a problem solver, but to be a better facilitator of deeper thinking, an adviser that assists my customers and counterparts to better recognize patterns, constraints and opportunities. I will assist my customers to become change agents within the systems that they work in.

Lastly, I want to work more with systemic thinking and complexity. Watch this space for some announces about a new podcast series and a new research field in collaboration with Marcus Jenal

Linking – Beyond Linear Development Trajectories: What if there were 5 clusters of quite different developing countries?

For my first post of 2013 I share a post from “Aid on the edge of Chaos” that I found challenged my thinking. The title and all the content relates directly to the site.

We humans are supposedly very good at recognizing patterns, with some evolutionary theorists even crediting our survival and evolution with this trait. However, we also tend to struggle to see beyond patterns that we have classified, almost like a needle on a old record. Some examples are the way we divide the world into developed and underdeveloped, industrial and emerging. Although we all know that these classifications are in conflict with our own experience of the world (think of the sophistication of the Indian Pharmaceutical sector) we still are trapped in our labels that we use.

Below is a link to a post on Aid on the Edge of Chaos, featuring the work of Andy Sumner and Sergio Tezanos Vázquez where they explore new approaches to classify developing countries.

Beyond Linear Development Trajectories: What if there were 5 clusters of quite different developing countries?.

The image below is from the original post on the Aid on the edge of chaos blog site. Take a look at their post and then think again how you label the countries that you work in.

• What happens if you classify the countries differently?
• What are the implications of just changing the classification?
• How does their classification scheme challenge your own way of classifying regions?

Clusters proposed by Andy Sumner and Sergio Tezanos Vázquez