Richard Hummelbrunner describes three emergent features of methods and approaches from systems thinking:

• An understanding of interrelationships
• A commitment to multiple perspectives
• An awareness of boundaries

Richard then explains that each of these features focused in the development of the systems thinking field in the last fifty years. Up to the 60s, the focus was interrelationships. This was followed by an increasing awareness of the different perspectives as a critical issue. This affected the way people recognized interrelationships. In the 1980s the focus shifted towards the boundaries of the system, as practitioners realized that they system had to be bounded in some way to allow for diagnosis. This raised the ethical question of who decides what is part of the system and what is not, as the shifting of these boundaries has great influence on what is revealed and understood when the system is diagnosed.

Our firm, Mesopartner, is known for the “Systemic Competitiveness” framework that we use in our work. The framework originated within the German Development Institute in the mid 90s. One of the common misunderstandings about Systemic Competitiveness is that people confuse systemic with systematic. The latter in my mind would refer to a very detailed and exact way of understanding and doing things that may be very rigid. This may detract from the fact that to really understand a system we might have to embrace complexity, dilemmas and issues in a more dynamic way, something that a very recipe driven systematic approach may not allow.

Reference:

Williams, B and Hummelbrunner, R. 2010. Systems concepts in action: a practitioners toolkit. Stanford Business Books.

ESSER, K., HILLEBRAND, W., MESSNER, D. & MEYER-STAMER, J. 1995.  Systemic competitiveness. New patterns for industrial development. London: Frank Cas.

MEYER-STAMER, J. 2005.  Systemic competitiveness revisited. Conclusions for technical assistance in private sector development. Mesopartner

The pictures below were taken in the last Mesopartner International Summer Academy on Economic Development.

One of the first insights is that our job as practitioners is not to try and fix the system, nor to solve a problem on behalf of the system. Our first job is to try and get the system to become more aware of its own behaviors, issues and dilemmas. Very often this will allow us to use some of the existing relationships, routines and networks of the system to improve the performance or to address some issues in the system.

I received the following little e-mail story recently that actually shows how actors that are aware of the system can easier manipulate the system to achieve certain outcomes. From a few google searches I could not determine the source of the story, except to see that its been featured in many fora. Therefere if you know the original source then please let me know so that I can give proper credit.

Here is the story as I received in my e-mail:

An old man wanted to plant a tomato garden, but it was difficult work, as the ground was hard.

His only son, Vincent, who used to help him, was in prison, and so the old man wrote a letter to his son:
Dear Vincent,
I am feeling sad because I won’t be able to plant my tomato garden this year. I’m too old already.
I know if you were here,  you would happily dig the plot for me, like in the old days.
Love,
Papa

A few days later, he received a letter from his son.
Dear Papa,
Don’t dig up that garden. That’s where the bodies are buried.
Love, Vinnie

At 4 am the next morning, FBI agents and police arrived and dug up the entire area without finding any bodies.
They apologised to the old man and left.

That day, he received another letter from his son:

Dear Papa,
Go ahead and plant the tomatoes now. That’s the best I could do under the circumstances.
Love, Vinnie

Now the moral of this story is that only people that are aware of how a system might behave can fully exploit the system to their advantage. I wonder how we can use this insight to promote better inclusiveness in development? From my everyday work experience I know that in value chains and production systems the poor, weak, small and marginalized are often the least aware of how the bigger system(s) around them work. The powerful, better informed and more successful entrepreneurs often have better information at their disposal. While some of this information could be formal, quite a bit of it is qualitative based on a deeper understanding of how things (might) work.

You may have noticed that I took it slow for most of December. This picture that I received in an e-mail joke probably best describes my December holiday. I am at the moment trying to figure out what the best way would be to start 2012.

Early on during our December holiday our family stayed over at a beautiful Hole in the Wall holiday resort at the Wild Coast in the Eastern Cape province. The scenery and landscape was breathtaking, and I cherished the time spent with my family.

However, my mind could not rest due to the visible poverty all around us. The people live in small huts, scattered over the country side. The environment shows the strains of poverty. The animal rescue centre nearby has collected more than 8000 illegal snares and traps in the last 2 years, and the locals trade in undersized lobsters and fish in order to stay alive. How do you build market systems in such a place where there seems to be little scale of anything?

A small hut and a kraal for sheep

Cattle and people mix on the beach

I decided not to write any blog posts in that state of mind.

Reflecting on 2011, I made 23 blog posts, and had about 6000 visitors on the blog site (excluding visits to my Linkedin page). Seems like it is worth the effort to continue investing time reflecting here. If you have any ideas, requests or comments that will help me improve this personal reflection space then please let me know!

I wish all my readers, friends and fellow adventurers a prosperous 2012!

Shawn Cunningham

While even I have often lamented the state of competitiveness of our South African manufacturing sector, I am often amazed at how profitable many businesses are. If so many of our enterprises are so profitable, why are we complaining? Oh, perhaps it is also good to ask that if so many enterprises are so profitable, why are they not also competitive? Can less competitive enterprises still be profitable? Lastly, a business person recently asked me what I mean with profitable. His argument was that it is better to keep the cash for the “thin years” than to invest now.

So even uncompetitive enterprises can still be profitable. A enterprise that is not “price” or “performance” competitive can still be profitable because they are one of few firms that provide a particular product or service. While many quantitative measures of competitiveness concentrate on measurable indicators, softer indicators such as service, good relations, free (embedded) advise, etc. are not measured. Hence it is possible for an enterprise that could be measured to be uncompetitive to still be profitable. Back to the main argument.

Lets look at those enterprises that are competitive (using some or other objective measure) and they are profitable. Why are so few of them not investing, and treating their current profitability as a short term (if you can call 8 years short) phenomenon? Firstly, many business people comment that earning only 21% gross profit is not good compared to the margins of 15 years ago. No comment. Secondly, many business people in RSA are uncertain about the future and the overall investment climate. News reports about the unsustainable consumer spending also reinforces the message that current demand is unhealthy, unsustainable, or even undesireable. No wonder business people only expand their operations AFTER they get longer term orders.

In general, our developmental challenge is that it is hard to say just how many of our enterprises are profitable. Most of the press coverage and academics research either focus on the listed companies, or on micro enterprises. Take a look at the editorial in the South African Business Day for some of the explanations behind why it is easier for listed companies to be analysed. Of course, their data is publicly accesible.

But perhaps there is another reason. While many of our publicly listed firms are larger firms with many smaller subsidiaries, these listed firms cannot sit and wait for the economic climate to change. Their investors wants continuous financial returns, and hence these firms are constantly trying to find new markets, new niches and new ways to earn a return on their investment. Businesses with private investors behave in the same way. But the rest of the businesses that are “owner managed” do not have this same pressure, and hence they are under less pressure to find innovative ways of investing their profits and earning a return. This is where the underinvestment (despite higher profits) are the most pervasive. If a listed company generates profits, they pay a divident, but the rest of the profits are invested after a while. Financial experts don’t like huge piles of cash doing nothing…

So perhaps another way to get our businesses to treat the current trend as an expansion opportunity would be to get more firms to list on the alternative or development exchanges, or for more private investors to buy into owner-managed enterprises. I know this is easier said than don

My frustration is that smaller (profitable) businesses are not seeing the profitable trend of the last few years continuing into the future. Perhaps we need some stronger leadership in government so that we can unleash investment in the private sector by the private sector. But perhaps that would be shifting the responsibility of forming a vision of the future to government. Actually, the private sector also has a role to play in shaping the future that goes beyond lobbying and advocacy. Often advocacy and lobbying includes painting a bleak picture, so we might just be shooting ourself in the foot if we dont also focus on the bright side and the profitable opportunities that can pursued in South Africa.

By getting the private sector to invest their profits back into the country is the only way that we can use what we already have (clever and brave business people with some capital) to address what we don’t want (unemployed people becoming restless because they feel sidelined).

Frequently, innovation is thought of as a new product or hardware artefact, or an improved process made possible by new technology. This error limits technology to hardware, and neglects the other aspects of technology.  It is necessary to understand technology from a much broader perspective.

As alluded to earlier, the narrow definition of technology refers to technical artefacts or hardware (with some supporting documents and instructions). However, complementary factors, without which the employment of technical artefacts makes no sense, are above all qualification, skills and know-how (of the people who work with artefacts), and organisation (i.e. the process of tying artefacts into social contexts and operational sequences). The organization part refers to being able to optimize the way the technology is integrated into other processes, and also how other processes must be changed to exploit the advantages of the new organization.

Meyer-Stamer (1997) formulates three conclusions based on the definition provided above:

(1)    Technology should not be seen in isolation from the environment in which it emerges, or from the organisational structures in which it is used. Technology does not come about in a vacuum; it always develops in concrete social contexts. It is therefore never neutral, and is always developed on the basis of given (economic, social, political) interests.

(2)    Technology often embodies organisational factors. A closed process in the chemical industry or a production line in the metal-processing industry, for instance, consists not only of technical knowledge of individual processing sequences, it also implies organisational knowledge about possible transitions between these sequences.

(3)    Any narrow definition of technology, looking at hardware only, accompanied by the view and approach that go along with it, can thus be tantamount to a guarantee that projects will fail – in development cooperation no less than in many international high-tech corporations.

In the discussion on development policy and the field of development cooperation in recent years, there has been a general acceptance of the broad definition of technology, one that does justice to the problems outlined here. This definition includes four components originally described by Enos (1991:169) illustrated in the image on the right:

(1)    Technical hardware, i.e. a specific configuration of machines and equipment used to produce a good or to provide a service.

(2)    Know-how, i.e. scientific and technical knowledge, formal qualifications and tacit knowledge.

(3)    Organisation, i.e. managerial methods used to link hardware and know-how that includes integrating all the elements into an organization.

(4)    The product, i.e. the good or service as an outcome of the production process.

The advantage of the broad definition is that it can help to avoid barren discussions in that it prevents, for instance, any equating of technical artefacts with technology. To this extent it mirrors experience gained, for example, in development cooperation – in view of this definition it is obvious that technology cannot be transferred in package form by for instance combining hardware with manuals and some field training. At the same time it is, against this background, easier to comprehend that technology is involved whenever production goes on – even when seemingly primitive technical artefacts are utilised in the process, for “no country is without technology, not even the most primitive” (Enos, 1991:169). So even a simple manual activity like using a shovel to dig a deep hole involves multiple elements and processes of different technologies. However, the absorptive capacity of countries, regions within countries and between different firms differs vastly.

Practically speaking, this means that practitioners must be careful when describing technology in relation to hardware that they do not neglect the other dimensions. For instance, when trying to understand where ‘new technology’ comes from in a value chain, make sure that respondents are not only identifying equipment suppliers. A second line of enquiry may be to get respondents to consider other kinds of technology related to know-how, or how to configure a specific process or organisation.

If a broader definition of technology is accepted, it becomes clear that there is a close relationship between technology and various forms of knowledge and also between technology and learning.

ENOS, J. 1991.  The creation of technological capability in developing countries. New York: Pinter.

MEYER-STAMER, J. & DEUTSCHES INSTITUT FÜR ENTWICKLUNGSPOLITIK. 1997.  Technology, competitiveness and radical policy change : the case of Brazil. London ; Portland, OR: Frank Cass.

Also take a look at Aid at the Edge of Chaos and Owen Abroad blogsites for more insights on complex adaptive systems and development.

I share my list with you. Some refer to this as Shawn’s Dictionary for Economic Development.

Synergy NOT compromise. Synergy you focus on using the strengths of different ideas, people, organisations.

Collaboration NOT cooperation through control. Get organisations to work together yet independent. Do not try everyone to sing from the same hymn sheet. Rather allow for some jazz.

Balance NOT single minded or focus. Balance allows you to work with contradiction, conflict and seemingly opposing ideas.

Catalytic NOT incidence or isolated. I know that focus is good in an office environment. But in development focus on a specific incident can easily ignore the bigger system.

Stimulate NOT achieve. Try to find ways of getting the people to work better. Energize the system, don’t just fix the problem.

Identify patterns NOT problems. The patterns tell you about the system, the problem is a symptom.

Explore NOT prescribe. Get the people in the system to better understand what is going on.

Crowd in NOT filter out. By excluding elements in the system by creating artificial filters (like gender, wealth or social status) you weaken the system.

People and relationships NOT products and technology.  This one I have to frequently remind myself about. In the end it is about the process that we use to get people to work and thing together, not about the technology or products. The latter is always temporary.

Now I know that there may be certain contexts where my dictionary might not work, but that is why a red flag goes up when I see these “wrong” words. When I see one of the wrong words I must immediately ask some deeper questions.

Which words do you red flag?

Lets build a list and have a debate!

In the meantime, here is a link to a lead editorial that I wrote for the EngineerIT Journal in Southern Africa. The article is informed by my ongoing work in the electronics sector in South Africa. Advanced sectors such as electronics are often overlooked in developing countries because they don’t seem to absorb low-skilled staff.  However, these advanced sectors play a critical role in upgrading our economy, drawing out different kinds of suppliers, experts and even customers.

Perhaps our greatest asset for the advanced manufacturing sectors in South Africa is that we have some very demanding customers here and in the region. These demanding customers wants sophisticated products that solve problems that are rather unique.  For instance, the depth of mining in the region requires much more robust products that can work for long periods in tough environments. Also, the sophistication of the international crime cartels in the region place stringent demands on the police force in terms of communication technology. I can cite many other examples of how demand shapes the development of certain sectors.

Let me start my story.

From an economics perspective, the service sector did not receive much attention from the classical theorists, and it only really came to the fore in the twentieth century. If you are interested to know more about the history, then I can post something on this later.

The service sector is becoming increasingly important in the economies of developed and developing countries. This is not unique to South Africa. While some countries have recognised the importance of strategies to further stimulate the productivity and growth of the service sector, other countries have not yet recognised that the service sector is constrained by a variety of challenges that are unique to this sector. In fact, many countries hope that services will go away. This sector is already a large contributor to jobs and Gross Domestic Product worldwide (not only in OECD countries).

Services are different from goods and require different strategies for development than the primary and secondary sectors which have been traditionally given attention. Although not everybody agrees on how to classify services, it is generally agreed that services are becoming very important in economic development. In some cases manufacturing will not become more productive without more specialised services.

A challenge we face as development practitioners is that data on the service sector in developing countries is unreliable, if it exists at all. For instance, in many countries the engineering services offered by a small engineering firm are recorded under the clients industry in the national accounts. Thus engineering services used by a mine are recorded as mining financial data (thus inflating the primary sector and deflating the tertiary sector in the national accounts). The implication is that the role of the service sector could be much bigger than the formal statistics suggest.

For the manufacturing sector, the service sector, especially knowledge-intensive and business services, is being increasingly recognised as important levers for growth and development of the economy. Knowledge intensive service providers are not only carriers of specialised knowledge; they are also connectors, technology transfer agents and problem solvers.

In many cases developing countries undermine the development of knowledge intensive business services through poorly designed public sponsored business services. Often these services are too generic to really stimulate the growth or increased productivity of the manufacturing sector.

The service sector is also more prone to market failures for many reasons. One of the reasons why poorly developed public services harm the development of knowledge intensive business services is that it is very difficult to compare and value different service offerings (not only between private providers, but also between public and private providers).

Developing countries face the additional challenge that the producer service sector tends to favour countries with higher skill levels or human capital, and shuns countries with large pools of unskilled labour. Due to the close relationship between the service sector and the manufacturing sector, low sophistication of the service sector will also restrain the growth and development of the manufacturing sector. Services often accompany goods in global trade, and service firms are affected by this wherever they are. Thus both the service sector and the manufacturing sector must be upgraded at the same time to overcome the low equilibrium that exists.

The next few posts will delve a little deeper into the service sector

[1] For those that don’t know, my PhD thesis was about market failures in knowledge intensive business services.

When working on the improvement of innovation systems in development countries, we have to work with firms. These firms have multiple roles. Firstly, the firm is an important unit of analysis where we look at innovative practices (product, process, business model). Furthermore, the firm is also an unit of analysis in terms of cooperation and collaboration, thus their ability to cooperate with rivals is an important consideration when we design interventions.

Lastly, working with the right firms also provides an important source of technology and knowledge spillovers. This is where the challenge comes in for development practitioners. Generally, firms that are able to lead the way, or be good role models, are difficult to involve in development programmes for different reasons. I won’t discuss that right now. What is important to remember is that most firms not only absorb or use technology and knowledge; they are also the main sources of knowledge and technology. This is both from a supply perspective (equipment suppliers, technical or specialist sources of knowledge, etc) and from a demand perspective (demanding customers, sophisticated demand). Whether firms are aware of their role as disseminators of knowledge in technology is another story!

Businesses absorb knowledge from other businesses that are economically competent

I will rather focus on how to find the firms that we can work with to improve innovation and competence for all 3 units of analysis discussed earlier. Remember, our objective is to find ways to improve the dynamic in innovation systems that will result in the modernization and technological upgrading of industries and regions.

More than 15 years ago Bo Carlsson and Gunnar Eliasson described a concept called “economic competence”. At the time they defined economic competence “as the ability to identify, expand and exploit business opportunities” (Carlsson and Eliasson, 1991). This is important as we have to remember that we cannot innovative on behalf of industry. Somehow we must work with the firms that are able to innovate, imitate, adapt and integrate new knowledge and ideas into their firms.

According to Carlsson and Eliasson economic or business competence has four main components:

1. Selective (strategic) capability: the ability to make innovative choices or markets, products, technologies and overall organizational structure; to engage in entrepreneurial activity; and especially to select key personnel and acquire key resources, including new competence. This aspect has been amply illustrated in recent years as many companies have struggled to define their corporate identities and strategies as distinct from their competitive strategies in each individual business unit (Porter, 1991);
2. Organizational (integrative, coordinating) capability, i.e. the ability to organize the business units in such a way that there is greater value in the corporate entity as a whole than in the sum of the individual parts;
3. Technical (functional) ability relating to the various functions within the firm, such as production, marketing, engineering, research and development, as well as product-specific capabilities. These are the areas of activity in which firms can compare themselves to their peers or leading competitors;
4. Learning ability, or the shaping of a corporate culture which encourages continual change in response to changes in the environment.

Economic competence must be present in sufficient quantity and quality on the part of all relevant economic agents, users as well as suppliers, government agents, etc. in order for the technological system to function well.

If the users are not competent to demand or use new technology – or alternatively, if the suppliers are not able or willing to supply it – even a major technical breakthrough has no practical value or may even have negative value if competitors are quicker to take advantage of it.

I think that this business approach to choose the entrepreneurs that we work with is very relevant to finding the people that can absorb new ideas and that can make it work in a developing country context. I will also state that I do not believe it feasible to select “change agents” on social criteria such as gender, age, etc. – but that we recognise that change within economic systems happens because of the economic competencies of the people that are recognized in the system (regardless of their demographical information). The reality is that you cannot be competent on behalf of other people!

I challenge you to review the firms that you are working with to see if they are economically competent!

Source:

Carlsson, B and Eliasson, G,.1991 The nature and importance of economic competence

Porter, M.E. (1991) “Towards a Dynamic Theory of Strategy“, Strategic Management Journal, 12 (Winter Special Issue), pp. 95-117.