Fill your hands, you son of a bitch!

Image from www.bk.fudan.edu.cn

With apologies for the title to Charles Portis, and Rooster Cogburn, this dispatch expands a view we presented in our October post about finding great business ideas in environments of dynamic complexity.  By most accounts we have seen lately, bad ideas and decisions seem to outnumber good thinking by a wide margin in business and politics, and the malaise in most Western economies seems to be the sad result.  The UK just entered a recession that its leaders saw coming from a long way off, while China’s central planners seem to have successfully engineered a soft landing for their economy.  In our view salvation – ideas that is – is readily available, if (and this is a big if) one knows how and whom to ask.  According to Joanna Barsh, Marla Capozzi, and Jonathan Davidson,  innovation, not the venerable tried-and-true, is the “core driver of growth, performance, and valuation” in all performance arenas”, and at the end of the day people are the best source of most things new and useful.  Organizations are, after all, people for the most part, and thus, if companies and institutions are to thrive, their human resources must be the springs from which all rivers flow.  We have argued for months that the current cohort of Western leaders seems to be damming things up leading to a damn sorry state of affairs.

Today, given the speed of change in business and technology, plus the interactions among factors that appear to precipitate events impacting organizations combined with the non-linear effects that any strategy will inevitably produce in diverse and remote settings, the prospects of finding clear and unassailable solutions to the transient opportunities, challenges, and threats (OCTs) that large, global companies face are daunting.  And, given the inhibiting effects of contemporary management practices coupled with the risk aversion and impaired decision making capabilities of top management teams (in the West mostly), the chances for heroic insights are about as likely as catching rainbows.  Notions that may seem promising at one point in time often become irrelevant or downright harmful later (e.g., speculating in sovereign debt).  It follows too that alternative sources of ideas in the existing milieu – individual managers, employees, suppliers, customers, stakeholders – have only relatively fleeting usefulness.  The game of commerce is changing so fast that organizational heroes and stars come and go faster than contestants in American reality shows.  The corpuses of knowledge underpinning many disciplines today have become too vast and convoluted to be grasped wholly, and professionals must therefore concentrate on sub-specialties to attain mastery.  Knowledge workers, the mainstay of developed economies, are consequently becoming increasingly specialized, and their usefulness tends to be restricted to relatively narrow areas of practice even when they are allowed out of their silos.  Thus, their value in fluid conditions is often spotty at best, and probably only temporary overall (e.g., Flash programmers at Adobe?).

Sell when you can: you are not for all markets.
William Shakespeare, As You Like It

So, how can any organization hope to remain buoyant over time in the shifting tides of change?  We contend most large organizations can’t hope to do it much longer; especially the ones in the West.  Big companies can no longer be directed effectively with traditional top-down management practices.   We believe the big companies that will enjoy sustainable success in the future will likely have a faculty akin to a well-adjusted mind in the form of an integrated structure comprised of

(1)    an Upper EGO (Top Management Team),

(2)    EEs (employees mostly, but also customers, suppliers & other stakeholders), and

(3)    E2.0 (Enterprise 2.0 – emergent social software platforms) –
see our description of the model in our April 13, 2011 dispatch.

Just as “adjustment” plays a role in an individual’s attempts to cope actively with the daily sturm und drang of life, so too does integration play a key part in an organization’s capacity to deal with the demands in its surroundings.  As business conditions become more unfavorable due to declining resources, restrictive regulations, global warming, aging populations, technology change and other factors, fortune will surely favor the most highly adaptive/integrated organizations.  Ultimately, an organization’s sustained ability to innovate is the key to its ongoing adaptation.  Thus, a steady flow of big and little ideas that effectively address the seemingly chaotic presses from the internal and external environment is essential and there lies the rub – finding a consistent means to generate, find, and implement the right ideas, from the right people, for the right needs, at the right times.  We think a well-tuned (i.e., well integrated) combination of employees, Top Management Team (TMT) and information sharing technologies are required to do this effectively.  We also suspect Eastern entrepreneurs will seize this advantage sooner and more effectively than their Western rivals.

Integration Elaborated
Taking each of the components in turn, we believe the EEs are the primary sources of ideas, to be sure, because they are in the best positions to adequately decipher each presenting situation that arises in the course of ongoing organizational processes and transactions, as well as the underlying problems that inevitably occur.  They are usually where the action is.  But equally important, they are also in the best place to be ignited by the OCTs they find.  They, far more than any distal groups of executives or support groups, are most likely to be excited or moved emotionally by what they find, and possibly go so far as to empathize with the people to whom their companies are attempting to market and sell.  They are also in the best position to understand what they are dealing with.  They see in the most tangible ways possible how they can enable their companies to provide value to others, and the effects it can have on the people they serve.  As a result, they stand to develop much more of a grasp and passion for the specific responsibilities they must assume, and the fires they develop can provide the necessary heat to cook up and serve great solutions, big and small.  Simply doing is automatic to most experienced workers, but thinking of ideas to improve procedures or solve problems for other people takes real effort, and effort requires fuel.  Passions, when and where they exist, also tend to harden the resolve that is often needed to buck existing practices and try new and more beneficial ways of doing things.  It takes more power to diverge than to roll with the flow.

This is a crucial and frequently overlooked consideration in contemporary mechanistic management paradigms that regard employees as costly cogs that work primarily for their salaries.  A good and proper OCT (i.e., meaningful and not too hard, not too easy) has a way of exciting most people; it makes them want to exert greater effort, and it tends to elicit great commitment to the tasks required (i.e., more willingness follow through, to persevere, to succeed, and to stay), because it gives people a chance to do something signficant; to leave a mark that shows their time on the Great Blue Ball was worthwhile.  In some situations, extreme OCTs can induce people to risk their lives.

More generally, these elements are regarded as the foundations of engagement (see Macey & Schneider1 for a thorough review).  Research shows engaged workers do more and last longer than their disengaged counterparts, and these outcomes are the fundamental elements of GDP growth.  And speaking of fundaments, OCTs with significance potential create occasions for employees to satisfy needs for mastery, recognition, and esteem (i.e., face).  At an even deeper fundamental level according to life history theory, OCTs create potentials for individuals to distinguish themselves for breeding purposes.  The hens on our farm are usually drawn to the roosters that provided the best protection and find the most bugs and worms.  We’ll explore libidinous topics such as these more fully another time, but for now we’ll simply note that sources/providers of good ideas (i.e., innovators, transformational leaders) tend to attract others in most social structures; especially when they help others solve a vexing problem they all share.

So, what is significant?
At one level, it may be regarded as a function of perceived importance.  If an offering is important to someone in the value stream like a customer, it should be significant to some degree to an employee immediately up stream.  At other levels, significance stems from broader considerations about organizational goals and beyond extending to societal and environmental concerns.  This is where the TMTs are usually in the best position to provide those higher level referents to enable the EEs to see the broader and more distal relevance of their actions.  Integration in this sense is a matter of coordinating the broader and future-oriented goals of an enterprise with the more immediate, tactical and personal objectives of the workers.  And, in our view it must be accomplished reciprocally.  That is, the executive must establish priorities that promise to produce outcomes that please and appease a variety of constituents such as stockholders, rating agencies, regulatory bodies, suppliers, and environmental watchdogs.  But, the purposes they define must also resonate with their employees and certainly their customers as well.  Patagonia provides a good example to illustrate what we mean.  The company has managed to achieve a remarkable synthesis between its business aims and its employee’s aspirations with the happy results of growth rates at the high end of the industry average range and remarkably low employee turnover.  According to the company’s CEO (Casey Sheahan) Patagonia’s mission and culture enable their employees to “know what they do each day is contributing towards a higher purpose—protecting and preserving the areas that most of them love.”  Patagonia’s founder and Chairman, Yvon Chouinard adds, “Every time we do the right thing, our profits go up.”  The right thing at Patagonia lies at the convergence between the needs of people (customers, employees) and the needs of the planet.  Patagonia’s mission:  “Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.”

Passion and purpose go hand in hand. When you discover your purpose, you will normally find it’s something you’re tremendously passionate about.
Steve Pavlina, Blogger and Author

Our experience in supporting talent acquisition efforts for various companies indicates most educated individuals in the global workforce want to join organizations to obtain more than salary and benefits.  They want to be in the company of others to accomplish more than they can hope to do alone.  They want to do something meaningful on a grand scale, and they want to share the experience, to collaborate with people they respect.  Educated people tend to be socially and environmentally aware, and they recognize at least on an intuitive level the connections that exist among systems in their surroundings.  They know that any action, large or small, has an impact that can help or harm.   Thus, when EEs are provided chances to do work that provides benefits that not only meet the needs of a customer, but also meet the needs of their teams and their companies that, in turn, are attempting to meet the needs of other organizations, the communities in which they reside, their nation, or even the planet, they know are doing the right things.  Opportunities to do things that are truly right are not abundant and that is part of their appeal.  Significance, therefore, varies to the extent these EEs can do meaningful work, the right thing.  But, it also varies to the extent EEs receive feedback about their results and recognition from other individuals who matter to them (again, refer to life history theory).  Feedback and appreciation among collaborators usually take significance to the upper limits of what can be achieved.

The Jon Katzenbach and Douglas Smith book2, The Wisdom of Teams, provides some compelling accounts of the potency of purpose to work teams, as have many, many others for a long, long time.  Thus, we are often, too often, puzzled by the numbers of organizations with Upper EGOs who seem to regard the value they deliver to stock holders as the necessary and sufficient mission of their businesses.  The disappointing engagement research reported by the likes of Hay McBer, Corporate Leadership Council, and Valtera show that tact provides little long-lasting inspiration.  Be that as it may, accounts in The Wisdom of Teams also speak to the significance of relationships among team members.  Something deeply profound seems occur among most individuals who have the occasional great fortune to work cohesively and cooperatively with others and succeed in accomplishing truly meaningful objectives.  The combination of collaboration and achievement is important, because these characteristics are individually not fully engaging or satisfying.  Here again, we are referring to the concept of integration, and by that we mean a blend of characteristics is required for a real high performing team to emerge.  The word, emerge, is important in this instance because a syncronicity among a variety of characteristics is necessary in our view for emergence to occur – for a team’s outputs to exceed it’s inputs, for the whole to exceed the sum of the parts (2 + 2 > 4).  Something special sometimes, not always, happens when a competent and willing group of individuals is given a chance to do a right and noble thing.  But, the potentials or odds for exceptional results, high-performance, and perhaps, emergence are increased to the extent the following characteristics are also present among team members:

  1. The team has a diverse and complementary blend of knowledge, skills, abilities and personal characteristics (e.g., thinking styles, traits); the presence of broad, deep, and abundant talents and style increases a team’s options, and it tends to create opportunities for compensatory and harmonizing capabilities (e.g., some to focus on details, others to focus on the patterns among details); at the end of the day human capital always establishes the base for what any collective can achieve.  Teams with the best players generally have the best potentials for success.
  2. Individuals on the team are aware of one another’s contributions – they are able to see, and therefore, to recognize and appreciate the work of their team mates.
  3. The team has a shared knowledge of results – each individual can see the score, the progress the team is making toward its goal(s), and the impact that work is having on other goals; feedback also enables a team to refine and improve its performance, to practice, learn, change, and adapt.
  4. Team members are mutually dependent – they are able to see and appreciate how the effectiveness of their individual work depends on the work the other team members are doing; they are allowed to recognize that both their collective goal and their purely personal aspirations can only be achieved by the joint efforts of the entire team.
  5. Everyone contributes – the upper limits of team performance tend to be constrained by the performance of the lowest contributor(s); aside from low performance results, poor contributors often have detrimental effects on a team’s cohesion, and they usually distract other team members from their real purpose.  Consistent low contributors sometimes have toxic effects on a team’s performance potential.
  6. The team has champions – at least one individual from the ranks must set the performance bar for the others, and someone must demonstrate tangible, if not passionate, commitment to the direction that has been set for the team; someone has to light and hold a candle.
  7. Individuals are willing to subordinate their personal interests to the interests of other individuals and the team as a whole – teams require give and take among individuals.
  8. The team has a set of rules and norms to guide their internal and external interactions and decisions in ambiguous situations; guidelines minimize conflicts and other sources of friction and delay; norms reduce wear and tear on cohesion.
  9. The team has sound procedures and processes to execute – the means to the objectives and goals should facilitate the work (i.e., reduce variability, errors, and strain).

Note:  All of the points above are cited from memory and none were probably conceived by us, so we hope the original authors (e.g., Katzenbach & Smith, Deming) will not be offended by our failure to recognize their work.

Most people in all cultures are hard-wired to be social, to come together in collectives of various sorts (see for example3 Dawkins [2006] Wilson [1975, 1979] or Kenrick et al. [2010]).  The characteristics above tend to reinforce and hasten the bonds that already have the potential to develop naturally.  The few people in any societies who don’t share a sense of attraction or mutuality are generally regarded as maladaptive or disordered in some way (e.g., autistic, antisocial or narcissistic personality disorders).  Evolution tends to favor species that work together and care for one another.  Thus, we are predisposed to flock to survive and thrive and clearly some flocks fare better than others.  We think the prospects for the flocks we call teams, organizations too, are enhanced by the characteristics listed above, because these features tend to align, unite, and draw the best out of individuals.  Nature also shows us that a combination of symbiotically enhanced activities often produces nonlinear results.

Incidentally, our prospects for breeding – perhaps one of our most deep-seated, genetically determined motive – are enhanced to the extent we not only add logs to the communal woodpile, but also to the degree we distinguish ourselves in doing it – i.e., we add more or better wood than most.  According Shoshana Zuboff of the Harvard Business School, “Value has been understood as something companies create . . .  But in this new world value is not created inside the organization.  It rests in the unfulfilled needs and desires of the individual.”  Organizations stand to benefit from this new state of affairs to the extent they are able to unlock this potential by finding friction- and barrier-free ways to enable EEs to express themselves and meet their needs for sure, but TMTs must also cue up high aims to truly ignite rather than dampen the passions of their EEs.

When you set yourself on fire, people love to come and see you burn.
John Wesley, Christian Theologian

Now for the last component for integration
The logical issue from the prior discussion concerns the formidable challenge of enabling (1) aligned compelling purposes (individual & collective), and (2) cooperative, cohesive participation among talented individuals to foster conditions that enable a high-performing organization to emerge, at least for a while.  Large companies always have at least a few teams hidden within the labyrinths of their organizations that are performing at high levels and many others with the potentials to get there.  Very few businesses in our experience can claim most of their constituent parts perform at optimal levels, and fewer still can honestly assert their organizations on the whole are high-performing companies.  Similarly, some TMTs have been successful in articulating compelling courses of action (i.e., inspiring missions and sound strategies & business models) for their enterprises, some organizations have amassed highly talented and energetic workforces, but only a few have done both and fewer still have effectively capitalized on their good fortune when they do.  We think the primary reason is because they do not have effective means of . . .

  1. finding, aggregating, and allocating the talent they need to bring to bear on shifting sets of priorities in differing levels and locations in their businesses (i.e., in differing segments, countries, business units, etc.); business OCTs are frequently not fixed, stable or predictable, and organizations must respond fluidly (i.e., be more like ameoba and less like a block of wood), and
  2. aligning the objectives and activities of shifting groups of individuals so they can cohere into cooperative, collaborative, interactive teams, and thereby inspire and amplify their individual efforts.

An intent of this blog is to assert the social software platforms represented by the rubric, Enterprise 2.0 (E2.0), provide the means to do these things and do them well, and therefore, to provide the necessary ingredient to complete the integration of components necessary for a complex organization to operate as adaptive system.  We think a company has to be a high-performing organization to just to be regarded as a complex adaptive system (with emphasis on adaptive). Social network platforms provide a means for Upper EGOs and EEs alike to present attractors in the form of alluring questions, puzzles, teasers that are directly related to OCTs that companies and workers must confront and resolve to be successful in achieving their collective aims.  A small community of top scientists struggled unsuccessfully for over 15 years to delineate the underlying genome of a key genzyme of the AIDs virus.  When the problem was presented on a social platform to a larger/broader community of Foldit users (gamers, not scientists) the mystery was solved in three weeks.

  • E2.0 enables companies to reach across boundaries (geographical, temporal, structural, cultural) fluidly and quickly on an as needed basis to attract and enlist the talent most competent to address their needs and drive their strategies, and this capability enables companies to tap extremely large, diverse crowds of individuals who are relatively independent of any collective biases/baggage save the pristine influences of the goals, and these features alone often lead to the wisest of outcomes.
  • E2.0 enables companies to create idea market places where the true worth of notions can be assessed and weighed; sellers and buyers can readily find ideas (and recognize the sources), and the resulting social ratings, likes, and tags can show the extent to which the ideas are valued – contributors can thereby gain esteem (i.e., breeding points) in communities that matter to them.
  • E2.0 enables companies to show explicitly in real-time how the ideas are being assembled and used, and eventually, the to illustrate the impact on the initiatives that companies are attempting to pursue; companies and EEs can keep score of the collective and of each individual; high-value workers tend to welcome feedback on themselves, and they tend to place the most value on the feedback of other experts (i.e., people they respect) – E2.0 puts them in the company of people that matter to them.
  • E2.0 enables individuals to find opportunities to be in the company of others, albeit virtual, in pursuit of noble aims, and thus, to satisfy deep, biologically based needs for safety, security, affiliation, esteem, recognition, mastery, achievement; high-value workers desire a means of expression and a place to show off says David Sacks, the CEO of Yammer:  “Now we are seeing that sharing information is power.  The more you share, the more you can help people—and the more it becomes apparent you’re an expert and a valued employee.”  
  • E2.0 enables individuals to discover and build upon the ideas of others, to express their own ideas for others to heed and follow; networks tend to generate a cycle of cross-fertilization and mutual reinforcement – new ideas provoke more ideas within an engaged and talented collective.
  • E2.0 enables participants to flit in and out as they deem fit; thus, it matches the work styles of the modern workforce (see, for example, The New Collaborative Workspace from Cisco).
  • E2.0 offers a structure and a process for exchange, a place to set a common goal and the processes for achieving it; it brings order to what might otherwise be a chaotic and unfocused maelstrom of activity; E2.0 also provides a potentially manageable channel for employee empowerment for the TMTs who harbor the fear of losing control of their workers and their companies.
  • E2.0 offers opportunities for managed experimentation (Deng valued this, and the Chinese still follow suit) and fast implementation – new ideas can be quickly tried out on small scale, evaluated on a large scale, with the results made available in real time; thus, organizations can plow through a much larger number of high probability innovations in a shorter period of time – a good fisherman knows that where one casts a line is important, but it is also important to make a lot of casts.

One cannot resist an idea [or technology] whose time has comeVictor Hugo
Among the findings and implications of the book, Groundswell4, is the view that social software technologies (E2.0) may be enabling customers, employees, and ordinary citizens to coalesce and to share, and in the extreme, usurp the absolute control that leaders have historically maintained over the aims and activities of their organizations.  Increasingly, when the people in charge, the Upper EGO, fail to meet the needs and expectations of the people they ostensibly purport to serve, they can expect to face an upsurge of united opposition that found its footing in social media.  Undeniably, if TMTs do not provide a social software platform, the EEs will use their own (e.g., Facebook, Twitter, YouTube) to find the OCTs they want.  TMTs have to recognize a social software platform is like a party that will take place regardless of whether the TMTs attend or not.  If they choose to participate, they can at least try to influence what happens there, and what is said about them.  If they stay home, then they have no sway whatsoever.  Seen in another way, E2.0 is like a gun: a technology that can enable one to provide and protect if aimed and used properly.  Used incorrectly, however, it can cause great harm and even death to a user and others he or she cares about.  E2.0 is ultimately a mechanism that greatly enhances the prospects for individuals, TMTs and EEs (and customers and other stakeholders) to satisfy their profoundly deep and powerful needs to do significant work in the company of people they care about.   It makes people happy.

Purpose may point you in the right direction but it’s passion that propels you.
Travis McAshan, Entrepreneur and Web Strategist

Happiness matters, and in more ways than most of us think.  The editors of the Harvard Business Review featured the topic in their January-February 2012 issue.  According to Gretchen Spreitzer and Christine Porath in an article5 in that issue, “Happy employees produce more than unhappy ones over the long term.  They routinely show up at work, they are less likely to quit, they go above and beyond the call of duty, and they attract people who are just as committed to the job.”  More specifically, happy workers have 31% higher productivity, 37% higher sales, and three times more creativity. 6  If we take the concept of engagement as a proxy for happiness, some additional research findings are equally compelling.  Watson Wyatt, for example, found offices in professional service firms with engaged employees were up to 43% more productive than their disengaged counterparts.  Their most striking findingis the gaping gap (52%) in operating income between companies with highly engaged employees and companies whose employees have low-engagement scores. Companies with highly engaged employees improved 19.2% while low-engagement companies declined 32.7% in operating income during the study period.   One company, New Century Financial Corporation, a US specialty mortgage banking company, discovered that account executives in the wholesale division who were actively disengaged produced 28% less revenue than their colleagues who were engaged. Furthermore, those disengaged account executives generated 23% less revenue than their engaged peers. Engaged employees also outperformed the not engaged and actively disengaged employees in other divisions.

Extending the gun analogy we can see the implications for the West and East are clear:  when rivals ultimately clash, the one with the gun will likely prevail.  If Chinese workers are happier than American workers, then the West is facing a very sad future.

Its time to put something between me and the sun.
When the talking is over it’s time to get a gun
When the party is over it’s time to get a gun
Miranda Lambert, Time to Get a Gun

References

1 Macey, William H. & Schneider, Benjamin (March 2008).  The meaning of employee engagement.   Industrial and Organizational Psychology, 1, 3-30.

2 Katzenbach, Jon R. and Smith, Douglas K. (1993). The wisdom of teams:  Creating the high-performance organization. New York: HarperCollins Publishers, Inc.

3 Dawkins, Richard (2006). The selfish gene (30th anniversary edition). New York City: Oxford University Press.
Wilson, Edward O. (1975). Sociobiology: The new synthesis.  Harvard University Press.
Wilson, Edward O. (1979). On human nature.  Harvard University Press.
Kenrick, Douglas T., Griskevicius, Vladas, Neuberg, Steven L., Schaller, Mark (2010). Renovating the pyramid of needs: Contemporary extensions built upon ancient foundations. Perspectives on Psychological Science, 5, 292-314.

4 Li, Charlene and Bernoff, Josh (2008). Groundswell.  Forrester Research: Harvard Business Press.

5 Spreitzer, Gretchen & Porath, Christine (January-February, 2012).  Creating sustained performance.  Harvard Business Review.

6 Lyubomirsky, Sonja, King, Laura, & Diener, Ed (2005).  The Benefits of Frequent Positive Affect:  Does Happiness Lead to Success?  Psychological Bulletin, 131, 803-855.

Image from:  http://www.bk.fudan.edu.cn

 

 

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China by the Numbers

Image from sify.com

We began this blog with the belief China was on track to ascend economically, and thus, politically, to the world’s leading power.  We also thought social software platforms that we collectively call, E2.0, would play a big part in facilitating that ascent.  Surprise, surprise, China may already be Numero Uno; well ahead of an optimistic 2018 cross over date.

According to a recent post by Avrind Subramanian on the Peterson Institute for International Economics website, China may have become the leading global economy in 2010.  Admittedly, we thought the PRC would need to be heavily seasoned with social technologies to get there, but the plucky Chinese may have pulled it off using their more traditional resources – vast stores of low-cost human capital and hard, hard work.

Here’s the deal:  according 2010 World Bank and International Monetary Fund figures, China’s gross domestic product was believed to be 70% of the US GDP ($10.2 v. $14.6 trillion).  Subramanian, however, performed an analysis that indicated China’s economy was actually 47% larger than those estimates thereby elevating the PRC’s income and production above the US ($15 v. $14.6 trillion).  Later, in a subsequent analysis Subramanian found China’s GDP was larger still, closer to $17 trillion.  China may not only be leading the US, it may be leaving all of its Western rivals in the dust.

The source of the discrepancy between the WB -IMF and Subramanian is rather technical and arcane, but suffice it say the rub centers on the metric used compare output in different countries (i.e., PPP, or purchasing power parity).  We may not know for sure who is more likely to be right until next year when the World Bank’s International Comparison Program publishes new benchmark metrics.  But, at the end of the day, the issue is not whether China will be Number One, the question is when it will occur (or has occurred) and by how much – soon or very soon, a little or a bunch.

Regardless, Subramanian raised another interesting point at the end of his blog that has significant implications for our blog.  He noted the process of convergence “which implies that countries slow down as they get richer.”  China has millions of workers mainly in the eastern, coastal provinces who have developed a taste for a Western-style good life, and they want more.  At the same time, millions and millions of other Chinese in the more rural western provinces want their share of these opportunities.  China’s leaders have to find ways to keep growth at levels that will match these presses, and it looks like their challenges will only become more and more difficult as the nation becomes more prosperous and things start to converge (i.e., slow down).  That process may have already begun.

China’s economy must quadruple to enable its citizens to enjoy relatively the same per capita income that people in the US enjoy.  That is a tall order, and it may need to be filled relatively soon to quell a restive population.  Inevitably, to sustain a velocity of 8%+ growth Chinese leaders will have to enhance their abilities to leverage their best economic advantage – their people.  Else, they will have to contend with their greatest political threat – their people.

So, what can a beleaguered communist leader do?
We used to know individuals who scoffed even as late as ten years ago at the prospect of using cellular phones; now those same people cannot seem to work or play effectively without their smart phones and tablets.  The Communist Party of China will probably follow the same path with E2.0 leaving us to wonder whether any current leaders in the West will recognize this brief period of hesitancy might be their last best chance to establish beachheads that will allow them to withstand the coming assault on their markets and their political standing.  Given what we know about US leaders’ proclivities for ignorance, arrogance and denial, we doubt it.  A nation with an economy topping $40 trillion will surely be an irresistible force.

Perhaps, to avoid being eaten by a dragon, the best course of action is to treat it nicely.  The alternatives:  become a dragon too, or dig a very deep hole and hide.  Certainly, we see little evidence here in the US of concerted efforts to develop any sort of immovable object.  In the meantime, we should learn to speak Mandarin.

Reference
Image from:  http://www.sify.com/finance/10-growing-trends-for-the-Chinese-consumer-imagegallery-others-lijrA9cjgba.html?html=5

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Four Not So Easy Pieces

 

Image from NUNO @ CHINA

China’s economy is butting quite a few well documented challenges and headwinds as its central government strives to maintain a high rate of growth.  Much like the movie, Speed, the leading characters have to keep their bus moving at high speed to prevent it from blowing up.  And, like the movie plot, trouble lies ahead.  Four speed bumps seem especially noteworthy to us, and we believe the lot can be effectively addressed with the aid of E2.0 technologies.  Social network technologies might, in fact, be the Communist Party’s only hope.  Any one of these  four problems can potentially stall China’s growth, but collectively they are almost sure to create a tempest in the East.  At the same time, we recognize China’s party leaders may not only eschew these technologies, but also suppress them due to fears about simmering social upheaval that can start to boil if conditions start to worsen.  Paradoxically, the tools that potentially can provide the best support to the economy, and thereby the Party, may be seen as the biggest threats to the regime and the well being of the nation. 

First, there is an innovation problem.  Over the course of more than two millennia China has instilled a very, very strong culture that dampens the fire of innovative drive among its people.  Individuals who disrupt orderly and harmonious social, economic, and political patterns stand to lose face and may receive severe sanctions, and not just when they fail.  Innovation is all about disruption to be sure, but it also provides the best means for learning and adaptation – the building blocks of survival in all of the major arenas of life as we know it (i.e., business, science, nature, etc.).

Second, China’s business leaders have a problem with intimacy, customer intimacy to be more specific, and nondomestic (Western) customers in particular.  They have a decided bent for push-oriented approaches to business opportunities and challenges for some very good and compelling reasons.  Great successes have been achieved by most Chinese companies by capitalizing on the internal advantages they enjoy (cheap labor) to make huge quantities of stuff (clothes & toys) that others (mainly Western entrepreneurs) recognized was needed.  But, as market positions become more and more dynamic (shorter lived), as offerings become customized, and as China’s production costs continue to rise relative to other countries, executives in the PRC will have to become much more adept at proactive, pull-oriented approaches to compete globally against customer-centric Western enterprises, in Western markets.  Organizations that try to follow and out-produce other companies will increasingly find their opportunities have largely come and gone by the time they are ready to deliver.

Third, China has a collaboration problem.  The thousands of years of tradition and hardship that have effectively tuned the Chinese for cooperative, mutually supportive relations within their immediate ingroups have also instilled a pronounced disdain and distrust for relations with outgroups.   Collaboration, of course, is the stuff of symbiosis, synergy, and emergence.  It is the fundamental characteristic that makes 2 + 2 > 4 possible, and the organizations that do it best stand to become the best.  Organizations that compete globally are replete with far-flung disparate and diverse groups, and a key test of their leadership is almost always the collaboration challenge – getting all of their employees and partners to play the same music.  China’s culture coupled with the lack of sophistication among its business leaders surely makes this challenge more difficult.  The vast majority of Chinese companies that fail to overcome these hidebound customs will remain small and domestic and thereby limit China’s growth.  At the end of the day, China simply cannot sustain its economic growth unless significant numbers of its enterprises discover how to deliver high value goods and services and compete successfully with major multinational organizations in global markets.

Fourth, China has a talent problem.  Compared to other nations the PRC may have the best primary and secondary education systems, and it may soon have the largest and most fundamentally well-educated population on the planet.  Moreover, China’s universities and technical training institutions are rapidly increasing in number and quality, and great numbers of Chinese students are graduating with advanced degrees in science and engineering from schools all over of the world.  Even so, the supply of talent is neither adequate for the immense numbers of organizations (Chinese and multinational) that need it, nor sufficiently concentrated in the areas and on the problems where it can provide the best benefits.  Retaining talent is also a growing problem.   The U.S. struggles to supply and keep adequate talent for just one Silicon valley; China has 22 similar innovation hubs.  Still, judging from China’s remarkable rates of growth and progress over the past two decades, we have to concede that centrally planned and controlled resource allocation decisions have been effective.  But, the Communist Party is facing increasingly more advanced, complicated, and transient conditions, and is well on its way to an inflection point where a more distributed form of leadership and decision making is necessary to sustain its growth.  No isolated, central body will be able to stay abreast of the rapid and complex changes taking place.  

Keeping the bus rolling along
We believe the array of existing and emerging enterprise social network platforms (E2.0) afford the best overall tool for addressing these four problems. 

  • E2.0 provides a means to create psychological safety for individual expressions of potentially disruptive ideas by dispersing and sharing risk – a social network can provide a safe haven for innovation within a potentially hostile macro environment.
  • Social networks can create arena in which exciting problems and puzzles can act as magnets to attract the best minds on the planet, and not just within in China.  Whatever China’s leaders lack in understanding global consumers, they can find in the caldron of ideas at a social site.  There, a stew of insights can be create from a blend of contributions from the East and the West.
  • A social network focused on a common purpose can become a virtual ingroup thus allowing Chinese to overcome their reticence about pitching in with people they do not know
  • E2.0 reduces the need to find and hire permanent, full-time staff.  As suggested above, high noble aims coupled with meaningful problems to solve are often sufficient to attract, motivate, and captivate highly capable talent across geographic boundaries on an ongoing basis.  When it is used effectively an E2.0 system can provide the means to bring the right talent to the right problems at the right time, 24/7.  Plus, E2.0 can furnish mechanisms for evaluating the merits of the resulting contributions. 

We submit Chinese domestic markets are large enough to enable China’s organizations to build scale and core competencies that will prepare them to take on the rest of the world.  However, that base will be necessary but not sufficient.  The longer-term success of these organizations, as well as China, will ultimately depend on their capacity to compete effectively beyond their borders, and they simply will not be ready to do that until they find ways to solve the problems cited above.  We think E2.0 will be The Way they should choose.  We intend to stay tuned to see how the story unfolds.

 Notes: 

  1. Readers may find additional infomation about these topics in a February 2012 article by Gordon Orr and Erik Roth in the McKinsey Quarterly:  A CEO’s guide to innovation in China.
  2. Image source:   http://nunoatchina.blogspot.com/
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The Kodak Foreshadow

People are pitiable creatures.  We can neither claim to be highly rational nor fast on our feet.  We all have a variety of biases and bunions that hold us back.  But, some of us can happily claim to be more rational or quicker than others, and a precious, lucky few can claim to combine the two.  These relative advantages are often the only things that matter when, oh my, a figurative lion, tiger, or bear crashes a party we happen to be attending.  After all, we don’t have to out-think or out-run the critter, we only need to respond better in some way than at least one or two of the other people there.  And, so long as we can continue to do that, well, party on. 

Organizational leaders have always been beset by beasts in the form of threats from changing regulations, technologies, consumer preferences and the like.  The beasts are bigger, faster, stronger, and decidedly more numerous now however.  Still, the key requirement is simply to meet these challenges better than competitors by figuring out a better course of action and/or by executing a reasonable strategy more quickly.  The top managers who somehow find ways to anticipate challenges, and turn them into opportunities like Steve Jobs and his team appeared to do for Apple during his prime, then so much the better.     

The question that concerns us is the relative adaptation speed of organizational leaders in the West versus their counterparts in the East.  When the 21st century beasts of change appear, which leaders will prevail?  We think Kodak’s recent bankruptcy filing provides a prescient illustration of an emerging pattern. 

For most of the 20th century Eastman Kodak dominated its industry, and it possessed one of the most portent and iconic brands in the world.  Those were the Yin years.  In 1976 it had a 90% share of film sales in the US, but then about the same time, Kodak had its moment.  One of the company’s engineers developed the digital camera, and that innovation turned out to be the critter that started the Yang years for Kodak. 

It seems Kodak’s executives failed to exploit the digital camera because they thought it would be detrimental to their cash cow film business.        

. . . years ago, when we talked about the possibilities of digital photography, people laughed. Today, the high-tech world is stampeding to get a piece of the action, calling digital imaging perhaps the greatest growth opportunity in the computer world. And, it may be. (Quote from Kodak corporate literature)

Kodak’s top management team, in their Western wisdom, failed to recognize soon enough that, if they didn’t cannibalize their own business with digital cameras, someone else would.   It was not just some one, leaders from a pack of Eastern organizations quickly realized the opportunity that Kodak could not grasp (i.e., Canon, Sony, Nikon, Samsung, Panasonic, Olympus, Fuji, and Casio). 

 Ideas won’t keep. Something must be done about them.- Alfred North Whitehead

The retarded adaptation of Kodak’s top management team was not restricted to the digital arena.  They also failed to adopt and execute an array of potent operational practices that promptly became competitive advantages for their Eastern competitors, and chief among them was Fujifilm.  Fujifilm’s executives understood far better than Kodak’s top managers the significance of a diversified product and services portfolio and well-managed operations.  Toward that end they invested heavily in new plants in the US to establish beachheads in Kodak’s key market, and that strategy allowed Fuji to double capacity and be more responsive to consumers.  From there, they expanded into medical imaging, cosmetics, and flat-panel screens, and along the way they enabled Fuji to build a best of breed reputation for price, quality, and marketing.  The scent of a wounded cow tends intensify predatory behaviors.

We suspect the differing trajectories of these two companies may be emblematic of Western and Eastern organizations, and over time we may see a form of recapitulation theory played out in reverse:  the development of Eastern economies will iterate the development of individual organizations largely because most of their constituent organizations will be smarter and quicker than their Western competitors.  Indeed, we may now be witnessing the ascent of Eastern nations — with China in the lead — on  the wings of individual organizations that are finding ways to out-think, out-run, and therefore, out-adapt their much slower competitors in the West.  This is not to say Eastern business leaders are entirely rational or rapid responders.  Rather, they just seem to be better than their counterparts in the presence of the beasts of change, and that is all that matters.  

We have attempted to delineate in several prior dispatches the key characteristics that seem to provide Asian knowledge workers and leaders with advantages to meet contemporary and up-and-coming demands.  For example, Eastern cultures predispose their leaders to regard any given state like market share at a given point in time as only transitory.  Asians are more likely to assume everything, both in nature and in business, is comprised of opposing forces that have only fleeting periods of dominance or harmony until they change to a new state (with new opposites).  The habits of mind among Western leaders too often incline them to assume events in their world (their industries and market) are stable and controllable.  They tend to be confident to the point of arrogance that they can always find a way to exert control and realize their aims and desires.  Finding a way is decidedly a key feature of the American way of life

Sadly, confidence, pride, and arrogance denote hubris:   

An accusation of hubris often implies that suffering or punishment will follow, similar to the occasional pairing of hubris and nemesis in Greek society. The proverb “pride goes before a fall” is thought to summate the modern use of hubris. It is also referred to as “pride that blinds”, as it often causes one accused of hubris to act in foolish ways that belie common sense. In other words, the modern definition may be thought of as, “that pride that comes just before the fall.  (from Wikipedia)

If we are correct in our interpretation of the times in which we now find ourselves, then we can expect to see this pattern repeated over and over again in the next few years (cf. Motorola) with only a few occasionally exceptions (cf. IBM), and these exceptions will largely serve to reinforce the delusional thinking in the West that US and European companies will surely maintain their footing and dominate as they have in the past. Such thinking will likely serve to preclude a sense of urgency accompanied by much healthier types of responses like fear and alacrity. 

The beasts are now moving out of the shadows, and eventually all that will remain of their prey will be the quick and the dead.  We think the principal predatory species will turn out to be information technologies in general, and social software platforms in particular.

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When the Facts Change

We have come across an article that contains news that can potentially put some rather big cracks in the foundation ideas of this blog.  Our central premise is that China is poised to capitalize on the strategic advantages that emergent social software platforms (i.e., Enterprise 2.0 or E2.0) provide to its commercial enterprises in much the same way that Japan’s manufacturing organizations benefited from advanced production practices (e.g., lean manufacturing).  We started this blog with the belief that China can exploit these advantages to the extent that its government exercises restraint in trying to control or corral both the technologies and the outcomes that stem from their use – emergent innovative/adaptive ideas.  We have assumed China’s Communist Party will ultimately be pragmatic in the face of these developments, and allow them to occur albeit with some restrictions.  The world as we know it would likely be very different today if Japan’s government had interfered with Toyota as its now venerated production system began to show promise.  Some key members of China’s government, however, may not be following suit.  A poker player who does not play his cards right usually loses.  Our assumptions about the prudence of China’s leaders may, therefore, be wrong at some level; probably the middle level.

According to a December 8 article by David Barboza in the New York Times, China’s government, largely at the whims of provincial party officials (we think), is showing an alarming pattern of providing support to favored state-run businesses while stunting private companies:

The usurping of private enterprise has become so evident that the Chinese have given it a nickname: guojin mintui. That roughly translates as “while the state advances, the privates retreat.”   

This article suggests that Chinese party members seem to be increasingly anxious to step in as the wealth and the democratic inclinations of free enterprise begins to grow to ensure neither profits nor influence get out of hand, their hands.   The Arab Spring may be heightening their anxieties.

Barboza goes on to say,

Some prominent Chinese economists are warning that the potentially corrosive effects of an approach that favors government companies at the expense of the private sector could eventually stifle innovation, saying it could stunt China’s long-term growth and quash the rising aspirations of the nation’s 1.3 billion people.

This point is consistent with our views about top-down efforts to deliberately control or “act on” on the dynamic activities of complex adaptive organizations.  Ultimately, any efforts to herd the birds will be counter-productive.

We intend to monitor these trends closely over the next few months to determine whether these actions are occurring at the behest or the ignorance of the top-most leaders of the Communist Party.  If it is occurring as a result of directives from the top, then China will be systematically killing the geese that lay the golden eggs, and we can expect the nation’s impressive economic growth to ebb fairly soon followed by widespread social upheaval.  We should not expect self-defeating political decisions to be confined solely among Western nations.

If, on the other hand, the usurping of private organizations is occurring because of cronyism and conservative ideologies at more isolated regional levels, then we can expect those problems to be overcome once the potency of E2.0 becomes more widely understood and appreciated.  After all, the benefits of E2.0 tend to grow as it acquires more and more users.  If and when more networked Chinese organizations begin to excel, the niggling nabobs of negativism will eventually be overwhelmed and dispatched.

John Maynard Keynes, the British economist, is famously quoted as saying, When the facts change, I change my mind.  What do you do sir?  We stand ready to change our predictions about China’s ascendance, but we need to see a few more facts first.

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The Best Laid Plans of Mice and Men

The most recent Five-Year Plan issued by the Chinese government seeks to ensure income equality and economic growth are more evenly distributed across the population and geographic areas of the PRC.  The Plan also calls for several other initiatives, but the ones that most interest us are the intentions to:

  • shift national economic emphases from exports and internal investment to domestic consumption;
  • increase the value-added output from emerging strategic industries (presumably to enable China to become less reliant on the mass production of goods designed in other countries);
  • transition coastal regions from centers of industry to R&D hubs and producers of high-value goods and services; and,
  • increase investments in agriculture and the high-tech and environmental protection industries.

The big question is, how are they going to do it?

The PRC will have to increase contributions from a lot more knowledge workers to begin to make bigger strides in delivering high-tech, high-value products and services.  But, according to some observers, the key to China’s plans is to enhance the ability of its economy to innovate, and toward that end the PRC is shifting away from centralized, top-down efforts to direct and control R&D activities.  Apparently, China’s leaders now recognize that good ideas must be found in more places, and that markets are much more effective in recognizing the ones that have the most promise.  So far, China’s overall success in innovation is highly uneven.  Good strides are reportedly being made in the development of new business models and products that can compete effectively on price in established markets, but China is not making significant progress in creating new markets with Chinese-designed, cutting edge products and services.  It seems their organizations have little insight about consumers outside of China, and therefore, they have limited sources of ideas for innovative offerings that can rival Western businesses.  The R&D hubs will probably not be enough.  Would be innovators may also be inhibited by a national culture that eschews risks and punishes failures as evidenced by a well-worn Chinese saying: The first bird out of the coop gets shot.

We think China’s political and business leaders are beginning to see they must broaden and intensify their efforts to encourage, source, identify, develop, and implement ideas that can advance efforts to achieve their goals. 

The big question is, how are they going to do it?

Times are hard in a lot of places
The global environment presents both a great threat and a significant opportunity to the PRC.  Most Western economies are in, or teetering on the edge of, recessions and outright depressions, and many governments are struggling with mounting debt levels and potentially suffocating future interest payments.  At the same time large segments of consumers in the US especially are focused on paying off their personal debts and increasing their savings.  So, China and other Asian nations are facing potentially steep declines in trade with the West (hence the heightened interest in decreasing reliance on exports).  On the other hand, the faltering Western economies are also creating opportunities for Restern nations like China to make arrangements to seize future competitive advantages.  The odds of winning a fight improve when one’s opponent has fallen to his knees.

We think leaders of Asian nations recognize they can deal with these threats and opportunities more effectively by working together than by striking out on their own.  We also believe they realize the time to start is now.

The big question is, how are they going to do it?

Premier Wen Jiabao delivered an address on November 18 at the 14th Association of Southeast Asian Nations Plus Three Summit (ASEAN + China, Japan, South Korea) in Bali, Indonesia that may provide prescient clues to the answers for our questions.  The Premier called for greater cohesion and cooperation among the member nations to . . .

raise the comprehensive competitiveness of our region as a whole.  By doing so, we better position ourselves in a changing international environment. 

He also made an inexplicit call for increased “connectivity” to enhance coordination and synergies “and tap into our strengths in capital, technology and human resources.” 

The big question is, how are they going to do it?

Thailand will host an international symposium in 2012 to elaborate the means by which this connectivity will be accomplished, but we suspect social software platforms will receive a good deal of attention there, and probably even more at future conferences. 

How they can do it
In our view Asian nations, China in particular, cannot rely on old practices or trading partners to sustain their economic growth or the security of their political structures.  Moreover, we believe they must change, adapt, and grow by doing more than develop new business models or improvements in business operations in served markets.  They must create new markets with compelling products and services that they create and own.   They have to provide offerings that resonate with diverse segments of people that are different and far removed from themselves – no easy trick for nations with rather insular orientations.  These nations must find and exploit technologies that will enable them to reach beyond their confines to connect with idea suppliers and inspirers – potential customers, stakeholders, suppliers, partners, and consultants all over the world who can provide the stimuli, insights, and distilled notions they need.  They must also bring more of the prodigious human capital available throughout the ASEAN+3 countries to bear.  To do all of this, they have to build networks and extend their capabilities to create opportunities to co-create useful ideas.

Recent research from McKinsey has confirmed some earlier global survey findings reported by that firm.  Respondents from fully networked organizations (i.e., companies that are effectively using Web 2.0 and social software tools both internally and externally) are experiencing better competitive gains and performance improvements than respondents from partial and non-networked companies.  At the end of the day, the companies that do the best job of focusing, aggregating, and amplifying idea suppliers are going to harvest the most innovations.  And, the nations with the most innovative companies will be the winners over the long haul.

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On Dilemmas and Other Possibilities

Most of our dispatches have contained ample doses of speculation, and a few broad, but plausible, leaps of inference.  This post will provide more of the same.

Lately, we have been reviewing a diverse set of blogs, books, articles, and presentations covering a set of topics that seemed at first to be conceptually distinct and independent.  However, when we started to look at these topics from a systems point of view we began to notice some clear linkages among them with some interesting implications for China and the rest of the world.  We are talking about dynamic trends occurring under the headings: economic pressures, social unrest, automated economies, social networks, big data, new business models, ecological change, and innovation.  The implications of these forces lead us to wonder whether the Communist Party– National People’s Congress (NPC), its Standing Committee, the President, and the State Council – is headed for a turbulent transitional period that will test its mandate and possibly lead to some revolutionary events.  Paradoxically, E2.0 (social software platforms) represents both a great threat and the best hope for salvation.  The very thing that can help the Communist Party of China to assume political dominance over the rest of the world is also the thing that can undo it.

The Situation as We See It (at least for a while)

1.      Economic Imperatives – Due to enviable rates of growth China and other emerging countries, India especially, are experiencing some major shifts in their places in the pecking order of the nations of the world.  China now enjoys a rapidly growing and inexpensive workforce that is relatively well educated, and for an appreciable period of time it has relatively few dependents to care for – more and more people are adding logs to the woodpile at low rates of pay, and few unproductive people are taking them away.  Plus, the nation’s great tide of talent is eagerly and rapidly moving to the centers of commerce and industry where it is needed.  Consequently, the PRC is enjoying very high rates of GDP growth and a corresponding high rate of improvement in the nation’s overall standard of living (but more for some than others).  However, these sources of growth are not sustainable largely due to the Communist Party’s “policy of birth planning” and the expected sharp rise in the elderly population by 2040 (the proportion of people over 60 will rise from the current level of 11% to over 28%). 

As a consequence, the PRC must make hay while the sun shines, to be sure, but other sources of productivity growth must be found and nurtured, because the leaders of the Communist Party well understand that China has a teeming and restive population that has had a taste of a better standard of living, and its people want more. 

For us, we believe China’s best hope for continuing productivity growth over the long-term lies in product and service advances (i.e., higher value offerings) and work process improvements (i.e., operational efficiencies).  These are the fruits of innovation and there are signs that it is blossoming in the PRC.  Huawei, now the world’s third larget telecom manufacturer, led the world in the patent applications in 2009.  The PRC will soon have the world’s largest R&D workforce and more than 1,000 multinational companies seek to capitalize on it (a five-fold increase over a 10 year period).  China is fertile ground for new thinking that will raise the value of its goods and services.  We have more to say about innovation below.

2.      Global social unrest – significant segments within the populations of a growing list of countries have become antagonistic to the established order in their nations.  The rise of most of these movements seems to be (1) a consequence of economic hardships (often due to graft and ineptitude), and (2) empowered by social network applications.

Incidents of “social disturbances” in the PRC have been rising steadily in recent years: According to the Wall Street Journal China had more than 80,000 “mass incidents” in 2007, up from above 60,000 in 2006, although many involved no more than a few dozen people protesting against local officials.  No authoritative estimates have been released since then, but leaked official figures put these incidents at 127,000 in 2008.  Rising levels of inflation and questionable real estate practices by some government officials and their cronies may be escalating tensions in some quarters.  A few isolated incidents have certainly caught our attention.  Chinese workers at a Honda plant last year organized for strikes for higher wages, and they used text messaging and the internet to do it.   

Chinese leaders have historically placed great emphasis on maintaining a harmonious society, so these events are probably a keen concern within the Communist Party.  And, given the dire consequences that some notable leaders in Northern Africa have suffered of late, Chinese officials may be harboring some measures of trepidation as well.  At any rate, President Hu Jintao is expected to retire soon, and if he is like most national leaders, he will strive to ensure China is on a path that will ensure his legacy is preserved.  Suffice it to say then that social unease is not something that will be casually brushed aside.

Our first two points serve to reinforce a finding that seems to be well established:  Economic growth generally leads to improvements in a nation’s overall standard of living, but it also leads increasingly to income inequalities that inevitably lead to growing gaps and tensions between the rich and the poor, the Haves and Have-nots.  Some groups always seem to benefit from growth more than others.  The trick not easily mastered by a free-market economy is to maintain growth while raising incomes substantially among the less equal.  When a choice must be made between GDP and income parity, the latter would seem to be the preferred option in any nation that regards equality and fairness as key principles, but in actual practice, personal self-interest always rules.  In a “socialist market economy” like the PRC, however, these options are more realistic, and given China has a long-standing and potent culture that prizes social harmony, we can be fairly confident the Communist Party will opt for the latter (Germany and Japan already have).  One of the outcomes we can expect to see as a result is increasing interest in shifting the economic emphases from cheap exports to domestic consumption of higher value goods and services.

3.      Information Systems / Digitization / Electronic Economy – Business transactions and processes (e.g., making travel reservations, distributing products to retail outlets) that were once performed for, by, and with people (i.e., manually) during business hours are increasingly being executed for, by and with information-related technologies 24/7/365 in microseconds without human intervention.  Moreover, because these digital systems are doing it faster, cheaper and with less error and injuries, they are doing it better.  According to W. Brian Arthur these new systems are also “self-organizing, self-architecting, and self-healing” themselves on the fly.  This growing, emergent “second economy” lies under the surface of the physical economy as a huge interconnected root system, very much like the root system for aspen trees.  For every acre of aspen trees above the ground, there’s about 10 miles of roots underneath, all interconnected with one another, “communicating” with each other.  In other words, the electronic economy has become the neural system of the physical economy in developed nations, and individual computers like neurons in the brain are now communicating with one another without any deliberate control or interventions by people.  On the one hand the digital economy introduces enormous efficiencies to the betterment of business operations (and the growth of GDP), but on the other hand it displaces significant cohorts of workers, and it increases the complexity of doing business – precious few managers and technicians are competent to support it and direct it to useful ends (contributing to declines of GDP). 

If it continues to grow, what will be left for people to do besides becoming restless?  See point 2 above.  The digital economy will represent another dilemma for China in the future.

4.      Social network platforms — Just two years ago it was estimated that social networks had about 830 million “unique” users among a total internet user population of 1.7 billion.  But now, Facebook alone may soon have 1 billion users across the globe.  Qzone, China’s largest social network site, has over 637 million unique users and over 480 million of them are registered.  China’s top microblog (Sina Weibo) currently has 250 million registered users and 76% of them are between 19 and 30 and 67% have at least a diploma.  China obviously has more potential growth than other countries, so these numbers may become more extreme in the future. 

The key takeaway for us about these data in light of the points above is straightforward:  The Communist Party must manage its economy with great effectiveness and sensitivity to the masses.  We believe China’s leaders know the heavy handed tactics that were used in the past to quell dissent would be counter-productive in an era where a majority of the citizens are connected via social media.  Interconnectedness always creates the potential for emergence, and therefore, for outcomes that greatly exceed their causes.

The key question for us given points 1 – 4 is: what can do about these developments?  The next points offer some possible answers.

5.      Big Data – more than 4 billion people currently use electronic devices of various types and makes to talk, text and toil (as well as to like, friend, send, share, poke, review, and game).  Over 50% of the world population now has a cell phone, and over 25% is online.  At the same time, electronic devices – servers, sensors, RFIDs, and other Things in the Internet of Things and the Digital Economy described above – are also interacting with other devices and users, and altogether a vast universe of data is being created and stored each second, of each minute, of each hour, of each day, of each year!  Moreover, some organizations are using it to achieve significant gains.  To cite one example, some retailers can now sense (digitally) customer product selection patterns in real-time and model their buying preferences to create dynamic, personalized prices that increase the odds of additional purchases.  

This is the stuff of Big Data; it transcends borders and boundaries, and its capacity is doubling every 18 months.  For those who choose to embrace it, maybe China, Big Data growth offers the promise of more information about business operations and consumers.  It also creates the potential for wiser decisions about the best actions (i.e., innovation, enhancements) to take to deal with opportunities and threats, but these factors are not highly correlated.  Without effective technology tools and analytical aids, the majority of bits of data are never effectively generated, aggregated and organized, and as a result, precious little fundamental understanding or grasp of it is ever achieved.  According to a recent survey of 5000 employees of 22 global companies reported in the Wall Street Journal, only about half of senior managers put data, any data, to good use in shaping company strategy.  Most information is in a format they can’t use, and two-thirds say they spend time on unproductive analysis.

When oil was first discovered no one knew what to do with it, and it was allowed to seep out of the earth and collect in fetid pools.  Eventually, technologies were invented that made it indispensable and now, based on the prices we pay at the pump, we cannot get enough of it.  Information is presently recapitulating the same cycle.  Some estimates indicate less than 10% of the data seeping out of transactions and interactions, is being organized or exploited in meaningful ways.  That percentage will likely grow smaller because the amount of information being created will increase five fold in the next five years.

Large-scale data gathering and analytics are quickly becoming the new frontier of competitive differentiation . . . . Too few leaders fully understand big data’s potential in their businesses, the data assets and liabilities of those businesses, or the strategic choices they must make to start exploiting big data (Bughin, Livingston, & Marwaha, October 2011). 

According to one McKinsey report we have seen, companies that use data and business analytics to guide decision makers are more productive and experience higher returns on equity than competitors that don’t.  Companies that have learned how to effectively exploit business analytics are proving twice as good at predicting outcomes and three times as good at predicting risk as those that aren’t (Bisson, Stephenson, & Viguerie, June 2010). 

Our prior reviews indicate decision makers need all the help they can get.  Decision making seems to take a toll on leaders, and big decisions exact a very high price.  We suspect that if truth be told, most leaders in most organizations in the West fail to ask the right questions to even begin the process of mining, smelting, and milling data, but this may be a moot point.  Most organizations cannot find people with the requisite system and analytical talents to extract knowledge from big data regardless of the questions asked. 

The big takeaway for us here: leaders in the West will likely flounder for years trying to decide whether Big Data is a meaningful strategic opportunity and what to do about.  In the meantime, China has the means to direct its resources to develop core competencies that will enable it to seize key competitive advantages in data gathering and use.  Big Data provides a highly promising chance for China to move up the value chain and to maintain the GDP growth it needs.  However, this is not the only prospect on the horizon.  The opportunities associated with new business models and the threats from changing climate conditions are also creating openings for advantages.

6.      Multi-dimensional Business Models – Organizations often have occasions (though these are not usually recognized or exploited) to provide a range of products and services (i.e., to create & receive value) for a variety of disparate and distinct segments.  For example, magazines sell subscriptions and provide content to readers, but they also sell advertisements and provide marketing channels to third-party organizations.  Facebook provides a platform that enables members to connect and interact, but it also provides information about its members and their interaction preferences and pattern to other organizations.  Again, these tactics provide additional sources of revenue growth, but they also increase the amount and the complexity of information that must be mastered.  Complexity tends to bedevil the unwise and take them to a sorry end. 

 7.      Climate and Resource Shortages – increasing global temperatures may be approaching a tipping point that can trigger dramatic and irreversible changes in the environment and cascading effects on all ecological systems.  Increasing concerns about worsening climate conditions are also sure to have deleterious impacts on economic concerns and contribute to growing social unease.  Declining supplies of oil and potable water will have similar effects.  Managing an organization to achieve recurring financial goals is hard enough, but to add the burden of achieving sustainability objectives and overcoming declining resources will be a stretch for the best of any leadership team to say the least. 

The key takeaway for us in light of all of the points above is that conditions are shaping up to reward those who are wisely agile and adaptive, and to roundly punish those who are not.  Competitive differentiation will widen as result.  As we have noted in prior dispatches, it all comes down to the ideas, and who has them, and what do they do with them.

8.      Innovation – the process of discovering and implementing ideas that enable organizations to recover from setbacks, to seize new competitive advantages, and ultimately, to survive and thrive.  Innovation, as opposed to creativity, is about schemes that are practical and useful, though not necessarily new or original.  Big innovations (e.g., the personal computer) tend to be disruptive game-changers, while little innovations (e.g., reflective tape on running shoes) tend to be incremental enhancements.  The key point for our purposes here is that innovations are essential but elusive.  Organizations, as complex systems that operate in highly dynamic and complicated environments, must have a constant flow of both big and little innovation to remain adaptive and viable over time.  Yet, the well springs of big and little ideas now and in the future are hidden in oceans of information like Big Data just as big and little fish swim below the surface of big, blue seas, and not just one. 

The challenge of finding these essential ideas now and later will likely be solved most frequently and effectively by organizations that can employ shifting clusters of inspired, engaged, and passionate individuals with unique but deep capabilities and diverse points of view.  Organizational root problems and competitive opportunities in the 21st century are difficult to identify, and their solutions have complex potential consequences in both the proximal and distal surroundings.  No small, static, isolated, insular, and homogeneous group of individuals can meet those challenges consistently or sufficiently over time.

The challenge of finding innovative ideas, the cart, sometimes can be met best by first finding the innovators, the horse.  According to McKinsey research, some the best and most abundant innovations these days are being developed by “hundreds of companies” in cauldrons of innovation that are emerging in emerging markets like China – necessity, after all, has always been the mother of invention.  Network technologies are enabling small companies in the East to market, sell, and distribute their new and fresh products and services and compete effectively with the old and stale offerings of much larger and established organizations that have been hamstrung by conservative business cultures and fears of economic uncertainty.   

China has immeasurable pools of talent capital.  What it and its constituent organizations desperately need is the means of aggregating and amplifying that capital so that its true benefits can be unleashed.  In keeping with our Upper EGO-E2.0-EEs model, the PRC has demonstrated repeatedly over the past three decades that is has a capable central leadership function that can set direction and allocate resources effectively.  It has developed the best primary educational system in the world for a mobile workforce of 900+ million individuals, and its advanced education institutions are becoming first-rate schools.  The missing ingredient is a technology that can effectively connect the capabilities of its leadership with the great wealth of knowledge, skill, culture, social, moral, and cognitive capital of its people.  A lamp can light the way, but it must have power to do it, and the greater the power, the greater the light. 

We believe the nation that develops the best means of aggregating, amplifying, and focusing and its EEs on the challenges, opportunities, and threats we have listed above is the one that will move to the top of the pecking order and stay there for the foreseeable future.  We think social software platforms (E2.0) provide the technology to support those efforts.  We also think Western leadership, due to a variety of educational and cultural factors is not capable or prepared to effectively leverage these technologies or to provide the direction, align the resources, or provide the inspiration needed to get it done. China can and probably will in spite of the potential threat these technologies pose to the Communist Party.  Their leaders are in a predicament in which they may be damned if they do, but they will surely be damned if they don’t.

The Snapping Conclusion to Our Speculative Wandering

To maintain, or more preferably, to enhance their standing in the world, nations must encourage the development of better ways of exploiting the EEs of their political institutions and commercial organizations.  We think China’s centrally planned system puts it in the best position to accomplish that end.  If the components of the political and economic systems in the US were free to operate without the distorting influences of selfishly focused special interest groups, they might enable Americans to have a better chance to compete with China.  But, a burning platform will be needed to make that happen, and by the time it occurs, it will be too late.  The high ground will have already been taken.

Steve Jobs may have been one-of-a-kind in the sense of being able to elicit and create a series of profoundly influential innovations over an extended period of time.  He was the right person for his time and circumstances, and he accomplished remarkable things.  At the same time, we should recognize there is a Steve Jobs for every circumstance any organization may encounter.  By that we mean that every big and small opportunity, challenge and threat has at least one individual or group of individuals that can provide the best ideas to address it.  Social network platforms provide dynamic market places for the ideas of millions of potential, but momentary, Steve Jobs to be valued and exchanged.  As a parallel we should keep in mind that technological developments in astrology are enabling the discovery of hundreds of planets of a sort that was once thought to one of a kind – Earth.

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The Virtues of Clear Thinking

In our last two dispatches we reviewed evidence that indicates the Chinese workforce from top to bottom may share a cognitive style better suited than Western ways of thinking to the challenges of enabling businesses to adapt with highly dynamic and complex economic environments.  We think their habits of mind are more resonant with the requirements of complex adaptive systems.  In previous dispatches we also presented a variety of evidence that shows the current state of leadership and management (Management 1.01) in large, complex Western companies and institutions is generally poor, and we chalked it up, sympathetically, to the overwhelming the difficulties of presiding over enormous, globally dispersed organizations with outdated management practices.  The situation, not the managers, is the problem . . . we hope.  No small isolated and centralized group of executives (Upper EGOs) can do a great job of thinking strategically and making sweeping operational decisions in big companies with highly varied and far-flung products, services and competitive markets.  It takes a talented, diverse and dispersed collective (EEs) aided by collaboration tools (E2.0) to do that well.  So, we can understand why the top management teams (TMTs) of Bank of America, Citibank and UBS are currently struggling to manage their organizations.  Size matters . . . in a bad way.  TMTs simply cannot supply all of the ideas in all of the places their organizations need them. 

 The finding that most concerns us is the McKinsey research we cited in an earlier dispatch that indicates senior leaders in a large percentage of US organizations are also failing to supply the big and important enterprise-wide ideas their companies require.  When it comes to developing coherent, integrated organizational strategies, we are sorry to find too frequently that executives do not even try. 

When you find yourself in a hole, stop digging.  Will Rodgers

We have identified some preliminary research that shows they may know they do not know how – it is a known unknown.   We’ll explore this topic further in future dispatches.   

 The research we examine in this dispatch, however, indicates many of them are also no longer making decisions well.  We have been struck by the raft of recent and widely reported instances of poor senior management judgment that cannot be attributed mainly to situational factors.  For example, the manner in which Netflix handled the separation of DVD and streaming and the associated price changes was anything but wise and the blame was very narrowly focused.  In the words of Reed Hastings, the Netflix CEO and co-founder, “I messed up. . . . In hindsight, I slid into arrogance based on past success.”  And then there was Boeing’s Chairman and CEO (Jim McNerney) explanation of his company’s three-year delay in rolling out the 787 Dreamliner:

I think we reached too far.  I mean it was one of these stories where the concept was so compelling that the innovation itself, I think, overwhelmed our ability to think clearly about the execution issues.

This admission is even more alarming when one sees it in context of a history of missteps.  Clear thoughts (and learning from past mistakes) have evidently not been consistent phenomena at Boeing.  First, Boeing’s TMT struggled throughout the 1990s to figure out how to handle an upsurge in aircraft orders.  Second & third, in 2003 the company was embroiled in charges of corruption in the competition to build new in-flight tankers, and in its attempts to win approval to satellite launch vehicles for the US Air Force.  Fourth, in 2005 the President and CEO was forced to resign for violating the company code of conduct.  Fifth, very recently Boeing’s leadership ran afoul of the National Labor Relations Board for opening a new production facility in South Carolina in spite of strong objections from the company’s machinist union.  According to William Kilbrew, an outside counsel for Boeing, the decision to open the facility, has led to a legal challenge that “casts a shadow over Boeing . . . . It makes life very difficult for Boeing.”  This is not the sort of outcome that adaptive organizations strive to achieve, to be sure.

Wisdom is the quality that keeps you from getting into situations where you need it. Doug Larson

Moving on, how about Hewlett-Packard’s recent questionable decisions to end its webOS, phone, TouchPad and PC businesses?  Thinking clearly seems to be a stretch for their TMT as well.  As early as March the company’s leadership claimed webOS was the “wave of the future.”  That wave never made it to the beach.  Mess-ups at HP are not confined to the TMT.  The company’s Board of Directors last week may have managed to “solidify a reputation for incompetence” by having its third CEO in a row leave in disgrace.  This may be good news for Yahoo’s Board of “doofuses” for they now appear to have a rival for the lead as the “worst board in country” (at least, for awhile). 

Every man is a damn fool for at least five minutes every day; wisdom consists in not exceeding the limit.  Elbert Hubbard

Some TMTs and Boards have exceeded their time limits.

Geoffrey James has provided an interesting and sadly amusing piece that shows “bonehead” actions are not in short supply in many other US organizations and at all management levels.  The collective impact of these shortfalls in wisdom may explain some of the dire declines in American competitiveness reported by the 2005 and 2010 Gathering Storm Committee and other watchdog groups (see for example the 2004 President’s Council of Advisors for Science and the 2005 Task Force on the Future of American Innovation).  Unfortunately, the US government is no exception here — recall the Representative Anthony Weiner debacle (and David Wu, Chris Lee, Mark Souder, Eric Massa, Tom Ganley, and who can forget Monroe & the Kennedys, Rice & Hart, Lewinsky & Clinton, and then we have the Keating Five, the Watergate Break-in, the Iran Contra Affair, the NSA Surveillance Controversy, and on and on). 

We can all see where this is going. It would almost be funny if it wasn’t such a threat to our [the US] ability to compete and to our economy in general. Carl Icahn

So, why is decision making such as mess?  Aside from the obvious explanations that can be found by examining obsolete management principles, and weakening cultural and educational foundations, what else might account for the serial mistakes being made by people in business and government who ought to know better?

At least a partial answer to these questions may be found in the research and writings of Roy F. Baumeister2 and his students and colleagues. They have found decision making tends to take a cumulative toll on individuals in the form of “ego depletion.”  In other words, it produces a kind of imperceptible fatigue that lowers willpower, discipline, self-control.  People start each day with the figurative batteries that energize their willpower charged to certain amounts, and every choice they make throughout the day reduces their charge levels.  The greater the amount and difficulty of decisions, the greater the depletion of energy, and inevitably their brains become tired.  Decision making then becomes more difficult, brains have to work harder, and eventually decision makers begin to take short-cuts both to ration the energy they have left, and to deal with the remaining issues and problems that must be resolved.  We all have a finite amount of energy for exerting self-control/self-discipline, and each time we make a choice it decreases our ability to walk the line.

As it turns out, the harder challenge for the brain is not the formulation of options, pros & cons, alternatives, pluses & minuses – the so called, pre-decision phase.  The most taxing task for our brains is choosing.  After all, the act of making a commitment, a decision, represents the moment when the responsibility for risk is incurred and the prospects of accountability become real (the die is cast).  The easiest decision in times of fatigue (weakness) is to choose not to decide, which serves to keep options open, perpetuate the status quo and put off the immediate risks at hand.  The implications for innovation and adaptation for taking this tack are pretty obvious [more on this point in future dispatches].  Deciding, in essence, is a fight or flight issue and in this sense it is a stressor.

One type of decision making that is especially difficult for people who are mentally depleted is making trade-offs or compromises such as choosing between 15- and 30-year mortgages.  The former option allows a home owner to pay less interest and pay off a loan sooner, but the monthly payments are higher.  The latter option allows a home owner to have more discretionary money each month, but the obligation for payments is twice as long and the total interest cost is much greater.  An ego-depleted individual faced with the choice between these two types of loans will typically take mental shortcuts to save energy such as focusing on one dimension of the situation rather than the full array of considerations that would also include job security, future earnings potential, expected long-term home value, and other considerations.  That dimension will probably be the most concrete and simple aspect of all: the cheapest way out of the dilemma or no decision at all.  This example also shows that meditative efforts to maintain self-control (i.e., deciding when and how to be purposeful, to be orderly & systematic, to follow procedures & obey rules, to control our will & our desires) causes mental fatigue, and therefore our ability, to follow through on tough tasks, stay focused and make good decisions.  Ego depletion from the acts of deciding and self-regulation attenuates our ability to be conscientious in our work and our thinking.  Over time, it makes us susceptible to hasty and impulsive judgments such as preferences for the paths to least resistance and immediate sources of gratification.  Stated another way, it impairs our ability to think clearly. And sometimes, it makes us decide to quit deciding, regulating and working. 

At this point we are reminded of Samuel Beckett’s Waiting for Godot

Self-control is, in essence, the ability to regulate one’s present thoughts and emotions/feelings/desires to obtain some sort of outcome or reward later.  Over time, decision making decreases the capacity of people to maintain self-control because it lowers energy levels (e.g., glucose).  When managers deplete their resources, they lower their abilities to perform adaptive behaviors both for themselves and for the people they lead, because they decrease their abilities to think and perform effectively.  Thus, a mentally depleted manager is vulnerable to muddled thinking and hasty decisions, or analysis paralysis and no decision at all.  Their work groups and the larger organizations they serve are then exposed to and suffer from the consequences.  Ego-depleted managers are apt to seek immediate payoffs (cost reductions rather revenue enhancers) and less likely to care much about long-term opportunities like strategic goals.  Quarterly objectives usually become a much bigger preoccupation in these instances.  

We should note that ego depletion also accentuates the emotions, and thus, our proclivity to be irrational, even absurd.  When we are mentally fatigued we tend to experience emotions more profoundly.  Given most people are overwhelmed with problems during these periods those emotions are mostly unpleasant (irritation, frustration, anger), and the preferred recourses are usually immediate, simple and concrete (e.g., shouting, cursing, drinking).  We also become less resistant to irrational biases, and the list of potential biases that may be adopted is quite long.  In other words, people – managers for sure – can find a host of ways to distort their thinking and make themselves feel better.  Here is a sample list of twisted tendencies:

  1. To focus one’s attention on one or a few aspects of a situation (the Attention Bias is a common problem in the Western way of thinking; see also Selective Perception).
  2.  To seek and interpret information in a manner that supports one’s views (the Confirmation Bias – ditto; see also the Semmelweis Reflex).
  3. To overestimate one’s abilities and one’s capacity to control events (the Illusion of Control or Self-Aggrandizement).
  4. To discount or neglect probabilities under conditions of uncertainty (the Neglect of Probability; see also Wishful Thinking).
  5. To hire subordinates who will not compete with one’s interests or strengths (the Social Comparison Bias).
  6. To underestimate task-completion times (the Planning Fallacy).

We believe the most pernicious bias in business settings is the assumption that a simple solution, the proverbial silver bullet, will produce an expected result very quickly, and make everyone’s hopes and dreams come true.

The Reed Hastings and Jim McNerney quotes above indicate biases were key factors in some intemperate decisions in their organizations.  An enterprising reader can easily identify biases that were and are probably in play at HP and Yahoo as well. 

The greatest obstacle to discovery is not ignorance – it is the illusion of knowledge. Daniel J. Boorstin

So what?

We think the Upper EGOs or TMTs of Western organizations are especially prone to decision fatigue, poor self-regulation, bias and dumb initiatives because of the centralized, top-down, command-and-control paradigm they rely upon to lead their businesses.  Management 1.0 obliges a few select managers in individual organizations to be the primary, and often, the sole deciders for their companies, and few of them can handle the load.  Little wonder that new CEO effectiveness in these type of businesses, like new car re-sale value, begins to diminish as soon as the rubber hits the road.3  The problem for stockholders, stakeholders, customers and employees is that these executives have no idea of their growing impairments.  So, they continue to decide and decline with ever increasing bias and lack of continence, and/or they stop deciding and allow their organizations to fail (recall our earlier comments about adaptation and entropy).

Some compelling elements of a nomological network to support these views may be found in the converging evidence provided by Donald C. Hambrick4 and his associates, notably Phyllis A. Mason.5  Their research over the past 25+ years has worked out a set of complementary constructs under the rubric, Upper Echelon Theory.  Hambrick4 describes the key components of the theory as follows:

  1. Members of a TMT generally think, decide and perform on the basis of their unique, personal interpretations of the situational conditions they perceive.
  2. The personalized interpretations that top managers create are derived from their experiences, values and personalities – these characteristics influence the things on which managers focus, how those things are perceived, and what the ensuing interpretations will be. 

These points seem rather banal at first glance, but upon some thoughtful consideration, aided by research guided by the theory, we can see there is more here than meets the eye.

Relevant to point 2 above, Hambrick reports the demographic characteristics of leaders can often provide accurate indications of the types of interpretations they will make of the situations they face.  We touched on this topic when we explored the Eastern and Western habits of mind in our last two dispatches.  For the purposes of this dispatch two other factors should be singled out: discretion and job demands.

Discretion refers to the extent to which a manager can exercise his or her will in choosing the opportunities and challenges he or she will tackle, and in generating and deciding among alternative course of actions.  Managers who have wide latitude in the actions they are permitted to take have discretion to be sure, but they also tend to face high degrees of ambiguity and stress in terms of uncertainty and risk (e.g., like choosing an entrée from a lengthy menu in an expensive restaurant).  Job demands become relevant here because this concept refers to the level of difficulty of each manager’s job.  Managers who must contend with highly unfavorable and complex strategic conditions (ambiguous problem situations), exacting superiors (and family members) and their own pressing personal aspirations have decidedly demanding jobs.  Hambrick4 explains the resulting implications as follows (page 336):

Executives who are under heavy job demands will be forced to take mental shortcuts and fall back on what they have tried and seen work in the past; thus, their choices will reflect their backgrounds and dispositions [toward bias].  Conversely, executives who face minimal job demands can afford to be more comprehensive in their analyses and decision making; thus, their choices will more greatly match the objective conditions they confront .

We added the comment within the bracket.

Upper Echelon Theory provides a good account of what members of a TMT do, and to some extent, why they do it, but the theory falls short of explaining what occurs between their ears.  We think Baumeister’s views about ego-depletion help to fill the gap.  Decision making in complex organizations is especially demanding because even the most simple actions can precipitate and array of unintended and disproportionate consequences (butterfly effects) that may reverberate for a long time (e.g., the introduction of kudzu in the Southeastern US).  Combining the Hambrick and Baumeister sets of ideas enables us to begin to understand why an executive faced daily with the responsibility and discretion of making many difficult decisions under highly ambiguous circumstances with huge potential consequences will soon tire, slacken her or his self-control and fall prey to personal whims and indulgences (to neglect of experts, facts, data and plain common sense).  These tendencies may help an executive endure, but they surely exacerbate conditions for an organization as we have seen all too often.  Management 1.0 makes the demands on TMTs harder.

In our view these problems will only become more acute and frequent in the West because TMTs, with their steadfast adherence to traditional organizational designs and management practices in the face of nearly chaotic complexity, are allowing themselves to be overwhelmed.  The TMTs in the East insofar as they avoid the wholesale adoption of Management 1.0 principles and practices and effectively embrace emergent social software platforms and stay true to their cultures (and diets) will, on the other hand, transcend it all. 

Here, below, is a sample of evidence gleaned from a variety of authors6 that leads us to believe managers in the East are less inclined to fall prey to the tribulations of Western TMTs.  

Point One: 
In the West most managers have a tendency is to distort a problem situation from the start by breaking it into parts (this is called, analysis), collecting information from a few people about each part, making a fast and biased decision, and then attempting to persuade or compel people to fall in line and support it, which usually causes more problems as the shortcomings and unintended consequences of the solution become apparent.  Thus, Western managers worsen the demands of their jobs, their mental energy and their willpower each time they engage in a decision making process.   

A Chinese manager on the other hand generally does not tackle a problem alone.  Managers from the PRC prefer to engage in seemingly endless discussion about a problem with all stakeholders to ensure all angles are reviewed and considered in totality.  And, they sometimes go through multiple iterations of this sort of process. If biases exists among the participants, they tend to be canceled out to the extent the participants in the decision process are sizeable in number and have diverse backgrounds and perspectives.  Each person involved in the discussion considers the problem holistically (in its full complexity) and authentically without the skewing effects of artificial abstractions and categories, and through it all, a decision emerges – a taxing choice is thus unnecessary, and no one individual suffers extensive decision fatigue.  Plus, consensus and compliance with the decision gets baked in, and there is usually little need for extensive follow-up and re-work.  Most consequences are anticipated.   On the whole then, the Chinese approach to decision making enables the willpower of each participant in the process to remain relatively unassailed, which leaves them more energized for future problems. 

We should also note that when Chinese business leaders make a decision, it usually is not a big bet or significant draw on their energy levels.  They tend to go with a highly pragmatic option that is clearly best for a given group, the larger organization, and the nation as a whole.  When they make a decision, all things are considered in totality, including fundamental cultural beliefs and values.   Bad or risky decisions are consequently rare.  For the Chinese the concepts of wisdom and culture are inextricably bound in the sense that behavior is judged to be wise if it is consistent with the cultural beliefs and traditions that have endured for centuries. 

The underpinnings of Chinese wisdom/culture come from Confucianism, Buddism, Daoism, and a variety of other sources such as Sun Yat Sen, Mao Zedong, Deng Xiaoping, and Sun Tzu, author of The Art of War.  Confucianism, for example, advocates the wisdom of order in the form of precise role definition, respect and obedience to authority, harmony and slow, deliberate change.  The Chinese people believe it is virtuous to reliably perform the duties that have been prescribed to them to the benefit (peace & happiness) of their fellows and their civilization.  Zhong yong is the Confucian principle of being in the middle.  It is also consistent with Daoist ideas of balance and harmony.  It guides leaders to avoid extremes and to seek consensus from their others, including their subordinates.  We suspect the elaborate involvement of other individuals in the decision making process, particularly members of a Chinese manager’s network or in-group, also helps emotionally to buffer the levels of stress associated with casting the die. Chinese leaders, therefore, have minimal demands compared to their Western counterparts.

It is a characteristic of wisdom not to do desperate things.  
Henry David Thoreau

Point Two:
In keeping with the cultural traditions noted above, Chinese leaders are expected to be reserved, quiet, modest, as well as kind, benevolent and patriotic; never outspoken, brash, offensive, or abusive.  It is considered disrespectful to be assertive and declarative in managing staff who are competent — i.e., understand what they are doing.  Team and organizational harmony is a preeminent concern, and leaders are obliged to make sure it preserved.   The Chinese leader’s intentions, therefore, are expected to be loosely formulated, which means there is little pressure to provide all of the big ideas to keep their organizations running . . . “there is a very real sense of being untrammeled, of being uninhibited by the logics of decision-making.”7 (page 132)  Chinese leaders, therefore, have comparatively modest ego-depleting demands.

A common principle among Chinese leaders in keeping with Daoism and Confucian teachings is: wu wei er shi, which is, lead by doing nothing.  Leaders who abide by this principle do not impose their views on their direct reports,  Rather, leaders try to create conditions in which employees do what they think is the right course of action; the right way. However, “. . . even the philosophy of non-action does not prevent individual proactiveness.  One variant of active non-action is no big action (wu da wei) but proactive small actions, which requires holistic insights or foresights into the hidden, underlying forces of the situation and taking small actions that make subsequent drastic actions unnecessary.” 8 (p. 21).

 Implications
We believe E2.0 network technologies fit Chinese methods of reaching a decision and offer a means of enhancing their decision making effectiveness even further.   According to James Surowiecki the wisdom of a “crowd” is enhanced to the extent that four conditions are present.9

Four elements required to form a wise crowd

Criteria

Description

Diversity of opinion Each person should have private information even if it’s just an eccentric interpretation of the known facts.
Independence People’s opinions aren’t determined by the opinions of those around them.
Decentralization People are able to specialize and draw on local knowledge.
Aggregation Some mechanism exists for turning private judgments into a collective decision.

A leader in a fully networked organization in China can involve many more participants beyond his or her personal network in the decisions that must be made.  Consequently, the resulting views will be decidedly more varied, autonomous and widespread.  Plus, E2.0 enables the crowd’s ideas to be aggregated, shared and tagged instantly.  If simple ants and bees can collectively accomplish elaborate coordinated activities and make strategic decisions with extremely high rates of effectiveness for their colonies and hives, one can imagine what a talented and mentally charged Chinese workforce can accomplish for their organizations.  As the worldwide economic environment becomes more dynamic and difficult, the competitive conditions will become more favorable for the Chinese and less favorable for leading Western powers like the US.  The dragon will out think its rivals.

The wisdom of the wise is an uncommon degree of common sense. Dean Inge

 References

1 Hamel, Gary with Breen, Bill (2007, p. 201). The future of management. Boston: Harvard Business School Press.

2 Baumeister, Roy F. & Tierney, John (2011). Willpower: Rediscovering the greatest human strength. New York: The Penguin Press.

3 Henderson, Andrew D., Miller, Danny, & Hambrick, Donald C. (2006, May). How quickly do CEOs become obsolete? Industry dynamism, CEO tenure, and company performance. Strategic Management Journal, 27 (5), 447-460.

 4 Hambrick, Donald C. (2007). Upper Echelon Theory: An update.  Academy of Management Review, 32, 334- 343.

 5 Hambrick, Donald C. & Mason, Phyllis (1984). Upper echelons: The organization as a reflection of its top managers.  Academy of Management Review, 9, 193-206.

 6 Chen, Chao-Chuan & Lee, Yueh-Ting (2008). Introduction: The diversity and dynamism of Chinese philosophies on leadership (pp. 1-27).  In Chen, Chao-Chuan & Lee, Yueh-Ting (2008) (Eds.). Leadership and Management in China: Philosophies, Theories, and Practices..  New York: Cambridge University Press.

   Gallo, Frank T. (2008). Business leadership in China: How to blend best western practices with Chinese wisdom.  Singapore: John Wiley & Sons (Asia) Pte. Ltd.

   Hofstede, Geert & Hofstede, Gert Jan (2005). Cultures and Organizations: Software of the Mind (2nd Ed.).  New York: McGraw-Hill.

   Sun, Hai-fa, Chen, Chao-chuan, & Zhang, Shi-he (2008). Strategic leadership of Sunzi in the Art of War (pp. 143-168).  In Chen, Chao-Chuan & Lee, Yueh-Ting (2008) (Eds.). Leadership and Management in China: Philosophies, Theories, and Practices..  New York: Cambridge University Press.

   Zhang, Zhi-xue, Chen, Chao-shuan, Liu, Leigh Anne, Liu, Xue-feng (2008). Chinese traditions and Western theories:  Influences on business leaders in China (pp. 239-271).  In Chen, Chao-Chuan & Lee, Yueh-Ting (2008) (Eds.). Leadership and Management in China: Philosophies, Theories, and Practices..  New York: Cambridge University Press.

 7 Redding, S. Gordon (1993). The spirit of Chinese capitalism.  New York: Walter de Gruyter (quote from page 132).

 8 Chen, Chao-Chuan & Lee, Yueh-Ting (2008). Introduction: The diversity and dynamism of Chinese philosophies on leadership (pp. 1-27).  In Chen, Chao-Chuan & Lee, Yueh-Ting (2008) (Eds.). Leadership and Management in China: Philosophies, Theories, and Practices..  New York: Cambridge University Press (quote from page 21).

 9 Surowiecki, James (2004). The wisdom of crowds:  Why the many are smarter than the few and how collective wisdom shapes business, economies, societies, and nations.  New York: Doubleday.

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Here they come, continued

One of our central suppositions is the companies, institutions and nations with the most human capitalhave the greatest potential to create the most valuable contributions for customers, stockholders and other stakeholders including their employees and citizens.  By extension, we also assume organizations have the best chances for profitability, customer loyalty, patents . . . survival (i.e., sustainability).  Harmless and useful organizations tend to last longer.

Potential or chance, however, may only be realized to the extent it is wisely exploited.  With apologies to Jack Welch, we believe the team with the best players generally has the best chance to win insofar as the team’s capabilities are effectively organized, coordinated, motivated and focused.  Teams and larger organizations benefit from great leadership for sure if it is available, but at the end of the day, top-level leaders (i.e., the Upper EGO in our EEs-E2.0-Upper EGO model) must have talented employees (EEs), and obviously, more talent is better than less.  Even the best leaders can’t make silk purses from sow’s ears.  Nowadays though, great EEs and Upper EGOs many not be enough for large, complex organizations; social network platforms (E2.0) must also be employed.  We are becoming more and more convinced that executives are paradoxically becoming less and less significant as organizations scale and as E2.0 matures and becomes more widespread. 

Most discussions of decision making assume that only senior executives make decisions or that only senior executives’ decisions matter. This is a dangerous mistake. Peter Drucker

The most important factor in business success now and in the future is the workers, not the bosses, because EEs are the primary source of ideas that are necessary to keep businesses in sync with the granular changes occurring in their political, social, technological and economic environments.  Robert Kaiser, Robert Hogan and S. Bartholomew Craig1 summarized several studies of the effects of chief executives on organizational performance, and the results converged on the finding that CEOs account for just 14% of organizational performance.  The same authors summarized other studies that showed that executive leaders overall drive 20% to 45% of organizational outcomes depending on the measure of performance used in the research.  In our view, executives generally have a bigger impact by depressing organizational performance than by enhancing it.  More often than not, they do the most good by simply getting out of the way and allowing good management, operational and technological processes to be implemented and used where interventions will do the most good.  The people on the front lines are in the best positions to make those calls. To be sure, those few senior executives who can effectively create relevant strategic foci for the organizations as Steve Jobs as has apparently done for Apple and as our EEs-E2.0-Upper EGO model requires are clearly a horse of different color.  Unfortunately, that breed of horse may be an endangered species given the current state of corporate talent management.  When they manage to emerge, it is usually more of a fluke (mutation) than design.  Companies sometimes get lucky.

Most of what we call management consists of making it difficult for people to get their work done. Peter Drucker

The People’s Republic of China (PRC) seems to have the best, certainly the most, human capital of any other nation on the planet.  It has the highest ranked educational system, and the top 25% of the PRC’s working population exceeds the entire workforce of the US; granted that talent is dispersed among a lot more organizations.  Their advanced educational institutions and opportunities are also multiplying, and their quality is improving rapidly.  China’s latent potential to deliver value is enormous and has only been partially tapped so far.

The aspect of their capital that is especially intriguing to us for this dispatch is the cognitive component (see our January 12 dispatch for a review of the other components).  China’s business organizations and political institutions are facing increasingly large and complex challenges, opportunities and threats, and their traditional reliance upon financial capital, networks (guang xi) and hard work will probably not be enough to enable them to main their current rate of growth over the long haul.  For example, a key driver (perhaps as much as 50%) for their recent economic growth has been their ability and willingness to make huge investments2 in infrastructure development, but those allocations may not be sustainable beyond the next three to five years.  What will the PRC as a nation do then to keep its economy growing at a rate of at least 7% — the estimated minimum needed to mitigate social unrest? 

Given current political structures and policies, that riddle must be solved at the macro level by the Upper EGO represented by the Communist Party of China.  We doubt the senior leaders among its myriad business organizations would have much to offer even they were allowed to participate.  It has been recognized since 2005 that China has a pronounced leadership shortage, and relatively little has apparently been done to address the problem.  Most Chinese organizations have not historically devoted much, if any, time, effort and resources to employee development in general, and leadership development in particular.  According to Ding Jinping, Senior Partner and Vice President of Pan Pacific Management Institute, Beijing, most senior leaders in Chinese business organizations “learned about leadership in the People’s Liberation Army” (quoted by Frank T. Gallo3 p. 25).  A 2005 study4 by Development Dimensions International reported that Chinese leaders tend to have low levels of skills in the areas that are frequently regarded as critical to success in business (i.e., getting results, relationship management, coaching and feedback, managing performance).  So, it appears China may be deficient in terms of its Upper EGO talent, which in our view should make the PRC even more reliant upon the wits of its EEs and the capabilities of emergent Enterprise 2.0 technologies (E2.0).  After all, deficiencies that cannot be corrected should at least be counterbalanced.  That deficiency, however, may actually be a good thing in light of our criticisms above. 

As an aside we should note that senior leaders in Chinese organizations are probably not as intrusive or disruptive as US executives.  According to Frank Gallo3 it is considered disrespectful to be assertive and declarative in managing a staff that is competent.  Plus, Eastern leaders in general have had a long-standing taciturn approach to leading and managing.  They tend to provide little direction and leave it to their employees to discern their aims for their organizations.  For the Chinese leader who is surrounded by a staff with wu xing (see below), this approach tends to elicit a broad range of ideas, perspectives, and options.  This style of decision making also allows the Chinese leader the indulgences of “unaccounted-for changes in of direction” which provides an organization opportunities to flex, to adapt and to survive to an extent that tightly controlled, top-down organizations cannot match (see Gallo3 and Redding5 for details).

No institution can possibly survive if it needs geniuses or supermen to manage it. It must be organized in such a way as to be able to get along under a leadership composed of average human beings.Peter Drucker

Chinese EEs may be necessary, but are they sufficient? 
Now, with our next apologies to Peter Drucker6, we can assert the only thing that makes resources productive reliably is talented people; nature, government, economic theory have little to do with it.  We noted in our
last dispatch that China’s workforce may now be ideally suited to the demands that are expected to exist for the foreseeable future, and we have more evidence that their habits of mind are, and will continue to be, advantageous.  The following table elaborates some telling cognitive differences between the West and the East (Note: the content shown is derived from the work of Richard E. Nisbett7,8 and S. Gordon Redding5.

Western/US Habits of Mind
Eastern/Chinese Habits of Mind
World Views (i.e., the environments in which organizations operate)
The world is stable and controllable; agents who can exert control can achieve their aims & desires; conflict is acceptable if it brings success (winning)
The world is dynamic and mostly uncontrollable; the best aim often is to understand & adjust to the world (nature); avoid conflict and friction and seek harmony, balance, dao (The Way)
Agency induces people to focus mainly on objects that can be manipulated and controlled; most everything else may be ignored
Non-agency makes people see they are but a part of a greater whole that cannot be deliberately acted upon; attention can thereby shift to the total environment; control over events, to the extent it is possible requires collective, coordinated efforts among a variety of participants and forces
The world is interpreted in analytical, atomistic terms; objects are discrete and separate from other objects and the rest of the environment
The world is construed as interconnected and interdependent substances (masses of matter); the world is interpreted wholistically from a big picture view; objects are viewed in relation to their environments
In the interest of simplicity & parsimony individual objects are classified into taxonomies and treated like other objects in a given taxa/category
In the interest of authenticity it is recognized that attempts to classify objects tend to fracture nature and thereby distort it; taxonomies also constrict & limit thinking to contrived structures, which lead to artificial constructs that are imposed on nature
New phenomena are sorted into and understood with existing taxonomies based on physical characteristics (inert concepts); things are considered in and of themselves
New phenomena are grasped based on relationships with other phenomena (dynamic relations)
The meaning or interpretation of a novel event is derived from a prescribed definition or other authoritative sources
The meaning or interpretation of a novel event is derived from personal reflection and extensive back-and-forth discussion with others who are likewise striving to achieve a deep understanding (wu xing) of the topic
Situations are assessed from the best supported perspective – preferably the one that has worked in the past and/or one that “keeps it simple stupid” (KISS)
Situations are assessed from multiple, often conflicting perspectives in an attempt to identify complex relationships with possible overlapping and complementary characteristics
People should strive to be understood; be direct and explicit to the point of being condescending if necessary
People should strive to understand and be indirect to allow others to derive their own interpretations
Nouns (objects) matter most
Verbs (processes, relationships) matter most
Change
The world is ultimately orderly; it behaves according to universal & immutable laws, which can be defined & understood; change is a linear progression from the past to the future
Things in the world behave according to context and the nature of relationships with other things; a thing can be different things in differing situations like the Chinese language where symbols/words mean different things in differing combinations with other symbols; any change can be in any direction at any time
Agents of change believe in cause-and-effect (determinism) and main effects – every event has a finite and discoverable set of linear causes; there is a silver bullet solution for most problems and when a problem is solved, it generally stays solved
Nothing exists independently of other things; thus, a change in one thing must lead to changes to all things including the whole; plus, any given state is only transitory; everything in the world is comprised of opposing forces that have but fleeting periods of harmony until they change to a new state and a different harmony (with new opposites); nothing can be understood without considering its opposite and all understanding is temporary
Problem Solving & Decision Making
Decisions arise from competitions that are won as much by tactics as by rational evidence; those who dominate decide
Decisions arise from compromise; attempts are made the find the middle way among views
Decisions are typically made by one or few individuals with bounded rationality and limited processing capability; thus, good/effective decisions are usually limited to simple situations & problems that fit neatly within existing paradigms/models/mental frames
Decisions are typically made jointly by several individuals with diverse perspectives; thus, the burden of knowledge is shared and good/effective decisions can be generated for a wide array of complex situations & problems
Results are what counts; actions are wise if the ends outweigh the costs of the means
Relationships matter most—the degree to which harmony exists across a variety of dimensions; actions are wise if the means are consistent with cultural beliefs and traditions that have endured for centuries and the ends lead to practical, useful outcomes (and face for all parties)

 

In light of those differences, let us overlay a summary of our interpretation of the current worldwide business landscape to judge which orientation, Western/US or Eastern/China, seems to offer the most suitable approach for making resources useful and thereby coping with the realities of the times.  In an earlier comment in a professional periodical we wrote9:

Surely, anyone who has been reading popular business books and periodicals over the past several years has seen the recurring comments about globalization, the speed of change, decreasing product life cycles, increasing commoditization, escalating market segmentation, rising consumerism, burgeoning technological advances, and so forth. Competitive advantages are eroding more quickly than ever before, and most companies, as evidenced by pervasive financial and trade reports, are struggling to keep up.  At the same time, the amounts, types, dispersion, and accessibility of business and technology information have grown enormously, and when these changes are joined with the other factors cited above, one can see that the circumstances for the top leaders in competitive organizations (and other institutions) have, indeed, become very difficult.  Executives are figuratively immersed in a turbulent sea of data and information, and largely because there is so much of it, they cannot grasp it adequately. And, because their resulting knowledge (i.e., understanding) is not sufficient, the strategic decisions they must make are too often not effective, perhaps ‘‘dumb’’ to some (Hambrick, 2007; Icahn, 2008). Admittedly, organizations have always required their executives to assess situations and make business decisions even though the complexities of their challenges are not sufficiently understood or appreciated.  After all, being effectively decisive in the face of ambiguity is ‘‘why they get paid the big bucks.’’ Ambiguity, however, is a matter of degree and it may now be approaching the level of chaos for most executives in the large-cap global organizations in particular. Organizations in the context of the global environment are not simple ‘‘linear systems,’’ and as such they are subject to perplexing disproportionate effects (i.e., butterfly effects; Schneider & Somers, 2006) of a myriad of factors that simply cannot be grasped effectively by any executive or executive team. As Brazil, Russia, India, and China continue to emerge, the sea will surely grow larger and become even more agitated. It appears the problems of just surviving are a supreme test for even the best executive teams. Sustainable success, therefore, is probably only a top manager’s pipe dream in a complex, traditional organization, ‘‘hedgehogs’’ notwithstanding (Collins, 2001).

We believe the organizations comprised of EEs who are able and willing to grasp complex phenomenon wholly and without distortion or bias, and at the same time are inclined to seek concordant solutions with, and not at the expense of, other systems will be the ones that prevail.  Organizations comprised of peoples who are inclined to address system challenges, threats and opportunities simplistically, with rigid, obsolete paradigms and piecemeal solutions, and with aims of controlling, dominating and winning will not remain healthy. Stated another way, the evidence we have compiled so far strongly suggests the capabilities of Western leaders who are inclined to “act on” the systems they purport to lead and manage are not commensurate with the demands they are confronting in their complex, competitive environments.  Western habits of mind and preferred modes of decision making are no longer appropriate, adequate or adaptive.  The Eastern habits of mind and decision making, on the other hand, are more suitable for achieving an effective grasp of true emerging patterns and trends both within and among dimensions and segments of their surroundings.  Thus, the Chinese are better prepared to come up with the right ideas, in the right places, at the right times to use resources effectively.  And, because they rely on larger and more diverse bases of sound knowledge with the load of deciding what to do and how to do it distributed among many more stakeholders, the demands of determining how to keep their organizations thriving and surviving can be accomplished more reliably and with less strain (i.e., they can more readily maintain equilibrium with other systems — in keeping with system theory, complexity theory, and the laws of thermodynamics to name just a few). 

The Chinese business man, thinking in Chinese does not look for simple explanations torn out of context.  Denying the usefulness of formal planning, he prefers to absorb information and to use his intuition to process it.  There is evidence from their business success to suggest this allows for a better match with the complexities of this world. S. Gordon Redding5 (p. 76).

The prevailing paradigms in the East are consistent with natural forces that support organizational success.

Now, let us imagine the effects and benefits E2.0 will provide to these already prodigious advantages.  E2.0 provides a means for Chinese thinkers to share their ideas beyond their existing groups to much larger and more diverse individuals.  Good ideas tend to inspire more ideas, and results tend quickly to become multiplicative when participants with a shared inspirational goal or purpose are allowed to work independently without constraints or interference from above.  A large, fully networked organization comprised of well-educated employees with Eastern habits of mind (and other human capital components) should, therefore, have extraordinary potential, and they may not need a lot of guidance to accomplish useful results with their resources.  Research by E.O. Wilson and others has shown us that simple ant colonies, in spite of the absence of any central authority, are able to develop fairly sophisticated shared tactics for acquiring and processing resources and for competing both defensively and offensively with other insects.  As it turns out, ants have the capability to send and receive low-level information to one another, which in the aggregate leads to the emergence of systematic, coordinated high-level efforts.  Ant colonies thus achieve a formidable and impressive emergent collective wisdom despite their rudimentary, individual brains. Given the habits of mind of Chinese EEs, the latent collective wisdom of organizations in the PRC must surely be vast.  Emergent social network platforms, to the extent they are deployed and used effectively, can provide a catalyst for the emergence of that wisdom.

Sill, we must recognize that human capital, like any input in complex organizations has only indirect effects on business outcomes.  Influences must work through complex chains of cause-and-effect pathways that can never be delineated (by our Western way of thinking).  Plus, the history of mankind teaches us there is always chance that something or someone can change the trajectory of events that appears to be unfolding.  Again, potential or chance may only be realized to the extent it is wisely exploited.  Social network technologies have been key enabling factors in the recent political unrest in North Africa and the Mideast.  Should China’s economy falter and its people become agitated, the National People’s Congress, the President and/or the State Council may act to discourage the use of E2.0 when they probably need it the most.  According to Peter Drucker, a manager is responsible for the application and performance of knowledge.  China’s managers can meet that responsibility in good measure by ensuring E2.0 is deployed. 

Time will tell.  It always does.

References

1 Kaiser, Robert B., Hogan, Robert & Craig, S. Bartholomew (Feb-Mar 2008). Leadership and the Fate of Organizations.  American Psychologist, 63, 96-110.

2 Jacques, Martin (2009).  When China rules the world:  The end of the western world and a new world order. New York: The Penquin Press.

3 Gallo, Frank T. (2008). Business leadership in China: How to blend best western practices with Chinese wisdom.  Singapore: John Wiley & Sons.

4 Bernthal, Paul, Bondra, Jason & Wang, Wei (2005). Leadership in China: Keeping pace with a growing economy.  Development Dimensions International Trend Research Report: http://www.ddiworld.com/DDIWorld/media/trend-research/leadership-in-china_ddi.pdf?ext=.pdf

5 Redding, S. Gordon (1993, p. 72). The spirit of Chinese capitalism.  New York: Walter de Gruyter.

6 Drucker, Peter F. (1973). Management: Tasks, Responsibilities, Practices. New York: Harper & Row, Publishers, Inc.

7 Nisbett, Richard E. (2009). Intelligence and how to get it:  Why schools and cultures count.  New York:  W.W. Norton & Company.

8 Nisbett, Richard E. (2003, pp. 44 – 45). The geography of thought: how Asians and Westerners think differently . . . and why.  New York: The Free Press.

9 Smalley, M. Dale (2009). The executive job is kaput.  Industrial and Organizational Psychology, 2, 173-176

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Here they come

We have seen compelling evidence that shows Chinese businesses enjoy one of the best educated workforces in the entire world.  The question that interests us is: how will all of that knowledge stuffed between their ears be used in their emerging economy.  Large, multi-national organizations compete in increasingly dynamic and complex conditions, and as Chinese businesses grow larger and move up the value chain, more and more of their companies will be drawn into that maelstrom.  The Chinese have excelled in recent years in the production of simple, low-cost goods and some services, but what will happen when the continued growth of their economy (and the stability of the existing political regime) depends on the success of large number of companies that must compete in world markets with the likes of GE, Royal Dutch Shell, HSBC, Caterpillar and Nestlé?  We will consider the cultural hurdles and constraints on innovation, entrepreneurship and enterprise in future dispatches.  Here, and in our upcoming August dispatch, we are interested in their abilities to deal with complicated business challenges and problems.  Our review of the research so far leads us to believe the Chinese “habits of mind”1 may make them uniquely suited to the tests they face.

According to S. Gordon Redding, the Chinese “see the world differently”2 from other people.  It is decidedly more overt than Western thinking in that it tends to be concentrated on objective matters in the world as they see it, and it usually has little to do with private ruminations relative to personal standards, frames or feelings, which generally serve as sources of bias (i.e., systematic errors in thinking and judgment).  Things are regarded as groups of relations among opposites – an apparent phenomenon and a lesser apparent opposite; causation is the result of tension between the opposites . . . hermeneutic reasonableness anyone?  Richard Nisbett, perhaps the leading authority on the differences between Western & Eastern cognition states, “Asians view the world through a wide-angle lens, whereas Westerners have tunnel vision”3.

Nisbett and his colleagues have conducted a series of studies that show people from the East tend to pay more attention to the field (i.e., context, environment) and relationships among objects; Westerners are disposed to attend solely to a few focal objects.  Plus, Asians tend to be more accurate in detecting relationships among objects and events in the environment.  Chinese children, for example, are apt to notice and describe (in a matter-of-fact fashion) more details about events than American children.    The upshot from these finding to us and our concerns in this blog is that the Chinese way of thinking allows them to attend to more complexity, and to grasp it more effectively; they also have better capabilities to make effective decisions about what they see.  Now, couple these findings with the previous comments and observations we have made about Chinese human capital, and it becomes abundantly clear that the Dragon will have some formidable competitive advantages when it more fully enters the “big leagues” of making and selling high-tech products and sophisticated financial services.   We think Enterprise 2.0 technologies will enable them to literally turbo-charge these capabilities.  The unaided decision-making among a few sanguine elites can never match the prowess of diverse, gifted and highly motivated masses whose talents can be focused, aggregated and amplified to deal with really difficult issues.

We will provide more illustrations next month.

References

1 Nisbett, Richard E. (2003, pp. 44 – 45).  The geography of thought: how Asians and Westerners think differently . . . and why.  New York: The Free Press.

2 Redding, S. Gordon (1993, p. 72). The spirit of Chinese capitalism.  New York: Walter de Gruyter.

3 Nisbett (ibid, p. 89).

 

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