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WILLIAM BONVILLIAN: All
right, let's jump ahead here.

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Let me talk a little bit about
manufacturing in general,

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00:00:32,259 --> 00:00:34,990
and the competitive challenge
for US manufacturing.

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00:00:34,990 --> 00:00:41,830
So the 1990s, manufacturing
was 30% of US economic growth.

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00:00:41,830 --> 00:00:46,720
And it had manufacturing at
two times the productivity

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level of the services sector.

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So manufacturing
almost invariably

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has a much higher productivity
level than a services sector.

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US is 80% services.

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So if you really want a
high productivity growth,

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manufacturing is a
way of scaling goods

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and affect product quickly.

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Service sector scale much more
slowly because they're more

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face-to-face.

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So you probably want a
significant component

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of your economy in something
that scales and it introduces

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productivity effectively.

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And that tends to
be manufacturing.

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So manufacturing is also
traditionally higher

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paying jobs.

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00:01:25,510 --> 00:01:29,380
In 2001, they were 23% higher
than the services sector.

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00:01:29,380 --> 00:01:31,660
The ratio is not all
that different today.

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Manufacturing is an important
part of the US economy.

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It's about 12% of GDP, and it
funds 2/3 of industrial R&D.

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It funds 3/4 of industrial
research and development,

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and about 2/3 of overall US R&D.

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And manufacturing firms account
for a greater percentage

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00:02:04,330 --> 00:02:08,509
of real GDP than all these
other kinds of sectors.

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So it remains a very
significant player,

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but it's also a big enabler
for the other sectors.

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So manufacturing jobs--
and there's a lot of debate

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as to what the multiplier is--

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00:02:19,240 --> 00:02:23,020
differs from sector to sector,
but it is the biggest job

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multiplier in our economy.

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00:02:24,430 --> 00:02:26,710
In other words, a
manufacturing job

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tends to create
additional employment

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in the kind of value
chains that it's

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connected with in the
services sector, and supplier

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sector, and resource sectors.

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So the US has been running
frightening trade deficits

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in manufactured goods for a
significant period of time.

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And it began under
President Nixon,

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and has continued
to grow since then.

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The most problematic
number is the trade deficit

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the US has in advanced
manufacturing goods--

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in other words, complex
high-value goods.

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The US is running $100 billion
trade deficit in those goods.

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So the theory that we'd
seed low-end production

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but make it up by retaining
high-end production,

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it's not working.

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And manufacturing job loss
has a pretty painful history.

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2.7 million jobs were lost in
that 2000 and 2003 recession--

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5.8 million jobs
between 2000 and 2010,

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the majority of those focused
on that 2008 recession.

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In that 2000 to
2010 timetable, we

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shut down about
62,000 factories net.

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The US has been moving its
percentage of manufacturing

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employment ever downward.

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So we're at about
8% of US employment

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is in the manufacturing sector.

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Other countries don't do that.

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So Germany employs about 20% of
its workforce in manufacturing,

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Italy 19%, Japan
22%, South Korea 31%.

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In other words, manufacturing
is a source of higher wages

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and it's a job multiplier.

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You can see some of the
potential competitive

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advantages for retaining a
substantial manufacturing

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sector.

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So those are kind of
background points.

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Let me do a couple
of pieces now.

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I'll do Glenn Fong
and Linsu Kim.

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So Glenn teaches at
Thunderbird in Arizona,

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which is a very fine school
for international business.

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And he wrote a
piece in '98 about

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what was happening in
Japan in that time period.

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So Japan is on a complete
take-off as a leading world

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economy until the 1990
frame, and then it

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misses the IT innovation
wave, as we discussed earlier.

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And it starts to have to
reorganize and rethink

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its innovation system.

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So Glenn argues that
there are essentially

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three historical stages to
Japan's competitive pattern.

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So first, it was the
pursuer after the pioneer--

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00:05:39,720 --> 00:05:43,040
the US being the
innovation pioneer--

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then it's a follower right
at the frontier with US,

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and then it becomes a
world-class competitor.

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And he argues that,
as Japan became

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a world-class competitor,
it had to rethink

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its more centralized
organization

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00:05:59,300 --> 00:06:00,920
of its innovations.

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So the old thesis about
Japan, Glenn argues,

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is that it was focused on
national industrial performance

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00:06:08,360 --> 00:06:11,420
and a corresponding competitive
balance between nations

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based on national
industrial performance.

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And it was set by political
economies really operating

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at the national scale, but
at the governmental scale

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with a strong governmental role.

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But then a more pragmatic
approach has to evolve.

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So MITI, which I
mentioned earlier,

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was the key
organizing institution

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around getting collaboration
between government

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and industry, and setting
industry agendas in Japan.

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00:06:41,080 --> 00:06:47,980
In its older period, it would
set technology initiatives

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00:06:47,980 --> 00:06:53,030
that were selected by
high-level governmental leaders,

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00:06:53,030 --> 00:06:54,550
including at MITI.

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00:06:54,550 --> 00:06:57,910
And then in a more
recent period,

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00:06:57,910 --> 00:07:00,820
it's had to move towards
technology initiatives that are

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00:07:00,820 --> 00:07:03,830
really selected by industry.

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00:07:03,830 --> 00:07:07,720
In other words, at the
frontier, the ability

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of government to pick
the technology menu

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becomes more problematic.

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You've got to get that down to
industry decision makers that

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are much closer to markets and
much closer to the innovation

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system itself.

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00:07:20,470 --> 00:07:25,960
And that has evolved in Japan,
that high officials just

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can't keep an eye on the rapidly
evolving complex technologies.

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So that's technology
initiatives.

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Then there was
technology targeting.

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In the old period, there was
direct government targeting

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of one or two
specific technologies

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that we're going to be
pursued by the government.

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And the funding was at the
late development stages.

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Government funding was focused
really on advanced prototyping

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and engineering development.

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That's where the government
support was going.

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In the newer period,
Japan shifted

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towards more fundamental
research funding, along

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with it's applied, to put a
broader range of technology

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alternatives onto the table.

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As Glenn characterized
it, it moved

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to a kind of shotgun approach,
not a more narrow rifle shot

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00:08:19,370 --> 00:08:20,640
approach.

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And then finally,
industry targeting.

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In the older period,
MITI would actually

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pick winning companies.

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It would decide who's
going to win, designating

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specific companies for funding.

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And it would attempt to
influence corporate mergers

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00:08:37,830 --> 00:08:41,230
and consolidations to
develop strong companies.

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So it's intervening
at the company

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00:08:42,970 --> 00:08:46,520
stage pretty systematically
at critical areas.

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In the newer period, MITI
became much more collaborative.

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And it's funding a
range of companies

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and a range of
collaboration models,

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not attempting to target
particular surviving firms that

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are winners.

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So in the computing
area, for example,

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MITI goes from funding three
firms over a 30-year period

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to 25 firms at the
end of that period.

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So it's moving
towards a system that

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is less centralized
and more reflective

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00:09:23,340 --> 00:09:24,990
of the industry
leadership, and away

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from an interventionist
government role.

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So that's kind of interesting.

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Japan gets to the
innovation frontier

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through a significant
governmental role.

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But when it's at the
frontier and it's truly

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00:09:41,590 --> 00:09:43,730
a world-class
competitor, it's got

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to develop a much more
decentralized approach that

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allows ideas to rise
up from that system.

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So that may be an important
organizational model for us

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to consider.

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That organizational
model, of course,

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is more like what the US had on.

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Now, let me put Linsu
Kim into this mix too.

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00:10:04,700 --> 00:10:06,500
And his book Imitation
to Innovation

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00:10:06,500 --> 00:10:15,950
is a classic in looking
at the amazing evolution

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of Korean economy.

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The thing to understand
about the Korean economy

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is that the country was just
totally destroyed and ruined

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00:10:33,150 --> 00:10:35,010
by the Korean War.

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And every inch of
that nation was

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00:10:38,070 --> 00:10:43,500
fought over a multi-year period,
and nothing was left standing.

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It's a complete tragedy,
and the population

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is completely disrupted.

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00:10:48,450 --> 00:10:53,430
It's forced to move
all about the country.

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Families are disrupted.

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00:10:54,840 --> 00:10:57,240
Communities and villages
are completely disrupted.

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00:10:57,240 --> 00:11:04,350
It's all thrown together,
and it's truly tragic.

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00:11:04,350 --> 00:11:07,170
And yet out of
that tragedy is one

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00:11:07,170 --> 00:11:12,900
of the most remarkable
stories of industry scale up

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00:11:12,900 --> 00:11:16,050
and growth, and growth
of the country that--

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00:11:16,050 --> 00:11:18,330
it's an amazing story.

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00:11:18,330 --> 00:11:20,640
And essentially, in
a 30-year period,

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00:11:20,640 --> 00:11:24,000
to construct an economy out
of literally nothing that's

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00:11:24,000 --> 00:11:28,960
right at the frontier,
it's pretty amazing.

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00:11:28,960 --> 00:11:30,540
So what's behind this?

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00:11:30,540 --> 00:11:34,380
So in the 1960s
period, Linsu Kim

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00:11:34,380 --> 00:11:37,230
argues that Korean
firms are on a-- what he

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00:11:37,230 --> 00:11:39,540
calls a leadership trajectory.

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00:11:39,540 --> 00:11:45,090
And the government is on a model
of what he calls forced march

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00:11:45,090 --> 00:11:46,170
industrialization.

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00:11:46,170 --> 00:11:48,690
The government is supplying
education through college.

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00:11:48,690 --> 00:11:50,250
On the demand
side, it's creating

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00:11:50,250 --> 00:11:53,140
chebols, which are somewhat
akin to the keiretsu model we

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00:11:53,140 --> 00:11:54,916
were talking about in Japan.

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00:11:54,916 --> 00:11:58,930
In other words, these are
major industry leaders.

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00:11:58,930 --> 00:12:05,040
And the difficulty in this mix,
in the government of the time,

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00:12:05,040 --> 00:12:07,380
was its corruption.

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00:12:07,380 --> 00:12:10,160
And this is--

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00:12:10,160 --> 00:12:14,180
Korea's is still in the hands of
a dictatorship with corruption

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00:12:14,180 --> 00:12:15,230
problems.

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00:12:15,230 --> 00:12:16,670
And problem with
corruption is it

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00:12:16,670 --> 00:12:19,310
creates tremendous
uncertainty in your business.

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00:12:24,420 --> 00:12:28,340
That was kind of a
difficult factor,

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00:12:28,340 --> 00:12:30,680
but nonetheless, the government
was playing a key role

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00:12:30,680 --> 00:12:35,130
in pushing these major
companies on a march

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00:12:35,130 --> 00:12:37,670
to a strong international role.

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00:12:37,670 --> 00:12:39,170
AUDIENCE: Could you
clarify what you

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00:12:39,170 --> 00:12:42,050
mean by corruption creates
tremendous business

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00:12:42,050 --> 00:12:43,503
uncertainty?

219
00:12:43,503 --> 00:12:45,170
WILLIAM BONVILLIAN:
You're not competing

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00:12:45,170 --> 00:12:49,190
with other firms based
upon your superior products

221
00:12:49,190 --> 00:12:52,430
and your superior
ability to manufacture.

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00:12:52,430 --> 00:12:55,610
Suddenly, a wild card
is thrown into the mix

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00:12:55,610 --> 00:12:58,870
and you've got to cope
with the government,

224
00:12:58,870 --> 00:13:01,910
and buying off the government,
and buying government support,

225
00:13:01,910 --> 00:13:03,560
if you want to stay ahead.

226
00:13:03,560 --> 00:13:07,060
So it creates a whole new
variable that's much less--

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00:13:07,060 --> 00:13:11,090
that can't be managed by your
business processes and systems.

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00:13:13,610 --> 00:13:20,360
So that's why when we read
the World Economic Report,

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00:13:20,360 --> 00:13:21,980
that's why corruption
was actually

230
00:13:21,980 --> 00:13:24,710
one of the factors
that was considered

231
00:13:24,710 --> 00:13:26,870
in the strength of your
economy because it can

232
00:13:26,870 --> 00:13:30,620
be so disruptive of the ability
to have a reasonable and fair

233
00:13:30,620 --> 00:13:32,240
competition system.

234
00:13:32,240 --> 00:13:36,080
So the chebols, to go back to
our discussion-- that chebols

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00:13:36,080 --> 00:13:39,170
were key to building
and capturing

236
00:13:39,170 --> 00:13:41,300
these large-scale industries.

237
00:13:41,300 --> 00:13:46,130
Now, Korea, when creates
these major companies that

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00:13:46,130 --> 00:13:49,550
dominate industrial
sectors, they

239
00:13:49,550 --> 00:13:54,080
tend to block entry by small
and medium-sized enterprises.

240
00:13:54,080 --> 00:13:55,880
So Korea, at the
same time, is not

241
00:13:55,880 --> 00:14:00,980
creating a system of strong,
small, and midsized firms.

242
00:14:00,980 --> 00:14:04,790
It's really focused on
creating these big chebols that

243
00:14:04,790 --> 00:14:08,930
can really function in
international marketplaces.

244
00:14:08,930 --> 00:14:10,970
But that, in turn, can
create inefficiencies,

245
00:14:10,970 --> 00:14:14,330
as well, Kim argues.

246
00:14:14,330 --> 00:14:17,465
In education, Korea hit on a
model of widespread education,

247
00:14:17,465 --> 00:14:20,360
and that has been--
it's a dramatic story.

248
00:14:20,360 --> 00:14:24,050
The college completion
rate there is breathtaking.

249
00:14:24,050 --> 00:14:30,240
And the focus is to get a very
highly educated population,

250
00:14:30,240 --> 00:14:31,830
which they have achieved.

251
00:14:31,830 --> 00:14:33,930
And then that highly
educated population

252
00:14:33,930 --> 00:14:37,810
is able to staff ever more
sophisticated industries.

253
00:14:37,810 --> 00:14:38,970
That's the model.

254
00:14:41,700 --> 00:14:42,450
And it works.

255
00:14:42,450 --> 00:14:46,470
The one thing they don't
do is move their colleges

256
00:14:46,470 --> 00:14:49,980
into research universities,
which Kim argues is still

257
00:14:49,980 --> 00:14:52,830
a part of the model that
needs to be achieved.

258
00:14:52,830 --> 00:14:56,040
There's a very strong
export strategy in Korea.

259
00:14:59,622 --> 00:15:00,330
Martin, go ahead.

260
00:15:00,330 --> 00:15:01,460
AUDIENCE: [INAUDIBLE] the
research institutions,

261
00:15:01,460 --> 00:15:03,270
do they just send
their people to study

262
00:15:03,270 --> 00:15:04,690
at research institutions then?

263
00:15:04,690 --> 00:15:06,060
WILLIAM BONVILLIAN: Yeah,
they have governmentally

264
00:15:06,060 --> 00:15:09,030
supported research institutions,
and I'll get to a little more

265
00:15:09,030 --> 00:15:11,790
on that in a second.

266
00:15:11,790 --> 00:15:15,780
The wisdom of the US model is
that you combine the education

267
00:15:15,780 --> 00:15:18,585
system with the research system.

268
00:15:18,585 --> 00:15:20,460
And therefore, you create
a tremendous amount

269
00:15:20,460 --> 00:15:22,650
of learning by doing.

270
00:15:22,650 --> 00:15:24,480
It seems to work pretty well.

271
00:15:24,480 --> 00:15:26,640
If you're just supporting
research institutions

272
00:15:26,640 --> 00:15:28,740
as separate research
entities, you

273
00:15:28,740 --> 00:15:35,370
miss the dynamics of that
education connection tie.

274
00:15:35,370 --> 00:15:36,900
Doesn't work as smoothly.

275
00:15:36,900 --> 00:15:38,775
AUDIENCE: I ask because
I think it might just

276
00:15:38,775 --> 00:15:41,317
be a way for them to cut costs,
because research institutions

277
00:15:41,317 --> 00:15:42,300
might be more complex.

278
00:15:42,300 --> 00:15:44,633
So they focus on making a
really good college education,

279
00:15:44,633 --> 00:15:47,700
then exporting people to do
research in other countries,

280
00:15:47,700 --> 00:15:48,408
then they might--

281
00:15:48,408 --> 00:15:50,742
it just might be something
to make it more efficient for

282
00:15:50,742 --> 00:15:51,275
[INAUDIBLE].

283
00:15:51,275 --> 00:15:52,900
WILLIAM BONVILLIAN:
Yeah, I think there

284
00:15:52,900 --> 00:15:57,060
are certainly arguments
there, Martin.

285
00:15:57,060 --> 00:15:59,340
One thing that the
Korean government did do

286
00:15:59,340 --> 00:16:03,360
was it forced its big companies
into international competition.

287
00:16:03,360 --> 00:16:05,880
So they've got a fairly
mercantilist model

288
00:16:05,880 --> 00:16:07,560
of not allowing--

289
00:16:07,560 --> 00:16:10,840
of protecting a domestic
market their companies.

290
00:16:10,840 --> 00:16:13,080
But it's not that big
a domestic market.

291
00:16:13,080 --> 00:16:14,940
They've got to force
their companies out

292
00:16:14,940 --> 00:16:17,430
into international
competition, and they do it.

293
00:16:20,010 --> 00:16:22,140
And that builds tremendous
competitive strength

294
00:16:22,140 --> 00:16:23,112
in these firms.

295
00:16:23,112 --> 00:16:25,070
We look around and see
the strong Korean firms.

296
00:16:25,070 --> 00:16:27,900
It's a pretty remarkable story.

297
00:16:27,900 --> 00:16:30,090
In terms of tech
transfer policy,

298
00:16:30,090 --> 00:16:34,680
the policy was initially
largely a reverse engineering

299
00:16:34,680 --> 00:16:38,010
of technologies
brought in from abroad.

300
00:16:38,010 --> 00:16:40,650
But critical
capabilities are being

301
00:16:40,650 --> 00:16:44,130
developed as part of this
reverse engineering effort.

302
00:16:44,130 --> 00:16:48,690
R&D policy-- it's focused,
as I mentioned before,

303
00:16:48,690 --> 00:16:50,700
on these government
research institutions.

304
00:16:53,960 --> 00:16:57,270
The GRIs provide more of a--

305
00:16:57,270 --> 00:17:00,570
rather than influencing
industry R&D as much,

306
00:17:00,570 --> 00:17:04,140
it's more of a talent
base and support base--

307
00:17:04,140 --> 00:17:07,010
as you were, indeed,
suggesting, Martine--

308
00:17:07,010 --> 00:17:09,329
for companies.

309
00:17:09,329 --> 00:17:12,960
Kim also has this very
interesting discussion

310
00:17:12,960 --> 00:17:16,740
of Korean culture
here and what's

311
00:17:16,740 --> 00:17:21,599
going on that
matches the evolution

312
00:17:21,599 --> 00:17:24,450
of this remarkable
economic growth.

313
00:17:24,450 --> 00:17:29,010
So he argues that in Korea,
this interesting blend

314
00:17:29,010 --> 00:17:33,975
of an Asian Confucian
culture of family

315
00:17:33,975 --> 00:17:40,020
and collective support and
a collective orientation

316
00:17:40,020 --> 00:17:42,660
gets merged with a pretty high
level of-- quite high level

317
00:17:42,660 --> 00:17:45,960
of Christianity and its
individualism for a very

318
00:17:45,960 --> 00:17:47,480
interesting combination.

319
00:17:47,480 --> 00:17:49,590
It affects strengths on
both ends-- strengths

320
00:17:49,590 --> 00:17:52,380
on the collectivity side,
but also the strengths

321
00:17:52,380 --> 00:17:55,710
on the individuals side.

322
00:17:55,710 --> 00:17:58,770
Some of you may have
thoughts about that.

323
00:17:58,770 --> 00:18:01,050
Also the Korean War
itself, as we discussed,

324
00:18:01,050 --> 00:18:09,510
left the country destroyed,
and ended village culture,

325
00:18:09,510 --> 00:18:15,900
but amalgamated the
population in a way that

326
00:18:15,900 --> 00:18:18,030
created a certain
kind of flexibility,

327
00:18:18,030 --> 00:18:23,280
as the old social and cultural
barriers were swept away.

328
00:18:23,280 --> 00:18:25,970
So that it wasn't
all bad, I guess

329
00:18:25,970 --> 00:18:29,850
would be Kim's conclusion.

330
00:18:29,850 --> 00:18:32,880
And then because
it's a country that

331
00:18:32,880 --> 00:18:37,230
has constant threat of
war with North Korea,

332
00:18:37,230 --> 00:18:42,480
the universal military service
provides a huge training

333
00:18:42,480 --> 00:18:48,450
opportunity for a
management class, in effect.

334
00:18:48,450 --> 00:18:50,760
And since militaries,
to be effective,

335
00:18:50,760 --> 00:18:54,790
has to be pretty meritocratic.

336
00:18:54,790 --> 00:18:57,540
It introduces a whole
meritocracy system

337
00:18:57,540 --> 00:19:02,460
into Korean society
and culture, replacing

338
00:19:02,460 --> 00:19:05,940
an older village, more
class-oriented kind of culture.

339
00:19:10,200 --> 00:19:11,700
There's a series
of forces here that

340
00:19:11,700 --> 00:19:14,010
tend to create a certain
amount of social mobility

341
00:19:14,010 --> 00:19:18,060
and elimination of historic
social classes going on here,

342
00:19:18,060 --> 00:19:23,320
which is part of the
story that enables,

343
00:19:23,320 --> 00:19:26,100
Kim argues, Korea to thrive.

344
00:19:28,700 --> 00:19:32,270
That military service is
an interesting feature.

345
00:19:32,270 --> 00:19:35,180
Our military, back in the days--

346
00:19:35,180 --> 00:19:38,630
which I can remember and you
can't-- when there was a draft,

347
00:19:38,630 --> 00:19:42,860
the US military was actually a
very important integrated force

348
00:19:42,860 --> 00:19:44,810
in this society.

349
00:19:44,810 --> 00:19:49,400
That was a very
critical step in the US

350
00:19:49,400 --> 00:19:50,990
to promote racial
integration, when

351
00:19:50,990 --> 00:19:57,150
you had integrated military
units at the height of threats

352
00:19:57,150 --> 00:19:59,340
of warfare and combat.

353
00:19:59,340 --> 00:20:02,170
It really changed a lot
of thinking in society.

354
00:20:02,170 --> 00:20:04,620
So there's just an
interesting side note

355
00:20:04,620 --> 00:20:09,600
there about what that kind
of social organization

356
00:20:09,600 --> 00:20:12,130
can mean in a social context.

357
00:20:12,130 --> 00:20:15,150
But Kim argues that
it's important in Korea.

358
00:20:15,150 --> 00:20:20,730
So Korea develops, he argues,
a learning technology culture.

359
00:20:20,730 --> 00:20:24,690
So the firms go from what
he calls poaching and kind

360
00:20:24,690 --> 00:20:28,200
of reverse engineering, and
then to reverse engineering,

361
00:20:28,200 --> 00:20:32,220
then to R&D, and then
to true innovation.

362
00:20:32,220 --> 00:20:34,530
So Korea's certainly right
at the technology frontier

363
00:20:34,530 --> 00:20:36,060
in a whole series of areas.

364
00:20:36,060 --> 00:20:39,180
And they've moved through a
series of steps to get there.

365
00:20:39,180 --> 00:20:43,890
And Kim argues that
these are steps.

366
00:20:43,890 --> 00:20:46,140
And you tend to
frown on poaching

367
00:20:46,140 --> 00:20:51,690
and reverse engineering,
but let me remind us

368
00:20:51,690 --> 00:20:59,480
that the first textile
industry in the US

369
00:20:59,480 --> 00:21:02,330
was set up in
Pawtucket, Rhode Island

370
00:21:02,330 --> 00:21:06,200
by an English immigrant
named Samuel Slater.

371
00:21:06,200 --> 00:21:13,280
And Samuel Slater is working in
the British textile factories.

372
00:21:13,280 --> 00:21:14,990
And the British
textile factories

373
00:21:14,990 --> 00:21:17,720
realized they've got a
monopoly on textile production

374
00:21:17,720 --> 00:21:19,490
efficiency worldwide,
and they don't

375
00:21:19,490 --> 00:21:21,320
want anybody else to have it.

376
00:21:21,320 --> 00:21:23,330
So you're subjected
to a body search

377
00:21:23,330 --> 00:21:26,030
to make sure you're not walking
out with plans, if you're

378
00:21:26,030 --> 00:21:28,020
an employee in these factories.

379
00:21:28,020 --> 00:21:31,280
And Slater's searched every
time he leaves the factory.

380
00:21:31,280 --> 00:21:33,110
What his British
employers didn't realize

381
00:21:33,110 --> 00:21:37,010
is that he had a
photographic memory.

382
00:21:37,010 --> 00:21:39,770
So he worked with his
textile equipment,

383
00:21:39,770 --> 00:21:41,770
goes to the United
States, sets up

384
00:21:41,770 --> 00:21:43,520
the same stuff in
Pawtucket, Rhode Island,

385
00:21:43,520 --> 00:21:46,700
and brings a textile industry.

386
00:21:46,700 --> 00:21:49,927
So talk about poaching--
that's straight poaching.

387
00:21:49,927 --> 00:21:51,760
So the textile industry
in the United States

388
00:21:51,760 --> 00:21:54,730
is organized essentially
through the same model,

389
00:21:54,730 --> 00:21:57,095
and arguably, the same
stages we went through.

390
00:21:57,095 --> 00:21:58,970
When Lawrence and Lowell
are established here

391
00:21:58,970 --> 00:22:01,330
in Massachusetts,
we're definitely

392
00:22:01,330 --> 00:22:04,090
into technological
advances at the frontier

393
00:22:04,090 --> 00:22:06,370
of textile production
at the time.

394
00:22:06,370 --> 00:22:10,990
So in a way, we went
through similar stages.

395
00:22:10,990 --> 00:22:15,460
R&D investment-- so there's
very heavy R&D in the industry

396
00:22:15,460 --> 00:22:19,990
chebols, but the issue Kim
raises is that there's not

397
00:22:19,990 --> 00:22:20,860
enough SMEs--

398
00:22:20,860 --> 00:22:24,570
small and midsize enterprises--
to provide out-of-the-box ideas

399
00:22:24,570 --> 00:22:28,340
in thinking in the mix, and that
that's a problem in the system.

400
00:22:28,340 --> 00:22:31,620
And he argues that
needs to be changed.

401
00:22:31,620 --> 00:22:35,100
But Korea, overall, has got a
very high R&D to GDP ratio--

402
00:22:35,100 --> 00:22:36,990
higher than the US.

403
00:22:36,990 --> 00:22:41,580
So the problems are
limited university R&D,

404
00:22:41,580 --> 00:22:44,325
the need for a larger
SME entrepreneurial base.

405
00:22:47,040 --> 00:22:49,350
He argues that a more
liberalized economy

406
00:22:49,350 --> 00:22:55,920
away from the kind of
elite chebol control

407
00:22:55,920 --> 00:22:57,900
is an important step.

408
00:22:57,900 --> 00:23:00,990
But there's a lot of
lessons here from Korea--

409
00:23:00,990 --> 00:23:04,260
the role of a strong
governmental leadership

410
00:23:04,260 --> 00:23:07,650
in creating strong
firms, but in effect,

411
00:23:07,650 --> 00:23:13,620
forcing them into
international competition.

412
00:23:13,620 --> 00:23:15,870
It's Darwinian.

413
00:23:15,870 --> 00:23:19,560
And the government
education programs

414
00:23:19,560 --> 00:23:24,810
that facilitate very, very
strong talent base country

415
00:23:24,810 --> 00:23:26,230
are clearly key.

416
00:23:26,230 --> 00:23:32,660
And the government use
crisis to force its firms--

417
00:23:32,660 --> 00:23:35,660
it would, in effect, force
its firms into a crisis

418
00:23:35,660 --> 00:23:37,940
kind of circumstance, so
that they would really learn

419
00:23:37,940 --> 00:23:39,740
how to compete and survive.

420
00:23:39,740 --> 00:23:43,590
So those are all interesting
lessons from Korea.

421
00:23:43,590 --> 00:23:47,865
So who's got Linsu Kim,
and who's got Glenn Fong?

422
00:23:47,865 --> 00:23:49,200
AUDIENCE: I have the Kim.

423
00:23:49,200 --> 00:23:51,320
WILLIAM BONVILLIAN: OK,
and you've got Glenn Fong.

424
00:23:51,320 --> 00:23:53,186
So why don't we start
with you, Matthew?

425
00:23:53,186 --> 00:23:54,570
AUDIENCE: OK.

426
00:23:54,570 --> 00:23:57,530
So I think besides
[INAUDIBLE] covering

427
00:23:57,530 --> 00:24:04,100
a lot of his main points I think
really interesting is Glenn

428
00:24:04,100 --> 00:24:07,340
Fong, he turns this
argument on its head--

429
00:24:07,340 --> 00:24:11,210
where most people think
about political structures

430
00:24:11,210 --> 00:24:14,330
determining how
competitive an economy is.

431
00:24:14,330 --> 00:24:16,580
But he looks at
the competitiveness

432
00:24:16,580 --> 00:24:19,460
of the economy, internationally
competitive-- competitiveness

433
00:24:19,460 --> 00:24:25,280
driving the imperative of
the political structure,

434
00:24:25,280 --> 00:24:28,530
and how involved it becomes
as the country moves

435
00:24:28,530 --> 00:24:34,020
from pursuer after the pioneer
to a follower at the frontier.

436
00:24:34,020 --> 00:24:35,950
And he gives the
example of Japan.

437
00:24:35,950 --> 00:24:38,960
One theme that I saw
throughout the question

438
00:24:38,960 --> 00:24:43,720
is how much of that process
is a conscious decision,

439
00:24:43,720 --> 00:24:47,570
or how much of it kind
of happens naturally?

440
00:24:47,570 --> 00:24:51,080
Is there a certain point when
the government says, hey, we

441
00:24:51,080 --> 00:24:55,160
are approaching your frontier
now, we should be hands-off?

442
00:24:55,160 --> 00:24:57,740
How does that end up
happening in practice?

443
00:25:05,670 --> 00:25:07,830
AUDIENCE: I think the
approach is probably

444
00:25:07,830 --> 00:25:11,350
the most difficult
part of the process,

445
00:25:11,350 --> 00:25:17,850
just because you have
to set up and protect--

446
00:25:17,850 --> 00:25:20,460
the chebols and
systems have to be

447
00:25:20,460 --> 00:25:24,980
put in place that borrowed on
these sort of cultural values.

448
00:25:24,980 --> 00:25:28,410
You mentioned the strong
military service at this point.

449
00:25:28,410 --> 00:25:31,510
And a lot of other things
have to come together.

450
00:25:31,510 --> 00:25:36,270
And so I would peg the approach
as sort of the hardest part.

451
00:25:36,270 --> 00:25:39,600
But I think once you
have your system set up

452
00:25:39,600 --> 00:25:43,830
and you're looking to
compete internationally,

453
00:25:43,830 --> 00:25:48,120
I think that's the point
where you have to let go.

454
00:25:48,120 --> 00:25:51,980
But I think you need to
reach some sort of maturity.

455
00:25:51,980 --> 00:25:53,800
And I think it's
pretty easy to say, OK,

456
00:25:53,800 --> 00:25:56,460
we've copied everything that
we've been able to copy.

457
00:25:56,460 --> 00:25:57,370
What's next?

458
00:25:57,370 --> 00:25:58,920
And if you don't
have anything next,

459
00:25:58,920 --> 00:26:04,920
it might be tough to
diversify and let things go.

460
00:26:04,920 --> 00:26:07,225
WILLIAM BONVILLIAN: So
Rasheed just to used

461
00:26:07,225 --> 00:26:10,272
Glenn Fong's terms-- and correct
me if I've got this, Matthew--

462
00:26:10,272 --> 00:26:18,320
but when you move from pursuer
of the pioneer to right

463
00:26:18,320 --> 00:26:20,582
at the technological
frontier, that's

464
00:26:20,582 --> 00:26:22,040
the moment where
you ought to think

465
00:26:22,040 --> 00:26:23,990
about your organizational model.

466
00:26:23,990 --> 00:26:26,450
Because to get to that
world-class leadership

467
00:26:26,450 --> 00:26:29,240
on a continuing
basis may require

468
00:26:29,240 --> 00:26:33,800
you to decentralize and
change your government role,

469
00:26:33,800 --> 00:26:36,050
to build a more
collaborative model

470
00:26:36,050 --> 00:26:37,810
and rely on a large
number of players

471
00:26:37,810 --> 00:26:40,770
to be able to contribute ideas.

472
00:26:40,770 --> 00:26:42,160
Would you agree, Matt?

473
00:26:42,160 --> 00:26:42,930
Is that right?

474
00:26:42,930 --> 00:26:44,310
AUDIENCE: Yeah.

475
00:26:44,310 --> 00:26:46,590
Well, the way that
you said it almost

476
00:26:46,590 --> 00:26:48,750
implies that there's
a conscious decision

477
00:26:48,750 --> 00:26:51,985
about how much the government's
going to be involved.

478
00:26:51,985 --> 00:26:53,610
WILLIAM BONVILLIAN:
I think, for Japan,

479
00:26:53,610 --> 00:26:58,410
what happened was they realized
they missed the IT revolution

480
00:26:58,410 --> 00:27:03,470
that was led by US companies.

481
00:27:03,470 --> 00:27:06,180
And we'll read about DARPA
and the IT revolution

482
00:27:06,180 --> 00:27:09,340
in a later class, but you'll
see where that comes from.

483
00:27:09,340 --> 00:27:11,800
And by having an R&D
system that was pretty

484
00:27:11,800 --> 00:27:14,560
focused on applied
work with industry,

485
00:27:14,560 --> 00:27:18,250
as opposed to
university research,

486
00:27:18,250 --> 00:27:22,030
you get very good at the
incremental advances,

487
00:27:22,030 --> 00:27:25,550
but you may miss
fundamental breakthroughs.

488
00:27:25,550 --> 00:27:29,850
And so I think Japan
is waking up, in 1998,

489
00:27:29,850 --> 00:27:32,610
to these realities, and trying
to think about its innovation

490
00:27:32,610 --> 00:27:37,470
organization to open up larger
menu of innovation practices.

491
00:27:37,470 --> 00:27:39,680
That would be my guess.

492
00:27:39,680 --> 00:27:42,480
But I think that's right.

493
00:27:42,480 --> 00:27:45,290
AUDIENCE: And the
other thing I had was--

494
00:27:45,290 --> 00:27:47,460
use this, Japan as an example--

495
00:27:47,460 --> 00:27:51,460
looking at Korea, it does
seem to fit the model.

496
00:27:51,460 --> 00:27:56,130
But to what extent does this
model actually generalize?

497
00:27:56,130 --> 00:28:00,263
Off the the top of my head, I
think of the US space program

498
00:28:00,263 --> 00:28:01,930
or something like the
Manhattan Project,

499
00:28:01,930 --> 00:28:06,210
where it's very much at
the competitive frontier,

500
00:28:06,210 --> 00:28:10,530
but strong government
involvement and basically

501
00:28:10,530 --> 00:28:16,040
targeting technologies
did lead to major advances

502
00:28:16,040 --> 00:28:18,968
in research and development.

503
00:28:26,570 --> 00:28:28,350
Do we think that it--

504
00:28:28,350 --> 00:28:30,170
that the model actually
works all the time?

505
00:28:30,170 --> 00:28:33,050
Or is it necessarily even
the best thing to be doing?

506
00:28:49,914 --> 00:28:51,706
WILLIAM BONVILLIAN:
Help out Matthew, team.

507
00:28:51,706 --> 00:28:53,240
Give him a hand here.

508
00:28:53,240 --> 00:28:54,950
He's got a lifeline out there.

509
00:28:54,950 --> 00:28:56,492
AUDIENCE: Well, I'm
curious as to why

510
00:28:56,492 --> 00:28:58,670
we, in the general
discourse of innovation,

511
00:28:58,670 --> 00:29:00,610
only pay attention take
East Asian countries,

512
00:29:00,610 --> 00:29:03,380
or largely pay attention
to East Asian countries.

513
00:29:03,380 --> 00:29:06,500
Because you never hear about
United States and innovations

514
00:29:06,500 --> 00:29:08,810
here being juxtaposed
to, say, innovations

515
00:29:08,810 --> 00:29:14,000
in central or South America,
or even Eastern Europe.

516
00:29:14,000 --> 00:29:16,640
And perhaps
technological advances

517
00:29:16,640 --> 00:29:23,870
are not as impressive there,
or the breadth of their impact

518
00:29:23,870 --> 00:29:25,760
is not as extensive.

519
00:29:25,760 --> 00:29:27,680
And at the same
time, I think there

520
00:29:27,680 --> 00:29:29,600
has to be innovation
occurring in other parts

521
00:29:29,600 --> 00:29:32,640
of the world that are not
South Korea, Germany, China,

522
00:29:32,640 --> 00:29:33,860
and Japan.

523
00:29:33,860 --> 00:29:37,280
So to what extent is that
premised on that kind

524
00:29:37,280 --> 00:29:39,710
of American paranoia that was
highlighted in the Hughes'

525
00:29:39,710 --> 00:29:41,240
piece against East Asia?

526
00:29:43,800 --> 00:29:45,420
AUDIENCE: I think
a good follow-up

527
00:29:45,420 --> 00:29:49,492
is we don't have a good--
enough counter examples for you,

528
00:29:49,492 --> 00:29:51,325
just because the breadth,
and the highlight,

529
00:29:51,325 --> 00:29:53,560
and the attention
hasn't been put there.

530
00:29:53,560 --> 00:29:56,910
And I would hope in
Central, South American

531
00:29:56,910 --> 00:29:58,840
and these Eastern
European countries,

532
00:29:58,840 --> 00:30:04,635
they're seeing the pervasiveness
of these different models.

533
00:30:04,635 --> 00:30:07,260
And there's no way that they're
not thinking about these things

534
00:30:07,260 --> 00:30:11,370
or adapting their models
to these sort of things.

535
00:30:11,370 --> 00:30:13,350
AUDIENCE: I was at the
AAAS meeting last week,

536
00:30:13,350 --> 00:30:15,690
and some of the people who
were coming in from Russia

537
00:30:15,690 --> 00:30:19,170
were saying that they had found
that some of the advances that

538
00:30:19,170 --> 00:30:20,940
were just being noticed
in North America

539
00:30:20,940 --> 00:30:23,580
had been made in Russia
like a decade ago.

540
00:30:23,580 --> 00:30:25,800
And they had just
never transferred

541
00:30:25,800 --> 00:30:27,960
to the international
scholastic community

542
00:30:27,960 --> 00:30:30,150
because they were
Russian-centric.

543
00:30:30,150 --> 00:30:33,600
And I thought the that was a
really fascinating component

544
00:30:33,600 --> 00:30:36,780
about knowledge transfer, as
well as knowledge sharing.

545
00:30:36,780 --> 00:30:39,300
Because if our focus
is only on competing

546
00:30:39,300 --> 00:30:43,348
with East Asian countries
and Germany, to what extent

547
00:30:43,348 --> 00:30:45,390
are we missing opportunities
in the United States

548
00:30:45,390 --> 00:30:49,020
by paying attention to
other countries that

549
00:30:49,020 --> 00:30:51,440
might have interesting
innovation cycles or products

550
00:30:51,440 --> 00:30:52,482
that we could learn from?

551
00:30:56,840 --> 00:30:59,410
AUDIENCE: Just to add onto
that-- so I think the reason we

552
00:30:59,410 --> 00:31:03,190
look into Asia a lot is
because they were economies

553
00:31:03,190 --> 00:31:07,900
that weren't doing great, and
then they pretty much did a 180

554
00:31:07,900 --> 00:31:09,418
in less 30 years.

555
00:31:09,418 --> 00:31:10,960
And there are a lot
of factors to it.

556
00:31:10,960 --> 00:31:13,500
A lot of it was having very
strong leaders coming from

557
00:31:13,500 --> 00:31:16,960
periods of not doing too well--
so they were more unified--

558
00:31:16,960 --> 00:31:20,063
and then having a
strong young population.

559
00:31:20,063 --> 00:31:21,730
So most of the countries
that did really

560
00:31:21,730 --> 00:31:25,300
well during this period or
had a age pyramid like this.

561
00:31:25,300 --> 00:31:28,210
So it's a lot of young
people, very few old people.

562
00:31:28,210 --> 00:31:31,610
And they were able to move
very quickly, and especially

563
00:31:31,610 --> 00:31:34,060
because they have
these strong leaders.

564
00:31:34,060 --> 00:31:36,820
These other countries, I
think a lot in Latin America,

565
00:31:36,820 --> 00:31:39,652
they don't have these strong
leaders or these periods that

566
00:31:39,652 --> 00:31:41,110
come up beforehand,
so there hasn't

567
00:31:41,110 --> 00:31:43,860
been rapid growth,
innovations-- even though there

568
00:31:43,860 --> 00:31:46,235
has been a lot of innovation,
especially in manufacturing

569
00:31:46,235 --> 00:31:48,438
in Brazil, parts of Mexico.

570
00:31:48,438 --> 00:31:50,980
So I think it's just we haven't
paid too much attention to it

571
00:31:50,980 --> 00:31:52,660
because it doesn't
seem like a threat.

572
00:31:52,660 --> 00:31:53,950
But these other
countries have moved

573
00:31:53,950 --> 00:31:55,375
so quickly that
it does seem-- you

574
00:31:55,375 --> 00:31:56,625
can see it more than a threat.

575
00:31:56,625 --> 00:31:58,100
Because if you
look at Singapore,

576
00:31:58,100 --> 00:32:00,100
it was a country that was
pretty much not there.

577
00:32:00,100 --> 00:32:02,080
They had a very
strong leader, was

578
00:32:02,080 --> 00:32:05,200
able to make quick decisions
that are very strong,

579
00:32:05,200 --> 00:32:06,670
and be very strong
in saying, this

580
00:32:06,670 --> 00:32:08,878
is what I believe, this is
what I think we should do,

581
00:32:08,878 --> 00:32:10,980
and then going after it.

582
00:32:10,980 --> 00:32:14,170
And they were able to
completely 180 their economy.

583
00:32:14,170 --> 00:32:17,710
And I think we're also talking
about the role of government

584
00:32:17,710 --> 00:32:21,100
in the US has committees making
decisions for innovation.

585
00:32:21,100 --> 00:32:23,840
But actually, Charlie
Munger, who-- everyone

586
00:32:23,840 --> 00:32:25,630
knows Warren Buffett, right?

587
00:32:25,630 --> 00:32:26,195
More or less?

588
00:32:26,195 --> 00:32:27,820
Charlie Munger's his
right-hand person.

589
00:32:27,820 --> 00:32:31,240
And he says, in the
past, in general,

590
00:32:31,240 --> 00:32:34,450
countries do better when its
one very smart, talented leader,

591
00:32:34,450 --> 00:32:36,330
because they can make
these hard decisions.

592
00:32:36,330 --> 00:32:38,420
And in the US, we do
have an executive,

593
00:32:38,420 --> 00:32:40,120
but I think everybody
at this table

594
00:32:40,120 --> 00:32:41,860
can agree that people
don't really say,

595
00:32:41,860 --> 00:32:44,870
he said that-- we should do it.

596
00:32:44,870 --> 00:32:48,340
So the benefit is these
are very credible leaders

597
00:32:48,340 --> 00:32:50,050
that most of the
time, when they make

598
00:32:50,050 --> 00:32:52,510
it that position from
a downturn period,

599
00:32:52,510 --> 00:32:54,550
are very talented and skilled.

600
00:32:54,550 --> 00:32:55,580
And they do make bets.

601
00:32:55,580 --> 00:32:57,080
They can make these
[INAUDIBLE] say,

602
00:32:57,080 --> 00:32:58,420
you know what, this
is an industry that's

603
00:32:58,420 --> 00:32:59,590
going to grow very quickly.

604
00:32:59,590 --> 00:33:00,760
Let's put three people.

605
00:33:00,760 --> 00:33:03,480
There's like 3, 30, 40
companies that could do well,

606
00:33:03,480 --> 00:33:05,480
but I think these three
are really going to win,

607
00:33:05,480 --> 00:33:07,080
and we're going to put all
our eggs in this basket,

608
00:33:07,080 --> 00:33:08,170
and we're going to do well.

609
00:33:08,170 --> 00:33:09,920
And that's something
that's very, I guess,

610
00:33:09,920 --> 00:33:12,220
I would call un-American,
because we're very much--

611
00:33:12,220 --> 00:33:13,450
everybody can go about it.

612
00:33:13,450 --> 00:33:15,600
We want to leave opportunity.

613
00:33:15,600 --> 00:33:17,458
But these countries do
have this capability,

614
00:33:17,458 --> 00:33:19,000
and they have already
shown that they

615
00:33:19,000 --> 00:33:22,220
can grow so quickly, versus
as other countries, I think--

616
00:33:22,220 --> 00:33:25,090
I think another thing too is
Latin America, Russia, we still

617
00:33:25,090 --> 00:33:26,620
see a lot of corruption.

618
00:33:26,620 --> 00:33:28,690
These other countries were
able to get rid of it.

619
00:33:28,690 --> 00:33:31,703
Like Singapore, what Lee
Kuan Yew did was say,

620
00:33:31,703 --> 00:33:33,620
I'm going to pay everyone
about twice as much,

621
00:33:33,620 --> 00:33:35,680
but if I find out that
you're being corrupt,

622
00:33:35,680 --> 00:33:37,820
you guys are pretty much done.

623
00:33:37,820 --> 00:33:39,760
So I don't know if it
was a death penalty

624
00:33:39,760 --> 00:33:41,830
or it was very severe
sanctions, but it was also

625
00:33:41,830 --> 00:33:43,898
severe sanctions upon
them and their families.

626
00:33:43,898 --> 00:33:46,190
So that's a completely
different way of going about it.

627
00:33:46,190 --> 00:33:48,440
So I think just don't see
other countries as a threat,

628
00:33:48,440 --> 00:33:51,280
even though they have
good capabilities.

629
00:33:51,280 --> 00:33:55,120
But these countries did do
amazing things in 30, 20 years

630
00:33:55,120 --> 00:33:57,015
that can't be taken lightly.

631
00:33:57,015 --> 00:33:58,390
But you could also
debate that it

632
00:33:58,390 --> 00:34:00,807
was because there was very
young populations, because also

633
00:34:00,807 --> 00:34:06,308
Japan and South Korea had
stagnation right after.

634
00:34:06,308 --> 00:34:06,850
Final point--

635
00:34:06,850 --> 00:34:10,860
WILLIAM BONVILLIAN: So, Martin,
that's a very political economy

636
00:34:10,860 --> 00:34:14,020
perspective.

637
00:34:14,020 --> 00:34:19,500
Going back to some of the points
that Matt was making earlier,

638
00:34:19,500 --> 00:34:22,290
I think the central
Glenn Fong argument

639
00:34:22,290 --> 00:34:25,920
is that that may get you a fair
distance for a period of time,

640
00:34:25,920 --> 00:34:27,780
as you're getting
to the frontier.

641
00:34:27,780 --> 00:34:29,550
But then when you
get to the frontier,

642
00:34:29,550 --> 00:34:32,850
you better figure
out a more bottom-up,

643
00:34:32,850 --> 00:34:36,980
more collaborative kind of model
if you want to keep the ideas--

644
00:34:36,980 --> 00:34:40,110
if you need that
big mix of ideas

645
00:34:40,110 --> 00:34:43,409
that's going to enable you to go
to a series of the next things.

646
00:34:43,409 --> 00:34:45,480
That's Fong's argument.

647
00:34:45,480 --> 00:34:48,960
And his point is
that Japan really

648
00:34:48,960 --> 00:34:51,858
had to reorganize
its innovations away

649
00:34:51,858 --> 00:34:53,650
from the political
economy kind of approach

650
00:34:53,650 --> 00:34:56,159
you were describing
before to really a very

651
00:34:56,159 --> 00:34:59,220
different organization,
when it reached

652
00:34:59,220 --> 00:35:02,883
that moment of [INAUDIBLE]
innovation and competition.

653
00:35:06,498 --> 00:35:10,482
[INAUDIBLE],, in response
to your question, in a way,

654
00:35:10,482 --> 00:35:12,190
I want to go back to
what we talked about

655
00:35:12,190 --> 00:35:15,970
in the first class.

656
00:35:15,970 --> 00:35:19,570
For a long time, we thought
that this innovation system

657
00:35:19,570 --> 00:35:24,440
stuff was the way in which
the rich countries got rich.

658
00:35:24,440 --> 00:35:27,620
It was just a way to
build further wealth

659
00:35:27,620 --> 00:35:30,200
in a relatively modest
number of countries

660
00:35:30,200 --> 00:35:33,170
that figured out how to dominate
and lead these innovation

661
00:35:33,170 --> 00:35:34,550
systems.

662
00:35:34,550 --> 00:35:39,350
But then other things
started happening.

663
00:35:39,350 --> 00:35:44,120
Korea comes up from
being totally destroyed.

664
00:35:44,120 --> 00:35:45,610
Taiwan's somewhat similar.

665
00:35:48,230 --> 00:35:50,360
Economies like India,
which is obviously

666
00:35:50,360 --> 00:35:52,880
one of the poorest
in the world, is

667
00:35:52,880 --> 00:35:56,930
able to start building a very
significant middle class.

668
00:35:56,930 --> 00:35:59,850
And China's the latest
element in this story.

669
00:35:59,850 --> 00:36:02,540
In other words, an
innovation-based growth model

670
00:36:02,540 --> 00:36:09,390
can be pervasive and work
in the developing world.

671
00:36:09,390 --> 00:36:11,300
Now, we've managed
to translate that

672
00:36:11,300 --> 00:36:15,920
at pretty interesting
scale in parts of Asia.

673
00:36:15,920 --> 00:36:18,260
You're exactly right--
we haven't translated,

674
00:36:18,260 --> 00:36:19,850
with the possible
exception of Brazil,

675
00:36:19,850 --> 00:36:22,126
into a pervasive model in
Latin America, for example.

676
00:36:25,700 --> 00:36:28,010
One of the options for
doing a paper in this course

677
00:36:28,010 --> 00:36:31,790
is to look at other national
innovation systems and dive

678
00:36:31,790 --> 00:36:32,690
into them.

679
00:36:32,690 --> 00:36:34,670
And I really hope of
you will pursue this.

680
00:36:40,980 --> 00:36:43,930
We don't particularly focus
on this in this class,

681
00:36:43,930 --> 00:36:45,120
although we could.

682
00:36:45,120 --> 00:36:48,330
But the Brazil story's
absolutely fascinating,

683
00:36:48,330 --> 00:36:50,098
and a remarkable story.

684
00:36:50,098 --> 00:36:52,390
Obviously, they're in a fair
amount of economic trouble

685
00:36:52,390 --> 00:36:55,320
from macro factors
at the moment.

686
00:36:55,320 --> 00:36:59,155
But nonetheless, it's a very
promising and encouraging story

687
00:36:59,155 --> 00:37:01,080
overall.

688
00:37:01,080 --> 00:37:03,580
But there are others, and there
are other parts of the world

689
00:37:03,580 --> 00:37:04,870
too.

690
00:37:04,870 --> 00:37:06,662
AUDIENCE: So funny that
you mention Brazil,

691
00:37:06,662 --> 00:37:08,520
because while we were
talking about this,

692
00:37:08,520 --> 00:37:13,778
I remembered that there's major
airplane companies or airplane

693
00:37:13,778 --> 00:37:15,320
manufacturers-- so
you think Boeing--

694
00:37:15,320 --> 00:37:17,778
WILLIAM BONVILLIAN: I flew up
in one this morning, Embraer.

695
00:37:17,778 --> 00:37:19,860
AUDIENCE: Yeah, exactly.

696
00:37:19,860 --> 00:37:21,175
And they're from Brazil.

697
00:37:21,175 --> 00:37:21,660
WILLIAM BONVILLIAN: [INAUDIBLE]

698
00:37:21,660 --> 00:37:22,770
AUDIENCE: Based in Brazil.

699
00:37:22,770 --> 00:37:27,290
And they are really
important now,

700
00:37:27,290 --> 00:37:29,040
and will be important
in the coming years,

701
00:37:29,040 --> 00:37:31,410
because Boeing and Airbus
dominate these very large,

702
00:37:31,410 --> 00:37:37,380
big airplanes-- like 787s, these
very large aircraft that only

703
00:37:37,380 --> 00:37:39,200
tend to get bigger in scale.

704
00:37:39,200 --> 00:37:44,010
But Embraer is important because
they focus on shorter flight

705
00:37:44,010 --> 00:37:47,735
distances with smaller
aircraft, and developing out

706
00:37:47,735 --> 00:37:48,360
of that market.

707
00:37:48,360 --> 00:37:53,580
But I just looked, and they
were actually, in the '90s,

708
00:37:53,580 --> 00:37:55,190
this public private
partnership--

709
00:37:55,190 --> 00:37:59,880
so came while Brazil was looking
at shorter distance flights

710
00:37:59,880 --> 00:38:01,140
and doing that a lot better.

711
00:38:01,140 --> 00:38:02,892
But it does come--

712
00:38:02,892 --> 00:38:04,350
sort of this pursuer
after pioneer.

713
00:38:04,350 --> 00:38:07,740
And I think they're
now probably shifting

714
00:38:07,740 --> 00:38:09,720
to build more aircraft--

715
00:38:09,720 --> 00:38:13,040
instead of copying
smaller aircraft designs,

716
00:38:13,040 --> 00:38:16,110
they're having to now
become the pioneers

717
00:38:16,110 --> 00:38:20,190
and really start building
new smaller-scale aircraft,

718
00:38:20,190 --> 00:38:21,540
and take that market.

719
00:38:21,540 --> 00:38:24,260
And Brazil's interesting,
just because they

720
00:38:24,260 --> 00:38:25,900
were allowed to do that.

721
00:38:25,900 --> 00:38:27,960
And I don't know
what sort of factors

722
00:38:27,960 --> 00:38:31,380
played into them being
allowed to initially start

723
00:38:31,380 --> 00:38:34,160
that public private partnership
in around the '90s, when

724
00:38:34,160 --> 00:38:34,835
Embraer started.

725
00:38:34,835 --> 00:38:36,210
But I think now,
they're probably

726
00:38:36,210 --> 00:38:39,630
going to have to shift pretty
drastically and radically

727
00:38:39,630 --> 00:38:40,650
in looking to do that.

728
00:38:40,650 --> 00:38:43,192
But that's a place I don't think
we've touched yet is Brazil.

729
00:38:43,192 --> 00:38:45,067
AUDIENCE: I think there
was a lot of pushback

730
00:38:45,067 --> 00:38:46,625
from their competitors for--

731
00:38:46,625 --> 00:38:49,080
that Embraer was
getting unfair treatment

732
00:38:49,080 --> 00:38:52,030
from their government, in terms
of other trade agreements--

733
00:38:52,030 --> 00:38:53,280
I don't remember specifically.

734
00:38:53,280 --> 00:38:57,998
But it does conflict rifts
with international relations.

735
00:38:57,998 --> 00:39:00,540
WILLIAM BONVILLIAN: So Chris,
I'm going to shift over to you,

736
00:39:00,540 --> 00:39:03,600
and we're going to Linsu Kim.

737
00:39:03,600 --> 00:39:07,620
AUDIENCE: So I think Bill
really gave a good background

738
00:39:07,620 --> 00:39:09,180
on the article, but--

739
00:39:09,180 --> 00:39:11,597
WILLIAM BONVILLIAN: You don't
have to say that, that's OK.

740
00:39:11,597 --> 00:39:13,380
AUDIENCE: You did though.

741
00:39:13,380 --> 00:39:17,940
But to go into a bit more about
the process of how Korea came

742
00:39:17,940 --> 00:39:22,350
up to speed on the forefront
of the innovation frontier

743
00:39:22,350 --> 00:39:24,840
at that time, they really
went through this process

744
00:39:24,840 --> 00:39:28,500
of imitating what was out
there, and then from that basis,

745
00:39:28,500 --> 00:39:32,340
going on to innovate,
and do their own R&D,

746
00:39:32,340 --> 00:39:35,610
and create more advancements
for those products.

747
00:39:35,610 --> 00:39:39,570
And this trend really supported
by those close intertwined

748
00:39:39,570 --> 00:39:42,000
partnerships and
almost interdependence

749
00:39:42,000 --> 00:39:45,780
between the government
and the chebols.

750
00:39:45,780 --> 00:39:47,520
And the chebols still exists.

751
00:39:47,520 --> 00:39:50,670
Even to this day, they're
really family-centric,

752
00:39:50,670 --> 00:39:52,260
dynastic corporations.

753
00:39:52,260 --> 00:39:56,340
Like the Lee family has
controlled Samsung for however

754
00:39:56,340 --> 00:39:59,610
long they've been in business.

755
00:39:59,610 --> 00:40:03,240
And that centralist government
support and structure

756
00:40:03,240 --> 00:40:07,320
has really allowed them to enter
really high capital industries

757
00:40:07,320 --> 00:40:09,660
and really get to the
front really quickly,

758
00:40:09,660 --> 00:40:14,400
as we've been discussing, has
been a factor also in Japan.

759
00:40:14,400 --> 00:40:18,420
So just focusing
on this right now,

760
00:40:18,420 --> 00:40:22,590
we discussed how the
focus on the partnerships

761
00:40:22,590 --> 00:40:24,900
between the chebol
and the government

762
00:40:24,900 --> 00:40:30,480
has kind of stymied the ability
of SMEs and the smaller funds

763
00:40:30,480 --> 00:40:32,560
to enter the space.

764
00:40:32,560 --> 00:40:35,890
So one question that
someone had was,

765
00:40:35,890 --> 00:40:39,600
how can the country
catch up the economy

766
00:40:39,600 --> 00:40:42,780
and foster both aspects of
the larger corporations,

767
00:40:42,780 --> 00:40:44,700
as well as the
smaller businesses?

768
00:40:44,700 --> 00:40:48,450
Do they have to partition funds,
have different initiatives

769
00:40:48,450 --> 00:40:52,410
or approaches for both sectors?

770
00:40:52,410 --> 00:40:54,450
How do you guys
think they should

771
00:40:54,450 --> 00:40:55,680
approach that kind of growth?

772
00:41:03,550 --> 00:41:04,490
Go ahead.

773
00:41:04,490 --> 00:41:07,250
AUDIENCE: It seems like
the chebols are focused

774
00:41:07,250 --> 00:41:09,500
on specific industries
right now, like construction

775
00:41:09,500 --> 00:41:10,652
and electronics.

776
00:41:10,652 --> 00:41:12,110
So it's probably
going to be harder

777
00:41:12,110 --> 00:41:15,780
to get smaller firms to get a
footing in those industries.

778
00:41:15,780 --> 00:41:18,860
So in my opinion, it'd make
more sense to pick something new

779
00:41:18,860 --> 00:41:21,735
and focus attention on
developing those industries,

780
00:41:21,735 --> 00:41:24,080
because I don't think there's
going to be a startup that

781
00:41:24,080 --> 00:41:26,090
can compete with Hyundai.

782
00:41:26,090 --> 00:41:30,350
But maybe there's
something in energy or IT

783
00:41:30,350 --> 00:41:33,230
that they have
room to grow more.

784
00:41:33,230 --> 00:41:38,540
AUDIENCE: Or maybe even focus
SMEs on more domestic affairs--

785
00:41:38,540 --> 00:41:41,580
I don't know if agriculture
or some industries in Korea

786
00:41:41,580 --> 00:41:42,290
might--

787
00:41:42,290 --> 00:41:44,642
you could target
them potentially.

788
00:41:44,642 --> 00:41:46,100
AUDIENCE: And I
think you just need

789
00:41:46,100 --> 00:41:50,180
to offer governmental support
and financial protection

790
00:41:50,180 --> 00:41:53,570
probably a little bit
different than the chebols need

791
00:41:53,570 --> 00:41:54,680
or don't need.

792
00:41:54,680 --> 00:41:57,740
But you just have to decide
what's the scale that you're

793
00:41:57,740 --> 00:41:59,427
trying to look and build at.

794
00:41:59,427 --> 00:42:01,760
If you're trying to build and
serve smaller sectors that

795
00:42:01,760 --> 00:42:04,460
might be underdeveloped, like
agriculture, for example,

796
00:42:04,460 --> 00:42:07,820
you might just have to look a
little bit smaller than trying

797
00:42:07,820 --> 00:42:10,940
to cater to one,
or two, or three

798
00:42:10,940 --> 00:42:12,650
chebol companies off the bat.

799
00:42:22,750 --> 00:42:25,090
WILLIAM BONVILLIAN:
Chris, you think that--

800
00:42:25,090 --> 00:42:28,060
from your reading of Kim,
do you agree with him

801
00:42:28,060 --> 00:42:34,898
that Korea needs to foster an
SME startup kind of community?

802
00:42:34,898 --> 00:42:36,940
AUDIENCE: You mean in the
context of present day?

803
00:42:36,940 --> 00:42:38,200
WILLIAM BONVILLIAN:
Yeah, present day.

804
00:42:38,200 --> 00:42:39,310
AUDIENCE: In present day.

805
00:42:39,310 --> 00:42:40,685
WILLIAM BONVILLIAN:
Is that going

806
00:42:40,685 --> 00:42:43,560
to be an enhancement to
Korea's innovation capability?

807
00:42:43,560 --> 00:42:45,040
Do they really need to do this?

808
00:42:45,040 --> 00:42:46,390
What do you think?

809
00:42:46,390 --> 00:42:49,930
AUDIENCE: Personally, I think
their structure that really

810
00:42:49,930 --> 00:42:53,500
focuses on the bigger
corporations and their impact

811
00:42:53,500 --> 00:42:55,420
and their ability to
really compete globally

812
00:42:55,420 --> 00:42:58,150
has been working.

813
00:42:58,150 --> 00:43:02,830
So I do think that
the corporation

814
00:43:02,830 --> 00:43:05,500
push has been successful.

815
00:43:05,500 --> 00:43:09,490
Whether SMEs should be
supported from the government,

816
00:43:09,490 --> 00:43:14,450
I think it's worth exploring.

817
00:43:14,450 --> 00:43:17,110
I do think that
finding them a niche

818
00:43:17,110 --> 00:43:19,420
is really important
because there's

819
00:43:19,420 --> 00:43:21,520
no point or kind of
redundant for them

820
00:43:21,520 --> 00:43:25,000
to try to enter industries
that the corporations have

821
00:43:25,000 --> 00:43:25,560
a hold on.

822
00:43:29,120 --> 00:43:30,890
AUDIENCE: I'd say it's
probably important,

823
00:43:30,890 --> 00:43:33,230
just because [INAUDIBLE]
innovator's dilemma.

824
00:43:33,230 --> 00:43:36,500
Usually when you're big, you
focus on a specific technology.

825
00:43:36,500 --> 00:43:39,310
Like for Kodak, they invented
the first digital camera,

826
00:43:39,310 --> 00:43:41,810
but because of the way their
supply chain and their current

827
00:43:41,810 --> 00:43:44,390
business was, they couldn't--
they didn't want to manufacture

828
00:43:44,390 --> 00:43:46,307
because it would ruin
their existing business.

829
00:43:46,307 --> 00:43:48,320
So the danger of
having too big a giant,

830
00:43:48,320 --> 00:43:50,793
is, in order to innovate, it
takes so much effort on them

831
00:43:50,793 --> 00:43:51,710
that they won't do it.

832
00:43:51,710 --> 00:43:53,377
And if your economy
is based off of that

833
00:43:53,377 --> 00:43:56,180
and based on those
four giants, especially

834
00:43:56,180 --> 00:43:59,210
with rapid technological
innovation,

835
00:43:59,210 --> 00:44:01,170
you really don't want
to be in that position.

836
00:44:01,170 --> 00:44:04,340
So having that SME structure
would be beneficial.

837
00:44:04,340 --> 00:44:07,290
AUDIENCE: Yeah, I kind of
want to hit on both of those.

838
00:44:07,290 --> 00:44:14,540
So with the chebol versus
SME structure in Korea,

839
00:44:14,540 --> 00:44:20,420
I'm wondering, are the
major, major legacy

840
00:44:20,420 --> 00:44:23,335
corporations-- are
they profitable enough

841
00:44:23,335 --> 00:44:25,460
and large enough to be
self-sufficient-- they don't

842
00:44:25,460 --> 00:44:27,710
really need the input
from the government,

843
00:44:27,710 --> 00:44:29,900
as they did decades ago?

844
00:44:29,900 --> 00:44:31,827
Could the government
focus more on SMEs,

845
00:44:31,827 --> 00:44:33,410
and would that be a
more strategic way

846
00:44:33,410 --> 00:44:34,550
to go about things?

847
00:44:34,550 --> 00:44:37,410
Or do they have a
situation in Korea--

848
00:44:37,410 --> 00:44:38,600
I don't know, I haven't--

849
00:44:38,600 --> 00:44:40,850
I've only been there once,
and it was only for about a

850
00:44:40,850 --> 00:44:42,530
week, so I don't really know.

851
00:44:42,530 --> 00:44:44,960
Do they had a situation
similar to what I think we face

852
00:44:44,960 --> 00:44:49,220
in the United States, where
yes, we have legacy technologies

853
00:44:49,220 --> 00:44:52,160
and sectors that are probably
self-sufficient at this point

854
00:44:52,160 --> 00:44:55,910
and highly profitable,
but we're so ingrained--

855
00:44:55,910 --> 00:44:57,410
the government still
gives subsidies

856
00:44:57,410 --> 00:45:01,100
to fossil fuel industries,
subsidizes their R&D indeed,

857
00:45:01,100 --> 00:45:02,270
and that--

858
00:45:02,270 --> 00:45:04,960
although they shouldn't
necessarily need that.

859
00:45:04,960 --> 00:45:10,013
It's like that, and they
have powers that they can

860
00:45:10,013 --> 00:45:11,180
continue to get those funds.

861
00:45:11,180 --> 00:45:14,480
So what is the
situation in Korea?

862
00:45:14,480 --> 00:45:18,567
Are they ingrained and can't
really separate at this point?

863
00:45:18,567 --> 00:45:20,150
AUDIENCE: From what
I know, definitely

864
00:45:20,150 --> 00:45:21,830
it's still very ingrained.

865
00:45:21,830 --> 00:45:25,070
A lot of the corporations have--

866
00:45:25,070 --> 00:45:27,230
I don't think it's
corruption necessarily,

867
00:45:27,230 --> 00:45:30,980
but close political ties
to the government in power.

868
00:45:30,980 --> 00:45:35,210
So it might be difficult, I
think, to separate the two.

869
00:45:35,210 --> 00:45:39,440
And going back to the
point of whether SMEs could

870
00:45:39,440 --> 00:45:42,440
be on the rise in the
future, I think it's also

871
00:45:42,440 --> 00:45:44,150
a cultural difference.

872
00:45:44,150 --> 00:45:46,880
Because in Korean
and Asian culture,

873
00:45:46,880 --> 00:45:51,020
it's often more traditional,
in that it's very prestige

874
00:45:51,020 --> 00:45:54,090
obviously to go into these
very developed and longstanding

875
00:45:54,090 --> 00:45:56,180
companies.

876
00:45:56,180 --> 00:45:59,300
And there's not so much
an innovation drive,

877
00:45:59,300 --> 00:46:00,110
like there is here.

878
00:46:00,110 --> 00:46:03,560
That startup culture is
really attractive to a lot

879
00:46:03,560 --> 00:46:05,120
of the young millennials.

880
00:46:05,120 --> 00:46:08,840
I don't think that exists so
much, let's say, in Korea.

881
00:46:08,840 --> 00:46:12,950
So whether it be a
job to go to an SME

882
00:46:12,950 --> 00:46:15,710
or go to a big corporation, I
feel like that wouldn't even

883
00:46:15,710 --> 00:46:18,360
be a decision.

884
00:46:18,360 --> 00:46:20,870
It'd be obvious to go
to a big corporation.

885
00:46:20,870 --> 00:46:28,430
So I don't know if the cultural
stigmas and the standards

886
00:46:28,430 --> 00:46:29,167
have guided--

887
00:46:29,167 --> 00:46:30,250
WILLIAM BONVILLIAN: Right.

888
00:46:30,250 --> 00:46:31,430
AUDIENCE: [INAUDIBLE]

889
00:46:31,430 --> 00:46:33,597
WILLIAM BONVILLIAN: Another
cultural point here that

890
00:46:33,597 --> 00:46:36,560
we're dealing with
about risk-taking,

891
00:46:36,560 --> 00:46:39,770
which is a pretty key
element in the US failure--

892
00:46:39,770 --> 00:46:42,270
pretty high tolerance
for failure.

893
00:46:42,270 --> 00:46:43,090
All right.

894
00:46:43,090 --> 00:46:46,100
Look, good summaries.

895
00:46:46,100 --> 00:46:49,228
To get through this, I'm going
to push one to our next--

896
00:46:49,228 --> 00:46:50,605
let me just do one chart.

897
00:46:53,820 --> 00:46:57,270
Just so what recessions
look like in the US

898
00:46:57,270 --> 00:46:59,850
and what's been going on
and repeated sequences

899
00:46:59,850 --> 00:47:03,620
of recession, here's
the 1981 recession--

900
00:47:03,620 --> 00:47:06,510
dip, rise.

901
00:47:06,510 --> 00:47:09,150
And jobs come back
relatively quickly.

902
00:47:09,150 --> 00:47:12,630
Then 1990, it starts
stretching it out further.

903
00:47:12,630 --> 00:47:23,040
Then in 2001, the jobs recovery
is really remarkably slow.

904
00:47:23,040 --> 00:47:29,430
And then the 2008,
2009 recession,

905
00:47:29,430 --> 00:47:33,060
even further out on the
level of job reductions.

906
00:47:33,060 --> 00:47:35,490
And a painful reality
is that you still never

907
00:47:35,490 --> 00:47:37,320
recovered from
the 2001 recession

908
00:47:37,320 --> 00:47:42,510
by the time the 2007, 2008,
2009 recession is on us.

909
00:47:42,510 --> 00:47:48,330
So there may be an argument
that something fundamental

910
00:47:48,330 --> 00:47:50,510
is going on structurally
in the economy,

911
00:47:50,510 --> 00:47:52,440
when you see a chart like that.

912
00:47:52,440 --> 00:47:56,130
In each successive recession,
it's less of a business cycle.

913
00:47:56,130 --> 00:47:58,710
It's more structural.

914
00:47:58,710 --> 00:48:03,960
And it looks like there
are deep structural causes

915
00:48:03,960 --> 00:48:07,530
in these manufacturing
employment declines, when you

916
00:48:07,530 --> 00:48:09,240
start seeing a chart like this.

917
00:48:09,240 --> 00:48:11,640
We'll talk more
about it next week,

918
00:48:11,640 --> 00:48:13,560
but here's declining
median income

919
00:48:13,560 --> 00:48:16,920
for the US, which we'll talk
more about next week too.

920
00:48:16,920 --> 00:48:21,120
So particularly pay
attention to men, who were--

921
00:48:21,120 --> 00:48:24,600
tend to historically have played
a larger role in manufacturing

922
00:48:24,600 --> 00:48:27,780
industries in the US.

923
00:48:27,780 --> 00:48:33,210
So this is change in median
real earnings for men and women

924
00:48:33,210 --> 00:48:35,850
from 1990 to 2013--

925
00:48:35,850 --> 00:48:42,040
so an extended period
from '90 to '13.

926
00:48:42,040 --> 00:48:44,890
No high school diploma, men--

927
00:48:44,890 --> 00:48:48,877
median income declined in
that time period 20 points.

928
00:48:53,750 --> 00:48:57,912
High school diploma or some
college, 13-point decline.

929
00:49:02,250 --> 00:49:06,460
And then advanced
degrees, 21-point rise.

930
00:49:06,460 --> 00:49:09,040
Bachelor's degrees,
16-point rise.

931
00:49:09,040 --> 00:49:12,430
This is a society
that's going like this,

932
00:49:12,430 --> 00:49:14,800
and that's what
we're dealing with.

933
00:49:14,800 --> 00:49:18,020
And arguably, it's
related to this.

934
00:49:25,080 --> 00:49:26,495
Let me move to Suzanne Berger.

935
00:49:31,900 --> 00:49:34,150
You should get to know her,
because she's around here,

936
00:49:34,150 --> 00:49:36,850
and she's really a
remarkable talent

937
00:49:36,850 --> 00:49:43,660
and has been a great
teacher for me.

938
00:49:43,660 --> 00:49:48,850
This is her 2005 book
called How We compete.

939
00:49:48,850 --> 00:49:52,060
And her essential point is that
there are different varieties

940
00:49:52,060 --> 00:49:52,780
of capitalism.

941
00:49:52,780 --> 00:49:56,350
We've been talking a
lot about that today.

942
00:49:56,350 --> 00:50:01,690
And the different approaches
emerged between the US

943
00:50:01,690 --> 00:50:06,700
and Asian economies in
advanced technology goods

944
00:50:06,700 --> 00:50:13,780
in this later part of the
1990s, early 2000s time period.

945
00:50:13,780 --> 00:50:15,070
So what's going on here?

946
00:50:15,070 --> 00:50:21,490
IT is a driver,
and codeable specs

947
00:50:21,490 --> 00:50:26,050
tied to computer-driven
equipment

948
00:50:26,050 --> 00:50:34,270
is enabling a divorce between
production and design.

949
00:50:34,270 --> 00:50:41,790
So in the old time period,
in a prior time period,

950
00:50:41,790 --> 00:50:47,440
Suzanne argues that
manufacturing companies,

951
00:50:47,440 --> 00:50:52,020
production firms were a
lot like model airplanes.

952
00:50:52,020 --> 00:50:54,590
And you all probably
don't remember the era

953
00:50:54,590 --> 00:50:56,210
of plastic model airplanes.

954
00:50:56,210 --> 00:50:58,640
I do.

955
00:50:58,640 --> 00:51:03,710
But you'd get this
batch of plastic parts,

956
00:51:03,710 --> 00:51:08,410
and they never quite fit.

957
00:51:08,410 --> 00:51:11,450
You'd have to work them,
and you'd get glue all over,

958
00:51:11,450 --> 00:51:15,318
and the glue would spill over,
and it would just be a mess.

959
00:51:15,318 --> 00:51:17,360
And you try and clean up
the glue with a Kleenex,

960
00:51:17,360 --> 00:51:19,068
and the Kleenex would
stick to the model.

961
00:51:21,800 --> 00:51:24,170
And you'd put rubber bands
around it to try and get it

962
00:51:24,170 --> 00:51:27,140
to lock in place, and you'd
break the damn thing trying

963
00:51:27,140 --> 00:51:29,270
to get it fixed.

964
00:51:29,270 --> 00:51:33,170
That's what manufacturing
used to be like, she argues.

965
00:51:33,170 --> 00:51:38,540
And to manage, that you needed a
very integrated vertical system

966
00:51:38,540 --> 00:51:41,570
with all parts of that system
tied and connected together

967
00:51:41,570 --> 00:51:45,230
to get around the difficulty
of the production process.

968
00:51:45,230 --> 00:51:50,410
But with codeable IT-based specs
and computer-driven equipment,

969
00:51:50,410 --> 00:51:53,560
he moved to an era of LEGOs.

970
00:51:53,560 --> 00:51:55,650
It's all computer-driven.

971
00:51:55,650 --> 00:51:57,470
You're going to be
producing LEGOs,

972
00:51:57,470 --> 00:52:02,060
and they are always going
to snap perfectly in place.

973
00:52:02,060 --> 00:52:04,940
That's how the production
system changed,

974
00:52:04,940 --> 00:52:10,490
she argued, in these two--
from these two different eras.

975
00:52:10,490 --> 00:52:12,520
And the classic
example is the iPod.

976
00:52:15,860 --> 00:52:25,910
Apple was able to pick a mix
of MP3 best technologies,

977
00:52:25,910 --> 00:52:33,560
and they tied it to
a new software access

978
00:52:33,560 --> 00:52:38,900
system for music in database
form, as you all know.

979
00:52:38,900 --> 00:52:40,430
Now it's video, as well.

980
00:52:44,830 --> 00:52:49,220
A classic Apple move, right?

981
00:52:49,220 --> 00:52:53,030
The problem with MP3
players before Apple

982
00:52:53,030 --> 00:52:56,330
was that you had to
commit a crime in order

983
00:52:56,330 --> 00:52:57,560
to use the MP3 player.

984
00:52:57,560 --> 00:53:00,620
You were stealing
someone's music.

985
00:53:00,620 --> 00:53:03,620
And it was a criminal act.

986
00:53:03,620 --> 00:53:06,800
What kind of product forced
you to commit a criminal act?

987
00:53:06,800 --> 00:53:08,780
It's not a great product line.

988
00:53:08,780 --> 00:53:11,660
So Apple invents an
entirely different way

989
00:53:11,660 --> 00:53:13,790
of organizing the
music industry,

990
00:53:13,790 --> 00:53:20,270
but it ties it to existing
MP3 player technology,

991
00:53:20,270 --> 00:53:23,377
which it receives to perfect.

992
00:53:23,377 --> 00:53:24,460
How is it able to do this?

993
00:53:24,460 --> 00:53:26,180
It was able to do this in
a remarkably short period

994
00:53:26,180 --> 00:53:26,720
of time.

995
00:53:26,720 --> 00:53:29,090
It was a matter of months.

996
00:53:29,090 --> 00:53:33,190
So he figures out what the
optimal MP3 player technologies

997
00:53:33,190 --> 00:53:37,910
are, who is producing
them, and go to them

998
00:53:37,910 --> 00:53:40,710
and enter into contracts
with all over the world--

999
00:53:40,710 --> 00:53:43,820
particularly in China,
but elsewhere, as well.

1000
00:53:43,820 --> 00:53:47,000
And it knows that they're
going to snap together

1001
00:53:47,000 --> 00:53:54,470
like LEGOs in the end, because
they are using codeable specs

1002
00:53:54,470 --> 00:53:56,960
on computer-driven equipment.

1003
00:53:56,960 --> 00:54:00,800
So you can now distribute
your production model.

1004
00:54:00,800 --> 00:54:04,610
So Apple doesn't-- can do
this in a matter of months.

1005
00:54:04,610 --> 00:54:11,360
It doesn't have to go buy green
space outside Wilmington, North

1006
00:54:11,360 --> 00:54:13,888
Carolina, or something,
and build a new factory,

1007
00:54:13,888 --> 00:54:16,180
and get all the permitting,
and spend years doing this,

1008
00:54:16,180 --> 00:54:19,430
and raise a billion
dollars to do it.

1009
00:54:19,430 --> 00:54:22,170
Instead, it quickly
enters into a deal--

1010
00:54:22,170 --> 00:54:24,920
a series of deals with
existing producers,

1011
00:54:24,920 --> 00:54:28,738
but it knows that it can
bring the product back,

1012
00:54:28,738 --> 00:54:30,530
because it's going to
be LEGOs, and they're

1013
00:54:30,530 --> 00:54:33,240
going to snap into place.

1014
00:54:33,240 --> 00:54:36,690
Amazing, absolutely amazing.

1015
00:54:36,690 --> 00:54:45,580
And I was in Japan
in 2006, and--

1016
00:54:45,580 --> 00:54:46,600
in January.

1017
00:54:46,600 --> 00:54:50,410
I spent a wonderful day as
it was snowing in Kyoto,

1018
00:54:50,410 --> 00:54:51,610
which was complete magical.

1019
00:54:51,610 --> 00:54:53,470
But it was mostly back in Tokyo.

1020
00:54:53,470 --> 00:54:59,020
And the headline in the leading
English language newspaper

1021
00:54:59,020 --> 00:55:09,010
in Tokyo was "Apple sells 14
million iPods in two weeks;

1022
00:55:09,010 --> 00:55:10,060
where is Sony!!"

1023
00:55:15,760 --> 00:55:18,300
It was just a reality
that Apple had

1024
00:55:18,300 --> 00:55:20,580
been able to spring to
this whole new product

1025
00:55:20,580 --> 00:55:22,950
line in a remarkably
short period of time

1026
00:55:22,950 --> 00:55:29,010
by using a digital dispersed
distributed production model.

1027
00:55:29,010 --> 00:55:34,380
And it's pretty
irresistible, because you--

1028
00:55:34,380 --> 00:55:36,680
that level of time
and investments

1029
00:55:36,680 --> 00:55:38,550
you have to assemble
ahead of time

1030
00:55:38,550 --> 00:55:40,330
makes this really
quite convenient.

1031
00:55:40,330 --> 00:55:43,180
So lots of US firms
moved to this model,

1032
00:55:43,180 --> 00:55:46,770
and they're technologically
enabled by these technological

1033
00:55:46,770 --> 00:55:48,830
advances to do so.

1034
00:55:48,830 --> 00:55:53,610
Now, Suzanne also goes on to
argue, hey, other people--

1035
00:55:53,610 --> 00:55:56,400
and she's looking a group of
Asian countries and firms--

1036
00:55:56,400 --> 00:55:58,230
are not necessarily doing this.

1037
00:55:58,230 --> 00:56:03,960
So in Korea, Samsung continues
to control the key components.

1038
00:56:03,960 --> 00:56:08,370
It allows a certain amount
of assembly offshore.

1039
00:56:08,370 --> 00:56:10,740
In Japan, there's
a conscious effort

1040
00:56:10,740 --> 00:56:15,510
to keep integrated
innovation model,

1041
00:56:15,510 --> 00:56:18,490
and control all the
critical stages.

1042
00:56:18,490 --> 00:56:20,340
So the risk in
the Apple model is

1043
00:56:20,340 --> 00:56:22,950
that you're offshoring
your production capability,

1044
00:56:22,950 --> 00:56:25,080
and a certain amount of
the innovation capability's

1045
00:56:25,080 --> 00:56:27,360
going to follow.

1046
00:56:27,360 --> 00:56:28,770
That's the risk.

1047
00:56:28,770 --> 00:56:32,280
And to avoid that,
companies in Japan and Korea

1048
00:56:32,280 --> 00:56:37,020
are moving in a very different
organizational model.

1049
00:56:37,020 --> 00:56:41,430
Both models, she
argues, may well work.

1050
00:56:41,430 --> 00:56:44,130
So these are varieties of
capitalism at play here.

1051
00:56:44,130 --> 00:56:46,830
But the important thing
I want you to understand

1052
00:56:46,830 --> 00:56:50,830
is that you can now,
for the first time

1053
00:56:50,830 --> 00:56:53,950
historically, sever
production and design.

1054
00:56:53,950 --> 00:56:57,310
And it's pretty
irresistible to do so,

1055
00:56:57,310 --> 00:57:00,070
because you significantly
reduce your risk, and exposure,

1056
00:57:00,070 --> 00:57:02,890
and your investment
levels upfront.

1057
00:57:02,890 --> 00:57:06,460
So that's why, she
would argue, US firms

1058
00:57:06,460 --> 00:57:09,430
tend to pursue this model.

1059
00:57:09,430 --> 00:57:12,515
And we'll go to her
next book next week

1060
00:57:12,515 --> 00:57:15,400
and discover why the model may
not necessarily be optimal.

1061
00:57:15,400 --> 00:57:18,110
We'll hold that in
advance until next week.

1062
00:57:18,110 --> 00:57:21,750
So who's got Suzanne?

1063
00:57:21,750 --> 00:57:23,630
Let's go ahead then, Matthew.

1064
00:57:23,630 --> 00:57:26,937
AUDIENCE: So in How We
Compete, basically they

1065
00:57:26,937 --> 00:57:28,770
look at a whole bunch
of different companies

1066
00:57:28,770 --> 00:57:33,090
in many different
industries and try

1067
00:57:33,090 --> 00:57:36,360
to find what it is that
makes companies competitive.

1068
00:57:36,360 --> 00:57:40,350
So they find that there's
no single paradigm.

1069
00:57:40,350 --> 00:57:42,540
And one of the
key lines there is

1070
00:57:42,540 --> 00:57:44,640
that there's no sunset
industries, just

1071
00:57:44,640 --> 00:57:45,570
sunset strategies.

1072
00:57:45,570 --> 00:57:48,603
So really, to be
competitive, what they found

1073
00:57:48,603 --> 00:57:51,270
is that companies always need to
be questioning their processes,

1074
00:57:51,270 --> 00:57:54,050
looking for ways to innovate.

1075
00:57:54,050 --> 00:57:57,030
And then what I got out
of it were primarily

1076
00:57:57,030 --> 00:57:58,220
two different balances.

1077
00:57:58,220 --> 00:58:03,870
One is this idea of
intelligent offshoring, where

1078
00:58:03,870 --> 00:58:09,450
maybe outsourcing all
of your manufacturing

1079
00:58:09,450 --> 00:58:13,860
is not the best idea because
there are other costs involved

1080
00:58:13,860 --> 00:58:17,850
with that, and can
create innovation

1081
00:58:17,850 --> 00:58:20,970
gaps within your own country.

1082
00:58:20,970 --> 00:58:23,550
And then the other
balance being with IP,

1083
00:58:23,550 --> 00:58:29,700
and how do you create a
collaborative environment

1084
00:58:29,700 --> 00:58:36,850
where that's conducive to
growth and development, but also

1085
00:58:36,850 --> 00:58:39,322
protecting your IP,
so that you don't

1086
00:58:39,322 --> 00:58:41,840
create your own competitor?

1087
00:58:41,840 --> 00:58:44,320
And so I have some
questions here.

1088
00:58:47,940 --> 00:58:49,820
I think one of the
first things is

1089
00:58:49,820 --> 00:58:53,240
how do companies in
fiercely competitive sectors

1090
00:58:53,240 --> 00:58:58,390
actually set themselves up
to constantly be innovating?

1091
00:58:58,390 --> 00:59:01,050
It's a tough thing to do.

1092
00:59:02,773 --> 00:59:04,940
WILLIAM BONVILLIAN: Let me
underscore the importance

1093
00:59:04,940 --> 00:59:06,170
of your question.

1094
00:59:06,170 --> 00:59:08,510
The number of companies that
are a hundred years old you

1095
00:59:08,510 --> 00:59:11,550
can probably
measure on one hand.

1096
00:59:11,550 --> 00:59:15,950
They go through disruption,
and they change, and they die.

1097
00:59:15,950 --> 00:59:18,773
Long-lasting, long-enduring
companies are rare.

1098
00:59:18,773 --> 00:59:20,940
And it's retaining this
innovation capability that's

1099
00:59:20,940 --> 00:59:23,273
so critical, so you're driving
at a really key question.

1100
00:59:28,590 --> 00:59:31,590
AUDIENCE: When you mentioned
innovative firms, firms

1101
00:59:31,590 --> 00:59:34,680
that keep staying at the head,
my first thought is Apple.

1102
00:59:34,680 --> 00:59:39,310
and I think Apple's, what,
like 30 years old now?

1103
00:59:39,310 --> 00:59:43,770
It hasn't even proven that
it can withstay the trend.

1104
00:59:43,770 --> 00:59:46,740
So I'm trying to think of
something that is actually

1105
00:59:46,740 --> 00:59:50,010
more than 50 years old
that has been consistently

1106
00:59:50,010 --> 00:59:50,970
on top of things.

1107
00:59:50,970 --> 00:59:53,577
AUDIENCE: I think Coke is
probably my favorite example.

1108
00:59:53,577 --> 00:59:55,660
WILLIAM BONVILLIAN: Coke's
one, and IBM's another.

1109
00:59:55,660 --> 00:59:57,930
AUDIENCE: Yeah, and then IBM.

1110
00:59:57,930 --> 01:00:02,100
I think IBM I know more about,
just because they developed

1111
01:00:02,100 --> 01:00:05,650
as sort of in f wave--

1112
01:00:05,650 --> 01:00:10,280
in the context of the US
was looking for answers

1113
01:00:10,280 --> 01:00:11,730
in the semiconductor realm.

1114
01:00:11,730 --> 01:00:14,700
But more importantly,
they had to deal

1115
01:00:14,700 --> 01:00:17,030
with the whole advent
of personal computing,

1116
01:00:17,030 --> 01:00:21,790
and then they shifted now
into more IT-based services.

1117
01:00:21,790 --> 01:00:25,090
And so they just contract
out and solve your problems.

1118
01:00:25,090 --> 01:00:28,020
And I think it's
like you have to be

1119
01:00:28,020 --> 01:00:33,370
sensitive to these big
technological disruptions,

1120
01:00:33,370 --> 01:00:37,110
and then ride the wave
or get out completely,

1121
01:00:37,110 --> 01:00:43,860
and being able to shut down
kind of large sections of--

1122
01:00:43,860 --> 01:00:46,200
it was previously
advantageous maybe for Kodak

1123
01:00:46,200 --> 01:00:49,627
to use disposable cameras, but
now we have digital cameras.

1124
01:00:49,627 --> 01:00:51,210
And so you have to
be able to be like,

1125
01:00:51,210 --> 01:00:54,540
OK, we're going to
really radically change

1126
01:00:54,540 --> 01:00:58,050
the course of our company
in order to sustain

1127
01:00:58,050 --> 01:01:00,420
and stay alive.

1128
01:01:00,420 --> 01:01:03,750
And that's a hard decision
to be able to make.

1129
01:01:03,750 --> 01:01:09,360
And so I think the resistance
to change piece is probably

1130
01:01:09,360 --> 01:01:15,690
differentiates your Cokes from
maybe your less long-lasting

1131
01:01:15,690 --> 01:01:16,723
companies.

1132
01:01:16,723 --> 01:01:18,390
WILLIAM BONVILLIAN:
And next week you're

1133
01:01:18,390 --> 01:01:21,090
going to start to read
your textbook, which

1134
01:01:21,090 --> 01:01:23,820
is about the difficulty
of innovation

1135
01:01:23,820 --> 01:01:27,380
in complex established
legacy economic sectors.

1136
01:01:27,380 --> 01:01:30,140
And that's a large part
of this [INAUDIBLE]

1137
01:01:30,140 --> 01:01:34,352
answering your question.

1138
01:01:34,352 --> 01:01:36,060
AUDIENCE: The question
too is, if there's

1139
01:01:36,060 --> 01:01:38,988
these new capabilities and you
don't use them, somebody will.

1140
01:01:38,988 --> 01:01:40,530
So it's kind of like
a Pandora's box,

1141
01:01:40,530 --> 01:01:43,740
because I may not want to
change my whole supply chain

1142
01:01:43,740 --> 01:01:48,660
and get rid of a ton of
jobs for my employees

1143
01:01:48,660 --> 01:01:52,575
because of all the things
that happened after,

1144
01:01:52,575 --> 01:01:54,450
but my competitor is
probably going to do it.

1145
01:01:54,450 --> 01:01:57,083
And if I don't do it, then
he's going to have a lower--

1146
01:01:57,083 --> 01:01:59,250
he's going to lower his
costs, and he'll most likely

1147
01:01:59,250 --> 01:02:00,810
beat me to market.

1148
01:02:00,810 --> 01:02:04,170
And there's a quote from
Andrew Carnegie, where

1149
01:02:04,170 --> 01:02:06,450
he goes like, you should
always use the best tools,

1150
01:02:06,450 --> 01:02:09,960
even if it's very hard
to cheat your old tools.

1151
01:02:09,960 --> 01:02:14,418
Because as a titan of industry,
if you don't, somebody else

1152
01:02:14,418 --> 01:02:14,918
will.

1153
01:02:19,090 --> 01:02:21,090
AUDIENCE: And the other
thing I liked from Hayes

1154
01:02:21,090 --> 01:02:21,715
I think about--

1155
01:02:21,715 --> 01:02:25,490
I know it goes a little bit
into next week's readings here,

1156
01:02:25,490 --> 01:02:29,910
but to what extent do you think
that design and manufacturing

1157
01:02:29,910 --> 01:02:33,030
can actually be separated?

1158
01:02:33,030 --> 01:02:35,160
I know here at MIT, in
the mechanical engineering

1159
01:02:35,160 --> 01:02:39,870
department, there's still
a big emphasis on taking

1160
01:02:39,870 --> 01:02:43,380
the manufacturing classes, in
terms of just understanding

1161
01:02:43,380 --> 01:02:45,240
when you're designing,
what is feasible,

1162
01:02:45,240 --> 01:02:48,800
what is possible to manufacture.

1163
01:02:48,800 --> 01:02:52,220
Maybe 3D printing, it's a
little bit more separate.

1164
01:02:52,220 --> 01:02:55,620
You're basically
saying can be made.

1165
01:02:55,620 --> 01:03:00,570
But there's a lot of
know-how embodied in having

1166
01:03:00,570 --> 01:03:03,660
the manufacturing there too.

1167
01:03:03,660 --> 01:03:06,220
I don't fully think
that they can be--

1168
01:03:06,220 --> 01:03:09,510
or it's wise to
fully separate them.

1169
01:03:09,510 --> 01:03:13,060
I want to see if people also
have some more thoughts there.

1170
01:03:13,060 --> 01:03:16,950
AUDIENCE: I was going to say
that maybe the separation is

1171
01:03:16,950 --> 01:03:19,260
just a figment of
our imaginations,

1172
01:03:19,260 --> 01:03:22,050
because I know that
when Suzanne Berger was

1173
01:03:22,050 --> 01:03:24,480
on the panel in
bootcamp course--

1174
01:03:24,480 --> 01:03:28,320
I think it was Suzanne who
said that the people who--

1175
01:03:28,320 --> 01:03:34,470
the designers for Apple spend
most of their time not here.

1176
01:03:34,470 --> 01:03:36,990
They spend their time in
the offshore manufacturing.

1177
01:03:36,990 --> 01:03:38,005
WILLIAM BONVILLIAN:
Shenzhen, in particular.

1178
01:03:38,005 --> 01:03:39,182
AUDIENCE: Makes sense.

1179
01:03:39,182 --> 01:03:40,890
AUDIENCE: So they're
not really separate,

1180
01:03:40,890 --> 01:03:43,500
although they're quote,
unquote "separate."

1181
01:03:43,500 --> 01:03:49,440
AUDIENCE: I think also
objective is important.

1182
01:03:49,440 --> 01:03:51,240
And if you're
trying to separate,

1183
01:03:51,240 --> 01:03:53,370
what are you trying to
separate in order to do--

1184
01:03:53,370 --> 01:03:56,382
if you're trying to separate
in order to cut costs,

1185
01:03:56,382 --> 01:03:58,590
you'll find a way, because
it'll be more advantageous

1186
01:03:58,590 --> 01:04:01,500
for you to send your
manufacturing section over,

1187
01:04:01,500 --> 01:04:02,280
if you're Apple.

1188
01:04:02,280 --> 01:04:03,960
But even if you do
that, you're going

1189
01:04:03,960 --> 01:04:07,080
to have to send your designers
in order to do the next thing

1190
01:04:07,080 --> 01:04:09,870
and really consider how
am I going to manufacture

1191
01:04:09,870 --> 01:04:11,120
this thing that I've designed.

1192
01:04:11,120 --> 01:04:13,500
And in order to do that,
you can't separate them.

1193
01:04:13,500 --> 01:04:15,600
So the mechanical engineering
department, I think,

1194
01:04:15,600 --> 01:04:17,880
is probably pretty
smart by training--

1195
01:04:17,880 --> 01:04:20,340
when training all mechanical
engineers who are then

1196
01:04:20,340 --> 01:04:21,972
going to go up design
and manufacture,

1197
01:04:21,972 --> 01:04:24,180
even though you might
specialize in one or the other,

1198
01:04:24,180 --> 01:04:26,570
you need to have a strong
basis and a foundation of both,

1199
01:04:26,570 --> 01:04:28,410
and understandable
are critical in order

1200
01:04:28,410 --> 01:04:33,120
to do anything that's probably
long-lasting or meaningful,

1201
01:04:33,120 --> 01:04:34,852
and I guess quote,
unquote "innovative."

1202
01:04:38,290 --> 01:04:40,690
AUDIENCE: When we talk about
design, what do we mean?

1203
01:04:40,690 --> 01:04:43,030
Do we mean the designer
of an industrial system?

1204
01:04:43,030 --> 01:04:45,370
Do we mean the designer of
an industrial appliance?

1205
01:04:45,370 --> 01:04:46,870
Do we mean the
designer of hardware?

1206
01:04:46,870 --> 01:04:48,140
Do we mean the
designer of software?

1207
01:04:48,140 --> 01:04:50,110
What components of
design are we concerned

1208
01:04:50,110 --> 01:04:53,620
about, and in what ways is this
relevant in the conversation

1209
01:04:53,620 --> 01:04:56,710
we're having right now
about integrative innovation

1210
01:04:56,710 --> 01:04:57,703
processes?

1211
01:05:01,090 --> 01:05:05,370
AUDIENCE: [INAUDIBLE] I'm
viewing it, when we see--

1212
01:05:05,370 --> 01:05:07,350
we're comparing the
design and manufacturing,

1213
01:05:07,350 --> 01:05:09,540
so I wouldn't think of
it so much as software.

1214
01:05:09,540 --> 01:05:12,180
Primarily hardware,
where the design

1215
01:05:12,180 --> 01:05:19,420
may be having a 3D model or
a layout of my circuit board

1216
01:05:19,420 --> 01:05:21,540
that I'm going to
send to a manufacturer

1217
01:05:21,540 --> 01:05:23,730
on the other side of the
world, who will actually

1218
01:05:23,730 --> 01:05:26,544
make those components, put them
together, and send them back

1219
01:05:26,544 --> 01:05:27,930
to me.

1220
01:05:27,930 --> 01:05:30,605
That's at least
what I [INAUDIBLE]..

1221
01:05:30,605 --> 01:05:31,230
AUDIENCE: Yeah.

1222
01:05:31,230 --> 01:05:34,130
I guess I raise that concern
because, as a designer myself--

1223
01:05:34,130 --> 01:05:36,320
I think of myself as
a design researcher,

1224
01:05:36,320 --> 01:05:38,390
because I think about
the ways in which you

1225
01:05:38,390 --> 01:05:42,200
can take systems engineering
approaches to social issues.

1226
01:05:42,200 --> 01:05:46,100
And there's a big
debate right now

1227
01:05:46,100 --> 01:05:49,230
in the design community
about what design even is.

1228
01:05:49,230 --> 01:05:51,410
There's this big debate
about design thinking

1229
01:05:51,410 --> 01:05:54,450
and versus the design cycle,
and who gets to create it.

1230
01:05:54,450 --> 01:05:57,860
And there's even more of
a debate about the nuances

1231
01:05:57,860 --> 01:06:02,690
and exerting the power
in creating something.

1232
01:06:02,690 --> 01:06:05,720
All of these hardware choices
are political choices,

1233
01:06:05,720 --> 01:06:08,930
and they have impacts on
both the user and the society

1234
01:06:08,930 --> 01:06:10,500
in which they're implemented.

1235
01:06:10,500 --> 01:06:13,130
So that's why I think it's
important to really consider,

1236
01:06:13,130 --> 01:06:16,340
when both the author and we
talk about design, what kind

1237
01:06:16,340 --> 01:06:19,310
of design we're talking about,
and we view it not necessarily

1238
01:06:19,310 --> 01:06:23,360
as a neutral and apolitical
action, but very much

1239
01:06:23,360 --> 01:06:28,880
as a reflection of what
that corporation values

1240
01:06:28,880 --> 01:06:35,510
and what kind of values they
want to promote in a society.

1241
01:06:35,510 --> 01:06:39,590
When I look at this laptop, I
don't think, this is beautiful,

1242
01:06:39,590 --> 01:06:41,600
this is elegant,
this is functional.

1243
01:06:41,600 --> 01:06:44,390
I think, this is how this
company wants the world

1244
01:06:44,390 --> 01:06:51,270
to look like, and this is
their long-lasting and material

1245
01:06:51,270 --> 01:06:56,375
vision for what the world could
look like for the long run.

1246
01:06:56,375 --> 01:06:58,750
AUDIENCE: Alternatively, I
think a lot of design thinking

1247
01:06:58,750 --> 01:07:01,408
actually is for companies
that, while we're

1248
01:07:01,408 --> 01:07:03,450
looking at what they--
what we think their vision

1249
01:07:03,450 --> 01:07:05,418
is [INAUDIBLE] when we
look at, say, a Macbook,

1250
01:07:05,418 --> 01:07:06,960
I think a lot of
them are looking to,

1251
01:07:06,960 --> 01:07:09,522
and most designers
at Apple would say,

1252
01:07:09,522 --> 01:07:11,730
in their design process,
they're looking at the users

1253
01:07:11,730 --> 01:07:13,855
and seeing what the
users actually want.

1254
01:07:13,855 --> 01:07:17,650
[INAUDIBLE] there's a
lot of looking both ways.

1255
01:07:17,650 --> 01:07:19,480
AUDIENCE: From a
capitalist perspective,

1256
01:07:19,480 --> 01:07:21,078
the way I would
look at it is, OK,

1257
01:07:21,078 --> 01:07:22,620
what are the
manufacturing abilities?

1258
01:07:22,620 --> 01:07:24,382
How much does it cost me?

1259
01:07:24,382 --> 01:07:25,590
How long is it going to take?

1260
01:07:25,590 --> 01:07:26,970
What are going to be the issues?

1261
01:07:26,970 --> 01:07:28,117
Don't make it complicated.

1262
01:07:28,117 --> 01:07:29,700
Simplify it, simplify
it, simplify it,

1263
01:07:29,700 --> 01:07:32,033
because in execution, it's
going to be way more complex,

1264
01:07:32,033 --> 01:07:34,030
and I'm not trying
to deal with that.

1265
01:07:34,030 --> 01:07:35,970
And then, OK, I'll make it.

1266
01:07:35,970 --> 01:07:38,220
Make sure it's slightly
different than my competitors.

1267
01:07:38,220 --> 01:07:40,110
Make sure it follows
the values of my company

1268
01:07:40,110 --> 01:07:41,040
in a certain amount of way.

1269
01:07:41,040 --> 01:07:42,450
And then when I
market it, you think

1270
01:07:42,450 --> 01:07:43,950
it's something more
than it actually

1271
01:07:43,950 --> 01:07:46,841
is because then you'll buy it,
because it's worth the value.

1272
01:07:50,500 --> 01:07:54,190
AUDIENCE: I think maybe
American Apparel and--

1273
01:07:54,190 --> 01:07:56,410
they hinted at American
Apparel, Lucky Brand Jeans,

1274
01:07:56,410 --> 01:08:00,380
and some other companies
that are very heavy--

1275
01:08:00,380 --> 01:08:02,380
or their models are
particularly because they're

1276
01:08:02,380 --> 01:08:03,047
based in the US.

1277
01:08:03,047 --> 01:08:06,740
And even though it might be
less expensive to like build

1278
01:08:06,740 --> 01:08:11,230
and manufacture your jeans or
your t-shirts, for example,

1279
01:08:11,230 --> 01:08:16,180
outside of Los Angeles,
you lose other factors,

1280
01:08:16,180 --> 01:08:19,960
which is being able to say made
in the USA, blah, blah, blah.

1281
01:08:19,960 --> 01:08:24,580
But also you gain production
speak and all of these things

1282
01:08:24,580 --> 01:08:27,486
that Martin was talking
about from coupling

1283
01:08:27,486 --> 01:08:29,319
these design and the
manufacturing processes

1284
01:08:29,319 --> 01:08:30,300
and leaving them here.

1285
01:08:30,300 --> 01:08:33,160
But at the end of
the day, I think

1286
01:08:33,160 --> 01:08:34,720
you do a cost benefit
analysis, kind

1287
01:08:34,720 --> 01:08:37,779
of like Martin said,
and then just make sure

1288
01:08:37,779 --> 01:08:42,500
that your company values
is in line with the product

1289
01:08:42,500 --> 01:08:45,640
and how you want people to
interface with the world

1290
01:08:45,640 --> 01:08:46,667
through your product.

1291
01:08:46,667 --> 01:08:48,250
AUDIENCE: But then
going off that, I'm

1292
01:08:48,250 --> 01:08:50,140
curious how much
of an advantages

1293
01:08:50,140 --> 01:08:52,500
that you get from
producing in the US can--

1294
01:08:52,500 --> 01:08:56,319
or whatever their gimmick is--

1295
01:08:56,319 --> 01:08:58,990
how long those will last.

1296
01:08:58,990 --> 01:09:01,210
Like American Apparel just
closed all their stores.

1297
01:09:01,210 --> 01:09:05,020
So does that mean that that
approach isn't sustainable

1298
01:09:05,020 --> 01:09:11,020
and that they should have taken
another look at outsourcing?

1299
01:09:11,020 --> 01:09:13,600
There are other factors
contributing to it,

1300
01:09:13,600 --> 01:09:16,210
but is that--

1301
01:09:16,210 --> 01:09:18,100
do these companies have
to pick what society

1302
01:09:18,100 --> 01:09:21,771
will want as their
special sauce,

1303
01:09:21,771 --> 01:09:23,229
and hope that it
lasts long enough,

1304
01:09:23,229 --> 01:09:25,689
or are they eventually
going to need to think

1305
01:09:25,689 --> 01:09:27,441
about these alternatives?

1306
01:09:27,441 --> 01:09:29,899
AUDIENCE: They definitely should
consider the alternatives,

1307
01:09:29,899 --> 01:09:31,492
but when--

1308
01:09:31,492 --> 01:09:33,700
at least with American
Apparel, like you were saying,

1309
01:09:33,700 --> 01:09:35,117
there's probably
a ton of factors.

1310
01:09:35,117 --> 01:09:36,880
And I think just to
answer that question,

1311
01:09:36,880 --> 01:09:38,350
we just need more data.

1312
01:09:38,350 --> 01:09:41,380
So we need to somehow control
for the type of industry,

1313
01:09:41,380 --> 01:09:44,729
the time period, the location,
et cetera, et cetera.

1314
01:09:44,729 --> 01:09:47,800
And then you could compare.

1315
01:09:47,800 --> 01:09:50,290
Based on the information
that we have, the question--

1316
01:09:50,290 --> 01:09:53,450
we just don't have the numbers
to back up either side.

1317
01:09:53,450 --> 01:09:54,700
AUDIENCE: Or another example--

1318
01:09:54,700 --> 01:09:57,160
I think that this was
written before Zara

1319
01:09:57,160 --> 01:10:02,780
came under fire for a bunch of
basically human rights issues--

1320
01:10:02,780 --> 01:10:03,520
outsourcing--

1321
01:10:03,520 --> 01:10:04,780
AUDIENCE: But I'd look into--

1322
01:10:04,780 --> 01:10:05,890
did that affect sales?

1323
01:10:05,890 --> 01:10:07,360
WILLIAM BONVILLIAN: Or do you
want to lay out the Zara model

1324
01:10:07,360 --> 01:10:08,300
for us, Lily?

1325
01:10:08,300 --> 01:10:10,230
AUDIENCE: Oh, gosh.

1326
01:10:10,230 --> 01:10:11,980
AUDIENCE: Do you know it?

1327
01:10:11,980 --> 01:10:14,980
AUDIENCE: No, I'm
afraid I can't--

1328
01:10:14,980 --> 01:10:15,200
WILLIAM BONVILLIAN: I
can summarize it for you.

1329
01:10:15,200 --> 01:10:16,240
AUDIENCE: --articulate it well.

1330
01:10:16,240 --> 01:10:18,115
WILLIAM BONVILLIAN: Or
Martin if you know it.

1331
01:10:18,115 --> 01:10:20,180
AUDIENCE: If you know
it better [INAUDIBLE]..

1332
01:10:20,180 --> 01:10:20,630
WILLIAM BONVILLIAN:
I don't know.

1333
01:10:20,630 --> 01:10:21,684
We'll find out.

1334
01:10:21,684 --> 01:10:22,590
[LAUGHTER]

1335
01:10:22,590 --> 01:10:24,160
AUDIENCE: You do it, and
then I'll appendix anything--

1336
01:10:24,160 --> 01:10:25,410
WILLIAM BONVILLIAN: Please do.

1337
01:10:28,930 --> 01:10:31,630
It's an example that
Suzanne Berger uses.

1338
01:10:31,630 --> 01:10:36,490
And the point about Zara
is that, by locating

1339
01:10:36,490 --> 01:10:40,600
its production facilities it's
very close to its markets,

1340
01:10:40,600 --> 01:10:47,140
it's able to move production
to its sale system

1341
01:10:47,140 --> 01:10:49,870
in a very, very
short period of time.

1342
01:10:49,870 --> 01:10:53,170
So by tracking fashion
markets and what

1343
01:10:53,170 --> 01:10:55,380
appears to be
moving and selling,

1344
01:10:55,380 --> 01:10:59,280
it's able to shift its
production system quickly

1345
01:10:59,280 --> 01:11:02,620
onto new styles that
seem to be emerging.

1346
01:11:02,620 --> 01:11:05,595
Whereas if you shipping
that style across, say,

1347
01:11:05,595 --> 01:11:08,680
8,000 miles of ocean
in a container ship

1348
01:11:08,680 --> 01:11:13,990
that's moving at 8 and 1/2
knots, you're not in the game.

1349
01:11:13,990 --> 01:11:16,900
So Zara has figured
out how to keep

1350
01:11:16,900 --> 01:11:21,370
that relationship between
production facility, market,

1351
01:11:21,370 --> 01:11:25,420
and sales facility very
tight, and therefore, be

1352
01:11:25,420 --> 01:11:27,940
able to serve emerging markets.

1353
01:11:27,940 --> 01:11:30,040
Fashion is somewhat
different than other areas,

1354
01:11:30,040 --> 01:11:32,230
but the point, I
think, is still there.

1355
01:11:32,230 --> 01:11:34,780
But serve emerging
markets very quickly--

1356
01:11:34,780 --> 01:11:36,500
so rising to your
market opportunities

1357
01:11:36,500 --> 01:11:38,610
in very short periods of time.

1358
01:11:38,610 --> 01:11:40,293
How's that, Martin?

1359
01:11:40,293 --> 01:11:41,710
AUDIENCE: Pretty
much what they do

1360
01:11:41,710 --> 01:11:43,790
is they go into the Fashion
Week, and they're like,

1361
01:11:43,790 --> 01:11:45,100
oh, this is a really
expensive thing.

1362
01:11:45,100 --> 01:11:46,420
What we're going to do
is we're going to find

1363
01:11:46,420 --> 01:11:47,628
a very cheap way of doing it.

1364
01:11:47,628 --> 01:11:51,190
They have it on the market
by two weeks pretty much.

1365
01:11:51,190 --> 01:11:54,130
They like rapidly design and
they go for a low price point,

1366
01:11:54,130 --> 01:11:56,630
and then they'll put
it into the market,

1367
01:11:56,630 --> 01:11:59,293
and then people will buy it.

1368
01:11:59,293 --> 01:12:00,460
You're not buying for value.

1369
01:12:00,460 --> 01:12:01,630
You're buying because
this is trendy,

1370
01:12:01,630 --> 01:12:03,170
and I don't want to spend much.

1371
01:12:03,170 --> 01:12:05,320
And that's kind of their
value prop right now.

1372
01:12:05,320 --> 01:12:07,540
because they're usually
slightly more than H&M,

1373
01:12:07,540 --> 01:12:09,467
but it's just that
right model for I

1374
01:12:09,467 --> 01:12:11,050
want to buy a good
amount, and I don't

1375
01:12:11,050 --> 01:12:14,250
want to look like I'm
from 10 years ago.

1376
01:12:14,250 --> 01:12:16,250
WILLIAM BONVILLIAN: Does
that sound right, Lily?

1377
01:12:16,250 --> 01:12:17,300
OK.

1378
01:12:17,300 --> 01:12:19,200
AUDIENCE: But yeah, I would
have to look at the data of how

1379
01:12:19,200 --> 01:12:19,900
their sales reflected.

1380
01:12:19,900 --> 01:12:21,330
Because I think
some people do care,

1381
01:12:21,330 --> 01:12:22,705
or they might act
like they care,

1382
01:12:22,705 --> 01:12:25,278
but probably when they
vote with their dollar--

1383
01:12:25,278 --> 01:12:26,820
because there's Zara
and there's H&M,

1384
01:12:26,820 --> 01:12:28,470
but there's not too
much of a difference.

1385
01:12:28,470 --> 01:12:30,303
And I'm pretty sure
they different products.

1386
01:12:30,303 --> 01:12:32,460
So somebody might be
like, I really like

1387
01:12:32,460 --> 01:12:36,392
this sweater from Zara, so
I'll definitely go that way.

1388
01:12:36,392 --> 01:12:38,850
I would debate that there's a
very small percentage that'll

1389
01:12:38,850 --> 01:12:41,480
be like, I'm totally never going
to buy from the store again--

1390
01:12:41,480 --> 01:12:43,438
or I'm totally not going
to buy from this store

1391
01:12:43,438 --> 01:12:46,190
again, and then not
go back to buying

1392
01:12:46,190 --> 01:12:47,535
from like two weeks later.

1393
01:12:47,535 --> 01:12:49,910
WILLIAM BONVILLIAN: So I'm
going to bring us back to Mac,

1394
01:12:49,910 --> 01:12:52,930
since we've now gone off
to into the fashion world--

1395
01:12:52,930 --> 01:12:54,260
back to some more fundamental.

1396
01:12:54,260 --> 01:12:55,350
Do you have some
closing points you

1397
01:12:55,350 --> 01:12:56,642
want to make on Suzanne's book?

1398
01:12:56,642 --> 01:12:59,687
What do you think
is really key in it?

1399
01:12:59,687 --> 01:13:01,770
AUDIENCE: I think one real
key point that maybe we

1400
01:13:01,770 --> 01:13:05,520
didn't get as much to
talk on is that maybe we

1401
01:13:05,520 --> 01:13:10,890
have, as Americans, this
idea of a birthright to being

1402
01:13:10,890 --> 01:13:15,660
at the forefront of
innovation, and really

1403
01:13:15,660 --> 01:13:20,520
pointing out that no one
who's completed and sitting

1404
01:13:20,520 --> 01:13:24,960
on their laurels will
stay in that position.

1405
01:13:24,960 --> 01:13:28,400
I think there's a good
contrast between her ideas

1406
01:13:28,400 --> 01:13:32,278
on outsourcing versus Berger's.

1407
01:13:32,278 --> 01:13:33,618
Something to think about.

1408
01:13:33,618 --> 01:13:34,660
WILLIAM BONVILLIAN: Good.

1409
01:13:34,660 --> 01:13:37,850
Good point, Matthew.

1410
01:13:37,850 --> 01:13:42,140
All right, that brings us
to our closing reading.

1411
01:13:47,310 --> 01:13:52,590
This is one of MIT's great
provosts, Joel Moses,

1412
01:13:52,590 --> 01:13:56,850
who was deeply
involved in the early

1413
01:13:56,850 --> 01:14:00,150
and, indeed, later stages
of the computing revolution.

1414
01:14:00,150 --> 01:14:04,470
So this is a young Joel
at project MAC at MIT,

1415
01:14:04,470 --> 01:14:08,880
which is MIT's
implementation engine

1416
01:14:08,880 --> 01:14:12,810
for a lot of the early
computing advances.

1417
01:14:12,810 --> 01:14:16,800
So Joel steps back and
writes this fun piece, which

1418
01:14:16,800 --> 01:14:19,950
I wanted to throw
in here at the end,

1419
01:14:19,950 --> 01:14:25,110
to pick up our determinism
theme one more time.

1420
01:14:25,110 --> 01:14:27,360
We've been talking about
different kinds of innovation

1421
01:14:27,360 --> 01:14:29,250
systems and how
different countries have

1422
01:14:29,250 --> 01:14:31,140
varieties of capitalism
and varieties

1423
01:14:31,140 --> 01:14:33,060
of innovation systems.

1424
01:14:33,060 --> 01:14:37,610
And Joel takes us back
a step and gives us more

1425
01:14:37,610 --> 01:14:42,530
of a 10,000-foot kind
of look, which I was--

1426
01:14:42,530 --> 01:14:45,590
I've always been intrigued with.

1427
01:14:45,590 --> 01:14:51,560
He argues that there are three
fundamentally different design

1428
01:14:51,560 --> 01:14:52,340
methodologies.

1429
01:14:52,340 --> 01:14:56,450
So this is a design methodology
in a societal sense,

1430
01:14:56,450 --> 01:14:59,120
rather than engineering design,
that Matthew was leading us

1431
01:14:59,120 --> 01:15:01,910
through earlier.

1432
01:15:01,910 --> 01:15:04,610
And he argues that,
historically, the US

1433
01:15:04,610 --> 01:15:09,920
has used what he calls
a tree and branch

1434
01:15:09,920 --> 01:15:13,310
organizational
attempt, which creates

1435
01:15:13,310 --> 01:15:16,640
very hierarchical firms.

1436
01:15:16,640 --> 01:15:23,030
And he argues that this
very hierarchical system--

1437
01:15:23,030 --> 01:15:27,470
and you can picture with the
organization chart looks--

1438
01:15:27,470 --> 01:15:32,390
it's like a tree, top
management all the way down

1439
01:15:32,390 --> 01:15:36,350
through many different
hierarchies of levels--

1440
01:15:36,350 --> 01:15:38,840
that that fits a mass
production company.

1441
01:15:38,840 --> 01:15:42,342
This is the kind of economy
that was compelled coming out

1442
01:15:42,342 --> 01:15:43,550
of the Industrial Revolution.

1443
01:15:46,690 --> 01:15:49,540
And it's organized
for manufacturing

1444
01:15:49,540 --> 01:15:54,820
at a national scale for
national markets, where

1445
01:15:54,820 --> 01:15:57,490
a lot of vertical
integration is required.

1446
01:15:57,490 --> 01:16:00,970
So think about the big
three US car companies.

1447
01:16:00,970 --> 01:16:03,880
Now, then he makes an
interesting additional point,

1448
01:16:03,880 --> 01:16:10,240
which is this, by the way,
fits an Aristotelian hierarchy

1449
01:16:10,240 --> 01:16:13,210
of ordered knowledge.

1450
01:16:13,210 --> 01:16:19,630
This is the way in which Western
thought organizes science.

1451
01:16:19,630 --> 01:16:21,310
That's what Aristotle
is doing, he's

1452
01:16:21,310 --> 01:16:23,030
creating these tree
and branch systems.

1453
01:16:23,030 --> 01:16:27,880
Surprise, it shows up in
industrial organization

1454
01:16:27,880 --> 01:16:29,560
in the West.

1455
01:16:29,560 --> 01:16:33,220
But he argues that the
tree and branch hierarchy

1456
01:16:33,220 --> 01:16:38,260
means tremendous inflexibility
and great difficulty

1457
01:16:38,260 --> 01:16:40,810
in managing change,
because you've

1458
01:16:40,810 --> 01:16:43,570
got to bring all those
different systems, all

1459
01:16:43,570 --> 01:16:48,100
those different levels in the
line in order to pursue change.

1460
01:16:48,100 --> 01:16:54,770
So the second design
methodology is around what

1461
01:16:54,770 --> 01:16:56,270
he calls a layered system.

1462
01:16:56,270 --> 01:17:00,860
And he argues that Japan's
incredible success of the '70s

1463
01:17:00,860 --> 01:17:05,000
and '80s is not just the
different industrial model,

1464
01:17:05,000 --> 01:17:08,360
a quality production model.

1465
01:17:08,360 --> 01:17:09,860
It's deeper than that.

1466
01:17:09,860 --> 01:17:11,510
There's a whole
social organization

1467
01:17:11,510 --> 01:17:14,720
set of issues that's
coming with it.

1468
01:17:14,720 --> 01:17:17,270
And [INAUDIBLE],, you
were driving towards some

1469
01:17:17,270 --> 01:17:20,210
of these points, I think.

1470
01:17:20,210 --> 01:17:31,290
So in Japan's system, there
are separate layered levels,

1471
01:17:31,290 --> 01:17:35,040
and you tend to move
through your career

1472
01:17:35,040 --> 01:17:37,440
with your age cohort.

1473
01:17:37,440 --> 01:17:41,700
And as a group, you move
from level to level.

1474
01:17:41,700 --> 01:17:46,110
And there's obviously
several levels here.

1475
01:17:46,110 --> 01:17:49,020
It's much less tree and
branch hierarchical.

1476
01:17:49,020 --> 01:17:54,270
It is pretty flat
within that age cohort.

1477
01:17:54,270 --> 01:17:58,470
And you tend to know that you're
going to move with your level

1478
01:17:58,470 --> 01:18:00,540
into successive position.

1479
01:18:00,540 --> 01:18:06,960
So it forces a significant
amount of consensus.

1480
01:18:06,960 --> 01:18:13,470
So Joel's interesting comparison
is this is Plato's Republic--

1481
01:18:13,470 --> 01:18:16,860
the philosopher king, the
guardians, the citizens--

1482
01:18:16,860 --> 01:18:18,690
those are kind of layers.

1483
01:18:18,690 --> 01:18:25,230
So not an Aristotelian,
but a Platonic model.

1484
01:18:25,230 --> 01:18:29,580
And then he says
there's a third.

1485
01:18:29,580 --> 01:18:36,690
And this is the network model
that the US nurtured coming out

1486
01:18:36,690 --> 01:18:42,390
of the IT revolution, which
is much flatter, much less

1487
01:18:42,390 --> 01:18:44,100
hierarchical.

1488
01:18:44,100 --> 01:18:48,480
Not even layered--
it's pretty flat.

1489
01:18:48,480 --> 01:18:53,520
And it's driven by the
collaborative group innovation

1490
01:18:53,520 --> 01:18:58,905
systems that are required
for the development of the IT

1491
01:18:58,905 --> 01:19:01,030
sector--

1492
01:19:01,030 --> 01:19:02,910
that a rigid tree
and branch hierarchy

1493
01:19:02,910 --> 01:19:07,260
is just not going to work
in that IT world, which

1494
01:19:07,260 --> 01:19:08,940
requires a tremendous
amount of almost

1495
01:19:08,940 --> 01:19:11,820
democratization of workforce.

1496
01:19:11,820 --> 01:19:16,260
So back, Martin, to
your Andy Grove analogy,

1497
01:19:16,260 --> 01:19:19,860
when the leaders of Intel--

1498
01:19:19,860 --> 01:19:24,750
when Bob Noyce, and Grove, and
Gordon Moore were setting up

1499
01:19:24,750 --> 01:19:30,120
Intel, there are no offices.

1500
01:19:30,120 --> 01:19:31,770
Everybody's got a
cubicle, including

1501
01:19:31,770 --> 01:19:33,200
Noyce, and Moore, and Grove.

1502
01:19:42,900 --> 01:19:45,300
The network model, Joel
argues, is actually

1503
01:19:45,300 --> 01:19:47,610
much faster, and
much more flexible,

1504
01:19:47,610 --> 01:19:52,260
and much more subject to change
than even the layered model

1505
01:19:52,260 --> 01:19:53,760
that Japan brings about.

1506
01:19:53,760 --> 01:19:56,340
And so you start
thinking here, gee, it's

1507
01:19:56,340 --> 01:19:59,550
no wonder the US
auto industry got

1508
01:19:59,550 --> 01:20:04,110
rolled when it came up
against Japan's layered model.

1509
01:20:04,110 --> 01:20:06,810
And then you start thinking,
oh, no wonder Japan

1510
01:20:06,810 --> 01:20:09,300
missed the IT revolution,
if the organizational model

1511
01:20:09,300 --> 01:20:10,633
required this network.

1512
01:20:10,633 --> 01:20:12,300
Now, look, these are
highly speculative.

1513
01:20:12,300 --> 01:20:14,337
We'll never prove these.

1514
01:20:14,337 --> 01:20:16,170
They're really only for
discussion purposes.

1515
01:20:16,170 --> 01:20:19,450
All of us know that are more
complex stories behind it.

1516
01:20:19,450 --> 01:20:24,030
But I think there is an
idea about the relationship

1517
01:20:24,030 --> 01:20:28,200
between social
organization and the kind

1518
01:20:28,200 --> 01:20:31,710
of industrial developments that
your society is going through,

1519
01:20:31,710 --> 01:20:36,330
and the kind of organizational
models that those compel.

1520
01:20:36,330 --> 01:20:42,430
Joel's great complaint
is that engineering

1521
01:20:42,430 --> 01:20:48,780
lacks the models
to be able to grasp

1522
01:20:48,780 --> 01:20:50,730
these different
organizational structures,

1523
01:20:50,730 --> 01:20:54,750
that you can't really fit
that within a traditional kind

1524
01:20:54,750 --> 01:20:58,800
of engineering analysis, and
that engineering, therefore,

1525
01:20:58,800 --> 01:21:01,230
needs to rethink this.

1526
01:21:01,230 --> 01:21:02,850
That's part of the
reason why he's

1527
01:21:02,850 --> 01:21:07,950
a major leader of MIT's
Engineering Systems

1528
01:21:07,950 --> 01:21:11,700
Division, which, of course,
has now been closed.

1529
01:21:11,700 --> 01:21:14,640
But that's part of what Joel
and some of his colleagues

1530
01:21:14,640 --> 01:21:18,360
are trying to do, when
they set up BSD at MIT.

1531
01:21:24,910 --> 01:21:28,080
I just want to close out
by saying that there's

1532
01:21:28,080 --> 01:21:29,830
another thing that
we'll need to consider,

1533
01:21:29,830 --> 01:21:31,810
as we move into
next week's class--

1534
01:21:31,810 --> 01:21:34,600
that the whole
nature of competition

1535
01:21:34,600 --> 01:21:39,190
is changing in manufacturing,
that it's no longer

1536
01:21:39,190 --> 01:21:41,260
a world of manufacturing
goods, it's

1537
01:21:41,260 --> 01:21:43,570
a world of
manufactured goods that

1538
01:21:43,570 --> 01:21:48,610
are fused with IT technologies
that, in turn, are

1539
01:21:48,610 --> 01:21:50,180
service delivery models.

1540
01:21:50,180 --> 01:21:54,700
So there's a whole fusion of
services and manufacturing

1541
01:21:54,700 --> 01:21:57,130
going on that makes some of
the stories we've been talking

1542
01:21:57,130 --> 01:21:59,170
about today more complicated.

1543
01:22:01,770 --> 01:22:04,680
In past decades, the
story was quality.

1544
01:22:04,680 --> 01:22:07,620
Now, there's a whole
level of customization,

1545
01:22:07,620 --> 01:22:10,140
and speed, and
customer responsiveness

1546
01:22:10,140 --> 01:22:12,990
that we have to
think about, as well.

1547
01:22:12,990 --> 01:22:14,730
And your ability to
get on top of those,

1548
01:22:14,730 --> 01:22:18,300
as well as on
quality, becomes key.

1549
01:22:18,300 --> 01:22:20,370
It's not simply the
best technology,

1550
01:22:20,370 --> 01:22:24,750
but it's the best technology
plus the best business models

1551
01:22:24,750 --> 01:22:29,410
and delivery models that
have to be thought about.

1552
01:22:29,410 --> 01:22:32,550
There used to be traded
goods, traded product.

1553
01:22:32,550 --> 01:22:36,180
Now, there's traded all
kinds of knowledge management

1554
01:22:36,180 --> 01:22:39,180
and services that are tied
to these products that

1555
01:22:39,180 --> 01:22:45,040
becomes critical factors
in your ability to compete.

1556
01:22:45,040 --> 01:22:47,620
In the past, it was the
workforce skills side.

1557
01:22:47,620 --> 01:22:52,130
Now, it's much more continuous
learning in your workforce.

1558
01:22:52,130 --> 01:22:54,320
Then it was low cost of capital.

1559
01:22:54,320 --> 01:22:58,510
Now, it's efficiency in
all the financial services

1560
01:22:58,510 --> 01:23:02,080
stages that you've got to
get through the hurdles of,

1561
01:23:02,080 --> 01:23:06,300
not just the initial
capital cost.

1562
01:23:06,300 --> 01:23:09,800
And there's a whole evolution
of intangible capital, as well.

1563
01:23:09,800 --> 01:23:12,940
So there's a whole
new set of factors

1564
01:23:12,940 --> 01:23:16,900
that's coming into the
manufacturing world, that we've

1565
01:23:16,900 --> 01:23:20,380
only started to glimpse
from today's discussion.

1566
01:23:20,380 --> 01:23:25,530
But let's go back to Joel
and his three models.

1567
01:23:25,530 --> 01:23:27,370
Chris, it's all yours.

1568
01:23:27,370 --> 01:23:31,000
AUDIENCE: So to
summarize, Joel is

1569
01:23:31,000 --> 01:23:33,850
presenting these three models--

1570
01:23:33,850 --> 01:23:35,740
the hierarchical
decomposition model,

1571
01:23:35,740 --> 01:23:39,670
where it's the branch tree
structure, the network design

1572
01:23:39,670 --> 01:23:44,590
model, and then the
layered design model.

1573
01:23:44,590 --> 01:23:48,070
And then he basically goes on
to outline a bunch of examples

1574
01:23:48,070 --> 01:23:49,510
where you could present--

1575
01:23:49,510 --> 01:23:52,870
or sorry, apply
different methodologies

1576
01:23:52,870 --> 01:23:54,730
into analyzing various systems.

1577
01:23:54,730 --> 01:23:58,540
So he goes through a
philosophy example,

1578
01:23:58,540 --> 01:24:03,500
he goes through manufacturing,
even more science-based--

1579
01:24:03,500 --> 01:24:05,890
so like the models of
the human mind and body.

1580
01:24:05,890 --> 01:24:08,860
And one of them I found
particularly interesting

1581
01:24:08,860 --> 01:24:11,350
was where he brought
up culture, and how

1582
01:24:11,350 --> 01:24:14,920
preconceptions of how
engineering and manufacturing

1583
01:24:14,920 --> 01:24:17,470
is viewed here
versus, let's say,

1584
01:24:17,470 --> 01:24:21,820
Germany or Japan has
really impacted the way

1585
01:24:21,820 --> 01:24:24,400
these countries have
responded towards shifts

1586
01:24:24,400 --> 01:24:28,690
in manufacturing, and how that
industry develops-- and also

1587
01:24:28,690 --> 01:24:31,090
how cooperation in
Japanese culture

1588
01:24:31,090 --> 01:24:34,660
has really allowed
the precipitous rise

1589
01:24:34,660 --> 01:24:38,800
of their industry and
manufacturing capabilities,

1590
01:24:38,800 --> 01:24:42,640
and how that shaped and kind
of forced American firms

1591
01:24:42,640 --> 01:24:47,585
to adopt a similar structure
or methodology in order

1592
01:24:47,585 --> 01:24:48,085
to compete.

1593
01:24:51,250 --> 01:24:53,080
Interestingly enough,
a lot of the examples

1594
01:24:53,080 --> 01:24:54,640
were not really
engineering-based,

1595
01:24:54,640 --> 01:24:59,770
even though he started from the
hierarchical model, which is

1596
01:24:59,770 --> 01:25:01,810
seen very often in engineering.

1597
01:25:01,810 --> 01:25:03,910
And I thought that was
really interesting.

1598
01:25:03,910 --> 01:25:06,790
And we can definitely go
into some of the examples

1599
01:25:06,790 --> 01:25:09,790
more, if anyone has a
particular one to go into.

1600
01:25:09,790 --> 01:25:13,090
But to start off the discussion.

1601
01:25:13,090 --> 01:25:15,430
I thought this question
was really interesting.

1602
01:25:15,430 --> 01:25:18,190
How does a country shift
from a tree structure--

1603
01:25:18,190 --> 01:25:20,020
so the hierarchy one--

1604
01:25:20,020 --> 01:25:22,120
to a more layered or
network structure,

1605
01:25:22,120 --> 01:25:25,490
once it's already
been established?

1606
01:25:25,490 --> 01:25:29,050
So if there's any thoughts,
feel free to throw them out.

1607
01:25:29,050 --> 01:25:31,030
AUDIENCE: So I
took a class called

1608
01:25:31,030 --> 01:25:33,150
structural organizations,
and it talks about--

1609
01:25:33,150 --> 01:25:35,192
so it's not like there's
a right or wrong answer.

1610
01:25:35,192 --> 01:25:37,220
It just really depends
what you're trying to do.

1611
01:25:37,220 --> 01:25:38,275
So in general, it's
more networked,

1612
01:25:38,275 --> 01:25:40,300
it means you want to
make better decisions.

1613
01:25:40,300 --> 01:25:42,908
But the drawback is it'll
take a much longer time.

1614
01:25:42,908 --> 01:25:44,950
Hierarchical, you might
not make great decisions,

1615
01:25:44,950 --> 01:25:46,367
but you'll make
them very quickly.

1616
01:25:46,367 --> 01:25:49,360
And as long as people
respect the person who's

1617
01:25:49,360 --> 01:25:52,372
making the decision, it turns
out to be pretty much OK.

1618
01:25:52,372 --> 01:25:54,580
In terms of a company, I
think it really does depend,

1619
01:25:54,580 --> 01:25:57,730
because I think the
network structure works

1620
01:25:57,730 --> 01:25:59,340
great for like a
Facebook or something

1621
01:25:59,340 --> 01:26:01,840
with internet base, where you're
really competing for ideas,

1622
01:26:01,840 --> 01:26:03,715
you're trying to come
up with the best ideas.

1623
01:26:03,715 --> 01:26:06,010
Things move quickly, so you
want to iterate quickly.

1624
01:26:06,010 --> 01:26:07,195
Versus, I think, if
it was manufacturing,

1625
01:26:07,195 --> 01:26:08,426
I wouldn't want that as much.

1626
01:26:12,163 --> 01:26:13,830
WILLIAM BONVILLIAN:
Chris, did you agree

1627
01:26:13,830 --> 01:26:15,660
with Joel's presentation here?

1628
01:26:15,660 --> 01:26:18,210
Do these models
make sense to you?

1629
01:26:18,210 --> 01:26:22,095
[INAUDIBLE] got an interesting
story out here or--

1630
01:26:22,095 --> 01:26:23,687
what do you think?

1631
01:26:23,687 --> 01:26:25,270
AUDIENCE: I thought
it was interesting

1632
01:26:25,270 --> 01:26:29,050
how he presented three
frameworks for looking

1633
01:26:29,050 --> 01:26:31,270
at different firms,
and then went

1634
01:26:31,270 --> 01:26:35,680
about applying that model
to different situations,

1635
01:26:35,680 --> 01:26:37,570
companies, industries.

1636
01:26:37,570 --> 01:26:39,520
I thought that was interesting.

1637
01:26:39,520 --> 01:26:42,220
Again, just like some of
you, I had a little bit

1638
01:26:42,220 --> 01:26:45,520
of trouble distinguishing
between some of them

1639
01:26:45,520 --> 01:26:47,540
as I was reading it.

1640
01:26:47,540 --> 01:26:53,380
So perhaps going into
more about defining

1641
01:26:53,380 --> 01:26:55,330
the differences between
the different models,

1642
01:26:55,330 --> 01:26:59,260
and also maybe even
trying to generalize which

1643
01:26:59,260 --> 01:27:02,410
model would be applicable to--

1644
01:27:02,410 --> 01:27:06,580
what characteristics would be
most amenable to these models,

1645
01:27:06,580 --> 01:27:10,270
that could be an
interesting additional step.

1646
01:27:12,825 --> 01:27:15,200
WILLIAM BONVILLIAN: All right,
I think on that good note,

1647
01:27:15,200 --> 01:27:17,760
we'll end a few minutes early.