Love Thy Neighbor

The international development community will always look back on 2010 as a banner year for development policy in the United States. It was the year when development was first recognized as a pillar of national security. It was the year of the first ever-Presidential Policy Directive on Global Development. And it was the year of the State Department's first Quadrennial Diplomacy and Development Review. 

So yeah, a lot happened in 2010.

As an implementer in the field, though, I will always look back on 2011 as the real banner year. 2011 is when USAID translated all of the new high-level development policy work from 2010 into operational guidance for USAID’s staff and implementing partners. 2011 is when the rubber hit the road. Specifically, the USAID Policy Framework introduced in September of 2011 laid out seven new operating principles to shape the Agency’s strategies and guide its programming. These seven operating principles were:

1. Promote Gender Equality and Female Empowerment
2. Apply Science, Technology, and Innovation Strategically
3. Apply Selectivity and Focus
4. Measure and Evaluate Impact
5. Build in Sustainability From The Start
6. Apply Integrated Approaches to Development
7. Leverage “Solution Holders” & Partner Strategically

This was all taking place around the time that USAID launched the Southern Africa Trade Hub (the Trade Hub) in late 2010, a project that I have been working on in various capacities over the last several years. One of the Trade Hub’s highest profile accomplishments stands out as an example of what a project can do at the programmatic level when USAID’s operating principles are used to shape the design of development assistance. For today’s blog post I thought I would share the story behind the success.  I’ll start with a little background for context.

Background

South Africa has historically been home to a vibrant manufacturing industry and among the industries where it was always particularly strong was the manufacturing of textiles and apparel. In the late 1990s, however, South Africa’s textiles and apparel industries started to decline and by the end of 2010 South Africa’s industry looked like it was on the verge of collapse.

The implosion was driven by several factors, but the straw that broke the camel’s back was the 2005 expiration of the WTO’s Multi Fibre Arrangement (MFA) that had kept large quantitative ceilings in place to restrict Chinese exports.  The quotas had been used primarily to protect the large developed markets in the US and Europe, but they had indirectly assisted South African companies by protecting them from the threat of highly competitive apparel imports. Once those MFA quotas expired the global apparel industry became exposed, virtually overnight, to China’s unparalleled competitiveness in apparel. Between 2001 and 2010 South Africa went from being a net exporter of apparel to a net importer. South Africa finished the 00's with a trade deficit in apparel of over $1 billion.

And the turmoil was not isolated to South Africa - it hit the entire region of Southern Africa. For decades many of the smaller countries of the Southern African Development Community (SADC) had also been producing apparel. Several of these countries had even been manufacturing apparel for export.  Countries like Mauritius, Lesotho and Swaziland - and even South Africa to some extent - had originally benefitted from the MFA because the imposition of the quotas back in the mid 90s had driven much of the apparel manufacturing capacity in the large quota-constrained producers to smaller, less developed countries.

Not surprisingly, the chain of events that had crippled South Africa’s industry wreaked the same kind of havoc on the smaller apparel-producing countries in the region, and this is where things stood with the textiles and apparel industries in Southern Africa when USAID launched the Southern Africa Trade Hub (Trade Hub) program in September of 2010.  

Opportunity Knocks

The situation was clearly grim at the time, but when the Trade Hub looked at all the carnage that had taken place across the textiles and apparel industries in Southern Africa they saw an interesting development opportunity emerging.

The opportunity that the Trade Hub saw for Southern Africa was linked to events unfolding in China.  Production costs had been increasing in China because its labor markets had started tightening. Sustained periods of high growth had created a massive domestic market for apparel in China, and this new demand had started competing for China’s historically export-oriented output. Finally, Chinese companies had started turning down small orders because they could no longer compete on price without the full use of their production lines.  The door had started opening for other apparel producing countries to compete on a niche basis with China.

This was a particularly big deal for Southern Africa. Cheap Chinese apparel imports were largely responsible for the implosion that had taken place in South Africa’s textiles and apparel industries. China’s exports of apparel to Southern Africa had grown tenfold the past decade - from around $100 million in 2001 to over $1 billion in 2010.

From the Trade Hub’s perspective, the picture was clear:

1. South Africa - the largest economy in Sub Saharan Africa - was importing over $1 billion of apparel every year, mostly from China.
2. Production costs in China were on the rise and Chinese manufacturers were starting to turn down the kind of small orders/limited production runs that typified many of South Africa’s apparel imports.
3. South Africa’s neighbors - especially Lesotho, Swaziland, Madagascar and Mauritius - had both apparel manufacturing skills and under-utilized production capacity.

Put these three things together and the solution is clear right? Love Thy Neighbor!

What South Africa really needed was a way to bring the region’s apparel manufacturers to their doorstep. In fact the need for a new regional trade platform around textiles and apparel was so clear and compelling that the Trade Hub made it the cornerstone of the project's support for textiles and apparel.

Putting The Principles To Work

Remember that the whole point of this blog post is to highlight how the Trade Hub was able to embrace the new operating principles from USAID’s Policy Framework that had just been released to guide the design and implementation of Source Africa.  I’ll tell the story by describing how it came together in the context of three of USAID's principles.  

Operating Principle #1 - Apply Selectivity and Focus



By making “apply selectivity and focus” one of its seven core operating principles in 2011 it is clear that USAID was asking its staff and implementing partners to do a lot more homework in the design phase of a program to figure out specifically where it would be possible to generate impact, and to focus resources on those areas.  In the context of the Trade Hub’s work in textiles and apparel what this meant was figuring out which export markets provided the strongest opportunities for the region’s apparel manufacturers.

Here it is important to keep in mind that USAID's Trade Hubs had all originally been set up as mechanisms to help countries in Sub Saharan Africa increase their exports to the United States under the African Growth and Opportunity Act (AGOA).  So, to even consider selecting - and focusing on - an export market other than the United States would have been unheard of before USAID made “apply selectivity and focus” one of its seven core operating principles in 2011.

The reality back at that time was it made little sense to focus any significant resources in Southern Africa on promoting exports of apparel to the United States under AGOA because of recent market conditions in the US, political uncertainty around whether the US would be renewing AGOA, and some lingering non-tarrif barriers related to the overall enabling environment in Southern Africa. Of course promoting trade to the US under AGOA would still be part of the platform, it just could not be the core focus back then because promoting trade under AGOA had a long fuse to results ... the fuse to results in South Africa was a lot shorter. (A lot has changed with regard to the US Market and AGOA since then)

There was also an undercurrent at the time in the region’s industrial policy. A body of research that was reshaping the developing world’s perspective about big, global value chains had caught the attention of policy makers across SADC. This research was suggesting that global consolidation, asymmetric markets and evolved power structures were all increasing entry barriers, and making the upgrading process more complicated and contested in global value chains like apparel. And, the research was also pointing out how growth in end markets of the large developing countries (like South Africa) offered more attractive “regional“ opportunities for exporters.  A prominent regional economist at the University of Cape Town was spearheading a lot of the research, and thereby drawing attention of regional policy-makers towards South Africa as one regional market where the benefits of up-gradation and spillovers seemed more likely, and more accessible. 

Ultimately it was the confluence of all these issues, in aggregate, that pushed the Trade Hub to look at South Africa’s market as the best opportunity for the region’s textiles and apparel industries to have a significant and measurable impact over the life of the program.

Operating Principle #2 - Leverage “Solution Holders” and Partner Strategically

Once the Trade Hub had identified South Africa as its anchor market for promoting trade in textiles and apparel, the next step was identifying a "solution holder” to work with. In this case what the Trade Hub needed was an organization that could assemble the entire complex array of South African apparel buyers and engage them with the region's manufacturers. Where do you find that? How about the company that had been putting all those Chinese manufacturers together with South African buyers over the past ten years? That’s exactly who the Trade Hub found. 

The Trade Hub identified Leaders in Trade Exhibitions of South Africa (LTE) as the solution holder. LTE is a small, woman-owned South African event management business that has specialized in trade exhibitions for the textiles, apparel and footwear industries in Southern Africa since the mid 1990s. At the time LTE had been running the ATF Expo in South Africa for almost fifteen years. The ATF Expo had become the premier forum in South Africa where international exporters of textiles, apparel and footwear from all over the world came to South Africa every year to showcase their products for South African buyers.

That’s the key thing that LTE brought to the table for the Trade Hub - LTE brought a vast network and relationships with South Africa's apparel buyers. Over a 20 year period LTE had built connections with sourcing heads, merchandizers and technologists from all of South Africa’s chain stores, independent retailers, boutiques, distributors, wholesalers, importers, agents and manufacturers. In other words, if you were an apparel manufacturer that had started exporting to South Africa over the past 20 years there’s a very good chance that your connection to South African buyers was initiated through a platform established by LTE.

And I think the Trade Hub had a great pitch to get LTE interested. “Let’s join forces so we can do for the countries of Southern Africa over the next ten years what you’ve done for China and the rest of Asia over the last ten.”  Both sides were clearly interested. The hurdle was figuring out how to get it done. 

Operating Principle #3 - Build in Sustainability from the Start

USAID and its implementing partners have been hosting conferences and events, organizing buyer/supplier meetings, and sending beneficiaries to international trade shows for decades. While this classical type of donor-funded support is generally always positive in terms of outcomes, and sometimes leads to measurable results in terms of linkages and sales, it has always had issues in terms of sustainability. Well, the guidance coming out through USAID’s new Policy Framework was clear. The Trade Hub had to build in sustainability from the start - and that required a new way of thinking. 

The Trade Hub determined that the best way to make its initiative sustainable from the start was to begin with the end in mind. The process of imagining the end up front led to two important decisions. First, the Trade Hub asked LTE to assume complete ownership of the event from day one. In fact, the very first bullet point of the Trade Hub’s MoU with LTE required LTE to register all the intellectual property associated with the event in its own name. Second, the agreement clearly specified that while the Trade Hub would assist with certain elements of the event, LTE as the event owner would assume full financial responsibility for the costs of the Trade Show and full financial risk associated with the event.

It is difficult to put in words how much of a departure this kind of arrangement was from the conventional way of doing things with USAID programs. Instead of having USAID own, control, staff, and finance the activity, the Trade Hub decided to put a local partner in the drivers seat on day one. It was an unconventional move, but it was the move that made the most sense given USAID's new operating principles, because it meant that from day one decision-making about the event would made on a commercial basis.

Results

Once LTE and the Trade Hub had reached an agreement everyone went to work to put together the first event.  The first production of Source Africa was held in Cape Town, South Africa in April 2013. USAID, the Government of South Africa, Enterprise Mauritius, and several other regional stakeholders across the industry all lauded Source Africa as a visionary platform and tremendous success. The second and third productions of Source Africa were held in June 2014 and June 2105, both again in South Africa’s mother city of Cape Town. The last event attracted 226 exhibitors and more than 1300 visitors from 28 different countries.

While each Source Africa event has certainly promoted global exporting opportunities with the inspired support of the American Apparel and Footwear Association (AAFA), and while each event has attracted interest from buyers representing both the US and European markets, the commercial success of the event thus far is clearly linked to its facilitation of regional trade opportunities within Southern Africa. The exhibit below shows why (click to expand).

Annual exports of apparel to South Africa from its SADC neighbors more than doubled between 2010 and 2015, an increase of US $243 million. And over the past five years South Africa’s SADC neighbors have increased their share of South Africa’s apparel imports by 12 percentage points (from 15% to 27%). Over that same period China’s share of South Africa’s apparel imports decreased by 7 percentage points (from 60% to 53%). What is particularly interesting about the trend illustrated above is how little market share was gained by manufacturers from the emerging powerhouses in Asia (i.e. Bangladesh, Vietnam and Cambodia.) In most large, developed markets the new Asian powerhouses have taken the predominant amount of China’s market share losses - that is not the case in Southern Africa.

Now I don’t want to overstate the case. Yes, the doubling of SADC’s apparel exports to South Africa over the last five years is impressive, but it's not all just because of Source Africa. The trend started a couple of years before LTE put on the first Source Africa show. Source Africa’s contribution has been to provide a reliable platform every year for textile and apparel industry stakeholders across Southern Africa to gather and take care of business. Some people go to strengthen existing sourcing relationships. Some go to build new ones. Some go to offer technical assistance, or to sell fabric, or buttons. Some go to sell services. Some go just to check it all out because it’s in Cape Town, and because there’s a lot of interesting creative people hanging around. Some probably go because they have to check the box. The point is that a ton of people are going, more each year, and a lot of them every year.

Five years worth of data also provides the opporunity to look back and evaluate some of the team’s original instincts. In particular, I found it interesting to see if the data validated the team's decision to select, and focus on, the regional market instead of the US market given the prevailing circumstances at the time.  As the exhibit below demonstrates the gains that SADC producers achieved in the South African market are about the same as all countries of Sub Saharan Africa combined were able to achieve in the US market under AGOA (click to expand).

Neither of these performances compare to the kind of apparel volumes that Asian manufacturers have been exporting to the world the last 10 years. But, when you look at African apparel manufacturing in the context of these two export markets the regional opportunities afforded by the South African market become undeniably clear.  For Southern Africa, this is all a pretty big deal and it validates the Trade Hub's decision when they put the program together.

And the best part of it all is that Source Africa is already financially self-sustaining ... and it only took three years. I’m still shocked. In the 20 years that I’ve been doing this work I’ve never seen anything like it happen. 

- Drew Schneider

House Upon A Hill

About a year and a half ago I was driving with my family from our home in Gaborone, Botswana to Cape Town, South Africa. We were headed down to Cape Town because the maternal and child health services there are highly regarded, and my wife was about to give birth to our son. She was already 8 months pregnant when we started the trip to Cape Town, and we had our three-year old daughter, our nanny, and a 70-pound Labrador packed in the car with us, so we decided to split the 18-hour drive into small, manageable segments over four days. We took our time ... there was no rush.

The leisurely pace of the drive was cool for many reasons, but one of the coolest happened as we drove into Worcester on the final day of our trip. Worcester, South Africa is a small town that is surrounded by tall mountains on all sides.  As you make your way down the mountain pass, approaching the town from the Northwest, the first thing you see is a white office building perched above the rest of the town, just sitting there all by itself.  As you get closer you discover that the striking white building perched up on the hill, against a backdrop of tall mountains, is a practice office for the firm PwC. 

As we drove past the building a wave of nostalgia hit me. Powerful feelings associated with the decade I'd spent working for the firm at the beginning of my career ... Representing PwC was always a great source of pride for me. I was so moved by what I was seeing out the window that I pulled the car over so I could get out and walk around and try to capture it all with some photos. I grabbed the camera and jumped out.  My wife could tell it was important to me so she slid over into the driver’s seat and took the rest of the crew down the road to find some lunch, let the dog out to do her thing, and fill the car up with gas. A half hour later she was back. I’d gotten a bunch of good shots (like the one below) while soaking it all in so I jumped back into the car and drove off for the final stretch to Cape Town. I tried to keep one eye on the view of that iconic “house on the hill” in the rearview mirror ... but after a few minutes it was gone.

Offices of PwC in Worcester, South Africa

I had forgotten about that whole trip down memory lane in Worcester until I read an article on LinkedIn a couple weeks ago written by an old colleague of mine from those days at PwC. His post explores the virtue of “Doing the Right Thing” and concludes that it takes a lot of courage to do the right thing, but courageous leaders do it anyway. That is a sentiment I’ve always shared and tried to practice, and have written about before, which is probably why reading that piece on LinkedIn once again summoned up those feelings of nostalgia and pride that I’d felt when I encountered that "house on the hill” in Worcester eighteen months ago. Once again the sentiment was so strong that I decided I should probably try to figure out what was driving it.  I’ve spent the last few weeks reflecting on it, and for today’s blog post I’ve decided to share the story.

In order to figure out what was driving all the sentiment about PwC I realized that I had to take a step back so that I could look at it in a broader context.  I needed a framework to help put it into perspective. I finally found one in Dan Ariely’s latest book entitled “The (Honest) Truth about Dishonesty”.  For those that don’t know him Dan Ariely is a behavioral economist that became famous for his empirical research on irrational behavior, which has been blowing massive holes in the field of economics for the last ten years. This new work of his on dishonesty is really just an extension of his original theories. It is similarly rooted in creative empirical research and seems equally poised to disrupt many of our conventional ways of thinking.

The premise of Ariely’s work on dishonesty is based on a fairly straightforward construct:

• As human beings we are constantly torn by a fundamental conflict. On the one hand, we each have a strong desire to see ourselves as good and honest people. On the other hand, we each have a deeply ingrained - some would even argue biologically necessary - propensity to lie to ourselves and others.  
• In order to reconcile these competing forces we have to be able to justify any dishonest behavior by telling ourselves stories about why our actions are acceptable. This complex process of justification is called rationalization. 
• Therefore, any individual’s capacity for dishonesty essentially becomes a function of their capacity to rationalize dishonest behavior.  

Ariely’s empirical work on dishonesty has involved a bunch of creative experiments that he conducted on about 50,000 people to examine/measure the effects of various forces that are believed to influence any individual’s capacity to rationalize dishonest behavior. For example, his research confirms that creative people have a higher capacity to rationalize. It also shows that observing other people behaving dishonestly enables individuals to rationalize more dishonest behavior of their own. How about this one ... his research demonstrates that collaboration actually leads to higher levels of dishonesty!

What about the forces that decrease dishonest behavior, or have no observable impact? Well, Ariely found that people behave less dishonestly when they are given moral reminders before taking action, or when they are required to first take a pledge - or sign a statement - to behave honestly. And, while counterintuitive, it turns out that increasing the amount of money to be gained, or increasing the chances of being caught, doesn't actually have much of an effect on dishonest behavior.

Ariely provides a good summary of what he concluded about all these forces that shape dishonesty in an exhibit at the end of Chapter 10 of his book, which I’ve recreated for your convenience below.

Summary of the Forces that Shape Dishonesty from Chapter 10 of Dan Ariely’s book

Enough about the details of Ariely's empirical research and methodology for now. Hopefully your appetite has been whetted for more. If it’s a topic that interests you I highly recommend reading the whole book yourself; it’s a pretty quick and easy read with lots of good stuff! What I want to focus on now are the implications of Ariely’s research ... i.e. what does it all mean?

One of Ariely’s biggest findings is confirmation of the notion that just about everyone in this world cheats (yes ... even you and even me).  While that may be a little disheartening, it isn’t his most important discovery because his data also make it clear that most people, when left to their own devices, actually cheat less than a theoretically "rational” person would. This is because most people have fairly tight limits on what they can rationalize or justify as honest behavior. In other words, most of us often don’t even realize when we’re being dishonest because for the most part we’re actually pretty honest ... and because we set up nice little narratives for ourselves to rationalize our behavior when we aren’t.

The real problem that Ariely's research points to is the discovery that dishonesty is infectious, like a virus, and it becomes worse and worse in an organizational context when it goes untreated over time. This is the finding that really interests me because it has significant implications in terms of how organizations manage professional conduct, and ultimately, the connections between professional conduct and program outcomes. Which brings me back to the whole point of this blog post ... explaining the unusually strong, nostalgic feelings that I have about the decade that I spent working for PwC at the beginning of my career.  And here’s what has become clear to me over the past few weeks as I've reflected on it in the context of Ariely’s research ... PwC had already figured out 20 years ago most of what Ariely’s new research demonstrates empirically. In fact, PwC was the most ethical, courageous, and results-oriented place that I’ve ever worked, and that’s what made it such a memorable experience.

I realize that this is a pretty strong statement, so to help illustrate the point I thought it might be useful to share a few examples of what I remember PwC did to work against the forces that Ariely found to increase dishonest behavior, as well as what the Firm did to harness the forces that Ariely has found decrease dishonest behavior.

First, we had a clear code of professional conduct, and we took it seriously. And all of the Firm’s professional staff were required to re-read it every year and re-sign a pledge to abide by it. And we did. The important thing about our code was that it went a lot further than just a commitment to comply with laws and regulations. It actually codified the professional values that were important to the firm and enabled us to hold each other accountable to those higher standards of professional ethics. Because of the code it usually didn’t take a lot of effort to figure out the right thing to do.

We also had a methodical and selective process for screening/selecting new business opportunities, and then for managing the business we won. The methodology eventually became known as the Seven Keys To Success. These seven keys distilled the Firm’s important values into salient points and became a lens for management to use across the program lifecycle - a constant reminder of the Firm’s values and objectives at all key decision points.

There was always a strong organizational commitment to - and process for - identifying and managing actual and potential conflicts of interest. Potential conflicts were constantly surveyed and identified as part of the Seven Keys. When regulators started to become concerned about the rapid growth of consulting revenues, the Firm developed a formal, rigorous process for confirming independence on an annual basis.

The Firm wasn’t perfect. As is the case everywhere, mistakes were made. What I always respected was PwC's instinct to disclose, and take responsibility for, mistakes when they were discovered -  regardless of what kind of mistakes were made. All of the ethics training and behavioral conditioning that professional staff went through was structured to help you realize that while there were always going to be some consequences for making mistakes, it was nothing compared to what would happen if someone ever tried to cover something up.

I don’t think it’s a coincidence that two of the up-and-coming partners that I worked for and watched model the highest professional standards of ethical conduct all those years ago, Tom Craren and Tim Ryan, ended up serving in senior leadership positions in the Chairman’s office years later in their careers. In fact, Tim Ryan - who wrote the Linkedin article that I referred to earlier - has just been made the US Chairman of PwC. It’s hard not to respect an organization that fills its highest office with a young leader that you watched first hand walk the Firm’s talk through some tough situations.

On an individual level you were expected to tell the truth - or suffer the consequences. I remember during my second year with the Firm I got called into one of the partner’s offices because he wanted my opinion about a delicate situation that had come up with one of our clients. When he asked me the question I responded with, “Jim, can I be honest with you?” I’ll never forget his response: “Only if you want to keep your job Drew.” Pretty clear message, eh?

In fact, it’s really tough to find an element of Ariely's dishonesty framework that PwC hadn’t already figured out 20 years ago. When you look at it all from a big picture perspective you see that the Firm pretty much had it all nailed. I’ve updated the Ariely exhibit from before to illustrate the point (below).

Based on what I remember about my time with PwC: 1993 to 2002

It’s important to emphasize that the approach and culture around conduct wasn’t built for the purpose of moral dogma. It wasn’t ethics for ethics' sake ... it was a business strategy. It was always clear to me that the Firm’s standards for professional conduct, and the institutional structures that had built to encourage and enforce those standards, were designed to protect the interests of the Firm AND to provide real value for its clients.

Naturally, integrity was always one of the key products that PwC sold. And not just in the form of audit opinions. All of the analytical work we did for our clients had to be balanced - that was our niche. Our advisory engagements were structured to be objective. It was not our job to be persuasive - we weren’t advocates. But it went even deeper than just the basic notion of selling integrity. The attitudes went down into all the management consulting work that we did on systems development, process improvement, change management ... and yes, even into our work implementing development programs for USAID.

I still recall several occasions where our USAID consulting practice had to make some tough calls on whether or not to go in a certain direction with a program that a Mission was leaning towards. If we believed that proposed modifications to a scope or a new activity would undermine USAID’s long run development interests, we always took the time to lay out the concerns and outline some other options that we felt could satisfy everyone’s interests. Whenever we couldn’t resolve those kinds of sticky issues at the project level, the Firm’s leadership got involved to try and help facilitate a solution. On those very few occasions where there was no clear path to resolve differences of opinion on the best way forward, the Firm had no objection to quickly winding down its program so that USAID could engage another contractor that could support the approach. I know it was never easy for the Firm’s leadership to volunteer to walk away from revenue in the short term, but they were able to make those tough decisions when it became clear that the client’s preferred way forward was going to undermine the Mission’s objectives and/or threaten the Firm’s strong reputation within the industry.

Ironically, the USAID Missions we worked with almost always held a higher opinion of the Firm after we had to draw the line on something. This is because it usually turned out that differences of opinion around a proposed approach were driven by inter-agency issues i.e. they were most often cases where USAID was being pushed to do something by the Department of State, the Department of Treasury, etc. that it didn’t necessarily agree with from a development perspective, but felt that it had to go along with for political reasons. In a lot of these cases, the fact that PwC’s leadership drew the line often caused whatever agency was really driving the agenda to soften their position, which ultimately created some space for us to work together with the Mission at the project level to develop a way forward that made sense from a development perspective. In other words, USAID was often able to leverage PwC’s courage and reputation for integrity to keep more of its funding focused on development impact.

The key point of all this - a point I don’t think I can emphasize enough - is that at the core of the Firm there was a deep institutional commitment across all of our service lines to create long term value for our clients. That was always clear to me while I worked there; that’s largely what inspired me to work as hard as I did, and it’s what I credit most of the success to that I had in my decade with the Firm.

I’m sure this is why I also think the most important discovery that Ariely has teed up for us is the idea that there is a clear link between how a professional services organization approaches professional conduct and that organization's ability to help its clients focus on long term goals and long run value creation. Ariely explicitly made this connection in an interview at Wharton where he emphasized that his research clearly demonstrates that “the human brain [is] a rationalization machine that is going to rationalize what is good for us in the short term – not what is good for us in the long term, and not what is good for the organization.”

The implications of this are profound. What it means is that if you are a provider of professional services, and your goal as an organization is to help your clients create long-term value, you have to establish and maintain very clear and high standards of professional conduct. Tim Ryan probably said it best in his LinkedIn post when he wrote: "I feel very fortunate to work at an organization where integrity and courage are highly valued. That doesn’t mean that it’s always easy to go against the grain, but it sure helps.” 

By now I’m sure you’re asking the question: “So what does this all mean for the international development industry?

Granted, PwC is always going to be an outlier because it, along with the rest of the Big Four, represent "the shining city upon the hill" in terms of professional conduct. It may not be reasonable to expect all of USAID’s development contractors to bring the same level of rigor, discipline, and integrity to their engagements and their client relationships. I know ... because I've spent the better part of the last 10 years trying!

I can accept that there are probably some inherent limits on how our industry manages professional conduct given the nature of development assistance, the institutional power arrangements currently in place to deliver that assistance, and the political context shaping it. However, I remain absolutely convinced that there is a tremendous amount that our industry can learn and apply from a PwC-type approach to setting expectations around conduct and managing conduct against those expectations. In fact, I’ve come to strongly believe that a coordinated focus on professional conduct may ultimately be the best thing we can do to enable our industry to make significant leaps towards more powerful and more sustained development impact.

- DS

Unnecessarily Sufficient

In my last post to this blog titled Optics vs Impact (OvI) I wrote about how approaches to development can differ depending upon whether one’s underlying motive is to actually make something happen, or merely to cultivate the perception that something is happening. To help illustrate that concept in a broader sense I drew upon a key story arc from Season One of HBO's The Wire.  

I also pointed out in the last post that Optics vs Impact is a tricky topic to examine. People often have a knee-jerk, defensive reaction to  it.  In fact, here’s one of the most common reactions that I get: 

"PERCEPTION IS REALITY ... SUCCESSFUL DEVELOPMENT PROJECTS ARE ALL ABOUT MARKETING THESE DAYS!” 

Of course the truth is that anyone who says that is absolutely right. Engineering good optics is a critically important aspect of management in any industry, and international development is no exception. Edward Bernays, who is generally recognized as the founder of modern public relations, actually developed a term for the process of shaping opinion, attitudes and perceptions; he called it the "engineering of consent.”  Anyone who foresakes the importance of optics does so at their own peril. You think optics doesn’t matter, or shouldn’t matter? Well, remember this blog post when the train of neglectfully-managed public opinion unmercifully mows you down.  Believe me, I’m one of the people who wishes that great work could just speak for itself. Trust me, it doesn’t!  

What really gets me though, is when people think this is where the whole OvI conversation ends, because that is where I disagree. And I think we need to reflect a bit more deeply on the whole OvI conundrum if we really want to get serious about development results. 

So let’s look at that knee jerk response to OvI more closely. 

"PERCEPTION IS REALITY ...   SUCCESSFUL DEVELOPMENT PROJECTS ARE ALL ABOUT MARKETING THESE DAYS!” 

The statement outlines what logic terminology calls an "implicational relationship." It implies that success with development projects requires careful, active management of perception.  As I’ve already said - and as I’m sure we’ve all observed first hand - it is very hard to argue otherwise!

But it's more complicated than this because logic theory defines a range of different types of implicational relationships. These various types involve the concepts of Necessity and Sufficiency. Maybe you're scratching your head now trying to remember some exercises you did back in college or graduate school, or preparing for the LSAT.   If it’s not familar, or if the cobwebs are too thick, I’ll quickly share an example that explains it. 

Time to summon your inner Spock for a few minutes and geek out on some logic theory!

Let’s tackle necessary first: 

Definition: A necessary condition for some state of affairs S is a condition that must be satisfied in order for S to obtain.

Example: A necessary condition for getting an A in a class is that a student hand in a term paper. This means that if a student does not hand in a term paper, then a student will not get an A, or, equivalently, if a student gets an A, then a student hands in a term paper.

And now sufficient:

Definition: A sufficient condition for some state of affairs S is a condition that, if satisfied, guarantees that S obtains. 

Example: A sufficient condition for getting an A in a class is getting an A on every piece of graded work in the course. This means that if a student gets an A on every piece of graded work in the course, then the student gets an A.  

It’s important to point out that from the example above, handing in a term paper is a necessary, but not sufficient, condition for getting an A in the class. Similarly, getting an A on every piece of graded work in the course is a sufficient, but not necessary, condition for getting an A in the class.  In fact there are four combinations or four unique varieties of implicational relationships. I think it’s easiest to see these in a 2x2 matrix:

OK, hope this is all clear. Let’s get back to the point of this post by taking another look at the knee jerk reaction to the OvI discussion:

"PERCEPTION IS REALITY ... SUCCESSFUL DEVELOPMENT PROJECTS ARE ALL ABOUT MARKETING THESE DAYS!” 

Which of the following relationships are implied by this statement?

(A) Engineering a positive perception is a necessary but not sufficient condition for successful development projects.  

(B) Engineering a positive perception is a sufficient but not necessary condition for successful development projects.  

(C) Engineering a positive perception is a necessary and sufficient condition for successful development projects.  

(D) Engineering a positive perception is nether a necessary nor sufficient condition for successful development projects. 

We’ve already established that positive perception is absolutely necessary, which means the answer is either (A) or (C). What we haven’t established yet is whether or not a positive perception is sufficient. 

If we let the knee jerk reaction stand, without pushing for further examination, then we are implicitly accepting that the answer is (C). In other words, if we’re satisfied with the knee jerk reaction to OvI, we’re saying that engineering a positive perception is a necessary and sufficient condition for successful development projects. 

That is why I’m not satisfied with the knee jerk reaction. It’s not that I disagree, it’s just that I don’t think positive perception is sufficient for successful development projects. Here’s the reaction that I wish I heard more often:

"PERCEPTION IS REALITY ... SO THAT’S ONE OF THE KEY THINGS WE HAVE TO UNDERSTAND AND FOCUS ON IF WE WANT TO BE SUCCESSFUL!"

- DS

Optics vs. Impact

"You want it to be one way ... but its the other way” 

- Marlo Stanfield

In the last entry to my blog I explained that HBO’s TV show "The Wire" is a great show for development professionals to watch because the kinds of complex challenges that play out on the show are strikingly similar to the challenges that we confront these days working on USAID’s development programs. Today I’m going to explore one of these challenges; the challenge of Optics vs. Impact (OvI).

OvI is the key theme behind the first season’s principal story arc which involves the Baltimore Police Department's (BPD) efforts to take down the Barksdale family operation, the city's largest drug trafficking empire. In order to explore OvI in the context of the the BPD’s investigation/pursuit of Barksdale we need to start by defining Optics and Impact. Here’s how I define them:

Optics is defined by the extent to which the activities undertaken, and decisions made, by the BPD convince the citizens of Baltimore that the BPD is waging an effective war on drugs and violent crime, thereby perpetuating public support for the BPD and the city’s broader political administration. 

Impact is defined by the extent to which the activities undertaken, and decisions made, by the BPD enable it to actually put the highest levels of Barksdale in prison, thereby de-capacitating its drug trafficking operations and all of the associated violence.

OK. Here’s where you say, "wait ... aren’t these the same thing?" Isn’t the best way for the BPD to secure public support to shut down the drug gangs and put violent criminals behind bars?

Unfortunately they aren’t the same thing and this is one of the key messages that David Simon is trying to get across with The Wire. One of the main tools that Simon uses to portray contrast between Optics and Impact is character development of two of the BPD’s biggest egos; Detective Jimmy McNulty and Major William Rawls. Two guys that couldn’t be more different from one another.

Jimmy McNulty

McNulty (played by Dominic West) is the show's tragic hero. He is arguably the most skilled detective in the entire BPD. He’s also the most committed within the Department to doing the kind of real police work that needs to be done to put the criminals behind all of the violence in Baltimore behind bars. McNulty’s problem is that he’s so consumed with the mission of putting murderers behind bars that he’s got no respect for the ‘chain of command’ and very little patience for the politics of law enforcement.

In the context of this analysis McNulty personifies an impact-driven approach to law enforcement. He recognizes that putting kingpins behind bars requires slow and steady investigative techniques, the use of wire taps and surveillance, and a commitment to stealthy progress (i.e. the idea that key milestones in an investigation should not be public celebrations because too much publicity can undermine the longer run objectives.)

William Rawls

Rawls (played by John Doman) is the total opposite. He’s a devout bureaucrat that knows how to play the game. His M.O. is “Dope on the Table” which is shorthand for lazy investigating. i.e. make some quick arrests, seize some drugs and maybe some guns, toss them on a table, and hold a press conference.  Rawls’ problem is that he’s so wrapped up in managing his career that he’s unable to recognize or support the real police work that is going on in the Department.

Rawls personifies the optics-driven approach to law enforcement. He recognizes that it is much easier to cultivate a perception among the public that his police department is diligently fighting crime than it is to actually buckle down and fight it. The idea of a stealthy investigation makes absolutely no sense to Rawls; he would never miss an opportunity to persuade his audience that important work is being done even if the PR undermined the prospects of making a real dent in crime.

Confrontation between Rawls and McNulty is one of the main storylines in the first season of The Wire.  It starts with a frustrated McNulty going outside the BPD chain of command to a city judge to complain that nobody inside the BPD is serious about investigating the Barksdale operation, which includes most of the city's drug trade and a lot of its unsolved murders. The city judge then takes McNulty’s private complaint back to senior BPD officials, and the BPD is compelled to launch a real investigation into Barksdale.

Its clear from the beginning that BPD leadership has no appetite for the kind of sustained effort and sophisticated investigative approach that is necessary to bring down Barksdale. BPD leadership, which is exemplified by Rawls, spends the entire first season of the show looking for opportunities to make quick arrests of low-level figures in the Barksdale organization, hold press conferences, and get out. McNulty, however, continues to find creative ways of pushing back so that his unit can pursue the investigation of Barksdale to its conclusion.

Largely through the valiant - and arguably insubordinate - efforts of McNulty the Barksdale investigation is able to maintain enough of an impact-oriented focus to ultimately put the organization’s leader, Avon Barksdale, behind bars at the end of the first season. However, rather than being a celebration of investigative success, the message that Simon focuses on in wrapping up the first season is how their different approaches affect McNulty and Rawls in terms of their careers. McNulty, because of his blind, passionate focus on impact, ends up getting professionally sidelined out of Homocide and into a dead end job with the Marine Unit. Rawls, because of his obsessive focus on optics and the "chain of command” ends up getting promoted to Colonel.

What’s the parallel to USAID-funded development programs?

To answer that question we need to start the same way ... by defining optics and impact in the appropriate context. I'll define them in the context of a typical private sector development initiative:

Optics is defined by the extent to which activities undertaken, and decisions made, by USAID and/or its implementing partners convince the US Congress - and the American People - that the Agency is extending a useful helping hand to the developing world, thereby perpetuating public support for both the Agency and the broader political administration.   

Impact is defined by the extent to which activities undertaken, and decisions made, by USAID and/or its implementing partners actually enable or effect a sustainable increase in sales, employment, investment and/or exports, thereby positively influencing a country's trajectory of economic growth and its standard of living. 

As in the case of Baltimore law enforcement, these are unfortunately not the same thing for highly politicized international development activities ... at least not as often as we’d like.

I’m sure everyone can recall experiences where the conflict between optics and impact has manifest in your development work. And I’ll bet that in most of those cases there were folks like Rawls that pushed for a focus on optics, and in some of them there were folks like McNulty that pushed for a focus on impact. And I bet most of the time the folks like Rawls have fared better than the folks like McNulty.

I have a lot of great examples from my own experience that I would love to write about in order to advance our industry’s collective capacity to recognize and deal effectively with the OvI challenge in the context of international development programs. The problem is that our industry is in a situation where we really can’t write about a lot of our experiences, regardless of how constructive our intentions may be.  Our industry is under so much scrutiny these days that any effort to write about our experiences with the objective of learning and sharing knowledge can end up being counterproductive. In this kind of environment even the most well intentioned efforts to reflect and learn get turned into cannon fodder for the folks that want to cut AID funding.  So, in terms of really learning and growing as an industry, we’ve often got our hands tied behind our backs ... we’ve got to be creative.

One of the ways that I’ve tried to deal with this in past blog posts is by abstracting some of my real experiences into hypothetical situations. And in fact two of my previous hypothetical examples were focused largely on how I’ve experienced the challenge of OvI in the private sector development context. In the post Get Naked I wrote about it in the context of a hypothetical rehabilitation grant program for farmers in Africa that gets pressured to unwisely accelerate spending in order to get the optics right. And, in the post Unplug The Blender I wrote about it in the context of a hypothetical value chain R&D activity that succumbs to pressure to scale up too quickly in order to get the optics right.  One of the key points in both of these hypothetical scenarios was to show how development impact can suffer when we’re too focused on the optics.

If anyone hasn’t realized this already, I’ve got a lot more in common with McNulty than Rawls.  That is one of the main reasons that I started writing this blog ... trying to figure out how we as practitioners can get more latitude and support to focus on real development impact. There have been more occasions in my career than I care to remember where my approach has been so blindly impact-oriented that I've ended up in situations like those that McNulty experiences on The Wire. In fact, my friends have joked that a lot of the wisdom that I’ve managed to extract from The Wire was enabled by my own experience as the Jimmy McNulty of International Development.

So what wisdom do I have to share with you?  Stay tuned.

- DS

All in the Game, Yo

I’m still amazed when I meet people that have never watched HBO’s “The Wire.” After all, this is the show that critics claim is the best drama in the history of television ... a show that has actually been cited as a literary masterpiece meriting comparison with the works of Dickens and Dostoevsky.

Actually, I think the best endorsement of the show that I ever read was from an anonymous person posting to the iTunes Store who wrote: "If I was a high school civics teacher I would make every student I could watch every hour of this show. To the ‘infotainment’ generation, it could be a wonderful tool to make young people learn to take a second look around and not confuse the perception of functionality with what actually works.”

The fact is, anyone that knows me well knows that I’m a huge fan of “The Wire”.  Why do I feel so strongly about it? Because The Wire provides us with an unparalleled portrayal of all the complex challenges that we confront working on USAID-funded development programs these days.

In this new blog series that I’m kicking off today I’ll be exploring some of these complex challenges, describing how I’ve watched them manifest in USAID's development programs, and reflecting on some of the most important lessons that I think we can take away from the show ... and apply to our work as the Agency’s implementing partners.

But before I dive in to the specifics I’d like to explain why I believe the challenges we all face doing USAID funded-development work today are so similar to the challenges that Baltimore law enforcement officials were confronting in The Wire.

One of the things that television critics often laud about The Wire is the intimacy involved in the show’s portrayal of the inner workings of Baltimore law enforcement. Whenever David Simon, the show’s producer, is asked about this he attributes it to the fact that he worked for The Baltimore Sun newspaper as city reporter for over ten years and spent the majority of his time at the paper covering the crime beat.  He further explains that his tenure on the crime beat at the Baltimore Sun happened to overlap with two significant changes that he believes tore the soul out of the Baltimore Police Department.

Significant Change #1

The first important change Simon witnessed while working at the Sun was a dramatic reduction in the capacity of the Baltimore Police Department, something Simon traces back to the War on Drugs. He argues that federal sentencing reforms in the mid 1980s, and a series of subsequent local measures, caused a radical change in the incentive system driving police behavior in Baltimore. Specifically, according to Simon, it created a new environment “where good investigation went unrewarded and where rounding up bodies for street dealing, drug possession, and loitering – the easiest and most self-evident arrests a cop can make – became the path to enlightenment, promotion and additional pay.”

While Simon spent a fair amount of screen time in The Wire depicting the immediate consequences of the drug war era’s new incentive system, his real objective was to illustrate the longer-term consequence ... the fact that the Baltimore Police Department essentially stopped teaching its police how to do real police work. As Simon later explained “so you fail to reward the cop who actually does police work ... who do you think gets made sergeant? And then who trains the next generation of cops in how not to do police work?” As The Wire shows us over and over, there is a real skill set involved in doing good investigative police work. Unfortunately, because the Baltimore Police Department spent a decade promoting people into leadership roles without those skills, eventually the skills largely disappeared within the Department.

Significant Change #2

The second important change that Simon witnessed was a sharp increase in expectations of the Baltimore Police Department. Simon attributes the dramatic shift in expectations to Martin O’Malley (Baltimore’s mayor from 1999 to 2007) and his grandiose political aspirations.

Given the state of the Baltimore Police Department when O’Malley became mayor, the kinds of crime reductions he needed to become a credible gubernatorial candidate were virtually impossible. Immediately after he became Baltimore’s mayor O'Malley realized that he had to come up with a different approach to get the kinds of crime numbers he needed to become Governor. As Simon later recounted, "and so there were people from City Hall who walked over to {the police commissioner} and made it clear to the district commanders that crime was going to fall by some astonishing rates. Eventually, {they} got fed up with the interference from City Hall and walked, and then more malleable police commissioners followed, until indeed, the crime rate fell dramatically. On paper."

I have gone through a lot of what Simon has written and said about The Wire and Baltimore politics. One thing that has become clear is that neither of the two significant changes, by themselves, could have caused what happened. What happened in Baltimore was a result of both changes happening - in the order they occurred. Remember that the dramatic reduction in the Baltimore Police Department’s law enforcement capacity started in the mid 1980s; by the late 1990s the department had essentially been gutted. Mayor O’Malley started setting unrealistic expectations when he took office in 1999 ... and the first season of The Wire aired three years later in 2002.

Here’s the takeaway. Every form of public service is vulnerable to the kinds of challenges that are depicted in The Wire. To some degree the challenges are universal. Under certain circumstances, however, there is a real threat that the challenges start getting out of control. The specific circumstances that we need to watch out for are (1) A dramatic decline in workforce capacity, followed by (2) A sharp increase in expectations.

Where else have we seen a one-two punch like this happen?

Consider this Foreign Policy article from 2015 that asked a poignant question: "Why is the United States letting its best foreign aid tool fall apart?" In that article the authors argued that "USAID’s capacity is on the cusp of crisis: Its staff is divided between veterans who are aging out and greenhorns, with too few in the middle. From the standpoint of national capacity, America has a development donut.” A closer look at the data is pretty sobering. According to the article 50% of USAID’s workforce is now past retirement age, and 35% have less than 5 years of experience. And this “cavity” in USAID’s workforce isn’t getting any better. The Foreign Policy article claims that the cavity is actually growing larger every year because a lot of the most promising, younger leaders in USAID's workforce are opting not to stay.

In 2010 the Obama Administration issued a policy directive on global development (PPD #6). It  got a lot of people’s attention because it was the first time that International Development had ever been the subject of a Presidential Policy Directive. Secretary of State Clinton followed PPD #6 with the first ever Quadrennial Diplomacy and Development Review (QDDR). And then USAID Administrator Rajeev Shah turned the expectations needle up another several dozen clicks with the announcement of a planned transformation of the Agency based on a new operating model and absolute demand for results. It’s hard to imagine a sharper increase in expectations than what we’ve watched since 2010.

In short, we had a dramatic decline in the capacity of USAID's workforce, followed by a sharp increase in expectations. So it should be no surprise that embarrasing things like this started popping up in the news:

At a 2011 congressional hearing, Rep. Jason Chaffetz, Utah Republican, the chairman of the House Oversight and Government Reform national security subcommittee, listed some of the USAID's success claims on Iraq: “262,482 individuals reportedly benefited from medical supplies that were purchased to treat only 100 victims of a specific attack; 22 individuals attended a 5-day mental health course, yet 1.5 million were reported as beneficiaries; 123,000 were reported as benefiting from water and well activities that did not produce potable water; and 280,000 were reported as benefiting from $14,246 spent to rehabilitate a morgue.”

and this ...

A 2013 Congressional Research Service report lamented that many AID staffers are “defensive … concerned that evaluations identifying poor program results may have personal career implications, such as loss of control over a project, damage to professional reputation, budget cuts, or other potential career repercussions.”

and this ...

The Agency for International Development (AID), the largest foreign-aid bureaucracy, was caught last week {September 2014} massively suppressing audit reports revealing waste, fraud and abuse. More than 400 negative findings were deleted from a sample of 12 draft audit reports, The Washington Post reported. In one case, more than 90 percent of the negative findings were expunged before the report was publicly released. Acting Inspector General Michael Carroll buried the embarrassing audit findings because he “did not want to create controversy as he awaited Senate confirmation to become the permanent inspector general”

We don’t talk about it very much in the open, but behind closed doors nobody in our industry denies that we have a problem. Of course there are still some really good projects being implemented that we’re all familiar with, but the collective level of frustration is palpable and it’s building; the situation is not sustainable.

I don't think it's too late to reverse course. It is going to require a new generation of leadership with genuine interest in - and unwavering commitment to - doing real development; with enough patience to persevere. I think what we need is already out there. Based on what I've seen the last few years I believe the millennials can bring new life to the Agency. In them, I see light at the end of the tunnel.   

It is going to take time, but I am convinced there is a new spirit emerging that we can all harness to turn this situation around. We just need to acknowledge the problems and commit ourselves to address them. And The Wire can help us do it ... because its all in the game, yo! 

- DS

Next Up .... Optics vs. Impact

Build It And They Will Come

In my last installment to this blog series on development contractors I reflected on my own experience managing a USAID contracting business from inside a large public company. I thought it would provide some helpful context for today’s post on AECOM International Development.

My last post concluded with the argument that, while there are certainly more complications to overcome inside a public company than a private company, a USAID contracting business can indeed be viable inside a publicly traded company. Today’s post completes the argument.

AECOM International Development

USAID 50 Ranking: #8

Average Annual Obligation: $111 Million

Imagine we’re having the following conversation:

Me: I read an article earlier this year that suggested AECOM might be the biggest company you’ve never heard of. Is that true? Have you ever heard of AECOM? 

You: It’s true ... I’ve never heard of AECOM. Who are they? 

Me: AECOM is the largest architectural and engineering design firm in the world, responsible for some of the most iconic building projects in recent history. 

You: Really. Any big projects that I might recognize? 

Me: Well, how about the tallest office tower in North America: One World Trade Center. 

You: Wrong! I happen to know One World Trade Center was built by the same company that built the original World Trade Center - Tishman Construction. 

Me: Nope. AECOM bought Tishman in 2010.

The conversation is a great example of why a lot of people have never heard of AECOM … it didn’t really exist until the early 1990s. The company’s growth has been mostly driven by acquisitions. It’s what securities analysts refer to as a "roll up.” In AECOM’s case, it’s the end product of over 40 firms being rolled together over the last twenty odd years.

AECOM International Development is just a small part of the larger AECOM. It was created back in 2004 by AECOM’s acquisition of Planning and Development Collaborative International (PADCO), and then expanded by AECOM’s acquisition of The Services Group (TSG) in early 2008. AECOM acquired PADCO and TSG in order to cultivate a special foothold for building up its business in emerging markets.  

From the looks of things today it turned out to be a smart decision. As I’ve already hinted at in the last installment to this blog series, AECOM International Development is living proof that a USAID contracting business can be viable inside a publicly traded company. According to data that I pulled off usaspending, it looks like before AECOM started the acquisition (~2003), TSG and PADCO were pulling in combined prime contract obligations of somewhere around $30 million annually. 

Now fast-forward ten years. In 2013, USAID’s obligations to AECOM totaled just over $170 million. So under AECOM the USAID contracting business grew from around $30 million to $170 million in 10 years. That’s an increase of over 500%, i.e. that’s some pretty serious growth. And, as I described in the last installment about my own experience managing a USAID contracting business from inside a publicly traded company, that’s not an easy thing for a public company to pull off. 

So what has enabled AECOM to succeed where IBM failed? 

First, it’s important to remember that all acquisitions start and end with people, so I think you’ve got to take your hats off to the folks at AECOM, TSG and PADCO that managed to figure out how to make the USAID business work inside AECOM Corporation. It’s some impressive work. 

Of course there were some important differences too. For example, AECOM’s acquisitions of PADCO and TSG were not accidental (i.e. not part of something much larger like IBM’s acquisition of PwC Consulting.) PADCO and TSG were both specifically targeted by AECOM for their work with USAID. And AECOM generally gives the companies it acquires a relatively large degree of flexibility and independence to continue running the company, i.e. AECOM has tended to focus less on integration post acquisition compared to a company like IBM.   

The regulatory environment has also been a bit less complicated. Remember that IBM’s acquisition of PwC Consulting came right on the heels of Enron’s collapse. As a result, the financial and capital markets were particularly nervous at that time about the possibility that companies were failing to properly disclose potential liabilities that could arise from offshore entities and subsidiaries. And, despite the fact that USAID field projects have nothing in common with the kind of off-shore entities that took down Enron, there were enough cosmetic similarities (e.g. foreign bank accounts, foreign hired staff, foreign procurements and sub-contracting) to trigger a lot of extra caution, due diligence, and general “noise” around the time IBM acquired PwC. 

But I think the biggest reason that AECOM International Development has succeeded is the fact that there are some real synergies between what AECOM does commercially on a global basis and what USAID has been looking for from its contractors over much of the last decade … particularly in countries like Iraq, Afghanistan and South Sudan, which is where most of AECOM International Development’s growth has come. AECOM has also been successful in securing USAID work around climate change adaptation and natural resource management, and these are also both natural extensions of AECOM’s commercial practice and corporate capabilities. 

Whatever the key reasons for its success are, there have clearly been a lot of things working in AECOM’s favor, and there are a lot of things that AECOM does well. So much so, in fact, that I have thus far been unable to pinpoint a unique signature that differentiates AECOM International Development from everyone else. And I’m not the only one struggling to figure it out. Daniel Safarik, the publications editor at Council on Tall Buildings and Urban Habitat remarked earlier this year that; "It's hard to find the heart and soul of what AECOM is … it's hard to get a grip on from an identity perspective because they're massive and acquisitive." Or, as Jacob Herson, an AECOM spokesman himself said, “AECOM is still a work in progress.”

I’m interested to see how this “work in progress” finishes its story. It could go a variety of different ways, and I think the path it takes from here will ultimately end up defining AECOM International Development's unique signature. 

Where do I see it going?

The optimist in me looks at all of AECOM's potential and my jaw drops. I think that if AECOM can start focusing more of its time, resources and energy towards organic growth, and towards integrating the firms it has already acquired, it would present a real opportunity for AECOM International Development to substantially strengthen its Project Enabling Environment (PEE), and its capacity to deliver results for USAID. I saw the potential for this first hand during my tenure with the company on its Southern Africa Trade Hub project. While I was there AECOM introduced its proprietary One Source platform to the project. I thought the introduction of that system, complete with its automated workflows for procurement and travel logistics, completely revolutionized those critical aspects of its PEE in the field. 

And, when you think about the fact that there are literally 40 companies that AECOM has rolled up in the last 20 years it’s hard to even fathom the kind of gold mine that now exists within the company in terms of useful tools, practices and knowledge. AECOM has the kind of in-house resources that, if harnessed and adapted effectively, could literally transform AECOM International Development into one of USAID’s best in class implementing partners in terms of applying the science of project management to international development engagements.

AECOM also has a secret weapon … something that none of its competitors in the development industry have. It’s called AECOM Capital. AECOM Capital is a unit that the company has established specifically to differentiate itself from its competitors. It's a mechanism that enables AECOM to make direct investments in real estate and public private partnerships (PPPs) that complement and support its traditional service offerings for clients. It’s a great concept and I think it would be awesome if AECOM figures out how to deploy it in support of its USAID programs. It would make a great unique signature ... something catchy. Maybe something like “AECOM puts their money where their mouth is."

Unfortunately, it looks like the road ahead may get a little bumpy for AECOM International Development, especially its business with USAID. One of the Wall Street analysts that follows AECOM noted earlier this year that AECOM had started restructuring its Management Support Services (MSS) line of business (which includes AECOM International Development) to make it more profitable. The report indicated that AECOM is looking to shift away from higher-volume, lower-margin international work towards more lower-volume higher-margin work in the United States. And, in a conference call earlier this month to discuss its most recent quarterly earnings, AECOM management reiterated its plans to reposition its MSS line of business away from higher-volume, lower-margin international work.

Now, I don’t think this means that AECOM International Development is going anywhere; I think the emerging markets are still very important to the company overall. But, I think AECOM's business strategy for international development work could change. I can imagine AECOM diversifying the business and shifting more of its focus towards the other big bilateral donors, and especially the multilaterals, many of whom take a more holistic "value for money” approach to development partnerships than you find at USAID.

It’s a good reminder of why running a business inside of a public company can be so unsettling. Companies like AECOM and IBM have tens of thousands of owners that aren’t even remotely involved in managing the business, but they all have expectations. At the end of the day public companies are ultimately going to do whatever they think is best to drive up their share price … If you're running a low margin business inside one of the companies you just have to keep hoping that things continue to break your way.

- DS

Next Up … Process Makes Perfect