What the West Can Learn from the East

John Hagel III
John Hagel III is an author and former McKinsey consultant who specializes in the intersection of business strategy and information technology. In 2007, Hagel, along with John Seely Brown and Lang Davison, founded the Center for the Edge.
Hagel is also involved with a number of other organizations, including the World Economic Forum, Innovation Exchange with John Seely Brown and Henry Chesbrough, the International Academy of Management, and the Aspen Institute. He is credited with inventing the term “infomediary” in his book, NetWorth. with Marc Singer, published by the Harvard Business School Press in 1999.

 

we-magazine >
What is the driving force for you to work on the  cutting edge?

John Hagel >
What interests me is the notion that technology is continuing to evolve at an exponential rate and it is far exceeding our capacity to actually absorb the technology and the potential that it offers. The constant tension between continuing technology innovation and our capacity to harness it and use it to help us become more productive and prosperous citizens is a real passion of mine.

we-magazine >
Without any doubt we are living in a couple of crises. What are the major indicators that we’ve been falling into these crises?

John Hagel >
We published a research report last year called “The Shift Index”. It was largely driven by the fact that business leaders have generally become very focused on the short-term economic cycle. Over the past couple of years we have been in the midst of a major economic downturn on a global scale. Business leaders are understandably focused on that and trying to cope with it. But at the same time there is a much longer-term trend that has been playing out, and it has to do with the decline of profitability of companies over many decades.
We looked in “The  Shift Index” at profitability of  all public companies in the United States since 1965. What we found was a very significant and  sustained erosion in profitability. Profitability has come down 75% over that time period.

we-magazine >
Because of what reasons?

John Hagel >
It has to do with the emergence of the new technology infrastructures, digital technology infrastructures that help us to connect and communicate much more effectively on a global scale, combined with a broad public policy shift towards more economic liberalization on a global scale. If you combine the effects of those two trends, we are reducing – on a global scale – barriers to entry and barriers to movement. That intensifies competition.
Typically, if you accept that markets are effective in dealing with new, unanticipated trends, the fact that companies over four or more decades have not been able to effectively respond to this intensifying competition is revealing.
It suggests to us that companies are locked in to an old way of doing things, approaches that are basically broken. We are working harder and harder and yet we produce less and less return on our efforts.

we-magazine >
Your reports say that Asia is a good place to look at. What can America learn from some Asian companies?

John Hagel >
If you think about the challenge for companies in general, it has to with how do you connect into a larger set of relationships and partnerships that  can give you access to new knowledge in a much more rapid and effective way. Some entrepreneurial companies in both China and India are way ahead of most Western companies in terms of the management techniques to build scalable networks. We are talking about networks of thousands of partners and relationships, not just the few key partners in your supply chain or distribution channels. They have mastered a technique to do a much broader and more diverse set of relationships than most Western companies would ever be able to attempt.

we-magazine >
How come?

John Hagel >
A lot of it has to do with the issues that Western executives viewed as major challenges for these companies. When I talked to a Western executive 10 or 15 years ago, they confidently said about China: Not to worry, China is not going to be a serious competition for two reasons: First, they don’t have a well developed financial system, so they don’t have access to loans and money to fund their growth. Secondly, there is no protection for  intellectual property. So any innovation they come up with will be rapidly copied and therefore there are no real incentives to innovate. What Chinese companies have done is to take those challenges and turn them into opportunities.
If they don’t have access to a lot of financial resources, they have been forced to focus on how can we very aggressively and creatively connect to as many companies as possible to leverage their   capabilities and just focus on the things they do best, and rely on others to provide the rest.

we-magazine >
When you are talking about these Western managers, what is Western for you?

John Hagel >
Western in this context is the United States and  Western Europe, and potentially even Japan. They adopted a set of management techniques that are very much driven by our Western thinking. Japanese executives were very much influenced by the quality movement that actually originated with a variety of Western thinkers. So I think that the Japanese companies face as much of a challenge as companies in the United States.

we-magazine >
What is this Western thinking about? Is it a kind of value pattern?

John Hagel >
The key assumption that drives Western companies and created enormous wealth in the 20th century   is the notion that economic value is largely concentrated in knowledge stocks. This view holds that your ability to create value depends on what you know today, how well you protect those knowledge stocks and then how efficiently you extract value from them. If you look at all the successful companies in the 20th century that emerged in the US and Europe they were focused on developing proprietary knowledge that they aggressively protected and built scale to exploit. What we are facing now is a world where knowledge stocks     depreciate in value very quickly because our surroundings are changing so rapidly. If all you are focused on is protecting what you know today, you are going to end up very challenged very quickly. The opportunity is to connect into a broader range of more diverse and relevant knowledge flows and more actively refresh what we know at any point in time.
That’s a very different way of thinking. If you are going to participate in knowledge flows, you have to be willing to share some of your knowledge. If your mindset is it is all about protecting what you know and not letting anyone else get it, it is very hard to make the transition.

we-magazine >
If you transfer this to political thinking on the government level, what challenges do you see with the rise of China? Is the Western world ready for such a powerful number one Eastern country?

John Hagel >
I don’t think we are ready for it yet. We still believe that China is not an innovative country, that there is not much economic innovation that we can learn from. So there is a tendency to diminish or under-estimate the power of what is being created there. On the other hand there is an opportunity to learn. There is no reason that we cannot adopt many of the practices that are emerging in China that will refresh and reinvigorate our economic activity as well.

we-magazine >
What do you see personally as the major challenges that companies and governments in the so-called Western world are facing.

John Hagel >
The biggest challenge is this notion of shifting our mindset, the key assumptions we have about where economic value is, and how to more actively and productively participate in a global economy. The successful Chinese companies that we have studied are really focused on how do you compete effectively in the global economy. They are not just focused on the local markets. They started with a global perspective of the opportunities to compete in a global market.

we-magazine >
When technology comes in, and 2.0 thinking with values like transparency, reputation, openness, what kind of roles does this kind of thinking play in the way we are dealing with these challenges?

John Hagel >
It has a central role. Web2.0 at one level is all about how do you connect in to a broader set of networks and leverage those networks to create more value for the markets and customers you are serving. That is a central assumption that we need to embrace and pursue. A lot of web2.0 thinking tends to focus on data and information, rather than knowledge, because it tends to be developed by technologists. From my viewpoint the opportunity is to take web2.0 thinking and focus it on how do you build personal relationships in a much more scalable way, using technology. Ultimately, the most valuable networks are networks of people relationships, as opposed to just connecting into data or information services of various types. That to me is the big opportunity.

we-magazine >
If you would have to name one example, one company in Asia that is doing really well, which company is it and in what are they really exceptional?

John Hagel >
Li & Fung in China, which is not really well known in the West. They emerged over many decades as one of the leading players in the clothing industry. They organize customized supply networks for Western apparel designers. What is particularly interesting is they have developed a global network of more than 10,000 business partners, highly specialized companies, that they bring into individual supply networks on an as-needed business. One example is that in the immediate period after 9/11 they had a lot of their activity in Pakistan. If at the time you had a time-sensitive supply network operations, you didn’t want to be in Pakistan. It was very insecure. Within three weeks, Li & Fung had moved all of its production activities out of Pakistan and into other countries that were more secure. That’s a degree of flexibility that is not feasible for Western companies with traditional supply chains. From our perspective, the most impressive aspect is the degree to which Li & Fung is focused on creating a network where the participants are learning from each other much more rapidly than they could on their own. So the value of participating in the Li & Fung network is that, as a partner,  you are able to improve your performance much more rapidly than if you were operating on your own.

we-magazine >
People who are flexible like this, who are network-savvy, they have to be educated some place. Would you say our education systems are ready for this? Do our kids learn the right things at school to be prepared for this?

John Hagel >
In a short answer: no. I think our education systems are far behind the practices that are emerging in various parts of the world. So there is a huge opportunity to really rethink not just what we are communicating, what we are educating our students with, but even how we educate. One of the trends that we believe is playing out is moving from a world of push to a world of pull. In the education system we are still very much in a world of push. The notion is that we can anticipate for the entire educational program of a student, from the day they born, what they will need to learn when. Pushing knowledge based on a prediction, a forecast of what they are going to need to know. We believe there is tremendous need to rethink education as a pull system, where more and more of the learning occurs on an as-needed basis. This involves constructing the platforms and tools to help students connect to people and knowledge when they need it based on their specific situation. It is a very different educational philosophy than most of our educational institutions are currently pursuing.

we-magazine >
When we will we get there? There is some kind of urgency, isn’t it?

John Hagel >
There is huge urgency. If you go back to the “The Shift Index” and this declining profitability, the trend is long-term and it is sustained. A lot of institutional leaders have the view that we are in the middle of great economic downturn, but that it is temporary and we will eventually recover. The key result of our research is that for more than four decades there has a long-term trend that shows no sign of turning around, so the pressure is mounting for us to come up with innovations and solutions that are quite different from the practices that we are currently pursuing. The urgency is only increasing and it is well beyond the current economic downturn.



Leave a Reply

Comment





Other we_initiatives


we_the_school