Bamboo Innovators: R.E.S.-ilience in Value Creation


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Bamboo Innovators: R.E.S.-ilience in Value Creation

  1. 1. 1Bamboo Innovators: R.E.S.-ilience in Value Creation24 February 2013KEE Koon Boon ( only stock price behavior and the firm value creation process was resilient like the bamboo. Inemergencies such as a storm, typhoon, or earthquake, the wise ones would head for the bamboogrove. The ground is held firm by the dense mass of interlocking “rhizomes”, or the intricateunderground root structure of a bamboo. Bamboos bend but not break in the wildest storms thatsnapped the mighty resisting oak trees, its leaves blow in the wind but do not fall; it survives andtherefore it conquers.Resilience is rare in companies, even among successful ones. During the 2007/08 Global FinancialCrisis (GFC), the S&P 500 Index and Morgan Stanley Asia Pacific ex-Japan Index (MXAPJ) were down52 percent and two-thirds respectively over a period of 15-16 months from their peaks in November2007 to their lowest points in March 2009. Despite the strong market rebound since, while the S&Phas recovered to its pre-GFC peak level, the MXAPJ is still down around 20 percent. An intriguingunexamined question remains: during the worst of storm, is there a group of companies whose stockprices have fallen far less than the index or even rose – resilient just like the bamboo - and why? Andfor those who went on to surpass their previous pre-GFC peaks significantly, what are the underlyingbusiness fundamentals that enable them to grow and scale up?These resilient growth firms are “Bamboo Innovators”, outperforming primarily because of theirinnovative business models and proactive corporate culture. Studies rife with survivorship-biasabound in examining – and extrapolating - the multiple factors behind the “long-term” performanceof firms. Just as character is ultimately tested in periods of crisis and in the inevitable traumaticknocks of life, past contributing success factors may prove fragile and fleeting especially in disruptiveupheavals and previously successful firms are unable to bounce back to scale greater heights.Instead, they remain in a state of protracted consolidation or even decline, whereby the veryoptimization that made it so successful is now maladaptive, confounding conventional rigorousanalysis. There is much more to resilience than simplistic oak-like strength, which is achievedtypically by efficiency in the hardening of assets of a system.The study of these Bamboo Innovators globally and in Asia can bring fresh thinking and redefinitionabout firm innovation, its underlying sources and dynamics, in the face of dramatically changedcircumstances and punctuated crises. The key objectives are three-fold: one is to propagate the coreideas in the findings in companies to enable them to be productive innovators in order to surpassstall points in tumultuous periods, particularly among SMEs aspiring to scale up to be regional orglobal champions; the other is to use this powerful lens to view the value creation process afreshand make predictions to continually find emerging evergreen Bamboo Innovators that outperformthe market significantly; the third is to adapt the timeless principles in us all to become a moreemotionally engaged innovator-leader, Bamboo-style.R.E.S.-ilience framework in value creationA checklist approach in examining “successful” companies might overlook the resilient BambooInnovators. After all, there are much larger impressive trees in the forest. By comparison a bamboolooks smaller, thinner, and fragile. The list of Bamboo Innovators is a surprising one; many of themare not the typical ones that one would come across. While the details are always different, certainfeatures of the Bamboo Innovators are remarkably similar to those that resulted in the astonishingvitality in bamboo: the R.E.S.-ilience factors in value creation.
  2. 2. 2 R stands for “Rootedness” in cultivating a culture of kindness, trust and cooperation tocontend with and heal creative dissent and incentivize innovative experimentations. E for “Emptiness” like the empty hollow center of a bamboo in having (1) “indestructibleintangibles” which in turn derives its strength from either a certain know-how or trust andsupport in the community; (2) a “core-periphery” network; and (3) an “open-innovation”business model in which both internal and external partners co-develop new products andcreations S for “Sheath” in leadership to create the context, adaptive-govern, coordinate, synthesizeand weave diverse networks and groups who might otherwise be excluded into a coherentwhole, rather than the typical command-and-control “positional/title-based” leadership .“Rootedness”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. Without kindness, Google’s web-basedemail Gmail would have been an aborted project and died. Gmail was a surprisingly result ofinsubordination, initial widespread dislike amongst the vast majority of “team” members – and atriumphant culture rooted in kindness towards the iterative experimentation with ideas. Created byPaul Buchheit, Google’s Employee No. 23 and the one who famously came up with the “Don’t BeEvil” motto for Google, Gmail “innovated” with a concept which was in existence at the time but notbelieved viable by most companies: linking ads to the content of an email to bring aboutmonetization and commercialization. When Buchheit told his supervisor of his idea, the VP of SearchProducts and User Experience shot it down and asked him not to proceed. Buchheit, convinced ofthe potential of this new product, ignored his supervisor’s orders, stayed up all night (until tofinish the ad integration component. The Gmail work also subsequently led to the multi-billion-profitAdSense content targeted ad product for Google.Buchheit was handsomely rewarded for the innovation and “retired” from Google at age 30. Gmail,along with Google News, Orkut, Google Finance and AdSense, were all originated from Google’s“Innovation Time Off” intrapreneurship program whereby engineers can spend 20% of their timeworking on personal projects unrelated to their primary assignments, “a license to pursue dreams”.It is unusual for companies to trust employees to use their free time productively; in fact, any freetime should be soaked up to be “productive”. Google knows that the 20% time is a costly programthat is difficult to monitor and they trust the employees to use their time wisely. To trust is to bekind to others – and making ourselves vulnerable. When someone or a place has more faith in usthan we have in ourselves, we feel uplifted, because that faith helps us discover in ourselves a traitor ability we perhaps did not know we had. While there are some outstanding successes, a largeproportion of such time may well be unproductive. This “failure” is the cost for a few successfulinnovations. Empathy and tolerance towards failures, frustrations and sufferings are rooted inkindness. A true test of kindness, which is harder than empathy towards failures, is joy at otherpeople’s success – a rare virtue that Buddhists call mudita. A typical response to innovation is thatonce the “leaders” understood that midlevel functionaries in an obscure initiative were going tobecome the highest-paid executives in the corporation, their enthusiasm for the project coulddisappear overnight.Kindness is like water nourishing the powerful roots of bamboo. Bamboos are found mostabundantly along the waterways, among the rice paddies, in coastal regions where they can bebathed by sea mists, but rarely in dry places. And it is the invisible intricate underground rootstructure that makes the ground around a bamboo grove very stable – and make possible theflexibility and adaptability of the bamboo to bend, not break, with the wind. Just like innovators withtheir ideas and experiments bending with resistance. Adaptability to the present reality means
  3. 3. 3accepting the frustrations and failures that come from innovative experimentations. We can thenopen to the new, to paradox and the absurd. Kindness is an inner revolution; as is innovation. Webecome more fluid, more willing to risk. We are able to let go of old models and the beliefs we aremost fond of, and we become humble enough to start and learn all over again. We also put less inour possession and more in people. The boundaries between us and others begin to merge, so thatwe feel engaged and committed as part of a whole in which it is possible to share resources,emotions and innovations.“Emptiness”“Emptiness” in business model is perhaps the most misunderstood and underrated virtue in resilientgrowth and value creation. Bamboos are among the fastest-growing plants in the world. And there isnothing quite like the sight of emerging bamboo shoots breaking through the earth’s crust to reachfor the sun. Remaining underground for the first several years, bamboo has been clocked surgingskywards as fast as 47.6 inches in a 24-hour period. The vitality of its growth revolves around its“emptiness”. Instead of sanely constructing itself inch by solid inch like trees, soberly climbing intothe contested forest air, bamboo sprints sunward to complete stature in about two months. Afterthis initial vertical burst, bamboo unfolds branches and uncoils leaves to capture the sunlight it leaptup to get. The nutrients and moisture that would have been exhausted making and maintaining thisempty center can be utilized for growth of other culms (stem). As a survival tactic among many plantspecies reaching up to compete for available light, the growth pattern of bamboo is shrewdlydesigned. From a builder’s viewpoint, the architecture of the bamboo culm presents a powerfulconfiguration: fibers of greatest strength occur in increasing concentration toward the periphery ofthe plant.Consider the case of Japan’s Ohsho Food Services (Ticker: 9936 JP), which displayed resiliency byrising 6% during the 2007/09 GFC period when Nikkei index was down from the peak in July 2007 by61% to March 2009. The “Gyoza Dumpling King” with more than 600 restaurants nationwide inJapan went on to exceed its pre-GFC peak by over 90% to a market value of $620 million while theNikkei is still down 38%. Ohsho innovated and created value from “emptiness” in a core/peripherybusiness model during difficult times. In the restaurant chain industry, most of the menudevelopment, promotions and event planning take place at the headquarters rather than at thestore. At Ohsho, it has been left in the hands of the store manager who firmly grasps the marketneeds of the region. Instead of scaling up by developing the center to “manage” the individualstandardized stores, Ohsho believe in the store managers and employees to build up a store of theirown wisdom with the “one-shop, one-of-a-kind” philosophy to assimilate into the local communityof consumers and for that unique shop to “be loved forever.”Employees of each store are required to think for themselves how to delight customers in exploringand implementing innovations in terms of cooking techniques, devising menu, taste of food, in-storeatmosphere and planning events. To enhance flexible response and agility, information about thesuccessful and failed innovations and operations at each store is shared by an online network to allstores in a transparent environment that encourages validated learning. Whilst store individualityand institutional independence of employees are embedded into the business model, what does notchange at the “core” for its “periphery” is the “creed of the three kings”: food that is delicious, cheapand quick, reinforced by a fresh handmade dumplings policy. Since the founding of the first store inKyoto in 1967, Ohsho stressed its signature dumplings are to be handmade wholeheartedly in frontof the customers’ eyes without resorting to frozen food which creates “waste”. In Japan, childrengrow up eating homemade food cooked by their loving mother and they wish to create this feelingat each Ohsho store. Ohsho has its own logistics system to deliver fresh and semi-processedingredients to ensure quality as it scales up its geographical footprint. A proactive human resource
  4. 4. 4support is also developed to help franchisees and store managers grow. New employees arerequired to go through a controversial five-day Sparta-like training at the Ashigara facility located inthe mountains of Kanagawa Prefecture where employees have to scream a three-minute speechabout “My Ambition” – to be the store manager in one year. Employees were seen crying andhugging each other in the end, like a motivational seminar.The same “emptiness” in a “core/periphery” business model has transformed Japan’s conveniencestore operator Lawson (Ticker: 2651 JP), which was heading towards bankruptcy in 2002, into one ofthe most innovative companies in Japan with a market value of over $7.3 billion. Like Ohsho, Lawsonwas up during the GFC storm when Nikkei plunged 61% and it went on to double its pre-GFC peak.Upon taking over in 2002, CEO Takeshi Niinami found out that overly strong headquarter-centricmanagement led to low motivation of the rank and file. Isao Nakuchi, the original founder of DaieiGroup who brought the American Ohio-origin Lawson chain to Osaka in 1975, was such a charismaticleader that most of the people under him were used to being given orders from the top. Yet, theTokyo-HQ management had a hard time understanding the specific needs of local customers. The1,900 miles of land and sea that separated the northern and southern tip of Japan resulted ingeographic, climatic and cultural diversities that only local management could capture. Niinami-sandiscovered that his people knew how to better solve problems using their local knowledge than thestandardized operational know-how directed from HQ. So he delegated decision-making authorityon day-to-day functions, such as merchandising, sourcing, store development and local marketing, to“energize” the front-line and changed the corporate philosophy into “Happiness and Harmony in ourCommunity” to stress the importance of front-line staff in serving the customer. Importantly, storemanagers and supervisors are given a free hand to source 30% of merchandise locally while 70%continue to be nationally sourced by HQ. By empowering people with the “you’ve gotta decide”mentality, the “periphery” started to sense their own state and became more motivated andproductive. As a result, new innovative store formats and new product categories, such as freshfruits and vegetables, pour forth to target new demographics beyond teenagers and middle-agedmen by attracting the elderly and female consumers to meet the changing socio-economic trends.Half of the 10,000 Lawson stores nationwide now sell a range of fresh vegetables and fruit,compared with around only 1,200 in fiscal 2009. New format stores, such as Natural Lawson, whichoffers healthy deli items and organic products targeting health and beauty conscious customers, andPharmacy Lawson with a dispensing pharmacy to serve the aging population by providing themhealthy food items, now account for over half of the stores. A closer connection to the consumerbase was forged and Lawson gained greater recognition as a neighbourhood store who knew theirneeds intimately.At the “core”, Niinami-san also abolished the seniority system and implemented total meritocracy inthe HR management system. Keenly aware that “innovation occurs at the boundary” and that“diversity is one of the most important elements for innovation”, Niinami-san created a culture toactively recruit women as well as foreign nationals from 2006 onwards and half of their new hirersare women and nearly one-third are non-Japanese. The “Lawson University” was also set up withtraining programs focusing not only on operational skills for store managers and supervisors but alsoleadership development and strategic thinking. By 2011, leadership programs had grown to includefranchise owners, who run 80% of the 10,000 Lawson stores, and crew members. Lawson HQ alsoplayed the role of venture capitalist, providing various supports to entrepreneurs-franchise ownerswith a desire to expand their business with innovative service and new business models in the“Management Owner System” launched in 2009. One of the most successful Management Owners isonly 29 years old, running 31 stores with annual sales of about $70 million and preparing to list hiscompany on the JASDAQ stock exchange. Lawson also seeks to become the world’s first double“O2O” (online to offline and offline to online) enterprise in retail industry by fully utilizing their deep
  5. 5. 5customer knowledge from our real store operations with loyal consumers. Bamboo InnovatorLawson achieved 10 consecutive years of operating profit growth with compound annual growthrate of over 7% and ROE over 15%, far higher than the Japanese average.The alternating pattern of intangible (hollow emptiness) internodes and tangible (solid) nodes givesthe bamboo culm great strength, light weight and flexibility in a raging storm. The upward climb ofthe bamboo is attained by throwing a horizontal truss across at distances carefully determined bystress levels in the ascending culm, hence the expression “the bamboo blossoms at ever highernodes”. In the same way, Japan’s mayonnaise king Kewpie (Ticker: 2809 JP, $2 billion market value)leveraged upon its deep intangible knowledge about eggs, the main ingredient of mayonnaise, fromhandling over 10% (250,000 tonnes) of eggs in Japan over two decades, to pursue the full use of eggsto expand into new product categories and new customer segments without breaking the stresslevels of the business model. Through fusing the proprietary technologies, products, information andmarketing channels of the group akin to the alternating pattern of bamboo internodes and nodes,the resilient growth at Kewpie came from creating related table-top dressing and kitchen-useproducts in salad condiments, salads and cut vegetables, ready-made delicatessen, and cultivatinglatent demands such as nursing care food products for the elderly and baby food. In its fine chemicalproducts business, Kewpie develops medicine stabilization technology using egg-yolk lecithincapsules and extracts hyaluronic acid from eggs that is used in cosmetics and in the medicaltreatment to strengthen functions in joints, such as knee osteoarthritis, and dry eye.There is a similar resilient growth pattern at other Bamboo Innovators such as online price-comparison site (Ticker: 2371 JP, $2.2 billion market value) or online medicalinformation service provider M3 Inc (Ticker: 2413 JP, $2.8 billion market value). wasstarted in 1997 by Mitsuaki Makino as a website which lists the retail prices of Akihabara, theJapanese electric market. Building upon its intangible quality – its trustworthiness and reliabilityamongst the Japanese community of consumers, wholesalers and retailers as an informative sitewhich shows the best deals of electrical products – is able to grow into new areas suchas insurance, forex currency trade and finance site, restaurant ranking gourmet site tabelog, word-of-mouth travel site 4travel, last minute hotel reservation site, real estate and housinginformation sites Summaity and Mansion DB and so on. M3 started out with its core MR-kun service,which is like a Google for medical professionals, used as a marketing tool by pharmaceuticalcompanies to provide consistent, repeated delivery of information on products and diseases. MR-kun also provides a channel for companies to receive questions and feedback from doctors,strengthening company/doctor relations. Pharmaceutical companies signed up for MR-kun pay abasic annual fee of ¥70 to ¥100 million ($0.75 to 1 million) per electronic “e-detailing message,”which is the online equivalent of a sales visit by a MR (medical representative) to a physician’s clinic.In the pharmaceutical industry a sales visit by an MR to a doctor’s clinic is called a detail. M3 alsocharges fees for the production of promotional content and receives fees for other services such asfacilitating the exchange of messages between pharma company MRs and their physician clients. Adominant platform used by 80% of Japan’s physicians, MR-kun is rated by over 92% of its users whosaid its usage “deepened their knowledge of diseases”. With this intangible trust built up amongstthe community of users, M3 is able to leverage this relationship with its members to develop newonline tools. These include online tools in clinical trials to determine the feasibility of trials and helpwith patient recruitment, market research and survey panels, and online job search and careerinformation site for member doctors and pharmacists. M3 even expanded from B2B to B2C byproviding a range of services for consumers including, a subscription service that givespatients a chance to ask doctors questions about their ailments, and iTicket, whose more than500,000 members use the service to make reservations at clinics. Both and M3 Inc areup 370% and 200% respectively from their pre-GFC peaks even when Nikkei is still down 38%.
  6. 6. 6“Sheath”Sheaths are not the most obvious structures on a bamboo plant, but they are, perhaps, the mostcomplicated. As the bamboo shoot breaks through the earth’s surface and reaches for the sun, it iscovered and protected by a set of distinctive sheaths. Every soft and vulnerable emerging node ofrhizome (root), culm, or branch bears a sheath that protects it during growth until it hardens. Theouter surface of the culm sheath is usually tough while the inner surface is always smooth and glossywhich allows the internode to rise rapidly through its casing. Similarly, upon crafting the culture andcreating the context for resilient growth, sheath leaders play the role of protecting emerging nodesof innovation at the periphery from harm. An illuminating example would be how Singapore’sfounding Prime Minister Lee Kuan Yew cleared the political obstacles and laid the ground to allowfor the innovations devised by his key economic architect Dr. Goh Keng Swee to be implemented, ascommented by Lee himself in his eulogy for Goh on 23 May 2010: “He [Goh Keng Swee] was mytrouble-shooter. I settled the political conditions so that his tough policies we together formulatedcould be executed.”Like its tough outer surface, sheath leaders are brutally honest in recognizing a problem rather thanto pretend there is none. In a conservative Japanese culture, Niinami-san was unusually candid byusing the word “failed to” repeatedly in highlighting Lawson’s performance, such as failure in rollingout initiatives to boost franchise owners’ motivation, in his presentation to investors during fiscalyears 2003 to 2006 and discussed extensively about the improvement measures. Without gratitude,honesty cannot be brought out meaningfully, since gratitude is the ability to see value even inhumble, unremarkable and problematic situations as areas to improve through providing his or herservice. Gratitude is antiheroic. It does not depend on courage or strength or talent. It is based onour incompleteness and born only where solidarity and the awareness of problems are present. Ifwe are honest and do not hide it from ourselves, we can proactively work to receive the goodnessand opportunities that life offers us and we can be grateful.With its smooth inner surface, sheath leaders are able to weave diverse networks and groups whomight otherwise be excluded into a coherent whole, quite unlike the typical command-and-control“position/title-based” leadership Most people regard individual bamboo culms as trees, each aseparate, living whole. In fact, the stems are airy branches of a single life whose structuralfoundation is underground, invisible. Apparent individuals are members of a system of inter-survival,a tuft of giant grasses: sharing, cooperative, striving for the common good of the grove, gatheringand storing resources in rhizomes, to be sent then to the most active centers of new growth in thegrove, the “bamboo kids” or takenoko, as the new shoots are affectionately known in Japanese.Consider the case of P&G’s Olay Vitamin brand. This innovative product was a result of P&G alumniBrent Bailey facilitating a licensing deal between Pharmavite (part of Japanese pharmaceutical giantOtsuka), which he then served as the president and COO, and P&G in 2003. Historically, when peopleleft P&G, they were shunned and ostracized as “traitors”. But when A.G. Lafley became CEO, heplanned for former employees to officially participate in reunions as he realized that they were“extremely valuable allies” to weave into P&G’s network, as was the case for Bailey in the OlayVitamin innovation. Sheath leaders are able to give voice to the unpopular, unconventional,unorthodox views to foster innovation.Bamboo is an ancient resident of earth, here before people by some 100 to 200 million years. Its“root-like” rhizome and “hollow” culm is perhaps the hardiest and effective natural structure toevolve in millions of years of restless experiment in cellular life on earth, and the most efficientlaboratory that has yet appeared for braiding sunlight, water, and soil into forms which have forcenturies proved immensely useful for human needs. Bamboos bend, not break, and remainevergreen even with the onslaught of the atomic bomb. The world’s first atomic bomb over the city
  7. 7. 7of Hiroshima on August 6, 1945, has destroyed streets and houses, charred trees and grasses to bits.Yet, one living thing stood out. In the very epicenter, a thicket of bamboo stood through the blast,suffering only one side to be scorched. The sight was an immeasurable encouragement to the war-shattered citizens. A portion of the bamboo plant is now housed in the Memorial Museum for Peace.A series of articles will investigate and highlight the top Bamboo Innovators around the world in whyand how they are able to create massive value during periods of disruptive upheavals andunorthodox challenges. While the specific application and context changes, the enduring R.E.S.-ilence principles in value creation at these Bamboo Innovators remain relevant and evergreen nomatter how the world around us changes. The sage Confucius was reputedly so absorbed in hisinvestigation of bamboos that he forgot to taste meat for three months. He remarked to a friend,“People get thin without meat, but without bamboo they get vulgar”! As with all serious quests, thesought turns out to be the seeker. I hope that the ideas in Bamboo Innovators will come alive notwhen we “taste” them but when we feel them from inside of us and discover contextually-relevantforms for ourselves. “Give me a lever long enough and a place to stand and I’ll move the world,” saysAristotle. The long lever we choose to innovate in the world is hopefully the Bamboo; the placewhere we stand is Emptiness - when we empty our heart of prejudices, pride and fear, we becomeopen to the possibilities to innovate – and Emptiness is rooted in Kindness and Trust.