Education 2.0 In Indonesia: Inspiring Bamboo Innovators (Jakarta Post)

Dear Friends and All,

“What use is an esoteric academic theory like Einstein’s theory of relativity?” Answering this question with the Bamboo Innovator framework can surprisingly lead to the uncovering of resilient compounders: the Indonesian-listed bread company Indosari, the largest mass-market producer of bread in Indonesia under the “Sari Roti” brand, and Mexican-listed Grupo Bimbo, the largest bread manufacturer in the world. Interestingly, Indosari’s market value of US$750 million (now over US$900 million) is almost 20-times smaller as compared to Mexico’s Grupo Bimbo’s US$15 billion, even though both Indonesia and Mexico have gross domestic product (GDP) of US$1 trillion. What is so unique about the business models at Indosari and Grupo Bimbo? Why are they Bamboo Innovators? I like to share the article that was published in Jakarta Post, the oldest and largest-circulated English newspaper (one of the few dailies who survived the 1997/98 Asian Financial Crisis): “Education 2.0 in Indonesia: Inspiring Bamboo Innovators”.

Education 2.0 In Indonesia: Inspiring Bamboo Innovators, May 11, 2013 (Weblink: Jakarta Post)

Below is the unedited version:

Education 2.0 in Indonesia: Inspiring Bamboo Innovators

April 2013

“What use is an esoteric academic theory like Einstein’s Theory of Relativity?” scoffed the “street-smart” students and “practical” businesspeople. Answering this question using the Bamboo Innovator framework can help foster resilient value creators in varied disciplines and remake Education 2.0 in Indonesia as we walk through the seemingly unrelated stories below and be amazed by how the dots connect towards the end.

Without Einstein’s modern physics theory, it would be impossible to use your iPhone to find your location on a map. The transistors in the phone rely on effects predicted accurately to several decimal places by quantum mechanics. The Global Positioning Satellites (GPS) that the phone uses to locate us incorporate in their software the deformation of space-time predicted by relativity theory to achieve navigation accuracy within about 15 meters of our actual position. Without the proper application of relativity, GPS would fail in its navigational functions within about 2 minutes. Thus, this theory plays a critical role in the multi-billion growth industry centered around the GPS.

GPS, in turn, has enabled the development of the GIS (Geographic Information System) to revolutionize the way we capture and analyze all types of geographical data for multiple applications from urban planning, disaster response, epidemic planning, mining and oil exploration to location-based services. ESRI is the GIS software pioneer, founded by Jack Dangermond in 1969. ESRI has an installed base of more than one million users in more than 350,000 organizations with over a billion in annual revenue achieved by 3,000 employees. ESRI grew by focusing on its users and employees, eschewing incentives such as sales commissions. “People want to do the right thing; they want to be purposeful in their life,” Jack said. “Throwing financial thresholds and goals — my experience in running at least my kind of organization is that it robs people of the culture of doing great things.”

ESRI, in turn, is linked to Singapore entrepreneur Wong Fong Fui who runs the conglomerate Boustead, which has exclusive country license to ESRI GIS software in South East Asia and Australia. Mr Wong is known as a turnaround specialist, having helped the loss-making unfocused QAF with a market cap of $15 million then in 1988 to build the Gardenia bakery brand in Singapore into a $500 million food business when it was sold, and now Boustead, which he bought for $14 million in 1996 and has a current market value of $580 million.

Interestingly, this $500 million market value has been exceeded by Wendy Yap who helped focus her family business Nippon Indosari to become a Gardenia 2.0 and the largest mass-market producer of bread in Indonesia under the “Sari Roti” brand with a market value of $750 million. Around the same time FF Wong got into Boustead, Wendy started Indosari in 1995 with her father Piet Yap, one of the Salim Group executive who co-founded Bogasari Flour Mills. The typical businessman might shrug and point out that for Indosari to be bigger than Gardenia is an obvious observation, since Indonesia is a far larger market than Singapore. However, many companies and MNC giants such as SaraLee had tried to expand in Indonesia earlier but all retreated with heavy losses. So why was Wendy Yap able to scale up while others with abundant tangible resources failed?

Indosari has adopted an open innovation business model in collaborating with Japan’s Shikishima Baking who helped Indosari in its technological processes in introducing Japanese-style soft breads that won over the Indonesian palate. Importantly, Indosari has built trust with retailers and customers to overcome the logistics nightmare that doomed its better-capitalized rivals through its strong distribution network for its highly-perishable products of more than 2 million pieces of bread daily, resulting in a dominant 90% market share. It sells its products through modern distribution channels and an innovative system of around 3,000 mobile tricycle carts to penetrate over 17,000 small traditional shops in the rural parts of Indonesia.

Yet, Indosari’s market value at $750 million pales in comparison to Mexico’s Grupo Bimbo’s $15 billion even though both Indonesia and Mexico have a GDP of $1 trillion. Bimbo is also the world’s largest bread manufacturing with over $13 billion in sales. So why is this “small white teddy bear”, Bimbo’s corporate image, which “began with great limitations” in 1945 from Mexico, a country where half the population lived below the poverty line, able to become the largest in the world and compound 24-fold in market value since 1994?

Given that over 80% of bread is sold in mom-and-pop stores in Mexico scattered miles from one another over poor roads, cultivating trust and support amongst its community of customers, suppliers and employees is critical to overcome the geographical limitations in scaling up. Small store owners tend to ask for credit which was provided informally by Bimbo. Its partnership with community bank FinComún leveraged upon the bank’s pioneering expertise in providing micro-loans to extend credit yet reduce bad debt and improve working capital position to free up more cash to carry out expansion. In a country known for the exploitation of workers, Bimbo has built an unusually people-oriented culture with its well-known policy of avoiding layoffs even in times of crisis and sponsoring its employees’ education which helped foster loyalty and committment. As a result, Bimbo was able to resist the 1991 threat from the arrival on the Mexican market of giant PepsiCo. While Bimbo innovated in integrating production-delivery-finance, none of it would amount to much if Bimbo had not offered the country affordable, edible aspiration, spreading this dream to nearly every remote corner of Mexico.

There is a common thread running through these stories: the resilient Bamboo Innovator. The vitality of the bamboo revolves around its empty hollow center in the same way as the “emptiness” of the Bamboo Innovator with its “indestructible intangibles” that derive its strength from “know-how” and “trust and support in the community”. The “emptiness” is why bamboo bend but not break in the wildest storms that snapped the mighty resisting oak tree. The intangible know-how in relativity theory has led to the multi-billion GPS industry which enabled the development of the GIS pioneered by Jack Dangermond’s ESRI whose leadership nurtured a culture of empowerment and innovations. FF Wong is attracted by this intangible know-how of ESRI, having built the “intangible” Gardenia brand. At the same time when FF Wong is building Boustead, Wendy Yap has scaled up a bigger, more focused Gardenia 2.0 at Indosari by cultivating trust and support in the company’s community of customers, suppliers, partners and employees, in the same way this “emptiness” worked wonders at Grupo Bimbo.

In the landscape of Education 2.0 in Indonesia, students can search for facts on Google, but Google and Facebook cannot tell them how to connect the dots in alignment with their talent and personality to pursue what they can excel in. With the Bamboo Innovator in their hearts, they will experience the uncanny: the raw sensual data reaching their eyes before and after are the same, but with this pertinent framework of meaning, the chaotic features and anomalies in the marketplace are visible. Instead of producing “grades”, “checklist-based holistic CV” and “high graduation salary”, the education system inspires students to be the Jack Dangermond inventor, the FF Wong and Wendy Yap entrepreneur, the quantum mechanics engineer and physics expert, the geography-based business and trade specialist, the teacher and the value investor, and so on. Their fate all intertwined as Bamboo Innovators to forge their own larger-than-self path to create value for Indonesia and the world.

Any Benjamin Franklins in Asia? Bamboo Innovator is featured in BeyondProxy.com, where value investing lives

Bamboo Innovator is featured in BeyondProxy.com, where value investing lives:

Any Benjamin Franklins in Asia? May 9, 2013 (Weblink: BeyondProxy.com)

Berkshire Hathaway 2013: Takeaways from the Annual Meeting using the Bamboo Innovator mental model (Go to BeyondProxy.com, where value investing lives)

Bamboo Innovator is featured in BeyondProxy.com, where value investing lives:

Berkshire Hathaway 2013: Takeaways and Impressions from the Annual Meeting, May 7, 2013 (Weblink: BeyondProxy.com) – Scroll down till the end of the article.

Knock, Knock, Who’s the “Buffett CEO” in Asia? Part 1 and 2 (Go to BeyondProxy.com, where value investing lives)

Bamboo Innovator is featured in BeyondProxy.com, where value investing lives:

Who’s the Buffett CEO in Asia? Part 1 on China’s Great Wall Motor, April 23, 2016 (Weblink: BeyondProxy.com)

Who’s the Buffett CEO in Asia? Part 2 on Australia’s ARB Corporation, April 26, 2013 (Weblink: BeyondProxy.com)

Kewpie: Japan’s Heinz and R.E.S.-ilient Bamboo Innovator, April 20, 2013 (Weblink: BeyondProxy.com)

Value Investors in Asia: Making Sense of the Micro Vs. Macro Dilemma, April 16, 2013 (Weblink: BeyondProxy.com)

Mental Models: The Bamboo Innovator Approach to Investing in Asia, with Singapore-Based Value Investor KB Kee (BeyondProxy.com, GreatInvestors.TV, Youtube, Frequency.com)

http://www.beyondproxy.com/mental-models/

http://www.beyondproxy.com/detecting-fraud/

http://www.beyondproxy.com/accounting-pitfalls-at-asian-companies/

http://greatinvestors.tv/video/insights-into-accounting-pitfalls-at-asian-companies-with-si.html

http://greatinvestors.tv/video/beware-of-other-receivables-accounting-at-asian-companies-wi.html

http://www.frequency.com/video/insights-into-accounting-pitfalls-at/85354333/-/5-1707

Be like the bamboo, not the oak (Today, 8 April, 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 founding Prime Minister Lee Kuan Yew once said. A cryptic remark, indeed, because it does not imply that he thinks Singapore cannot produce knowledge-based giants, or resilient “bamboo innovators”

Resilient Growth In Crisis? Bamboo Innovators CSL and Keppel Show How

Resilient Growth In Crisis? Bamboo Innovators CSL and Keppel Show How

By KEE Koon Boon

8 April 2013

“Sometimes to be reborn, you must first die,” Dr. Victor Fung, group chairman of the multi-billion Li & Fung group of companies, cites pensively this old Chinese proverb in order to ask an open-ended question, “In a world that’s speeding up, how will companies change enough without crisis?”

We cannot avoid, or even choose, a crisis in order to engender the change that is required to overcome stall points in growth and to stay relevant in today’s marketplace where disruptive industry trends and black-swan crises have become a permanent fixture. When the inevitable traumatic upheavals and unorthodox challenges do come, innovators craft their business models to stay resilient like the bamboo, which bend, not break, even in the most terrifying storm that would snap the might resisting oak tree.

Australia’s CSL and Singapore’s Keppel are two such companies who have experienced near-deaths in daring greatly to scale and globalize their once domestic SME operations right under the noses of powerful incumbent global giant rivals – and they were renewed and reborned to be resilient Bamboo Innovators.

In its remarkable transformation from a sleepy government outfit providing snakebite antivenin since its privatization and listing in 1994 with a market value of A$500 million to a A$29 billion global biotech champion, CSL had experienced a near-death crisis in 2002. Similarly, Keppel, the global leader in offshore oil rig design and building, had hit a crisis in 1973, 1983 and 1990. Both were able to bounce back higher to scale greater heights. Why? Both companies have dedicated leaders cultivating a culture rooted in trust, cooperation and empowerment to contend with and heal creative dissent to handle large-scale complex projects repeatedly with excellence.

Brian McNamee was plucked from relative obscurity at the age of 33 to head CSL at the recommendation of then Industry Minister John Button. Similarly, the late Hon Sui Sen, founding Chairman of Singapore’s Economic Development Board (EDB), picked Chua Chor Teck to be Keppel’s first managing director in May 1972 and to take over and “Singaporeanize” Keppel from the hands of British managers of the Swan Hunter Group, then one of the best known shipbuilding companies in the world that has now disappeared.

During the era when America was dubbed the OPEC (Organization of Plasma Exporting Companies) of the global plasma industry, CSL broke the dominance of America’s grip by buying Swiss plasma fractionation pioneer ZLB for A$1 billion in 2000 and Germany’s Aventis Behring for US$925 million in 2004. Today, domestic earnings account for 10 percent of the group earnings at CSL with the bulk provided by its global businesses. Similarly, Keppel got its design and technology in oil rig from acquiring rig builder Far East Livingstone Shipbuilding (FELS), which Keppel took majority control in 1973 during the oil crisis. Subsequently, the late Sim Kee Boon, Chairman of Keppel Corp from 1984 to 1999, continued to lead the globalization push of Keppel, subsequently continued by the capable leaders Mr. Lim Chee Oon, Mr. Choo Chiau Beng, Mr. Tong Chong Heong, Mr. Loh Wing Siew and so on. Mr. Sim outlined the basic strategy of avoiding “green-field” or start-from-scratch projects and to invest in yards that are already there. For instance, Keppel acquired Allison-McDermid in America, AHI in Middle East, PEM Setal in Brazil, and Verolme Botlek in Europe. Mr. Sim’s dream was to see Keppel become like a Nestle with a very significant global presence.

The big-picture “plan” to globalize is seen obvious but managing the unseen risks and creating adaptive advantages along the way are more important. For the first two years, ZLB lived up to its promise, resulting in solid earnings growth for CSL, and its market value more than doubled. But the wheels came off in 2002 when the industry went into oversupply and a combination of sharply falling product prices and disadvantageous currency mismatch nearly crippled CSL. Back in 1983, Keppel’s cash purchase of Straits Steamship saddled it with a debt of S$845 million. Furthermore, the shipbuilding industry during that period was pronounced a sunset industry by the pundits as the industry went into oversupply with more than 80 shipyards capable of building rigs. Keppel survived the crisis and was the only surviving rig-builder in the world in 1986 then. Subsequently, another crisis hit shortly after Keppel’s acquisition of Texas-based jackup yard Allison-McDermid in 1990 when an American firm brought a US$565 million litigation case against Keppel for alleged breach of contract and damages involving the building of jackup offshore drilling rigs. CSL turned risk into opportunity by acquiring Aventis Behring to consolidate its position as the industry recovers. Keppel eventually won the suit. Keppel saw the need for control and bought out its partner, renaming the entity AmFELS which became a wholly-owned subsidiary of Keppel. It grew to become one of the best-equipped offshore yards in the Gulf of Mexico.

Growth through acquisitions has proven to be the graveyard for many companies in general. Warren Buffett, the world’s greatest investor, likened growing via acquisitions to kissing unresponsive corporate toads who croaked and the tempting but value-destroying toy that executives must have because their peers have one too. Post-acquisition efforts in integrating the companies into the parent company to compete as a coherent whole prove crucial to successfully scale to greater heights and not blow up. Both CSL and Keppel are able to do so because of the foundation laid down in the culture carefully nurtured by Mr. McNamee and Mr. Chua.

“We respected them greatly for their skills and their capabilities, so we weren’t cultural imperialists. We greatly respect our Swiss and German colleagues and so there was no notion that they were being taken over and that they were going to work to our method,” McNamee articulated how their culture of trust and respect provided both parties a common ground to work together towards a global vision for the group. The culture of empowerment at CSL is embedded into its business model to foster open innovation and extensive collaboration with its acquired companies and a network of high-quality academics, scientists and physicians across the world. CSL minimises a silo formation by giving people personal responsibility and by running R&D using a matrix structure. This intangible culture has delivered powerful tangible results, including how CSL beat competitors to be the first to market with an effective vaccine against the global swine flu epidemic and in developing the anti-cervical cancer drug Gardasil. The dedication of McNamee is also touching. He was diagnosed to have cancer and kidney problems when he was planning to buy ZLB. Swiss giant Novartis also offered more money and fanned the patriotism flame that ZLB should remain in Swiss hands. Due to the persistence of McNamee who flew to Switzerland against medical advice to personally negotiate the deal, CSL acquired ZLB despite paying 20 percent less than its rival bidder.

In his touching eulogy for Mr. Chua, “the much-loved leader among his men” who passed away from cancer in 1986 when he was 47, Keppel’s influential long-time US representative Mr. John Bajor commented, “Yes there’s complete dedication expected but the return in caring for each employee is the spirit he so carefully nurtured and left behind. It has become the Keppel way.” Mr. Sim also paid tributes to Mr. Chua who “tried exceedingly hard to inculcate in the organisation the ‘Keppel culture’ of loyalty, thrift and hard work.” Mr. Chua’s dedication and his “genuine interest in helping junior officers overcome difficulties in order to advance their career” has laid the foundation to the “Can Do” spirit of excellence at all levels in Keppel for many years to come.

The story at Bamboo Innovators CSL and Keppel highlighted the intangible culture of kindness, caring and empowerment is akin to the invisible intricate underground root structure that makes the ground around a bamboo grove very stable – and make possible the adaptability of the bamboo to bend, not break, with storms and crisis, and to remain relevant and evergreen no matter how the world around us speeds up and changes.

Creating ‘bamboo innovators’ in S’pore now on AsiaOne

Now on AsiaOne: http://www.asiaone.com/News/Latest%2BNews/Singapore/Story/A1Story20130402-413040.html

Creating ‘bamboo innovators’ in S’pore

Uncertain conditions can breed innovative businesses, where risk-taking educators nurture flexible students. -ST
Kee Koon Boon

Wed, Apr 03, 2013
The Straits Times

Gil Shwed, CEO & Founder of Check Point Sofware.

SINGAPORE – “Can my kid watch how you milk cows?”

“Can my kid see how you print the newspaper?”

These were questions asked by Israeli inventor and entrepreneur Gil Shwed’s mother when she took him on educational “adventure trips” when he was young, exposing him to a dairy farm, a printing house, and his father’s office in 1972, where at age five he saw a computer for the first time.

He soon signed up for computer classes at age nine, a summer coding job at 12, and took computer science classes at the Hebrew University while still in high school.

Unlike his career-minded peers, Mr Shwed persisted with an idea first cooked up during his military conscription: building a type of computer security software that links up computer networks in a way that would allow some users access to confidential materials while denying access to others. He embarked upon the project with two friends after army conscription and without the security of “proper” jobs.

By 1994, the trio’s Firewall product won the best software award at a computer show, vindicating a venture capital firm’s faith in Mr Shwed’s vision. Check Point Software Technologies listed on Nasdaq in 1996. Its market value today has jumped 12-fold to US$10 billion (S$12.4 billion).

Binding the trio together was a pioneering ethos where “education” with a “bitzu’ism” quality was at its heart. A bitzu’ist is a Hebrew word that loosely translates to “pragmatist” with a resilient quality, like bamboo that bends but does not break in the wildest storms when even oak trees snap. The bitzu’ist is the “builder, the irrigator, the pilot, the gun-runner, the settler all rolled into one”.

Mr Shwed thinks of his home country Israel as a “start-up nation”. “We managed to create a country from zero. We’ve had an entrepreneurial spirit for over 100 years. One thing that really helps us here is that we don’t have a local market.”

Surrounded by hostile neighbours and with few natural resources, Israel has the highest density of start-ups in the world, with one for every 1,800 Israelis. With a population of 7.7 million with 70 different nationalities, Israelis think globally when creating products and innovative firms.

Developing human capital is the key to growing the Israeli economy. Its education system is not about chasing after instrumental achievements such as “grades” or a “checklist-based holistic curriculum vitae” or “high graduation salary”.

The education system in Israel is made market-relevant when plugged into an unique ecosystem that constantly searches for and supports innovative ideas and new products to help build “bamboo innovator” companies such as Check Point.

In “Singapore version 1.0’s” growth since independence, the education system is meritocratic, highly competitive and “standardised”, lifting the technical competence and social mobility of Singaporeans to fit multinational companies (MNCs) with their export-oriented strategies.

This is augmented by higher valued-added services from logistics, shipping and maritime support to legal, finance and accounting, generating high wages to beat inflationary pressures. “Education 1.0” is about meeting the needs of capable MNCs which connect Singapore’s small, open economy to the real marketplace.

Yet the highly skilled workforce is not able to translate its “intangibles” in know-how into building and even owning “bamboo innovators”. The “earnings” accrued from this know-how remain with the MNCs.

In investing lingo, a high-salaried MNC worker has a price earnings (PE) ratio of one while a MNC can have a PE value of 20 times. A productive “bamboo” worker is one who, when a wind blows away his MNC title and position, can still remain a resilient innovator to create value because he has that intangible quality that is indestructible.

MNCs are concerned about the Singapore workforce lacking the initiative and innovativeness desired by knowledge-based industries, thus creating a barrier to a breakthrough in wages and productivity. It is the hollow “emptiness” in its centre – the intangibles – that gives bamboo great strength and flexibility in a raging storm.

The Singapore workforce’s accumulation of wealth and tangible assets for their own sake has evolved into a sense of entitlement, a dangerous liability that erodes character, moral values and social cohesion.

Reform attempts through character education and creative thinking alone are not only difficult but also decidedly off-track. As economist David Landes puts it, nothing dilutes drive and ambition more than a sense of entitlement. This kind of distortion makes an economy inherently uncompetitive.

Instead of the diminishing marginal returns from repeating “Education 1.0”, where school results are instrumental, these complex uncertain times require an education system that enables students to grope and reach directly into the global marketplace, to be sensitive and alert to existing anomalies and paradigms, and to how things ought to function and behave.

Educators must connect and sensitise students to the chaotic global marketplace. It is this sensitivity and alertness that leads to creating “bamboo innovators”.

Reflecting former deputy prime minister Goh Keng Swee’s view about the spirit of education as both “a search for truth” and “the way to a better life”, Singapore’s “Education 2.0” system should centre on how and why resilient firms continue to create value in uncertain and difficult times.

The system should also educate students who dare to become “bamboo innovators” like Mr Shwed, and who will build enduring creations.

As former Israeli president Shimon Peres said, “the most careful thing is to dare”.

Creating ‘bamboo innovators’ in S’pore (Straits Times, April 1, 2013)

http://www.stasiareport.com/premium/opinion/story/creating-bamboo-innovators-spore-20130401

Creating ‘bamboo innovators’ in S’pore

Uncertain conditions can breed innovative businesses, where risk-taking educators nurture flexible students.

Check Point Software Technologies CEO and founder Gil Shwed, an Israeli inventor and entrepreneur who started the Firewall security software. — PHOTO: CHECK POINT SOFTWARE TECHNOLOGIE

By Kee Koon Boon For The Straits Times

Read the published version below and the unedited longer version here.  Read more of this post

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.

Emerging Value Summit 2013 (April 9-10). R.E.S.-ilient Compounders in (the Next) Crisis: Buffett + Bosch + Baiyao = Bamboo Innovators

Dear Friends and All,

Value investors focused on emerging markets will gather at the “Emerging Value Summit 2013” (http://www.valueconferences.com/reg/emerging13/) on April 9-10 to share their insights and ideas. Some of the speakers include Tata Capital CEO Mr Praveen Kadle, FCA Corp Founder & CEO Mr Robert Scharar, Ms Lauren Templeton etc. The Emerging Value Summit 2013 is organized by The Manual of Ideas, the definite source of value investing ideas (http://www.manualofideas.com/).

I am honored to be invited by Oliver from The Manual of Ideas to be one of the speakers to share with you the topic:

“R.E.S.-ilient Compounders in (the Next) Crisis: Buffett + Bosch + Baiyao = Bamboo Innovators”. Thank you Oliver.

Further updates will be uploaded on the Emerging Value Summit 2013 website from next week.

Thank you for your kind feedback and encouragement all along. Hope you will enjoy this latest upcoming presentation about Bamboo Innovators, a research series to establish thought leadership on resilient and innovative value creators in Asia and around the world.

Kind regards,

Koon Boon (KB)

Kindness + The Accounting of Words and Value Investing

I was just discussing this afternoon about how can one “measure/quantify” the criteria of “kindness”. This is in relation to Yahoo’s Marissa Mayer scrapping the “work-from-home” policy which would affect several working mothers and the policy does not seem aligned with a culture of kindness and trust to foster productivity and innovations. And there are reports that Marissa Mayer paid to have a nursery built in her office; “not all Yahoos have that kind of money and clout” was the feedback gathered by journalist Nicholas Carson from some Yahoo staff. In the R.E.S.-ilience framework of Bamboo Innovators, R stands for Rootedness in a Kindness culture. Perhaps the lack of Kindness can be “quantified” by the disproportionate size of the office and size of perks to the top executives and managers. In a positive way, Kindness can be “measured” by the “number of jokes/humor” in annual reports and company publications, just like Warren Buffett’s folky humor in his widely-followed Berkshire Hathaway’s Letter to Shareholders. Words can reveal kindness and there is growing awareness of how linguistic/textual analysis can be used to highlight the intentions of managers and leaders. Talk about using unorthodox “data”. Below is a brief article “The Accounting of Words and Value Investing” that I wrote in September 2010 which also has relevance to investigating Bamboo Innovators.

Koon Boon

26 Feb 2013

Singapore

27 September 2010 (Updated 22 March 2013)

The Accounting of Words and Value Investing for Bamboo Innovators

By KEE Koon Boon

Have taken down this article as i am submitting this for a posting at a media outlet for a 1-month exclusivity period. Will update accordingly. Thank you.