A clever hedgehog came upon a wide river he wanted to cross. Being a clever hedgehog he knew how to build bridges so he set about building a new bridge over this river so he could get across it. Half-way through building the clever hedgehog stopped for a rest. It was then he noticed a little fox standing on the riverbank. After watching him for a while the clever hedgehog returned to his work. A few more moments passed and the clever hedgehog heard splashing underneath his bridge. Peering over the side he saw the little fox leaping left, then right, and left again from one partially submerged rock to another. The clever hedgehog thought the little fox was bound to fall into the water any moment now, but each time the little fox landed on another rock just below the surface. Reaching the opposite riverbank the little fox leaped up, flashed the clever hedgehog a little smile, landed in the long grass and was gone. The hedgehog returned to building his bridge.
I first conceived of writing this book when the CoVid pandemic struck. In those strange times many of our certainties — such as, people must go to an office to do work, or global supply chains are good for economies — were challenged. As we humans have a natural aversion to uncertainty many of us started looking for new certainties to replace the old ones with. And where there is demand, supply will emerge. I knew then that, by the time I got round to finishing this book, there would already have been thousands of new business books from a thousand gurus (new and old) telling us the Secrets to Succeeding in a Post-CoVid World. For, as a wise man once told me, “the reason there are so many gurus is that so few people know how to spell charlatan”.
I was born in Britain but have been based in Moscow (Russia) for a long time. Anyone who lives in an emerging economy has a fairly intimate relationship with uncertainty. Modern Russia, for example, experienced deep uncertainty following the 1990s shock therapy; the 1998 sovereign debt default and banking crisis; the deep recession following the 2008 global financial crisis; as well as ever increasing geo-political uncertainty since 2014. Perhaps it is no surprise that Russia, itself re-born out of the collapse of the Soviet Union in 1991, has an acute sense of uncertainty avoidance: When people don’t know what the future holds they become anxious, so institutions fill this void by creating plans that offer a sense of predicability that people crave.
Fig. 1: Hofstede’s Cultural Dimensions for Russia
But in a volatile and changing world certainty is increasingly beyond the gift of any one individual, group or even country. I watched businesses in Russia struggled to adapt to the CoVid pandemic — first cutting costs to keep the business upright, but then at a loss about what to do next, except hope that the world would return to normal. It became clear something else is now needed and that’s why I started to write his book: to provide something else for those who know the old ways of working are no longer working.
I started to write about Russian businesses, but realised that something else would be relevant for other businesses too. So, while the rest of this introduction focuses on Russian business, the rest of the book will take a wider focus. Therefore, those interested in reading more, but with no interest in Russian business, can skip the rest of this introduction and go straight to chapter one. But for those interested in Russian businesses and who to want to hear a reasonably informed outsider’s view on your current situation and what needs to be done, here it is.
Private business in Russia only became legal in 1988, so the market economy is still young and experiencing growing pains. In its first, wild decade a new class of entrepreneurs took the risks required to unlock oversized rewards. Then the market stabilised in its second decade and rewards accrued to those who did things better rather than just first. Here, a different generation of business leaders took charge, mostly graduates of the country’s strong STEM education system, trained to look for ‘right answers’ and whose gaze turned westwards. Anyone doing business in Russia at this time will have experienced the obsession with copying Western ‘best practices’, which became the standard operating practice in most, if not all, Russian businesses.
Wise people do learn from the experiences of others but, unthinkingly imitating western ‘best practices’ meant many Russian businesses avoided the hard thinking needed to create their own competitive advantages. Very few tried to compete with western firms, as most were content to be second rate on the international stage if it meant being better than local rivals. Competition therefore was reduced to finding the latest ‘thing’ from the West, with victory accomplished by whoever could afford the most expensive ‘guru’ to show them how to implement it. Despite being blessed with one of the largest and best-educated populations in the world Russian businesses simply didn’t think for themselves. This absurdity was captured in a joke by Ichak Adizes, a business consultant, (who is very well-regarded in Russia):
A man is looking for a brain transplant and goes to a brain surgeon to see what options he has.
“I have this brain” the surgeon says. “An Ivy-league university professor. Costs $5,000”.
“What else do you have?” asks the man.
“I also have this brain” answers the surgeon. “A Nobel prize winning physicist. Costs $10,000”.
“Do you have anything else?” asks the man.
The surgeon thinks for a moment, then suddenly remembers: “Ah! I also have this brain. Mikhail — ordinary Russian. Costs $50,000”.
The man asks in surprise, “Why is the brain of the ordinary Russian more expensive than the Ivy-league professor or the Nobel winning physicist?”
“Ahh” the surgeon says in reply, “This brain — never been used!”
To their credit whenever I’ve retold this joke to Russians they’ve always laughed, heartily. But there’s a serious point. What worked yesterday, somewhere else, for someone else may not work for you today. Copying ‘off-the-shelf’ solutions from the West — in an attempt to avoid uncertainty — has been holding Russian businesses back for too long and, in today’s world, this has to change.
The global financial crash in 2008 hit Russia’s economy harder than most due to its lopsided dependence on natural resource exports. In response (then) President Dmitry Medvedev announced that Russia would modernise and become an innovation-led economy. In traditional fashion he looked to the West for answers and there his gaze fell on Silicon Valley. Soon afterwards massive investment started pouring into the ‘Skolkovo’ project in Moscow — Russia’s attempt at building its very own Silicon Valley. Yet results in the decade since proved underwhelming.
Fig. 2: Russian President Dmitry Medvedev and Steve Jobs in 2010
Simply copying style without understanding substance (ex, imitating what Silicon Valley looks like today, rather than learning how it originally became a driver of innovation) is a trap that many who imitate ‘best practices’ fall into. The physicist, Richard Feynman, memorably explained this with the story of the South Pacific Sea islanders who watched as the industrialised nations of first Japan and then the US used these pre-industrial islands as supply chain bases during World War II: “During the war [the islanders] saw airplanes land with lots of materials [technologies, medicines, chocolate] and they want the same thing to happen now [after the war]. So they’ve arranged to make things like runways, to put fires along the sides of the runways, to make a wooden hut for a man to sit in, with two wooden pieces on his head like headphones and bars of bamboo sticking out like antennas — he’s the controller — and they wait for the airplanes to land. They’re doing everything right. The form is perfect. But it doesn’t work. No airplanes land. So I call these things Cargo Cult Science, because they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential, because the planes don’t land”. Imitating the outcome (style) of a development journey without understanding why it works (substance) is Cargo Cult science. Unfortunately, this is not limited to South Sea Islanders alone — as the Skolkovo initiative showed.
However, even if Russia had focused on substance results would still have been very different due to something called sensitivity to initial conditions. This came from Edward Lorenz, a meteorologist who, in 1960 was running weather simulations on a computer. To his amazement he noticed that two simulations he ran produced completely different outcomes, despite having (what he thought) were identical inputs. On closer investigation he discovered a tiny difference in a single input — he had rounded down one number from 0.506127 to 0.506 on the second simulation — and this tiny difference had been enough to cause the huge variation in results. Lorenz concluded that this occurred because complex systems, (like weather patterns) are ‘highly-sensitive to initial conditions’. In other words, any differences in initial inputs, however small, can lead to huge differences in outcomes as differences are amplified by feedback loops that start to shape the system’s development in entirely unpredictable ways. And Lorenz’s insight applies to every complex system — an economy, organisation or ecosystem like Silicon Valley. If try to copy what somebody else did, somewhere else and some other time then tiny differences in your starting conditions (different people, different customers, different technology) can produce vastly different results. This is why ‘best practices’ do not produce the same results across complex systems.
Even if we could overcome these two problems (style over substance and sensitivity to initial conditions) there’s an even bigger problem with copying the “best practice” of others: Those ‘others’ won’t have stood still in the meantime, so copying what others did in the past means you’re resigning yourself to forever playing catch up. “If your competitor’s boat gets ahead of you at the starting line, the instinct is to chase it. To tack where it tacks on the same path. But if you do, you will always be behind, because you will be sailing on the same path, subject to the same wind. And in fact for much of the time, you will be sailing in its ‘dirty air’ — i.e. it gets the full wind in its sails, which [diminishes the wind’s] effect on your sails. Your only hope is for the leader to make a terrible blunder. Otherwise, you will race for hours and hours, tacking dutifully behind the leader and crossing the finish line behind [therefore] if you want to end up in some place other than last, you need to tack away and plot a different course that will get you to the finish line ahead”. Those who want to get ahead need to find their own paths.
Why does any of this matter for Russian businesses? Russia is the largest economy in Europe and attracts globally-competitive businesses who look to swoop in and sweep up talent, customers and profits. But these are no longer the western firms that Russian businesses were content to play second fiddle to before. These will increasingly be the new giants of industry like Huawei, Haier and BYD who have learned to forge their own paths and are now out-competing their western rivals. These are serious players. If Russian businesses hope to protect their domestic market shares and avoid being ‘also rans’ again they will need to stop trying to copy ‘past practices’ and start leveraging their vast resources of educated people to forge new Russian paths for Russian businesses. The coming storm of competitive battles with these next level Chinese firms are both a threat but also an opportunity as it will sharpen the skills of Russian businesses, who will then be able to take the game to western firms in global markets. But what’s required is the acceptance of a simple truth first: Leaders don’t imitate — leaders explore and invent.
So what should Russian businesses do next?
Chinese businesses in the 1990s faced many of the same challenges Russian businesses did: An impoverished economy, historical suspicion of private business and inferior technology compared to international rivals. So what did Chinese businesses did differently? Well, it’s instructive to note what Chinese businesses didn’t do. While they actively learned from the West (often with sharp practices the West complained about) they didn’t blindly copy the West. They didn’t need to. As this book will show, the East has a rich tradition of strategic thinking — one arguably better than the western tradition (that has been followed by Russia) at producing good outcomes in uncertain conditions. It is this tradition that helped drive the rapid development of Japanese businesses in the chaotic aftermath of World War II in the last century, and it’s this tradition that spurred the spectacular emergence of Chinese businesses, seemingly from nowhere, this century. However, I will not be arguing that Russian businesses should start copying ‘best practices’ from the East (for the reasons given above: style over substance, sensitivity to initial conditions and playing catch up). But I will be arguing that Russian businesses need to look East and heed the advice of Bruce Lee: “Absorb what is useful, reject what is useless, add what is specifically your own”.
Eastern strategic thinking is very different from western thinking and it’s been suggested by some that those brought up in the western tradition will struggle to understand it. Yet Russia’s national emblem — the double-headed eagle — reminds us that the country is both western and eastern. Russians therefore may have less difficulties than westerners in absorbing these important lessons.
The main idea of the eastern approach to strategy is that better paths emerge as we walk them and this book will aim to show how you can take these steps purposefully. So let’s get started.
1 See chapter 1
2 Roger Holdsworth
4 Echoing Jeff Bezos’ famous comment about risk-taking and innovation, which was widespread in 1990s Russia: “We all know that if you swing for the fences, you’re going to strike out a lot, but you’re also going to hit some home runs. The difference between baseball and business, however, is that baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in awhile, when you step up to the plate, you can score 1,000 runs”. https://www.sec.gov/Archives/edgar/data/1018724/000119312516530910/d168744dex991.htm
5 Science, Technology, Engineering or Mathematics
7 This is a recurring theme in Russian, Soviet and post-Soviet history, occurring every approximately every 30–40 years going all the way back to the time of Peter the Great who founded a new capital — St. Petersburg — in 1703 in an attempt to modernise the Tsarist Russia of the day in order to catch up with other European nations.
8 In 2008 the Global Innovation Index ranked Russia 68th in its list of global innovators https://www.globalinnovationindex.org/userfiles/file/GII-2008-2009-Report.pdf
By 2021 the same publication ranked Russia 45th, behind other ‘upper middle-income economies’ like Bulgaria, Malaysia, Turkey and Thailand https://www.globalinnovationindex.org/userfiles/file/reportpdf/GII-2021/GII_2021_results.pdf
While such reports should be used critically these results do suggest that Russia’s innovativeness is little changed despite the huge investments into Skolkovo.
10 Though much complained about the practice of appropriating ideas from other countries is nothing new https://www.history.com/news/industrial-revolution-spies-europe
11 This appears to be the central hypothesis of Derek Yuen in his book ‘Deciphering Sun Tzu’ which will be explored further in chapter 8.