FACE TO FACE: David Teece – Watching from afar

David Teece can’t remember if he was 15 or 16 when his elder brother started at Nelson Polytechnic, but he remembers clearly the economics textbook his brother left lying on the table and the life-changing impression it left on him.
“I picked it up and started to read it and thought, ‘this is great stuff’.”
It was the beginning of an intellectual journey into economics that would lead Teece to an Ivy League education, the top of academia and level of business success and wealth barely imaginable for Kiwi kid growing up in New Zealand 50 years ago.
Teece is now… well, he’s an exhausting list of things. At the University of California at Berkeley, he’s professor of business administration, director of the Center for Research in Management (CRM), and director of the Institute of Management, Innovation and Organization (IMIO). few minutes down the road in Emeryville, in tower block with wide views of San Francisco Bay, he’s the founder and chairman of LECG, law firm-like company which provides independent experts-for-hire to companies in legal disputes. In the Wall Street Journal that work saw him described as “renowned expert on lots of things and pioneer of lucrative consulting niche that has transformed business litigation”. And back in New Zealand, although his profile remains low, you might know him as one of the men who took over clothing manufacturer Canterbury in 1999 or who formed private equity investor i-CAP soon after. Or perhaps as the co-founder of KEA, the New Zealand expat network, and man the NBR Rich List reckons to be worth $120 million.
It’s resumé that speaks of hard graft, an eye for an opportunity and the willingness to take the odd punt; values, he says, he learnt growing up at the top of the South Island in those settled, prosperous years in the late ’50s and early ’60s.
His father had an entrepreneurial spirit, starting the first daily freight service between the West Coast and Nelson in the years leading up to World War II. By the age of 18 he had three trucks driving back and forth on those rugged roads. After the war he merged with other local transport companies to found Transport Nelson.
Teece, now 58, grew up in Blenheim and Nelson alongside two older brothers, the family moving as Teece senior’s job required. You can just imagine the three Teece boys, sons of prominent local businessman, being colourful lads around town. Teece laughs off the suggestion.
“There were maybe only two boys out on the town. The third one was at the library. That was me.”
Although his father never brought work home with him, his youngest son says he learned by watching. He saw man who won people’s respect by not playing politics and by treating staff even-handedly.
“You see that respect and you see it doesn’t come easily. It comes because of reputation for fairness, hard work, good judgement. So you learn vicariously just by being brought up in an environment where someone is involved in business and management.”
He got his first proper taste of economic theory when he went to study at Canterbury University, arriving at time when the economics department was recognising the importance of maths and American-led thinking in the field. It was the first in series of lucky breaks that Teece acknowledges have been crucial to his success.
“Canterbury was just wonderfully alive little intellectual enclave in economics, and being exposed to that, that was good enough to get me by the skin of my teeth into fellowship at [the University of] Pennsylvania.”
It all could have gone very differently. Oxford or Cambridge were the traditional routes for bright young PhD candidates from New Zealand. However, department leaders at Canterbury, such as Bert Brownlee, saw the torch had been passed across the Atlantic and steered Teece to Pennsylvania’s prestigious Wharton school. Even then, his aim was to win place at the World Bank. But at each turn expectation was trumped by unexpected opportunity. Surprisingly good marks at Wharton prompted job offers from MIT, Stanford and Princeton. There was also an offer from the CIA. His PhD had focused on international technology transfer, something the intelligence community was getting interested in.
“The amount of such scholarship you could fit in an eggcup in 1973/74. So it turned out I did some pioneering work in that area.”
The spies though, would be disappointed. He chose MIT. At first. When he phoned the Stanford recruiters to tell them his decision, “The guy asked why and I gave him my five reasons. He said ‘would you mind if I told you why those reasons are wrong?’ Ten minutes later I’d changed my mind.”
Who should be involved in hiring him at Stanford but George Leland Bach, the author of that textbook which had captured Teece’s imagination as teenager. Teece ended up helping him write new edition. And he ended up in California. He loves living by the Bay, just north of Silicon Valley, “the crucible of western civilisation right now”, in the midst of several great research universities.
After he “rocketed” through to associate professor at one of those institutions in just six years, another – Berkeley –
offered him full professorship with tenure, “which was 10 years earlier than one would normally expect”.
With all the confidence of his adopted homeland, Teece doesn’t hesitate to plug himself, especially his academic career. He hands me printout from ScienceWatch that lists his 1997 paper ‘Dynamic capabilities and strategic management’ as “the most cited paper” in business and economics academia between 1995 and 2005.
Indeed, the concept of dynamic capabilities has secured his academic reputation. Management consultants Accenture list him amongst the world’s top 50 business intellectuals. In essence his idea says that in an age when goods, capital, technology and entrepreneurship move easily across borders, what matters for businesses – that winning advantage – is good governance that maximises firm’s dynamic capabilities. He spells out what that means in paper entitled ‘Explicating Dynamic Capabilities: The Nature and Microfoundations of (Sustainable) Enterprise Performance’: They are the capacity: 1) to sense and shape opportunities and threats, 2) to seize opportunities, and 3) to maintain competitiveness through enhancing, combining, protecting, and, when necessary, reconfiguring the business enterprise’s intangible and tangible assets.
A perfect example is New Zealand’s success in agriculture. It’s not due to “soil and sunshine, although that helps. It’s the technology” and the fact we’re early adopters.
Our farming sector, he fears, is an exception. New Zealand management, he believes, is frankly lacking. It’s point he’s been making since he took the stage at the 2000 Knowledge Wave conference and said “New Zealand has many excellent managers, but I do not believe it is endowed with its fair quotient.”
If New Zealand managers were world class they’d be snapped up internationally like our rugby players. “I am not aware of any significant activity of this kind,” he said.
The price, he told the conference, is paid not merely by under-performing businesses, but by all New Zealanders.
“If top management makes strategic errors, companies suffer, and the nation state does as well.”
He’d like to think there’s been some improvement since, he says in his Emeryville offices, but the core problem remains.
“In terms of operation and so forth, New Zealand’s relatively competent, but not in terms of strategic thinking, deal savvy and being objective about things.”
The problem is largely historical, he suspects; the result of dominant state that ran most of the big business in New Zealand through to the 1980s. “You didn’t have managerial class that built stuff.”
The ’80s reforms were critical for liberating the private sector. The first round of growth, however, based on taking big government firms private, “well it’s not rocket science”, he says. “Your first group of newly created wealth a