Towards a Learning-based Economy

Earlier this year, I encountered this interesting article by Stuart Kauffman, an American theoretical biologist and complex systems researcher (thank you Wikipedia). I was reminded of it after seeing The Social Network, which I highly recommend.

Offering the origins of Facebook and Silicon Valley as examples, Dr. Kauffman argues that we cannot know in advance how growth in an economy will occur.  Consequently, policymakers alone cannot fathom in advance how they ought to adjust the millions of pages of legislation and the thousands of public entities necessary to facilitate and accompany the process of change. In his concluding remarks, he offers what I find is an good summary of the likely way forward: “Probably, the solution involves thinking of the meta-structure whereby policies co-evolve with capabilities and production.”

I’ve had the privilege of working on several quite interesting consulting projects in the Middle East focused on building better institutions of economic development, and I believe that they are exactly what Dr. Kauffman has in mind.  Through work in UAE and more recently in personal conversation with Professor Hausmann at Harvard Kennedy School, I found that two of the most important of these institutions are development banks and industrial cluster authorities (like Mubadala and ZonesCorp in Abu Dhabi).  The latter incubate social networks and bring people together to diagnose binding constraints on growth, which development investments can help to relax and remove.  The former channel savings into development investments, while providing a competitive arena for incubating good ideas.

That brings me to the point of this post.  If industrial clusters are one key source of information that entrepreneurs and policymakers in an economy can leverage for continuous improvement, then a third set of institutions, those focused on export promotion, are another key source, albeit typically broken and misunderstood.  What I mean to say is why don’t more countries have export marketing agencies instead of export promotion agencies?

In one of the best business books I’ve read (up there with Chasing the Rabbit and The Fifth Discipline), the authors of Blue Ocean Strategy explain how listening to the right customers can unlock new market spaces.  Southwest Airlines listened to bus and rail commuters in order to better understand consumer demand for point-to-point air travel.  The key word is listen — the “right” customers will “pull” in the right direction.  Now let’s take a look at export.gov, the online window for American firms to seek help in promoting or “pushing” their exports.  Options available on the site are: promote my products overseas, protect my IPR, file a trade complaint, get USG advocacy, attend trade shows, and participate in trade “missions”, to name a few.  The mission statement is more telling: “We promote and protect U.S. commercial interests abroad and deliver customized solutions to ensure that U.S. businesses compete and win in the global marketplace”.  Quite a far cry from the “listening” approach… more like “We’re gonna smoke ’em out!”

The Singaporean equivalent of export.gov is IE Singapore; see the difference in rhetoric: “With a global network in over 30 locations and our 3C framework of assistance – Connections, Competency, Capital, we offer products and services to help enterprises export, develop business capabilities, find overseas partners and enter new markets […] IE Singapore’s global presence and extensive network of key business and government contacts offer companies the necessary connections to venture overseas.”

The quotes are cherry-picked, sure, and the improvement over the rhetoric of export.gov is perhaps only subtle, but I think the point is clear and the implications are tremendous.  The American institution that serves demand for American export promotion services sounds protectionist because it is.  Why don’t they take a longer view?  Why not make it their mission to “build relationships with potential customers to understand real needs in a fast-changing global marketplace”?  Why not view the energy efficiency improvement needs of China as an opportunity?  Or the hunger needs of India and Bangladesh?  Or the basic medical goods and health services needs of Sub-saharan Africa?  Maybe we just have a geographic problem, being physically located far away from the rest of the world.  Or maybe we just need to get on the metric system, teach more Spanish in schools, encourage kids to study abroad and develop a global perspective… okay, deep breath.

If a knowledge-based economy is the destination, then a learning-based economy is the journey.  Business School 101: promotion is merely the process of notifying customers for your product or service of your availability to serve them; marketing is a process of building relationships and mutual learning between a firm and its current and potential customers in order to create, capture and deliver value.  In the context of institutions of economic development, I think of that process of learning as taking place among introverts on one hand — the domestic industrial clusters that self-discover constraints on growth and advocate for change — and extroverts on the other hand — the export marketing authorities that should serve to build relationships, empower international consumers to self-identify, and educate local firms on the great many global causes worth serving to create value for all.

From Deming’s TQM to Crowdsourcing

Here is an interesting article on the future of crowdsourcing for marketing and innovation in business.  The author is my brother-in-law, Andrew Eklund, Founder and CEO of Ciceron Digital Marketing.

My reactions:

I wholeheartedly agree with Andrew that now, more than ever (and increasingly so), technology is enabling companies to better incorporate inputs and feedbacks from their customers.  For context, I must say we have come a long way since Deming’s TQM movement toward understanding the holistic and complex systems that comprise ‘the firm’.  Peter Senge wrote about the importance of systems thinking in his book The Fifth Disclipline: The Art and Practice of the Learning Organization (1990), highlighting the various feedbacks that enable or undermine sustainable long-term growth, not the least of which stem from customers.  Deming himself, in the forward to Senge’s book, acknowledges the importance of these feedbacks.

Now 20 years later (and following much discussion of the success of Dell’s customer centricity, Southwest Airline’s unconventional approach to market research, the crowdsourcing revolution in open source software development, and Steven Spear’s new look at Toyota’s culture of “dynamic discovery”), pretentious management consulting “thought leaders” are now pointing to the Power of Pull as the new frontier for value creation (the Economist published an excellent book review just last month).

But let’s just hang on a sec and recognize that every individual I’ve mentioned here is American, and that fact carries some big implications.  Setting the high-tech aside (as Andrew does as well, as he acknowledges the revolution in open source software development) and focusing on manufacturing, retail and consumer goods, many American firms have notoriously lagged behind their Japanese counterparts in their ability to understand the customer and anticpate demand trends.  Just look at Toyota’s Prius, 7-Eleven Japan’s innovative point-of-sale customer feedback system, and Kikkoman Corporation’s incredible 407-year survival (making it the oldest company in the world).  What’s with these Japanese?  Could it be that Japanese firms are learning more from their customers than American firms are learning?  Could it be that Japanese customers are just plain smarter and have more to say than American customers?  Well, on average, they’re certainly older, and the aging of their population may make them even wiser still.

Back to the U.S., here we have a population whose fertility rate was stagnant for a while, but is actually increasing again.  Now I’m not saying we’re going to get dumber (fingers crossed), but let’s just acknowledge that crowdsourcing is only productive insofar as the crowd is wise.  In part that’s what Southwest Airlines figured out (see Blue Ocean Strategy by Kim and Mauborgne) when they started seeking the valuable feedback of point-to-point bus and rail commuters instead of frequent flyers.