Transcript

Hey, Warren, what's that in your hand?

It's the newest book that we just developed, in conjunction with Tsinghua University. It is a collection of eighteen cases, and ten chapters aimed at disseminating our work to all the Chinese business schools. It's 100 percent in Mandarin Chinese. It's the end point of where we are today on a very deep process of engagement that's been going on for a number of years.

Do you hold that up with pride?

I hold it up with absolute pride. And I'll tell you something more about it as we get going.

Okay, let's get going. How did a deep technophile, with all kinds of marginally relevant experience, wind up on the spear point of the Asian enterprise?

Like all things at HBS, it's an accident. In 1979, just after China had opened up to the West, an alum of the Class of 1950, C.B. Sung, who had left Shanghai in 1947, spent a year at MIT, and then come to the Harvard Business School. When he graduated, Shanghai was closed, and so he built his career in the United States at Motorola, and then in the '70s began engaging ever more seriously with China. And he approached Larry Fouraker, and suggested that it would be a terrific idea for the Harvard Business School faculty to learn more about China. And so this culminated in a three-week sponsored trip, where Joe Bower, myself, Walter Salmon, our wives, and the head of external relations, Dick Waters, and his wife spent a three-week trip visiting Harbin, Beijing, Shanghai, and it was an absolutely mind-blowing experience.

On the highway from the Beijing Airport to the center of Beijing, it was a single two-lane highway. Roughly every four miles you saw a car coming the other direction. That same highway today is ten lanes, and is more or less totally jammed with traffic from 7 in the morning until 9 o'clock at night. More bicycles than I had ever conceived of, more uniformity in dress code. Everybody wore the same color Mao suit.

I came back from that trip, and was extremely enthusiastic, and went right to John McArthur and said to John, "We need to really pay a lot more attention to China." And John, like all good deans, looked me right in the face and said, "Warren, I just couldn't agree with you more." Meanwhile to himself saying, "The last thing I need is to have my leading IT person off in the rice paddies doing God knows what." And so I simply had my workload doubled in other areas.

And for the next twenty years, I went roughly once a year to Southeast Asia, including Hong Kong. I actually did not go back to China. In 1999, that Kim Clark—as a result of a faculty vote, where the faculty had done a study, and decided the part of the world we needed to know the most about was Asia, in relation to our current knowledge—approached me and asked me if I'd be willing to take leadership of our new research center that Bob Hayes had just set up in Hong Kong. And I thought back to the conversation I'd had with John McArthur twenty years earlier, and I decided I still believed in the concept. And so I was asked, you know, to do it.

It was really kind of an accident, because when I heard that Bob Hayes was retiring, I was then in the Dean's operating group. I, in an October meeting, delivered myself, I said, "You know, the leadership of this center is really a big deal. You need to have somebody senior." And at that time I was responsible for External Relations. I had given the advice to the dean. And the next operating group meeting I missed because I was off raising money for the School. And my other colleagues, terrified that one of them might be asked, volunteered that I would be the right person. And Kim checked with a number of our alumni out in the region, and it turned out that I was really well known there.

Another link that will come back to is Victor Fung, who became head of our Asia-Pacific Advisory Board. I'd had him as a student in the doctoral program in the summer of 1967. He sat on the third row of the class on the right. And Jay Light was a student sitting on the second row on the left. And that becomes important, because Victor and Jay, through my course, which was on management control, actually got to know each other, and basically forged a relationship that has gone to today.

From the moment that I took over the leadership of the Hong Kong office, the critical issue was, how to have an engagement with China? Singapore had offered us everything, but the problem was Singapore was a four-hour plane flight away. Shanghai would have been an interesting place, but at that time we were a highly suspect liberal educational institution, and I subsequently spent a lot of legal fees, and basically just was unable to get an office there. They explained to me, and I still have a copy of the letter somewhere, that basically that we should not be associated with any research institution, but it would be great if we could teach in the MBA program at Futan University. This was not what I had in mind.

Dumb luck is always helpful. Four months after I had had the responsibility for the center, starting promotional trips, getting to know Camile Tang Yeh, who was our new head, and Hank Paulson, then in a happier phase of his life as Chairman of Goldman Sachs, called up Kim, and asked, "Would you be interested in educating the faculty at Tsinghua University in how to do executive education?" Now I'm ashamed to say that neither Kim nor I were all too clear on exactly who Tsinghua University was. Twenty-four hours later, our inadequate educational background had been very clearly sorted out.

Tsinghua University is the MIT of China. It is now an over 90-year-old institution, and clearly, the most preeminent educational institution in China. Roughly 25 percent of all senior party members, and heads of state-owned enterprises, are Tsinghua graduates. That's twice the number of those who come from Beijing University, or Futan University. Most importantly, their School of Economics and Management, their business school, founded in 1984: From 1984 until 2001, their dean was Zhu Rongji. Zhu Rongji took over that job when he was mayor of Shanghai, and continued on when he was premier of the country.

This actually sounded extremely promising to Kim and myself, because if looked at in the wrong way, writing cases in China could be seen as stealing state secrets. And even protected by a green card release process, that was a pretty cold comfort. The notion of stealing state secrets under the auspices of the premier seemed to be a much more promising kind of thing.

We basically gave a million dollars' worth of seats in our Executive Education programs over the next two years to thirty members of their faculty and administration, to come and actually see at HBS what the case method was like. How we went about educating, and so forth. The real payoff, though, was that to sort of help solidify this, was that we did a series of eight one-week programs in China, co-branded between the Harvard Business School and Tsinghua University. And I'll be perfectly honest that to make this relationship work, I cheerfully broke every single rule the School ever had. Somebody with my amount of gray hair can do that with some impunity. We never co-brand anything. So we started with this co-branded program.

The first program was in January 2001, called Managing in the Age of the Internet. And it was taught by three HBS faculty members: myself, Dick Nolan, and Dave Upton. And about 25 percent of the teaching was done by our colleagues at Tsinghua. I used that program to basically force the development of eight field-based cases, in Hong Kong, Shanghai, and Beijing. Talking with my colleagues in Tsinghua, they explained to me that, well, basically, of course, that the way you learn in China is first you give a simple theoretical lecture. Then you give a somewhat broader theoretical lecture. Then you give a really all-singing, all-dancing convoluted lecture, and then a small case example to bring the thing home.

And I told them, "Obviously, you know your market better than we do. So tell you what. We're going to do all of these case studies, and it's going to be done through simultaneous translation. We're going to look like idiots, and your brilliant lectures, delivered in Chinese, will bring the thing home." Well, you know what happened: Basically, the cases were an extraordinary success. The participants just took to them. And even though it was being taught through simultaneous translation, why, the debate was really intense. And the lectures were even better than Ambien for putting people to sleep.

The next year we did the program, as I put the curriculum together, I just simply eliminated the theoretical lectures, and put down, "Case to be announced," for our Tsinghua colleagues, who went out and started to write cases. Now understand, this is like no other program we've ever done. First, every case was available in English and Chinese. When I was teaching, I had earphones on, and I had a microphone on my tie. There were three U.N.-quality translators in the back, providing simultaneous translation.

And the quality of the translation was critical. Everything that I was saying in English went directly into Chinese within a second or so. And every response in Chinese came back to me in English. And it worked sufficiently well that after 15 to 20 minutes, I forget that I am in a non-English speaking classroom.

The translators were critical. It turns out the cold call incoming through Chinese works just as well in China as it does in HBS, when I am hovering over some hapless executive who is trying to avoid direct eye contact, and I get down on my knees and look up to them. It has exactly the same kind of impact. I had half the blackboard space, but basically everything I wanted to write I could write on half the blackboards, and somebody stood beside me and translated what I wrote on the other side in Chinese.

Every Power Point slide I used, there was a Chinese version either beside it or in Chinese directly underneath it. Every video: If it was in English, the subtitles were in Chinese, and vice versa. And our first program was a really, really high-stress event. We had seventy-four people, and the thing was kicked off by the university president. It was simply a terrific success. Our lead translator caught me on Thursday afternoon, tea break, and said, "Professor McFarlan, there's a real difference between Harvard Business School and XYZ University, who I translated a similar program for two months ago."

And I said, "What's the difference?"

He said, "The difference is that you know what you're talking about."

Our competitor had simply taken a U.S. program, and dropped it right into Beijing. People flew in, did their teaching, and went home. We had, like we always do at Harvard, taken the trouble to write cases on the ground, to try and understand the local nuance. And a very important piece of this was materials and ideas that we could bring back to Harvard Business School.

We went through eight of these one-week programs. The first one, the senior person in the program was the chairman of the world's number-two shipping company, Cosco, Captain Wei Jaifu. At the closing banquet, he stood up and gave the normal ceremonial kind of speech, and also indicated he would love to have a case written on his company. We have subsequently written two cases at Cosco. He has been an important member on our Asia-Pacific advisory board. And the Monday morning after the program, he called up the president of Tsinghua and said, "That's just a terrific program. You need to get your faculty a little more up to speed on cases," and so forth. So the transformation process started at Tsinghua.

We did eight of these programs. This actually led to our first book, Seizing the Strategic IT Advantage in China, which was built right around IT cases. This led me to want to do something more ambitious. And the more ambitious thing is that we decided three years ago to do a six-week general management program for Chinese executives. And it would be done across Tsinghua University, who had been our partner. Partners are very, very important in China. I mean, this is the land of relationships.

At the same time, there was another school in Shanghai called CEIBS, C-E-I-B-S, Chinese-European International Business School. It had been founded by a consortium of European business schools. Their senior dean was Pedro Nueno, a graduate of our doctoral program. He had been working with Kim on the fact that we should be, in fact, working much more closely in China. And we had done a CEO program with them, a four-week program, where it was two weeks in Shanghai, one week in Barcelona, and one week at HBS. They had a very strong marketing presence in Shanghai. And that was the idea that was conceived.

By this time, I had turned over the office in Hong Kong. I had retired. I'd taken Dick Vietor around, passed all my relationships off. The Hong Kong office, the new office in Tokyo I'd founded, passed off, created a dialogue in India so we were forced to develop the Indian office. So I'd created mischief, and for five months I was off the field.

And one morning in December, Srikant Datar, then head of Executive Education, and Ani Kharajian showed up in my office, and talked about this more ambitious thing to mobilize our faculty. And I immediately said, "I don't know if our friends at Tsinghua would be willing to work with the people at CEIBS, because Tsinghua is a very proud institution." I said, "The only way I will know, because I cannot write them, is that I will have to go and ask them."

And so quite literally, Ani Kharajian and I did a ninety-six hour around-the-world trip. We arrived in Beijing about noon. We had afternoon tea with the deputy dean, who was an information technology person who had worked with me in the first program. And we described what the basic model was, and we then went to bed. As it turns out, after finishing the model, he immediately called up the dean and said, "This is what they want. We'd better talk about it."

So the next morning I arrived there, and I'm working my way down through the eighteen slides, and the key point—the partnership—is like in the footnotes of slide 11. And the dean is going on and on, and slide 11 comes up, and he sees it. He said, "Ah, there is the issue!" And he then says, you know, "I know the executive dean at CEIBS. He's a good person. I can work with him." And on the strength of that, we then finished up the thing, got on the airplane, and flew back to Boston.

That relationship, with ups and downs, is still working today. What it is, it's a six-week program. The first two weeks are in August, in Beijing. The next two weeks take place in late October on the CEIBS campus in Shanghai. And the final two weeks take place at HBS. It is complete, dual language—exactly the same concepts that we pioneered with the first program.

Now the strategy for this, though, was we wanted to really broaden this inside the faculty. So I did not pick the usual group of suspects. I took a group of senior associate professors, and senior assistant professors, and used this as a way to get them introduced into doing research and teaching in China. So I had Li Jin, for example, in our finance area, now an associate professor, who came and taught. Felix Oberholzer-Gee in our Strategy area, who is now the chairman of the program, taught. Regina Abrami, you know, in the BGIE area, Dennis Campbell, just promoted last month in FRC. And so these were all out doing, field-based case course development.

And then, for the final two weeks in Boston, I used my relationships, and just put together a normal group of instructors—like Mike Porter, Rosabeth Kantor, Clay Christensen, Mike Tushman, Bob Kaplan—and basically, with that structure, I knew whatever problems we'd have in the first two units would come together in a smashing success, you know, in unit three. This broadened a lot what was going on. So this program is a part of our ongoing ten-year pattern of engagement. Now that's strand one.

Strand two is that all unfortunate incidents have some happy linings. Arguably, the leading China scholar in the university is Bill Kirby. And Bill Kirby was dean of the Faculty of Arts and Sciences under Larry Summers. And for whatever reason, you know, Larry basically decided that Bill was not doing the job, and fired him. He fired him in a conspicuous way, when Larry was in Davos, and the thing took place in Boston. This led to the Faculty of Arts of Sciences rising up and basically deposing Larry ten days later.

Jay Light, our Dean, however—always a very effective person; no doubt learned from me in 1967—four days later had Bill over for lunch, and talked about what a terrific place the Harvard Business School was. This led to a second lunch in April, and a third lunch in June. And in the June lunch, Bill says, "Yes, actually, I would be delighted to come and join the Harvard Business School faculty and teach an MBA course there, but I don't know much about MBAs. So I would need to work with somebody."

And Jay asked, "Well, who do you know on our faculty?" "Well," Bill said, "I keep running into Warren McFarlan as he's traveling all around China. Do you think Warren would be available?"

One hour later I was in Jay's office. This was not the warm, friendly, former student/professorial relationship put together for the last forty years. This was 1950s, authoritarian, command-and-control structure, in which it was real clear who the command was, and who was at the bottom. And Jay said, "Warren, we have an opportunity to close a ten-year research gap if we get a scholar like Bill on board." And intrinsically, because I agreed with it, I said the only thing that I could, which was, "I assume budget is not a problem."

And this led to us launching—this would be now in August—the following spring a half-course every Wednesday afternoon. We hired a Wharton graduate who just moved to Boston, Chinese-American, fully fluent in Mandarin, to work as our research assistant. And the half-course every Wednesday afternoon was to give us optimal time to get fourteen credible cases and sessions together.

My major objective in the course was to deliver a credible experience for the students, but also to make it a warm, welcoming environment for Bill. And that meant that Bill, coming from the Arts and Sciences tradition, loves lots and lots of readings. So his vision of a typical class would be 120 pages of articles, and so forth, put together. And so I worked as best I could around the edges, and the course was successful. And that Bill, at the end of the course, said, "You know, I'd really like to join the Harvard Business School faculty."

So that basically led to his promotion process going through. And the day after, I sat down with him and said, "Alright, now we have to do it right." And we've been working now for a year and a half. The articles and readings are long gone. In their place are eleven brand new technical notes on the different aspects of doing business in China. It is a series of eighteen to nineteen new cases. We're doing this right now for the second time as a regular twenty-session course with a paper, and we'll scale it up next year to a full thirty-session course. We had to create this stuff right from scratch.

At the same time, we did a nationwide search. And out at Case Western Reserve, their leading China scholar was a tenured associate professor, Elizabeth Koll. And that she's just a terrific person. Had never been in a contemporary business setting, to the best of our knowledge, but she just was an extremely effective person. So she came for a visitorship, and we got her to write a couple of cases on historic things. We put that into the course last spring. And she was part of our teaching group, and she said, "You know, this is terrific." And she surrendered tenure at Case Western Reserve, and she is now a five-year associate professor, untenured, at Harvard Business School. She, and Bill, and I, along with Regina Abrami, are putting together the course for this spring. And that, of course, is the real issue.

Five years ago, I had zero people on the faculty who spoke Mandarin. We now have six. We have two Chinese citizens, and four others. As I look at it right now, the way I describe it is my job was to basically get the Marines on the beach. And we have an Executive Education program. We now have a new classroom that we built in Shanghai. We have now a Shanghai office, and we have a new faculty team. And the new faculty team is very important, because the same guy to get the Marines on the beach is not the person to take the Marines inland, and do the next thing. And so that's where I'm just enormously excited. Because Bill, Elizabeth, Regina, Li Jin, those are different kinds of faculty.

And people keep coming back saying, "Warren, why are you focusing so much on China?" And the answer is China's only a little bigger than India. They're the two members of the billionaires club. But India, the language there at the top was English. We have twenty-four faculty members on our faculty who were educated through their undergraduate years in the Indian Institutes of Technology, then came on to get their Ph.D.s in the United States. There was more understanding of the culture in our faculty.

You know, we had nothing in China. China makes up twenty percent of the population in the world. This year they will pass Germany as the number three economy. And by gross national product, by 2025 or so, they will become the number one economy in the world. They are a commitment to education in many, many ways. They are going to be the dominant competitor—and hopefully, partner—the United States will be dealing with fifty years from now. And that's why we put a lot of effort in this.

I mean, you know, Kim Clark—and this has basically gotten the thing going—we had a terrific friend, S.P. Tao, who underwrites fellowships. About ten people each year coming to HBS, who only have to agree is they're going back to China.

S.P. took Kim in '97 up to the Pudong section of Shanghai, and they were maybe there only twenty minutes and Kim got it. Jay has done exactly the same thing a year ago. You know, he spent probably three weeks, you know, in China, on the ground, getting his feet wet. You know, Larry Summers, when he was President, was immediately able to understand the importance of this across the University. Drew Faust's first international trip out across the oceans was to China, where she again spent ten days last year getting a feel for what was going on. So what we see here, it's a really major university initiative of engagement, in a country where, for thirty years of my life, I could not enter it. From 1948 to 1978, literally, it was illegal for me to enter the country. I was just very fortunate to be there right at the beginning in 1979.

The final piece of this, and it brings it right back, is that from the beginning this has been a research partnership. So that the price of making this relationship work with Tsinghua, right in the most difficult moments, I said, "This is what we're doing. We're not just educating students; we're generating intellectual product." And this product is in paperback. It's published by Tsinghua University Press. There's a teacher's manual that goes along with it, like all of our other things. And we hope it going to be widely used, widely used in Chinese universities that we will be unable to in fact go to ourselves.

Along with all of this, we run a special ten-day program, where more than two hundred professors in Chinese universities have come to Harvard Business School as we teach them how we go about doing things in this area. Two years from now I will show you a different book. This book will be all in English. This is the book that Bill Kirby, and Elizabeth, and I are writing. All of those technical notes are the basis of a text—a text as to how to think about doing business in China. And there's another whole new series of cases which really highlight the complexity. So at the same time, of course, Bill is writing articles. Elizabeth is writing articles. We have a huge China Trek program, which we're doing now for the third time this year, where the students spend two weeks not just visiting, but in a highly planned, structured way, with work exercises and things along the way, which Regina Abrami has put together.