Michael Porter in Nairobi – Part 3: Time for business to lead

Jun 29, 2007 Business Daily, Strategy

Sunny Bindra, Executive Fellow at Strathmore Business School, concludes his special three-part series on the ideas of Michael Porter. This final article looks at the professor’s prescription: a new collaborative approach for Kenya.

Michael Porter came, spoke and left. So what did he leave behind? I believe he left us with the intellectual framework that could underpin Kenya’s drive to advanced economy status.

Professor Porter puts business competitiveness at the heart of economic development. For him, well-functioning, sophisticated businesses are the beating heart of the economy. Without a healthy, competitive and innovative business sector, there is no hope. Statistics bear him out: he showed a figure plotting countries’ ranking on the Business Competitive Index (BCI) against GDP per capita. 80% of the variation in GDP per capita is explained by the variation in BCI. In other words, if your businesses are not competitive, your standard of living will reflect that inadequacy. Kenya’s current position on the chart (bottom left corner) should be of no surprise to anyone.

This in itself tells us the way forward. No effort must be spared to develop the business environment and improve the ease of doing business. Whose job is that? Before we all jump to our feet to shout “government!” let’s stop to think for a minute. Professor Porter threw down a challenge to the Kenya government, without doubt; but he also threw the same challenge to the private sector, to the corporate leader, to the entrepreneur, to the individual who wishes to see a better Kenya in his or her lifetime.

Modern thinking around economic development focuses on collaboration, not confrontation between the private and public sectors. This collaboration involves government, business leaders and teaching and research institutions as the key players. The most successful countries are the ones where this collaboration is most advanced. Professor Porter’s own history demonstrates the power of collaboration in his home country, where he is a respected academic, a businessperson and an advisor to government, moving effortlessly through these roles. In the USA, the holders of knowledge, the makers of policy and the creators of business models sit around the same table to set the national agenda.

In this sense, business must not only have several seats at Kenya’s top table, it must be setting the agenda. Think about it: if the quality of the business environment is at the heart of development, who should be coming up with the ideas, the initiatives, the plan of action? Politicians and technocrats, who know very little about the actual workings of the business world? Or the leaders of business, who are at the heart of wealth creation in the economy?

Politicians’ ideas flow from political expediency. Their knowledge base centres on population counts, constituency size and voting patterns. They are almost never equipped to understand business processes and business ecosystems. So why do we put them in charge of national development? Michael Porter asserted that private-sector leaders in developing countries are often guilty of a major sin of omission: the sin of sitting back. We sit back and wait for government to do what’s needed. We sit back and grumble about how politicians don’t get it. We know that inept leaders have every incentive to keep their people ignorant and voting like cattle. But we sit back and wait for messiahs to appear to drive the process.

A more proactive corporate sector is needed, one that acts in its own interest and does not shy away from collective action. What sort of action? The positive type. The professor asked: which problems can you solve yourself? If your industry is short of trained people, why do you wait for a government initiative to build an institute? Business associations can build alliances with universities and training institutions to solve this problem. If government is not doing enough to promote exports in your sector, is the answer to lead delegations to State House? Or to work across the industry to gather the funds and expertise needed to embark on marketing and awareness campaigns?

That is how development in Kenya might actually happen: a bottom-up process in which individuals, companies, clusters and institutions take responsibility and undertake initiatives. Government must, of course, retain a central role. It must maintain stability in the economy and in the legal and social framework. It must set the rules and incentives that govern the economy. It must upgrade the institutions of governance. And it must engage the multiple levels of government in agenda item number 1: economic development.

But that’s all it must do! Everything else is done by other players. This is not a recipe, incidentally, for rapacious private-sector dominance that ignores the social side of development. Quite the opposite. Michael Porter emphasised the intertwined nature of economic and social development. New thinking suggests that there is no conflict between the two; there is actually a long-term synergy. The competitiveness of companies cannot be divorced from rising skill levels, safe working conditions, or equal opportunity; these things all strengthen business rather than weaken it.

Which tells us that our businesses also need to grow up. Too many of us are stuck in the cages of the past where labour exists to be exploited, and where short-term gain rules over long-term vision. In another chart in his presentation, Porter showed the common strategy mistakes made by many African companies. Quick opportunism rules over longer-term building of competitive advantage. Uniqueness is sacrificed at the altar of imitation. Low-wage, low-quality, low-price models dominate over true value addition. The horizon of ambition is local rather than regional or international. And we can’t rid ourselves of the disease of engaging in multiple, unrelated business lines, can we? We must own a small hotel, a cement distributorship, an insurance brokerage and a driving school in order to be a ‘someone’.

Is it any wonder we don’t build long-term, distinctive business entities, when we spread our efforts so thinly over so many activities? We are fond of laying every failure at the feet of government. Yet you can’t transform an economy without increasing the levels of sophistication and maturity of the businesses at its heart.

Michael Porter closed his Strathmore address with a call for a national strategy. But note, please, that a strategy is more than a plan. A national strategy develops the country’s unique value proposition. It examines the particular competitive position of the nation. It considers the country’s role in its region and in the world. It understands its unique value as a location for business. It develops competitiveness in handling particular clusters of business, or parts of the value chains of global industries. It develops unique strengths. It obsessively keeps parity with peer nations.

Much of that has been considered as part of our Vision 2030 process, the results of which will be unveiled in national road-shows starting next month. Michael Porter has given us a framework with which to evaluate Vision 2030 – its quality, its robustness, its emphasis and its ambition. And let us, in the spirit of his address, make all the ‘bottom-up’ noise we need to in order to challenge, build and improve Vision 2030. It belongs to all of us. It is our responsibility to protect it and implement it.

With that, the world-famous thinker departed. But he left us with a promise to return, to see how we’re doing. He left us with the knowledge that his association with Strathmore Business School will continue, and that his courses and insights will be taught in several programmes right here in Kenya. Development, never forget, begins in the mind.