By Richard Eichen, Managing Principal, Return on Efficiency, LLC
It is hard to imagine how a Communist country can teach much of anything about business, but what we saw mimics elements of some larger, well-established companies stuck looking in the rearview mirror, afraid of seeing too far ahead, assuming life in the future is an extrapolation of the past.
First, a few personal observations about Cuba.
The Cuban leadership, like many companies’ Senior Leadership Teams, ran their strategy for as far and long as they could until they hit the T-Intersection at the end of the road, the bimodal distribution. There is no longer a middle path, they have to turn right or left. We spoke with an economist who is participating in Cuba’s rethink of its future economic structure, and while elements of Socialism will remain (much like Europe), a form of Capitalism will be encouraged. The question is, what form?
It may be China-like in having a social contract of ‘we’ll give you a higher standard of living, but the Party remains in power’. Since our hotel, the Hotel Nacional de Cuba was the venue for a Mafia Senior Leadership conference in 1946, where only the Mafia’s Senior Leadership Team could stay during the meeting dates (that meeting was recreated in the Godfather II, BTW), it’s highly doubtful if allowing outside interests to own and run the Island again will occur. It will most likely be overseas investments and joint ventures.
Until the Revolution, Havana must have been a jewel. Now, after 60+ years of neglect, many buildings are under serious rehabilitation back to past beauty. I have not read Das Kapital since college, but I don’t recall a chapter detailing the evils of paint, spackle, and preventative maintenance. Today, those rehabilitated buildings, some dramatically lit, are beautiful and I’d wager in 10 years Havana will be back to its former beauty.
Probably due to widespread literacy, healthcare, and subsidized or inexpensive food, people in the street seem healthy and friendly. You do not get the feeling of underlying anger or despair you often get in developing countries when walking around cities. We encountered several children asking not for money, but for candy. Unlike those I have seen elsewhere, these kids were clean and looked healthy.
There’s a lot of inconsistency in Cuba. For example, it is a police state where everyone assumes they are under constant surveillance. On the other hand, they are warm and happy to see Americans. We went to a brewpub by the docks in Havana and while admiring a beer tower, received a sincere invitation to pull up a chair, get a glass and share the beer.
Universal literacy is both their issue and solution. Cuba’s current economy can absorb only so many college graduates, and I am sure they must have a many-layered bureaucracy to employ as many as possible. As an example, this Sunday, the NY Times had an article on filming TV and movies in Cuba, specifically mentioning having to deal with a Cuban Gov’t department ‘drowning’ in its own bureaucracy, making it a challenging filming location, just when they need the business. Nevertheless, until you can employ all those people more productively, how can you cut the layers and encourage free markets? Employment equals stability and communist countries are big on both.
They also have what I call the Educated Small Market problem, ie a lot of educated brains but a population too small to consume a lot of output, requiring an export-oriented economy to employ the local workforce in something other than Gov’t or tourism. Cuba will continue small-scale self-sufficiency and limited growth unless they can develop, like Israel, a healthcare or hi-tech oriented employment and foreign currency creation sector. That economist mentioned above said they do not want to become just another Caribbean tourist economy since that role is crowded, and will design a uniquely Cuban solution.
Cuba went through a post-Soviet collapse period called the Special Period, where the Cuban economy imploded, imports and exports declined 85%, GDP dropped by 35%, and massive layoffs from mechanized farming and inefficient factories put people out of work. Albeit driven by artificial and political goals, for decades the Soviet Union was Cuba’s biggest customer. Then they weren’t and Cuba went out of business for 15+ years.
Below are two thoughts on applying some of these observations to our companies:
The main takeaway is Senior Leadership cannot expect their customers, no matter how strong they seem and how much they buy, to always be there. The past does not guarantee the future, even after 60 years of staying the course. Sustained vitality is reinvention over time, and many companies are not good at it. They are great at re-orgs or staff cuts, product enhancements, and line extensions, but not material rethinks. Many organizations are missing the necessary skills for reinvention. Cuba, even though they had centuries of agricultural experience, realized they needed a new approach, and chose to engage senior Australian permaculture experts to hands-on teach the country food self-sufficiency. They had the need, but not the skills, for reinvention and wisely chose real-world experts and not the safest name brand consultancy.
Next, employees in long-lived organizations assume they will always have a job, food, and healthcare if they play the game and do not force change (and wind up playing resume whack-a-mole). Many of these organizations defined or created entire industries, developing strong internal cultures where multi-decade tenure and strong allegiances mattered as much as fearing making a mistake. Often they became closed societies, difficult for new employee integration, resisting non-conforming and status challenging ideas. Then an outside event occurs, the internal culture does not work as it once did and the best and brightest become doubters and frustrated. Recruiters crack the email convention. Which company could survive a combined outflow of top talent, an inability to attract equally skilled replacements and fearful remaining employees waiting to get “the call”?
About those famous 1950’s cars still running in Cuba – they’re a blast from the past and a tribute to Cuban ingenuity. Many I saw have steering wheels from original to trucks, Hyundai’s, and engines reportedly from anything including boats, and the bodies are often shiny. Boy, we used to build good cars in the US.
I’ve also been asked if I would visit Cuba again. Definitely, “yes.” My recommendation is to see it now and think about what happens when the Senior Leadership is unwilling to reinvent a company until they hit their T-Intersection.