Wednesday, February 25, 2009

Stimulus, risk and innovation

Apart from those businesses that will land the plum infrastructure construction jobs under the second economic stimulus package that seems to be taking forever to be announced (now it's March 10), the rest of Malaysian businesses must make some crucial decisions. The stimulus package is not the Panadol or Aspirin that will cure financial and business headaches.

It is still left to businesses to decide whether to innovate. It is still left to the towkays to decide their risk appetite. All these will still be present even after the stimulus package is announced.

Here are some pertinent points:

The challenge to innovate
Businesses tend to produce much more rhetoric about innovation than innovation itself. Why? We all agree innovation is a good and necessary thing, so why don't we do more of it? 

One important reason is that innovation is a collective activity. It depends on how the people around us define bold and acceptable as opposed to reckless and stupid. 

It takes very unusual independence to ignore the prevailing view.

Times of crisis make such challenges especially difficult. Even though we understand perfectly well that we need to be nimble, fear can lead us to suicidal levels of risk aversion and inflexibility. That's dangerous, but it's also understandable. The status quo can be very seductive when the marketplace is in chaos.

Encouraging calculated risk-taking
As the management authority E. H. Schein puts it, leaders communicate their priorities through what they choose to measure, comment on, praise and criticize. This is crucial, for employees tend to focus on what they know to be the senior team's priorities. And if it's true that a clearly understood culture directs employees and imbues them with confidence, it is truer still in a crisis, when expediency can play havoc with corporate visions and values.

How can we instill a culture that makes everyone wisely embrace risk and figure out new ways to build revenues? 

Here are three suggestions: 

(1) Ensure employees see unanimity across the senior team about the firm's priorities.

(2) Encourage mistakes. "If you fail, try again. Fail again. Fail better," said the playwright Samuel Beckett (we can learn a lot from the creative process).

(3) Make teamwork and collaboration desirable. Complex problems require collaborative solutions. Where leaders fail to persuade their people to collaborate, ambiguity and competitiveness rush to fill the vacuum.

Microfinance: Mohammad Yunus and Grameen Bank
In 1976 a young academic named Mohammad Yunus lent $27 to 42 businesswomen in a Bangladeshi village. They had good ideas, but banks considered them too risky to lend even small amounts to. 

Yunus wanted to help them avoid the moneylenders whose rates were eating up their profits. His tiny initiative grew until it became Grameen Bank, which has now lent $5 billion to 5 million people. 

Some 70% of Grameen's borrowers also save there. It makes profits and pays dividends. And its credit rating is the envy of many First World banks. In 2006 Professor Yunus and the bank jointly earned the Nobel Peace Prize for economic and social development.

Opportunities are there, if we dare to see it
Nobody dares trivialize the present financial crisis, which daily claims more victims. But we can still choose whether or not to see opportunity.

A big first step is to look at how we see risk and to foster an organizational culture in which both the bosses and employees look at risk honestly and take it when it makes sense.

(This post is loosely based on Kevin Kelly's piece in Forbes.


walla said...

What applies to a company applies as much to a country. Taking risks to innovate new ways out of old and repeatedly weak situations of a country requires coordinated teamwork between government, industry and individuals just as the health of a company is nursed by the collective teamwork of all its employees from cleaner to ceo.

But all can only work together if all the facts are presented clearly and completely so that there be no two versions to any one situation. Often this is not done simply because the gatekeepers and custodians of information think it too risky for others to know what is the real situation, thinking that their opacity is the lesser evil to play for time on a situation whose transparency will only exacerbate other complications.

That's why scams in one state can be repeated in another using the same modus operandi at costs of billions which could have been earlier detected if professional reports had been released earlier.

Or the payment of rents for infrastructure involving terms that were not more rigorously scrutinized for what would amount to transgressing the original intent and objective of the mechanism.

When no one either in company or country enforces so that mistakes are not repeated, then they will be repeated because the organizational construct in which they operate is itself benign to the propagation of good governance.

In such a situation, not only will the enterprise suffer, the individuals who had believed in its ideals will also suffer, as will the bottom-line and reserves upon which all inevitably depend upon to save for another rainy day, another crisis, another pit-stop in life.

The blossoming of innovation is aided by the reduction of friction which is dissipated by the clarity of vision and purpose leading to precise actions that are untainted by the vagaries of human nature.

Anonymous said...

Good evening sir!

I like reading this blog tremendously. Your input on economic aspects are very well written. The case of Grameen Bank I believe is being used by the current government with the setting up of SJKP Sdn Bhd etc.

I hope you will find the time to read some of my writings in and give some inputs.

Some of the must reads are:





Thank you so much sir.

warmest regards,

Anonymous said...

Sorry, hopefully you can link my blog to yours as well..

Thank you.

de minimis said...


Good observations, bro.


I will certainly be dropping by :D