Creative Thinking to Get Better Answers

If there was one thing, I learned in my creative thinking classes during my entrepreneurship and innovation studies, was the power of inquiry. Asking questions is the key to solving problems and asking the right question at the right time is not only a skill but a discipline which can be and should be followed by anyone of us. In a room of creative innovators, “what if?” is a beautiful question.

Seek questions not answers and seek questions from different perspectives. My observation in class and in the boardrooms, is that when faced with a problem or task, most people begin searching for answers, if not “the answer”, and unfortunately that is almost always disguised as a brainstorming session or using some kind of method like 6 Hats without any rigour, self-assessment, or evaluation.

Sometimes people do begin with questions, but often with the wrong one, or worse, the only one. How many times is a problem presented and the question inevitably is “How?”, often revealing a search for an immediate answer or answers.

Peter Drucker is known for saying: “There’s nothing more dangerous than the right answer to the wrong question.”

Ask the right question and set up an environment that encourages questions – the right questions!

In the book, “How we make up our minds” by Dr. Colin Benjamin, we get an insight into the process of thinking, and delve into previous knowledge from Hofstede and Trompenaars cultural dimensions, Dr. Edward de Bono Six Thinking Hats and Six Action Shoes, and look at a unique 16 colour grid process our minds calls on to reduce complexity and construct clear pathways to progress, in times of rapid change, increasing turbulence and uncertainty in business and in our private lives. The 16 squares grid begin with a question, which best touches on what that particular perspective of frame of mind sees the problem and is approaching the solution.

The key is to ask better questions to get to better outcomes. In every situation we should seek to identify the What, Why, Where, Who, Which, When, and How?

Can you see that by just simply jumping to the “How?”, you will miss a lot of relevant exploration on any issue, which could lead you to the wrong decision?

There is a sequence of specific questions (in two trains of thoughts) which will help any team make better decisions:

FIRST:

  1. What is this? (CAN)
  2. What does it matter? (IF)
  3. What else may emerge? (MAY)
  4. What problems does this solve? (THEN/WHEN)
  5. What’s changed for the better? (COULD)
  6. What are the core elements? (IF ONLY/ONLY IF)

SECOND:

  1. What are the risks vs returns? (WHICH)
  2. What has to be done? (MUST)
  3. What are others going to do? (NOW)
  4. What should be done? (SHOULD)
  5. What is to be learned from this? (HOW)
  6. What will happen next? (WILL)

The strategic thinking can create a window of opportunity:

  1. What’s developing? (BEGINNINGS)
  2. What’s growing? (MIDDLE)
  3. Where will this finish up? (ENDS)
  4. What are the handovers? (NEXT GEN)

Change

This is how one of my lectures back in 2004:

The wind of change is always blowing over the world and one’s life. Change comes to everyone, sometimes quickly, sometimes slowly, but change is always taking place even if we are not aware of it. Nothing stands still because the universe is in a constant state of change, and we are part of the whole.

Change is not contrary to our nature but only contrary to what we know about our nature. We live in a world of unpredictable interactions, which produce unpredictable results that in turn may obliterate the reasons underlying our present success.

Indeed, change may cause us to back to zero forcing us to reinvent ourselves. Stagnation is only an apparent state; it is a transient state of illusion, a dangerous state of mind.

“Without change there is no choice, without choice there is no freedom and without freedom the wheel of life stops and reverses; involution has replaced evolution.” [LAJ Zimmerman.]

Fast forward to 2020 Year of the Corona Virus.

If the need to change was ever to be heeded, now is the time for decision making, leading and action. But just as important as that change is, we must not forget to live richer and fuller lives, spend time with family, read books, write, cook, whatever allows you to live more of your life.

And therein lies the issue, the change can only really come about through active engagement and participation, not by leaders telling us what to do etc. It begins with us and extends through others, through authentic leadership and interaction, which leads to engagement.

We can participate in change or we can sit by and be swept by it, either way, one thing is certain, change is in the air.

The Shadows of our Minds

Isolated in the jungles of Sumatra with plenty of time to think in the sleepless hours the humidity drenched nights and buzzing mosquitoes only too willing to cater for, lost in the jungle noises in the background and relieved by the  sudden downpour the wet season delivered without fail, in swiss clock precision.

The nauseating sweet smell of durian and kretek cigarettes, a shot of gin and tonic water was rumoured to keep malaria away, a folk story I bought without hesitation. In this dreamy world of old, I had plenty of time to fall into my own thoughts and think.

Thinking fuelled by my curiosity and by my brief introduction into unknown worlds. Unknown worlds which have existed for thousands of years and even today remain outside the realms of our modern, sophisticated ‘western’ society.

I stayed in Indonesia for five years, not just in Sumatra, but all over Java (or Jawa to the locals), and Bali, a mystical and spiritual land I came to appreciate. The Shadow puppets or Wayang Kulit adding another sub-layer to the complexity of life (real or spirits). It’s in the shadows that we delve deep.

Seven years later, in Melbourne, I find myself in a lecture, one of the last ones before I graduate, and all these years later, my lecturer presents his thoughts on thinking converge on my own experiences in the jungle.

All too often we live in the “shadow of our mind”, a world based on beliefs which we perceive as real. “What we believe is what we are”.

At first the statement does not make much sense. Some people have great difficulty with it, others are mystified by it or reject it outright, and some people see it immediately.

The implications of “we are what we think and what we think will happen to us” are profound. If a person believes a certain way about himself, he will be that way, and if he does not believe that way, he won’t be that way. It’s like throwing a stone in a pond, the ripples will travel to the bank of the pond, hit the bank and return to the centre of the pond.

Furthermore, what we think radiates in the form of energy and attracts the same energy. Is belief so important, so consequential in our worldly destiny, our careers, our lives? What part do our thoughts play in all this?

People think what they choose to think. The value of a thought is the value we give to it, whether that value is correct or not has little to do with it. The mind will always attend to what it takes to be real. What it takes to be real depends on what it believes in. Through habit, perhaps ages long habit we look upon objects, situations and experiences of our world as real in themselves. What falls outside a person’s experience is not seen at all or judged as irrelevant. It is therefore not part of our thinking. Unfortunately, we can never be what we don’t think.

Our shadows are never far from us, from shadow puppets to the  shadow of our minds, they reveal darkness and courage in human nature; Darkness by the way it defines us and our perceptions, and courage when we realise that shadows are only one dimensional and we venture out and seek change for new and better ways of thinking and doing.

Plato (a student of Socrates and a teacher of Aristotle, three of the greatest philosophers who influenced western thinking), tells us about the shadows in the cave. The shadows cast on the wall of the cave represent a one-dimensional, exaggerated view of three-dimensional objects outside the cave, but the cave dwellers remain in the cave, scared of those shadows, imprisoned by their thoughts and perceptions. The shadows are reality for the prisoners because they have never seen anything else; they do not realize that what they see are shadows of objects in front of a fire, much less that these objects are inspired by real things outside the cave which they do not see.

When we only see the shadows, we are ignorant of what may be truly around us, of what the real possibilities may be, and our perception and understanding remain in lesser dimensions.

So imagine what the shadows of your mind prevent you from seeing?

Know Yourself, Your Territory, Your Customer

In travels throughout China, there has been more than one opportunity to see firsthand Australian and Western business strategies, some doing excellent work, whilst other falling short of their potential. In any market, it’s about the customer and what may have worked in Australia or back in the states, may not work quite the same way in China and its vast and diverse markets.

By Western standards, companies like Starbucks can be seen to be doing well in China, the locations are always full of people. Opening their first outlet in 1999 and expanding across 177 cities to operate 4,200 stores. That is impressive, but in relative terms is not nearly as impressive as a local Chinese competitor, adjusting to the local palate and improving systems to surpass Starbucks in a short amount of time. In Australia, and particularly in Melbourne, the birthplace of the first Australian espresso and pizza brought over by Italian migrants, Starbucks had limited success, the market in Australia was just too sophisticated for the regular American coffee.

Regardless of the business you are in, there are two things you should know, your context ( according to Sun Tzu – your terrain), and your customer ( the culture); and as a consequence are you developing demand driven strategies ( by learning from your customers)?

Developing demand/opportunities driven strategies

  • True customer focus is ‘empathy’ at a price
  • Stepping out of your world and entering the world of your customer requires a mind shift for most people
  • The art of interpreting customer requirements
  • An unhindered view of downstream customers: managing the players that make up the industry value supply chain
  • Putting the picture together: combining scenarios, with industry analysis and customer focus
  • The incentive to buy: from a generic specification to an articulated value proposition
  • Beyond products and services: developing solutions aimed at the customer’s end results

So are you thinking about your customer in their context and able to walk in their shoes?

Entrepreneurship and Innovation

There are a number of theory and frameworks used in the analysis of any company or venture. We can gain insight into some of the current thinking that applies to start-ups in the full commercialisation cycle, and provide for concepts of strategy, innovation and entrepreneurship, linking the three into the act of commercialisation.

Entrepreneurship

An intrinsic part of the commercialisation process is the notion of entrepreneurship and innovation. Differences emerge between nations and geographic locations. In Australia, innovation is treated as a separate concept to entrepreneurship ( and entrepreneurism). In fact there is very little data linking entrepreneurship to innovation and in turn to commercialisation. The importance of such links though is paramount.

Innovation is an act of commercialisation and Schumpeter, as early as 1911, linked the concept of innovation to the definition of entrepreneurship (Stevenson 1999).

If entrepreneurship can be defined as a value creating process, then clearly all types of organisations can participate in the entrepreneurial process. Entrepreneurship is not just about starting businesses and Stevenson (1999) goes further in stating that ‘entrepreneurship is a process by which individuals or organisations pursue opportunities without regard to the resources they control’. It is in essence a management process. The emphasis is not so much on what resources one has but on the opportunity itself.

There are clear differences between having an entrepreneurial focus and an organisation (or individual) having a more administrative focus. These differences will result in very different outcomes for the organisation. The way in which each views resources and opportunities is best demonstrated by figure 3-1 below.

A number of conceptual dimensions are treated in very different ways. The entrepreneurial mindset is geared up to achieve very different outcomes to the administrative manager. These dimensions relate to very different values and attitudes towards strategy, risk, rewards, opportunities, and resources.

Innovation

Innovation is perhaps the most crucial component linked to strategy as Hamel (2000) has argued, however innovation is not just a process of invention or creation but one of value actualisation. Innovation is considered as a necessary part of strategy in order to compete effectively in markets. There is a very strong relationship between innovation and entrepreneurship. The entrepreneurial approach often places great emphasis on innovation. Innovation however varies between incremental and ground breaking, radical innovation.

The latter is considered essential in order to create the most value, unfortunately this aspect of innovation is not often considered by policy makers. Innovation (radical) is a process which creates commercial value, and it involves the matching of new ideas to market needs (Hindle 2002), hence it is an act of commercialisation.

It goes beyond products to include processes and new business concepts. Furthermore it requires the entrepreneurial capability described above and it deserves a bigger focus in the Australian government’s innovation policy, “Backing Australia’s Ability”.

Innovation in this sense can never take place without its main protagonist, the educated entrepreneur. The conceptual dimensions of entrepreneurs discussed previously are attributes which make it possible to deal with the realities of this type of innovation.  Australia has some of the best R&D and science in the world, but that is of little consequence without the extra step to transform this knowledge into commercial and valuable outcomes. Innovation is the act of commercialisation performed by entrepreneurs.

In contrast, the US has a long history of bringing together all the elements required for commercialisation, clearly segmenting the process of innovation in terms of relationships between technical, market, and business steps. Identifying along the way the resources and people required along that process, primarily that of entrepreneurs dealing with the realities of commercialisation. Business development represents the strategy and structure of the innovation process.

Strategy

There are a number of conceptual models around strategy which are static. Strategy is anything but static, and in the space where innovation, commercialisation and opportunities exist, require a flexible strategy process that can change and adapt fast and is a natural fit. The intended strategy, as below demonstrates, is not always the realised strategy.

Fig 3-2 Emergent strategy process

Strategic management (David 2001) leads an organisation to formulate and implement decisions across functional units such as marketing, finance, operations, and R&D in order to meet its stated objectives in pursuit of its mission. This model begins with a mission and vision statement, and flows on to the development of long term objectives, developed after internal and external audits.

Before you begin, know your terrain.

Clearly if one was to begin a strategy process, one would take stock of their external environment and trends, evaluate own strengths and weaknesses (internal) to evaluate the best way to proceed forward. However this may not be sufficient for start-ups in the medical devices segment. For start-ups, David’s (2001) model is a starting point. The sequential process implied is anything but sequential nor is it typical in real life and start-ups are anything but typical (Mintzberg 2003).

There has been a significant shift in the way strategy is defined. Traditionally beginning with mission and vision statements and objectives, it has evolved into a more holistic approach, recognising that strategy is much more about people and the environment (however chaotic) and less about the accuracy of the compass needle fixed on a pre-selected course or destination. Mintzberg (2003) recognises David’s strategic management model as one of many definitions of strategy, and implies that strategy is a plan, a course of action and destination.

Strategy is not only a plan, but also may consist of:

  • A perspective; much in the way a company;s culture perceives the external world.
  • A position; where the company see themselves in that world.
  • A pattern; recognizing that strategies are not always planned or intended but may emerge.

You must have the ability to recognise patterns quickly and identify breaks in those patterns.

This last aspect of strategy is pertinent indeed as strategy is not always clear, nor is it followed to the letter by executives. Looking at patterns will reveal the true strategy behind the organisation. If one is to analyse and determine strategy where it matters most for highly innovative and emergent industries, one needs to enter the zone of complexity an area naturally avoided by administrators.

This is an area at the edge of chaos and uncertainty and it is an area where entrepreneurial and innovative firms are found. Complexity theory deals with open-ended environments, and the routine way of doing things largely become irrelevant. Here the role of strategic management is one of facilitation rather than control, thus allowing a process to emerge.

Complexity theory portrays a significant aspect of uncertainty or unpredictability. This has implications for strategy and management decisions. This drives the need for strategy to be emergent as discussed earlier and not set in stone. The road to success for many lies in as much experimental, trial and error as it does careful planning, standards, and guidelines.

This area of complexity is where one finds the highest turbulence, and one must be adept with the symbols and language in a highly turbulent world.

Depending on where one sits, it calls for a different style of management or leadership and a different set of decisions. The model implies that complex interactions between components of a system often screen or bury the connections between actions and long-term outcomes.

Organisations are complex adaptive systems and this model has much relevance in strategic planning, innovation and entrepreneurship. The long term development of some organisations may in fact be a self-organising process (hence emergent) calling for a learning culture rather than an administrative one.

Leaders in the zone of complexity often act as facilitators, empowering others, raising tough questions, allowing and exploring contradictions and promoting diversity. In most cases, organisations fall into the bottom left corner of the model in fig 3-3. This is an area where decisions are based on known facts, leaders are experts or represent authority and power vests in a few. Predictability is the preferred currency one may not always have, and direction is achieved by design.

Fig 3-3 Business strategy and emergence complexity

The forces of strategy

Strategies do not exist without strategists, and strategists do not just have an ability to see into the horizon. They have an ability to see different perspectives, and different patterns. They are not limited by any one view or frame of thinking, and thus the first force of strategy is cognition (Mintzberg 2003). Each of the six forces below has an impact on strategy, and if understood well can be put to work on one’s own strategy process.

  • Cognition

How people may think and perceive strategy is an important factor in the strategy process. If strategy is about doing something different (Hamel 2002) then one has to think outside the parameters of their organisation. Literally think outside the box and develop a way of framing, and reframing various perspectives to gain new insight (Bolman & Deal 1997). Individual cognition however is fraught with biases which can be positive and negative to any decision making process. A self administered SWOT (strengths, weaknesses, opportunities, threats) analysis may highlight the strengths and ignore one’s weaknesses. But allowing the cognitive process to take shape through metaphors and exploration will result in a richness of possibilities.

  • Organisation

The organisational structure is critical to the strategy of the organisation. Strategy may have to be designed according to the existing structure. Conversely, the structure may have to change to accommodate the new strategy. Part of the internal audit will be to focus on your strengths and weaknesses, and this will drive the strategy process. Mintzberg (2003) contends that there are many types of organisation structures, and that matching strategy to the type of structure is crucial, if that organisation is to support any strategy. Authors Bolman & Deal (1997) in Reframing organisations and Gareth Morgan (1996) in Images of Organisation eloquently demonstrate the importance of organisations and structure to strategy. These authors use the concept of metaphor in organisational analysis, useful in analysing your organisation. Bolman & Deal (1997) offer a four frame model consisting of structural, human resource, political, and symbolic. In each frame, metaphors come into play facilitating the analysis. These metaphors describe an organisation in terms of a factory or machine, a family, a jungle, or a theatre. Morgan (1996) in turn provides for an almost infinite way of looking at organisations, once again through metaphor an organisation is compared to machines, political systems, biological organisms, cultures. Viewing yourself or organisation through various metaphors, it was possible to appreciate a number of perspectives in which the you operate, the way your organisation is managed, and is seen by stakeholders. Analysis thus can go beyond the traps placed by the immediate evidence, to identify the membership or customer base as the ‘real’ organisationand not as merely paying customers as a traditional demand-supply model would imply, but more like shareholders of a company (Hanich, A 2004).

  • Technology

Advances in technology and the speed at which this occurs often contributes to new opportunities as it does to obsolescence. In any business arena technology has a part to play and has a direct impact on strategy. Technology can also change the way we do things and communicate.

  • Collaboration

Collaboration is an important aspect in the strategy process. Companies today clearly have to take on a collaborative strategy. This is a force at the forefront of some industries such as the biotechnology and medical device industries. Collaborative strategies may have several objectives for any one firm. It provides leverage, access to knowledge, links suppliers and customers, reduces the risk for radical initiatives and often it is used to reduce competitive pressures.

  • Globalisation

A myriad of drivers and parameters affect any global strategy. Many industries like Biotechnology have become a borderless phenomenon. Companies must look to global markets to reap any value out of their innovation process. A global strategy must be different to any domestic one. Assumptions may lead to the oversimplification and attempted replication of a business model abroad, resulting in failure. Given that a lot of companies see themselves as local, this aspect of strategy may not seem relevant. However it is an important aspect, as most economies are in one way or another a participant in an international ‘game’.

  • Values

Underlying a firm’s strategy are its values. Values are the drivers of human behaviour and there needs to be a degree of coherence between individuals’ values and that of the firm’s (Hanich, A 2004). Although values are not observable, behaviours are. An organisation’s behaviour depends on the type of leadership it has. Values, leadership, beliefs, and expectations are all linked into strategy. Operating values are therefore part of any strategy process.

Strategic tools

There are a number of strategic tools, methods, frameworks, and models available for strategic planning. A recent study by Curtin University (Frost 2003) revealed that most small and emerging organisations use a very small portion of tools available in their strategic planning.

Many firms recognise that a variety of tools are available, however most resort to the use of PEST, SWOT, and budgeting for most of their decision making. Given the changes in the way we do business and global markets, it is essential to understand the concept of strategy and the strategic process.

The purpose of using these tools is primarily to provide or present information through different perspectives or frames.  Tools are in effect instruments of communication, of complex issues affecting the organisation.

The absence of strategic planning and management will result in a short life span for any organisation.

In a regulated environment such as biotechnology and medical devices, Frost (2003) emphasizes that strategic planning is critical for a younger organisation. The cost of regulation can be prohibitive and strategic planning is an effective way for firms to compensate for these regulatory and compliance costs.

There are many reasons why small organisations do not fully utilise the range of tools and techniques available, which may include:

  • Focus on past events;
  • Lack of proper implementation;
  • Short-sightedness;
  • Human nature.

Failure in the past to implement the right tool in the right situation results in incorrect strategies. This in turn further fuels the false credence to the common statement “it’s been done before”.

Failure to recognise that techniques alone do not make strategy, further implementation is always required. The tools alone do not provide answers, but they are very useful in the process of getting the right answers. The tools essentially support the strategic management process (Frost 2003).

Strategy often fails due to poor implementation because the strategies devised are not completely understood by management or because management systems may be designed for operational and not strategic control. Strategy is long term and failure to recognise this, results in the development of solutions for the short-term. Most firms focus on cost containment, internal KPI and head count for a sound yearly profit. This often is at the expense of long-term returns, market-share and gains in intellectual capital. If strategy is measured in relation to a KPI which only reflect internal parameters or past performance only, then it will translate into a strategy that is internally driven, and will eventually result in an incomplete strategy.

Another factor contributing to the lack of tool usage is that managers are individuals and they often apply individual logic to problems in complex organisations (Bolman & Deal 1997).

Human nature, after all seeks out order and quick answers to problems, instead of focusing on exploration and idea generation. Managers tend to seek answers to problems from past experience and therefore may not be based on future trends or changes, and are therefore no longer relevant. It is interesting to note that according to Frost (2003) very little attention is focused on key success factors, the value chain, competitive position, market opportunity, and competitor analysis.

I hope this provides some readers with food for thought on the increasing complexity and turbulent world of business we are entering in 2020, and what it might take to stay in business longer than your competitors.

Principals and Principles

Back in 2002, I wrote a short paper on Entrepreneurship. I created quite a stir, when I got in front of an MBA class and began my presentation with the following statement: “ there are some things that cannot be taught in class and there is a mind-set in entrepreneurs which is decidedly different to managers, therefore to some extent, aspects of entrepreneurship are not easily transferred to a class of MBA students”.

Almost two decades on, I stand by what I said, and expand to discuss the Principles of entrepreneurship and the Principals as the main protagonists in a venture, supported by managers, brokers and sometimes intermediaries, but never replaced.

  1. The Principles:
  For Principals (Entrepreneurs) Driven by the opportunity
Multiple stage – end commitment
Risk is shared, accepts risk, but requires rapid growth
Based on value creation
Able to understand change
Unrestricted by resources or structure
Stakeholder management, better outcome for all Compensation is based on ‘Harvest’  
  For Managers (Administrators) Driven by resources under control
Single stage commitments
Seeks lower risk, higher certainty
Not based on value creation, but activity
Requires stability not changing environments Restricted by procedures, resources
Management of task, regardless of outcome Compensation is based on experience, seniority or tasks performed  
  For Intermediaries (Brokers) Driven by short term opportunity or gain
No commitment or due diligence required
All risk is transferred to project owner
Based on fee for service or introduction
No need to understand environment
Restricted in capacity to add value in real terms Management of introduction, not success of venture
Compensation philosophy is to ‘clip the ticket’ (and pass it on)  
  1. Principals are opportunity driven entrepreneurs:

The role of an entrepreneur has more to do with the mind-set of an individual and their attitudes towards uncertainty, risk and reward, as well as their ability to operate in open-ended environments of rapid change, chaos and creativity. In other words, entrepreneurship is defined as behavioral, and relates to how the individual (the Principal) behaves within their paradoxical environment.

The entrepreneur embarks on a venture, regardless of the resources at hand and makes things happen with the aim of ‘making the pie bigger’ for all stakeholders concerned. Entrepreneurs are Principals  that “own” a project in more ways than one, who negotiate and ride the ups and downs and are responsible for the outcome of that project, and who therefore have an overall schema of the project and the possible scenarios in their mind. Often the entrepreneur acts as an “Architect”  putting pieces together that add value and make sense. The reward is at the end, at harvest time, and it is an event where all stakeholders are rewarded for their part. In other words, compensation is always based on value creation.

  1. Managers are administrators working within agreed and set guidelines:

In contrast, Managers, do not operate in open-ended environments effectively, and need a sense of rules and consistency in the way they approach and manage  tasks. Their role is to manage a whole project or parts of a project with objectives which are apparently ‘static’.

Where the principal has a focus on the opportunity, the manager has a focus on administration, and often restricted by resources held or controlled. The manager is ill equipped to make decisive, direction changing actions which affect the outcome of a project. In terms of compensation, they are duly compensated for results delivered within the opportunity ( restricted by the resources at hand), but this compensation is always based on responsibility and seniority, and not based on value creation.

  1. Brokers and Intermediaries are neither opportunity driven entrepreneurs nor administrative focused managers:

Compensation is almost always short term, a fee for service, or ‘clipping the ticket’, it is not value creating in itself, and does not carry the responsibility of managers. The usefulness drops away after an introduction or door is opened to the success of the venture, and in some cases, where it is poorly structured, it is a potential drain on the business or project financed ( as would be the case in daisy-chain commission agreements where there is more than one introducing party).

Because the compensation is rather short term and is based on an ‘introduction’ and there is no value add to the project, then it carries little responsibility on a successful outcome. It certainly carries no due diligence on behalf of the client and any advisory role is possibly (in some cases) skewed towards the short term gain. This is especially evident if introducers do not discern between a good deal or a bad deal, and accept clients in any situation in order for a service or product to be sold, regardless of the client’s needs.

In conclusion, I admit that we have all acted one or more of the above roles, but it is useful to understand the limitations of each and know when each role is best applied.

We can all be intermediaries or brokers by providing an introduction between parties. Most of us can learn to be managers by following procedures and agreed tasks, but it takes a little more effort and understanding of what is at stake to be an entrepreneur, and therefore fewer can walk the path of Principals.

Strategy in Establishing a Unique School of Business

I was part of the team that strategized and conceptualized the opportunity and wrote the business and implementation plan to carry it out. I am proud that my contribution and strategic thinking with my colleagues made a difference to the Institut of Bandung, School of Business (Indonesia), and I will remember my colleagues with such fondness and great memories, and to have had a hand in CIEL – The Centre for Innovation, Entrepreneurship and Leadership.

This article was written by my colleague Karl Knapp, eleven years ago:

ITB’s School of Business and Management (SBM) is just over five years old.

In that relatively short period of time the school has grown from one program and nine full time faculty members,to four academic programs and thirty eight full time faculty members. In addition there are thirty part time lecturers, fifteen full time tutors and thirty five part time tutors. Student numbers have risen from 233 to close to approximately 1150 in the same time span.

SBM has a very active Center for Innovation, Entrepreneurship, and Leadership (CIEL). Fifty teaching cases about Indonesian businesses have been written by faculty and staff. The Jurnal Manajemen Teknologi (Indonesian Journal for the Science of Management), the MBA-ITB Business Review and The Asian Journal of Technology Management are published by SBM on a regular basis. SBM receives a great deal of respect in the community. It is undoubtedly the best business school in Indonesia and is on a path to become even better.

This is the story of SBM’s development, not without difficult times and disagreements, but with a remarkable amount of internal teamwork. Formation of the School of Business and Management (SBM) Discussions about creating a new faculty of management at ITB began at least as early as the 1980’s. In the early 1990’s Rector Wiranto Arismunandar formed a cross faculty committee to consider such an action, with no result.

The major obstacle was the feeling within the ITB community that there was no need to expand beyond the fields of engineering, science and the arts. Support for the idea came from the Faculty of Industrial Engineering (IE) which had developed some expertise in management fields. The election of Rector Kusmayanto Kadiman in 2001 changed the environment. He felt that ITB should have a management school and formed a team led by Dr. Mame Sutoko to develop a proposal.

This committee developed a plan to create a management school that was much the same as those at other universities. In the end their proposal was not accepted. Parallel to the formal committee an informal group within the IE organization developed an alternate approach. This group was primarily from the “Management Studio”1 which by 2002 was led by Dr. Jann Tjakraatmadja (Jann). In addition to full time faculty Dr. Kuntoro Mangkusubroto (Kuntoro), recently CEO of PLN2, and Dr. Surna Tjahja Djajadiningrat (“Naya”), then head of the Agency for Training and Education for the Department of Energy and Mineral Resources, were members of the group. Both gentlemen were officially members of the IE faculty.

The informal committee recognized that the major challenge was developing managers with good attitudes and skills in leadership, communications, and other “soft skills” rather than the conventional focus on functional expertise.

Kuntoro is considered as the leader in the development of SBM’s philosophy. Meetings were held weekly at the ITB campus in Bandung on Friday afternoons so that Kuntoro and Naya could come up from Jakarta. Although this group was not officially established by the Rector they informed him of their activity and convinced him that it was a serious effort to offer a counter proposal for a management faculty. In addition Budi Iskandar (Budi) from regional planning, who was a member of the formal committee, communicated with the informal group and the Rector.

Budi also tried, without luck, to insert some of their ideas into the formal committee proposal. In the end Budi joined the informal team, which included, in addition to those mentioned above, Arson Aliludin, Aurik Gustomo, Dr. Dermawan Wibisono, Nurhajati Ma’mun, Dr. Utomo Putro, and Dr. Sudarso Wiryono (Sudarso).

In order to test their ideas the informal committee organized a two day workshop in Jakarta with some 90 businessmen and academics from other universities participating. This even was held at the Hilton Hotel in early 2003 and was sponsored by businessman Bakti Luddin. One of the attendees, businessman Adi Warso challenged the committees approach in one respect. He pointed out that, in addition to soft skills, functional expertise was also needed in the real world. As a result functional studies were added to the planned undergraduate program.

The alternate proposal for the establishment of SBM was submitted to the Rector in May 2003. The following seven months were spent obtaining the approval of the ITB Board of Trustees and the Academic Senate. The Rector provided strong support and the Chairman of the Board of Trustees, Iskandar Alisjahbana, endorsed the plan.

After obtaining Academic Senate approval, the Rector signed a decree on 31 December 2003 establishing SBM as an autonomous organization within ITB. Specifically SBM was to have control of its human resources and finances. SBM organized a Governing Council of executives from industry with Kuntoro as Chairman. Naya was appointed Dean, Jann became Vice Dean of Academic Affairs and Budi became Vice Dean of Resources.

This structure has continued with the exception that Sudarso assumed the position of Vice Dean of Resources when Budi became Vice Dean of External Relations at the end of 2005. The first academic program was the in incorporation of an existing MBA program (see below) with the undergraduate program scheduled to begin in August. The following material, describing degree programs and other activities is arranged in approximate chronological order. Master of Business Administration (S2) Bandung The Indonesian government funded four state owned universities (IPB, ITB, UGM and UI) in 1990 to form Master of Management (Magister Manajemen or MM) programs. ITB as Indonesia’s premier technical university decided to focus on business and technology and established a MM-Teknologi (MM-T) degree program with an emphasis on entrepreneurship.

The program was initially led by Professor Mathias Aroef and based in the Graduate School. Most of the instructors were drawn from the IE faculty and the classes were delivered in the IE building. In 1996 the MM-T program was moved to the Faculty of Industrial Technology, and in 2000, after lobbying by Kuntoro, teaching was moved to its current location in the “Barrac” building on Jalan Gelap Nyawang on the southern border of the ITB campus. Jann was appointed Director in July 2003.

Jann instituted ITB’s first quality assurance program at ITB. It required that instructors agree to have their performance assessed. Most of the instructors in IE declined to sign up for the new faculty and the relatively young group based at the Management Studio became the core of the new SBM faculty. The formation of SBM included moving the MM-T program under its control. The degree program was rebranded as MBA3 ITB and redesigned with three elective streams focusing on entrepreneurship, finance and marketing respectively.

The teaching method was changed to the case method and the official language of instruction was changed to English. The program consists of 10 core courses, 3 electives and a final research project. Instruction is provided by the full time SBM faculty and a number of part time faculty from industry. Jann went on the Hajj to Mecca in 2004 and Dr. Dwi Larso was appointed acting Director of the MBA program. He was subsequently appointed Director in March of 2005.

In mid 2005 MBAITB increased its student intake significantly and received the highest BAN (Indonesian government) accreditation in the nation. When Dwi moved to lead CIEL (see below) in early 2006, Dr. Dermawan Wibisono succeeded him as Director. Recently the MBA elective streams were expanded to six concentrations.

They are: • Operations Management • People and Knowledge Management • Business Risk and Finance • Business Strategic Marketing • Management of Innovation and Technology • Entrepreneurship;

Continuing an earlier pattern, two programs, using the same content, are offered; the Regular MBA program for those with little work experience is delivered full time on weekdays, and the Executive MBA program for those with three years or more of experience is delivered on Friday nights and all day Saturday. Typically the Regular students complete the degree requirements in less than two years and the Executive students in 30 months. There are two intakes a year which usually comprise two regular classes of about 30 students each and one EMBA class of the same size.

The number of students in each class is limited by the relatively small classrooms available in the Barrac building. The MBA student population has grown from 233 students in early 2004 to 575 students in early 2009, including Bandung and in-house programs.

In-house programs SBM also delivers the MBA program at industry locations. With one exception, in Jababeka, the customer is a company that selects specific electives and provides teaching facilities. SBM instructors arrive on 2 or 3 day weekends to deliver the courses. The company employee students must satisfy the same MBA ITB entrance requirements as the Bandung students. The MBA program delivered to four classes in Jababeka at the President University campus. Although classified as an in-house program by MBA ITB it was really a second campus for the Bandung program and was managed by Arson and Sudarso.

The first idea was to offer the EMBA program and recruit students from the 1200 companies located in the industrial park. Two intakes were accepted in Sep 2004 and Jul 2005 with a total of 37 students. Most Indonesian MBA programs, such as the Regular program in Bandung, accept fresh graduates with little or no work experience. Internationally this is not considered desirable as it is believed that MBA students need two or three years of management experience for the learning to be effective.

Naya, after reading Professor Henry Minzberg’s book, Managers not MBAs, realized that a fresh graduate MBA program might be effective if it was combined with work experience.

So, an experimental program was established, where students would work as apprentices for companies in the industrial park and take MBA courses after work and on Saturdays. Two intakes, in Sep 2004 and Jul 2005, were accepted with a total of 46 students. The program was then terminated because the results were not satisfactory.

Students were frustrated because their work assignments were not aligned with their academic interests. Instructors were frustrated because the students came to class late and tired. There were also logistical problems, and the teaching facilities were not appropriate for an MBA program. The idea appears to have merit, but to work effectively it would require aggressive management of the relationships with participating employers.

Jakarta EMBA SBM also delivers EMBA programs in Jakarta. These programs, that were started in partnership with the Sampoerna Foundation, are described further below. EMBA in Sharia Banking and Finance SBM’s newest MBA program is expected to begin in August 2009. The program will be delivered by a partnership between SBM-ITB and the ICDIF (International Centre for Development ) at their LPPI6 campus in Kemang. Bachelor of Management (S1) The ten person SBM committee had a number of challenges when SBM began operation in January 2004.

These included: • Designing the detailed curriculum for the undergraduate (S1) program ;• Recruiting students for both the ongoing MBA program and the new under graduate program which was scheduled to begin in August 2004; • Planning and initiating the renovation of the SBM building to provide an auditorium, tutorial and computer rooms, and offices for faculty and administration staff; • Teaching the MBA students;

The committee’s first step in designing the undergraduate program was to benchmark other programs by visiting other business schools in Indonesia and Singapore. Simultaneously overseas programs were researched using the internet.

The resulting curriculum includes a number of innovations and adaptations:

• Community Service – Undergraduates participate in several activities that involve social responsibility including a three day field trip to survey problems in a small village, using profits from the Integrated Business Experience (below) to fund a community project, and participating in Satoe Indonesia;

• ODISSEY (Opera and Drama Inspired by SBM for Charity) – In the first year of the program groups of students, following courses in communication and performance skills, gain practical management experience by designing, organizing, and performing an on stage event. Students are responsible for all aspects of the performance including scripts, rehearsals, publicity, budgeting, logistics, and staffing.

• Integrative Business Experience (IBE) – In the second year of the undergraduate program students establish and operate a business over a period of two semesters.

Professor Larry Michaelsen, from Central Missouri State University, an originator of the IBE concept, visited SBM twice to assist with the design and startup of this course. IBE was given an award by SWA magazine in 2006. Anthropology Professor Bill Watson (Bill) from the University of Kent assisted the team with the curriculum design. Bill is married to an Indonesian woman from Bandung and later spent two semesters at SBM as an instructor.

A special option called entrepreneur-track (e-track) was added in 2008. Students who select this option spend an extra (fourth) year in an enhancement of the IBE program to further develop their entrepreneurial skills. Dr. Utomo Putro was appointed Director of the program in early 2004. Dr. Mursyid Basri replaced him in January 2008.

The maximum class size was originally limited to 135, the number of seats in the auditorium. By the beginning of 2009 the number of seats had been increased to 180.

Expatriate Instructors All of the full time faculty members at SBM are Indonesians, with one exception. Dr. Karl Knapp (Karl), an American-Australian joined SBM in August of 2004. Other expatriate instructors, have visited SBM, typically for one semester.:

Expatriate Instructors Professor Larry Michaelsen Central Missouri State Univ. IBE Fulbright Scholar Professor Bill Watson University of Kent Anthropology sabbatical Assoc. Prof. Karl Knapp Univ. of South Australia Operations Strategy Senior Advisor Professor Richard Moore Calif. State Northridge Organizational Behavior Fulbright Scholar Professor Roger Just University of Kent Anthropology sabbatical Professor Nawaz Sharif John Hopkins University Innovation Management Fulbright Scholar Assoc. Prof. Mark Harrison Daniel Webster College Business Economics Fulbright Scholar SBM and the Sampoerna Foundation Building a partnership Following the formation of SBM in 2004 efforts were made to obtain donations for a new building.

This included a major mid-year launch event in Jakarta. Among others approached was the Sampoerna tobacco company. They replied by forwarding the request to the family owned Sampoerna Foundation (SF). SBM subsequently made a direct approach to the foundation without immediate success. In March of 2005 the Sampoerna family sold their shares in the tobacco company to Philip Morris, who previously had acquired 40% of the shares, for several billion dollars. Putra Sampoerna then donated a portion of this money to the foundation. Subsequently the SF invited SBM-ITB and six other government owned universities to submit proposals for financial funding to improve their business schools. SF contracted Insead Professor Philippe Lasserre to review the proposals. Professor Lasserre and Eddy Henry, SF Program Director, visited Bandung for discussions with SBM. Subsequently SBM submitted a revised, winning proposal.

There was a great deal of optimism at this time with the expectation that SF would be providing about three million dollars per year of support for at least ten years. However, Dean Naya was soon involved in a very complicated three way negotiation. Rector Kadiman, at this point, had accepted the position of Technology Minister in the newly elected government. Professor Djoko Santoso was elected to fill the Rector post.

Some members of the ITB faculty in other schools were apparently jealous of SBM’s semi autonomous status. Several felt that SBM was being selfish in accepting support from SF and that the money should come to ITB as a whole. Others objected to taking money from a foundation that had been primarily supported by the tobacco industry.

The Rector was presumably under a great deal of pressure from these dissidents. SF on the other hand wanted the funding to be used entirely to support improvements in SBM. It had been mutually agreed at this point that SBM would open a new SF supported campus in Jakarta and SF wanted it to bear the Sampoerna name.

Dean Naya negotiated with in a persistent softly, softly style with both ITB and SF. In August of 2005 SBM and SF signed a memorandum of understanding while they worked towards a more formal agreement. Naya suggested to SF, that rather than cash, support could be provided to SBM as in-kind contributions. This diffused certain problems and resulted in informal, rather than formal, partnership.

The Rector opposed this approach and wanted the financial support to be donated to ITB. SF agreed to support specific activities subject to approval of their Board of Directors. Institutional Development Program (IDP) SF funded a planning activity by hiring an Australian consultant, with considerable experience running EMBA programs, who had been recommended by Naya.

In January of 2006 Lambros Karavis (Lambros) arrived in Jakarta to lead a four person planning team. Lambros, Paul Bitetto, an Australia associate of Lambros, Karl Knapp, and Dr. Sutanto Hardjolukito (Tanto), an associate of Naya, camped out in Jakarta for a three month planning activity.

The major activities of the IDP planning team included: • Benchmarking graduate business programs internationally; • Surveying potential participants using an online questionnaire (Business Week and SWA readers), focus groups and company visits; • Designing distinctive EMBA programs for the Indonesian market (blue ocean strategy); • Developing long term schedules for the new Jakarta campus to determine facility requirements; • Designing an outReach program that would benefit other Indonesian business schools; • Assisting the architect with the design of the new SF based facility.

A certain amount of friction developed between the lead consultant and the SF management. There was a significant difference in culture between SF’s top down bureaucracy and the “we can achieve anything” approach of three westerners in the IDP team.

The final output of the IDP was a 77 page business plan titled “SBM ITB (Jakarta –Bandung) The Entrepreneurial University”.

Highlights of its content included: • BLEMBA – The Business Leadership EMBA scheduled to meet just once every four weeks in Jakarta, with week long sessions at the beginning, middle and end of the program and three day weekends in between. The concept was give participants from all parts of Indonesia and nearby countries the opportunity to fly in and take part; • GLEMBA – The Global Leadership EMBA designed with seven two week long modular sessions that would be held three months. Two of the modules were to be delivered overseas; • IBCC – The Indonesian Business Case Center was designed to become the primary source of Indonesian teaching cases in collaboration with Ivey and others; • BFDP – The Business Faculty Development Program was designed to develop faculty for SBM and other business schools as part of the outReach program; • CIEL – The Center for Innovation, Entrepreneurship, and Leadership is described below; • CCE – Consultancy and Continuing Education. CCE was originally described as Executive Development Programs; • The final report also included plans for marketing, research, organization, and curriculum development.

A preliminary schedule and budget was also included. After the report was delivered SF took steps to ensure that the lead consultant would no longer be involved in the program and that Karl would not be based in Jakarta.

Implementation: A new team, including Tanto, was hired in April- May 2006 to implement the program in Jakarta. In addition those in charge of the program changed the BLEMBA schedule so that it would convene on long weekends every other week.

The original “blue ocean” strategy was lost and there was little to distinguish the program from other offerings in Jakarta. Unfortunately the preliminary marketing efforts (company visits) of the IDP team were stopped for six months while brochures were prepared.

The first BLEMBA intake occurred in February 2007. Two other programs for the energy and telecommunications industries were designed with the assistance of other faculties. The student numbers were disappointing. The main problems seemed to be the negative aspect of having Sampoerna in the name combined with ineffective marketing. SF had indicated they would run a program to inform the public that they were not part of the tobacco company, but they never did so.

Even though the EMBA programs charged participants 100 million rupiah each for the program, SBM ended up having to subsidize the program out the Bandung budget. SF initially indicated that they wanted the program to benefit other Indonesian business schools, but they did not fund the outReach program which had been designed for this purpose. It had

The global financial crises that started in 2008 threatened to decrease donations to SF. They indicated that they would terminate their support for the Jakarta operation.

SBM moved the program to a facility at Komplex Bidakara, a few kilometers to the southeast in the middle of 2008. Sampoerna has been removed from the name. SBM’s Relations with ITB The change of Rectors in 2005 began a long period of struggle between SBM and ITB. Although Rector Santoso had been head of the Academic Senate at the time SBM’s plan was approved he probably did not agree with SBM being autonomous within ITB. In contrast SBM’s faculty felt very strongly that they had the right to this status.

The main issues were, and are, financial budgets and human resource management. According to the original decree SBM would have full control of 80% of their student tuitions. ITB management insisted that SBM should follow the same ITB rules as the other faculties and accept whatever budget ITB determine to be appropriate. SBM had hired a large staff, including new faculty, who were not ITB employees.

In addition SBM charges higher tuitions and pays better salaries than other faculties. The issue peaked in late 2006 and most of 2007 when a large amount of Naya’s time was occupied with negotiations with the Rector, Board of Trustees, and others. At times SBM salaries were being paid late due to lack of cooperation by ITB. The end result is that SBM is not treated as an autonomous organization and in the last several years the budget has been limited by the Vice Rector for Planning to 65 to 75% of the tuition collected from students.

However ITB has passed on DIPA (Department of Education) funding for scholarships, computers, and faculty travel to foreign universities. The relationship between Dean Naya and the Rector is good, but the Vice Rectors view SBM as just another faculty that must follow ITB regulations. Even though SBM does not have the independence originally promised it still largely controls its own affairs. SBM still charges higher tuitions than other ITB faculties and pays better salaries to staff and faculty. The non academic staff became ITB employees in January 2008.

Currently only fifteen of the faculty are official ITB employees, but the majority of the others will be transferred to ITB in 2009. Salaries continue to come from the SBM budget. Master of Science in Management (MSM) In the first half of 2006 SBM’s proposal to offer an MSM degree program was approved by the Academic Senate. This research based degree is intended to be a feeder into a doctoral program. Dr. Gatot Yudoko was appointed Director.

Once a year in June, an intake of students is conditionally accepted. Students without previous management education must pass five preliminary courses in people management, operations management, marketing management, financial management, and statistics for business and management.

These courses are delivered in a two month period and a significant number of students do not pass. About one third of the entering candidates drop out for this, or personal, reasons. The surviving student numbers for the first three years of the program are 20, 24, and 21 respectively. The program begins in August and requires three semesters for completion.

The MSM program was originally designed with expectation that some of the graduates would continue into the DSM program (below). Although the DSM program is very new, none of the students in the first intake is an MSM graduate. The graduates say that they would prefer to gain work experience before considering a doctoral program. In many cases they need to earn, and save money, to be able afford continued studies.

Doctor of Science in Management (DSM) SBM’s DSM program was approved by the Academic Senate and Rector in late 2008. At that time 21 applications had been received8. Six highly qualified applicants were accepted and began their studies in January 2009.

Normally applications will be accepted once a year in July and the program will start in August. Dr. Deddy Koesrindartoto is Acting Director of the DSM program. Center for Innovation, Entrepreneurship, and Leadership (CIEL) CIEL was established in early 2006 with Dwi Larso as Director.

The activities of the center include education, research, publications, service, venture development and technology commercialization. Services include consultancy and training, community development and venture initiation programs. Interest Groups, Education and Research ITB has established a tradition of managing academic human resources into interest groups, whose members share common interests.

Formally each faculty has two such groups. However, because of the broad number of subjects delivered at SBM, they have created six sub groups which include: • Operations Management; • People and Knowledge Management; • Business Risk and Finance; • Business Strategy and Marketing; • Entrepreneurship and Technology Management; • Decision Making and Strategic Negotiation.

Each of these groups has several responsibilities related to their field of interest: • Creating and Applying Knowledge – including research, publishing papers, writing case studies, holding conferences, creating and managing related budgets; • Managing Study Programs – including the development of course materials, hiring and assignment of instructors and tutors, and course delivery; • Solving Community Problems – including problems in business, government and the general community Conferences, Workshops and Seminars SBM frequently holds Saturday morning seminars with guest speakers as part of its educational programs. Faculty workshops are held to discuss curriculum and train faculty in case method teaching and writing. Periodically they hold larger events lasting from a full day to a week.

Leadership at SBM Leadership within any academic organization is always a complex subject. Universities typically have a hierarchical structure based on the medieval church combined with a quasi-democratic participation of the faculty. ITB and SBM fit into this pattern, modified in SBM by a cooperative internal culture. Chairman Kontoro, who chairs the Governing Council, is considered to represent the spirit of SBM.

Although consulted in times of crises, he is rarely involved in the normal management of the organization. Dean Naya has led the implementation of SBM’s development over the past five years. He believes in a equalitarian organization and has sought consensus within the faculty. During the first few years he held weekly faculty meetings where information was exchanged and issues were discussed. There were a few communication problems, with some faculty feeling that he did not understand their opinions.

The process was largely informal. Minutes were not always recorded and follow-up was inconsistent. As the faculty has grown meetings are used to pass information, with little discussion of issues. Decisions are made at a more executive level, involving the Vice Deans and a few others. The Dean has always felt that too many problems come back to him.

Other faculty members comment that mandates are often not clear and that there has not been a consistent method to obtain financial and staff resources. Naya is liked and respected by the faculty and nobody is critical of his leadership behind his back. However, he has had to personally deal with some of the larger challenges facing SBM, including negotiations with the Sampoerna Foundation and the Rector. Some faculty members have indicated their disagreement to Naya about the perceived loss of SBM’s autonomy.

In this respect the prior Rector probably created unrealistic expectations. Program Directors Directors of the various academic programs and CIEL operate quite independently with dedicated support staff. All related issues involving curriculum, teaching method, et cetera are discussed at weekly meetings of the Academic Committee.

This committee consists of the Vice Dean, the chairmen of each Interest Group, and the academic program Directors Administrator SBM is administered under the direction of the Vice Dean Resources by a School Administration Section Head who is responsible for four departments: • Finance; • Human Resources; • Facilities (General Affairs); • Planning and IT.

These departments have a total of 26 employees. Dean Naya plans to step down in September and a new rector will be selected by the beginning of 2010. SBM faculty will vote between three dean candidates and the results will be forwarded to the Rector, who will make the final selection. Challenges and Opportunities Culture: SBM was created by a tight knit team of ten faculty members who shared a common set of values. SBM’s success is largely due to their ability to work together towards common goals. Expansion of the faculty has brought in a number of people who do not necessarily understand or share those values.

Future success may depend upon refocusing a larger organization so that it is capable of working together effectively. One aspect of SBM’s culture that differentiates it from other faculties is that full time instructors are expected to work exclusively for SBM. So as consulting and other activities expand they must do so as SBM projects. Facilities: SBM currently occupies two buildings at the extreme ends of the ITB campus. A donation from Pertamina will pay for the refurbishment of a third building next to the northern SBM building. This will allow a modest expansion of the undergraduate program. The MBA program is severely constrained by the small classrooms in the Barrac building and the case method delivery is compromised by the lack of appropriate theatre style classrooms. Further growth of SBM will require a stand alone campus located near ITB.

The Bandung MBA program, in particular, needs an appropriate facility. However there is some resistance to leaving the famous Jalan Ganesha location. Relations with ITB: There remain unresolved issues in this area. At this time the majority of the faculty have yet to become official ITB employees.

The decree issued by Rector Kadiman was apparently meant to establish SBM as a pilot example of how a university might operate more independently of central control, but this has not happened under Rector Santosa. Quality: SBM faces serious competition, especially from private schools in Jakarta, and it is essential that continual efforts are made to improve quality in all aspects of the school’s operation. In particular, other MBA schools have amphitheatre rooms designed for the case method.

Pursuing international accreditation by EQUIS or AACSB is one way to drive improvements. Research: ITB and SBM are trying to become strong research organizations. However, only about one third of the SBM faculty are productive researchers (measured by the number of their publications). Nine faculty members have significant administrative responsibilities in addition to their teaching load. Practice: SBM needs to be relevant to the Indonesian business community. So, in addition to research there is a continuing effort to develop expertise in business practice through consultancy and writing teaching cases.

Supporting Systems: SBM needs to make significant improvements in the systems used to operate the school. Faculty Development: Faculty members need to have sufficient time to develop themselves as researchers, teachers and contributors to community development. Some instructors have big administrative assignments and others are teaching too many units.

Income: In order to fund the above activities SBM needs to develop income streams from sources other than tuition. This might be done by increasing consultancies or creating and endowment fund. Jakarta EMBA: The program in Jakarta is a strategic effort which has been successful in attracting very high quality students. The marketing must be improved so that the class sizes are large enough to be profitable and end the financial drain on SBM.

In Conclusion: The SBM organization, under a new dean, needs to rise to meet the challenges and opportunities mentioned above. The biggest potential threats to SBM’s future are complacency and internal dissent. The biggest challenge is to improve the existing culture so that the original enthusiasm and sense of shared values of the faculty and supporting staff is restored.

Revenue Based Financing

More numerous alternatives for financing a company exist than ever before. The cost of money varies considerably, and therefore, when considering which financial options are available to a company, it is important to compare Venture Capital to more flexible approaches better aligned to cash flow and growth dynamics.

The function of equity financing is to fill the non-bankable gaps and to lower the risk of loan defaults. A balance between Equity and Debt is a long standing measure for management, and the entrepreneur faces tough decisions on how much equity ( and control) to give away in order to access funds to create significant value.

By the time a company goes public, the founder may have given away as much as 80% of their equity, and for companies that do not achieve the magic “10x” valuation Venture Capitalists seek, this spells trouble for the founder.

A Revenue Based Finance approach potentially bypasses some of these issues, and it is an innovation that not only provides a company with cash, but in effect buys time for it to grow in sales prior to any valuation or change of ownership event.

In 1946, Ralph E. Flanders founded the American Research and Development Corporation, the first Venture Capital (VC) firm. The VC industry peaked in 2000 and began its demise in 2001, subjected to several “bubbles” which worked on the premise of 10x valuation models, and a myriad of ratchet and claw-back clauses designed to punish the founders for lower than expected performance by issuing greater ownership to the VC ( this in turn is catastrophic to the VC, after all, what is the point of owning 95% of a business, when the entrepreneurial team is chastised, and the VC does not know how to run the business!).

The VC process remains the to this day the same game of founders giving away a large chunk of equity in exchange for cash to grow their business, and there is the real need for innovation in the sector for a more sustainable and workable solution.

The Revenue Based Finance Model is the key, and whilst it has applications in start-ups as suggested above, the model works well with other stages of growth and sizes of companies. In fact, even ring-fenced project finance situations could employ the approach to replace Debt or to spread the risk even further.

Revenue Based Financing is an exciting alternative to traditional equity venture capital investing. It provides superior risk-adjusted returns, has tremendous repayment flexibility and features a built-in exit strategy.

Revenue Based Financing can serve a wide range of businesses previously ignored by more traditional funding sources. The typical Revenue Based Financing investor is looking for industry-leading businesses with an existing annual revenue stream, or a revenue stream that will be activated with a new capital infusion. These companies should have substantial gross profit margins, sufficient to pay royalties. Qualified companies will also demonstrate the potential for rapid profitable growth through the addition of new capital and ongoing management assistance.

Some of the ways in which these companies will use Revenue Based Financing include:

  • Expansion from regional to national/international marketing/sales strategy or new product roll out
  • Acquisition finance for a roll-up strategy in a fragmented market
  • Equity substitute for a management led leveraged buyout
  • Equity substitute for intra-family generation ownership transfer
  • Buyouts of stranded venture capital equity investments with conversion to Revenue Based Financing investment mode.

Variations to Revenue Based Finance may also include in-kind investment, such as coders and programmers working in a start-up project, or in a more traditional Project Finance setting.

Cooperatives also benefit from this approach to financing, but that can be discussed another time.

Non Executive Directors and Chairman

Many of our members at AFIG, at one stage or another have served either as a Chairman or as a Non-Executive Directors on publicly listed Boards. Our experience as investors and mentors in start-ups and in the due diligence process also gives us some insight on what those roles should be about.

There are a number of Corporate Governance guidelines and look at a number of jurisdictions such as UK, Germany and the Australia to glean insight and guidance for such roles.

In our experience, the composition of an efficient and responsible board should include a balance of executives and non-executives, from a variety of industry sectors which may include psychology, arts, science, education (outside the company’s business), have equal representation of genders, and always be an odd number. The Chief Executive Officer should never be a chairman. On the other hand, non-executives are there not for the business necessarily, but to guide the executives and maintain an independent role on behalf of all the shareholders. We believe a company should have at least two or three independent roles, and much of the committee work (compensation, audit, risk, social responsibility) should be chaired by independents.

Although non-executive directors are not involved in the daily business activities, they are still responsible for the business and have the same obligations, duties and responsibilities as the executives. For this reason, the non-executive directors have to be across all the company’s strategy, decisions and directions.

So, what are the functions of Non-Executive Directors

Non-executive directors are expected to focus on board matters and provide an independent view of the company that is generally removed from the day-to-day running. A non-executive director can therefore bring:

  • independence;
  • impartiality;
  • wide experience;
  • specialist knowledge;
  • leadership and EQ qualities; and
  • valuable contacts

Non-Executive Directors can also assist by providing strategic, innovative and entrepreneurial leadership of the company. They help set the company’s values and standards and ensure that its obligations to its shareholders and others are understood and met.

Non-Executive Directors should be used to provide general counsel and a different perspective on matters of concern. They should also seek their guidance on particular issues before they are raised at board meetings.

Some of the key responsibilities of Non-Executive Directors may revolve around the following:

  • Strategic direction
  • Monitoring performance
  • Remuneration
  • Communication
  • Risk
  • Audit
  • General governance

Strategic direction

A non-executive director will have a different perspective to executives. They may have a clearer or wider view of external factors affecting the company and its business environment. In strategy formation they can provide a creative and informed contribution and to act as a constructive critic in looking at the objectives and plans devised by the chief executive and the executive team.

Monitoring performance

Non-executive directors should take responsibility for monitoring the performance of executive management, especially with regard to the progress made towards achieving the determined company strategy and objectives. They have a prime role in appointing, and where necessary removing, executive directors and in succession planning.

Remuneration

Non-executive directors are also responsible for determining appropriate levels of remuneration of executive directors. In large companies this is carried out by a remuneration committee, the objective of which is to ensure there is an independent process for setting the remuneration of executive directors.

Communication

Non-Executive Directors can help connect the business and board with networks of potentially useful people and organisations. In some cases, non-executive directors may represent the company externally.

Risk

Non-Executive Directors should satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust and defensible, and also ensure that proper risk analysis and mitigation plans are in place.

Audit

It is the duty of the whole board to ensure that the company accounts properly to its shareholders by presenting a true and fair reflection of its actions and financial performance and that the necessary internal control systems are put into place and monitored regularly and rigorously. A non-executive director can be responsible for instigating and leading a number of committees which may include an audit committee. Non-executive directors typically sit on the main board and have responsibility on the board sub-committees (e.g. Audit Committee, Risk Committee, Nomination Committee, Remuneration Committee, etc.).

The role of non-executive directors is broad. Non-executive directors are not employed by the company but appointed through a letter of appointment. However, they always act on the interests of stakeholders which include shareholders, employees, pensioners, funds, suppliers etc.

More importantly, they mentor, challenge and question in creative ways to increase performance and ensure standards are adhered to.

Free Trade Zone and Bonded Warehouse Technology

In cross border trade, and in our particular case (http://logistics.afig.io) , trade between Australia and China, the Free Trade Zone and Customs Bonded Warehousing play a very important role. The process of transferring goods from Producer, Manufacturer, Exporter, Importer, Wholesaler and end markets is a complex one with many challenges, some of which relate to Security, Compliance and Documentation, Visibility and naturally, Fraud.

  1. Cargo needs to be secure during transportation and storage;
  2. The need for accurate documentation subject to audits from customs authorities;
  3. Visibility of cargo during transfers, transit and storage;
  4. Avoiding possibility of fraud and ensuring trust between all parties involved in handling the shipment.

Technologies in Artificial Intelligence (AI), Internet of Things (IoT), and Blockchain or similar can now be put to use in the Logistics Sector.

AI helps identify potential scheduling efficiencies, IoT helps in maintaining control and visibility of shipments, as well as collect valuable management data, and blockchain can combine all the inputs from these technologies and applications to create a secure process nobody can tamper with.

Combined with other technologies in the IoT and Cloud segment, the logistics business can operate across borders and into domestic markets in a very fast, secure and efficient manner, boosting trade between parties. Combined with Blockchain in particular, the following challenges can be addressed:

  • Mitigating the risk of Fraud: Blockchain (and Holochain) are decentralised by nature and requires a network of nodes and computers to approve or authorise a transaction. Therefore, it is impossible for one individual or a party colluding to override controls and change or delete records. The possibility of issuing fake documentation is nil, as all documents are validated and verified by parties within the network system.
  • Improving Compliance: Regulations, customs requirements, and logistics and transport documentation is a simple process connecting IT systems and parties. All transactions such as inspection, storage, in/out-bonding are visible in real time, accessible to all parties concerned. All transactions are governed by “smart contracts” used to effect payments on time. Recording of all actions and outputs happen in the blockchain systems which makes it immutable and enduring.
  • Better Reconciliation: Due to the visibility and consensus, reconciliation is straightforward, reducing any issues among parties and can include any level of data including charges levied, service level agreements, billing etc.
  • Security is Enhanced: All aspects of security can be managed with blockchain, including ID management, access control, securing goods in storage, tracking (with IoT), and reporting of movement and tampering.
  • Last but not least, it makes for a seamless, and yet enhanced customer experience, in some cases duty is pre-paid, and customer clearance is pre-empted before the arrival of the shipment.

All in all, the use of these emerging technologies will improve performance and security in the sector.

AFIG is working on a number of solutions under its AI Hub approach aimed at a number of industries, which include the logistics sector, however, in addition to the AI component, we are also interested in the human interface which makes up Consciousness ( a missing element in AI), or more to the point Artificial Consciousness (AC).

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