Mass Immigration, the Growth Imperative and the Creative Metropolis

In Switzerland, votes can quickly turn into a political thriller accessible to the public. Here, the people as the ultimate sovereign has the right (which is rather exceptional compared to other countries) to say “stop, not like this!” in a vote, notwithstanding the recommendations of its government, of wealthy interest groups or expert warnings. This was the case with the recent initiative against mass immigration launched by the SVP that has won with a narrow majority of votes. 

The reactions to this result produced quite predictable waves of indignation, hyperbole and panic (while the winners’ joy was a bit muffled): Switzerland at the economic abyss, an isolated island of happy xenophobes, a nation of spoiled farmers who tore open the “Röstigraben” and slapped the EU.

Is this outcry justified? 

China’s Silver-Spoon Generation: How does it Impact China and the West?

In China the 90s generation is entering the employment market. During my visit in the last weeks in Hong Kong, in Guangdong Province and in Shanghai I met with many managers from manufacturing companies all complaining about the troubles they have with the generation’s representatives: They leave working places too often for smoking or playing e-games. They try to dodge work as much as possible. If another company offers just a minimally higher wage these employees suddenly change the company. In short, they are said not to be very productive and to lack loyalty vis-à-vis their employers.

I was quite surprised that exactly this issue was picked out in an article of the English-written Chinese paper “Global Times” when I read it for the first time. The article basically says that the 90s generation is unconventional, innovative, rebellious as well as self-centred. It is flexible and quick in learning. And, it is the first generation in which a really diversified set of values exist: everyone sees herself as different. This stands in strong contrast to the 70s and 80s generation of which each knew a quite homogenous set of values. The 90s generation is the 2^nd generation of rich. Because this generation’s elders became rich in the reform era its children have grown up with a silver spoon in mouth.

The silver spoon generation is still quite young. It is most likely too simple to reduce this generation to the actual troubling behaviour in companies. The question is how will this generation behave in some years when it has developed itself further? What implications does such a self-consciousness and value-diversified generation has to China and the rest of the world?

In the West we know e.g. the 68s generation. Although a comparison of China’s 90s generation to the 68s must be treated with caution there are some clear similarities: Both have grown up in economically prosperous surroundings; both are individualistic and differ themselves from the older generations through more open and more diverse values; they are creative and innovative; the older generations are rather negative to the ideas of these new generations.

Ideas of the 68s we may recognise e.g. in the IT industry. The ideal of openness underlying the internet and other computer-technologies is often brought in context with the Hippie or 68s generation. Early IT-cracks indeed often stayed together with Hippies (Steve Jobs e.g. lived for a certain time with Hippies in the USA, travelled to India in search for illumination, and even sometimes took LSD).

Today we know that although the older generations often were negative towards the youth of the 68s this generation had a big societal impact and also created some very successful and innovative entrepreneurs.

It is quite likely that China has the potential to boost its innovative power with its 90s generation. But, it is decisive that this young generation understands to bring in and develop their creative skills constructively in the next years. With these young people it is probably possible for China to leave its learn-by-heart mentality in education. For the rest and the West of the world this means that it has to envisage more innovations from China. The positive thing for the West and the rest is that they can profit of these innovations as consumer or user. But overall it is highly likely that global competition will become harder again. Therefore the West has to hold on the curiosity (at the functioning of the world) which was born once during Enlightenment. In this tradition it has to have the important and necessary courage to ask not only big but also unconventional questions.

Culturally the West is still very innovative and attractive, with a charisma also to other regions, including China. It will be interesting to see what influence the 90s generation will have on the cultural understanding and on political institutions of future China. This is even more difficult to prognosticate than the economic implications.

Claude Meier

Tradition as a source of innovation?

At first sight, tradition is not a genuine source of innovation and dynamism. However, the Jura region, one of the most peripheral areas of Switzerland, has a long tradition in watch making, and is one of the most dynamic regions of the country. What might be the reason? A few thoughts on leadership, innovation, stakeholder-networks and tradition.

The news: According to a Credit Suisse study, the Jura, one of the peripheral, rural areas of Switzerland, ranks among the top 5 of the most dynamic regions of our country http://snipurl.com/22lul1s.

Switzerland is often associated with banks, chocolate, cheese and watches. Among the respective industries, the watch making industry is the most dynamic presently. The Swatch-Group, mother of many world famous brands, is growing rapidly, and presenting new record-breaking results. Growth comes from all regions of the world, and from all customer segments.

But not only the great market dominator, also many smaller Swiss watch brands are very successful and dynamic. Many – or almost all of them – are located in a peripheral area of Switzerland, where no one would expect dynamic global industries. Some of the most delicate, complicated and sought-after pieces are handcrafted to highest precision standards by dedicated people with very specific skills and knowledge in the region of the Jura mountains.

Asked for the reasons of success, one of their answers is that there is no other place in the world, where so many people have had the knowledge and tradition of watchmaking for such a long time. In many towns and villages, watches have been made for more than 200 years.

Tradition may be a source of success, just as much as it may be the reason for lethargy. So the question is how tradition can contribute to success. Tradition is a form of sharing knowledge, not only today, but also through generations. It is a form of sharing knowledge in a way that cannot be replicated by the most sophisticated software. Tradition expands the stakeholder network to the dimension of time.

In the case of watchmaking in the Jura, tradition is the success-critical intangible asset of a whole region. It preserves supra-individual inspirational resources that condense to creativity and even to innovation if the right people are brought together, to follow the same vision.

In the 1970ies and early 80ies, when cheap Japanese quartz watches conquered the global markets, the Swiss watchmaking industry almost disappeared. The watchmaking companies of the Jura regions lost their license to innovate, as well as their license to compete, and people lost their jobs. But most obviously, knowledge, tradition and specific skills survived. When Nicolas Hayek, the founder of the Swatch Group reanimated the Swiss watch industry from its coma, he could rely on what I previously called the “supra-individual inspirational resources”.

Hayek was the core of condensation for the resurrection of a whole industry, and a whole region. Of course, he was a visionary leader. But visionary and charismatic individual leadership is not the whole story. Leadership flourishes on the foundations, and out of a specific culture and tradition, of shared knowledge. It emerges within a stakeholder network that reaches out not only in space, but also in time.

Tradition, culture – “supra-individual inspirational resources” – may trigger leadership, innovation and dynamics with people, in regions where no one would expect them.

Christoph Weber-Berg

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Creative Destruction or Simply Destruction?

Sybille Sachs highlighted in her last post (New path to innovation) some of the questionable business-practices surrounding corporate cost-cutting. I would like to provide here a concrete example I experienced in my years in the corporate world and further consider the short-term and long-term consequences of such company reorganizations and cost-cutting.

In the 1990s I had the pleasure to work for a rapidly growing, privately held start-up company in the medical laser industry. I use the word “pleasure” with deliberation, as the motivation, dedication and team-spirit were wonderful – and that despite working long hours, not having any huge bonuses or enticing stock-options as carrot-sticks dangling in front of our noses. The morale in the company was high because input (in terms of resources, effort and creativity) was readily recognizable in concrete results.

Then the company was purchased by a publicly traded corporation.

Within months a “reorganization” was initiated that resulted in the suspension of research projects, the dissolution of numerous prospering business relationships and the attrition of - in several rounds - employees. All this was undertaken in the name of “business consolidation” and the concomitant cost-cutting. The investors and stock market loved it: the corporation’s share price exuberantly jumped in response.

On the “inside”, however, the result was exactly the opposite: a sharp drop in employee motivation and rising cynicism, erosion of trust and know-how and – eventually – evaporating financial returns by the corporate subsidiary we had become. Indeed, within 18 months employee count had roughly gone down by a third and a company that boasted 35 million dollars in revenues, posted at best half of that number. The share price of the corporation subsequently dropped from (if I correctly recall) about 40 dollars a share to only 4 dollars a share!

Granted, a multitude of factors played into this precipitous drop in share price. But that these “cost-cutting” activities contributed in some form to the financial fallout in the stock market is self-evident. Less evident, however, are the larger implications of such “cost-cutting” strategies.

First, despite any strong personal penchant for valuing people over profits and striving towards not making ends justify means, it must be recognized that on a larger, macro-economic scale, such “destructivity” could indeed be part of Schumpeters’ (in)famous creative destruction. The American “churn” model of hire and fire, while often with terrible personal, social and innovation costs, does (or at least did…) permit considerable labor flexibility, speed of economic rejuvenation and knowledge transfer as employees and resources shuttle from company to company. For me, after having been let go in the second wave of attrition meant that I suddenly had the needed motivation to get out of the corporate world into an environment more suitable to my aptitudes and taste.

Second, however, what may be “creative” at one place (or time or for any one person), may not be thus in another. For a large and fluid labor market as the USA, the churn model may have been a viable option. For a more segmented and embedded labor pool as the EU, it seems less so. And for a very small and very much socially rooted labor pool as Switzerland, the “churn model” would have catastrophic socio-economic and likely also political consequences.

Not surprisingly, this is indeed what one discovers, as was once again poignantly illustrated to me during a recent lunch I had with a scientist at the Massachusetts Institute of Technology, who was involved in a start-up company with a footing in both Switzerland and the USA: he complained about how difficult it was to get start-up funding and start-up employees in Switzerland as compared to the USA. He readily understood, however, that the American model would be unsuitable for Switzerland, as the capacity to sustain “churn” was significantly smaller for tiny Switzerland. Nevertheless, both Switzerland and the US have highly productive and competitive economies, each remarkably well adapted to their particular socio-economic and geographic “biotope”.

Indeed, we know from biological organisms as well as biotopes that change is vital for the survival of an organism or a species. The challenge for all organisms (and biotopes) is to find that “sweet-spot”, sometimes referred to the “edge of chaos”, where change – and thus innovation – is maximized without sliding into chaotic destruction. Much the same may hold for an economy. But while one may well entertain such questions about an entire economy, it is another matter entirely to what extent such “creative destruction” or “churn” is to be a desirable for individual human beings.

If humans are to be ends in themselves, any corporate strategy that facilely treats employees as mere cost centers risks devaluing human life per se. And history is unfortunately replete with examples of where that can lead to…

Manuel Heer Dawson

 

New path to innovation In an article titled “The Pharmaceutical Industry Faces a Horror Year,“ a Zurich newspaper (http://snipurl.com/21qcbem) writes, that leading pharmaceutical firms like Pfizer, Sanofi as well as Novartis are facing the loss of patent protection for important top products this year, and are therefore facing major revenue losses. Interestingly, these firms are confronting the situation with drastic personnel cuts in different areas, which includes such as how to respond to clinical developments. Cost saving has to begin immediately. However, proceeding this way raises questions. First, investigations show[i] that personnel cuts, particularly in the long run, do not bring about the desired success, unless a strategic reorientation occurs at the same time. In an extensive empirical study the authors were able to show that the size of the employee cuts is not a factor in explaining the post-downsized performance. A further point concerns “survivor sickness” studies[ii]. They show that personnel cuts have an array of negative consequences, also for those who remain at the firm: “Research indicates that survivors exhibit a plethora of problems, such as demotivation, cynicism, insecurity, demoralization, and a significant decline in organizational commitment”[iii]. One also speaks of the difficulty in diagnosing dysfunctional side effects of personnel cuts. They often lead to slumps in productivity. In addition, if one considers that in the knowledge oriented society of today, knowledge is often a more important success factor than capital. There is then the danger that for every cut in personnel, the know-how networks will be destroyed and important knowledge bearers will be discarded. Indispensible resources for future core competences may be lost. It is also striking that the only reasons given for the personnel cuts are the costs, but never the revenue side of the coin. By strengthening R&D capacity, setbacks could be absorbed. Is it therefore sensible to dismiss people in the area of research and development? Wouldn’t it make more sense to encourage targeted cooperation with stakeholders that possess special knowledge, in order to stimulate the innovative productivity of the firm’s own R&D?[iv]. Also in our own empirical investigations, we have always found impressive examples of cases, where firms that work together with their stakeholders have been able to substantially increase their license to innovate (see Sachs, Rühli 2011, page 114 ff). In this regard an interview partner (page 118) mentions, “The suppliers are creative and often involved as they try to find new solutions for the market….They act as accelerators who give us new ideas….And very often the supplier is also a strategic thought leader….” Especially in the area of innovation, firms should not only engage in professional stakeholder management when the turnover drops. Our examples show in fact that not only the firms improve their license to innovate but also the involved stakeholders, which motivates them to further cooperation. Based on the above, we can conclude that managers, practicing personnel cuts with the argument of saving costs, have an obligation to demonstrate that they also have the above mentioned consequences under control, e.g. the benefits. It should be carefully examined if the multifaceted disadvantages and damage of personnel cuts are not, in fact much higher than the advantage of short-term cost savings. Sybille Sachs

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[i] Garry D. Bruton, Kay Keels,  Christopher L: Shook, Downsizing the Firm: Answering the Strategic Question, Academy of Management Executive 1996, Vol. 10, No2, pp- 38-45

[ii] E.g. Firns, I., Travaglione, A. and O'Neill, G. (2006), Absenteeism in times of rapid organizational change. Strategic Change, 15: 113–128. doi: 10.1002/jsc.757

[iii] Ibid, p. 2

[iv] E.g. with lead-users, see Christopher Lettl, Cornelius Herstatt, Hans Georg Gemuenden,, Learning from users for radical innovation, International Journal of Technology Management, 2006, 33 (1), 25-45

The Power of Positive Motivation In various messages at the turn of the year, the sense of community was mentioned as the primary basis for society, which needs again to be promoted in order to counterbalance self-interest as the mainspring of human behavior. When a person concentrates on his self-interest, as foreseen in the concept of human beings as homo oeconomicus, then he is mainly concerned with himself and his needs. Others very quickly become rivals. In his professional life he is motivated to use his knowledge and ability to earn as much money as possible, so as to better satisfy his own needs.  According to a popular expression, “The more he has, the more he wants.” If, however, our understanding of human beings causes us to see our relations with others as being of primary importance, then we will carry our knowledge and ability into our relationships. In this way, knowledge and ability can be combined innovatively and developed. In this context Erich Fromm distinguishes between active and passive motivation, and emphasizes that human beings need to interact with other human beings primarily with active and not only with passive "motivation." Passive motivation focuses on controlling an interaction, for instance to protect property. The output of these interactions can be described as "having." In contrast, active motivation considers "being" as "process, activity and movement." Fromm describes motivation as an activity between two human beings as follows: "He gives him of his joy, of his interest, of his understanding, of his knowledge, of his humor, of his sadness – of all expressions and manifestations of that which is alive in him." (Fromm, E. (1956). The Art of Loving. New York, NY: Harper & Row, p.24). With respect to knowledge, Fromm offers the following examples to contrast active and passive motivation within human interaction: "Having knowledge is taking and keeping possession of available knowledge (information); knowing is functional and serves only as a means in the process of productive thinking." (Fromm, E. (1997) To Have or to Be? London: Continuum, p. 33). In our studies of stakeholder relations in practice, we found numerous examples in which Fromm’s concept of positive motivation led to innovative, new solutions. (See chapter 7, Sachs, Rühli 2011). The basis of this motivation is the desire to respect and understand and thereby to replace going solo with a sense of community. Sybille Sachs