Wednesday, August 25, 2010

"Made in China"

“Made in xxx” appear on some part of every product that we buy, yet what does it really mean? In China’s case, “made in China” has moved from 30+ years ago, where it was representing fairly basic, domestic, and inexpensive essentials, made without much thought given to quality, design, or customer interests; to today, where “made in China” is most frequently associated with good quality, internationally distributed products of varying prices, where the design is often done somewhere else, by a foreign brand-holder, and where distribution and the customer is owned by the foreign firm. What comes next, is still to be determined.

Fifty years ago, “made in Japan” also represented relatively backward products devoid of international design or reliable quality. In a fairly short time period, Japanese firms were able to achieve recognition for design, product desirability, world-class quality, all graced by Japanese brand names. Innovation became unquestionably an element of “made in Japan,” both in terms of product offerings and cost-advantages through process innovation, as well. However, as successful as Japanese firms have been in redefining the value of “made in Japan,” they have not, with a few exceptions, become the global leaders that we anticipated only a few decades ago.

In the United States, on the other hand, “made in USA” has gradually been replaced by “made in China” with one big addition. Turn over any iPod or iPhone, or iPad, and the wording is essentially “Created in the USA. Made in China.” There is a big difference in these two sentences!

So, the good news for us all is that China has come a long way, as validated by its economy growing to number two in the world. This has been an amazing rise – from a non-player on the world stage just a couple of decades ago to its current status as a global leader. Who would have ever imagined this? There is certainly good reason to celebrate the amazing success of China, achieved in such a short period of time.

Yet, the future remains uncertain. Unless China’s begins innovating -- really innovating -- the end of the rise could be in sight, and China could plateau as a great manufacturer of other peoples’ products. The reason for this is also at the very heart of its past success: China’s re-debut onto the world economic stage over the past three decades has been all about cheaper labor and lower costs. No doubt there is an extraordinarily attractive domestic market as well, but China’s real advantage in the global economy has been low-wage manufacturing labor. China’s growth has not been due to innovation! It has not been about the creation of imaginative new services! It has been single-focused on the advantages of making existing products cheaper – and while that ‘s not anything to diminish, it does predict a future of continued manufacturing activity, rather than moving upwards in a value-chain! China’s success, to date, has lacked the entrepreneurial pursuit of opportunities that have characterized Silicon Valley or even the innovation corner between Geneva and Lausanne, Switzerland. This should not be!

The conundrum underlying all of this is that you will find a great amount of creativity in China today. From the art scene, fashion, sculpture, music, architecture and cinema, China is awash with creativity. But, if you look closely, you will notice that this is individual innovation, not organizational innovation. What sets the eBays and Amazons and Apples apart from the pack is that they are all examples of “organizational” innovation. The iPod, iPhone and iPad experiences; eBay’s community of users; and Amazon’s amazing service-oriented interface, could not have been designed by one person; each needed a team, and a diverse team of talented individuals at that. In fact, almost all of the big innovations of recent times have been team efforts; more often than not involving diverse teams of extremely young people who are sponsored in deliberate efforts to disrupt existing well-established, national champions. We have not seen the scale, frequency, or abandon of such efforts in China.

There is no denying, however, the potential of what is taking place within the Chinese economy. Each year, China outproduces the rest of the world in the graduation of new engineers and scientists, yet a recent UK study which was titled “China: the next Science Superpower,” observed:

What is often lost in the welter of statistics about [Chinese] R&D investment and engineering graduates is a sense of the raw power of the changes that are under way, and the dizzying potential for Chinese science and innovation to head in new and surprising directions. We cannot say with any certainty where things may lead, but such large and sustained investment in innovation, within a system that for a long time suppressed such impulses, seems likely to produce a growing number of extraordinary achievements at the frontiers of science over the next ten or 15 years.

In order for the unprecedented Chinese ride to continue -- and, believe me, it is in all the world’s interest for this to happen -- China needs to develop a professional management community with an innovative mindset: diverse contributors to push ideas, and organizational willingness to take big risks by unleashing talent – none of which is easy for anyone to encourage. What is needed is a shared perspective on business that is:

1. Global

At first, this might appear to be obvious, even passé. However, this involves building truly global organizations. Japan’s businesses tried this in the 80s and, for the most part, failed – it is not an easy task. It goes beyond merely sourcing out raw materials from and selling products in different countries. Being global also consists of recruiting talent (both high-potentials as well as top management people) from wherever that talent is deployed, sharing responsibilities with “strangers,” and trusting them to contribute to building the next-generation organization. Clearly, this is not for the faint-hearted! Serge Tchuruk, the former CEO of the French telecom giant Alcatel, used to say that “business should be an adventure.” Many of his compatriots realized that when Alcatel-Shanghai Bell was established in the early years of this past decade that it had the power to possibly change the very complexion of the parent organization. The days when an organization’s DNA have unambiguous national origins are gone forever, except in China [and other BRICS] where the national champions remain Chinese; possibly put it at a disadvantage in the pursuit of new ideas.

2. Risk-makers

There is an old Biblical message that “the meek shall inherit the earth.” That may have been the right advice for several thousand years, but my impression is the meek risk getting left behind in today’s fast world. Teams and companies that I find to be impressive tend be ambitious; to raise the stakes, rather than lower them. Instead of avoiding risks, great organizations push the boundaries of their businesses to the extent that they are actually creating risks, rather than merely taking them. Such “risk-making” raises organizational esprit, stretches members and destabilizes less-prepared competitors. Risk-making is at the heart of innovation, and requires a willingness to fail in the expectation that learning will occur and that the next try will be better. When failure is unacceptable, the risk is that no risks are taken.

3. Diverse

Great innovation teams load the odds in their favour by including more, and more different, minds in their hunt for the big idea. This means embracing true diversity – racial, gender, professional, vocational, etc – and trusting different people in the sharing of ideas. I have a worry about China that it is not diverse enough to have a sustainable edge in the global market place. I realize that there is a great deal of difference among Chinese people, but it is Shanghai as diverse as New York? As Milano? As London? As even Hong Kong?

4. Experimental

Getting the one right answer, in an increasingly complex world, is an illusion. There are no longer any “truly” right answers anymore, or at least few that we can identify beforehand. Instead, what we need is a new style of decision-making that begins with leaders experimenting by acting on hypotheses. They then must learn by mistakes and respond quickly and decisively as soon as the need for correction is identified. In the words of the Silicon Valley design firm, IDEO, “failing often to succeed sooner” will become the mantra of 21st century decision-making.

Think about how “revolutionary” this really is. What it means is that taking risks will have to become a philosophy of life; that learning through failure will be seen as an instinctual way to gain insights; and that failing a lot, in small ways, while still pushing the boundaries, will be seen as a better way of taking bolder chances than the more traditional placing of “one big bet” on a pre-determined, preferred outcome. One wonders yet whether China is there yet in eliminating the fear of failure.

5. Thoughtful

Much of what the foregoing suggests is that the 21st century organization will be one full of ideas in which opinions and opinionated people are the real competitive assets. This means it is desirable, if not imperative, that we have an awareness of how ideas enter the organization and how they move from concept to commercialization. It also means that processes for improving such flows, and recognition for the key roles that allow all this to happen, are recognized, appreciated and reinforced. This is more than just saying “knowledge is important!” Instead, what we need are organizations that place knowledge at the very center of the offerings that they bring to market. That celebrate challenge, confrontation, and stubborness. Frito-Lay is the world’s largest seller of salty snack-foods, but it’s the business knowledge that they share with the store owner that makes them so successful. The Ritz-Carlton still sells hotel rooms, but it’s the knowledge of the individual customer that gains them an edge in a competitive marketplace. Holcim will always sell cement, but it’s what they know about the cement process around the world that differentiates their ability to make margins in a commodity business. Li & Fung will forever be the middleman, but it is being in the very middle of the knowledge chain of the industries they serve that ensures their value. In these firms, there is no doubt about the power of knowing things. As a result, ideas and opinions count more than in traditional firms, simply because they really matter to the success of the organization, and everybody realizes it.

This is an industrial revolution that we have yet to see in China. In fact, few places anywhere have more than an occasional illustration of how “What you know” becomes more important than “what you make”, or “how you make it.” To do this on a global stage also requires sharing considerable responsibilty with local players. But this represents a real shift from labor and capital intensiveness to knowledge intensiveness. The ability to make this shift will characterize the industrial winners of the future.

6. Energizers

As always, competitive success depends on energizing the talent that needs to make this happen and creating a sense of enthusiasm and a feeling of truly making a difference. This is partially true given what we’ve described above. The role of the leader in such organizations becomes essential to energize the people around them with inclusion, respect and empowerment. To my mind, self-confidence is the crowning characteristic of energizing leaders. To have the self-confidence to set a direction and then let others determine how to achieve that vision is one sure way to best unleash talent; but we need to ask ourselves how often do we see such leaders in our midst, whether it is China or elsewhere?

These are the dimensions of a new managerial mindset for our times. Those organizations and cultures whose management teams best adopt these roles will be the ones that can best survive and thrive in volatile times. New markets, new technologies and new business norms mean that change will be a constant factor in our lives. China’s ability to reinterpret “made in China” towards “created in China” will be determined by its ability to create a new generation of innovation leaders with such characteristics.

Moving forward

Successful innovation requires strong leadership and the availability of educated, ambitious, bright people, who are independent and self-confident enough to push their opinions and take responsibility for their projects; as well as being entrepreneurial in the management and delivery of these projects. China is gifted with such people, but at present, too many organizations are holding back such individuals.

In today's fast-moving, complex business environment, innovating quickly, reliably and effectively is an advantage for achieving profitability and growth. Yet, all too often, organizations are unable to generate sufficiently creative ideas and effectively move them to market. We need to endeavor to change the way business leaders think about innovation and technology strategy, and gives them a deeper, richer and more comprehensive roadmap for executing change. “Made in China” has come a long way over the past thirty years; but the future is not guaranteed. The entire world will be watching as Chinese industrial leaders determine what “made in China” truly means in the next decade.

This ran as a column in China Entrepreneur magazine

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