Embracing the future

nature-musings

We are certainly less optimistic about the future nowadays than our parents’ generation. I was somewhat taken aback by our own Economic Development Board’s prevailing marketing about ‘future-proofing’ business, industry or even the economy. Of course, to ‘future-proof’ is to prevent obsolescence and typically used in the context of business. But in today’s climate, it is almost implying that the future can only turn more gloomy. In any case, obsolescence-prevention often isn’t about just doing one thing, or taking on a single strategy and being permanently on an execution phase of it. It requires an overhaul of our impression of the word ‘future-proof’ – in other words, it needs to embrace the future itself!

In Singapore, I sometimes wonder if it is the government that needs to future-proof and do so by embracing change, appreciating radical ideas, abandoning incrementalism, in times like that. And I think the marketplace of ideas is what helps future-proof our ecosystem. Letting the wrong kinds of businesses die and improving the quality of manpower and talents through refocusing the education system on mastery rather than grades – these are things that will future-proof ourselves. Hanging on to old systems, and old ideas, rehashing the same old paradigm even under new guise, does little to help one remain relevant. Someone had commented that the government is more strategic than tactical and as a matter of fact, it puts our leaders slightly out of touch with the geopolitical realities of today. Being open means we continue to be easily affected by the headwinds around us but if we don’t have a bag full of tactics to stay on the course of our strategy, how are we going to remain relevant?

The next bout of growth is going to come from a new source of value creation, it will take more than just extracting from our thin labour, capital and land factors. Land has been stretch so thin the market gravitated towards speculation at some point (notably involving foreign investors). Capital domestically seem to be composed more of short-term, foot-loose sort that is conservative and not capable of being channeled to where it might be needed. Labour is in a bad shape structurally and will take a lot of time become more robust, having built our former base from striving for optimality in sync with industry rather than being built for robustness. The sort of agencies that continue to try and ply these traditional inputs and stuck on old metrics, fostering variations of the old kinds of ‘investment’ is not going to ‘future-proof’ our nation.

Embracing the future takes an enlightened view of considering the power of international markets and their ability to be transformed through knowledge and innovation, adding on to the inputs which they already have in the markets. It involves being selective about where we want to place accumulated capital to soak up the labour and land resources to generate and pull back value into the economy. It takes a transformed view of thinking about what domestic labour really mean and how they serve as units to generate and capture value in the international markets. We need to go beyond thinking about creating good jobs – but to consider, how our people should have access to boardrooms as capital owners, how people can contribute their slice of connections, know-who, relationships and networks to further our ability to generate and capture value from the international markets. Traditional notions of employment and units of individual businesses needs to be discarded if possible. Our leaders are hopefully enlightened enough to see how to drive this forward using new vehicles and new tools, discarding old vehicles and irrelevant tricks in the process.

Mavericks’ Attitudes

education

The whole notion of developing growth mindsets appears to be somewhat in vogue with Microsoft focusing on developing it in employees; and Harvard Business Review picking it up following on from something they have written about quite a bit recently, and in the past. This is something important for the Singapore’s education system to grapple with. We have had one or two generation of ‘productive’ workers who helped to bring the country from third world to first but unfortunately perhaps as a consequent of bad parenting, brought about new generations with extremely fixed mindset.

And this is why corporates are now taking over the responsibility of developing grit in their employees instead of this being a virtue that used to be developed through parenting and schools. In a recent article on Straits Times featuring an interview with our Minister for Education; he actually said:

Parents may have the best intentions, but imagine if this is aggregated over 10 years, until the child is 16 or 18. The child may not have had the necessary experiences to know how to bounce back from failure, a tenacious attitude to overcome obstacles and succeed in life. (Minister Ng Chee Meng, ST)

And this comes at a point where the country is facing some of the most difficult structural issues with our labour composition and manpower capabilities. We have come up with some pretty interesting measures, taking the form of Skillsfuture, which was praised by The Economist over a few articles captured in the recent Special Report on Lifelong Learning. But more effort will have to be made at the beginning of school and also as a culture of education to help students develop growth mindsets which will allow them to be more malleable in terms of their subsequent lifelong learning, and also better employees for any industry that we are going to develop in Singapore.

The question is how? We could learn something from the research by Carol Dweck which she shares over a talk on TED:

Rewarding processes, endurance, encouraging grit, creating persistence will help students develop a growth mindset and this isn’t just about getting good grades. It clearly is about changing of attitudes and perspective towards the system, in fact any system. Singapore has become so established and settled in upon our structure that we have started taking a rather negative view of it – the rigidity, the bureaucracy and ‘that’s the way it is’ attitude. These all points to a fixed mindset populace. Education is our chance at changing the course of our country’s future, more so than merely instituting a lifelong learning system. Sal Khan has another great talk that is about operationalising education to develop growth mindsets as well (though he doesn’t put it that way).

In a time when the public service has to be rejuvenated with what is considered ‘maverick’ ideas, I personally think that investing in an overhaul of the education that develops growth mindsets would radically alter the course of our descent into mediocrity. If even entrepreneurs-to-be are asking the government to try and cushion them from risks and asking for protection from failure, then it is no longer a matter of economic policy. I’d vouch for our government’s commitment to doing more for the economy directly. Yet for the long term good of our economy and society, let us launch radically, practising more of a maverick approach towards our education system first before we ask these of the entire public service.

Leadership & Thought

nature-musings

Chanced upon Simon Sinek’s episode on Tom Bilyeu’s Inside Quest – the Millennial Question segment and I decided to watch the full episode. Learnt loads and also went through both of Simon Sinek’s TED talk. I think when it comes to some of the themes related to leadership especially how emotional intelligence, just plain being human, Simon is really spot-on what people are looking out for and how they respond to genuine leadership.

[youtube https://www.youtube.com/watch?v=ldh8E6LCLhM]

Growing or Fixing

lifestyleI have been blessed by great teachers and parents who have helped to inculcate a growth mindset. One that I didn’t know I have until I started meeting people and getting to know several friends deeply. And more drastically, I realised that some of my cousins or even sibling do not always share that same sort of mindset. That this can be so radically different, I didn’t think much of until I chanced upon Bill’s article on Inc.

It is scary when I realise how those with fix mindset think of effort as a bad thing! Though I can appreciate or empathise with those who might think of failure as bad. Somehow, I appreciate the importance of viewing challenges as problems and I always thought these things came by chance! Nevertheless, there are still problem-solving types who flinch at the prospect of failure. These things build on each other; one who believes in nature more than nurture is forced to think that when they are bad at something they will not be able to change that. They would also thing that the need for more effort or tediousness of things is a signal to give up rather than try harder. This is a logical implication of believing that abilities and ‘talents’ are innate and not developed.

Through the article, I was reminded by how my Dad often exclaimed that I was good at such and such because I worked hard whilst he praised my sister saying that she is actually really much smarter than me. This actually got into me as a key belief. I noted that while I may never be able to be ‘genuinely smarter’ than my sister, I could still achieve more and do more. At the end of the day, the label for our identity falls away and the focus of our lives should be on what we actually do – not even what we achieve but simply, what we do.

Chauffeurs vs Experts

nature-musings

In Chapter 16 of Rolf Dobelli’s ‘The Art of Thinking Clearly’, he talks about the emergence of ‘Chauffeur Knowledge’ – a term Charlie Munger used to differentiate it from ‘Real Knowledge’. Chauffeur knowledge is the sort of knowledge you need to put up a show: it may be to feign expertise, to engage in a conversation meant to impress or merely to deliver information to targeted audience. For example, the news anchor who goes on TV to deliver the news may not exactly know fully what he or she is saying in terms of the full implications of the news nor the exact circumstances leading up to the news. Or the taxi-driver who gives his assessment of the global economic situation based on anecdotal evidence from his experiences driving around New York.

Yet there is increasingly more insidious types whose chauffeur knowledge is difficult to tell apart from real knowledge. We want people with real knowledge about the economy, about policy implications, with a real sense of the politics out there to lead the country – not someone who pieces together random pieces of information out there on Fox News or CNN to formulate views on politics or economy. We need people with business acumen for a large organisation to be the CEO – not merely someone who can show and tell well in front of shareholders. The show and tell skills are useful but only to a certain extent; this phenomena of the rise of a chauffeur knowledge economy is a result of incentive super-response tendency (Chapter 18 of Dobelli’s book) and also Outcome Bias (Chapter 20, ibid).

Incentive super-response tendency relates to people behaving hyper-rationally to incentives such that the behaviours are no longer in line with the original intent of the incentives. Managing such consequences is harder than it seems and it can generate a lot of unintended consequences. For example, the original intention of rewarding comrades bringing in dead rats in China during the times of rat infestation was distorted when people started breeding rats to kill in order to earn the reward. Likewise when CEOs are rewarded based on quarterly earnings results, they start being short-term and divest of strategic assets which may be making short-term losses. Worst still, such salaryman CEOs may even relinquish core capabilities that helps enhance returns on asset in favour of building up a larger base of income-generating asset base, without realising that those core capabilities are necessary to maintain and ensure returns on the asset.

It is not always malicious so to speak; and honestly, employees do not have perfect foresight on how their action impact on the organisation in long run. They could be counting on securing the short term benefits for the organisation since the longer term ‘strategic benefits’ may be uncertain. Or more significantly, they would not materialise as quickly nor in time for them to reap the benefits.

The combination of this two ills plaguing the modern world are making our corporate world, public service, non-profit and all kinds of organisations ripe for disruption. What new management innovations would rise up to challenge this state of affairs? Something to ponder over.

Value from the Sun

power-infrastructure

Solar Power have come a long way. Now that solar power tariffs have been bidded so low they are matching the cost of a natural gas plant, it is believed they are finally delivering real value. With feed-in tariffs that are above US$0.05/kWh, governments are losing money for every kWh of power generated by solar – or put it another way around, taxpayers or consumers are paying extra for electron movements that are no different from that generate via other means. Assuming that carbon trading and carbon taxes have been applied, solar power was, until recently, destroying value.

Yet solar panels have finally reached such a cost that electricity tariffs from solar power could match that of more conventional thermal power plants; so despite the ‘losses’ from the past, solar PV technology has finally reached the goalpost we had all intended for. Solar power however, provides a huge challenge for financing as its cashflows presents an interesting profile with negligible operational costs implying that the bulk of the costs in the lifecycle of the plant is upfront. This makes it extremely sensitive to estimated performance through its lifecycle, the lifespan of the panels as well as the cost of capital. I was surprised however, that this single kind of infrastructure project attracted so much private capital as highlighted by the McKinsey article.

The high feed-in tariffs and good returns must have played a part but investors ought to realise that the sustainability of high tariffs needs to be considered. With high tariffs being committed for technologies not proven and improving radically, there’s a real danger of governments failing to honour their tariff promises, thus compromising the returns expected of the older projects. Therefore, high returns ought to be viewed with some measure of skepticism in terms of the expected ‘actual returns’. With much lower solar panel costs and such competitive tariff bids coming up especially in the Middle East (partly due to good solar irradiance which means any solar panels deployed there are used more intensively), governments are tempted to simply renegotiate contracts – or just ignore them eventually.

So the fact that we’ve hit US$0.03/kWh for solar is great news – and the true value is finally beginning to be accrued by those who have fought long and hard to get solar panels up and doing good for the world and for man.

Satisfying Infrastructure Needs

infrastructure

Lunchtime.

My boss got slightly philosophical for a bit and lamented that infrastructure developments follow not the pace of the fundamental demand for infrastructure but simply the fiscal plans of government. Traditionally, infrastructure belongs solely to the domain of the government. The vast amount of capital needed was typically only mobilised by governments in the days when economies were much more domestic and cross-border capital and investments were heavily channeled towards industrial output and real estate assets rather than infrastructure.

In fact, through the recent downturns, all the talks about infrastructure seem not to stem from the need for infrastructure to catch up with growth and development but for fiscal investments into infrastructure as a means of generating growth. Even Knowledge@Wharton wrote any article co-opting this viewpoint. Yet for most part, this is largely a kind of illusionary financial play – actual growth can only really be generated out of making fundamental, strategic investments that will support the growth of those areas that will boom when the demand uptick arrives.

Assuming this, is a downturn still a good timing for governments to do infrastructure or to invest in infrastructure? It critically depends on financing costs; and in a climate where governments have flushed the entire world with liquidity and max-ed out their monetary policies, financing costs have been artificially reduced for a while. Nevertheless, the fundamentals will still have to be matched: infrastructure projects that taps on cheap financing will ultimately need to have the proper guarantees and safeguards to the lenders in order to match the kind of returns profile of the appropriate lenders/investors.

Doing the Tough Stuff

technology

Organic Growth for companies. Most of our Singapore’s small medium enterprises grow organically despite the introduction of much Merger & Acquisition support from the Singapore government such as M&A Tax Allowance (which was enhanced following the 2015 Budget) . In challenging times, even larger companies may still want to conserve cash to be invested internally rather than go on an M&A ‘spree’ – that is if they believe that they will be able to emerge larger after the temporary downturn.

To the end of doing the tough stuff called sticking to organic growth, McKinsey has a couple of pretty good questions to ask oneself when planning strategically for value creation along short to long-term timescale.

  • How balanced is our portfolio? If we take our portfolio of growth and innovation initiatives and plot them against NOW NEW NEXT, how balanced does the distribution look? Do we have a perspective on which of the six “growth plays” would be successful in our business?
  • Who is thinking about disruption? Are we as systematic in NEXT as we are in NOW? Is anyone tasked with disrupting our core business—or are we leaving it up to competitors? What are we doing to explore additive business models?
  • Are we limiting our horizons? In exploring NEW opportunities, do we impose limiting mind-sets on how we define consumers, our category, or the addressable channels?
  • Do we use advantaged insights? Do we rely on the same data and insights as our competitors—or do we have a source of distinctiveness?
  • Are we agile enough? Have we been able to accelerate our time-to-consumer and time-to-market? Or are we still stuck with cumbersome and slow innovation processes?

Source: Now, New, Next: How growth champions create new value.

Ultimately, these questions may also start leading companies to consider acquisition in the mid to long term horizon where threat of disruption may force even very niche companies to place some hedging bets through incubation of related peripheral technologies.

Grace-Pace Living

nature-musings

We get burnt out not so much by sheer hard work or exhaustion. Most people who work and work and eventually gives way, either through Karoshi (death from exhaustion) or committing suicide; not so much because they are being made to do more and more. Too often, it is because work life involves many things that one may not be comfortable with. And I thought to highlight a few matters that I find really burns people out.

  1. Misrepresentation: Whether it is figures or qualitative facts, work in modern world often involves some form of distortion of truth (which is not necessarily outright lying) either to fit a narrative or make a case. This simply doesn’t sit well with our natural inclination towards truth and in long run, one starts doubting not only the information they receive but also themselves.
  2. Buying into worldly motivations: Frankly, while we know that we are not genuinely motivated by colleagues’ recognition or money, but these are rewards of life that seem a lot more within grasp than the elusive feelings of security, affirmation from friends/family. So we work for the easier fulfilment and realise only later they do not fulfill.
  3. Lack of completeness: The breakdown of work into bits and pieces that increases productivity makes all crafts just a series of tasks handed out to different stages of work. And as a result, most of us are only involve in part of the production. As long as we cannot see how our exact inputs feed into the eventual output, we find a lack of completeness in our work. Worst, because we are not a real assembly line, there’s less clear demarcation of when the work leaves our hands. So most ‘work’ just drifts off after we touch it a little. Craftsmanship is lost, and so is the pride along with it.

So I was really grateful for this article on grace-paced living. Frankly, I haven’t really been appropriating the grace that is extended to us from God – especially not so for the workplace. And perhaps I should really start.

Economics of Development

future-development‘Developmental goals’ in business has become a bit of a bad word; and it seem to imply that projects are not optimised to make commercial sense but more to ensure that people have better lives. There is this implicit zero-sum game mentality here that thinks that wealth is accumulated through diversion rather than creation. Yet the very business of development is about creation of wealth. From the economic point of view, value is unlocked through collaboration, realising of ideas, some bits of moving of factors around as well as making good use of knowledge that is already embedded within the system. Having longer time horizon and building up long-term trust (social capital) can help communities unlock the value.

I’ve seen a young farmer in Ghana going from a hired labour to owning a farm 5 times the size of his original employer. And this young farmer was investing into irrigation pumps and other productivity-improving equipment, that original employer farmer was just complaining about how the government has not done enough to improve the lives of people. Being able to take control of one’s fate and making the sacrifices for it is important; successive generations of being able to maintain that attitude helps accumulate wealth especially during times of macro-growth. Development usually takes place this way and deployment of first-world capital into third-world normally involves getting your hands dirty and being extremely operational but once you get started and figure out a model that works, you are way ahead of a lot others.

That is in part what happened to the many companies that first invested in Singapore; their investment often paid off many fold. The story of Singapore’s development, for most part was wealth creation and it has been done through agglomeration of those with knowledge and then putting our factors (geographical locations, people, proximal resources) into use through the know-how of global companies. Of course, over the years, as other locations have become more attractive in terms of cost competitiveness, quality of manpower and all, we have to re-strategize our development. But the basics have been cover already by now. For now, I believe Singapore is at the stage where we need to now think about how the fruits of development are distributed and should be distributed.