Have you ever wondered why the US produces so many radical innovators like Steve Jobs, Mark Zuckerberg and Google duo Larry Page and Sergey Brin and why Germany produces expert business builders like the Samwer brothers? Or why people in the UK and the US tend to go to university or college to study general subjects like English, Economics, Engineering or the coveted MBA whereas people in Germany tend to study industry specific subjects like Technology, Education and Nursing at Germany’s professional universities? Have you considered how employment law might influence your employees’ incentives to develop skills that are relevant to your business? And what effect might this have on the type of products and services that these countries deliver as well as their capacity to innovate?
Masters of mimicry
The Samwer brothers (Oliver, Marc, Alexander) have become billionaires as a result of cloning Internet up-and-comers like Ebay, Facebook and Pinterest into the German, Russian, Brazilian or Italian languages and then selling them back to the English speaking originals for a profit. The Samwers, who have threatened blitzkrieg on the industry and asked employees to sign business plans in their own blood, say that they are not innovators, rather, they are builders of companies. They see concepts that are working in the US or Asia and replicate the approach for new markets with high barriers of entry.
Serial entrepreneur Stefan Gleanzer speculated that Berlin’s Mitte district (where the brothers base themselves) had become the global centre for cloning digital businesses. And whether or not you admire the model (and plenty don’t), you can’t deny its success. In 1999 the Samwer brothers founded Alando, a German version of the online auction house Ebay. Only 100 days later, they sold the company to Ebay for about £35 million.
That’s not to say that German ideas aren’t innovative. After all, Germany’s the country that gave the world Bauhaus, Albert Einstein, nuclear fission and now, the digital music site SoundCloud (and, of course, Kraftwerk). And Berlin’s anti-copycat movement is appealing to would-be German entrepreneurs to live up to this German spirit of innovation.
Styles of innovation
Researchers looking at industry innovation across countries say that this innovative/not-innovative distinction is beside the point. They draw a distinction between radical innovation, which entails substantial shifts in product lines, the development of entirely new goods or major changes to the production process, and incremental innovation marked by continuous but small-scale improvements to existing product lines and production processes. They also suggest that labour markets, vocational training systems and systems of social protection affect both employee learning and innovation outcomes – and that the US and Germany are polar opposites in all these respects.
The German case
In Germany, a system of works councils composed of elected employee representatives with much more clout than the UK’s trade unions, provide employees with security against arbitrary layoffs or changes to their working conditions. These long labor contracts encourage employees to invest in company-specific skills – because they’re not worried that they’ll soon be fired, rendering their company specific skills redundant. As a result, countries like this depend on education and training systems capable of providing workers with such skills. Germany’s strong dual system of vocational training provides high levels of industry-specific skills.
The US case
Top management in US companies tends to have complete control over the firm including substantial freedom to hire and fire which means that they can quickly reconfigure their knowledge bases in order to develop new product lines or cut failing ones.
The education and training systems in countries with laxer employment laws are generally complementary to these fluid labour markets. From the perspective of workers facing short job tenures, career success depends on developing transferable skills that can be used in many different companies; and most educational programs from secondary through to university levels, even in business and engineering, stress ‘certification’ in general skills rather than more specialised ones.
Companies in these countries do a lot of in-house training, although mostly in the marketable skills that employees have incentives to learn like presentation skills, people management and health and safety.
The argument then goes that German firms tend to lack the capacities for radical innovation that American firms enjoy by virtue of their much less fluid labour markets.
Is this true? Not indisputably and people are still unclear as to how much other countries fit into this US/Germany mould. Either way, the point here isn’t that one system is better than the other (or that Jobs is better than the Samwers), merely that one system will generate a labour force with a different set of a skills and firms with a different product output from the other.
And how can Learning and Development departments respond to the constraints of the system in which they operate? Well, in the UK, where labour markets are equally fluid, L&D departments may wish to go with the flow by investing in the type of general skills training (such as health and safety, project management and MS Office) in which their employees are willing to invest (and which companies can risk losing when their employees move on to competitors). Alternatively, companies that find themselves with an immediate skill shortage problem may wish to skip the in-house training phase by taking advantage of the skills in the overseas market – but this will only save time, not money, because overseas employees are more expensive to hire.