Fortune 500? Singapore’s Bamboo Innovator 500!

Fortune 500? Singapore’s Bamboo Innovator 500!

By KEE Koon Boon

13 March 2013

“Singapore is too small and its talent pool is too small to produce a world-class manufacturing giant of the Fortune 500 class”, Singapore’s former Minister Mentor Lee Kuan Yew once said. A cryptic remark indeed because it does not imply that the venerable founder of modern Singapore thinks Singapore cannot produce knowledge-based giants, or resilient “Bamboo Innovators”.

Why “Bamboo Innovators”? Bamboos bend, not break, even in the most terrifying storm or devastating earthquake that would snap the mighty resisting oak tree. It survives, therefore it conquers. Disruptive industry trends and black-swan crises have become a permanent fixture in today’s marketplace. How wonderful it would be if countries, companies and individuals can stay resilient amidst the disruptive upheavals and unorthodox challenges – like the bamboo. The study of Bamboo Innovators can hopefully inspire companies to be productive innovators in order to surpass stall points in their business models during tumultuous periods, particularly SMEs aspiring to scale up to become global champions.

But why is it that Asian companies are predominantly product manufacturers in the first place? This could ironically be a result of the Asian values of hardwork and sacrifice. It is far easier for the Asian entrepreneur to be the middleman in getting orders from a few important anchor MNC customers who have access to the end customers, take capital risk in investing in tangible assets, and work hard in producing the required products with quality and efficiency, rather than attempt to build business models that have direct ownership of the hundreds and thousands of end customers. To do the latter would require interacting intensively with the end customers, a task which is beyond that of a lone powerful entrepreneur. As a result, Asian entrepreneurs are unwilling to share the rewards with their “undeserving” staff who did not take risk or sacrifice, thus treating employees as expenses, making most or all of the decisions and hoarding most of the resources and information themselves, running the firms as a “one-man-show”, and facing potential business continuity challenges from succession woes.

Keyence, established in 1974, is an illustration of the unconventional Asian firm. Takemitsu Takizaki, the 67-year-old founder, liberated the firm from manufacturing conventions and built a knowledge-based enterprise in laser sensors for use on automated factory assembly lines serving over 100,000 customers in 70 countries. Despite having only less than 1 percent global market share in a commodity-like product and only around 3,000 employees, Keyence commands a US$17 billion market value, approximately similar to Singapore’s Keppel Corp, a global leader in offshore oil rig design and building. It is also double the value of Nidec, another outstanding Japanese company which has more than 80 percent global market share in miniaturized motor and 100,000 employees.

Takizaki-san, who stepped down from the CEO role to be the Chairman in 2000, understood keenly that Keyence cannot improve on Japan’s legendary manufacturing efficiency. So, unlike its manufacturing-based competitors which focus on manufacturing and leave sales to distributors, wholesalers and agents, it deliberately avoids making products, except for manufacturing steps that involve trade secrets which are kept in-house. Most of its 3,000 employees are either “sales” or “research” staff. In their direct contact with the customers, Keyence’s in-house “sales” team pick up new product ideas on frequent factory visits. They would report back to the research department on what new machines their customers would find useful. They also tell the production department about demand for existing products, helping Keyence to regulate its output and reduce inventories. For instance, Keyence’s frontline solution providers observed from the production lines at instant noodle factories that the noodle quality was compromised because they were manufactured at variable thicknesses. Laser sensors that could measure noodles to 1/100th of a millimetre were develop and used by giants such as Nissin to keep noodle thickness consistent. 25 percent of sales at Keyence are generated from such new products, even higher than 3M.

To excel in these areas, Keyence had to cultivate a meritocratic culture and it is “notorious” for having one of the highest-paid salaries in corporate Japan for its employees. Bright young people from rival firms are attracted to Keyence by the performance-based pay. The engineers also get the chance to do their own research, rather than labouring for years under grey-haired supervisors. The average pay of the employees at Keyence is US$100,000.

“Ownership” of customer by decentralizing and empowering frontline employees also helped IBM to stave off a near-death experience in the early 1990s. When Lou Gerstner took over as CEO in April 1993, IBM had three consecutive years of financial losses, including losing a record $8 billion in 1993, and was about to be broken up. Lou reduced the Big Blue’s dependency in mainframe manufacturing, which was supplanted by personal computers and servers, and built the global platform for services to provide higher value to customers, a core business which today accounts for over 40 percent of its overall profits. Lou had multiplied the market cap 10-folds to $100 billion by the time he passed over the leadership baton in 2002 to Sam Palmisano, who quadrupled earnings and created an additional $130 billion in shareholders’ value in 10 years as he positioned IBM in software and analytics, a task now continued by the new CEO Virginia Rometty.

Keeping the frontline, or the “periphery”, to be resilient and innovative, and the center, or the “core”, to diffuse and enforce meritocratic values to all levels, has compounded immense value at both Keyence and IBM. This core-periphery growth pattern is also that of the bamboo whereby the vitality of its growth revolves around its “empty” center. Instead of sanely constructing itself inch by solid inch like trees, soberly climbing into the contested forest air, the nutrients and moisture that would have been exhausted making and maintaining its empty center can be utilized for growth of its periphery in the other culms (stem). From a builder’s viewpoint, the architecture of the bamboo culm presents a powerful configuration: fibers of greatest strength occur in increasing concentration toward the periphery of the plant.

Manufacturing and project-based companies often tout the size of their “orderbook” and their idea of “teamwork” is about hiring high-profile rainmakers or dealmakers who can bring in the sales orders and the job of everyone else is to execute efficiently and “productively”. The well-connected dealmaker may be able to pull in high-dollar projects but because of the difficulties in coordinating and executing large-scale complex projects, these projects or deals cannot be repeated and the hype associated with big orderbook starts to fade, particularly when cost overruns and delivery delays start to rear their ugly heads. Bigger becomes riskier. Even in manufacturing, the only way to perform and execute large-scale complex projects repeatedly is to create an intangible culture and environment of excellence where the interests of the mid-level and frontline individuals matter by aligning their interests and empower them to become. Customers are attracted to this contagious performance culture rather than to the dealmakers on a relationship basis, or even to the core “team”, resulting in a valuation breakthrough beyond the billion-dollar market value barrier that many Asian companies find hard to break.

A service-based economy does not emanate from taking a broad sector or industry approach, such as identifying “hot” services such as healthcare, education, media and so on. Such a headlong approach can only get the growth engine going only so far. Services sustainability has to stem from equitizing customer ownership based upon performance and interaction, trust, mutual respect and interdependency. This inevitably requires “emptiness” in the business model design like the bamboo with a core-periphery growth structure in order to scale up in a sustainable way. A powerful lone entrepreneur at the center who believes that he has work so hard and sacrificed so much, or a “I-did-it-all-by-myself” mentality, often does not believe in sharing with other “undeserving periphery” people if he does not cultivate a culture rooted in kindness, trust and cooperation.

Culture is like the invisible intricate underground root structure that makes the ground around a bamboo grove very stable – and make possible the flexibility and adaptability of the bamboo to bend, not break, with the wind. Kindness is like water nourishing the powerful roots of bamboo. A culture rooted in kindness definitely seems incompatible in a harsh, competitive business world. But kindness is trusting and ready to risk in new innovations. Kindness is an inner revolution; as is innovation. We become more fluid, more willing to risk. Kindness is about putting less in our possession and more in people. The boundaries between us and others begin to merge, so that we feel engaged and committed as part of a whole in which it is possible to share resources, emotions and innovations.

Rootedness in a culture of kindness and trust triggers the intense instinct, emotional focus and commitment with regard to actively planning for the enterprise’s future as one cohesive singular enterprise, to accept and embrace those who want to contribute, and to engender love amongst the members despite differential rewards and efforts as all work towards the objective of creating a resilient structure as a true compounder, the evergreen Bamboo Innovator.

Fortune 500? With “emptiness” in business model design and “rootedness” in a kindness culture, just like Keyence and Keppel which have almost US$20 billion in value, Singapore can have its own unique Bamboo Innovator 500 powerhouse with a US$10 trillion value.