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Field trip: Mexico, still on a tightrope.

Tuxtla Gutierrez, Chiapas, 01 May 2014

Mexico on a tight rope

Mexico on a tightrope









Last year, Mexico looked upbeat ( This time around optimism is more subdued. Despite an ambitious legislative agenda, economic growth has slowed down to a stall while state issues linked to the drug cartels and organized crime have grown to new disturbing levels.

Since his election in November 12, President Pena has deftly maneuvered in congress to pass constitutional changes (pacto por Mexico). His reform program is now hitting snags. Consensus on the supporting legislation (leyes secundarias) in the areas of energy, medias, telecoms and education is proving more elusive than as parties in congress are shifting back to their own pressing agendas. Overall the Pena administration has won kudos in international financial markets but proof of pudding will be set in the remainder of the year. The promise to citizens is that the modernization of legislation in key areas will eventually bring about economic growth through new foreign investments. No doubt this will happen, but the short term picture looks rather bleak.

GDP growth for 2013 ended at 1.3 %, compared to 4% in 2002. In January the annualized rate skidded to a crawling 0.3 %. Although these numbers reflect a general slowing down in emerging countries, the figures look disappointing. A drop in consumption, fixed investments and construction activities have turned out to be a drag on the economy. As a result the Peso has slipped by 10% in the last 12 months, from P/US$ 12.10 to about P/US$ 13.15 in 12. In light of this predicament, President Pena announced last 30 April a large infrastructure program amounting to 7.7 billion pesos.

What Mexico has gained in the area of economic legislation, is being tarnished by a general sense that the federal grip on national security is further slipping. Drug cartels and organized crime are expanding their influence as the number of victims is still growing much faster than the economy. Local experts are drawing parallels with the state of Russia in the late 1990s, when it was estimated that organized crime controlled or heavily influenced about 40% of private companies, 60% of state companies and between 50-85% of banks. The least that can be said about Mexico is that the judicial system looks decidedly shaky in many states, while corruption and impunity are widespread in most layers of governments. We have come to witness every year a large scale corruption case capturing headlines and the public sorrow for months: Last year the dishonoring case was Mexicana (airlines), whereas as this year Oceanografia (oil industry)is the guilty outfit, haunting Citibank-owned Banamex.

Kidnappings remain all too common, and too often unreported. Sadly, public lynching seems to have tentatively reappeared in Mexico, as has been the case in Argentina and Venezuela. Paramilitary security units have sprouted out in the more turbulent states, such as Michoacan. This will be the weather state worth watching for the next two years, as the federal government will officially and publically try to regain some form of control.

During my visit to Chiapas, medias were officially reporting that well above 1.5 million migrants from central America enter the country every year through the area of Tapachula, the southern border city. The biggest travel business in town is the bus trip to Tijuana, on the northern border with the USA. A non-stop grueling 72-hour road trip along the Pacific coast, that carries all the misery stories on board.

Gabriel Garcial Marquez, who passed away last 17 April, was celebrated in Mexico city by the same heads of states he so wistfully teased and criticized all his life. A native Columbian, he would have recognized this dissolution of the legal right in his adopted land.
But for the new generation in Mexico, where is the next Octavio Paz or Gabriel Marquez?

André Du Sault
MBA (LBS), MPA (Harvard)
Ref: El Economista, Processo, Contenido, El Heraldo

Posted in CFO & treasury, Country visits, Strategy & globalisation, World economy.

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Montreal, 18 April 2014.

International champions from Asia are moving up the value chain a lot faster than anticipated.  If Japanese companies shook the economic foundations of the Western industrialized nations in the 1970s and 80s, a new roster of champions, notably from China, will challenge anew the Western economies.

My colleague William Polushin and I have been teaching ‘Management and business in Asia’ at McGill since 2007.  Every year we ask students to make a comprehensive study of an emerging champion and tell us how they develop their competitive advantages and what stands up as unique and special about them.  We have thus reviewed over 60 companies since the beginning.

We keep getting surprised every single year.

Japanese companies broke new ground by raising the quality/price ratio beyond the reach of many Western competitors.  Their relentless pursuit of technology, quality and design made them capture whole swaths of markets in cars and consumer electronics.  Epic battles across industries resonated for decades and filled reams of business case studies:  Komatsu vs Caterpillar, Fuji vs Kodak, Sony vs RCA, NEC vs IBM, Toyota vs GM, etc.

Just as Japan floundered through its severe financial crisis of 1990, China was brewing its own industrial revolution.  This time, the challenger is 10 times bigger than Japan, and hungrier.

The race for the new champions


It did not take long for China to capture the manufacturing of low value goods.  The Western consumer was happy to see its standards of living rise on the back of a vast army of low wage workers toiling in the special economic zones of China, and beyond.  Foreign direct investments poured in for 30 years, fueling an insatiable boom.    But the consumer’s gain later turned out to be the blue collar’s loss in the shop floor.   The scale of manufacturing relocation to China was bound to depress jobs and wages in the West.  It also carried a hidden price tag: growth options were slipping away from industrialized nations to emerging countries, and specifically to China.  Bureaucrats and policy makers in the West forgot that up to 8 service jobs are affected when 1 manufacturing job disappears.   Technology is the key for China to avoid the middle income trap.

Ever since the WTO let in China in 2001, many countries are having second thoughts about the bargain.   Yes the Chinese export conveyor belt has worked wildly beyond expectations, but the cost has been steep for Western nations in jobs and wages.  What is now making the bargain expensive has been the real prize for China :  Technology.  Western technology has been steadily leaking and finding its way to China: sold, hacked, stolen, or traded for the ‘lure’ of market access to a billion customers.  But just like Japan and South Korea, China has made its markets more difficult to penetrate for the foreign invader.  There have been winners, but a great deal more of failures.

All Asian nations embrace technology as a basic economic policy.  The Japanese initially acquired technology in joint-ventures overseas, transferring the technology back home for production.  Layer by layer, they built strong competences in technology manufacturing and moved up the value added chain.   Low pricing, product technology and then high quality helped them move from widgets to high value goods.  Eventually the Lexus was launched in 1989 to the disbelief of American car makers, who acknowledged at the time  they could not build this car.

The Chinese played their hand differently.  They promoted joint ventures at home to capture western technologies, by all possible means.  Thus the tech transfer was faster and vaster than in the case of Japan.  We might now argue that Chinese wages are moving up and are denting  their low cost advantage in manufacturing.   This is going to give a reprieve to other emerging countries such as Mexico and Brazil.   But this is not going to help embattled Western nations very much.    Low cost wages have shifted from manufacturing to a new generation of engineers and managers, forming the backbone of the new emerging champions.

China produces nearly 900,000 engineers per year.  They cost less and work harder than their Western counterparts.  On a per-hour basis, they cost 15% to 25% of the typical European engineer.   China had about 200 R&D centers in the early 2000s.  The number has moved up to about 1600 in 2013, of which 1300 are from multinationals.  China ranks now 2nd on the world in R&D budgets and patents filed.  As an example, the Beijing Institute of Genomics has 15,000 researchers under its payroll.

The Japanese were thought to be good makers and not good inventors.   Today many of us think of the Chinese as decent makers and rather poor innovators.  But think again.  Emerging champions such as Huawei, Haier and several others, all have at least 25% of their employees working in R&D.   This enormously speeds up product development and shortens product cycles.  Few western companies can match this up.

Many western executives poorly assess the innovation capacities of emerging Asian champions.  They like to examine the technology capability of their rivals.  But innovation is not just a single pony trick on technology.  Market research and customer insights are equally critical in the innovation equation.  This core competence is developing fast with the emerging champions of Asia.  If you are still a doubter, just look at how Alibaba, Tencent, Weibo, Xiaomi have cornered the Internet market in China.  Samsung was about the only competitor to keep pace and rival Apple when it launched the i-phone.  Many large companies such as Shiseido have adapted  marketing strategies differentiated on city populations across China and the rest of Asia.

Now consider the final bundling of attributes found in these emerging champions:

–          They are adept at bringing the cost structure down and they start with a formidable competitive advantage

–          They are not afraid to tap into the best management practices worldwide

–          They buy the best technology available and improve on it (frugal innovation)

–          They build the most modern plants at a fraction of the cost in the West

–          They are quick to set up R&D capabilities to accelerate product innovation taking advantage of their low cost engineers

–          They develop a culture with a strong unanimity of purpose and immense drive

–          They craft a strong sense of customer relationship and client-centricity in their organizations

–          They often deploy their international strategies in other emerging markets, to gain scale and experience (that is why you don’t yet see them around)

–          They have started to  experiment with organization structures to combine the best Western and Eastern management practices

–          Some are now integrating design and brand into their strategies

If you were surprised by the speed of China’s industrial revolutions, you ain’t seen nothing yet.

New epic battles stand around the corner.

André Du Sault

MBA(LBS), MPA (Harvard)


Posted in Governance, Management ideas, Strategy & globalisation, World economy.

Innovation Step 5: Hitting the market just like a bowling strike

Montreal, 22 September 2013







There comes a time when your innovation must hit the market.  Launch is always a nerve-racking moment.  This is because we often have at best just an educated guess of what the client really wants.  Clients are moving targets.  They are constantly lifting their expectations, are a little less loyal every day and technology serves them better at every new product cycle.

We have advocated in our Innovation Steps 1 to 4 to stay close and work with your customers.  As a matter of fact, if you have deftly done so, customers and stakeholders will have actually worked for you and directly contributed to your project. They would have told you some of their secrets.

Still, is the marketing of your innovation best summarized as ‘a shot in the dark’?  To help you zero in on your target, we propose three simple tests. They are meant to ensure you will build a sufficient customer base that will give you traction in the market.

Test 1:  Commercial Readiness Level

Test 2:  Engine of Performance Readiness

Test 3:  Hidden Hurdles for a Customer Base


To what extent is your commercial strategy in or out of sync with your product development?

Product development often follows guidelines such as the Technology Readiness Level (TRL) from NASA, stage gates, critical milestones, etc.  Guidelines abound.  Yet it is not unusual to witness a dir e lack of investment in the development of a sturdy commercial strategy, thereby putting at risk the whole project.

Here is a single scale to see whether you have covered all the bases or that you are left dangerously trailing the curve. It is a practical tool  presented as a quick guideline in the context of a position paper. Much material would merit to be expanded for each CRL.


  • CRL 8:  Fundamentals to sustain growth
  • CRL 7:   Organisation, deployment, results
  • CRL 6:  Go-t0-market commercial strategies
  • CRL 5:  Positioning and value proposal
  • CRL 4:  Buyer’s criteria and buying process
  • CRL 3:  Mapping of market segments
  • CRL 2:  Choosing best industry and application
  • CRL 1:  Broad commercial diagnostics

Discoverers and inventors need to focus at the start on CRL 1 to 3.  Start-ups will often struggle to tackle CRL 4 to 6.   This is the pre-commercial marketing job.  You skip those steps and your venture will be lined up for ‘a shot in the dark’ marketing strategy.

SMEs will concentrate on CRL 4 to 7.  They usually do a half-good job in this area.  But if you have diligently applied Innovation Steps 1 to 4, you should have clarified a good deal of the customer issues.  And you should have a fair understanding of the real purchase criteria to earn a favourable landing zone in the market.  CRL 4 to 7 are meant to be the experimentation steps in the market learning curve, from pilot projects to full scale launch. Lastly, digging into CRL 8 will further increase the odds of success in the market place.

Large companies usually cover most of the eight steps.  But quality of work varies greatly.  A common mistake is to work on a major project that has not been anchored on the customers ‘needs in the first place. They are at risk of a’market gap’.

CRL is critical and here is why! There is a dramatic difference between ‘first to market’ and ‘first to win approval from users’.  First to market with poor CRL are likely to be taken over by quick followers with high CRL.  First-to-win-approvals take a commanding lead that is hard to dislodge because of the established habits, tastes and preferences they create.  In a nutshell, they are the first to establish their brand.  This is how innovators take a dominant position in market share.


At one point product and commercial development are reaching the end of their development phase. However a nagging question may have remained behind the scene:  To what extent has the performance engine of the company be tamed to readily integrate the innovation into its ranks and operations for scale-up?

A meaningful innovation is always seen as disruptive for the performance engine.  The performance engine feeds on efficiency, repetition, standards and predictability.  It works at keeping costs down and minimizes spare capacity.  It drives goals, objectives and bonuses.

Resistance will have many faces. Marketing will be worried about the risk to the brand.  Sales will be reluctant to push a product with no track record.  Finance will be concerned about lower margins and short term ROI.  IT will especially resist another special project.  Production will balk at the idea of short production runs.  The list goes on.

In other words, even before the market risks jostle with us, there will be internal operational risks at play.   If an isolated project champion plays Don Quixote with the performance engine, he is most likely to fail against astute resistance.  On the other hand, a team leader runs a better chance if he has prepared the ground using superior collaboration and coaxing skills with the performance engine, and if he benefits from a help line linked to the top.

At the end, the test is not about whether or not there will be resistance, but rather from where will it come from?


The hidden hurdles are often the small customer details you wish you had known at the outset, but that you discover only too late, if at all.  They are the small things, benefits or irritants, that tilt behaviour into a purchase or not, often without your knowing.

Consider some examples:

a) The missing answers to important questions related to the pain point; questions as formulated by the customer.

b) The critical incidents in the purchasing process: the bugs that could kill a sale.

c) The moments of truth in the usage of the product that provide high utility to the user

d) The magic bullets or little extras that make the emotional experience exceed the expectation!

Customers don’t buy a product but their benefits.  Some benefits are obvious, fairly tangible and easy to promote. But some others remain hidden in the customer’s head for a good time.  But they do influence the purchasing criteria or the repeat buying act.

These subtle signals can be found scattered in the whole transaction process:  From purchasing to delivery,  in the sale transaction itself, in the relationship, in customer service, in the experience of the product, etc.  They are hard to discover but worth their salt.

But if you can find a few of them and bundle them in your customer engagement strategy, you might just pick up the minimum sales to build your early customer base.

These three tests are warning lights about your own readiness to commercialize your innovation.

Green lights or red lights?

André Du Sault, MBA (LBS), MPA (Harvard)

C 514 777-1538

Posted in Innovation & organisation, Management ideas.


Lugano, 31 July 2013


edelweiss pic

It is not just the heat wave that is melting European hearts this summer.  Dreadful economic figures are drowning optimism like a tidal wave.  Banks are still wobbling, growth remains elusive at best and unemployment is scarring a generation.  A particularly worthy indicator speaks in the same tone:  new car registrations in the Euro zone have fallen by 12%in the last year, and by 26% compared to 2006.  Even Picasso would be challenged to brighten the picture.

Yet a few bright spots exist in Europe, and in none other than the Swiss confederation.  Numbers speak loud and clear for themselves:  Growth has ranged from 2% to 4% since 2006 and was negative only in 2009 (-1.9%).   Inflation hovers around 1% and last month unemployment went down to 2.9%.  Contrary to the rest of Europe, Government debt as a % of GDP went down from 54% in 2006 to only 34% in 2012. A stunning performance despite a strong Swiss franc.

For the last decade the Swiss franc has consistently remained way above parity with the US dollar and the Euro.  Playing proxy to the defunct Deutsche Mark should have pulled down the trade balance, but hell no!  Exports are still climbing and the trade balance is positive and healthy. Furthermore, and in spite of a high cost of living, Switzerland collects much Foreign Direct Investment, lured by substantial tax incentives.

This is no story of luck.  And theirs is no quick’n easy recipe to emulate either. Yet behind the hard work and discipline of the Swiss lie a few smart lessons for the rest of us.  Here are five reasons why the Helvetic economy runs so smoothly.

1. A diversified economy:  An economy split 1% in agriculture, a healthy 28% into manufacturing and 71% in services.  Swiss manufacturing aims at the resilient end of the spectrum: High quality, precision and high tech.   In a nutshell, goods of high value added.  The Swiss hung on to their manufacturing in the last decade and they are one of the few countries to register a trade surplus with China\Hong Kong.  Somehow most regions of the country are doing reasonably well:  Chemicals in Basel, watches in the Jura, international organizations in Geneva and tourism in the Alps.  Equipment and machinery are doing fine in Zurich.  This time it is the Swiss banks that are blotting the clean sheet as they are struggling past the financial crisis and are mired in international tax issues.  This is opening the door for Singapore to jostle for the top wealth management center.

2.  Fiscal prudence:  Swiss like to build reserves for the rainy days and federal laws prevent the build-up of budget deficits.  Public subsidies are limited and several public services are closer to market prices than in the rest of Europe.

3.  Culture of work:  The Swiss work a full 42 hours a week and have once turned down a referendum to increase annual holidays.  It is not unusual to see executives switch on their office light at 7 am.  The famous apprenticeship system still works wonders to ingrain ethics and discipline at work.  Doing a good job remains a personal pride.

4.  Innovation in the blood:  Switzerland regularly tops surveys as the most innovative country in the world.  We all know that the country developed a culture of inventiveness to make up for limited natural resources.  What is little known is the fact that the Swiss don’t throw at all any R&D tax credits at companies.  Innovation is first and foremost led by industry.  The last OECD report highlights the fact that about 65% of Swiss companies are considered innovative and 50% do R&D activities.  This is naturally to be expected from the Swiss multinationals.  But when we consider that 90% of Swiss companies have 10 employees or less, just like in most other countries, these statistics bear weight and meaning.  The main point is that Swiss companies do learn to be innovative regardless of their size.   The government programs to support technology transfers between universities and industry, incubators and start-up accelerators, are not meant to be the main policy about innovation, but rather to be complementary to the industry’s efforts to innovate.

5.  High propensity to deliberate:   There is a silent majority who thinks there is somehow an excess of referendums and party initiatives in Switzerland.   For outsiders they may look cumbersome and some issues might appear menial to the unadvised eye.  Nevertheless the propensity of the Swiss society to deliberate comes in handy in times of global changes.  They might not always move fast, but they usually move in the right direction and stay ahead of the curve.  They created the World Economic Forum in 1971. Then in 1999 they set up the Swiss Economic Forum entirely dedicated to their SME, just when the rise of Asia was mixing in the cards.  And now they have just signed the first free trade agreement in continental Europe with China. Switzerland was in effect the first country to recognize the RPC in 1950 and not surprisingly was the first to be granted a ‘Certified Travel Destination’ by China in 2004.  In 2012, 800k Chinese visitors roamed the country.

Transparent deliberations are a cornerstone of Swiss politics as well: meant to they keep their politicians on their toes!  Transparency pushes politicians to actually earn the trust of people, a process which discourages murky abuses.  Direct democracy makes their governments quite responsible to deliver on essential services, on security and order, and on fiscal responsibility.  The Swiss like to keep their politics open and transparent, but they will in turn often vote bearing in mind the greater good of the nation because they have trust in their institutions.

For the time being, it is all working like a Swiss clock.

Andre Du Sault. MBA (LBS), MPA (Harvard)

Posted in Country visits, Innovation & organisation, Strategy & globalisation, World economy.




Basel, 20 July 2013


The geography of technology innovation has changed markedly in the last decade as world R&D budgets have more than doubled and are more dispersed than ever on the planet.  Multinationals have shifted their R&D centers to big markets, including Asia, pushing small market countries like Canada at the losing end of this shift.  At the other end, international venture capitalists scroll public R&D to arbitrage new intellectual property, low cost production and big markets.

As a result products are getting smarter and product cycles are becoming shorter.  Yet new innovation tracks offer richer potentials when services and user experience are actually integrated early into the innovation framework.  It is a race track out there for innovation projects and speed to market counts as the new bible.  If you are first to market and you crack it well, you can lock in your leadership position for many lucrative years.   You slip and a fast follower takes over, just as happened to RIM.  Project execution is now at a premium.


Project planning is the new testament of project management:  when and where projects are diced up into steps, milestones, stage gates, critical paths and budgets. This is a well known management territory and experts abound to build upon this foundation.  But the winner of the steeple chase is usually not the one with the best initial plan, but who that learns the fastest along the way.  Management capabilities in execution nearly always trump smart technology and creativity in the innovation race track. What makes the difference?  Consider three capabilities that often fall outside the planning phase but are recognized to make big impacts between success and failure in projects:

1. The art of building great teams

2. Insisting on a framework for learning

3. Working on the right target


Building ‘great’ teams is a management skill that is much neglected.  Over 50% of the important work accomplished in organizations is done today in teams in one form or the other.  Yet little thought is given to the art of composing great teams.  About every executive can recall a nightmarish experience at college or university, when a dysfunctional team led to draining frustration.  We can all shudder at the glimpses of those memories.  When teamwork in companies is poorly planned, teams often end up taking the road of ‘exhaustion or death by endless meetings’.

Setting up great teams requires a look at a few key elements:  Composition, spark and evaluation.  Great team leaders take a very careful look at composition, in its different angles:

–          Assessing the skills needed, particularly new ones

–          Choosing the best people, whether from inside or outside

–          Striking the balance between shared employees and dedicated members to a team

–          Including people who are natural boundary spanners in the organization

–          Considering outside people to challenge conventional wisdom that needs a shake out

–          Thinking about the skills to effectively work with external partners

–          Finding a dedicated space for the team

–          Planning for conflicts : anticipate and resolve

–          Remembering that trust and respect are the ghost elements of great teams

Great teams pick the right people with the resilience to overcome obstacles, and with the skills to convince the regular performance engine to market the innovation.

A spark or a mission

Team leaders know that people seriously engage in their role and responsibilities when a mission calls to build something special, or sets a stretching goal that translates into a group challenge.  A great team needs the spark to ignite the tinder of motivation. A great team needs an inspiring mission.

Project evaluation

Team leaders think at the outset about decision rights, evaluation metrics and proper incentives.   But they know that at the end of the day, compensation works best when it recognizes not only the results obtained, but also the effort put in and the learning progress achieved.  Reward only results and you will soon shy away talented people.  Reward learning, and you will quickly make mistakes in the right direction, build momentum and advance team spirit!


Planning counts but learning is key.  Where most teams fail in learning is how they treat assumptions of cause and effect.  By and large, most critical assumptions in most projects are poorly communicated, poorly understood and, sadly, quickly forgotten.

Results don’t speak for themselves.   But discussing results without its relevant assumptions leads to intuitive interpretation and value left on the table.   Negative results are dreaded, errors are camouflaged and corporate politics permeates the process.

Great team leaders formalize the learning process:  plan, budget, predict and learn.  The predicting and learning part ought to be formally channeled on paper.  The discipline of learning is simple enough:

Step One

Predict outcomes

Discuss arguments and critical unknowns

Describe assumptions about cause and effects, and about innovation and sales

Step Two           

Set up a forum to compare results and predicted outcomes

Assess the lessons learned

Step Three        

Plan or review the next step


For many innovation teams the product is THE target: a bundle of features, performance attributes, look and design.  Immense efforts are delivered at making product development meet the ideal product specs.  This is hard enough to achieve in normal times, and it is a mission for heroes when new technology is involved.  But what is often critically overlooked is the fact that customers buy a lot more than just the product.

They also buy a level of service, a defined utility, some productivity and cost savings, an ease of transaction, a user experience, a bundle of emotions and even a stepping stone to personal agendas.  They rarely buy just a product in the
narrow sense of it, but innovation teams focus essentially on the product in the narrow sense.  This ‘market gap’ can be devastating at the stage of commercialization.

A ‘market gap’ is a terrible marker that the company is at risk of developing a technical object that functions and operates well, but which does not attract buyers in the markets.  In a nutshell, it does not really become a product and it disappears by the way side. The ‘gap’ grows when RD works in silos far away from markets, when pre-commercial investments are skipped, and when conversations are not steadily held up with prospective customers. The gap afflicts numerous start-ups, isolated R6D labs, and many new product initiatives in large companies.

Leaders of great teams dedicate the time, the effort and the funds to find out about the desired outcomes wished for by customers.   The desired outcomes are in fact THE right targets and will influence the innovation project or the product development if they are identified early enough.   The simple and powerful reason that the desired outcomes are critical is that they are closely linked to either the key buying criteria or the buying process.

The steeple chase is won by great teams.  Great teams win because they choose the right target and because the constant learning they generate steers them in the right direction and reduces the risks of failures.

Andre Du Sault, MBA (LBS), MPA (Harvard)

DS&H develops practical innovation tools since 2008.  We  have trained more than 300 executives on the best innovation practices.

Previous blogs on innovation:

Innovation Step 1:  The suggestion box: a bag of gold nuggets or crackerjacks?

Innovation Step 2:  From a hunch to a blueprint: How to improve a good idea that will rally organizational support

Innovation Step 3:  Redefining the innovation committee: Choosing projects, crafting a portfolio, building the future.


Posted in Innovation & organisation, Management ideas, Strategy & globalisation.

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In step 3 we assume there is a steady arrival of promising projects already in place.  The established client relationship allows the identification of good ideas and the internal environment is built to allow sufficient Snowballing effort to transform great ideas into attractive projects. Now the ball falls into the hands of the innovation committee.                   



What should innovation committees do?

Innovation committees basically play four roles:

  1. Choose good projects
  2. Craft a portfolio for the future
  3. Shape up R&D
  4. Build a fluid innovation process

These four levels of competence actually  build over time and ultimately embed into each other.  Yet there is an approximate sequence to them.  For instance, it is preferable to become competent in craftily choosing best projects before building an expensive portfolio of risky ventures. This might appear obvious, but there are plenty of common pitfalls for the unaware in this first step.

In the same line, a look at how to build a portfolio for the future comes before answering the question of how best to manage the R&D department, because we need to know about the outlook of markets and who will be our future customers before we set R&D priorities.  The future is about making choices on markets, edge technologies, and competitive advantages, which in turn all influence the innovation drive and R&D priorities.  The last stage is about building a robust innovation process within the organisation. The aim at this point is to ensure a steady flow of good ideas given the expected attrition rate of projects in execution, by tweaking the organisation.  This is hard work, but the payoff is immediate.


Choosing projects sounds simple, but then an awful lot of companies end up working on the wrong projects.  When we informally surveyed over 20 R&D tax credit experts and asked what % of their clients’ audited projects were really connected to the market needs, typical answers hit the 20 to 30% range, only. No one has ever given us an answer above 50%.  Now that leaves us with a very conservative estimate of 25-50% of projects that should either be reviewed, modified, stopped or redeployed.   We somehow highly suspect in this present case, that an informal survey does turn out to be more informative than a formal one. But it would be great to hear your comments on this topic.

By all means several explanations usually account for the lack of correlation between the R&D effort and commercial success, but we will highlight three frequent ones:

  • Sometimes the original idea came from a creative mind, most likely unconnected to the market place.  The owner of the idea quickly comes to cherish his pet project  and somehow the idea never gets really tested in the market with real customers. The project usually ends as a technical object, that is the product that fails to sell.  By the way, this illusion often happens to vice-presidents of large companies entrenched in their offices.
  • The project evaluation relies on a set of rigid and predefined questions.  Thus the risk-benefit analysis is generally poorly estimated as benefits get inflated and critical risks remain hidden. Most of the time the big risks lurk into the areas that are left unquestioned or unexplored.  Finding the right questions is the challenge.  As a result many projects manage to dodge hard questioning and escape from dissenting voices.
  • R&D effort usually focuses on product features and performance. In the last 20 years customers have increasingly required a bundle of products and services.  Now they request a rich experience to be included as well in the bundle.  Service and experience often fall off the checklist in choosing projects and are way down in the list of R&D priorities.


A balanced portfolio looks into three horizons:

  1. Short term projects that build around the current business.  They are often continuous improvement projects that will affect the bottom line within the next 12-24 months.  Technical expertise and project management skills are commonly at hands.
  2. Medium term projects represent new business development initiatives, lying in the periphery of the existing business areas, such as new products and services.  Risk is a little higher, but the odds of developing the top line within 2-4 years look good.
  3. Third are technology projects that are the seeds of future business development.  They have higher risk-pay off ratios and are managed with different criteria and different sorts of scientific managers.

Building the portfolio is one thing, but monitoring it brings another set of issues:  persistent mistakes.  Human nature comes out of the shadows when a project skids off.  The hardest decision for a committee is to decide what to do with a project that is failing.  Knowing when a project has failed, battles against a host of personal issues, emotions and intents.  Stopping and redeploying goes against the grain of vested interests, even if it is the right thing to do.

Who should sit on the innovation process?  Experience and vision count on those committees. After all we are talking about crafting the future of the organisation.  We need people with good market knowledge, technology wisdom and a capacity to envision the future.   Yet the common 30:30 rule also adds perspective:  30% of membership should be under 30.  After all they are the future!


R&D heads are under pressure. R&D budgets have more than doubled worldwide, but R&D productivity has lagged across the board.  No wonder Asia has collected a score of multinational R&D centers: When it is hard to predict R&D output, betting on costs that are a third of industrialised nations is an amazing productivity hedge.  You can either triple the number of engineers for the same budget, or cut your R&D budget by at least 50%.  Locals make the same calculations: the Beijing Genomics Institute has 4000 personnel doing research!

Oddly R&D departments often run sub-cultures inside their organisations.  This is the terrain of project management and project protection.  At the end of the day, the interesting question to ask is about what happens inside R&D when a project fails?  If the project is a play on the board of snakes and ladders, failure rings like a significant stigma in the slippery game of project politics. There is a different culture when R&D projects are expected to make mistakes in the right directions and space is created to take on failures as learning experiences.  These projects usually win the races. This small cultural difference carries  huge implications.

As a matter of fact the role of the Chief Technology Officer is steadily shifting from a traditional gatekeeper of a project department to that of the guardian of the company’s technology edge in the marketplace.  Not all R&D heads can make the switch.  The new CTO mindset must deal with two considerations:  1. how to tightly line up R&D with the prevailing commercial realities,  and 2. to assess how openly should the organisation play with potential partners to keep the ‘edge’ technology out there and to accelerate from lab to market (open innovation).


Clients are moving targets, and market segments appear and disappear fast.  Today innovation ought to be an integral part of any commercial strategies.   As Peter Drucker said:  ‘Marketing and innovation are the only two essential functions of a company’.   Building a competence in innovation requires three parts:  1.Insights & tools , 2. Process, 3. Culture.  Insights are about the best ‘how to innovate’ tools to do the right things. Without knowing the ‘how to innovate’ part, it is hard to design an effective innovation process internally.  Process is the series of steps you are going to adopt and put into place to make innovation happen within your walls.

Culture is about setting the right incentives and conditions to make your innovation process work. It is about nurturing innovation to the point where client focus is part and parcel of the company culture.  It is about removing blockages that impede the flow of ideas. It is about balancing the pressures of cost cutting and productivity, with the organisational slack demanded to transform great ideas into promising projects.  It is about reinstating the passion into work.

And at the end of the day it is about creating turbulence for your competitors.


André Du Sault, MBA (LBS), MPA (Harvard)

DS&H develops practical innovation tools since 2008.  We  have trained more than 250 executives on the best innovation practices.

Previous blogs:

Innovation Step 1:  The suggestion box: a bag of gold nuggets or crackerjacks?

Innovation Step 2:  From a hunch to a blueprint: How to improve a good idea that will rally organizational support

Posted in Innovation & organisation, Management ideas, Strategy & globalisation.

FIELD TRIP: The bet on Mexico


Mexico city, 08 May 2013

Despite a triple shock, ‘el narcotrafico’, Chinese competition and the financial crisis of 2008-09, the Mexican economy is holding well by North American standards: a decent growth level of 4.0 % in 2012. Mexico is becoming a key piece of the USA economic strategy, as was beset by the visit of Obama last week. 

Four things have convinced the Americans to put some serious chips on Mexico:

  1. Ever since the Peso crisis of 1994, the management of the economy has been robust, steady and a priority for all administrations.  Such a performance for nearly 20 years is just the stuff that convinces foreign investors to invest chips in the country.
  2. Foreign investments keep coming in as well.  Even the Japanese have staked $6 billion on Mexico in the last two years only.    The gap between hourly wages has considerably narrowed with a giant direct competitor: $1.63 in China and $2.10 in Mexico.  Mexico has shown resilience towards the China challenge.  Perhaps as a sign of time, Ingersoll Rand recently closed a plant in China and is relocating it in Mexico.
  3. Mexico is regaining weight as an export base for the North American market despite the fact It is still marginally losing ground to the Chinese and South Koreans in the USA market. The Mexican peso is one of the few currencies that has remained undervalued in real terms since the financial crisis of 2008-09.  
  4. The middle class is also growing.  The president of Procter Gamble of Mexico is confident that a Mexican baby boom is just around the corner and will drive consumption for the next 15 years.  The new district of Loma de Santa Fe is a testimony to the modern face of Mexico City. The architecture and look of the offices and shopping centers are on a par with the best in the world.

The president elect, Enrique Pena Neto, will need all the economic help he can get for a successful ‘sexenio’.  Mexico might not get a full seat at the free trade deal between the USA and the European Union (and as a matter of fact not even Canada), but a renewed Nafta deal and a seat at the TransPacific negociation table are productive steps for Mexico.

The PRI administration was off to a good start with a multi-party pact proposal affecting the financial, energy and education sectors. The seriousness of the intent has impressed observers.  Contrary to his predecessor, Pena will hold the advantage of a deep pool of expertise and experience in the PRI benches, to contend with the vagaries of the Mexican congress.  

The real challenges will come at the level of states, as is often the case in Mexico.  Wide disparity in economic and social terms will ensure that governance issues will be huge.  What can possibly drive politicians to hold state governorship in a landscape ruled by drug lords in the North, and by ‘caciques’ in the South?  Since the election of Pena, the level of violence has only stabilized and not abated, as the dead victims of the drug trade amount to about 3000 in Mexico.  There is simply less media exposure to it, for the time being. 

What is now really a major concern for the Americans is that the drug clans have moved their ground operations into Texas. This breach into US territory means that the messy social cost of restraining drug dealers is not any more confined to Mexico only. Texas Rangers will face new challenges on corruption, violence, drug consumption on their own ground. It is now an American problem as well. 

President Pena will be tested at the state level, and on his ability to handle regional crises fed by corruption and social tensions.  It is best if he can collect his economic chips early enough through a renewed Nafta treaty and hope to pull off some political reforms with congress.        

Un sexenio agitado, por seguro.

André Du Sault, MBA (LBS), MPA (Harvard)


Posted in CFO & treasury, Country visits, Governance, Management ideas, Strategy & globalisation, World economy.


Montreal, 29.04.13


The West has literally tripped over itself in the first decade of the 21st century.  It engineered two financial crises just when the competitive challenge of China was pulling the growth options from under its feet, and shove them to the Far Eastern side.  The reversal of fortunes has been abrupt:  not only have debt levels skyrocketed but economic growth has slipped away much faster than anticipated. Suddenly the Western liberal democrat model is under severe strain.   Who thought in the 1990s that the new Century would begin this way?

It might be premature to talk about Western decline, but Samuel Brittan, the senior economist at the Financial Times, was not far off the mark when he recently reaffirmed in an article ‘The long foreshadowed decline of Western dominance’.   A recent editorial from the Straight Times in Hong Kong said this about America’s global influence:  ‘At Asia’s table, but not head of it’.   The western world is still reeling from a solid one-two punch combination, much of it self-inflicted.  If the drama played out in the 2000s, the stage was set in the 1990s.

The train wreck:  What went disastrously wrong so fast?

The seeds of the past disastrous decade were actually planted in the 1990s decade.  In 1989 the fall of the Berlin wall proved the harbinger to the collapse of the Soviet Union two years later, in 1991.  Quite suddenly, the West found itself liberated from the cold war wrenches and was left free to rule the roost, literally unchallenged in the free trade world.

The 1990s  proved to be a fertile ground for the neo-conservatives, who were taking over from the Thatcher years of the 80s.   A spate of industries had been deregulated and made competitive for a wide open field of globalisation.  With the pendulum swinging in their direction. the neo-conservatives of the 1990s  looked to the next logical step: Deregulation of the financial markets.  This turned out to be a step too far, thereby liberating dark forces under cover in financial markets.  In the meantime the consumer was drugged by a final credit binge, and governments were under the spell of a high tech bubble.

In the late 90s, an exuberant West had the confidence to let China join the WTO in 2001, hopeful to nudge China to their side of the post world war liberal order. Naively, we let the genie pop out of the bottle.  Ever since that fateful 2001, China has managed to show the Western world the biggest hockey stick of their lifetime in growth, investments, reserves and job creation.  In a nutshell, a gargantuan industrial revolution was set in motion and is still running its course at full speed, bellying greater intents than displayed.

Just as the rapid rise of China would prove a challenge of the tallest order for any government in regular circumstances, the booby traps of the neo conservatives went off in a big bang in 2007-08.  Financial crises hit hard, but the timing of the last one was just awful: right in the midst of a losing struggle in the manufacturing landscape.  The job of recalibrating economic and social policies, let alone coordinating a political response, was made much worse and difficult to handle.

If leftist governments are known for spending their way to a crisis, as was traditionally done in Latin America and southern Europe, rightist governments are often equally adept at engineering their own financial bubbles.  Captains of the right push for deregulation but are quick to abuse their new freedoms.  That is the fundamental problem with all those pure market economists: On paper it works, in reality human nature plays havoc.

The gap between deregulation and speculation is comfortably narrow enough for investment bankers to bridge it.   All terrible financial bubbles are initially set by the fine tinder of speculation and fueled by the gentle breeze of greed.  Then the whispers of corruption join in the conversation.  And soon enough financial momentum builds into a bubble and ends like a tornado, dividing fortunes from wrecks. The mother crisis of 2007-08 was not in any way different from past crises.  Historically, the banking sector is known to shoot itself in the foot about every 15 years.  However when two financial crises take place within the same decade, calls for imprudence and poor stewardship need to be addressed.

The middle class caught in the tug of war between  Left and Right, East and West

In many western states the resulting mess looks like a tangled web of powerful stakeholders:

–          Rising inequality has induced political gridlock

–          Unions keener to protect workers’ rights and entitlements, untrustful of the guilty right

–          An unrepentant financial sector, dismissive of the unemployed

–          Too many politicians mired in the corruption scandals of the recent past bubble

–          Political parties still anchored in 20st century dogmatism

–          Economic policies limited to budget rationing and spicy austerity.

–          Consumers ailing from an indigestion of credit

For the time being, it is the middle class that pays out for this gridlock between the Left and Right. .  For politicians, the middle class becomes the only easy solution to fix the current deficit problems.  Like a juicy sausage, the middle class gets sliced off year after year to feed the tax coffers of the piggy state

Furthermore, the rise of China and the acceleration of technology are stealthily shortening the careers of the middle managers, exactly those forming the spine of the middle class.  They just don’t know it, yet.  China proclaimed its objective to double its economy within the next 10 years, helped by a rising tide of managers: About 50,000 MBAs are now minted every year in China.  They are eager to move into high tech, big companies, and take over export markets.  They work harder, cost less and take their job as a privilege, and not as a right, as an expert friend testifies.

We are facing sweat, more pain and hard choices ahead.  A high price to pay for a golden decade wasted.

Andre Du Sault,  MBA (LBS), MPA (Harvard)


Posted in Governance, Management ideas, Strategy & globalisation, World economy.

INNOVATION STEP 2- From a hunch to a blueprint: How to improve a good idea that will rally organisational support

Montreal, 15 March 2013


As we argued in a previous blog (Innovation Step 1), finding great ideas requires time, sweat and grit.  They are rarely to be found in suggestion boxes.  Great ideas come from detecting new emerging patterns, unarticulated needs, subtle  market changes, new technologies, critical incidents for the customer, etc.  These are all elements bearing the promise of value for the customer.

Yet most new ideas come to life half-baked, in a rather incomplete form.   They are often just a hunch. They need to add the missing bits and pieces of the puzzle before they can truly rally organisational support.   Time and again we have noticed in our interviews with successful innovators that the critical input of at least three or four people was necessary to shape the original idea into an attractive blueprint.  Not unusually, the brewing period may last from six months to a year.  Sometimes it is much more.  Promising ideas need to be properly nurtured and protected, like seedlings amidst harsh elements.


Consider the actual physical environment of your company and how it plays a determinant role in your innovation ecosystem.  Good ideas need to bounce off in conference rooms, over coffee tables and communal areas.  They need the breathing space of informal forums, where they can enter into collision with other ideas, face positive criticism, dip into informal brainstorming and emerge stronger.  They look for bold connectors of ideas and embrace the arms of serendipity.  They take leaps when they cross-fertilize and interconnect with adjacent fields of expertise.   They slow down through hierarchies, but accelerate via networks.  They thrive in a culture where creative work is valued and risk taking is encouraged.  Few innovation ecosystems possess all the tools, the brain power, the talent resources and the critical insights to grow the original idea into a promising project in a timely fashion.  Sadly, many work environments do not provide the minimal slack in the organisation to leave room for inspiration.  Rather they are  too often about perspiration, squeezing rows of lemons.  This is the desert environment for good ideas to flourish.  As Einstein said, ‘creativity is the residue of time wasted’.


At one point your great idea will need to step out of official boundaries, outside the office walls to snowball.  Bouncing off your idea against the viewpoints of various stakeholders will significantly accelerate the development of your idea.  Prime stakeholders are customers that may directly benefit from your project, and who will highlight what is yet missing in your idea and what is promising.  Doing a round of talking with existing or potential customers will make your idea quickly snowball in the right direction, growing better and connect with the right dots.  Next in the line of important stakeholders are the key opinion leaders in your field, happy to be part of the pool of bright minds that provide new and fresh alternatives.  Finally, the lead users, on the lookout for promising new ideas should be tapped, for  they quickly spot weak lines in proposals and raise the bar. They are great partners for low cost pilot schemes.  Snowballing with your customers will provide a reality check that will prove invaluable when you later promote your blueprint inside the organisation.


New projects create yin and yang in the organisation, in other words both support and resistance.  As resistance (explicit and hidden) builds up faster than support, one must first scout for the path of resistance ahead.   The early steps of promoting a project inside the organisation can be deceptively tricky moments:  enthusiasm usually trumps reality.  Most classical organisations are steel-tempered by task efficiency, process optimisation, deadlines and cost reductions. They throw suspicious looks at new ideas that might just disrupt the established order.

Nevertheless the nurturing and snowballing phases should add enough attractive features to your project to win deliberate support.   At this stage your blueprint should answer a couple of basic questions to overcome the early dissenting voices:

Can the business potential move the needle?

Are market risks manageable?

Is the customer outlook positive:  will the fish bite?

Can the project clear the ROI hurdle?

Will the technical feasibility profile scare the operations people?

Sometimes the promoter may have to address organized stealth resistance that sets out to work against him.  Who might feel a loser in this change?  And who, on the other hand, has a lot to win in a success? Big ideas disrupt.  Short term profit pressure on the business may divert your great idea in the dustbin.   Veto power may easily kill a promising idea.  The promoter needs to display a pro-active strategy to win the day in the organisation and beat the forces of the status quo.  Make sure you are on top of  these points:

Outlining an inspiring vision for your project

Identifying the proper stakeholders

Building a support network of seniors

Planning to manage explicit and hidden resistance.

When passion drives innovation and when due process guides innovation, great ideas can change markets and make the sales needle move.  Step 2 is a critical element of the innovation competence.


André Du Sault

MBA (LBS), MPA (Harvard)

DS&H trains executives to master innovation as a new competence

and helps organisations to boost their innovation performance.

Posted in Innovation & organisation, Management ideas.

Field trip to Texas (06-11 Nov) – Republicans: Houston we have a problem!

Houston by night, 11 Nov 12

In Houston, a traditional Republican territory, Chile is served con carne.  No mushy beans to mess up with the original recipe, period.   Yet scores of Mexican fast food outlets are now doing just the contrary, introducing ‘frijoles’ (beans) in platters all over the city.  And that is also the new reality, period.

The population of the state of Texas grew by 4.3 million people from 2000 to 2010 and about 90% of them came from the coalition that brought back Obama in the White House:  Latinos, Asian Americans and African Americans. Whites currently form only 20% of the student population in Houston universities. This is leading political experts to predict a potential parity between democrats and republicans in the state of Texas within 3 presidential elections!  Houston might just be holding one of the keys to the future of the Republican Party.

By tacking to the right in numerous policy proposals, the Republicans allowed the Democrats to craft a two-prong strategy that returned them to the Oval Office:

–          Aggressively paint the Republicans in a negative way, mostly as an irresponsible bunch led by the 1% meant to manage for the 1%.  As Karl Rove said after the election, the ‘Grand Bet won’.

–          Strengthen a largely urban coalition amongst the rising middle class: Latinos, Asian Americans, Afro Americans and young professional women. And it worked.

If the latter coalition were to transform from an emerging tactic to an enduring strategy, that would spell good news for Southern Democrats and dreadful news for Northern Republicans.  Media eyeballs are now rapidly shifting to the South, where the political stakes between Democrats and Republicans will be growing faster than expected.

Texas politics work rather well because there is a fair space allotted to bipartisan discussions and negotiations. Politics seem to achieve more in Texas than in Washington. For one thing, the economy stands in pretty good shape.  The Houston region has a cutting edge in three vital sectors:  Oil & gas, health care and space.  Houston is often dubbed the ‘Energy capital of the world’.  Capacity expansion at the main refinery of Port Arthur will soon raise production to 600,000 barrels per day, above and over the combined needs of France, Italy and Scandinavia! Yet that production is intended only for the United States.  Houston has the largest and most modern medical center in the nation.  And NASA, located in the suburbs of Houston, remains by all means the center of space technology.

Like or not, Houston and Texas thus need qualified immigration.  And qualified Immigration calls for softer policies in education, health and social issues. Policies that are indeed appreciated by the rising middle class. This stands in contrast with what Mitt Romney and the Republican Party spent a whole year advocating. George W. Bush once rode to the White House brandishing his down-to-earth compassionate conservatism program.  It worked to put the man in the White House.  But the right wing quickly took control and soon cast away the cloak of the middle ground.  We all know It eventually led to war and financial ruins.  In light of the past election results, a decisive win for Obama, more than ever the moderate voice of Southern Republicans will resonate.

And you have not heard the last from the Bush family.  George P. Bush, son of former Florida Governor Jeb Bush and Mexican-born Columba Bush, has filed last week his intent to run for congressional elections.

A less spicy Chile con carne on offer.

André Du Sault

MBA (LBS), MPA (Harvard)

Sources: Wall St Journal, USA Today, the Houston Chronicle


Posted in Country visits, World economy.