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The Bottom Line

Evan Davis gets to the heart of the big finance stories at The Bottom Line.

‘The power of technology’ and ‘How long is long in years of service in the same organisation’ are the twin themes of the latest BBC/Open University The Bottom Line programme. Evan Davis's three guests are drawn from General Electric International, SES Global, which brought us the Astra broadcasting satellite system, and Ford Europe. The central thrust of their argument about the power of technology is that partnerships with the state are crucial in enabling technological change and innovation. The guest from SES Global, echoing the Open University‘s new Vice Chancellor, suggested that technology is not enough in itself: it is about the role of processes and people engaging in entrepreneurial and innovative activity. The rider should have been added to all three guest contributions that the love of the “new” does not preclude the “old”. That is, many of the technologies their companies deal in are based on “old” technologies, including the internal combustion engine and the aero engine. Indeed, the inspiration for Astra came from the first Soviet Union satellite, Sputnik, launched in the late 1950s.

BBC Micro in Broadcasting House window.
Picture © copyright Rain Rabbit, used under Creative Commons licence.

The fixation with the new informs every society as the art historian and critic, Robert Hughes, wrote and narrated in his 1980 television series entitled The Shock of the New: Art and the Century of Change. In the accompanying book, Hughes examined the development of art and culture from the late 19th to the late 20th century: the period of what is known as modernism. Essentially, modernism is a view of the world that posits the progress of science and technology and its underlying culture as the organising principle of rational modern society. The early proponents of modernism proclaimed that it had dramatically changed the world in a very short period.

The late architectural writer, Reyner Banham, was the author of the book, Theory and Design in the First Machine Age. For Banham, the First Machine Age was ushered in by the invention of electricity which created the conditions for innovations like the telephone, the gramophone, the washing machine, etc. The Second Machine Age, starting around the 1960s, is characterised by mass production techniques producing electronic devices, which are consumed universally and symbolised by a single source of mass communication – the television. The Third Machine Age can be said to have started with the invention of the personal computer and the mobile. Whether the Internet represents a fourth age or a fifth Kondratieff wave (named after the Soviet economist Nikolai Kondratieff, who developed the idea of 50 year cycles of technological innovation) is open to question. But, despite the recent febrile claims that we live in a weightless economy, it is the mass of human interaction with technology that appears to be the central condition of our species.

This truism leads us to the question of employment longevity. There have always been claims that how we organise our economy is a break with the past. Labour market flexibility, portfolio and virtual workers are part of the heady stuff reported by journalists every day as though it was the global reality of the contemporary work environment. Unfortunately, journalists too frequently psychologically externalise their own experience onto everyone else. My grandfather was a flexible worker: he was part of the casual labour system at Southampton Docks at the start of the 20th century – he worked when he was chosen from the queue of men similarly seeking a day’s pay. My father worked for 30 years for a nationalised industry that, in the 1950s, threatened to sack all the staff at the engineering base on a Friday night and re-employ them on inferior contracts on the following Monday morning: flexibility is nothing new.

The average length of employment in the same company is 5.6 years in the UK, yet there appears to be a cultural aversion to long service in this country as though it was antediluvian. It was heartening to hear that the three guests on The Bottom Line had been with their companies for a long time and that a third of Ford workers had spent twenty-five years there. In a society in which there are more 60 year olds than 16 year olds, it is doubly curious. Moreover, the loss of corporate and policy memory was shown to almost devastating effect at the onset of the financial crisis. In many important sectors of the economy, experience is at a premium. Yet discrimination in the workplace and too strong an emphasis on the beauties and beatitudes of new technology, sui generis, and every associated ‘nouvellle vague’ blights all our lives. Ageism like any form of short or long discrimination is not rational. More importantly, it is not right.

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About the author

Leslie Budd is Reader in social enterprise at The Open University Business School. He is an economist and has written extensively on the relationship between regional and urban economics, and international financial markets.

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The role of innovation in creating and destroying the competitive advantage of modern firms cannot be over-estimated. A report by the European Union in 2002 identified four key drivers of entrepreneurship and small firm development which highlighted the importance of innovation. These included:

1. Continuous technological developments
2. Shorter product life-cycles
3. Increasingly demanding consumers
4. Global competition

Small and medium-sized enterprises (SMEs) have always been considered to be more adept at innovation compared to larger bureaucratic enterprises owing to their flat structures, absence of functional barriers and the lack of bureaucratic procedures which facilitate the sharing of ideas, information and knowledge.

Innovation is even more important to small start-up firms that need to offer unique benefits in terms of their products and services so as to attract customers who would otherwise buy from their competitors.

Although SMEs may have an advantage over their larger rivals in terms of their ability to nurture innovation-friendly environments, they cannot emulate the large investment budgets of their bigger rivals when it comes to in-house idea-generation and research and development. However, recent developments in the field of ’open-source`, or user-centred, innovation has made it possible for SMEs to compete more aggressively with their larger rivals – sometimes leading to substitute products.

Instead of new product ideas being developed within the research laboratories of organisations (the in-house approach) new products and services are now being sourced from existing customers and clients of organisations. For example, practitioners of extreme sports, from windsurfing to ice climbing, play a significant role in the development of equipment which is subsequently mass-produced by manufacturers. Surgical equipment companies are often led towards new products by surgeons (i.e. keyhole surgery) whilst the Linux operating system was developed by members of the open-source software community. Finally, the toolkits approach has been used by companies including Flavors and Fragrances which supplies customers with the tools to design their own food flavours. Product development is left to users who are in the best position to know exactly what they want.

As customer expectations are increasing it is logical to use their input when designing and shaping new products and services. Not only are such inputs invariably free but they are a natural source of incremental innovation and therefore differentiation.

Since one of the strengths of being an SME is the closeness of the entrepreneur to the customer, an `open source` / user-generated approach is an ideal way of overcoming the obstacles of high R&D budgets and at the same time creating a differentiated unique selling proposition (USP). Knowledge is now so widely distributed via the Internet and travels so fast that great ideas can come from customers over a wide geographic area which is not confined purely to large organisations.

Moreover, as it becomes increasingly difficult to protect new ideas for any length of time, lead–time advantage and speed to market become key areas of competitive advantage. The agility and fast responsiveness of small entrepreneurial firms therefore places them in a very strong position when it comes to exploiting the advantages of pro-active consumers or prosumers.

3M, the industrial products group, has had programmes in place since 1996 to harness ideas generated by lead-users. Working out where great ideas come from is one of the big mysteries of modern management. Corporate research laboratories and in-house product development groups are only part of the answer. Breakthrough products and processes can come from start-ups, competitors, university campuses and rank-and-file employees. So open source innovation is  another route to innovation that doesn’t cost the earth as the likes of MySpace, Facebook, YouTube and Wikipedia will testify.

Further reading

• Open Innovation by Henry William Chesbrough, published byHarvard Business School Press
• Experimentation Matters: Unlocking the Potential of New Technologies for Innovation byStefan Thomke, published by Harvard Business School Press
• The Third Wave by Alvin Toffler, published byBantam
• Democratizing Innovation by Eric von Hippel, published by MIT Press

About the author

Nigel Walton is an associate lecturer for the Open University and the University of Worcester, specialising in strategy, entrepreneurship and international marketing. He previously worked as a management consultant, primarily advising medium-sized companies with growth problems.

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The word entrepreneur has become one of the most commonly used terms in the modern business vocabulary as the British economy has undergone a major period of restructuring  following the launch of the enterprise culture in the early 1980s.

Despite these developments there still appears to be considerable doubt as to what the word actually means and what characteristics distinguish successful entrepreneurs from the more conventional and possibly less successful business figures. In the UK an entrepreneur is differentiated from an owner-manager of a small business (a lifestyler) on the basis of their ideas being highly innovative, the fact that they adopt a strategic approach to the running of their businesses and they are driven by motives of high growth. In the USA the definition is more generalised insofar as an entrepreneur is anyone who establishes a start up business  irrespective of whether it is based on a innovative idea or not.

Entrepreneur Duncan Bannatyne.
[image © copyright BBC]

Another important question is whether there is a typical person who becomes a successful entrepreneur, an archetype on which we can base our judgements about someone’s aptitude for entrepreneurship? Can anyone become an entrepreneur or does it require a certain type of person to make it really work? If it does require certain attributes are they innate or can we acquire them – in other words are successful entrepreneurs born or made?

The influence of the business founder or nascent entrepreneur  on a small business is crucial, particularly in the early days when enterprises are inseparable from their founders. They are conceived by them and survive (or not) because of their personal commitment and dedication. In later stages of growth, a management team may emerge which makes the enterprise more autonomous and capable of surviving without the founder.

Since this impact is so vital to small business survival it is important to identify and encourage the personality types who are most likely to succeed and to discourage those who are not. A number of traits or personality characteristics have been put forward such as the `Big Five` personality dimensions which include: the need for achievement, the need for autonomy (or independence), an internal locus of control (or self-determination), a risk-taking propensity and self-efficacy (or self-belief). Since these entrepreneurial traits are formed during childhood  and cannot be developed later there is and strong implication that entrepreneurs are born not made.

A further characteristic of the entrepreneur is their ability to innovate. According to the late Peter Drucker, entrepreneurship and innovation are tasks that can be and should be organised in a purposeful way and are part of any manager’s job whether he or she works in a small or large enterprise. The entrepreneurial manager is constantly looking for innovations through an organised and continuous search for new ideas. Drucker presented entrepreneurs not as people who are born with certain character traits but as managers who know where to look for innovation and how to develop it into useful products or services once they have identified the strategic space or market gap. Drucker therefore believed that these competencies could be learned and developed and involved a continuous purposeful search for new ideas and their practical application.

There are also other personality traits associated with entrepreneurs which include: a proactive approach, self-motivation, a tolerance of uncertainty and ambiguity, opportunistic behaviour, creativity, vision, impatience, energy and charisma.

It is therefore hardly surprising that successful entrepreneurs appear to be superficially so diverse. This may also have something to do with the socio-economic characteristics of their environment in terms of both the national and market conditions in which they operate and compete. These will also vary greatly from country-to-country and from sector-to-sector.

Finally, if Peter Drucker was right then perhaps the enterprise initiatives that have been launched across the UK have a high probability of success or is it more complicated than that?

Further reading

• Organisations Evolving by H Aldrich, published by Sage
• `The Entrepreneurial Personality; Past, Present and Future` by E Chell, in Occupational Psychologist number 38
• Innovation and Entrepreneurship by P Drucker, published by Heinemann.
• The Achieving Society by D McClelland, published by Van Nostrand
• `The Dark Side of Entrepreneurship` by M Kets de Vries, in Harvard Business Review November-December 1985  

About the author

Nigel Walton is an associate lecturer for the Open University and the University of Worcester, specialising in strategy, entrepreneurship and international marketing. He previously worked as a management consultant, primarily advising medium-sized companies with growth problems.

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