Saturday, December 25, 2004

The Place Where New Happens

(Article first published in Currents No. 4 2004).

The Medici Effect is a book about innovation in an era where many discoveries happen in-between or outside established fields. Frans Johansson calls these places of discovery “intersections,” and wrote his book to teach us how to analyze and use them. Harvard Business School Books published the book, and soon he had found an audience, including CEO’s of companies like GM, Kodak and Lockheed-Martin.

Frans Johansson protests when I half-jokingly suggest that he is becoming a guru. He doesn’t like the word, but his calendar tells its own story as he finds himself traveling around the world, giving keynote speeches at conferences and talking to top management. His message is clear and very timely. It’s about the benefits of diversity, stepping out of the circle, daring to explore, and daring to be different.

Frans Johansson speaks Swedish with a Gothenburg accent and has a very traditional name, but his look hardly fits that of the stereotypical Swede. (This look is however not quite as typical as foreigners think, as one million Swedes have at least one immigrant parent.)

His mother is of Afro-American and Cherokee decent, and his father is a native of Gothenburg where he was a tent-maker like his father. But Frans Johansson’s father’s real passion was sport fishing, which led him to start the sport fishing magazine Fiskejournalen. It was during a fishing trip to Manheim in Germany that his father met an English teacher who worked at a nearby U.S. military base. The couple settled in Gothenburg, where they had Frans. He grew up in Gothenburg, but left Sweden to attend Brown University where he started a cross-discipline magazine. He was thinking of pursuing a Ph.D., but felt the call of the entrepreneur, which brought him to Baltimore where an aunt of his was a medical researcher at John Hopkins’s University. He and his cousin Christian started a company in her basement and developed and patented an instrument based on his aunt’s research that nurses use to measure a patient’s pain. By then they were 22 years old.

”I loved starting companies, I really loved it, but my passion was definitively not in the healthcare business, so I applied to Harvard Business School instead,” he says. His cousin soon followed him, but within a year they left Harvard to start a software company called Inka. This was during the peak of the Internet boom. It was easy to find financing and they soon had 30 employees, while working for clients like Intel and Lotus.

But the bubble burst in March of 2001, and Johansson found himself with extra time on his hands. ”I woke up one morning and had this idea that you discover new things when you combine disciplines and cultures. But was it really so? It seemed intuitive, but was it really true? And if so, exactly why was that the case? Finally, what does this mean if you want to apply these ideas in real life? What is the difference between innovating within a field compared to if you do it in an intersection? Of course, you could say that I had been working towards this all my life. I realized when I grew up that I was different from most people around me. It was not only the link between Sweden and the United States, but also the issue of black and white. There were plenty of combinations here.”

The Medici Effect is about innovations, but not the gradual stuff, which the author calls directional innovation. He is more interested in breakthroughs, such as Charles Darwin replacing the Biblical creation myth with a scientific explanation, Mike Oldfield blending rock and classical music, Håkan Lans developing groundbreaking products, or chef Marcus Samuelsson creating bold new riffs on Swedish food that didn’t make sense until he did it. They all had found themselves in intersections abound in opportunities, and they didn’t hesitate to grab them.

When people step into an intersection they need to let go of many of their perceptions and prejudices, but it does not mean that you can do without knowledge and expertise. “When you take a Swedish idea abroad, you are letting it intersect with something else, and that is where you can find success. That’s what made it possible for Swedish music to conquer the many parts of the world, and that’s what Marcus Samuelsson did when he turned Aquavit in to a leading restaurant.”

However, not everybody loves intersections. Many people shun the intersections, as can be the case with fundamentalist Christians in the US and fundamentalist Moslems in Iran or Saudi-Arabia. They prefer interpretations of holy texts to exploring intersections with other cultures and ideas. “Well, it’s a choice to be made either as a person, a company or as a society. If you choose to not break new ground or innovate, you may be able to push what you know, but sooner or later, you will stagnate. The world is moving fast, and if you don’t look for intersections, somebody else will. It’s inevitable. The question is not whether it will be done, but by whom.”

Hans Sandberg

Sunday, June 20, 2004

Jacob Wallenberg on Sweden’s Economic Future (2004)

(This interview was published in Currents Magazine No 2 2004.)

In Sweden, Jacob and Marcus Wallenberg are known as ”the cousins.” Both were born in 1956 and share the formidable task of steering the vast Wallenberg empire. Marcus is CEO of Investor AB, the nexus of the family’s financial and industrial power, while Jacob is chairman of another bastion of power, the SEB bank, whose history goes back to 1856 when A. O.Wallenberg founded it.

Currents interviewed Jacob Wallenberg, who is also a board member of SACC-USA. To a Swede, the Wallenberg name epitomizes big business, while internationally it often evokes the Rockefellers.But fact is that the forces of globalization have diminished the role of dynasties such as the Rockefellers and the Wallenbergs.Their power is certainly more challenged in today’s world, but the Wallenberg family still exerts strong influence over a wide range of corporate giants; companies like ABB, Astra Zeneca, Atlas Copco, Ericsson, Electrolux, Gambro, Investor, Saab, Scania, SEB, SKF, Stora Enso, and Scandinavian Airlines (SAS), just to name a few. This “Wallenberg sphere” captures about 40 percent of the value of all companies traded on the Stockholm Stock Exchange.

It is an open question if one of “the cousins” will eventually emerge as the dominant force in the family. In the meantime, it is actually Claes Dahlbäck, a veteran Wallenberg executive, who holds the reins as chairman of Investor. Jacob and Marcus sit on many corporate boards , including Investor’s, but Jacob’s home base is SEB, while Marcus’ is Investor.

Last November (2003), the social democratic Swedish government invited representatives of the business community to join in a discussion about economic growth. Since then, many business leaders have grown increasingly frustrated with the outcome of the ”growth talks.” Currents took this as a natural starting point for our interview.

CURRENTS: What are the conditions for economic growth in Sweden? Is it enough if Ericsson makes a comeback?
JACOB WALLENBERG: As you know, the Confederation of Swedish Enterprise has for the past few years communicated a very clear picture that Sweden’s standard of living has slipped. We have gone from being number two or four in the 1970’s to number 17 a couple of years ago. The challenge for Sweden is to improve growth in the business sector, so as to provide the necessary economic basis for an improved living standard.To do this,we need to address many issues, such as a focus on research and development, education, labor laws, and taxes that run the risk of pushing talented or successful people abroad. There is no single answer to th is challenge, and no single company can solve this problem. It t akes the joint effort of Sweden’s businesses, small as well as large.

What needs to be done?
I’m talking about long - term projects that generate increased growth over time. This is a competitive game where you have to attract capital, foreign direct investments, etc., into Sweden.

A lot of foreign companies invest in Sweden despite the tax system. Isn’t that paradoxical?
No. Companies will invest in Sweden, as it is a market of 9 million people. I’m talking about investment decisions made on the margin, about investing in research and development, venture capital investments, investments in private equity, and in companies.You then have to provide an environment that is as inviting as possible for foreign investors, and I think that we have a way to go before we can get back to the top of the standards-of-living list again.

What would make a foreign investor think twice before going into Sweden?
Sweden has, generally speaking, a high level of technical knowledge, international experience, and a very industrious and successful base to work from. We have a number of things that attract potential foreign investors. My only point is that when you relate to marginal investors, who are making decisions whether to invest in Sweden, Finland, Norway, or somewhere else in Europe, you simply need to look your best.

How important is the marginal investor overall?
Long term, he is certainly very important. Scandinavia is at the outskirts of Europe.We are at a disadvantage for geographical reasons, and have always known that. To attract investors, you therefore have to be better than the others.

Sweden has had very few new big companies started over the past 50 years. Are we going to push the old industries to get better, or look to new ones?
You cannot ignore the fact that the companies you call old are significant contributors to the Swedish economy, and that we could not survive without them. The challenge is to complement them with emerging technologies .Take SEB as an example. Over 25 percent of our retail business is conducted over the Internet, which is a meaningful number. You need to combine the old with the new, and have faith in new technologies.

The Swedish government’s latest longterm economic study found it hard to support the welfare system in the future, since a large and growing part of the labor market’s ”core” members prefers to study rather than to work, or “perceives themselves as unable to work.” Do we Swedes have the attitudes we need to compete in todays' global market?
Yes, I know. It’s a European attitude. The provision of social welfare is more highly prioritized here than in the United States, and the Americans therefore work more hours per worker and year compared to the Europeans. This is an obvious drawback from a competitive view.

Could we see this as a matter of consumer preference? Europeans choose to consume more publicly via a combination of monetary and political means, while the Americans choose to work the long hours, outsource the cleaning and laundry, and order in take-out food? The Europeans cook at home instead.

( Laughing) It starts with attitude. The great majority of the Americans believe that if their neighbors can be successful, so can they, and they are willing to work for that goal. In many parts of Europe, the attitude is somewhat different. The belief in success is not as strong, and people therefore prioritize other areas of life. This choice is made easier thanks to the social safety net, which is significant in many parts of Europe.

So it is a matter of an incentive structure?
No, at the core it is a matter of attitude, which over time grew into two different systems. Neither is perfect, but the fact of the matter is that Americans are more productive and therefore more competitive than the Europeans.

Which is the key issue?
Competitiveness, which brings us back to the Lisbon Agenda (for the EU).The whole point is to make Europe the most competitive economy in the world, even more competitive than the American economy. European leaders are not accepting the system’s shortcomings.
We have to find ways to compete fully with the Americans. Otherwise we will continue to have lower economic growth rates to the detriment of our living standard.

We have an enlarged EU and the Chinese market is important to some companies in your group? The outlook must have changed a lot over the past ten years or so?
Absolutely! China’s appearance on the world market has been an important ingredient in world growth, and most multinational Swedish companies play an important role in China. That goes for Ericsson, Atlas Copco, Tetra Laval, Volvo Trucks... the list is very long.
China has been the area of growth while other parts of Asia have floundered. It has become increasingly important for the living standard of many Europeans and Americans. China is increasingly important, both as a buyer and a competitor, and they are rapidly becoming more sophisticated.

And they do push education...
Yes, they are pushing education big time.

We also have growing new markets in the Eastern Europe. Will these and China change the outlook for the Swedish industry? Will it affect its interest in the U.S.?
China will of course take away some of the energy, but I don’t know if it will be at the expense of investments in Europe or the United States. I can’t judge that. But over all, I think that we all benef it from the globalization. China and the other markets offer improved opportunities for growth, and we all need growth.

Is there any reason to be concerned that its businesses will start to outsource a lot more to places like Shenzhen or Shanghai?
It is not outsourcing as such. It is production. China has proved itself to be a stable place for production and good quality. They are very competitive piecewise, and quality is not a significant issue today, which it was 15 years ago.
I am not concerned as a matter of principle, but if these changes come too quickly, which I think is part of the concern in the United States, you will be under some pressure if you are a politician.

Do the European or Swedish welfare systems — whatever you think about their size — provide a cushion that makes outsourcing less dramatic?
Short term, yes, but the important thing is to keep developing a country or a region so that you don’t have to close down large parts of your production. It is better to move the production piecemeal and bring in high-tech production in the meantime as a replacement.
That’s my whole point about Sweden, and that’s why we have to focus on research and development, education and so on. We have to create a high-value added environment and focus on production that can replace the lower value-added production, which for competitive reasons will move to low-cost areas.

During the Internet boom, suddenly it was cool in Sweden to start a company. But then the bubble burst and we had all these scandals such as Enron, and in Sweden, the Skandia affair. Does this hurt the entrepreneurial spirit?
First, let’s make one thing clear. You can’t compare Skandia to WorldCom and Enron, which are subject to crim inal investi gations. That is incorrect, certainly as it stands today.

But it still seems to be affecting the public mind?
( Laughing) Well, it is not the same kind of scandal. One is about criminal acts, while the other is not. In my book, there is a fairly wide difference between the two. We have an ethical and moral debate; we’ve seen serious problems in Europe and in the U. S. There are always people that will do bad things, but that doesn’t mean that everybody is bad.

Is there a problem of greed, and has it hurt the entrepreneurial spirit?
Human nature makes people want to make money. Adam Smith was very clear on that when he was talking about greed. The important thing is to channel that drive into something positive and that is indeed what Adam Smith tried to argue. This still stands today. Why else are so many people in the U. S. working so hard to make money, if it wasn’t for a drive of some nature? Does that drive away the entrepreneurial spirit?
No, I don’t think so! The entrepreneur has the same drive, but he has a very special skill, that is to make things happen.That skill is not less ened because somebody shows signs of bad morals. I don’t think so.

The American dream is based on the notion that with hard work, anyone can make it. But with things like Enron, you may start to think you need a buddy to make it — it’s not enough to be an entrepreneur.
Sure, but those guys are in cou rt , and a few of them are on the way to prison. They were caught and tried and sentenced. The enforcement is the key here. I certainly agree with you that the individual has to be able to trust the system. If someone is caught doing something that is against the law, he should be punished accordingly. This is the key and the Americans have been very clear about that.

Finally, a question about the Swedish-American business link. How important is it for Sweden’s business? What about it is so important? Is it cultural exchange, knowledge, connections?
No, it is the fact that the U. S. is the world’s largest economy. U. S. technological trends, market, consumer and political trends are key to understanding what happens in the world. These trends will over time show up in the rest of the world. Every international business person needs to spend time in the U. S. and try to understand it in order to gain a broader picture of events that affect you and your company. It is not sufficient to, for example,  only follow European media. You need a broader perspective.