Antifragility – Idea and Book review

Antifragile – by Nassim Nicholas Taleb

Thriving in uncertainty, blossoming in volatility, enjoying noise – that is being anti-fragile.
Taleb has written yet another peculiar book about randomness and nonlinearity. He invented a new word to describe the phenomenon that sometimes occurs – when there is a limited downside and a great upside to variation.
When there is a convex nonlinear effect – or a limit to losses – then the output will be better with more variability.

One (loathed) example is that of a corporate manager. The basic salary is good, whether the company makes money or loses money, but profit-sharing bonus can only be positive. If the company makes a small profit year-on-year, there is almost no bonus. However, a great profit one year followed by a loss-making year will give at least one year’s full bonus payment. Much better for the individual corporate manager. He/she benefits from variability and noise. The more, the better – at least on short term.

Taleb shows that the banking industry as a whole operates in a similar way. When there are “good years”, profits are distributed to the owners. When the banks collapse, the tax-payers take the bill. Therefore, the banking sector as a whole enjoys variability and encourages this chaos.

The problem is of course that these patterns destroy other areas in society.

Top picture – antifragile – variations have more upside than downside.

In my view, Taleb’s main contribution is to make the patterns visible and to give names to the phenomena. He builds a simplified nonlinear dynamic framework in which we can discuss these systemic patterns. We need to understand the structures to make good decisions in designing new and better systems.
Dynamic phenomena are difficult to understand, and this book is an important contribution. I also recommend “Limits to Growth” and “The 5th Discipline”.

Nassim Nicholas Taleb – good ideas and strong opinions

The two examples above are win-lose systems, but that is not necessary. We can design win-win structures that benefit from the natural disorder of things. We can challenge the established organizational patterns using the concept of anti-fragility and re-invent the way we work together.

One way of increasing robustness and aiming for anti-fragility is to ensure that all players in a structure have a personal stake – skin in the game. To quote Fat Tony, one of the colorful characters of the book, “Only get on a plane if the pilot is on the plane”.

Three Red Lights

“There are three little red lights that sit inside the head of the spectator”, David Williamson said, world leading close-up magician. “When the magician is holding the deck in a strange way, the first light goes off. When the card is put back in a peculiar fashion, the second one goes off. When the third light goes off, the spectator starts thinking of football.”

The three lights inside my head.

In a ex-DDR lecture hall in the Kulturpalast in Dresden, David Williamson [1] explained the Psychology of Magic from a spectator perspective. Full of energy and slap-stick physical humor, he visualized a very important principle about trust.
When you watch a magic trick, you open a window of trust in which the magician can let you experience something unbelievable in a wonderful way. However, it only works as long as the performer does not rub you off in the wrong way. As soon as there is something inconsistent, you start to get alert and the enjoyment is immediately reduced. The less natural the actions, the less convincing the presentation. Small clues aggregate to strengthen or weaken trust. In management it is the same. And it cuts both ways.

If an engineer in my team is doing something that feels fishy, a red light goes off, somewhere deep inside my head. And it is burning for a long time… If all three lights are on, I lose trust and confidence.
It is also true in the other way. If I as a department manager express something clumsy or insensitive a red light goes on. Three lights and I have lost a big chunk of authority…

I think this is a deeply human reaction. It is not even necessary to have fact-based observations, just indications that something is wrong. Therefore, this mechanism is not “fair” in the legalistic sense of the word. But it is usually correct.
It is captured in the old Dutch saying that “Trust comes on foot and leaves on horseback” (“Vertrouwen komt te voet en vertrekt te paard” [2]).

This energy can be both positive and negative – so we should use it in a constructive way to build stronger teams. We must also be aware of the destructive power: I speculate that this is the power of gossip. The indications are enough to change our perception of people around us.
This powerful force can be channeled to help us take care of the group and find out who needs support in difficult situations. We communicate with so much more than words. How we talk, how we say things and how timely we are say more than words. All these signals are unconsciously recorded and build momentum.

People do not see everything you do, they collect clues.
Or as my friend Ruben says, after the football philosopher JC Watts – “Character is what you do when you think that nobody is looking.”
Use the force of positive power to project energy into the people around you – and they will smile back, whether they want it or not.

[1] See more of the excellent magician David Williamson on: http://davidwilliamson.com/

[2] http://nl.wikiquote.org/wiki/Vertrouwen

[image] http://noveltylights.com

International Projects – Communication Style – Directness

One of the joys of international projects is to work with people from different communication cultures. There are many prejudices and stereotypes regarding national cultures and many are startingly true.
One of the dimensions of culture is how direct we communicate.
Direct cultures (like the Dutch) value open and honest communication, even if the message may hurt. They are feared by indirect communicators for their bluntness and lack of tact.
Indirect communication cultures (like the Chinese) value politeness and a common understanding of the topic before zooming in to the crux of the question. This can lead to boundless frustration for a direct person.

Last week I had a head-on confrontation with directness:

“So, I ask you again, shall we hire a Technical Writer or not this year?”, I said.
“If the need was big we should do that.” says HB, head of the technical center.
“Yes, but we just agreed that the need is not big now. So you mean we should not hire for this position?”
I feel that I get a bit irritated. It is the third time I ask the same question, but I do not get a clear answer.
“If the need had been big, we should hire.”, she says again.
I get hot and angry and start to fume inside. Why not just say “No” if you mean that? Are you an idiot, I think to myself. Why do we waste our time with this kind of unclear indecisions?

Suddenly I realize that I had hit my head on the boardplank of communication culture. My Chinese colleague is a master of positive, friendly, implicit communication that is crystal clear to all other Chinese colleagues. Being a blunt barbarian, I need the black-and-white statements of yes/no. She expresses her opinion just as clear, but much more politely and correctly, according to her indirect communciation culture.

The Direct style usually starts in the center with the core of the question, and then winds out towards the secondary issues and connections.
The Chinese way is to start with the context and build to the center, sometimes even leaving the obvious statement unsaid.

Indirect Communication Style starts at the outside and slowly moves to the center.

I used to be an expert at the indirect implicit style, but now I have lived for ten years outside of Sweden, so I am getting rusty and impatient and blunt. Working in international teams has also trained me in being very explicit, to ensure that the objectives are clear. However, the drawback is that my communication style is less eloquent and sometimes rudely impolite.

Direct Communication Style – starting in the middle, and only then zooms out to the wider context.

In the meeting I take a step back, and use an indirect way of getting full clarity: – “I write here in the meeting minutes that we decided to not hire the Technical Writer, at least not for the next six months. Ok?”, I say. Then I look around and get affirmative nods from everyone.
My pulse is back to normal and I smile at my colleague when we start on the next topic.

One enigma is why communication directness is not part of the classic cultural dimensions, neither by Hofstede nor Trompenaars. The work of the two Dutch authors Geert Hostede and Fons Trompenaars has been truly helpful for me in uncountable situations. They have observed behaviour in different cultures and explain it through a small set of value dimensions. However, directness is not one on their list. I wonder why?

http://en.wikipedia.org/wiki/Trompenaars%27_model_of_national_culture_differences

http://en.wikipedia.org/wiki/Hofstede%27s_cultural_dimensions_theory

Air Quality (cough, cough)

The first week of November has been shrouded in a hazy smog. All over Shanghai, the sunshine is dissolving into a colorful sky. It made me want to look at the numbers. It is bad, but how bad?

First of all I looked at the NOx satellite maps from the research institute in Heidelberg. They have published global maps of their measurement results. Up until the 90’s, the nitrogen oxide concentration was the most common metric for air pollution. The NO2 molecules can turn into nitric acid and acid rain.

Global NOx Air Concentration. Holland is close to Shanghai.

But NOx is not everything. Today we can set up measurement stations to measure particulates (PM2.5/PM10), ozone, SO2, NOx etc, and calculate an “air quality index”.  A few years ago, the American Embassy started to publish air quality measurements on-line, which led to a diplomatic fight. After many rounds, in January 2013 the Chinese government agreed to the publication and started to post data from hundreds of measurement stations all across China. All our Chinese friends have smartphone apps that display the current Air Quality Index. Today it was 224. “Very Unhealthy”.

Air Quality Index smartphone app. We can follow the levels hour-by-hour.

There is also an interesting website that publishes air quality across the world, wherever measurements are available: http://aqicn.org/

Shanghai air pollution right now, Friday evening 8 November 2013. (We live next to the 158 sign, center right).

So, what if we compare to other polluted cities, like Amsterdam or New York?

Amsterdam area, and some Antwerpen 8 Nov 2013.  Very few measurement stations in The Netherlands.

New York Air Quality 8 Nov 2013.

Unfortunately, I could not find a live station in my old hometown Gothenburg, but a report stated that the year-average is 15-20 there.

The fact that numbers on air quality are published creates public awareness and political pressure to improve the situation in China. I predict a legal ban on petrol cars in the biggest cities within five years. Just like there was a ban on petrol scooters 10 years ago.

Today it costs nothing to pollute. That is a problem. This is arguably the most important challenge for Economy as a “science”, to create metrics for “externalities” and to find ways to measure and control destruction.
Part of the price for “Made in China” is the health effects and the environment impact here.
Next time you buy some cheap stuff, remember who pays.

Death rates due to urban air pollution, from WHO.

Getting to No

In the West, there is a very popular management book about negotiation that is called “Getting to Yes” by Ury, Fisher and Patton, indicating that the most difficult aspect in a discussion or negotiation is to get agreement. In China, the challenge is the opposite. As I learned from my friend Linus [with intense Guangzhou experience], yes can mean many things:

A Yes is a Yes is a No? (picture from http://efc.web.unc.edu/files/2013/04/Yes-No-Blog.jpeg)

“Yes, I understand and I agree and I will execute immediately.”
“Yes, I understand but I do not agree”
“Yes, I hear that you are speaking, but I do not understand”
“Yes, I am still alive, but I have no clue what you are talking about”
It is not very often the first one, and unfortunately not the second either.
Therefore, asking yes-no questions are of limited use in China. [footnote: I understand that this is similar all across Asia, but I do not have enough first-hand information about other places. In Japan I had this much less, but I did not spend much time there.]
Quite a few times, I have found myself asking yes-no questions, always getting yes, and scratching my head afterwards with puzzlement and disappointment why it did not work out as we had decided. “Will you finish the report before Friday? – Yes.”

The words “yes” and “no” have no direct synonyms in Chinese. Therefore, the best translation into English of how a Chinese would answer a question from a boss is: “Yes,….”, which means more or less, “Ok, …”. The negatively posed questions are especially tricky, like “Will that not work out?”.

The way to get around this linguistic artifact is to pose a different set of questions, sometimes called open questions: “When will the report be finished?”, “What do you need to finish this on time?”, “Which problems could arise?”, “Why are you convinced that this will work out?” etc. etc.

I have hit my head so many times, that I am getting allergic to “yes”. Whenever I realize that I accidentally placed a yes-no-question in the conversation, I regroup and launch a new question based on what, and I try to forget the first answer. It is not easy, and I still often run into the trap, but it is getting better and better. It goes both ways. I get better at crossing the inter-cultural chasm, and my Chinese engineers find new ways of reaching out in my direction. We try to work with humor and laugh at our misunderstandings, but it is never easy.

The challenge is: Getting to No!

China Innovation

China is famous for cheap manufacturing. We all have stuff at home that is Made in China.
Acceptable quality at an attractive price. Like your iPhone or your garden parasol.
This is obvious for everybody.
What is harder to see from the outside is that innovation is bubbling in China. Contrary to popular belief, there is a lot of new thinking going on here.

• Low start-up cost for companies and production
• Fantastic E-commerce infrastructure
• Plenty of people with nothing to lose
• A lot of people with cash to spend

Setting up the legal structure of a business is very simple in China, especially if you are Chinese. Low cost for the initial establishment reduces the cost for expensive bank loans and lowers the threshold and the risk for the founders.

The Taobao/AliPay platform makes it easy and cheap to show your products to an audience of a billion internet users in China. Taobao is a combination of Ebay and Amazon – a strong platform for displaying goods and allowing the users to order what they need. The AliPay platform is a banking layer that channels the money from buyer to seller, like PayPal but better.

I would like to give an interesting example of this.

The solar-powered-bicycle-tail-light. It is a combination of existing technologies into a new product that I have never seen before. Solar cell + Battery + LED lights = maintenance-free light for my bicycle. It is obvious that the value is that you wont have an empty battery when you are heading home in the dark.

Solar powered rear light for bicycle.

This product is available on Taobao.com for 15 RMB + 5 RMB shipping. (total cost to the consumer 3 euro/4USD).

 (and for consumers outside China, check out AliExpress, $50 for 10 pcs, free shipping)

One question is then, how about IP protection, patents and copyright law? Is this product infringing on some smart American inventor’s patent?
Actually, no. There is a patent for this product, filed 1990 in Korea and China by Yu Gunjong and Kim Yonggab at Yukong LTD. The patent has expired and everyone is allowed to make and market this product.
There have come a host of newer patents, mainly from Chinese inventors in the last five years for new functionality.

Innovation is booming in China – and all of society enjoys the benefits!

The Car that Changed the World (part II)

A new car has been born. In the Shandong backwater province, halfway between Shanghai and Beijing, a revolution is unfolding.
This will change the world. Again.

Ten years after the unexpected success of Chery QQ, a new generation of cars is being created. Light weight, compact cars with 100% electric drive.
By radical re-thinking of how cars are used in cities, they have developed a concept for mobility based on medium speed (<80 km/h) and very low weight (<500kg). This makes it possible to use all the technology from the electric scooter revolution.
By re-using these mass-market components, reliability and low cost is achieved. A complete electric car is yours for less than 2500 euro.

(In 2002 petrol scooters were banned in the 10 largest cities, and a mass-market for electric scooters was created almost overnight. Today there are more than 100 million electric scooters on the streets in China, and the price has dropped to 90-200 euro, depending on model. More about this another time.)

The electric carlets are officially recognized in Shandong province, where the first wave is rolling out.
In other provinces they are popping up like mushrooms.
However, there is no nationwide launch planned yet. The legal boundaries are still murky whether it should be counted as a scooter or a car. As soon as this is clarified I predict that there will be another hundred million electric vehicles on the streets a few years from now.

Electric 2-seater (hyev.com)

(www.hyev.cn)

Most traditional car-makers in Europe and America are attached to all the ideas and concepts of what a car must be, with comfort and gadgets and a powerful engine. The modern car is developed for a suburban environment. Large loading capacity and higher speeds were necessary.
However, since this year, more than half of the planet’s population live in cities where speeds are low and space is limited. Therefore it is imperative to look for new solutions to the mobility problem, and an excellent proving ground is China, where hundreds of millions of people would like to have something better than a scooter.

Of course a 450kg thin-steel-and-plastic car will not survive a head-on collision with an SUV, so safety is a concern. However, an enclosed compartment is probably better than an open scooter. It all depends on what you compare with. And sooner-or-later we should probably separate traffic by weight.

Electric four-seater “SMRT”.

This year, city air quality and air pollution has come to the top of the political agenda due to the fact that the municipalities have started to publish the air quality measurements on-line. Everyone I know has an App on their smartphone that displays the air quality index. The school of my kids keep all children inside during recess when the levels are particularly bad.
I strongly believe that these light-weight mini-cars is part of the solution. If Beijing would ban petrol engines inside the ring-roads, the local air quality would certainly improve.

I dare the European Union to ban petrol scooters. I dare you to endorse these electric mini cars.
Europe should not miss this round of mobility revolution!

Family electric car from Haima.

The Car that Changed the World

Chery QQ – the car that changed the world

I am convinced that Chery QQ is the most influential car from the last 10 years.
“Which car? Why did I never hear about this one?” I hear you thinking.
Still they have produced more than a million of these cars in the last few years.
This year, Chery was exporting more than 400,000 cars to Asia, East Europe, Africa and South America.

Some background first. Chery started out as a license-producer, making Seat cars in 1999, in the backwater town of Wuhu. Nobody noticed. At that time, there were ten car factories in China, most of them 50/50 joint ventures with Chinese government owned car plants with multinationals. Most successful ones were First-Auto-Works-VAG producing Audi in the north and SAIC-VAG “SVW” producing Volkswagens in Shanghai.
Ten years ago, in 2003, when the story begins, cars were quite expensive in China.
It was a very profitable, but small market, dominated by a handful players – all joint-ventures with foreign companies.

When nobody was looking, Chery launched a car on the market with a very low price under their own brand. It was a rip-off/copy/shanzhai of the Daewoo Matiz/Chevrolet Spark, but at an even lower price.
Here was a small four-seater at a price HALF of the second cheapest car on the market.

Within a year, car prices fell with 30% all across China in response to the very low price alternative of Chery QQ.
After two years, Chery was exporting hundreds of thousands of cars across Asia.

There has been much media attention in the last five years for the Tata Nano, the affordable micro-car that would raise the living standards of the masses.
However, it has been a commercial fiasco. Millions of dollars invested, and sales are less than 10,000/year.
In reality, the real affordable microcar, giving automotive power to more than a million families across the world is the Chery QQ, starting at 2,100 euro.

The second effect of Chery QQ is the snowball effect. They showed the world that anybody can build a car. If they can do it in Wuhu, Anhui, they surely can do it in Chongqing, Dalian, Shenyang and Wulumuqi, right?
There is a lot of prestige in car-factories.
Every governor of a province in China wanted to have his own car factory.
Therefore, starting in 2005, there have been car plants sprouting out of the ground all across China.
The new thing is that all these are fully owned Chinese companies, some private but most are partly owned by the province/municipality.
Today there are 38 Chinese brands of cars, most of which have not yet been signalled outside of China.
The innovation is bursting and new variants of small, medium and large cars appear every month.
There is an enormous overcapacity, which drives the prices to the bottom, so there will be consolidation in the coming years.

The coming ten years will be the Decade of the Chinese Car.

Book review: The 100 Dollar Startup

The 100 Dollar Startup – Chris Gillebeau

This is an interesting book about micro-entrepreneurship, based on organic growth and patience instead of venture capital and IPOs. It describes the reality of a new group of entrepreneurs, many of whom started by surprise and coincidence. It is also about finding a sustainable size and not focussing blindly on growth.

Gillebeau writes with humour and self-depreciation, illustrating many points through examples of his own successes and failures. His account of joyful exhiliration from a 1.63$ sale is contagious. The significance of the first sale is repeated again and again in the book.

Many passages in the book are strong and authentic, with real-life examples and insights from breakthrough and adversity. However, some parts of the book feel more like recipes, where a certain method or tool is getting all the attention. The introduction to the book is peppered with adversity towards all forms of employment, which feels unbalanced. Maybe the American work situation is more hostile than my European experience? I have had a couple of good managers over the years and many warm and generous colleagues…

The book was a gift to my wife, who is now in a career switch, but I took the opportunity to read it and I like the message alot. The thinking is valuable both as an independent entrepreneur, but also for an “intrapreneur”, starting something new inside an existing organization: Start small, grow organically and always, always keep in mind what customer value you deliver.

It is similar in my job, where we started a product development department from scratch two years ago. Get started, try something and get feedback from (internal) customers and adapt. I will get a copy of the book for my team.

Book and Idea Review – Power of Habits, Charles Duhigg

There is something elusive with the word habit. We all know Bad Habits, but I have never heard of Good Habits. Only descriptions of virtue or discipline or willpower or character.
Aristotle is supposed to have said: “Quality is not an act, it is a habit.” (At least according to the Lean trainers I met this summer.)

Duhigg gives an entertaining overview of what we know about habits, scientifically and from experiences. He describes the neurological point of view as well as the social and legal aspects of our “auto-pilot”. He shares stories about people with neurological damages which gives surprising, insightful and sometimes tragic consequences in everyday life. Duhigg explores the bad habits of drinking and gambling, even though it is not clear to me that these are habits in the same sense of the word as a habit to have cereals with yoghurt instead of milk.

He points at the strength of habits to help us do good and looks at ways to create habits that lead us in the right direction. It is also really interesting to see that moral decision-making is a finite resource, and that most people have really bad judgement at the end of a stressful day. (Yet another reason for not having political negotiations to go on deep into the night.) If the auto-pilot is not tuned for good behaviour, we are bound for trouble.
Is this character?
Or the result of having character to practice the “right thing to do” into an automatic behaviour?

I look at my own behaviour and clearly see areas where I could do better, if I just had enough energy at the right moment. I would (if I could) snack less at the office and drink less coffee. And by looking at the neurological background for the reward system, I could develop more positive habits. It is in a sense exerting energy beforehand to build the good habit, and earn the reward later, when the auto-pilot helps me to grab a bottle of water instead of a Coke. Despite the neurophysiological explanations, the book does not really help me to get there.

An other interesting aspect of habits is the connection to personal responsibility and individual freedom. However, this is a weak part of the story, probably due to the very American context of the book, set in a litigous society and with ill-fitting cultural bias for “Freedom”.

The book did shed a sliver of light onto what Science knows about why we do what we do, which is one of life’s greatest mysteries.
The quest for understanding continues…

Drive – Book and Idea Review

http://coursecreators.com/wp-content/uploads/2010/01/Dan-Pink-Surprise1.jpg

Motivation – what do we really know about the drive to do things?
Why do I write this? Why do you read this blog?
Is it to please your boss/earn brownie points/get higher salary or out of fear?

I do not think so. I think curiosity and the joy of exploring the slightly unknown are far superior explanations for why we do most of what we do. In his book “Drive”, Dan Pink explores what we know about work-related motivation, and how far away most company/school reward systems are from the reality of today. In his own words “There is a mismatch between what Science knows and what Business does”.

Since the TED presentation a couple of years ago, I wanted to read more from Pink, and now I finally got the book to dig deeper into the sea of positive forces that is just waiting to be explored. Most of the elements I recognize from my own experiences, but it helps to use the words to describe these semi-subconscious forces.

I have always felt oddly de-motivated when being sent on a training course, for instance, but eagerly energized whenever I get to choose myself. In the same way, great satisfaction has come from strenous efforts of learning Chinese, trying to master a new magic illusion or plowing away in electromagnetic field theory. I also feel energized and alive when working on wind-turbine technology and establishing the first sprouts of a permaculture food forest in our suburbian backyard. Pink distils these three Dimensions of Drive into: Autonomy, Mastery and Purpose.

In the past two years, I have been trying to establish an environment of trust and autonomy in my department. I strive to challenge-and-grow the engineers, to encourage their pursuit of mastery. However, the purpose is maybe slightly muddled in a corporate setting. We have China-for-China nationalism mixed with a technical support need and profitability concerns. I say that we focus on Railway and Wind, but in reality we work just as much on Diesel engines and steel mills.

There is a lot of convincing evidence that these factors drive us to perform better, but I have the feeling that the social aspects of work are equally important. Maybe this is stronger in Europe and in China than in Pink’s American setting? I guess that the culture of individualism reduces the value of the group. My hypothesis is that the group value of inclusion will come back, as I believe it is a fundamental part of being human. We are social animals and the energy that comes out of belonging to a clan or a team is magnificent. I wonder if there has been any research on this drive? (If you could point out some reference in this direction, please leave a message!)

What is very clear is that my own manager allows me to thrive with a great deal of independence, challenging tasks that stretch my capabilities and I sincerely feel that we are building something really important. I have autonomy, (building) mastery and purpose. I am a lucky man.

Delivering Happiness – Book and Idea review

I have never purchased shoes online. Nevertheless, this book written by Zappos Inc CEO and co-founder Tony Hsieh is immensly intriguing and inspiring. “Delivering Happiness” is the current motto/slogan/vision of the maildrop shoebox company.

Tony describes his life journey from worm-farm primary school backyard entrepreneur via Harvard to startup ventures and the Zappos adventure. He writes in a very funny and personal way about his peculiar experiences and it seems like it could have been me, in a positive way. (Of course on a smaller scale.) It is this personal connection that drives the book and builds momentum and credibility for Tony’s message that happiness is a perfectly valid business and life goal!
Of course, the next step is to build on the science of positive psychology and happiness to ensure that we create some pleasure/profits, more passion and clear picture of the purpose.

It is the first time that I read a book like this, where the author is a successful entrepreneur. Many other books about “authentic leadership” and positive messaging are based on moral arguments and ideology, written by armchair CEOs. This book is much more believable, because Zappos is there to prove that it actually works.

The book is written from a very American perspective, so I look forward to hearing the comments of my colleagues here in China how they experience the message and ideas in the book. Maybe it helps that Tony Hsieh is an American-born Chinese…

I hope that Mao Yun soon will write a book about creating and running Alibaba and Taobao, the Chinese equivalent to Amazon+Ebay+Zappos+Paypal+DealXtreme. I use Taobao every week, and to me it delivers happiness. I can only guess that Mao Yun follows a similar philosophy…

Cash from Bricks

How to turn clay into cash – an introduction to monetization.
 – or why there are forests of empty apartment blocks around every city in China…

One fantastic part of the China Story today is the way the liquidity was created. According to the legend, Deng Xiaoping sent out a group of economy whiz kids on a Journey to the West to figure out where all the cash was coming from. They returned with the surprising observation that alot of it came from houses. On average, houses and other real estate in the West had a hypothecary loan to half of the property value. This is considered a low-risk loan, so the interest rate is low, close to zero, when compensating for inflation. This money was available to the house owners as “free cash” to buy cars and televison sets. Remember, this was in the end of the eighties.

Unfortunately, there were two obstacles from duplicating this in the China setting:
1. All property was owned by the state, who would not have any benefit from the liquidity.
2. The valuation of the houses was very, very low.

Therefore, the China government set out on a plan to eliminate these obstacles, and introduced a right-of-use ownership-light for real estate in the city areas. Formally, the right-of-use is temporary for 70 years, but most observers think that it will be extended into real ownership. But anyway, who knows what the world will look like in 2060?

The next move was to increase the valuation of the houses. This was done in a way that is not well reflected in the press coverage in the West, by eviction compensation. Whenever a motorway was built, or a Hutong was razed to give space for a shopping mall, the previous residents were paid a generous compensation. The logic was that the government only needs to pay one house-owner a good compensation, and then automatically all the houses in the neigbourhood would be worth the same or more. A driver of a friend in Beijing cashed out a million RMB for a shed, and used the money to move up the value chain and started a transportation company.

It has worked wonders. Real estate prices have soared with 15-20% increase year after year for decades, and a deluge of cash has resulted in a flood of iPhones and Audi cars.

Unfortunately, it has now gone too far, as clever entrepreneurs have found ways to abuse the system. What we see now is that you can build a house for a million, and get it “valued” to 10 millions. Then you take a 5 million RMB hypotecary credit with low interest rate, as the amount is only 50% of the house value. For the money, you can pay back your first inserted million, and you have four millions for consumption. Or for repeating the trick and building four more houses. Cash is generated, even if nobody lives there! Around every Chinese city, there are thousands and thousands of houses standing empty, in some areas whole cities without inhabitants. It has been a terrific boom for everybody selling bricks, glass, construction machines and door handles.

Two cornerstones of the scam are the shortsighted valuation process and the lack of transparency at the banks. Both these processes are completely opaque and there is really nobody who has a short term interest in slowing down the dance. This year it is slowing down a bit, as the government is trying to reduce the craze, without killing consumption. Good luck!
– afterthought –
I think that this scheme leads to a huge waste for the society, especially since many of the houses are poorly built and will have to be torn down, maybe even before somebody has ever lived there. On the other hand, ten million people move in every year from the countryside to the cities, and as most of the statistics are secret, it is hard to predict how long time it will take to fill up the houses with migrant workers.

The Lean Startup – Idea and book review

Seldom a bok is really worth reading in one sitting, but this time I was captivated and had enough time on a long flight to dig in cover to cover. Eric Ries tells a compelling story of running startups according to a structured methodology, based on Lean thinking and the philosophy of the Toyota Production System.

As I have experienced lean both in the automotive industry flavor and the software style called agile, I could identify with many of the situations and observations in the case studies in the book. However, this is the first time I see someone applying the principles to the organizationally uncertain environment of a startup. And Ries is very convincing.

In the last years, starting a greenfield R&D operation, I have encountered countless situations where the conventional metrics of success seem counterproductive and odd. In Lean Startup, some of these situations are included as examples of dilemmae facing the entrepreneur. I have felt oddly dissatisfied with our output, since I have had no tools to measure the progress, only admitting to myself that the positive picture of my department is more based on faith than on facts.

Ries also gives me words to formulate how the corporate standardized waterfall model of product development is disfunctional in a quickly changing environment. The obvious Build-Measure-Learn-cycle is now one year, instead of possibly a month or a week. We still operate with the assumption that the customers can explicitly state exactly what they want and that it is our job to make the optimal product matching these requirements. I will come back in another post why this is a flawed starting point.

The book is an easy read, and the key points come across clearly and vividly. The first-hand experience of Ries, and the way he shares his own failures with wit and self-depreciation add to the credibility to the story. The weakest part of the book is when Ries proclaims himself as the philosophical leader of a new industrial thinking revolution, which is probably an exaggeration.

Magnus Enarsson, thank you for pointing this book. It is inspiring and I am convinced that we will develop ways to work smarter!

True North – Book and idea review

Authentic Leadership is the thing. The last few years have seen an explosion in publications claiming the virtues of Authentic Leadership, especially since the publication of True North by Bill George in 2007. I just read this book and it got me to think quite a lot about this.

It is a very well-written book that reads smoothly and gives a very positive picture about honest and hard working Americans who lead their companies to a better future by being open and fair. However, there are a few things in in the background that dissonate.

First of all, authentic leadership is not really a description of a certain leadership style or any observable facts, but it a moralistic value judgement of the person in question. It is also implicitly assumed that it is automatically better for the company to have an authentic leader. Both these concepts are not obvious.

True North is based on interviews with a hundred successful people who are regarded as “authentic”. We get to hear the leaders’ own stories and explanations for their success. The book is written as stories around different topics, with examples from the lives of the people interviewed, with their names included.

Therefore, every leader shares a story he/she wants us to hear, a story where he/she is the hero. We accept and acclaim that the heroes of our time get the power and perks associated with top-positions in the corporate world and the state administration. Therefore, almost all of the leaders interviewed claim that they have fairly struggled against improbable odds and made innumerable sacrifices to get where they are.
The stories all sound like the script of a classic Hollywood movie:
1. Show the hero in a sympathetic scene, e.g. playing football with his son.
2. Show the hero in a difficult situation, e.g. kidnap the son and put the police force to hunt the hero.
3. Let the hero kill all the villains, rescue the son and celebrate with the President. He is now worth a big house and a big car and the most beautiful lady.
All stories follow the same pattern.

True North is written as a handbook, how to “discover” your own authentic leadership, and how to communicate it. There is even a chapter in this book on how to frame your “life story” to fit the hero-pattern. Maybe it works for the people who work for you, if they think of you as a hero, but I am not convinced.

Therefore, I regard this book a collection of inspiring stories, not at all as a guideline for operation. There is a big contrast to e.g. “Good to Great” by Jim Collins, where objective criteria are defined first, and the examples come out. In addition, in “Good to Great”, most of the descriptions of the leaders are done by observers, not by the subjects themselves. I never trust someone who tells me that they have been winning everything against all odds.

The Red Wine Cooler

Living in China is fantastic. One of the priviliges is to experience the optimism of fearless innovation and exploration of new niches. I often see products that I did not know that were needed, but that perfectly fit someone’s needs. It really opens my thinking.

Last week, one of my Chinese colleagues told me that he had bought a red wine cooler. I thought he had misunderstood the concept, and I told him about the 6 degrees centigrades for Champagne Brut, pretending to be something of a connoisseur. Tactfully, my colleague told me that he already had one of those, but now he had felt a need to keep his Bourdeaux at 18 degrees. Living in a flat with intermittent air-conditioning, where the ambient atmosphere approaches 40 degrees, it is a challenge to serve a ruby red at a delectable temperature.

After learning that this product exists, I could not appreciate the Syrah last night as much as I did before. The warmish fluid got the sourly tones exaggerated and the aroma was overwhelming.
Would I be better off not knowing about the possibility of having the reds at the perfect chill? It is tempting, a 12-bottle holder is only 488 RMB (60 euro) on Taobao.com.

I will be considering for myself whether or not to purchase one, weighing the cost and environmental impact on one hand, and the luxury of knowing that a perfect bottle of Las Moras lies waiting for the next barbeque on the other.

Internet is SO Limited in Europe

Great Firewall of China (lostlaowai.com)

“Internet is SO limited in Europe!” was what one or my Chinese trainees told me after a few months in Europe. “Nothing works!”
He was used to listen to music – and download mp3’s- for free from google.cn/music and ting.baidu.com. At a computer in Europe he gets the message “This service is not available in your location” – a regional IP blocking. – you can try yourself!

I can testify that the music services in China are much better and cheaper and easier to use than Spotify, and they have essentially all artists.
These are no shady sites run by lowly criminals, but by the top global internet companies like Google and Baidu.

Poster available for purchase at sms58.com. I have found no poster showing "Blocked Outside China". Yet.

There has been much writing in Europe about the Great Firewall of China, which is blocking foreign news and media. In fact, there was a lot of blocking back in the 1990’s, for ideological/political purposes. However, now I think that most of the blocking is for commercial purposes. Websites with great revenues, e.g. Facebook, are blocked, and a Chinese equivalent is available for the local market (renren.com). Most Chinese have most friends in China anyway, so for the vast majority of the population here it is not a problem. And the revenue goes to a businessman in Hangzhou instead of to Marc Zuckerberg. Same with Twitter, YouTube etc. (It is probably completely in contradiction to the WTO treaties…)
This is why many expats in China have a subscription to a VPN service to tunnel through the firewall to get to Europe/US to access these sites.

However, there has not been much writing about the Chinese abroad who have a VPN subscription to get IN TO China. With a VPN into the China-internet, they can enjoy the freedom and luxury of the China-only Internet Media Services.

Book: Permaculture according to Sepp Holtzer

Permaculture is a way of farming or gardening, where diversity is the driver to improve the soils and create sustainable symbioses, where pesticides and synthetic fertilizers are unnecessary. In many ways it is a step back to the pre-industrialized agriculture that dominated worldwide until the introduction of the tractor.

Sepp Holtzer is a remarkable farmer in Landau, Austria, who has created a lush fruit & vegetable farm in a most untypical environment, at 1000m altitude. In this book he describes his way of working, observing and experimenting with every element of the habitat – ponds, stones, mushrooms, plants and various livestock species. He describes using raised beds for creating suitable micro-climates for vegetable production and how to utilize pigs and earthworms to aeriate and enrich the soil.

In many ways he has simplifed the work in the vegetable garden, by utilizing natural processes. No digging to prepare the land, but a layer of mulch or hay. Many of the plants he uses are perennial, which means that the plant will grow on next year without any human intervention.

Holzer shares his experiences with such a positive energy, that I get all inspired to plant sunflowers and beans, and to get non-hybrid seeds. He also shares his experiences with failed experiments, which is a consolation already for the inevitable failures and misses.

Holtzer describes it as if it is easy.

I think that the most important difference with his neighbour’s monoculture of spruce is that Holtzer is farming with knowledge. It requires much more knowledge and observation to work with a hundred different plants, compared with working only with one tree type.

Knowledge and understanding of Nature is the way of the future.

Book Review: River Town

Living in China is never boring.

Fuling - http://riowang.blogspot.com/2010/08/subjective-city.html

 

Peter Hessler wrote a book about his two years as a US Peace Corps volunteer (English teacher) in a small town on the Yangtze river. Hessler has a phenomenal skill in bringing to life the moments of laughter, pain, shame and frustration that inevitably arise. The self-effacing style of vividly depicting his own shortcomings make the story more personal and intimate.

It was a different world in the end of the nineties – almost no internet and telephone fees were exorbitant, so the isolation was stronger. Nevertheless, many things are the same today, even in a world-city like Shanghai. So many things that I recognize from the last few months here; a common conviction that Chinese culture is the best culture, Chinese food the best food, uncritical party members, free thinkers in taxis, conflicting rules and regulations, meaningless garden maintenance, the exodus of farmers’ kids to the cities, the stupid personality of me speaking Chinese…

It is somewhat remarkable how openly the system is criticised and that Hessler was allowed to spend another ten years in China. Sometimes the government can handle criticism, sometimes not. As Hessler writes, there is no humour in the system.

Reorganization

The last day before the Christmas holidays, top management presented a reorganization of the company. Two of the three divisions will be merged, and then cut apart in another direction. It is like cutting a cake sideways instead of longways. It is fanfared with all the usual “leveraging strengths” and “stronger focus” and “driving profitability” buzzwords.

The key objective seems to be to serve the key customer industries better, at the expense of the lesser ones. It looks a lot like 80/20 thinking – the fact that 80% of the revenue typically is generated by 20% of the customers. However, 80/20 thinking has one flaw and that is the dynamic aspect – the evolution over time. The top ten customers today are not the top ten customers of ten years ago. Even in a slow business like mechanical components business, the landscape changes fast and a company that will be our key customer in five years is a marginal customer today. One of the thousands. And there is no way knowing which one it is.

On the other hand, there are undoubtedly advantages of the new setup. In some sense, the organization looks a little less complex, at least from the top. I believe in clear mandates and that seems more uniform across the board, which is good.

Many cynics are critical of reorganizations, because it is never really clear that it brings any advantage at all at the workfloor. It is often seen as a useless exercise by managers who want new titles. However, every organizational setup has strong and weak points, and it foces different people to work together, while they still know people in another part of the organization. In that sense, a reorganization is a way to strenghten the informal network, through enforcing new reporting lines and new colleagues, while people still see their old colleagues for coffee and gossip.  Therefore, I think that it is good to stir in the kettle once in a while.

An aside here, and advice for future reorganizing champions: Don’t announce before holidays. Then the worrisome among us will have sleepless nights when they need to reconnect with their family and friends. Do you think they will talk well about your company? Is this the advertisement you need? Do you think it is right to deprive them of their well-deserved time off from a demanding job?
Of course you yourself will see less torment, so you may sleep better after presenting your plans just before a long break…