Good busy and bad busy

What should you call “work”? 

I define work as whatever needs to be done to reach a certain goal. If you work in a company, this outcome is usually about producing revenues and EBITDA.

Productive work is essential. On the contrary, producing an intermediate outcome is not work by itself. Communicating to your team that you have reached an intermediate task, or that you are in the middle of something but have not reached your goal yet: this to me is not work. People often delude themselves into thinking that they are really busy when in reality, all that they are doing is sending emails around.

Spending hours on tasks which do not contribute to reaching an outcome is not work either. Carrying out a repetitive task, which was defined as part of a routine some years ago in a specific situation, but brings no advantage or added value whatsoever is the present or the immediate future, is not work – at least from my perspective. This is sometimes called “bad busy“. 

What can be done to promote effective work? 

What can you do if you come to the conclusion that your team is doing work that is not leading to any substantial outcome?

The first step would be to analyse the situation: is your team working effectively? Is your team reaching its objectives? If not, there are usually 4 scenarios:

1. Wrong objectives. In this case, the first step towards a solution is obviously to communicate objectives that are meaningful and achievable
2. Right objectives, inadequate execution. In this case, objectives are not reached because you or your team are performing the wrong tasks. Focus on useful tasks, rather than losing time with repetitive, useless tasks or discussing intermediary outcomes
3. Right objectives, fear of failure. Do not fear failure, embrace it. It is part of working life. Think of the dire consequences of inaction
4. Right objectives, procrastination. Often the best solution is to stop altogether and fix and existing emotional problems. If one of your team members has emotional problems about work, do not assume that will improve with time. It will likely worsen. These types of problem are quite tricky to solve and it often is down to the individual concerned to make an effort towards a resolution.

Financing innovation during a credit crunch

We spend a lot of time discussing the need to cut Government debt. While this is legitimate, we keep forgetting that in every 6 SMEs in Portugal, one has failed its debt repayment or interest payment obligations.

If you think that companies are adjusting to the crisis by reducing their debt, think again. The debt/GDP ratio for private, non-financial companies was on the increase until 2012 and only recently has there been a change in this trend.

Debt of non-financial private companies in Portugal as a % of GDP, 2009-2013. Source: Bank of Portugal (2014)

The difficulty here is that this lack of credit creates a bottleneck for the financing of innovative projects. The credit market has been affected by the economic crisis. The main problem of the commercial banks is to restrict the concession of credit at all costs, to manage their loan portfolio. This means that innovative companies are unable to get access to bank credit to finance their expansion. It is difficult for the banks’ existing clients to draw credit, let alone for new projects which are inherently risky.

Sources of financing for a sample of start-ups based in Lisbon (2014). Source: Macrometria

In a recent survey, Macrometria found that bank financing accounts for 2.8% of total financing sources for a representative sample of start-ups in Lisbon. As banks seek to cut their credit exposure, and existing funds are used to re-finance over-indebted companies, the true losers are start-ups and ultimately, innovation itself.

On the other hand, bank debt is not being used to finance start-ups and this can be seen as a positive. The current business culture relies excessively on debt. The next stage of recovery will be sustainable if companies learn how to grow using equity. If the excessive levels of debt as a source of financing were one of the reasons for the anemic growth of the last decade.

Need for speed [Economics and Policy]

Ever since the country went into financial assistance mode, the Portuguese Government has cut costs essentially by reducing wages and pension benefits. Why is it so hard to admit that, inevitably, some Government institutions are less efficient than average and less efficient than in other European countries? Would it not make sense to conduct some benchmarking and implement reforms?

There is a pressing need for efficiency improvements and this would almost certainly involve merging the significant amount of small institutes, independent entities and regional authorities that were created in the past 20 years.

Hopefully for the better…

The advantages would far outweigh the disadvantages: fewer needless consulting committees, boards, and commissions. Increased efficiency, leaner organisations employing more qualified civil servants would all result in sustainable cost savings.

This Government’s stated aim of tapping financial markets ASAP could create the wrong incentive. This need for speed could well become a way to avoid deeper reforms which would result in a leaner Government sector.

Se vogliamo che tutto rimanga com’è bisogna che tutto cambi (2)

Are there any alternatives to the measures currently being implemented by the Portuguese Government under the supervision of the IMF, the Commission and the European Central Bank? The actions implemented up to date amount to an increase in taxes and cuts in civil servants’ pay and pension costs. While this is an effective way to make sure that the country can meet its debt obligations, little is being done to increase Government’s efficiency.

Current estimates show that 12,000 entities can carry out public procurement (according to OPET). That compares to about 800 in Ireland. In 2013, Government entities spent an estimated 15 billion euros in the acquisition of goods and services to third parties (similar to operating expenditure in company accounting). This represents roughly 20% of total Government spend. A simple 5% reduction in this expenditure would cut costs by 750 million euro on an annual basis.

How can this be achieved? It would almost certainly involve merging the plethora of institutes, regional entities, hospitals and other institutions. In Portugal, nearly every State-run hospital is a standalone company, as is every school. It would also involve using electronic procurement platforms in a more efficient way. Local Government and indeed political parties would have to adapt to this new reality.

What are the odds that this will happen in the coming years? As I wrote before, everything needs to change, so everything can stay the same.

Leonardo da Vinci, innovation and execution speed [story]

It is not easy to write about Leonardo da Vinci, a man of genius. Various serious authors (i.e. more qualified than me) have written about him. Here are some notes following a visit to an exhibition at the Accademia in Venice.

Leonardo was perhaps the original Renaissance Man, highly competent in a variety of disciplines, from painting to engineering. His technical notes, much like his paintings, are both detailed and beautiful. He was incredibly advanced for his time – we are talking about the 16th century.

Leonardo used analysis and research to solve a variety of problems, both artistic and scientific. As a trained artist, the observation of reality was one of his priorities. He was also fascinated by mathematics, which formed the basis of his investigations.

It was interesting to find out that he was rather slow in execution. This infuriated some of his patrons. One of the most famous episodes is Leonardo’s horse, a sculpture commissioned by Ludovico Sforza, Duke of Milan. It took Leonardo 7 years to produce a clay model. By that time, the French had invaded Milan and ousted Sforza. French soldiers ended up destroying the model.

The conventional wisdom is that Leonardo was not particularly concerned with producing results but rather with tackling difficult problems. However, it could have been the other way round: the world around him was not sufficiently organised to channel his creativity, or his sponsors were too impatient to invest in what you would today label as R&D. There are other, more elaborate explanations for Leonardo’s behaviour, namely a psychological analysis by Merleau Ponty which suggests that Leonardo had a deep-rooted problem with authority.

While da Vinci was clearly a genius, today’s innovators are likely to share a number of traits with him, including the drive to solve problems in a new way. But innovation and speed of execution do not always go hand in hand. Specifically, product development often takes longer than expected and shareholders are impatient by nature. There is evidence that in the case of quoted companies under intense analyst scrutiny, managers feel pressure to meet short-term goals and invest less in long-term innovation projects. These managers are not slackers, they just tend to get more cautious when the amount of scrutiny increases. The other side of the equation is that equity research analysts are often knowledgeable about an industry but do not always understand the mechanics of innovation (to put it mildly).

From this perspective, the world has not changed much in the past 400 years.

Related articles

• Leonardo da Vinci: a different mind (criticalthinking8.wordpress.com)

 

Integrity impli…

Integrity implies that competitive advantage and commercial success are derived through the application of superior individual and collective skill and not through the use of manipulative or deceptive devices or practices.
European Venture Capital Association Handbook, January 2012

This quote, taken from the EVCA’s handbook, appears slightly idealistic at first reading. We all know that superior personal and collective skills are not always rewarded in business life. However, innovation in business is probably based on the same ideals. From this perspective, an innovative company can be seen as a group of individuals that have superior collective skills.

 

Fostering an innovation-based economy

In the last articles of Innovation Models, we addressed micro issues concerning innovations in a specific industry and theory on innovation as a whole. Brooking’s Study on “Building an Innovation-Based Economy” by Darrell West, Allan Friedman, and Walter Valdivia approaches the issue of innovation more broadly, with various suggestions and recommendations not only in the private but also in the public level in order to create an effective innovation-based economy. The most general ideas of the study are policy recommendations for government: In their recommendations, they argue that the primary goals of policymakers should be: ensuring conditions that promote innovation and entrepreneurship in the private sector, leveraging the digital economy in a way that boosts government services and makes agencies more efficient and effective, enhance digital infrastructure and provide data that allows the proper measurement of economic figures and laying the foundation for a strong, educated, and innovative workforce.  More specifically the study reveals that policymakers should foster the improvement of metrics that value worker productivity; invest on the mating of entrepreneurial skills and academic life and the expansion and create conditions for start-ups to evolve, to encourage entrepreneurship early on, which encourages government to get more involved in entrepreneurial activity by providing credit and/or tax breaks to new businesses; legislate the improvement of infrastructures that enable the evolution and widespread of communications which facilitates business everywhere; improve the harmonization of cross-border laws that facilitate communication and freedom of expression; improve technological transfer and commercialization of knowledge from universities to public and private companies so that both public and private investments translate into jobs and economic activity as well as better health, security, and well-being.

This study focuses on turning the US economy into a more innovation-based economy by appealing to policymakers to create legislation and programs that facilitate the creation of new businesses. Even though it is primarily directed to the US economy and it’s issues with the lack of innovation in some sectors, the study presents more general examples and guidelines of important policy that can be applied outside the US. One of the most impressive statements in addressing this issue is the concern for the improvement of infrastructures that facilitate communications, since it is normally not a big issue in most developed economies but it is extremely important in the US. Another issue in fostering an innovation-based economy that can be applied outside the US is building an educated and innovative workforce, and reducing bottlenecks in the dissemination and commercialization of knowledge, which is crucial for a starting point in building a strong and ever so innovative business environment in the long-run.

Brooking’s study focuses on the US economy, however some of the policies and structural reforms that the authors suggest were already implemented in some countries and most of them are now an example of groundbreaking sustainable innovations. Such is the example of Japan and Finland. The source for this claim is the Global Competitiveness Index of the World Economic Forum; a complete and thorough index that measures the competitiveness of OECD countries, comprised of 12 pillars that formulate macro-economic and business data into a competitiveness ranking. We will be using the last pillar, and one of the most important ones to formulate the point we are making above. Below are the matrices of these 3 countries, the US, Finland and Japan. Upon analyzing the matrices, the level of innovation in both Finland and Japan top the list, however, in other pillars that compose the competitiveness index there is some evidence of their difference to the US. Japan is on average with innovation-driven economies while Finland is above average on most pillars except market size and infrastructure. Both these economies have higher levels of business sophistication and institutions which are pillars fundamental for the fostering of innovations in any country.

R&D investment does not guarantee marketable innovations

A common question in today’s market and business environment is whether R&D investment translates into a profitable and marketable solution or product. This question is addressed in a recent Booz & Company survey, which maps the efficiency of R&D investment against the ability of each company to market goods and services.

One of the facts that stand out in the survey is that Apple, one of the main examples of transforming innovative ideas into marketable products, spends roughly 2.2% of sales on R&D, well below the industry average of 6.5%. This is another example of the lack of correlation between investment in R&D and the development of marketable products.

The survey also reveals that companies that engage customers in order to understand their needs and wants and then try to be first in developing new products that respond to those needs, tend to be more effective in their early-stage innovation efforts.

One of the  survey’s main conclusions is the notion that the financial crisis did not slow down R&D investment, as companies are keener to generate profit from new products and ideas. However, successful innovation does not appear to necessarily involve new techniques (e.g. social networking and co-creation, cutting edge physics) just the knowledge of what works and what does not really work in the marketplace.

The chart below shows the effectiveness of innovation (measured as a trade-off between idea creation and conversion):

 The effectiveness of innovation can also be measured by the amount of innovation pursuers and GDP % of investment in R&D. The chart below shows the tendencies of this indicator for OECD countries.

Finland is the country with the highest number of scientists and engineers and higher percentage of R&D investment. Israel is an interesting case, as the country invests heavily in R&D yet does not need a high number of scientists in order to do so – an example of efficiency. At the other end of the spectrum is Greece, which produces a high number of scientists yet does not invest in R&D.

Innovation, nonconsumption and the Portuguese education system [barrier]

The recently published IMF report on Portuguese public sector reform (“Portugal: Rethinking the State—Selected Expenditure Reform Options”) lists several reform options and advice based on country data and comparisons to international standards. The comparison is drawn mainly with EU15 countries, which is a sub-group of countries in the EU comparable to Portugal.

While innovation is not directly mentioned in the report, some of the measures suggested are really about process innovation. In the private sector, process innovation is constantly used to gain a competitive advantage in the marketplace and to create wealth. In the public sector, process innovation should be used as a tool for creating efficiencies in government organisations, which lead to better services for the public.

In his article “Why Innovation Matters In Politics And The Public Sector”, Faisal Hoque approaches innovation in the public sector with business and financial concerns that are basic and widespread in the private sector. Return on investment, risk management, technological innovations and efficiency are essential for the success of any company and should also be a concern of Government officials and managers when investing public funds in critical sectors such as health and education.

In the education sector, the IMF identifies a serious inefficiency in the management of schools. The IMF’s analysis reveals that there is over staffing and that career progress for teachers is based solely on seniority. Schools have very limited management leeway and in fact cannot choose whom to hire. Can you imagine a company being managed without the ability to choose its own staff? This is what happens in this case: every year, a number of teacher positions become vacant nationwide. Teachers apply and the choice is made based on seniority.

Taking a step back, a useful concept to describe the failures of the Portuguese education system is nonconsumption, which describes an area which appears unattractive to the companies or institutions that offer a service and where at the same time, some people would like to do something but are unable to get access to the available offering. At first sight, there are no obvious areas of nonconsumption in education: everyone is required to attend school up to a certain age. However, if you look deeper, you will probably find that a large proportion of Portuguese students simply do not manage to reach higher education, although they would like to, because they failed to grasp the more basic concepts between ages 12-18. This is the crucial problem that needs to be addressed. The first step towards solving this problem is to place motivated and capable teachers in front of those students that aspire to attend university but do not have the means or the background to do so. This is simply not achievable if the schools cannot differentiate between teachers based on their competences.

These problems have plagued the education system and seem to have flown under the radar screen of previous (and numerous) reforms of the education system in the past. The IMF suggests a better appointment system for teachers (not only based on seniority but on competence) and a framework whereby money would “follow the student”, which would allow better teacher hiring practices and a more efficient provision of education services.

While some other measures proposed by the IMF in the report are painful, involving loss of jobs or the reduction of income for civil servants, this type of reform is really about the implementation of important and sometimes long overdue structural reforms.

Top 5 – Review of the Year 2012

Just before 2013 begins, we recall the most popular posts of 2012, which shed light on creativity and innovation, the economy and the crisis. These 5 posts attracted the most views from February to December 2012 (as we started blogging on this platform in February). If you missed these articles the first time around, now is your time to see why our readers found these pieces so compelling.

The fifth most viewed post was Types of Innovation and Economic Growth posted in November 2012. This post discussed the different ways in which innovation can lead to economic growth, based on an article published by Clay Christensen in the NYT.

Number 4 was Bad loans, ECB intervention and competitive advantages which addressed the problems of the portuguese financial situation regarding bad loans. We argue that the bad loans problem will be solved once the innovation challenge is properly addressed.

Portugal’s austerity measures and the impact on business innovation , a post about the lack of impact of the announced austerity measures on business innovation, was number 3 in terms of readership. This post was published on 20 September, after the Portuguese prime minister’s announcement (on 7 September) of the Government’s intention to change the rates of social security contributions. This announcement sparked a political crisis, which culminated in large-scale demonstrations.

The second place goes to Stop obsessing about the next black swan and innovate which addresses the themes of business innovation and financial modeling.

The top post of 2012 is Innovation and Portuguese film production from January, which describes the problems and barriers met in film production in Portugal, which stifle innovation in this industry.

Due to the nature of blogging, these statistics are not 100% relevant, since posts published in early 2012 attract more viewers as time passes. The most viewed post has been online for nearly 12 months, but it is likely for instance that “Types of innovation and economic growth” (published in November) will attract more readers when compared on a like-for-like basis.

This was a year of change, during which we commented on some of the major political and business developments and tried to put forward actual examples of good practices. It was a pleasure to interact with our readers and we hope we can continue to count on you in 2013. Have a great year!