Finland ranked as the 3rd competitive economy in the world – how about Central Finland?

By Hanna-Maija Kiviranta, JAMK
Source: http://blogit.jamk.fi/cfc/2012/10/02/finland-ranked-as-the-3rd-competitive-economy-in-the-world-how-about-central-finland/

Hanna-Maija Kiviranta

We are doing excellent! Finland moved up one place in World Economic Forum’s Global Competitiveness report reaching the 3^rd position in the list of the top 10 competitive economies in the world.

According to the World Economic Forum’s Global Competitiveness Report 2012-2013, Finnish economy has had small improvements in a number of areas. Finland occupies the top position both in the health and primary education as well as in the higher education and training thanks to strong focus on education over recent decades. This has provided the workforce with the skills needed to adapt rapidly to a changing environment and has laid the groundwork for high levels of technological adoption and innovation.

We are one of the most innovative countries in Europe, ranking 2nd, behind only Switzerland. Improving our capacity to adopt the latest technologies (ranked 25th) could lead to important synergies that in turn could corroborate Finland’s position as one of the world’s most innovative economies. (Source: The World Economic Forum’s Global Competitiveness Report 2012-2013)

Is Venture Capital Broken?

by Scott Anthony
Source: http://blogs.hbr.org/anthony/2012/06/is_venture_capital_broken.html

A recent report by the Ewing Marion Kauffman Foundation raises serious questions about the degree to which venture capital deserves emulation.

The report, provocatively titled “We Have Met the Enemy and He is Us” [PDF], summarizes its findings thus:

Limited Partners — foundations, endowments, and state pension funds — invest too much capital in underperforming venture capital funds on frequently misaligned terms. Our research suggests that investors like us succumb time and again to narrative fallacies, a well-studied behavioral finance bias.

One of those narrative fallacies relates to the most basic thing that investors care about: results. Most of the funds in which Kauffman invested failed to beat public market indices, despite the higher-risk nature of their work. Kauffman found that larger funds in particular provided disappointing returns.

Kauffman didn’t say it was opting out of venture capital. Rather, it plans to seek smaller funds, shift some of its money towards public equities, and co-invest in later-round deals with seasoned investors. It also called on investors to work to better align investor and venture capitalist incentives.

Within Innosight, where I lead venture investing, the report led to an invigorating debate about the industry. We debated two possible stories behind some of the report’s statistics.

The first story relates to plain old-fashioned competition. Over the past decades, foundations, pensions, and other investors have poured money into venture capital, particularly in the United States. The number of funds has exploded. If one assumes that the number of great startup ideas is relatively stable at any given time (a contentious but simplifying assumption), increased supply has to decrease returns. A result that is exacerbated by the simultaneous decrease in the cost of innovation and the rise of new approaches, like Y Combinator’s systematic incubation factory, Kickstarter’s crowd-funding platform, and super angels like Ron Conway. Barriers to entry are decreasing and disruptive entrants are surging, a recipe that both Michael Porter and Clayton Christensen could agree augurs poorly for industry returns.

The alternative and potentially more troubling story is that the venture capital approach is fundamentally flawed. The industry has unquestionably helped to support the formation of world-changing companies such as Microsoft, Cisco Systems, Google, Facebook, and countless others. Yet over the past decades, venture capitalists have shown signs, despite all their experience and skills, that they’ve not gotten better at what they do.

Maybe that’s just the way it is. You can’t know ex-ante which idea is the right one. If that’s the case, though, it would be far better to simple spur more Y-Combinator-like incubators that follow the Steve Blank gospel of getting out of the building and iterating to discover product/market fit.

A related possibility is that a majority of venture capitalists use flawed theories of startup success. Clayton Christensen likes to describe how, in the early stage of theory development, people make predictions based on observed correlations. For example, people observed that things that flew had feathers. So people hoping to fly created large feathered wings. More advanced theories pinpoint causal mechanisms. For flight, that was Bernoulli’s Principle, a theory that explained the concept of lift and why modern aircraft are not covered in feathers.

Much of the venture capital industry seems stuck in the feathers-and-wings stage of theory development. Many successful venture capitalists observe directional patterns. “Every time I have succeeded,” they might think, “I’ve backed an ‘A team,’ that has targeted a hot market space.” There’s no doubt that’s true, but that is a statement of correlation, not causality. Even worse, the narrative fallacy means that people are likely to construct stories about the past that might not have been precisely true, making future predictions even more dubious.

Google Ventures is an intriguing example of a venture organization putting more science behind its correlative analysis. As detailed in a recent Fast Company article, it has a team of statisticians crunching data to determine patterns of success in startups. For example, its team found the perceived wisdom that failure is beneficial isn’t backed by data. Almost 30% of businesses founded by someone who had succeeded once succeed again, versus 15% of businesses founded by someone who failed once.

The Google Ventures approach has its limits. Without understanding why a pattern exists, making reliably accurate predictions is hard, at best. This is where good business theory comes in. Work by Christensen and other innovation thought leaders has built a body of theory about why certain ideas succeed and others fail. Other academics, in particular Noam Wasserman at the Harvard Business School, have provided useful theories to inform the critical choices facing entrepreneurs.

It’s not hard to see the venture capital industry trifurcating. There will always be top-tier firms who give their seal of approval to a select group of startups. Expect to see continued growth among incubators that support fast-cycle iteration. And in between, look for a rise of companies that take the Google Ventures approach even further to approach the funding of startup companies scientifically. The rest? Well, Darwin has a way of working out such problems.

More blog posts by Scott Anthony
More on: Innovation, Venture capital

Scott Anthony

Scott leads Innosight’s Asian operations. His fourth book on innovation, The Little Black Book of Innovation, is now available (HBR Press, January 2012). Follow him on Twitter at @ScottDAnthony.

Five Common Strategy Mistakes

Joan Magretta
Joan Magretta is a senior associate at the Institute for Strategy and Competitiveness at Harvard Business School. She is the author of What Management Is
and the forthcoming Understanding Michael Porter: The Essential Guide to Competition and Strategy.

by Joan Magretta

I just finished a two-year project looking at Michael Porter’s most important insights for managers. Connecting the dots between his classic frameworks (the five forces, for example) and his latest thinking (the five tests of strategy) gave me a new understanding of the most common mistakes that can derail a company’s strategy. In a previous post, I focused on the fallacy of competing to be the best. Here are five more traps I’ve seen managers fall into over and over again. Understanding Porter’s strategy fundamentals will help you to avoid them.

Mistake #1. Confusing marketing with strategy.

Correction: A value proposition isn’t the same thing as a strategy. If you’re trying to describe a strategy, the value proposition is a natural place to begin — it’s intuitive to think of strategy in terms of the mix of benefits aimed at meeting customers’ needs. But as important as it is to have insight into customers’ needs, don’t confuse marketing with strategy. What the marketing-only approach misses is that a robust strategy also requires a tailored value chain, a unique configuration of activities that best delivers that kind of value. This element of strategy is not at all intuitive, but it’s absolutely essential. If you perform the same activities as everyone else, in the same ways, how can you expect to achieve better performance? To establish a competitive advantage, a company must deliver its distinctive value through a distinctive value chain. It must perform different activities than rivals or perform similar activities in different ways.

Mistake #2. Confusing competitive advantage with “what you’re good at.”

Correction: Building on strength is a good thing, but when it comes to strategy, companies are too often inward looking and therefore likely to overestimate their strengths. You might perceive customer service as a strong area. So that becomes the “strength” on which you attempt to build a strategy. But a real strength for strategy purposes has to be something the company can do better than any of its rivals. And “better” because you are choosing to meet different needs and performing different activities than they perform, because you’ve chosen a different configuration for your value chain than they have.

Mistake #3: Pursuing size above all else, because if you’re the biggest, you’ll be more profitable.

Correction: There is at least a grain of truth in this thinking, which is precisely what makes it so dangerous. But before you assume that bigger is always better, it is critical to run the numbers for your business. Too often the goal is chosen because it sounds good, whether or not the economics of the business support the logic. In industry after industry, Porter notes that economies of scale are exhausted at a relatively small share of industry sales. There is no systematic evidence that indicates that industry leaders are the most profitable or successful firms. To cite one notorious example, General Motors was the world’s largest car company for a period of decades, a fact that didn’t prevent its descent into bankruptcy. To the extent that size mattered at all, it might be more accurate to say that GM was too big to succeed. Meanwhile, BMW, small by industry standards, has a history of superior returns. Over the past decade (2000-2009), its average return on invested capital was 50 percent higher than the industry average. Companies only have to be “big enough,” which rarely means they have to dominate. Often “big enough” is just 10 percent of the market.

Mistake #4. Thinking that “growth” or “reaching $1 billion in revenue” is a strategy.

Correction: Don’t confuse strategy with actions (grow, acquire, divest, etc.) or with goals (reach X billion in sales, Y share of market). Porter’s definition: the set of integrated choices that define how you will achieve superior performance in the face of competition. It’s not the goal (e.g., be number one or reach $1 billion in top-line revenue), nor is it a specific action (e.g., make acquisitions). It’s the positioning you choose that will result in achieving the goal; the actions are the path you take to realize the positioning. Moreover, when Porter defines strategy, he is really talking about what constitutes a good strategy — one that will result in a higher ROIC than the industry average. The real problem here is that you will think you have a strategy when you don’t.

Mistake #5. Focusing on high-growth markets, because that’s where the money is.

Correction: Managers often mistakenly assume that a high-growth industry will be an attractive one. Wrong. Growth is no guarantee that the industry will be profitable. For example, growth might put suppliers in the driver’s seat, driving up the industry’s costs and limiting profitability. Or, combined with low entry barriers, growth might attract new rivals, thereby increasing competition and driving prices down. Growth alone says nothing about the power of customers or the availability of substitutes, both of which would dampen profitability. The untested assumption that a fast-growing industry is a “good” industry, Porter warns, often leads to bad strategy decisions.

These mistakes are both common and costly. Getting smarter about how competition works and what strategy is will save you from making them.

More blog posts by Joan Magretta

More on: Competition, Strategic planning, Strategy

Source: http://blogs.hbr.org/cs/2011/12/five_common_strategy_mistakes.html

JAMK Accepted in Harvard Business School’s Network

by Murat Akpinar

Professor Michael Porter

JAMK has been accepted into the Microeconomics of Competitiveness (MOC) network developed by Professor Michael Porter at the Institute for Strategy and Competitiveness at Harvard Business School. There are around 90 affiliate universities in the MOC network. JAMK is the second Finnish institute of higher education to join the network following Aalto University School of Economics.

MOC

MOC is a graduate-level course which explores the determinants of national and regional competitiveness through the lenses of strategies of firms, government policies, and the roles of actors such as industry associations and universities. The course analyzes clusters, organizational structures, institutional structures and change processes required for sustained improvements in competitiveness. Target students are graduate students in business, economics, development, government and related disciplines. Member universities in the network teach the course locally with the aid of resources developed at Harvard. The course is taught in the International Business Management master degree program at JAMK.

Selection Criteria

Harvard selects universities that are leading business schools in their regions. The ideal member university should have faculty with doctoral degrees and an ongoing research program in the field. Participation in the course is on an invitation-only basis. JAMK was recommended to the network via visiting professor Faheem ul-Islam who has been an affiliate of the network since 2006. Instructors from new affiliates should attend the new faculty workshop at Harvard in December prior to teaching the course. The workshop provides instructions on how to teach the course, how to use case studies in the course, and how to manage student teams in class. Matti Hirsilä and Murat Akpinar from JAMK will attend this workshop at Harvard during Dec 12-13, 2011.

Areas for Cooperation in the Network

MOC opens the doors for cooperation possibilities in teaching and research with highly prestigious schools in the network from all around the world. Instructors meet annually at Harvard to share their experiences in teaching of the course, learn about new developments, and exchange ideas for research and development. Cooperation continues throughout the year between instructors through joint projects and staff exchange. This is an excellent opportunity to contribute to JAMK’s internationalization.

Long-term Vision for Member Universities

The course addresses the ways in which the private, public and university sectors can work together to boost regional development and competitiveness. As such it does not only serve as a platform to educate young people but also to help universities to contribute to regional and national economic development. The course can be adapted to train public sector officials and private sector leaders. In that respect it stimulates projects in which students and faculty work together with business and regional government. As for JAMK, this course can provide the means to play an even more influential role in the development of the region of Central Finland.