CREATIVE INTELLIGENCE

Letter from Shenzhen

I recently went to China to speak at a conference on innovation and to launch the Mandarin edition of my book Creative Intelligence. I knew I was flying into China’s booming “Innovation Moment” because the conference topic was “disruptive innovation in banking.” And it was being held in the city of Shenzhen, where dozens of start-up incubators and maker spaces have grown in in the shadow of shuttered shoe and toy factories.  What I didn’t understand fully was that this burst of creativity was facing powerful political and economic forces that could easily destroy it. China’s “Innovation Moment” may well be fleeting.

The banking conference itself was fun. Alibaba and Tencent, China’s online ecommerce giants, have been rocking the traditional state-owned banking world of marble and glass buildings, long lines and serious-faced guards with online personal mobile payments and investment platforms. To my surprise, instead of middle-aged men in suits, the banking audience was composed of mostly young women and men in their late 20s and 30s who clearly were deep into the digital, social world in their personal lives. They were confident and willing to disrupt the business models of their own banks, if given the chance.  At dinner, a copy of Creative Intelligence was put on everyone’s seat and we played at book-signing (books make very good swag).

For me, what really makes this China’s “Innovation Moment” is the depth of the creative capacities in companies. It’s not just about harnessing the latest technology or the exploding local venture capital market or even Alibaba’s incredible IPO that’s so exciting.  It’s that Chinese innovators can go beyond a tech-centric approach to innovation to understand what is emotionally meaningful to their customers. They can reframe the conventional business model narrative to fashion new b2c engagements with people. And of course, being Chinese, they can scale like crazy. In banking, retail, communications, media, there is enormous disruptive innovation going on in China.  

Take virtual hongbao. Hongbao are the red envelopes filled with cash that Chinese give to relatives and friends on holidays. Companies use hongbao in a big way. There is no more important ritual exchange in Chinese culture, especially on Chinese New Year. Tencent was the first to design “virtual hongbao” by allowing people who use its WeChat messaging app to send digital hongbao that put real money into the bank accounts of others.  It was a brilliant integration of a tech innovation—online mobile money transfers—with a deep cultural practice to generate a powerful user experience.  With people linking their bank accounts and credit cards to WeChat, Tencent also boosts its online businesses, such as taxi-hailing and ecommerce.  And retail companies can open new branding and marketing channels through WeChat by giving hongbao that are linked to New Year’s events. Very smart.

Innovation is moving so fast in China that the disruptors are disrupting themselves. Tencent disrupted Alibaba, the pioneer in mobil money transfers, with this product. Alibaba has since come back to offer, on its Alipay platform, virtual hongbao exchanges on its social networks, Laiwang and Sina Weibo, China’s Twitter.  Of course, we know the disruptive innovation Alibaba has unleashed in recent years—crowdsourcing movie/media investing, offering higher rates to Chinese savers and opening up whole new areas of investments for China’s upwardly mobile. There are now Chinese companies—big ones including computer giant Lenovo, as well as thousands of tiny new startups– that are doing innovation on a global par with American and European companies. 

But I have doubts about whether it can continue and they began just as I walked into  my hotel room. In Shenzhen (like everyone who travels), the moment I checked into the (pretty fancy) hotel, I checked my gmail and knew something was wrong. It was so incredibly slow. I couldn’t Google. I couldn’t get the NY Times. I’ve been to China before and this has never happened. In fact, this had never happened to me anywhere else in the world, including Russia. So I went down to find out what was wrong and a Chinese guest in the elevator told me. The government censors were finally into the Virtual Private networks (VPNs).  For years, the deal in China was that the government would censor the internet for the masses but permit the elite to use VPNs (virtual private networks) to get around government controls. That allowed foreign and local business people, engineers, scientists, Communist Party bosses and bureaucrats, students, professors, the military—China’s elite—to breach the Great Firewall of censorship. Since the start of 2015, that is no longer the case. For China’s business class, including its many young entrepreneurs, China is increasingly cut off from the world.

That’s what I felt in Shenzhen—cut off. No Facebook, Google, New York Times, Bloomberg News, the Wall Street Journal and my gmail of course (a month after I returned to the US, Beijing cut off access to Reuters as well). That’s cutting me off from pretty much all the global economic and political news I use in my life. The only site I could access was the Financial Times, which is great but a singularly British lens on the world.

In addition, everything was so slow on my computer. It felt as though a government censor was in my room, at my keyboard, reading everything first and giving me permission to see just a little bit of the flow. The slowness itself freaked me out.

And it is disturbing Chinese innovators, as well.  The Great Firewall is now so high it is preventing China’s innovators from accessing global networks.  That means being cut off from the latest technology, business models, concepts, trends, talent, tools and capital. It means not being able to be on Facebook with your friends and workmates.  The South China Morning Post (2/18/2015) quoted Pin Wang (@pinwang on Twitter), a video game designer who founded Substantial Games, (http://substantial-games.com) as saying “something that should take 15 seconds takes three or five minutes, and it screws with the way you flow or you work. We don’t have the resources to move because we’re a startup but we talk about it all the time.” Pin’s team can’t access their email, share documents, talk on Facebook or use other online services blocked by the internet censors.

This can’t be good for innovation.  

At the banking conference, a friend who knew the city took me to visit the electronics part of Shenzhen. It’s a great part of that city, with towers after tower, 10, maybe 15 floors each full of electronics stalls, selling the latest in Chinese, Korean and American cell phones. It was a mob scene. China is huge market for mobile technology products. People love them.  On our tour, we walked to the back and there was another scene—dozens of stalls with three or four people each assembling new “Apple” iPhone 6s and putting them inside fresh “Apple” boxes, wrapped perfectly.  It was all done in public and I was stunned. It’s one thing to read about copying and counterfeiting in China, it’s quite another to see it being done so openly. 

Counterfeiting clearly hurts foreign tech companies but it is now seriously undercutting the growing number of Chinese startups as well. In the ChaiHuo co-working space in Shenzhen, Ryan Liang (formerly of Philips and ZTE) developed a VR (virtual reality) headset (SMCP. March 3, 2015). Premier Li visited ChaiHuo in February to support the government’s drive to generate economic growth through innovation. What Li did not see were the cheaper knockoffs of Liang VR headset that were killing the product in the marketplace. “The economy has relied too much on copying other people’s creations and selling them at cheaper prices,” Liang said.

http://www.scmp.com/news/china/article/1727961/chinas-young-entrepreneurs-drive-its-innovation-economy 

“It will take a lot of change for people to realize the true value of innovation.”

This can’t be good for innovation.

Neither is what I call the “Russification” of China’s economy.  In this visit to China, I kept hearing about “who’s behind” this business, “who’s behind” that entrepreneur. By that phrase, people meant, which family and/or political faction secretly owned and favored different companies.  Innovation depends on original thinking that is able to harness resources to scale in order to generate profits and rewards. If those rewards are then captured and taken away by powerful political groups, the incentive for innovation goes away. This is what has happened in Russia, with politically connected groups grabbing control of companies away from their founders.  It began in the oil industry and has now spread to high-tech.  Pavel Durov, 29, founder of Russia’s largest social network (with 100 million users), Vkontakte, left for Berlin recently after his two co-founders were forced to sell their stake to United Capital Partners, which the FT describes as “ a fund whose senior employees have strong Kremlin connections” (FT April 25, 2014). Durov is being joined in Berlin by a small army of Russian startup entrepreneurs who are fleeing the politicization of innovation.

It appears to be happening in China as well. Politically-connected families dominate the private sector. Ownership is opaque and crossing the wrong people can end a startup’s future. Caixin, the only significant independent China-based media organization, reported (2/9/15) that police from Hangzhou, Alibaba’s home province, went to Shenzhen province to scare Xiang Jun, the CEO and founder of Shenzhen Dimeng, a website that is involved in the sales of heavy-duty machinery. The company had posted accusations of Alibaba selling counterfeit goods and in doing so, evading 5 trillion yuan in taxes. Caixin quoted  Xiang saying the police told him “do you have any idea who is behind Alibaba? If we told you, you would be scared to death…”

Actually, we don’t know who’s behind Alibaba.  Founder Jack Ma didn’t reveal his co-owners to the investors of his IPO.  But they appear to be powerful and connected. And they may have enemies. Xiang’s accusations came after the State Administration for Industry and Commerce (SAIC) publicized a private meeting with Ma where they accused Alibaba of selling counterfeit products online and not doing enough to end the practice.  By going public, SAIC has undermined Alibaba’s New York IPO and unleashed a series of investor lawsuits. I don’t know what’s going on—and neither does anyone else—except to believe that there are political forces we cannot see that could be acting against China’s most successful innovator.  Since SAIC’s action, Alibaba’s stock has languished. It hit its low of 81 ½ on March 3, down from its high of 120.

Russification also extends to foreign high-tech companies in China who are coming under attack for “corrupt” business practices that identicle to those of all Chinese companies, local as well as foreign.  Glaxo, Apple, Daimler, Qualcom are all great global innovators, forced to pay billions in fines, offer their technology to local competitors and publicly humiliated. When the CCTV ran a TV show slamming Apple for bad service in China, it wasn’t clear whether the attack came from local rivals who paid CCTV journalists to attack Apple, from the government itself which uses CCTV as a propaganda vehicle or from reporters trying to shake down Apple. People in the high-tech/startup scene believe it is only a matter of time before Apple comes under serious attack again and made to pay a huge fine and cough up more technology.

Again, this can’t be good for innovation. 

So it’s a pivotal time for innovation in China. On the surface, innovation is boiling, with swarms of startups and much disruption. Beijing is strongly pushing innovation to replace exports as the engine of economic growth.  Ma Xingrui, the head of China’s highly successful space program, has just been appointed party boss of Shenzhen. We are looking forward to Ma energizing Shenzhen’s ambition to be the next world-class innovation hub,” said Guo Wanda, vice-president of the Shenzhen-based China Development Institute. “ I think Ma’s reputation in academics and aerospace could attract overseas talent and capital.”

Perhaps. But his reputation will have to outweigh many policy negatives if he is to successfully stimulate an innovation revolution in Shenzhen. I wish China’s many startup entrepreneurs good luck but I can’t help worry that China’s “Innovation Moment” may be ending just as a thousand flowers are beginning to bloom.

You can measure the maturing of a startup into another Big Business by its edifices. Often, you can even measure the apogee of success by its edfices.   Starting up, its all about low-cost, renting and what-ever works. When gargantuan, expensive and starchitect-driven headquarters rise, it often becomes a forget-the-cost, own, and ego exercise. With tech companies, there is always an overlay message of promoting more innovation by building bigger, better space. 

We now have huge, new headquarters going up for Apple, Amazon and a bunch of other companies. I was an business journalist for many years at BusinessWeek and I can tell you that on Wall Street, this would be a sign that the companies have shifted from Growth to Value–from innovation to milking the innovation to squeeze out money. 

Its all good. Creative Destruction depends on moving along the curve of creativity and innovation. But how to assess that movement? Look to a company’s edifice complex.

http://www.ft.com/intl/cms/s/2/3b3aa566-157a-11e3-950a-00144feabdc0.html#slide0

On Wednesday, I’m giving a talk about Creative Intelligence at Frog Design in NYC. These are tumultuous times in the Design/Innovation consultancy business and it will be exciting to talk with these great people about Knowledge Mining, Framing, Playing, Making and Pivoting, the key competencies of my book

http://www.frogdesign.com/

Frog is one of the largest innovation consultancies in the world. I put its founder, the brilliant Harmut Esslinger on the cover of Business Week when I first began covering design for business.  The early Apple design language of clean, white and small was Esslinger’s and Frog’s. Esslinger and Frog have always understood the power of aura and the notion of a calling. In his book, A Fine Line, Esslinger writes that “Every product promotes an identity and a clear idea of the consumer experience it provides as part of the bigger Apple "ecosystem.” When consumers buy a product that has been “Designed in California,” as the Apple label proudly proclaims, they are buying into a way of life. “

Now read that last sentence again and you get the notions of aura, charisma and calling–critical to deeply understanding what is meaningful to people. People join a social movement when they buy into an "ecosystem” that gives them identity and purpose.

 I prefer the idea of social movement to ecosystem and UE–User Engagement–to UX, Use Experience. UE reflects the true dynamic participation of people in their products and services these days.  Hartmut gets it. So does Frog.

Oh, Hartmut is sitting astride a huge motorcycle on the cover. Ha,

I’ve been signing a lot of books lately and it’s a warm, wonderful ritual that people find rewarding. You would think that in an age of ebooks, the actual physical act of an author signing a book that a stranger has purchased would disappear. But no–just the opposite. Signing that book, with a personal message and your unique signature, creates an intimate bond between writer and reader. People smile, laugh a little self-consciously, open the curtain of privacy with their requests and tell you stories in the brief moments of the signing. It’s immensely satisfying and meaningful. 

Ritual and ceremony are critical to creativity. We recognize them in book signings as punctuating and celebrating creativity but they are important in the process of creating itself. Play is a ritual process that has rules that help lead us to surprising, new outcomes. It is a game that we can create ourselves, writing and rewriting the rules, framing and reframing the playing. These are all key creative competencies. 

The research lab where a few people meet every day at the same time and “play” at science and engineering is a place of ritual. The morning meeting that we go to, where ideas are proposed and discussed and chosen, is a ritual activity.

The inkjet printer that we use so often came out of an HP lab where two researchers met daily and went through the ritual process of discovery. The most important thing Steve Jobs did as CEO was to visit nearly every day with his chief designer Jonathan Ives in Ives’ studio where they slowly walked around products and prototypes, touching, handling them, seeing how they worked, talking about them. That daily conversation was ritual. As was Jobs long walks by himself. 

Rituals and ceremonies play two critical roles in creativity. They are a process that can get us to originality and new value. And they are windows into what is deeply meaningful to people. That so many people still buy physical books and want the ceremony of connecting with the author shows something significant about our culture. We demand the immediacy and ease of digital delivery but still desire the warmth and tactility of the “book.”

As an author, it’s just wonderful to be part of all of this. As an author of a book on creativity, its wonderful to participate in what you are writing about.

Amazon: http://www.amazon.com/gp/product/0062088424?ie=UTF8%20&tag=harpercollinsus-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0062088424

B&N: http://www.barnesandnoble.com/w/creative-intelligence-bruce-nussbaum/1112757030?ean=9780062088420&cm_mmc=AFFILIATES-_-Linkshare-_-MdXm68JZJz8-_-10%3a1&r=1&

Look at this ad for the SuperBowl of 1984 and ask yourself–what should the woman be smashing today?

http://www.youtube.com/watch?v=VjyrqVgWPXY

Why are some of the smartest, edgiest and coolest among us disconnecting from social media? What is the deep cultural meaning of this disconnect? What are they trying to connect TO?

Knowledge Mining, Framing, Connecting the Dots and Scaling are key creative competencies. In using them, we can begin to see the patterns. We can begin to see WHAT’S NOT THERE that’s supposed to be there. And then ask why. 

Know the answer to the woman throwing the anvil and you could know how to make billions tomorrow. Or do something even more meaningful.

Amazon: http://www.amazon.com/gp/product/0062088424?ie=UTF8%20&tag=harpercollinsus-20&linkCode=as2&camp=1789&creative=9325&creativeASIN=0062088424

B&N: http://www.barnesandnoble.com/w/creative-intelligence-bruce-nussbaum/1112757030?ean=9780062088420&cm_mmc=AFFILIATES-_-Linkshare-_-MdXm68JZJz8-_-10%3a1&r=1&

Gas leaks, battery fires, faulty wiring, electrical service software errors–Boeing’s new 787 is experiencing a series of problems that is hurting the brand, slowing the roll-out and costing the company many millions of dollars. Any new jet comes with teething problems and one with entirely new composite materials can be expected to have more than its share. But the three-year delay in launch and cascading problems suggest that Boeing’s original strategy of outsourcing most of the design, engineering and manufacture of the Dreamliner is proving seriously costly.

For most of the past decade, globalization of innovation has been in vogue, with consultants promising huge cost savings and speedier results. As manufacturing went global, it appeared to make sense to outsource the creative aspects of making as well. In addition, nationalistic pressures by potential buyers of big-ticket items, especially commercial jet planes, demanded a piece of the action as a quid pro quo in purchasing them. Besides, Apple shifted all production of its high-tech iPhones, iPads and Macs to China and that’s worked, so the business logic went.

For Boeing, the logic hasn’t worked. The 787, like all commercial jets, is really a super-complex, hand-crafted product, composed of new materials, designed in new ways and assembled by new methods. The best innovation strategy for this kind of cutting edge innovation may well be internal, organic teams who have control over most, if not all, of the complex procedures. Agile, resilient teams of skilled people who trust each other to share information and learn quickly by doing are the best organization units for this kind of innovation. They make up “magic circles” of creativity who can craft original designs and then scale their efforts for production. Organic, networked circles of creativity and craft can be better managed and are often more efficient than totally outsourced design and manufacturing. The poor quality control experienced by Boeing over its suppliers in Europe and Asia might have been prevented had the company done more of its creativity and crafting in-house.

Boeing’s decision to outsource 30% to 40% of the 787 was made in the context of a contentious history with it’s engineering unions. In retrospect, the higher cost of keeping a creative, competent and in-house capability happy would probably have been a tiny fraction of what Boeing is paying today in penalties for delays, fixes to errors and brand erosion. Circles of highly creative, innovative teams are expensive but the scaling of their efforts may be more efficient and cost-effective in the long run for companies intent on playing at the edge. Apple never outsourced its design and engineering and demanded total control over the manufacture and assembly of its products. Apple’s handful of “magic circle” of design and engineering teams has worked on nearly all of its products over the decades. Boeing and business consultants should take note.