Picking winners (or not!)

Over the past several decades we have been involved in a number of projects which focused on governments selecting particular sectors or business development areas as national priorities to enhance economic development and strengthen national resilience. But all too often initiatives associated with such priority setting have not delivered a great deal. We have identified a number of reasons why this has been the case.

The key reasons

There are three main reasons that we have identified:

  1. The priority sector selection process has been too heavily reliant upon a combination of public sector and powerful national vested interests when it comes to deciding where to invest money and resources. We call this ‘top down’ influencing.
  2. Too much focus has been on historical sector performance rather than likely future performance. Many traditional sectors face disruptive forces and diminishing relevance.
  3. Failing to know in which areas individual entrepreneurs are investing their own time and resources within a country. Such entrepreneurs are the ‘bottom up’ influencers.

The priority selection process

We came across a wonderful example of how too much focus on public sector and vested interest influence led to an almost farcical situation whilst doing a regional project in the Caribbean a few years back. Of the 15 countries and territories we looked at, the governments or governing bodies of 6 listed ‘Financial Services’ as a priority area. Given that the Cayman Islands and The Bahamas already had strong financial services sectors (and were not part of the CARICOM group we were looking at), it made no sense for a further 6 tiny island nations in this region to also try and become centres. In fact Trinidad and Tobago spent vast sums of money building a Financial Services Centre in Port of Spain and found it almost impossible to attract tenants. It now largely houses government Ministries and agencies. It was definitely not a logical national priority sector for this country, nor the other five countries that had selected the sector as a priority for national development and resource allocation.

Historical focus

Just because a sector was once a predominant part of an economy doesn’t mean that it will continue to do so in future years. Traditional agriculture used to be a major part of many small economies but today it is simply uneconomic because they cannot achieve economies of scale. The only way they can achieve some progress is to focus on what is unique and much higher value rather than mainstream commodities. New Zealand’s strong focus on the dairy industry as a national priority (which still continues today) has led to little value adding and a sector highly dependent upon global commodity price fluctuations. It has also resulted in the New Zealand economy not being as resilient as it should be. Too much influence from the wrong stakeholders when it comes to national decision-making and resource allocation has led to this situation. Companies such as A2 Milk dared to be different and used science to differentiate their product from the mainstream commodity milk focus so it connected with the powerful global personal health and wellness trend. It has been a tough journey for the company as they have had to deal with a lot of nay-sayers and skepticism from the traditional sector stakeholders.

Where the entrepreneurs are busy

This seems to be the most overlooked area when it comes to determining where national support could be best targeted. In the Caribbean project we examined the businesses of some hundreds of small evolving entrepreneurial businesses in over a dozen CARICOM countries on a one to one basis. We looked at what their focus was and where they were investing their time and effort as individual entrepreneurs or entrepreneurial teams. When we collated all the data that we had collected we compared the priority sectors that the ‘bottom up’ entrepreneurs have chosen to invest in and compared these with the most highly ranked ‘top down’ national priority sectors for the 15 Caribbean countries and territories included in the project’s focus. The difference was illuminating!

The top 5 ‘Top Down’ priority sectors over all 15 CARICOM countries were Agriculture (largely commodity-focused), Tourism, Information and Communication Technologies (ICTs), Financial Services, and Agro-Processing. In contrast, the ‘Bottom Up’ priority sectors that entrepreneurs were most active in were Food and Beverage, ICTs, Agriculture (but in quite specific value-added niches), Fashion. Health and Wellness and the Creative Sector. Quite a contrast.

What does this mean?

It is entrepreneurs who see the real market opportunities and who take the greatest risks. They generally have a far better idea of what will generate value in the marketplace. Otherwise they wouldn’t risk everything to start-up and grow their businesses. If there is to be a public private partnership type of approach towards encouraging national business development, the stakeholders who are engaged in the priority setting process need to strongly represent the group that takes the greatest risks when it comes to delivering positive national outcomes. That means ensuring there is greater involvement of the small and medium sized entrepreneurs who are laying everything on the line to try and achieve success. These are the types of businesses that large businesses and corporations snap up as they try to buy in innovation because as they grow large they tend to have little innovation in-house. Rigid hierarchical structures and complex decision-making processes hinder the innovation process. Most countries have failed to engage the upcoming entrepreneur group effectively. Because of that they have a false view of what the priority areas for tomorrow are likely to be. That’s a key reason why many national priority sector initiatives fail to deliver. They embrace far too much of yesterday’s thinking.