David J. Teece is a globally recognised author of hundreds of research publications and monographies. He is the founder of strategic management concept dynamic capabilities, and is the most often quoted scholar in this field over the past 20 years.
Before Google executive chairman Eric Schmidt and Google advisor Jonathan Rosenberg published a New York Times best-selling book How Google Works, Teece delivered his comments and feedback to the authors.
He has more than 30 years of experience in advising both companies and governments on economical, business and financial issues.
In March, famous US entrepreneur and recognised global intellectual David J. Teece became the 45th honorary doctor of Kaunas University of Technology (KTU).
This is your fifth honorary doctor degree. What does it mean to become a doctor honoris causa of KTU?
It truly means a lot to me. It‘s both an honour and recognition of my scholarly activity and many years of research. This honorary degree encourages me to want to reciprocate to KTU or Kaunas in some way. After receiving this degree, I symbolically became an alumnus of this university.
I meet a lot of people in doing what I do, who will note that I have been awarded with this degree by a Lithuanian university. Hopefully, this honourable title granted to me will lead to some recognition of the work that KTU is doing in strategic management and particularly in the area of dynamic capabilities.
You have travelled to many countries of the world in your career. What makes Lithuania stand out in a world map? How would you describe the economic state of our country?
I think Lithuania does stand out in Europe. While being here I saw hard working people that are committed to building their country and treating each other fairly and properly. Lithuania is definitely going towards improvement.
However, because Lithuania was part of the Soviet Union for so long there is still some catching up to do and that catch up is not yet complete. Your country is nevertheless maintaining growth rates that are higher than the European average. I think it’s in part because Lithuania is catching up and in part because there is some element of dynamism here.
I also had no idea that there are so many graduates from the engineering sciences here! There’s more depth in engineering and scientific training in KTU than I have imagined.
Why should business invest in scientific research and education?
Business should invest in education – not necessarily money but in opportunities for students’ internships and engagement. There are many ways how business and university can work together. However, here, in Lithuania, there are more grants to the universities from the European Union (EU) rather than from the local industry or business.
In your public lecture at KTU Santaka Valley you talked about knowledge economy. What is knowledge economy?
Industrial economy, where wealth primarily came from various industry sectors’ production, manufacturing and large scale activities, belongs to yesterday’s world. The knowledge economy is the key resource today.
Once people get some basic level of housing and transportation, they tend to consume more intangible goods which tend to power the economy. For example, technological innovation belongs to this category of intangible assets.
The great companies of the world that are getting the highest evaluation and are generating most jobs and profits are innovative firms that have got either better technology or better business model or, hopefully, both.
From the management point of view, one has to change one’s frame of mind from thinking about managing fixed assets to managing intangible assets, and what people know both individually and collectively. To sum up, knowledge management is about prioritising the management of intangibles over tangibles.
However, most of the textbooks in management and economics are still focused on the tangible assets, despite the fact that what’s important in today’s economy is the intangibles.
You have mentioned that dynamic capabilities are essential in knowledge economy.
Indeed. Dynamic capabilities is a short-hand for a framework which I have created that pulls together various elements. The purpose of dynamic capabilities concept is to help make sense of the complex system that we know as the economy in a coordinated way. Getting a proper understanding of how Silicon Valley companies manage is what dynamic capabilities is about.
I did not really invent anything, I just made explicit what successful companies have done so that it would be easier to replicate the process. The challenge here is to find a framework that is broad enough to capture the totality of the activities from RND to productions, marketing and strategy.
It is very important to figure out how managers should prioritise their time and how companies should arrange their resources in order to compete effectively in this world, where intangible assets are “king” and where there is plenty of, what I call, deep uncertainty.
Is uncertainty coherent to risk in business?
Uncertainty is different from risk. Risk is when you anticipate that certain things will happen – you just do not know when – but you have got some idea of the probability. For instance, natural disasters or financial volatilities. Uncertainty is what I call the “unknown unknowns” – you do not know what is going to happen – all are constant surprises.
In today’s complex economy these “unknown unknowns” happen more and more often. New emerging behaviours sometimes result from innovation, financial disruption. Today’s managers get challenged to manage through those difficult patches with great frequency.
How important is risk management in business? How can business owners reduce it to avoid huge losses?
Risk management is important but it ca not be done and delegated. It is very important not to confuse risk management with uncertainty management. Speaking in baseball terms, when you finish the job and you have got a good risk management process in place, that is just the first base.
Additionally, one always has to cover the aforementioned “unknown unknowns” that are out there. You cannot go to a financial market, you cannot hedge, and you always have to be incredibly agile. It is crucial to have a very strong intuition about what it is likely to happen and when it does happen, to be agile enough to move quickly and take advantage of the circumstances in order to protect yourself from the negative aspects.
This is sort of a new challenge for managers in global economy. Uncertainty management is not critical but Lithuania is now part of the EU and global economy – the more connected we become with each other, the more we are exposed to uncertainties. That’s one of the challenges of global integration.
You cannot isolate and insolate yourself from vagaries that take place far away. What happens on Chinese stock market affects everyday life in Lithuania in ways it did not use to.
You have over 30 years of experience as an active consultant performing economic, business, and financial consulting services to businesses and governments around the world. What are the main challenges that these enterprises and big authorities face?
It changes all the time. Today my consulting company is building a cyber security practice which we did not think about 20 years ago. That is a very important area both defensively and proactively.
A big challenge not just among governments but in private sector and financial institutions as well is intellectual property. As the world becomes even more globalised, intellectual property and its protection is becoming all the more important. Understanding how intellectual property system works can help with licence negotiations, all the disputes and public policy aspects.
Through strategic management practices we are applying dynamic capabilities framework and using it to advise corporations and universities. We define intellectual capital and its position in the market and we are able to think out of the box.
What was your biggest client yet?
I have consulted almost all the US technology companies at one time or the other. I have advised law firms, financial institutions and governments around the world. I have to note that some of the biggest cases have been intellectual property cases.
KTU has a platform for young entrepreneurs called KTU Startup Space. What is the role of start-ups in country’s economic growth?
With the internet there are all kinds of new opportunities opening up. You can get into various products and industries at a much lower cost.
Although these start-ups usually have 1-2 people who work in developing their business idea, the greatest interest to Lithuania is or should be the ability to start up globally scalable companies, that become the next Facebook, the next Uber.
I hope that people in Lithuania are thinking about the art and science of starting up global companies. I expect that eventually we will see this type of businesses in Lithuania as well. Of course, that will require international engagement because if you want to be global you have to understand global customers. Today opportunities to turn quite small enterprises to globally scalable companies are increasing.
The Berkley Research Group (BRG), my company, became international within the first year. Most of the companies that I have been involved with, usually start at the bottom of being global.
Do you think a start-up company starts from an idea or good leadership?
It is a “marriage” of the two. There are a lot of ideas out there but you need not so much a leader but an entrepreneur, enactor, who can access financial and human resources in order to make great things happen for a company. Quite frankly, ideas are pretty cheap – it is the implementation of good ideas that matters.
Why innovative firms often fail to capture economic returns from their inventions?
The paper “Profiting from Technological Innovation” that was published in 1986 is my second most cited scientific work. I think it is the best piece that I have ever written. The phenomenon that I was looking at is the following conundrum: why so many pioneers are losing in the market place?
I have looked in a long period of history. For example, British invented the civilian jet aircraft – in fact, they were first in many things but British companies never really succeeded in the market place. I have also studied American companies, such as Amphex, that developed the first video cassette recorder but instead Japanese companies gained the market. I was trying to find simple theories and framework that would help to explain these conundrums.
I came up with something – I focused on what I call complementary assets. The importance of owning these assets is that you can move quickly into markets and get market share early on. I have also looked into intellectual property and various restrictions because sometimes the inventors and innovators suffer from those who copy their ideas and products.
These conundrums are still out there. When new technologies emerge it is often up for grabs who is going to win in a global market place. In my view, companies that are entrepreneurial, well financed, have good strategy and execution are the ones that are more likely to succeed.
You’ve been teaching business administration for more than 30 years. Do you have any advice or words of wisdom to share with Lithuanian students?
My advice is: continue to read the literature. I do not necessarily mean the academic literature but professional literature, which has a lot of useful thoughts, evidence and experiences. You can compensate a lot of things by reading.
There is a lot that is known. Managers do not understand that some challenges they have or the ones that other people have are now solved. They do not know that because they do not read anymore. They rely on their close friends’, colleagues’ or their own histories, personal experiences but I always find it shocking that businesses keep getting forgotten. As a result, managers get cut off from a lot of deep understanding about these phenomena.
