Tradition slowly gives way to innovation

We embrace failure. We really do. We love failure.” A bold admission from the president of the hyper-respectable Siam Cement Company, Kan Trakulhoon.

But it could well be true. Thailand’s biggest manufacturing conglomerate, found­ed by the royal family almost a century ago, although exuding the stolidity of the Danish engineers who originally ran it, is desperately eager to get a little wild.

Senior officials at Siam Cement are keenly aware that only the most adaptable can survive in an open contest.

“We’ve stayed ahead of the competition with cost leadership and management discipline, but the business environment is changing very rapidly now. We want to be more dynamic, to react quickly, to bring value to the customer. That doesn’t mean we’re losing focus or efficiency – it’s just a fact of life,” says Mr Kan.

Siam Cement, still one-third owned by the Thai royal family, is throwing vast amounts of money at foreign management professors in a desperate attempt to become “innovative”.

It has invested continuously in management training, which makes it unusual in a region dominated by family enterprises that have traditionally been loath to spend money on the formal teaching of transferable skills.

Its careful meritocracy has proven so comfortable that Thai recruits often stay for their entire careers, giving its training a whiff of apprenticeship.

“We used to be so proud of being number one in Thailand but now we think ‘so what?’. We used to wait for the boss to generate ideas, but in this globalised world we should be buzzing at all levels. We want innovation everywhere,” says Manoon Sunkunakorn, Siam ­Cement’s director of corporate human resources.

As a blue-blooded, blue-chip company, run by professional managers, Siam Cement appeared to be coasting along nicely – the joint venture partner of choice for overseas partners – until the 1997 currency crash plunged it into dire debt and cold reality.

To its credit, it decided the crash was a learning experience, swiftly stripping itself down to its core businesses of cement and building materials, petrochemicals, pulp and paper. It also decided that with the hot breath of predatory global rivals on its neck, Siam Cement needed to be the dominant player in southeast Asia, not just Thailand.

Yet even after its structural upheaval, consultants Accenture found two years ago that its management tended to be conservative and mechanical.

“We discovered blocks in our thinking, in the flow of ideas,” admits Mr Manoon. “The changes we made after 1997 were forced upon us. What we’ve embarked on now is voluntary – and it must come from within.”

Corporate interest in management education is booming in Asia. The realisation that even plain vanilla manufacturers need to “add value” to their products is shaking up traditional business practices and placing a premium on inspiration.

Siam Cement spends more than $12m a year, excluding salaries, on training its 21,000-strong workforce. But changing corporate culture is hard, especially in Asia where deference, harmony and hierarchy remain strong.

“Executives allocate budget but in virtually all companies with sustained innovation, the ideas come up to the senior executives, not from them,” says Stewart Black, a professor in organisational behaviour at Insead, who coaches Siam Cement managers.

Prof Black says evidence strongly suggests that innovation requires the type of frank debate that many Asian cultures traditionally like to sidestep. “Clearly open discussion and disagreement work against the Thai culture,” he says.

This is one reason why Siam Cement, which is still happily tweaking its systems with the somewhat unfashionable, Japanese-inspired Total Quality Management approach, is also spending lavishly on foreign professors.

“Outside intervention can help managers step back to see the big picture,” says Paul Tiffany, an adjunct professor at Wharton and Hass School of Business, Berkeley.

Siam Cement managers attend various in-house courses as they rise in their jobs. Many study for MBAs at venerable overseas business schools. The “young Turks” are expected to gut the best management books and pass ideas around, while the annual senior managers’ meeting is also an agenda-setting occasion with a “guest guru”.

Yet the ultimate success of Siam Cement’s business renaissance may pivot around two key learning initiatives: the annual management development programme, developed by Wharton professors in conjunction with Siam Cement and, for senior executives, the Advanced Management Program offered by Harvard Business School.

Successful participation in the in-house development programme is a vital step for any rising manager, who attends a rigorous three-week residential course taught by half a dozen business professors, sitting next to senior managers. The corporation is hoping that periods of formal management education such as this can lift Siam Cement on to a higher plane of thinking.

“There is no secret formula. There is no silver bullet. The programme doesn’t turn out overnight wonders,” says Prof Tiffany.

The course relies on case studies and competitions to foster disciplined thinking, bonding and a culture of profitable innovation.

“Managers are encouraged to make bold decisions and to argue for new ideas under the approving eyes of their leaders. It sanctions intelligent risk-taking which is very important,” adds Prof Tiffany.

The essential challenge is to “decommoditise” a business so that it cannot be undercut just on price. “The leadership wants innovation but does middle management really understand the urgency? This sort of course can have a big impact in transmitting enthusiasm,” he adds.

Siam Cement is the biggest customer for Harvard’s Advanced Management Program, sending four senior executives a year. So far 40 have gone on the nine-week, $55,000-a-head course.

Mr Kan is convinced the money is well spent. “We see the change in executives straight away. They’re more open to change, to new concepts. Their strategic thinking is much more rigorous. They have a better picture of the overall business.”

The president wants the programmes to polish their soft skills, too.

“Our executives need to understand the mood of the group, to inspire them. I don’t want to use the word ‘motivate’, it’s deeper than that. We need true leaders.”

One advantage of the Harvard programme is that executives return to find that Siam Cement has thrived without them. “It’s a useful reminder that we’re all about teamwork and respect,” says Mr Kan.

Challenges lie ahead. Prof Tiffany notes that Siam Cement is a very Thai company: “Seminars can be very quiet. In the US I can barely say a few words before someone tries to shoot me down. In Siam Cement they find argument more awkward.”

Although the main management courses are supposed to be in English, discussion often ends up in Thai, he adds.

Siam Cement decided just two years ago to focus on innovation so it is too early to expect measurable results. Prof Black says management education can merely help guide executives through “the change process”.

Ultimately, he says, it is Siam Cement executives themselves who must lead the company towards true innovation. “This they cannot outsource to someone like me.