Capability building in China

All too often in the UK we hear senior business leaders and politicians bemoaning the lack of skilled labour.  But China 30 or so years ago had very few skilled staff.  So how did they progress to be the world's leading manufacturer and exporter?

Abbreviated from: http://www.mckinsey.com/insights/asia-pacific/capability_building_in_china?cid=china-eml-alt-mip-mck-oth-1307

Article|McKinsey Quarterly

Capability building in China

Skill building must be rewards-based, rooted in real work, and tailored to local conditions.

July 2013 | byKarel Eloot, Gernot Strube, and Arthur Wang

Capability building—leadership, managerial, and team-based skills rather than technical ones—has become an urgent imperative for many companies in China. As the country loses its extreme low-cost-labor advantage, businesses must look for ways to increase productivity and internal collaboration, to better understand consumers, and to develop a more sophisticated appetite for risk.
Companies in China face many of the same challenges—a lack of up-front planning and inadequate resources—that bedevil capability-building exercises everywhere. But certain “China factors” stand out. For starters, the demand for managers with strong leadership skills and international experience is growing significantly faster than the supply of qualified candidates. That imbalance makes it more difficult to pull off successful skill-building efforts, even for multinationals that typically invest more in training than Chinese companies do. (Indeed, one implication of China’s white-hot war for talent is that outside trainers brought in by multinational companies to set up and run new programs often move on before relevant tools and internal processes are in place.) Another perennial challenge for multinationals: the Chinese context and culture, which may require local tailoring of global approaches.
Then, of course, there are China’s state-owned enterprises. Many of them only recently converted from government departments into commercial entities and are still working to adapt to a competitive environment and adopt a true business mind-set. These companies generally lack a systematic approach to nurturing employees moving up the organizational ladder. They misconstrue capability building as a classroom activity, missing the impact of linking it to actual business. And they are too inflexible either to fire underperformers or to reward and promote employees, including managers, who change their behavior and adopt the necessary mind-sets.
While the challenges facing multinationals and state-owned enterprises differ, our experience with leaders at both kinds of organizations (as well as with private-sector Chinese companies) has highlighted the importance of some common, broadly applicable principles. In this article, we describe three that should help companies overcome many of the obstacles that have frustrated capability-building efforts in the past.

1. Relate capability building to real activities

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2. Instill incentives and create opportunities for promotion

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3. Don’t forget China’s unique culture

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The solutions may sound obvious: developing Chinese teaching materials to help solve problems, building day-to-day business problems around products that participants would find in the Chinese market, and localizing global training materials through culturally appropriate metaphors and examples. But we know from experience how easy it is to overlook these issues. In our own work, we routinely use a case involving a coffee machine to teach managers about the seven types of waste and how a “lean” perspective can address them. When we recently used this case at a Chinese state-owned enterprise, however, the managers couldn’t make sense of the story, because they had never used a coffee machine. We have now adapted the context to tea making.

About the authors

Karel Eloot is a director in McKinsey’s Shanghai office; Gernot Strube is a director in the Hong Kong office, where Arthur Wang is a principal.

What business should do to restore competitiveness

Extracted from Fortune - http://management.fortune.cnn.com/2012/10/15/porter-rivlin-economy-fix/

Although written with an American audience in mind, the advice is applicable to any company.

Rivkin and Porter's advice about taking care of the "commons" makes me think of one of the main excuses many UK companies make when trying to staff up. They blame the lack of skills amongst the workforce.  But think of China which had no significant industry 20 years ago and is now chasing global leaders in many areas including cars, electronics, steel making, oil refining, etc.  It had no workforce at all - skilled or unskilled. Yet the companies did not complain, but set up training facilities and got farmer's sons and daughters, who were literate and numerate, to learn brand new skills. So, instead of moaning and groaning and hoping someone else will train the staff, large companies should spend some of their profit in training staff to the requisite skills.  Yes, some will leave for competitors, but sooner rather than later you will have a large pool of skilled resources in the "commons".

How companies can get America's edge back while advancing their own interests.

By Michael Porter and Jan Rivkin

FORTUNE - America's feeble economy reminds us every day that our global competitiveness is in trouble. Whose fault is that? As usual in today's political environment, most opinions are extreme. One camp holds that national competitiveness is the responsibility of policymakers, not business leaders, who need to focus on running their companies. The opposite camp says companies owe loyalty to the country that supports them, and executives who move "American jobs" overseas are "Benedict Arnold CEOs." Both positions are deeply flawed, reflecting simplistic views of how competition and economies really work.

We offer a third perspective. Managers must run their companies well. But every firm draws on the business environment in the communities where it operates, or the "commons" as our colleagues Gary Pisano and Willy Shih call it. Government has a profound impact on the health of the commons and must do its part to make the U.S. attractive for business. At the same time, business leaders influence the commons on which they draw. In doing so, they open up a valuable opportunity: When a firm improves the commons, it often boosts its own profitability while also advancing the prospects of other U.S.-based businesses. That means business leaders shouldn't simply accept the business environment as a given, set by government. They can -- and should -- enhance the commons in ways that boost their own long-run profits.

To understand why that's critical to America's future, we need to be clear on what competitiveness means. The U.S. is competitive to the extent that firms operating here can compete successfully in the global economy while supporting high and rising living standards for the average American. Doing one without the other means we aren't really competitive. A high-wage economy like the U.S. can achieve both only by being a highly productive location, one where firms can create innovative, distinctive products and produce them efficiently.

In Harvard Business School's project on U.S. competitiveness, we and other faculty have examined how business can lead in restoring U.S. competitiveness. Our own and our colleagues' work point to three ways.

Pursue productivity

First and most important, managers must run their U.S. operations well, vigorously pursuing productivity and profitability within the rules set by society. In part, this means positioning U.S.-based activities to draw on unique American strengths. For instance, La-Z-Boy has avoided head-to-head competition with low-wage Asian furniture manufacturers by emphasizing the customization and faster delivery that its U.S. location and worker skills make possible.

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Build the commons and the business

Many companies overlook such opportunities because they think too narrowly about the potential impact of their communities on their own success. Companies used to invest naturally in the commons, but globalization weakened the connection, and many companies forgot the importance of local conditions for their productivity and growth. But now a growing number of business leaders are rediscovering the critical role of the local business environment. They're relearning that without available skills, for example, companies have to bear the full cost of training or even relocate to find qualified employees at a reasonable cost. Without an adequate supplier base, companies may be forced to relocate operations or bear higher costs of bringing in components, machinery, or service providers from elsewhere.

The welcome news is that companies can strengthen the commons, without waiting for government, in ways that are good for themselves and for America. The work of our colleagues Pisano and Shih, Bill Sahlman, Bill George, and especially Rosabeth Moss Kanterpoints to several opportunities.

Improving skills. Many companies rely passively on high schools, vocational-technical programs, community colleges, and universities to create a pool of skilled labor, and then supplement those with internal training. But that approach isn't producing the talent business needs. Despite national unemployment above 8%, many companies can't find workers with the skills to fill open jobs.

Now some companies are getting far more proactive. Individually and collectively, as Rosabeth Kanter and our MIT colleague Tom Kochan have emphasized, they're partnering with educational institutions and providing curricular guidance, mentoring, instructors, equipment, and even facilities so schools produce workers these companies would love to hire.

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Siemens and Southwire see their efforts as ways to build their businesses, not as community service. But both will strengthen the commons in their communities.

Upgrading supporting industries. Businesses rely on the local commons for a vibrant network of suppliers and other supporting actors. Many U.S. companies have long viewed suppliers the way the old Big Three automakers did -- mainly as adversaries in price negotiations. Beaten down to thin margins, suppliers often failed to invest in knowledge and innovation and then lost out to offshore vendors. As suppliers atrophied, downstream firms declined or relocated.

Now sophisticated companies are finding innovative ways to upgrade their U.S. supplier networks. For example, firms such as John Deere (DE), Caterpillar (CAT), and Harley-Davidson (HOG) offer in-person courses, online resources, dedicated staff, and joint projects that improve lean-manufacturing skills in their huge domestic supply bases.

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Supporting innovation and entrepreneurship. Research shows that innovation accounts for a large fraction of growth in national productivity, and the knowledge gained by one firm frequently spills over to others. Entrepreneurship is also key to job creation: Startups account for 3% of U.S. employment but 20% of gross job creation.

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Bolstering regional strength. Working together, companies can dramatically improve a region's business environment. Sometimes a cluster of related firms can upgrade capabilities in areas such as skill development, environmental responsibility, and export promotion. Our colleague Bill George has highlighted the energy cluster in Charlotte, where major employers, city leaders, and nonprofits aim to make the city a hotbed of development for sustainable-energy technologies. Early efforts center on university curricula, skills training, and stimulating innovation by committing to reduce energy use in the city's center by 20% in five years.

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Rein in self-interest

The third way business can and should improve U.S. competitiveness is by stopping self-interested actions that weaken the commons. Many such actions involve government relations and corporate lobbying. When firms seek special permits, tax breaks, or regulatory exceptions, they distort competition and raise regulatory complexity. Each plea seems profitable to the company or industry involved. But taken together, such pleas have created an exception-riddled corporate tax code, a rat's nest of earmarks and subsidies in the federal budget, and delays in crucial legislation. Self-interested efforts by one company make others feel they must do the same. The overall cost and complexity of doing business rises. More important, in the long run, the resulting public cynicism erodes society's support for business. Business should advocate policies that improve the U.S. business environment rather than pursue narrow self-interest, which often backfires.

We're at a turning point for American business and for America. Our competitiveness is declining while trust in business erodes. Those developments are not independent. With companies moving operations abroad as the business environment weakens, and reporting strong profits even as opportunities for Americans diminish, a dangerous dynamic emerges that shows itself in America's dysfunctional political discourse. Trust in business declines, U.S. policies turn against business, companies leave America, and trust erodes further.

Business has contributed to the problem by underrating the importance of the commons. In failing to revitalize their U.S-based operations and communities, companies are undermining their own opportunities for productivity and growth.

It's time for business to lead in restoring U.S. competitiveness rather than wait for Washington. More and more companies are seizing opportunities to restore the commons in ways that power their own success. As business steps up to this broader role, it will turn the tide of cynicism that threatens the very core of America's prosperity.

--The ideas we present here have been shaped by our work with the core faculty team of HBS's project on U.S. competitiveness: Mihir Desai, Bill George, Robin Greenwood, Rosabeth Moss Kanter, Tom Kochan, David Moss, Nitin Nohria, Gary Pisano, Bill Sahlman, David Scharfstein,Willy Shih, Dick Vietor, and Matt Weinzierl. Interpretations and any errors remain ours alone.

Professor Jan W. Rivkin is head of the strategy unit at Harvard Business School and co-leader, with Michael Porter, of the U.S. Competitiveness Project. 

This story is from the October 29, 2012 issue of Fortune.