The Korea Herald


[Andrew Sheng] Success depends on succession

By 이현주

Published : Oct. 16, 2015 - 17:17

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Earlier this month, I was fortunate to attend the Khazanah Megatrends Forum 2015 in Kuala Lumpur on disruptive innovation. The forum brought together many amazing speakers who are at the cutting edge of innovation. The most impressive was Hugh Herr, who lost both legs to frostbite when mountain climbing.

His doctors told him that he should be resigned to limited mobility. After an initial period of despondence, he decided boldly that it was conventional medicine that was broken, not his body or mind. So he invented robotic legs and today, fitted with bionic legs, he has not only climbed more difficult rock faces than before, but also helped a thousand other handicapped people.

The point of his story is that innovation is all about changing the status quo through sheer willpower — to do what most people thought is impossible.

New technology is changing the world, and Asian economies are facing both the threat of disruptive technology and the benefits of new growth and new profits.

Disruptive technology is a cut-throat business. Out of roughly $400 billion of annual sales, two smartphone companies — Apple and Samsung — dominate the business, with almost everyone else bleeding losses or being reconfigured.

Likewise, Factory Asia is facing compressed creative destruction — as its industries like coal, steel, petrochemicals and cars are facing excess capacity, pollution constraints and huge energy and resource inefficiencies. No Asian dragon or tiger economy is immune to the combination of both technology disruption and secular stagnation.

Princeton professor Dani Rodrik, probably one of the foremost development economists around, thinks that growth through knowledge-based services could be the focus going forward.

However, the shift to a services-driven economy inevitably comes at a cost of slower GDP growth, partly because it is easier to measure physical production than services production. The value-added services depends also on the skills of the workers. The value added of a MacDonald’s hamburger flipper is very different from that of a software designer working in Google. A completely different policy mindset is required to shift our successful manufacturing model to a service- and innovation-driven model.

In other words, assembly-line skills or pumping oil out of the ground are very different from thinking and creative skills. Certain service sectors are relatively easy to grow, such as tourism, food and catering, but others such as health care, education, financial services, creative industries and Internet technology require very specialized skills and mindsets. The old hierarchy is driven on a top-down basis, whereas the new Internet market requires lateral-thinking and is much more bottom-up.

So far, the advanced countries generate most of the innovation through their higher levels of research and development in both basic sciences as well as applied technology. Their advanced universities encourage creative thinking rather than rote learning. What the multinational companies have learn is that they can tap innovation through diversity and investing in youth. The most creative and dynamic companies are not more than 10 years old, whereas the older companies are still struggling to reinvent their business models.

The innovation supply chain moves up a knowledge scale.

Henry Ford was the pioneer in “product” (car) and “process” (assembly line) innovation. Toyota perfected the famous just-in-type production process and the quality control circles that made Japanese cars so reliable and defect-free. Steve Jobs took a common product (phone) and innovated it into a cool lifestyle, which was pure “psyche” or mindset innovation. Then Alibaba created within Asia its first “platform innovation”, where its Internet platform facilitated half a million small businesses to trade with each other and to reach millions of online customers. At one stroke, Alibaba intermediated the previously segmented payments and logistics industries.

In short, the only way out of the current trap of secular stagnation — the advent of both slow growth and deflation ― is continuous innovation and structural reforms. We need painful structural reforms because we need to phase out the 20th-century industries that are polluting, energy and resource wasteful and value-destroying. Getting rid of these zombies is very difficult because there are huge vested interests in their continued survival.

But as long as these entrenched interests are still controlling the bulk of resources, the young and innovative have difficulty in getting their fair share of voice, energy and funding into building the new products, processes, platforms and pysches for the 21st century.

The old resists changing the present for fear of an uncertain future. The young have no such fear, because they will inherit the future. Thus, if we are to unleash our growth potential, we must celebrate our youth by trusting them to make their own mistakes, to learn from them and build the new businesses and institutions that will improve our societies.

Throughout Asia, a new generation is waiting to make a difference. They grew up in an age of the Internet. Their skill sets are very different from the present generation of baby boomers who have created tremendous wealth and prosperity, but have produced at the same time, unprecedented inequality. This generation of leaders’ capacity to innovate can only at best be linear, whereas the mass innovation from the young could be quantum.

This means that we must now begin to build the platforms and new social institutions to allow the youth to channel their energies toward creative outlets — not in rebellion of the present, but to shape the future. Sometimes I wonder why new appointments to many public appointments are mainly for the “tried and tested gray-hairs,” rather than the young and more diverse. As opinions harden, positions become more polarized. The dialogue between generations is not happening, because they are talking past each other.

Success depends on succession. Time to pass the baton to the next generation to tackle the problems of the 21st century.

By Andrew Sheng

Andrew Sheng writes on Asian global issues. — Ed.

(Asia News Network)