Why Healthcare Now?

By Clifford Cui

Lately, our nation has been entangled with a host of challenging issues, such as the surge of forces in Afghanistan, financial system reform, climate change, the stubbornly high 10% unemployment, and the healthcare reform. Every issue is burning, thorny, complex, and intertwined.

As individuals, we learn how to strategize and prioritize our tasks in case of multitasking. The same is true with a nation when it faces multiple thorny issues mentioned above. Unfortunately, the congress and Obama administration has been doing just the opposite. I can prove it with two examples: Healthcare reform and job creation.

Mr. Obama made a promise to reform the healthcare system while he was running for office in 2008. Congressional Democratic leaders made the campaign promise a legislative priority, and are trying hard to pass the healthcare reform bill before the end of the year because President Obama’s credibility is on the line. Hearing some of the pundits, the left and even centrist congress people pushing the speedy passage of the bill on TV, I get very frustrated, and couldn’t help, but shouting back at the screen: “Hello, what’s the rush? We don’t have a real solution yet.”

America’s healthcare system is not sustainable, and badly in need of reform. The key problem is the bloated healthcare costs. In 2007, the U.S. spent $2.2 trillion on healthcare, roughly $7,500 per person, about 16.2% of the nation’s Gross Domestic Product (GDP). To win over the 60 votes needed to pass the bill by Senate, Democrat leadership in congress yielded to all sorts of special interest groups. Liberals want a public offering in the bill, but Republicans don’t like it; they then cut it. Centrists suggest a buy-in to the Medicare for people between 55 and 64, but some senators opposed it; they then drop it. Some religious groups hit spending healthcare money on abortion; they take the element out. Forks, you can see clearly, this healthcare reform debate is anything, but reducing healthcare costs. What we have now is a toothless new entitlement program that may get in tens of millions people, without adequate financial resources to support it. The inevitable consequences of it will be higher taxes, higher national debt and deficit, lower care quality, and even taking resources away from the care of the seniors. This is bad for the nation, and negative for the badly needed job creation and economic recovery.

I have a colleague, who is a MBA, and who was laid off last November. To find a job, she has been sending out hundreds of email, seven days a week, but still fruitless. Unfortunately, she is not alone. There are hundreds of thousands of people who are facing the same predicament now. To them, healthcare is not on top priority. A day passed without a job is a day of hell.

Healthcare counts roughly for one sixth of our nation’s economy. It affects everyone in a big way and for a long time. If we are going to reform it, we’ve got to do it right. Reforming it is like mixing cement, once you apply the cement to a surface, it will congeal and be hard to remove. Like the healthcare professionals do in do in their practice, let’s not do harm to the healthcare system. Democratic presidents and congress have waited over 70 years on healthcare reform; what’s the harm for waiting a few more months. Since we don’t have a real solution for the healthcare reform, let’s take more time to hatch out one, and for the time being, let’s preoccupy ourselves with the real top priority: Creating jobs.

The Cost of the U.S. Protectionism

By Clifford Cui

Seeing the shoppers teeming with bags of just purchased goods at Macy’s store front on 34th street in New York City, I couldn’t help but asking: fellow shoppers, have you had any idea that you may have paid too much for your purchases because of Washington’s newly erected trade barriers on imports?

In February this year, President Obama signed into law the $778 billion stimulus package: The American Recovery and Reinvestment Act. The subtitle of Section 1605 of this Act reads “Buy American,” which requires that “None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building, or public work unless all of the iron or steel, and manufactured goods used in the project are produced in the United States.” Another autarchic provision in the same Act (Section 1612) makes it harder to hire foreign-born workers for banks and other large companies receiving government subsidies.

Encouraged by this signal, American producers and special interest groups are lobbying harder, and filing outrageously large numbers of anti dumping or anti subsidy petitions against foreign competitors. The U.S. is running an unemployment rate as high as 10.2% now, and many people are mad at cheap imports. The threshold of winning protection litigation is not stiff. Very often, the Commerce Department will find that foreign competitor under review are selling “less than fair value” in the U.S. even the underlying exporter is making a good profit from the export; and the International Trade Commission (ITC) may very well verify that the export surge “injured” the domestic production even if both sides in the case have different cost structures. Anti dumping and anti subsidy measures are the safeguards to guarantee the smooth operation of global commerce system. As the cost for filing petition is low, and the odds of winning it is high; special interest groups are abusing the system now.

Contrary to the special interest groups’ allegation, protectionist measures protect nothing, but destroying American jobs. It is unhealthy to the speedy global economic recovery, and also morally wrong.

Whatever the guise protectionist measures take, countervailing duties, quotas, or any other discriminatory measures, they are counterproductive. They restrict the free flow of goods across borders, raise the prices on consumers, and limit consumer’s choices. They act as surtaxes on the people who may need the help most. One study conducted a few years ago estimated the induced price increase of textiles protection is about 21%. A more recent study estimated the price increase was about 28%. In case of apparel protection, the estimated cost increase varies from 39%, 50%, 46% to 76%, and 53% respectively.

Protection only thwarts the process, and it can't deliver what it promises to workers or industry anyway. A prime example is the "voluntary" export restraint imposed on Japanese automakers in 1981. On a cost per auto basis, one study estimated that import quotas added $2,400 to the price of a Japanese car, on average. The voluntary export restriction was unable to protect the American auto industry from foreign competition. The Japanese carmakers kept innovating, improving, and getting better. The American carmakers such as General Motors and Chrysler keep losing market share to foreign competitors. During the current recession, they were unable to survive on their own, and needed a government bailout package to create room for them to breath.

Indeed, the protectionist measures saved some auto jobs, but at staggeringly high costs; the cost per auto job saved by the quotas was estimated to be $241,235, several times higher than the average wage per saved worker. According to a report on cost of protection filed by Federal Reserve Bank of Dallas in 2002, the trade protection saved 216 U.S. jobs in the production of benzenoid chemicals, used in suntan lotion and other products—but at a cost of nearly $1.4 million per worker. The average figure across 20 of the most protected industries was $231,289, ranging from $132,870 per job saved in the costume jewelry business to $1,376,435 in the benzenoid chemical industry. Protectionism costs U.S. consumers nearly $100 billion annually. America will be better off by simply paying them not to work!

History also proved that protectionist measures are ineffective. During the great depression, Senator Reed Smoot and Representative Willis c. Hawley sponsored a bill to raise U.S. tariffs on over 20,000 imported goods to record levels. In may 1930, more than 1000 economists in the U.S, organized by Paul Douglas, Irving Fisher, etc., asked President Herbert Hoover to veto the legislation. Automobile executive Henry Ford, and J.P. Morgan’s chief executive Thomas w. Lamont went to personally convince or even beg President Hoover to veto the bill. However, President Hoover yielded to the influence from his own party and business leaders and signed the famous Smoot–Hawley Tariff Act of 1930 into law on June 17, 1930. As expected, the legislation met with furious retaliation from trading partners. The U.S. trade and GDP suffered heavily. Imports decreased 66% from US$4.4 billion (1929) to US$1.5 billion (1933), and exports decreased 61% from US$5.4 billion to US$2.1 billion; both decreased much more than the 50% decrease of the GDP, which sent the unemployment to an EVER high rate - 25%! Bruce Bartlett called it ‘the greatest policy blunder in American economic history” in his research paper on the Act.

To get out of the current economic mess, nations need to work together. Interestingly, expanding international trade can be a new kind of mutual stimulus package. By doing so, countries specialize in the production that they have comparative advantage, which will raise each other’s productivities, and lift each other’s living standards and employment levels. Instead of begging-thy-neighbors, countries should be lifting-thy-neighbors, and adopt a strategy as people in Oracle suggest: Do what you do best, and trade for the rest.

Red Oceans, Blue Oceans, and Extraordinary

By Clifford Cui

Business generates competition. The outcome of it, to competitors, can be as critical as survival or death. Correct strategies help companies defend against the cutthroat competitors, keep customers and grow business. However, if a company wants to dislodge the competitors and leap-frog its growth, it must be innovative, and adopt extraordinary competitive strategies to create new market space for its products and services.

In his successful business strategy book “Competitive Strategy,” Michael Porter suggests that firms follow three generic strategies: cost leadership, product differentiation, or focus, or blends of the three strategies, in terms of their overall orientation towards competition. Companies must prioritize them; otherwise they are likely to become “stuck in the middle” – not leading in cost, differentiation or focus, and less profitable than their rivals.

Professor W. Chan Kim and Renee Mauborgne characterized Michael Porter’s traditional approach as “Red Oceans” strategy in their book: Blue Oceans Strategy.” In this book, the authors suggest that in Michael Porter’s model, successful business are either low-cost providers or niche-players, and industry boundaries are defined and accepted; competitive rules of the game are known. As rivals try to outdo one another, they end up competing solely on the basis of incremental improvements in cost or quality or both. The cutthroat competition turns the market space or ocean bloody.

To seize new profit and growth opportunities, Professor W. Chan Kim and Renee Mauborgne suggest that companies need to create new market space: blue oceans for their products and services. Wherein, all industries are not in existence, and are untainted by competition; rules of the game are not defined; demand is created rather than fought over, and the potential, depth, and magnitude of the opportunities are similar to those offered by the vast and yet to be explored oceans. They suggest the following six tactics to explore such opportunities:

• looks across alternative industries,
• looks across strategic groups within industry,
• redefines the industry buyer group,
• looks across to complementary product and service offerings,
• rethinks the functional-emotional orientation of its industry, and
• Participates in shaping external trends over time.

The Blue Oceans Strategy draws criticism too. Mike Smock, the Marketing Director of vSente writes at the website: “The excerpt provided more detail on both the problem and approach - but nothing I could characterize as new or breakthrough to support a claim of creating uncontested market space. In fact it seemed as if the authors were simply repackaging long held notions about market niches”. Other authors challenge that there have no successful business models built on the Blue Oceans strategy.

Some of the criticisms seem unfair and unnecessary. In reality, both Red and Blue Oceans strategies are creative and useful methodologies for strategic planning. Unlike the situations predicted by some critiques, the Internet, email, and broadband communication technology have not reduced the Blue Oceans to ponds. On the contrary, they are expanded. The unprecedented scale of globalization makes it possible for companies to look beyond the national boundaries in designing and creating customer value and the value delivery systems. For industries, such as combating global warming and healthcare, the real solutions might rest with the Blue Oceans strategy. Similarly, the new market spaces so created will never replace the traditional market place. Competition in business will be head-to-head as usual. In order to survive and compete, companies have to focus on either cost leadership or product differentiation on these markets. Therefore, both Red and Blue Oceans strategies should coexist and be applied in competitive strategies.

The war strategy of the famous historical Chinese military strategist Sunzi may offer valuable suggestions to the Red and Blue Oceans debate. In the “Arts of War,” Sunzi categorized military actions as two types: the orthodox, or Zheng, and the extraordinary or Qi. The former refers to the action that is conventionally correct and the latter the action that is new, and can surprise enemies. To obtain victory, the Sunzi advocates “the extraordinary,” But, he also suggests that there are no hard and fast rules for which strategy to use, and in many circumstances people should use both. The ultimate choice of strategy for each military engagement should be dictated by the realities of the battle ground.

In applying the Sunzi’s strategy to the business competition, one may label the orthodox or Zheng as the Red Oceans, and the extraordinary or Qi as the Blue Oceans. To defend against competitors in the industry, one has to focus on either cost leadership or differentiate its offerings. But one should result to the Blue Oceans strategy when one plans to create new value and delivery systen on a new market space. Therefore, instead of pitting one strategy against another, people should keep both options on the table, and skillfully woven them into the effective and new competitive strategy for each initiative based on the unique elements on each targeted market space. The interplay of both strategies, as the Sunzi suggests, will generate an unending series of innovative, surpprising, and wining competitive strategies as seamless as the rolling of the unending circles.


To contact Clifford Cui, please email at: cliffordcui@yahoo.com

Incongruity: Symptom for Innovation Opportunity

By Clifford Cui

It is important that you look for symptom for innovation opportunity before making new effort in fighting a head-to-head battle to take back customers from your competitor(s), or blaming your clients for their irrationality and unfaithfulness. This symptom could very well be incongruity.

In theatrical work, incongruity is a discrepancy, or a dissonance between what is expected and what occurs depending on the structure of a play, and it is often created by the audience’s awareness of a fate in store for the characters that they themselves do not suspect. This scenario has similarities in business. But, here the characters are played by managers, and the audiences are customers. Consumer’s perception of your product is affected by advances in technology, changes in offerings of substitutes to your products, income level, lifestyle, and fad. As the perception shifts, the position of your offerings may not be worth as much to your clients as it was. Reality changed. Customers are aware of it, and they buy less; market reflects it, and it sends out an incongruous signal: a disconnection between what your performance is and what you assume it to be. Sadly, some managers neglect this signal, and keep doing the no-result tasks, and try hard to make things right. However, in theatrical work, incongruity makes audience happy and laugh while in business the negligence of it generates disastrous ending. Indeed, this is the very reason for the failures of many mighty businesses.

Luckily, incongruity also has a positive role: a symptom of opportunity to innovate. Many entrepreneurs seize the opportunity, and take timely measures to turn the slum in sales around, create lucrative new market space, and launch winning new products. In his book “Innovation and Entrepreneurship,” Peter Drucker classifies the incongruity in business as four types. In order to better understand the concept, let’s take a closer look at what the types are, and how we can innovate under each circumstance:

• An incongruity between the economic realities of an industry. For instance, early last century, health care expenses was about 1% of GDP for many countries, and nowadays, it counts about 7 – 11% for GDP for many developed countries; however, the services haven’t improved much, and many people still remain uninsured. The following example is very close to my life. Contrary to high speed data transfer on the Internet, the Internet connection at our neighborhood is slow. Then, RCN comes with a faster and cheaper Internet connection package with cable and telephone service. Families who subscribed told those who did not. RCN becomes the dominant carrier in our neighborhood within a matte of three months.
• An incongruity between the reality of an industry and the assumptions about it. Producers or manager could misconceive the reality, make erroneous assumptions about the market, and direct their efforts to area where results do not exist. During the Second World War, the enormous war time demand helped created large still mills in the United States. When the war is over, the abnormal demand disappears. Industry’s need for steel products is still growing, but the growth incremental. Many managers firmly believes in the size is important in steel making, and cling to the large mill operation. Entrepreneurs in the industry invented mini steel mill which requires less capital to build, cheaper to operate, and more flexible in meeting the incremental demands and the need for various types of steel products. It is the mini steel mills that bring new life to America’s steel industry.
• An incongruity between the efforts of an industry and the values and expectations of its customers. Engineers like the technology they developed. Most people love what they do. However, they must make sure customers also like what they do, and are willing to pay for the features and quality of their products. The rise and decline of Japanese and Swiss watch makers is a typical example of this scenario.
• An internal incongruity within the rhythm or the logic of a process. Some procedures are established. You may have practiced them for decades. However, some procedures, or part(s) of the operation still make you uneasy each time, and the need to improve the process also offers you good opportunity for innovation.

Incongruity is a symptom of changed reality, and the innovation is to discover new approaches to meet with the needs of these changes. But, the innovative solution has to be clearly definable, and feasible with the existing, known technology, and with easily available resources. It must be simple rather than complicated, and practical rather than grandiose. Doing the right things is more important than doing things right.

The author: Clifford Cui, can be reached at cliffordcui@yahoo.com

Innovate through Unexpected Events

By Clifford Cui

One of the rich sources of Innovation is unexpected events: unexpected success and failures in your business, and unexpected external events that may impact your business.

Unexpected success means unexpected surges in demand of your product and services. It could be a sudden increase in sales of a product or line of products at your store(s), unexpected orders from new buyers and distributors, requests for your product from a new market segment for a different usage. It should also include the success of your competitors and suppliers. Such surges may temporarily over burden your current system’s capacity, deviate it from your traditional markets or clients, more so, render conflict with your company’s current mission, goals, strategy, and objectives.

Unexpected failure needs a little more clarification as some of it may result from poor product design, planning, and execution of the marketing plans, or sheer human stupidity. Therefore, unexpected failure here only refers to the failures of thoroughly researched, superbly designed, and well executed launches of products or projects.

Unexpected external events are the major events happened outside your business. Typical examples, as such, could be terrorist blowing up airlines, technology breakthroughs, and product or business model innovations by your competitors.

The unexpected events foretell the fundamental changes in your business or your business environment. They may be changes of customer’s perception of your product or service, innovation or technological advancement in other sectors. Customers are still purchasing your product, but they may be buying it for a different value, purpose or reason. If you can find out the driving force behind these changes, and be innovative in modifying your offerings, business model, marketing technique, or expand your capacity to accommodate the new demands, you will pose a strong position for your company in the future market. For instance, oregionally, Craiglist’s intent wasn’t to build a community-information-and-exchange site for all the U.S. Instead, Craig began using e-mail to let his friends know about cool events taking place around San Francisco. In order to meet with the demand for the information later on, Craig evolved the network into the popular Craigslist site of today.

Unfortunately, in too many organizations, unexpected successes are overlooked as temporary aberrations. But the unexpected failures will never go away unnoticed. Instead of finding out what’s behind the failure, management often gets quick to point finger to whom the responsible person is. A classical example of such failure is the Swiss pharmaceutical company. In 1950s, there appeared a growing demand for treating animals with antibiotic medicine. When the Swiss pharmaceutical company approached the manufactures for veterinary use of the antibiotics, the manufactures thought that applying a new antibiotic to the treatment of animals was a “misuse of a noble medicine,” and refused to reformulate it to serve the veterinary markets. In the end, the Swiss veterinary company obtained licenses for veterinary use without any difficulty and at low cost. Nowadays, veterinary medicine has become a very lucrative market.

Unexpected events are ideal sources for true innovative thinkers. For example, with the onset of aircraft hijackings in the 1960s and the 9/11 terrorist attack, many new companies and security products have mushroomed. Companies with the know-how and technology built metal, weapon, or chemical detectors, risk analysis and critical assets protection methodology, inspection and training programs, as well as software for the analysis and site profiling. IBM is also well-known for its ability in riding the tide. While merrily following its five-year business plan, it discovered that Apple was going to introduce the personal computer. Instead of ignoring the event, IBM “tweaked” its business plan a little and introduce a PC of its own, which became the industry leader.

Therefore, companies should always be on the look-out of meaningful unexpected events, and take them seriously. They should not only analyze such occurring, but also go out, look around, and listen, and also establish a system to strategize and develop products to seize the development opportunities. Constantly asking yourself the following questions might be useful for this searching and decision making process:

• What unexpected product success, failures or unexpected external events have you had recently?
• In which geographic areas have you had these unexpected events recently?
• In which market/industry segments have you experienced unexpected events recently?
• What customer segments have provided unexpected success or failures recently?
• What unexpected success or failures have your suppliers had recently?
• What unexpected success or failures have your competitors had recently?
• Which of your technologies has had unexpected success or failures recently?
• What unexpected customer/user groups have bought from you recently?
• What unexpected sources have asked to sample, distribute, or represent your product recently?
• What would the unexpected events mean to your business if you are going to exploited it?
• Where could it lead your company?
• What would you have to do to convert the unexpected events into an opportunity?
• How do you plan to do about them?
  
  
  Clifford Cui
  To contact the author, please email cliffordcui@yahoo.com