Archive for the ‘Kaizen’ Category

Kaizen 31: Lall Singh

Tuesday, November 29th, 2016

The kaizen-31-coverlatest issue of Kaizen [pdf] features our interview with Lall Singh on the theme of Entrepreneurship in England.

Also featured in this issue of Kaizen are guest speakers Robert Garmong, Douglas Rasmussen, and Piotr Kostyło as well as our Entrepreneurial Education conference and a conference we hosted with the Austrian Economics Center.

Print copies of Kaizen are in the mail to CEE’s supporters and are available at Rockford University. Our next issue will feature an interview with Roberto Salinas Leon on the theme of Entrepreneurship in Mexico.

More Kaizen interviews with leading entrepreneurs are here at our site.

Montessori in Chile — interview with Bernardita Jensen

Thursday, April 7th, 2016

Entrepreneurship and Montessori Education

Berna 1Bernardita Jensen is founder and rectora of the Pucalán Montessori School in Colina, Chile. Before founding Pucalán Montessori, Jensen studied at the Houston Montessori Center and founded three other Montessori Schools in Chile. We met with Jensen to discuss her passion for education and the Montessori method.

Kaizen: Where in Chile were you born?

Jensen: In Santiago, but I lived in southern Chile in my childhood and adolescence in Temuco. It’s beautiful and similar to western Canada.

Kaizen: Chilean Patagonia.

Jensen: Yes, near Patagonia. As a young child, I lived on a farm in a beautiful place with trees, volcanoes, and lakes. It was marvelous.

Kaizen: What was your education like?

Jensen: My schooling was traditional. Nevertheless, for me the farm environment was very important, and my mother had a significant role in my education. She gave me more confidence. She was a very creative woman. In my childhood I played a lot, read a lot, imagined a lot, and dreamed a lot.

Kaizen: Was it a small town or big town?

Jensen: It was a small town.

Kaizen: And so your formal education was traditional Chilean schooling?

Jensen: Yes, it was a typical traditional education; with very little space for personal initiative. However, in high school I had a very fantastic teacher who was Japanese. His name is Josuke Kuramochi. My life changed with this teacher.

Kaizen: What did he teach?

Jensen: Spanish literature.

Kaizen: And you were reading a lot, so you were the right student for that class and that teacher?

Jensen: Exactly.

Kaizen: You say it was life-changing. In what way? When you were a girl, were you thinking that you would become a teacher or go to university?

Jensen: My life was changed because he was a teacher who truly knew me and helped me to develop a deep sensitivity. He helped me learn to love reading and also brought out in me leadership skills. I learned from him to love what I do. I also learned diversity from him, being the open and accepting person he is.

When I was a girl, I liked education and psychology. I’m not sure, but I think I studied education because of the influence that my teacher had on my life.

Kaizen: And what age were you when you took the course with him?

Jensen: I was seventeen.

Kaizen: In that time, were you thinking about becoming a teacher?

Jensen: Though I wasn’t sure I would be a teacher, I had by that point begun thinking about teaching. My passion was always to work with people, even better with children or adolescents.

Kaizen: Did you go to university immediately?

Jensen: Yes, in Santiago at the Catholic University. I studied psychology for two years and studied education for four years.

Kaizen: And you graduated with a diploma that enabled you to become a teacher?

Jensen: Yes.

Montessori-School (16)Kaizen: Did you at this point have any work experience other than on the farm?

Jensen: I had, as a young adult, some experience working as a volunteer in areas of social work.

Kaizen: Did you immediately become a teacher after finishing university in Santiago?

Jensen: Yes, and I also began to study Montessori education in Santiago and then in Mexico. I was simultaneously working and studying: both in the field of education.

Kaizen: How did you first hear about Montessori?

Jensen: At the university. In a methodology course, I had to study a current pedagogy and, by happenstance, the topic that chose me was Montessori education. I had been intuitively drawn to Montessori studies and had even found a book by Maria Montessori in the library and had resonated with it.

Kaizen: Completely independently?

Jensen: Yes. I found that book and read it—and then I read all Montessori books in the library every day.

Kaizen: Were the ideas in Montessori similar or different to your formal education for teaching?

Jensen: Completely different. Despite amazing and sincere professors, my university courses on pedagogy weren’t true for me but Montessori changed all that.

Kaizen: So you wanted to be a teacher, but you didn’t like what you were being taught and you were looking for other alternatives.

Jensen: Yes. I loved the kids but not the curriculum in university.

Kaizen: You said you got some formal Montessori training in Santiago. Where?

Jensen: Exactly, I studied in Centro de Estudios Montessori Chile with Mexican or North American teachers who came to Chile to teach us. This would have been in the early ‘90s.

Kaizen: And then you went to Mexico for further training?

Jensen: That’s right.

Kaizen: There is a formal certification process for Montessori?

Jensen: Yes. In the United States I studied for three years. I travelled during my vacations in the summer program to the Houston Montessori Center. I studied in the middle- and high-school program there.

Kaizen: Your interest as a teacher was at the high-school level primarily?

Jensen: Somewhat. I did study the Montessori Method for elementary and middle school as well as high school students. My interest, more than a specific age, was to see the complete development of the child. I understood from this that Montessori is not just a method but an educational philosophy.

Kaizen: So you were working in Santiago and self-studying Montessori and then going for formal training as well. How many years altogether did this take from

university to the time you finished your training in Houston?

Jensen: I studied at university from 1984 to 1990. From 1990 to 1995 I worked and studied Montessori. I studied in Houston from 1999 to 2003.

Kaizen: That’s a long time. During all of that time when you were working were you teaching in a high school in Santiago?

Jensen: No, first I taught upper elementary, ages nine to twelve. And then I studied the adolescent program and worked with adolescents. Before the current Puculan School, I co-established three other Montessori schools in Santiago.

Kaizen: When did you start your first Montessori school?

Jensen: In 1991.

Kaizen: Soon after finishing university. Who were your partners?

Jensen: Elena Young. She had a solid background in Montessori for young children, after having studied in the United States. She was an important woman in Chile promoting Montessori education. Elena and I formed one of the first Montessori school in Santiago: Huelquen Montessori School.

Kaizen: Were other people involved?

Jensen: Yes, there were three other teachers. It was very small. There were only twenty students in a little house with no back yard for play, so we would go to the town square for recess and the children would climb the trees, play hide-and-seek and other games.

Kaizen: You said you founded three schools. Did the first one fail?

Jensen: No, it’s still operating. I took time off because I had my first child. And then I formed the other schools with other people: the second was formed in conjunction with the Boy Scouts. Are you familiar with Boy Scouts? Montessori and Boy Scouts—they have ideas that work quite well together.

Kaizen: Starting chapters and different troops?

21Jensen: Yes, with the Chilean Association of Boy Scouts.

Kaizen: So you started one in Santiago, and that was successful. Then you had your child and took a year off before starting your second one.

Jensen: Yes, exactly. I was also always studying and deepening my understanding of Montessori education.

Kaizen: Who were your partners for your second one?

Jensen: I started the second school with Paola Bianchi. She was another Montessori teacher, who had studied Montessori for elementary age children with the AMI in the United States.

Kaizen: Was this school similar to the first with just a few teachers?

Jensen: Yes, it was the same.

Kaizen: And how long before you started the third one?

Jensen: Three years.

Kaizen: Same story? The second school was also successful so you started a third one?

Jensen: Yes, pretty much. I moved from Santiago to a more rural area outside of the city. And there the parents knew me and asked me to start a new Montessori school there.

Kaizen: Did you have any special challenges with attracting students?

Jensen: Not really. Young families found Montessori attractive: connection with nature, an interest in healthy lifestyles, etc. Apart from this, most of these young families in this small rural area knew each other and were interested in keeping their community tightly knit.

Kaizen: Yet you were starting the first Montessori schools in Chile—what did they know about Montessori?

Jensen: Montessori is new in Chile. However, traditional education has been in crisis for some time and it has been a great moment to encourage and speak about the benefits of Montessori. Families are interested in holistic development, individual development, emotional development, in diversity and respect toward the environment: the fundamentals of Montessori, even if the name “Montessori” is new. The parents listened to me speaking passionately about this new model of education and, as they were also looking for something new, the response was overwhelming.

Kaizen: So you are a credible person and you are passionate about it and you speak about it well.

Parents also look at the expense. Traditional schooling is “free” because it is covered by tax money, and at your school they pay tuition?

Jensen: Yes, and it is not cheap. However, the system in Chile is such that, even traditional schools are not free. The public schools are the only ones covered by tax money and they are considered very low-level.

Kaizen: For young families starting out, it likely looks expensive. So you attract parents who are very committed to their children’s education, and if they think it’s good they will find a way to pay for it.

Jensen: Yes. We have even seen some families that choose the school and then decide to move here due to it being the right choice for their children.

Kaizen: So you now have started two schools in Santiago and one in Colina?

Jensen: I have actually started two schools in Colina. The name of the first school in Colina is Rayen Mahuida. I started this school with the other people for profit. It’s a beautiful school which we designed with an architect.

Kaizen: You designed it from the ground up? So you are not starting in a house now?

Jensen: That’s right. This was the first school where we bought the land, and worked with a team to design and build it. It was a fabulous project: the school was specifically designed for Montessori education. For three years I worked with these people, but then I broke away from this group because my vision was different from theirs. For me, education should be non-profit, and the school was for profit and, due to this, our relationship was broken.

Kaizen: Was the divide was solely about mission and money issues?

Jensen: Yes, exactly. I broke away from this organization, and the parents told me to start a new school again.

Kaizen: How would you describe the business organization of the new one? Is it a cooperative or a non-profit trust or foundation?

Jensen: Yes, that’s how Pucalan was founded; it is a private non-profit foundation. The board is made up of parents, and my work is with the parents, and sometimes it’s not easy.

Kaizen: As the rectora?

Jensen: That’s correct.

Montessori-School (13)Kaizen: The new school is called Pucalán and is north of Santiago. What year did you start it?

Jensen: Yes, it started in 2000 in a lovely building we rented in the area which had been a horse stable that we remodeled and used for 12 years.

Kaizen: You still have expenses to pay and a new facility. Is everything paid for out of tuition or did you have to do financing with banks?

Jensen: The operation of the school is financed by tuition. Three years ago, we bought a new space and built a new building, which was financed by a bank but is thankfully no longer a rented space.

Kaizen: How many students?

Jensen: 550.

Kaizen: How many teachers?

Jensen: 95.

Kaizen: About one teacher per every five students. How many administrative staff?

Jensen: 12.

Kaizen: You are the rectora, and your board is made up of parents??

Jensen: Yes, mostly parents.

Kaizen: Do you have other people on the board of other expertise?

Jensen: Different expertises but not in education. We have architects, lawyers, psychologists, and so on.

Kaizen: What is the cost of tuition for parents?

Jensen: 300,000 Chilean pesos per month, which is about $430.00 US Dollars.

Kaizen: And a school year is how many months?

Jensen: Ten.

Kaizen: So the cost for a year would be 3,600,000 Chilean pesos. What is the current exchange rate for U.S. dollars?

Jensen: Right now, the exchange rate is about 690 pesos per dollar. The annual tuition in dollars would be about $5,200.00 per year.

Kaizen: Did you have any problems with regulations starting a private school?

Jensen: Yes, especially in the beginning. The national curriculum is required for any new school. It’s a very strict and linear curriculum based on cognitive skills based on memorizing information, which is quite different from Montessori. Montessori is a holistic structure which is more concerned about learning processes rather than just information. The emphasis is not only cognitive in the Montessori model, but also social and emotional integration of the child. Breaking away from a very traditional system, we have had a great deal of success and have, over time, gained more respect from the community. In fact, many Schools of Education have requested to come and observe our school, as this new system is becoming more attractive.

Kaizen: You’ve done this several times. Did it get easier each time?

Jensen: No, it didn’t get easier. Of course, I had more experience but the conditions were still such that it was, each time, quite challenging. I learned to develop more confidence each time and understand the system better but the system hasn’t radically changed.

Kaizen: What challenges stand out aside from the amount of paperwork?

Jensen: One of the most interesting challenges of Montessori is that it is not only an educational system; Montessori requires a certain ethic, community involvement, a radically different paradigm than the individualistic society we’re used to. This can be difficult to sustain over time, as each member must commit fully to this paradigm in order for the project to work. Overall, this is the greatest challenge and beauty of Montessori: it is a way of life.

Kaizen: So when you are applying for the permits, it doesn’t translate well to what the education establishment is looking for. How do you get past the hurdles?

Jensen: To a certain degree, we haven’t fully overcome all the hurdles. We submit to the most essential regulations imposed by the educational establishment, but these regulations don’t necessarily impede our work as Montessori educators. In a way, we are still running risks by doing what we do, yet ultimately, the results speak for themselves.

Kaizen: So after you’ve done the Montessori schools and you have a track record and can show that it is working, then it becomes easier. But at the beginning you would have to be convincing government officials.

Jensen: Yes. The results we’ve had have been very positive. This is primarily because many of our students that we have by the time they are in high school have strong leadership skills, a critical awareness of their environment, and many of our graduates have gone on to entrepreneurial pursuits in the areas of their interest.

Kaizen: Are there any other kinds of regulatory challenges that you face?

Jensen: No, because the standard is higher in Montessori schools. Furthermore, we have generally had great results on the standardized tests that dictate the regulatory requirements, which is typically all that the government officials look at.

Montessori-School (8)Kaizen: When you are talking to parents, what do you tell them about why you believe Montessori is right for their child?

Jensen: I talk about freedom and educating the whole person—emotional, personality, spirituality, and the social aspect—not only cognition. This is an important point for parents. Education involves thought process and emotion, as well as spirituality, and our spirituality program is very significant in the school; not a religion program exclusively but a spirituality program. I also speak to them about the parallels between the Montessori Method and today’s scientific discoveries about how we learn as humans.

Kaizen: So you emphasize the freedom element—the uniqueness of each child—and being well-rounded. You grew up on a farm, and Montessori herself liked agricultural education. Do you incorporate that into your schooling?

Jensen: Yes, there is a lot of hands-on experience. We have a tree nursery which the children look after and will then plant those same trees around the school. We also have gardens cared for by the children which were designed by a permaculture team. Do you know permaculture?

Kaizen: Yes, that you can do anywhere. That must have been a challenge in Santiago, a large urban area, earlier.

The other issues about responsibility—learning household things, cleaning up after yourself, and these kinds of things—how do you teach that in your school?

Jensen: It is very important to teach responsibility for their actions. The students clean the school and put the materials in order. This is the first step to responsibility. And this idea is also very important to the parents. This is a revolutionary idea in the school because it seems a waste of time to let the child labor over cleaning up their space, but lost time is not lost time. They can learn a lot. When the children learn these skills and responsibilities, they feel more involved in the community – they feel a stronger sense of belonging. In fact, some of our high school students, in a community service program, will build a playground on our school grounds for use by the younger students.

Kaizen: I visited your new campus for Pucalán school in Colina last year. It was built in 2013?

Jensen: Yes.

Kaizen: It is huge and impressive. When did you decide to build the new campus?

Jensen: In 2008 I started thinking about it, because the rented campus was old and very expensive. I had the experience of seeing many beautiful Montessori schools in the United States, Mexico, Italy, Spain, and New Zealand which inspired me to consider designing our own school here.

Kaizen: So you chose the best of everything that you liked?

Jensen: Yes, I was inspired by the best parts of all that I saw and we then had to adapt to our reality. We chose a spiral form, relating to the cyclical development of the individual. This is comprised of 8 large modules. Each module is a space for each stage of development as described by Montessori as well as an additional module for Music and Art.

Kaizen: And with a successful school running and a supportive board you were able to build your ideal school?

Jensen: Yes, but it was not easy.

Kaizen: So you had more financing to do and an architect to work with?

Jensen: Yes, I worked with an architect from Sweden. The design of the school was very important. The students and the parents and teachers had input in the design of the school. It was a community project, really.

Kaizen: How did you choose this architect from Sweden?

Jensen: He is a Swedish architect but he has lived in Chile for some time. He is well-versed in indoor and outdoor space design as well as sustainable design. This was what we found most attractive about working with him.

Kaizen: The school’s land has several acres.

Jensen: Yes, five hectares, which is 50,000m². This translates, I believe, to just over 10 acres.

Kaizen: That’s substantial, and you have about eight pod-like buildings built in a nautilus-like spiral shape. It is very organic and flowing, and with a large central courtyard area.

Jensen: Yes, it is a peace garden, still under construction.

Kaizen: And then in the outlying areas you have a gymnasium and play fields.

Jensen: That’s right.

Kaizen: You had the idea in 2008. When did you start building?

Jensen: 2011, and the construction lasted two years.

Kaizen: When I saw it in September of 2014, everything was operational but you still had some landscaping to do. And you said over 500 students?

Jensen: Yes, well, 550.

Kaizen: You are still young, so what do you have planned for the future?

Jensen: I want to start a school of education to prepare Montessori teachers in Chile. If there is no preparation for Montessori teachers here, the whole Montessori system will be very vulnerable.

Kaizen: Will that be in Colina?

Jensen: Right, the idea is to be centered in Colina, as it’s absolutely necessary to teach by doing; to use Pucalan as a “living laboratory” of education. To be centered in Colina doesn’t necessarily mean disconnected from the rest of the world—we also want to link with other schools for Montessori teachers around the world.

Kaizen: Will this require new buildings and a new location?

Jensen: Not necessarily. This could possibly be an addition on the same school grounds.

Kaizen: You will bring them to your campus for on-site training?

Jensen: That’s exactly the idea. It is fundamental for teachers to experiment in different environments. They need to be trained by experience and not only theory.

Kaizen: Do you have relationships with the formal Montessori organizations internationally?

22Jensen: Yes, with the American Montessori Society. This is because my training was in the United States in a Montessori school for teachers founded by the AMS. Our school is not accredited by the AMS, yet we do have the connection to them due to my background.

Kaizen: I understand there is a split between different camps of Montessori.

Jensen: Yes, there is AMS and AMI. AMI is European, while the AMS is American. There are some differences between the two but I see these differences more in execution than principle.

Kaizen: You have been a serial entrepreneur, as we say, in the field of education. What has been the most rewarding thing to you about being an entrepreneur in education?

Jensen: I love creating jobs for other people—and significant jobs. It is very important. The people respond very well when working with big ideas. I love creating work for other people, not just for me. I also love creating a community, as I believe wholeheartedly in community work. Ultimately, though, the reward is watching children grow into confident, compassionate and peace-making adults.

Kaizen: Over the years what has been the most frustrating thing for you?

Jensen: It is not easy to work with the parents. Working with the children is very easy. The problem with the adults is because they are focused on results and not the process. Also, as I stated earlier, Montessori requires a lot of commitment. There are occasions where some teachers don’t want to spend the time doing inner work that will make them good Montessori guides. The commitment in doing this inner work is not a very popular idea in our culture and there can be conflicts on account of this.

Kaizen: So that is many conversations?

Jensen: Of course, there is much conflict-resolution every day, but it is vital. It is part of the community building. This involves the teachers and the parents, really the whole community, and it is important to sustain these conversations with everyone.

Kaizen: When people talk about entrepreneurship, there is often difficulty even if you are passionate about what you do. There are frustrating problems, you have to be able to visualize new things and have good communication skills to make your vision real to others. Also, you have to persevere. What character traits seem to you to be the most important to become a successful entrepreneur?

Jensen: There is not just one. There are many characteristics, but perseverance with confidence and balance. You have to believe in the idea and have courage and love. Finally, self-discipline is also very important.

Kaizen: When you say love, is that the same as passion?

Jensen: Yes, I use them synonymously and this requires an inner burning energy.

Kaizen: You have to master yourself.

Jensen: Yes. I must learn before I can begin to teach anyone else. I practice meditation and sometimes fight with my ego.

Kaizen: To return to your own education: In many cases, traditional education is rote-learning and uniform, and the students are disengaged. That doesn’t help them become entrepreneurs, so what made you different? Is there anything that helped you become entrepreneurial when you were a girl?

Jensen: Well, not everything can be explained in a completely rational way. But, things like autonomy are very important and believing in your personal characteristics and making dreams. My family always encouraged a high level of autonomy alongside taking good care of each other. I had a great deal of space to dream, as well. Dreams are not always logical and they are very mysterious. Nevertheless, the most important characteristics I was able to develop were autonomy, confidence, self-discipline and having room for mistakes.

Kaizen: Suppose you were to give advice to other teachers who are young and perhaps dissatisfied with their teacher training. Or perhaps they are working at schools and don’t find it fulfilling, and they are thinking of starting their own schools. What advice would you give to them?

Jensen: Create a community. Don’t work alone, work together. Develop empathy and listen. Again, most importantly, create community. It is not possible alone.

Kaizen: If you’re a teacher, does create community mean having relationships with people who have financing or parents or other teachers and people who will form a network and will help you start the school of your dreams?

Jensen: Right, any project like this, needs to be founded in community. Everyone is learning by growing together and working together. This must be interdependent work—everyone is contributing to the original dream.

Kaizen: Thank you, what a good story your career is.

Jensen: Thank you.

This interview was conducted for Kaizen by Stephen Hicks.

Read more Kaizen interviews with leading entrepreneurs.

© 2015 Stephen R. C. Hicks. All rights reserved.

Kaizen 30: Guillermo Yeatts and Bernardita Jensen

Tuesday, April 5th, 2016

Kaizen-30_Page_1The latest issue of Kaizen [pdf] features our interview with Guillermo Yeatts on the theme of Entrepreneurship in Latin America as well as our interview with Bernardita Jensen on the theme of Entrepreneurship and Montessori Education.

Also featured in this issue of Kaizen are guest speakers Carrie-Ann Biondi and Martin Coleman, High School Entrepreneur Day, the new entrepreneurship minor, and a new book titled Steve Jobs and Philosophy which was edited by Shawn Klein.

Print copies of Kaizen are in the mail to CEE’s supporters and are available at Rockford University. Our next issue will feature an interview with Lall Singh on the theme of Entrepreneurship in England.

More Kaizen interviews with leading entrepreneurs are here at our site.

Kaizen interview with Argentine entrepreneur Guillermo Yeatts

Saturday, November 29th, 2014

This interview could be subtitled Entrepreneurship from Buenos Aires to Tierra del Fuego to Houston and Bolivia and more.

Yeatts-smBilly Yeatts has had a long and colorful career, working as an analyst for Citibank in New York and an executive for Ford in Detroit and Massey Ferguson in Argentina, before launching his own entrepreneurial businesses in oil and gas.

Along the way he found time to co-found several nonprofit organizations and write ten books on topics ranging from the petroleum industry to the problem of poverty in Latin America.

Here is Billy Yeatts on entrepreneurship in Latin America.

For more of our interviews with leading entrepreneurs, see the Kaizen page.

Sports entrepreneurship: Three interviews (Snider, Reinsdorf, Checketts)

Sunday, August 10th, 2014

Here are three of our Kaizen interviews on entrepreneurship and ethics in sports:

51546099 Ed Snider, owner of hockey’s Philadelphia Flyers and basketball’s Philadelphia 76ers: “I think when you’re young you’re a bigger risk-taker than when you’re older. And I think when you’re young it’s not the risk as much as it is you have this idea and you feel like it’s going to work. And then you go for it. When I was a kid I was always doing things—selling magazines, I had a paper route. In college I hired all of my fraternity brothers because I had these lots I could get Christmas trees or Easter flowers from. In those days all of the kids in the fraternities would go to work at the post-office for Christmas. So I’d hire them, I’d pay them more and say, ‘We’re going to have Christmas tree lots.’ Stuff like that—I was always looking to do something.”

Reinsdorf webJerry Reinsdorf, owner of basketball’s Chicago Bulls and baseball’s Chicago White Sox: “First of all, if you want to be successful, you have to follow basic business principles. The problem in sports that keeps people from doing it is that every move is chronicled by the media. There are so many people who own teams who are afraid to be criticized by the media, so they make stupid decisions just to make the media happy. I, on the other hand, delight in doing what the media doesn’t want me to do. And that’s not a good trait either. You have to make your decisions without regard to what the media thinks. Sometimes they’re right, and sometimes they’re wrong.”

Checketts webDavid Checketts, owner of soccer’s Real Salt Lake and hockey’s St. Louis Blues: “I live by a standard that Steve Covey taught me, which is that a person will do more with their bad idea than they will with your good idea. So I try to hire real capable, competent people, put them in place, make sure that they have the right incentives and motivation, and then give them the freedom to do the job. The skill that I had to learn was to hold them accountable, regardless of my personal feelings about them. Because I am somebody who builds friendships and relationships quickly and who really wants people to succeed. So it makes it hard. I stuck with some people too long in some instances.”

Only in Argentina?

Saturday, July 12th, 2014

map-argentinaA fun and informative post about 20 things that only happen in Argentina.

Related:

* Two of our Kaizen interviews on entrepreneurship and ethics:
Enrique Duhau and Eduardo Marty.

* Business in Argentina — interview with Federico Fernández and Martin Sarano.

* A comparison of how resource-poor Hong Kong’s relatively laissez-faire free market has taken it from poverty to riches while resource-rich Argentina’s experiments in statism have taken it from prosperity to decline and semi-functionality.

* Stephen Hicks’s keynote lecture at the 2010 Austrian Economics conference in Rosario, Argentina, sponsored by the Bases Foundation, the Faculty of Economics of the Pontifical Catholic University of Argentina, and the Instituto Hayek.

Entrepreneurship in Latin America: 5 interviews

Saturday, May 10th, 2014

Here are five interviews with Latin American entrepreneurs we’ve published in Kaizen, covering the business areas of construction, agriculture, logistics, education, aluminum, and oil and gas.

map-latinamerica* Entrepreneurship and Infrastructure in Brazil: Interview with Brasília Guaíba president André Loiferman.

* Entrepreneurial Agriculture: Interview with Argentina’s Enrique Duhau.

* Entrepreneurial Logistics in Panama: Interview with Surse Pierpoint.

* Entrepreneurship in Argentina: Interview with Junior Achievement Argentina founder Eduardo Marty.

* Entrepreneurship in Brazil: Interview with Petropar S.A. board members William and Wilson Ling.

Forthcoming Fall 2014: Interview with Guillermo Yeatts on Entrepreneurship in Latin America.

More Kaizen interviews in entrepreneurship here.

Interview with Zol Cendes

Monday, March 24th, 2014

Entrepreneurship and Software Development

k29 thumbDr. Zoltan Cendes was the co-founder, chairman and chief technology officer of Ansoft Corporation, now part of ANSYS. Prior to founding Ansoft, Mr. Cendes received his undergraduate degree at the University of Michigan and his M.S. and Ph.D. degrees from McGill University in Montreal, Canada. He was then an engineer with General Electric in Schenectady, New York, associate professor of engineering at McGill, and professor at Carnegie Mellon University in Pittsburgh, Pennsylvania. For his achievements in developing software tools for electromagnetic analysis and design, he received the Antennas and Propagation Society Distinguished Achievement Award.

Background

Kaizen: You were a founder and chairman of Ansoft, whose mission is developing software?

Cendes: That’s correct. In 1984 I was a professor at Carnegie Mellon University (CMU) performing research in computer simulation technology. I was approached by a member of the research staff at Alcoa to develop a computer program to model electromagnetic casting. At the time, molten aluminum was poured through mold and cooled to form ingots. Alcoa wanted to develop a process where the aluminum was supported through the molten column by an electromagnetic field rather than by a mold. In this way, the aluminum would form better ingots since it was cooled without touching it.

I proposed to Alcoa that I recruit a graduate student to perform research in this area. Alcoa replied that they didn’t want to fund research — they wanted me to start a company and develop a commercial software program that they could use in their own design process. I started Ansoft Corporation with the initial funding from Alcoa, developed our first software program to simulate the electromagnetic casting of aluminum ingots. In subsequent years we expanded our simulation capabilities to address thousands of other products in electrical and computer engineering and grew Ansoft to a company worth $900 million.

Kaizen: Ansoft is now part of ANSYS, a $7 billion corporation, but it’s not a company that most of us know about. What does it do?

Cendes: ANSYS is the leading company in the engineering simulation market. It develops software used by engineers as an aid to design and development better products.

Consider the cell phone in your pocket. There are literally billions of components in this cell phone. It is impossible for anyone to understand all of the interactions among these components without using simulation software. Or consider the car you drive. Engineers use simulation software to determine the mechanical integrity of the components, the efficiency of the combustion in the cylinders, the forces due to airflow around the car, the interactions of the electrical components in the car, and thousands of other concerns.

Fifty years ago, products were designed by trial and error — engineers and designers would build a prototype of the product and test it to see if it worked. Today, simulation driven product development is the norm; most of the products you buy and use today — from computers to airplanes to medical devices — are designed using engineering simulation software.

Kaizen: Where did you grow up?

Cendes: My background is diverse. I was born in a Displaced Person’s Camp in Austria of Hungarian parents. We immigrated to Canada when I was three. We were deposited on a farm in October in the middle nowhere with no money, no food, no car, or anything. My father, who had two Ph.D. degrees but spoke no English, found a job in a automobile parts factory where he worked for several years. I grew up very poor with periods of hunger and deprivation. However, I always knew that life was full of possibilities. My father eventually became a Math Professor, first in Canada and then in the USA at Central Michigan University. My desire for learning was fostered by my parents who understood the importance of intellectual achievement.

Kaizen: Were you technically-oriented as a youth?

Cendes: Yes. One of my earliest memories is drawing pictures of rockets going to the moon when I was perhaps four years old. Growing up I loved to read books about rockets and all things scientific. I loved to build things with my Erector set, and built a telescope and electrical devices as a teenager. I was always fascinated by the world, wanted to understand it, and dreamed of inventing something that would change the world.

Kaizen: What led you to choose engineering as your undergraduate major?

Cendes: My path to engineering was not a straight line. As a youth, I was fascinated by physics and as an undergraduate drifted between taking engineering courses and physics courses. I actually began my Master’s study in the physics department at McGill University but was assigned a boring Master’s project. Looking around, I discovered groundbreaking research being performed by Professor Peter Silvester in the Electrical Engineering Department at McGill. Professor Silvester’s work was cutting edge. I switched departments to Electrical Engineering and never looked back.

Kaizen: What were you thinking your likely career path would be?

Cendes: As a youth, I did not know what my career path would be except that it would involve understanding how the world works. Once I encountered Professor Silvester, I fixed my chosen area of study and supposed I’d be an academic the rest of my life.

Kaizen: You then got master’s and doctoral degrees in electrical engineering from McGill. What was the focus of your doctoral work?

Cendes: My thesis advisor, Professor Silvester, was a pioneer in applying computer methods to simulate electromagnetic fields. Let me begin by saying that electromagnetic fields are one of the most fundamental quantities in nature. There are only four known forces in the universe — gravity, electromagnetics, and the strong and the weak nuclear forces. Electromagnetic fields are at the heart of all electrical engineering and, indeed, much of your life. The equations describing electromagnetic fields were discovered by James Clerk Maxwell in 1864 and describe macroscopic electromagnetic phenomena perfectly and completely. However, these equations are very difficult to solve except in the simplest of circumstances. My doctoral thesis was to solve Maxwell’s equations in more complex, real-life cases using a new computer simulation technique called the finite element method.

Kaizen: After that you became a professor?

Cendes: No, I first went to work at the General Electric Company in Schenectady, New York, first in the Large Steam-Turbine Generator Division and then in the GE Corporate Research and Development Center. At GE, I developed computer programs to simulate the behavior of electric power transformers and generators. Using the finite element method to compute the electromagnetic fields inside transformers and generators provides a much higher level of knowledge about transformer or generator performance than can be obtained by measurements alone.

At one point, I received a letter from the Vice President of GE’s Transformer Division stating that by designing more efficient transformers our software simulations had saved the company over one million dollars during the past year.

Kaizen: What motivated you to leave GE and become a professor?

Cendes: Professor Silvester asked me to return to McGill as a professor. The offer was very appealing because being a professor is much more entrepreneurial than working in a large corporation. While GE was an excellent place to work, it still had a large bureaucracy. A good professor is a mini-CEO — he is self-starting, sets his own direction, assembles a team of students, raises his own funding and achieves goals. I went to McGill and started teaching and doing research. Two years later, I received an even better offer from Carnegie Mellon University in Pittsburgh, Pennsylvania, and moved there.

Early entrepreneurial experience

Kaizen: You started Ansoft in 1984. Why did you decide to go entrepreneurial rather than remaining a professor?

Cendes: There were several reasons. I had always wanted to be an entrepreneur — Ansoft was third company I had started. And there was the nudge by Alcoa. But, beyond that, commercializing the research in computer simulation technology was in the air at that time. Several other professors, including my advisor Peter Silvester, started electromagnetic field simulation software companies at that time. I was fortunate to be working in this field at the dawn of a new industry.

Kaizen: Your specific challenge was to develop software to solve Maxwell’s equations. What does that mean, in layman’s terms?speedo-swimsuit-04

Cendes: As I mentioned earlier, Maxwell’s equations describe electromagnetics perfectly but they are very difficult to solve in real-life situations. The difficulty lies in the complex interactions that exist between fields in three-dimensional (3D) geometries. The finite element method on which I had worked on my dissertation solves this problem by breaking the geometry into a myriad of little pieces called finite elements. Maxwell’s equations are approximated over each finite element and the entire problem solved by assembling and computing all of the interactions on a computer.

Kaizen: What were the technical challenges in doing this from a commercial point of view?

Cendes: There were two principle technical challenges. The first came from the need to automate finite element mesh generation — the process of breaking complex 3D geometries into little pieces. Michael_PhelpsAt GE, we had developed specific programs to generate finite element meshes for individual transformer or generator geometries. However, commercial software needs to be flexible — the program designer has no idea of the geometries customers wish to solve. So we developed new algorithms to automatically subdivide any geometry into a finite element mesh.

The second challenge was the nature of the finite element approximation itself. It turned out that the standard finite element process developed by mathematicians earlier gave incorrect results in many situations. We invented new types of finite elements called edge elements that solve Maxwell’s equations correctly. The combination of automatic mesh generation and reliable electromagnetic solutions propelled Ansoft to lead in the electromagnetic field simulation industry.

Kaizen: Where were you geographically at this point?

Cendes: I was still in Pittsburgh at the time. I resigned my tenured professorship at CMU in 1996 — the year Ansoft went public.

Kaizen: You had a co-founder. Who was that?

Cendes: There were two co-founders — my brother Nick and his business partner Tom Miller.

Kaizen: What was the division of labor among you?

Cendes: Nick and Tom had business backgrounds so they were focused on administration, finances, and investor relations. I was focused developing the technology, products and markets.

Kaizen: How much capital did it take to develop and launch Ansoft, and what sources of funding were you using?

Cendes: Ansoft grew organically. In addition to our first funding from Alcoa, we received contracts from such companies as Kodak and Amp totaling over a million dollars. We also began to get revenue from software sales but this varied from around $10,000 to $50,000 a month in the early years.

pathlines-gt2Fortunately, the capital expense in launching a software company was small. We bought a couple of personal computers with the initial Alcoa money. The biggest expense was salaries. Because sales and contract revenues were erratic in the early years, some months Nick, Tom and I would have to borrow money on our personal accounts to meet payroll. In our fifth year, we did receive $500,000 from a venture capital firm, but this was a relatively small addition to the revenue we made by that time.

Kaizen: Did you have any early difficulties with the developing the software?

Cendes: A start-up company has a million difficulties. All of the people we hired were straight out of school, assignments were fluid and flexible, and everyone was jockeying for position and authority. At the time, personal computers had 640 kilobytes of memory — literally a million times less than a computer used to solve some engineering problems today — and there was no graphical user interface. We had to work around these and many other limitations.

Nevertheless, a start-up company is the most fun place to work imaginable. Every day is filled with challenges and adventures and each person can make significant contributions to the success of the organization.

Kaizen: Any special challenges marketing Ansoft’s software?

ferrariCendes: Ansoft entered a quintessential “blue ocean” market in which there were few competitors. We were pioneers in an entirely new landscape in which electromagnetic problems could be solved for the first time. A few visionary customers understood our value proposition and purchased the software readily.

More often than not, however, we faced a “missionary sale” in which we needed to convert the customer from his reliance on the old way of doing things to the new. It took a lot of effort in the early years to convince engineers that computer simulation of electromagnetic fields was real and that they could save thousands of dollars by buying our software instead of building prototypes.

Kaizen: A big step for Ansoft was a connection with Hewlett-Packard in 1989. How did that come about?

Cendes: Ansoft’s agreement with the Hewlett-Packard Corporation was the best thing that ever happened to us — and the most harrowing thing that ever happened to us. HP approached us in 1988 about developing an electromagnetic simulation software program for them to sell to microwave engineers. In the resulting OEM agreement, Ansoft would develop a program called HFSS for use by microwave engineers, HP would sell the software, and Ansoft would get a royalty on every copy sold. HP gave Ansoft a $325,000 advance on royalties to enable us to develop the product.

We were ecstatic. At that time we were a small, inexperienced company with zero marketing and sales force. HP was a large, top-of-the-line company with thousands of sales people around the world. We went to work feverishly and had everyone in Ansoft developing the product. The only problem was: HP’s standards were much higher than I had anticipated. Product shipment was delayed by over a year. We burned through the royalty advance and were running on vapors. Finally, HP shipped HFSS in October 1990.

Of course, our initial royalty revenues were cut because we had to repay the royalty advance. And HFSS sales were below forecast initially as well. We were running out of money, and HP approached us with an offer to buy the company at a very low price.

I am aware of two other microwave software companies that HP bought in this way. They too had developed software for HP using royalty advances and sold out to HP when their finances dried up. Fortunately I had put an escape clause into the HP agreement. HP wanted us to develop software for microwave engineers but I suggested that we develop software for antenna engineers as well. HP said no, that their initial interest was for the microwave market only, and so I added a clause into the agreement specifically excluding software for antenna design.

Fortunately, HP didn’t realize that with the simulation technology we were using, microwave design was a subset of antenna design. So we added antenna capabilities to HFSS and were allowed under the agreement to sell this improved, more capable product. The long and short of it is that we were able to generate a secondary revenue steam and started prospering. If I had not inserted the exclusion of antenna simulation software into the Ansoft-HP agreement, Ansoft would have become a small part of HP and you wouldn’t be talking to me today.

Kaizen: When you started Ansoft, how many people were involved?

Cendes: In the first year we had 5 people but this grew to around 25 in five years. Our growth was constant — our revenue and our personnel grew at roughly 30% year after year for many years.

Kaizen: And by 2008, how many people were working at Ansoft?

Cendes: Approximately 300 — roughly 200 in the USA and 100 around the world. An interesting aspect of modern technology is its international nature. We had direct sales and support offices in twelve countries. While we were a small company, we used to joke that the sun never sets on “the Ansoft empire.”

Kaizen: As Ansoft grew you became the head of a much bigger organization, which brings with it new management challenges. Did developing the necessary management skills come naturally, or was it something you had to work at?

Cendes: I believe that management skills are largely the same as interpersonal skills. You have to be aware of people’s strengths and weaknesses as well as their wants and needs. If you care about the people in the organization, and judge their abilities correctly, it is natural to grow an innovative, dynamic organization.

People who joined Ansoft were coming to a new, high-tech company that was changing the way electrical engineering was done. They were highly motivated and self-starting. Due to my academic background, we fostered an open, loosely-structured environment where every employee possessed a great deal of freedom and responsibility.

The IPO experience

Kaizen: You took Ansoft public in 1996. What goes into that process?

Cendes: The universe of high finance and the universe of academic engineers couldn’t be more different. In the IPO, the investment backers took us around in limousines to expensive offices in New York and other financial centers; as an academic, I was more used to the lower end of travel arrangements.

In the IPO, I was giving talks to one or two financers at a time, avoiding the use of equations (although I did have one slide showing Maxwell’s equations), and talking about industry trends; at academic conferences, my talks would contain lots of equations and engineering detail. As everyone knows, the uncertainty in business plans is high; an engineering paper presents definitive results.

To illustrate this point, our investment banker had just before us taken a company public called Legends of the Past — a company with Marilyn Monroe and Elvis Presley impersonators, among others. You can imagine that presenting the Ansoft story to an investor who has previously heard a pitch from Legends of the Past is different than presenting it to engineers.

The merger experience

Kaizen: Ansoft had been very successful, and that led to a merger with or sale to ANSYS in 2008?

Cendes: Yes. Interestingly, both Ansoft and ANSYS were headquartered in Pittsburgh and both Ansoft and ANSYS have similar names — Ansoft is an abbreviation of Analysis Software while ANSYS of Analysis System.

Kaizen: At that point, Ansoft was the world’s leading company in is field. By what criteria does one measure that? Revenues? Market share?

Cendes: Our revenue was over $100 million at the time. A number of smaller companies had entered the market but their combined revenue was less than ours. Similarly in market share — almost every Fortune 500 company in the electrical engineering space was using our software; much fewer were using our competitors’ software.

Kaizen: How did the merger process start — who approached whom?

Cendes: ANSYS approached us. ANSYS had started earlier than Ansoft, they were in the mechanical engineering design space, and were significantly larger. ANSYS wanted to round out their engineering design offerings by adding electrical engineering products to their existing mechanical engineering products.

Kaizen: How much was Ansoft valued at for the merger, if I may ask?

Cendes: When the deal closed on August 1, 2008, the combined cash and stock valuation was around $900 million.

Kaizen: What are the major factors going into determining the valuation?

Cendes: Since Ansoft was a public company, determining the valuation was relatively easy — ANSYS simply put a 15% premium on our existing stock price.

Kaizen: Was it difficult to decide whether to stay on with the to-be-merged companies or to leave?

Cendes: Yes. Ansoft had become a large part of my life and I regretted leaving it. On the other hand, the merger of Ansoft and ANSYS made a lot of business sense and I realized my role there couldn’t continue.

Kaizen: Was a non-compete agreement part of the merger deal?

Cendes: Yes. However, the merger agreement didn’t include any “golden handcuffs,” so I could leave Ansoft/ANSYS immediately if I wanted to.

Kaizen: And yet you stayed on for another two years to effect a smooth transition?

Cendes: I wanted to see the merger succeed. It would have hurt me very badly if everything I had built up over the years had been destroyed. I also felt close to my employees and wanted to do everything I could to ensure their continued success.

Navigating the waters between the former Ansoft culture and the new ANSYS culture was one of the most difficult things I have ever done. The ANSYS management initially didn’t understand our products, markets, and procedures. It was a long process, but eventually ANSYS management learned the needs in the electromagnetic market and most people and procedures continued on as before. Although it was very difficult for me, I’m glad I stayed on because the old Ansoft organization has continued to grow and prosper within the ANSYS umbrella.

Business success and the rest of life

Kaizen: Now that the merger is behind you, what is next for Zol Cendes?

Cendes: I have been pursuing my dream of reinventing the finite element method. While the finite element method is now over 60 years old, certain aspects of the method are still mysterious. I have discovered a new approach to the finite element method that solves some of these mysteries. It is like discovering a new landscape — the world is new in every direction I look. I am exploring these new directions — sometimes I find something beautiful, sometimes I reach a dead end — but it is always an exciting journey. I am in the process of writing a book describing the new theory.

Kaizen: Looking back on having been an entrepreneur for twenty-four years — what has been the best thing to you about being an entrepreneur?

Cendes: It is fun. There is nothing more enjoyable than having a dream and a direction to go, waking up every morning and building a solution to a fundamental human need. Few people realize the need for electromagnetic field simulation. Nevertheless, every day you use products and technologies that would not exist without electromagnetic field simulation. Every entrepreneur faces the challenge and opportunity of improving the human condition in some way.

Kaizen: What has been the most challenging thing for you about being an entrepreneur?

Cendes: I’ve always focused on the opportunities rather than the challenges so it’s hard to say. I suppose the times that we were running out of money to meet the monthly payroll were the most stressful part of my career.

Kaizen: Entrepreneurs have to have initiative, guts, resourcefulness, perseverance, the ability to recover from setbacks, and so on. If you had to choose, which of those would you say is the most important?

Cendes: While all of these characteristics are important, more important than all of them is vision. An entrepreneur must have some idea of where he is going and what the purpose of the enterprise is. Once you have a vision, it still takes initiative, guts and all of the traits you mention — but without a vision, no amount of these traits will lead to success.

Kaizen: What advice would you give to potential entrepreneurs about how to cultivate those traits in themselves?

Cendes: Potential entrepreneurs need to think long term. What are the needs in the world and how do you satisfy them? You do this by looking at the world as it is and thinking about how it ought to be. Once you have a vision for the future, you need to focus on your goals rather than the difficulties. It is easy to have initiative, guts, perseverance, etc., if your mind is focused on your dream.

Kaizen: Many entrepreneurs have technical backgrounds, but they don’t typically learn much about business in university. Is that a problem?

Cendes: No. Many successful entrepreneurs — Bill Gates and Steve Jobs come to mind — never took a business course in their lives. The most important aspects of business — having a vision, selling your product or service, raising money, managing a team of bright people — are not taught in business school. Entrepreneurs can hire people to do the technical aspects of business such as accounting and finance.

Kaizen: Is there anything your engineering education could have better prepared you for?

Cendes: That’s an interesting question. Basically, no. While much of what I learned as an undergraduate is irrelevant today — in electronics I was taught about vacuum tubes — the fundamental thing in learned in engineering school was how to think. Technology changes so rapidly that the specifics you learn are not important. What is important are the fundamental principles you learn that govern the world.

Kaizen: On the other hand, we live in a high-tech world of science and engineering, but not many people are scientifically literate. Is that problematic?

Cendes: Ignorance is never useful. It can even be destructive if a person lives and acts in a fantasy world removed from scientific reality. An interesting example is the current “singularity movement” — the notion that computers will overtake people in intelligence in a few decades and we will be able to live forever by downloading our brains into computers. This notion is scientifically illiterate — electronic computers are as different from biological brains as cars and trucks are from horses and oxen.

Computers are built with a central processing unit (CPU), random access memory (RAM) and data buses. They process data linearly with access only though a data bus, they never lose a bit of data or make a mistake, and operations such as two plus two equals four are hardwired. In contrast, neurons in brains have thousands of connections, people often forget things and make mistakes, and people need to think to perform math and other operations.

On a fundamental level, people have free will and think in terms of concepts; computers are deterministic and don’t think at all. At this point, we don’t even know how the atoms in our brains form concepts, let alone how to make a computer think.

Kaizen: What is the best advice you’ve been given from a mentor?

Cendes: The mentor in life was my Ph.D. advisor Professor Peter Silvester. He was the only genius I ever knew. He taught me that reality is knowable through thought and that we can achieve goals by focusing on the fundamentals.

Kaizen: In closing, what advice would you give to young people just starting out in their careers?

Cendes: Follow your dream. Life has amazing possibilities — don’t waste them. My advice is to focus on your goal of changing the world and not on any money that you might make. If you are successful, you will be rewarded for your efforts. It is mistake to pursue wealth without achievement.

Remember that the world rewards value with value, so you must produce something valuable before you can become rich.

This interview was conducted for Kaizen by Stephen Hicks. An earlier version of this interview was published in Kaizen, Issue 29, February 2014.

© 2014 Stephen R. C. Hicks. All rights reserved.

Kaizen 29: The Zol Cendes interview on entrepreneurial software development

Monday, February 17th, 2014

Entrepreneurial Software

k29 thumbOur latest issue of Kaizen [pdf] features our interview with Zol Cendes. We met in with Mr. Cendes in Naples, Florida, to discuss his experience founding Ansoft, a $900 million software company that revolutionized engineering modeling.

Ansoft’s software is used widely for improving the air and fluid dynamics for products such as Ferrari sports cars and the swim caps used by Michael Phelps in the Olympics, as well as many household products such as microwaves and printers.

speedo-swimsuit-04michael_phelps

Also featured in this issue of Kaizen are guest speakers John Chisholm and Robert Lawson, along with two students, Amour Muro and Alex Patnou, who were the co-winners of CEE’s essay contest in Business and Economic Ethics.

pathlines-gt2ferrariPrint copies of Kaizen are in the mail to CEE’s supporters and are available at Rockford University. Our next issue will feature an extended interview with Guillermo Yeatts on the theme of Entrepreneurship in Latin America.

More Kaizen interviews with leading entrepreneurs are at our Kaizen page.

Interview with Surse Pierpoint

Monday, December 30th, 2013

Entrepreneurial Logistics in Panama

k28 thumbSurse Pierpoint is General Manager and shareholder in Colón [Columbus] Import-Export, a firm located in the Panama Canal Free Zone. Colón provides logistics, warehousing, and customized re-labeling services for a variety of international companies, including Procter & Gamble, DHL, Payless Shoes, Novartis, and Eli Lilly. Pierpoint is a third-generation Panamanian who received his undergraduate and graduate education in the United States before returning to Panama to pursue his business career, which now includes being President of the Free Zone Users’ Association and part of a consortium of investors developing a new marina on Panama’s Caribbean coast.

Background and Early Career

Kaizen: Your company is in Panama, which is famous for its canal. What is the significance of the Panama Canal?

Pierpoint: The Canal was an idea going all the way back to the 1500s, from the discovery of the Pacific Ocean. People were already trying to figure out how to connect the two oceans. It was evident to Balboa that there wasn’t that much land separating the two oceans.

Kaizen: About 60 miles?

Pierpoint: Yes, sixty miles from coast to coast. It is the narrowest spot in the Western Hemisphere.

It wasn’t until Ferdinand de Lesseps in the 1800s that people made an effort to build the Panama Canal. De Lesseps started to raise the capital, but malaria caused that effort to collapse.

The American effort didn’t begin until Teddy Roosevelt, who was an accidental president because McKinley was assassinated. Roosevelt became president and, having attended the Naval War College, was heavily influenced by a professor who said that any self-respecting empire needs outposts. Naval power was very important in the projection of that. The Spanish-American War was in 1898, but by the time the Americans’ Pacific Fleet got to Cuba, the war was over. So Roosevelt said, “This can’t be. We must have a quicker way of projecting our naval power.”

Kaizen: So military issues as much as economic drove the idea of cutting the canal?

Pierpoint: Yes. The U.S. needed outposts that projected its power abroad and gave its citizens comfort that their government would stand by them. Coaling stations also mattered, to resupply shipping vessels as they were going around the world. As a result of the Spanish-American War, the Philippines became part of the U.S. protectorate. This was truly a projection across the globe.

Kaizen: Your personal story also starts in Panama.

Pierpoint: I tracked my name, Surse, all the way back to 1833 to a town in Tennessee. Three brothers from there fought in the Civil War on the Confederate side. They wouldn’t swear an oath of allegiance, so they left Tennessee for Texas. From Texas, my great-grandfather decided to go to Panama because the construction was the biggest thing happening.

Kaizen: The canal was being built at this time?

Pierpoint: Yes. He was a doctor specializing in tropical medicine. The public health effort in controlling malaria was the important thing before they actually started building the canal. That’s how we got here.

Kaizen: So you’re third-generation Panamanian?

Pierpoint: Yes.

Kaizen: Where were you born?

Pierpoint: In a hospital in Panama City. I lived about a year in Panama City, and then our family moved to Colón on the Atlantic side.

Kaizen: What was your education like?

Pierpoint: Small-town Americana and very protected. It was great growing up in the Canal Zone — even now on Facebook there are groups of people who are wistful about their time growing up in the Canal Zone, because it was ideal, from our perspective as kids. It’s what I imagine growing up in a small town in the Midwest in the 1950s was like.

I jokingly refer to the Canal Zone as America’s socialist experiment, because they gave you a job, they gave you a home, they gave you entertainment, they provided food and clothing. You also had tropical pay differential, because working as a federal employee in Panama was considered a hardship — even though anybody who lived here said, “This is hardship?” You got fifteen percent on top of your pay grade. So, growing up was wonderful.

Kaizen: Malaria and the other tropical diseases had been contained by that point?

Pierpoint: Yes. Tropical differential should have been eliminated by the forties, but it was a holdover.

Kaizen: You went to college in the USA?

Pierpoint: I went to boarding school and then college in North Carolina. I met my wife there.

Kaizen: Where in North Carolina?

Pierpoint: Greensboro, North Carolina at UNC. I took the easiest path: liberal arts. I got a double major: Spanish and Latin American Studies and Literature. I’ve always been fascinated by magic realism — the literary term that is used for Latin American writers, with Gabriel García Marquez being the best example of that with One Hundred Years of Solitude. Literature was one major — and Spanish as a language. I knew Spanish and I knew a little about Latin America, so it was fairly easy.

Kaizen: At this point, did you have strong ideas about what you wanted to do for a career?

Pierpoint-fishingPierpoint: During my Communist Worker Party days, I had a Cuban professor, and he and I had some very heated arguments about how bad socialism had been. This is around the time of the civil war in Central America—Salvador, the FMLN.

Kaizen: You were arguing the communist position?

Pierpoint: Yes. My professor, Sanchez Boudy, was saying, “You don’t understand what you are saying.” One big satisfaction is that I got to speak to him last year. I said, “Professor, you were absolutely right.” That is one of those things that’s the little pebble in your head, like “If only I could go back to him and say … .” It was very satisfactory for me to do that. He said, “I’m so glad to hear about the work that you are doing.”

The opportunity came about through one of our supporters at Fundación Libertad. I was talking to him about my college experience, and he asked: “What’s the professor’s name?” I told him, and he said, “I have dinner with him once a week in Miami.” He gave me the phone number. So I called him up and apologized.

Kaizen: Nice. So you were a communist in college and taking the path of least resistance in your studies. Were you thinking at all about career possibilities?

Pierpoint: In my senior year, my father said: “There might be an opportunity. I think I can convince the board.” He was looking out for me and saw an opportunity where I could come into the company.

A lot of people confuse the fact that because I’m in the company that it’s our company. We’re shareholders; but we are not by any means majority shareholders. It’s a very close-knit group of families of the original Jewish families that came to Panama from Curaçao. There was emigration out of Spain to Holland to the Caribbean to Panama in the late nineteenth century. That family adopted my father. My father was an only child; he often referred to Clifford Maduro, the gentleman in that middle picture, as his surrogate father.

So my father said that there might be a job opportunity here, and I didn’t have anything else going on. There’s a saying in Spanish: “It’s better to be the head of a mouse than the tail of a lion.” After living in the United States, coming back to Panama where I had grown up had an allure. My father’s precondition was: “Get an MBA and then come back and you can start working.”

Kaizen: So you went to Thunderbird in Arizona for your MBA.

Pierpoint: American Graduate School of International Management, as it was known then, informally referred to as Thunderbird. Their outlook was that to be a well-rounded, international executive, you had to know not just business but culture and language as well.

Kaizen: Were you excited about the idea of going into business at this point — or was it just the least bad option?

Pierpoint: Yes.

Kaizen: The latter?

Pierpoint: Yes.

Kaizen: How long were you in Arizona?

Pierpoint: That was a one year program. Then I started working at Colón Import-Export on October 1, 1984.

Kaizen: You were about 26 years old?

Pierpoint: Yes.

Kaizen: So what was your first position at Colón Import-Export?

Pierpoint: In the warehouse. Dad said: “You’re not going to be an executive. You’re going to learn the business literally from the bottom-up.”

That was in pre-container days: goods arrived in a vessel, and they were taken off the vessel and loaded onto a truck, and from the truck into the warehouse, where they were unloaded onto a pallet.

Kaizen: All by hand?

Pierpoint: All by hand. I started with loading, unloading, and going to the freight house and receiving the goods that our clients would consign to us for mutual distribution.

Kaizen: What services was Colón providing to its clients?

Pierpoint: “Third-party logistics” is the technical term, which means that clients hire us for our facilities — warehouses and the people — to receive and ship their orders to their clients in the region, which at that time was mostly Panama and Central America.

Kaizen: So manufacturers anywhere in the world who want to sell in Central America will send their stuff to Colón Import-Export, and you will warehouse it and send it on?

Pierpoint: The beauty of it is that, because of the Canal, there were a lot of ships arriving in Panama. On the outbound side, you could also re-export those goods. The complexity of dealing with Latin America meant that it was better to have a regional inventory instead of a country inventory. So Panama was an attractive place to have a regional inventory for servicing all of those countries.

Kaizen: Colón operates in the Colón Free Trade Zone in Panama. How, legally and economically, does the free zone work?

Pierpoint: It’s a big bonded area which, from the Panamanian perspective, means that it’s duty free. As far as Panama is concerned, those goods have not been imported into Panama. They are in transit from where they were manufactured to wherever their final destination is going to be. So it’s a fairly easy place to set up operations, it’s centrally located, and your inventory then is that much closer to the final point of consumption.

The free trade zone was an idea that evolved from the Colón Chamber of Commerce. A director of Colón Import-Export was on that board. He was part of the board that created that idea and convinced the Panamanian president to sign it into law. We were one of the first companies to set up in the free zone.

Kaizen: When was that?

Pierpoint: 1948.

Kaizen: The free zone was established in 1948, but the company was established in 1912, over a century ago now.

Pierpoint: Colón Import-Export today is what I call version 3.0, because we’ve evolved over time. What we are today is a logistics company.

Kaizen: You began in the warehouse off-loading ships and repackaging. How long did you do that?

Pierpoint: Dad figured that after four years I had learned enough. I became general manager in 1989, about two weeks before the invasion. I remember because the board meeting where I was approved as general manager was the same day that General Manuel Noriega declared war on the United States. That’s something that gets seared in your mind.

Kaizen: Obviously, you had to prove yourself before becoming General Manager of a substantial organization. What were the big things that you had to learn or prove yourself on before you got that position?

Pierpoint: Dealing with employees is the biggest challenge that any manager is going to have. Infrastructure — buying forklifts, buying trucks — is easy. Getting people to respond in the manner that you hope they are going to is the biggest challenge — the empathy part of what it is that you want. What it is that I want, and how I can motivate you to do that for the company? Our company has always been known as a very stable place to work, with a great reputation. The average number of years of service is over ten years. We had one gentleman retire with 55 years of service in the company.

Kaizen: How do you do that? Is it a matter of understanding what goals they have personally and meshing those with the company’s goals?

SursePierpoint: One of my favorite sayings now is: “People respond to incentives.” About fifteen years ago we hired a consultant, who is still working with us. I almost consider him as a coach, in the sense that he’s very analytical. He’s an industrial engineer by training.

Kaizen: What’s his name?

Pierpoint: Humberto Linero. Humberto taught me that you can change processes, but you always have to align those processes to make sure that the triangle of incentives — shareholders, clients, employees — always mesh. Anything that is done has to satisfy all three parts or it is not going to work.

Kaizen: It has to be win-win-win.

Pierpoint: Really. Because at the end of the day the employees want to earn more, the shareholders want to earn more, but the clients want to pay less. So the challenge is, “Okay, if the shareholders want more dividends and the employees want more salary, but the clients want to pay less — how can you do that?” That seems like a tough nut to crack.

What Humberto taught me is to align your processes so that people want to chase that carrot. His philosophy is that you want to pay what the market is paying; but the additional “oomph” is going to come from people going the extra mile, because at the end of the day they want to earn a little bit of money.

Our company needs to be able to handle the volumes that the clients throw at us, and it is not an even-flow of orders. That was the challenge that brought Humberto on originally. One of our clients was saying, “We need to lower the order turnaround time. How are you going to do that, Surse?”

Humberto helped us to reorganize the processes from an industrial engineering perspective: What are the steps involved in processing an order? Who is involved? And why are they involved? What can we do to compress the time? Because at the end of the day, all we are selling is the time it takes to process the order. The faster we do it, the more competitive and attractive we will be to our clients.

Kaizen: You joined the company in the 1970s, on the cusp of the personal computing revolution. Computerization went to a whole new level in the 80s and 90s with bar-coding, the Internet, and all of that. How did that impact your business?

Pierpoint: “Warehouse management systems” didn’t exist as a term. We had to create our own software to be able to do that. I was working already when the fax came along, and I told my dad that we needed to get a fax. He said, “Why do we need a fax?” Because we had dealt with correspondence — orders would come in the mail, and then the telex came along, and then the fax came along. Everything sped up.

Then computers came along. We had a server and terminals connected to that server. Then we went to PCs. Dad bought the first IBM PC in 1984 or 1985. It was a piece of hardware without much software.

My dad had a very clear vision that we needed to be able to provide tracking and other information to our clients. But in the pre-Internet days that meant expensive long-distance phone calls. The Internet meant that we were actually able to fulfill that vision of being able to give our clients visibility online, which was the Holy Grail.

Kaizen: Can you measure the improvements in efficiency that computers have brought to your logistics?

Pierpoint: The revolutionary aspects of computers — that’s another thing that Humberto taught us. If you don’t measure, you don’t have a baseline upon which you have to improve and kaizen is continuous improvement. That’s what it is all about: how can we analyze and improve the process? That’s where I get interested in Deming and Lean Thinking.

In talking to our employees, we try to convey that our vision going forward is that we need to be fewer people with technology that makes us more productive, so that we get paid more. So you, the employee, have to think about how you can be more productive with the technology at hand and identify the inhibitors in the process so that we can take them away; that is my job as management.

Kaizen: You’re encouraging from the bottom-up so to speak.

Pierpoint: Humberto says, “Anybody can be an engineer.” He always emphasizes: “We hire you because it is a very labor-intensive business. We hire you to use your hands, but you don’t leave your brain at home. Analyze that process; look at it; criticize it; challenge the process.” When he came back on board, that’s what I wanted to do. I said, “I want you to develop a process where we can do continuous education.” We get that raw material that has a certain amount of knowledge. Let’s teach them to go to the next level. It’s like the Colón Import-Export University for a model. We want to do that continuous improvement.

Kaizen: How many employees do you have currently?

Pierpoint: We have 500 employees.

Kaizen: When you came on board in the 1970s, approximately how many employees did you have?

Pierpoint: One hundred.

Kaizen: So that is a quintupling. If it’s not confidential, can you say the sales numbers between then and now?

Pierpoint: If we express it as a fraction of sales, our net income is less than one tenth of one percent of sales because of the warehousing component, and we represent about twenty percent of the total Free Zone turnover of $15 billion (USD) in annual sales.

Kaizen: In your role as General Manager, you have people management responsibilities, process management, including all of the technology. Is another part financial, such as raising capital or loans?

Pierpoint: That’s where the board comes in. I’m the warehouse guy, and I will admit my deficiencies on the finance side. Fortunately, the company has always been able to fund itself. And now in Panama the cost of capital is fairly low. So if you have a good trajectory — the banks have always been very open, and we have a good relationship with the local banks to help us grow.

Kaizen: Another job is bringing in clients. Currently you have an impressive roster of clients: Procter & Gamble, Payless Shoes, and the partnership with DHL.

Pierpoint: And Novartis.

Kaizen: Yes. Do clients seek you out or do you seek them out?

Pierpoint: One of the challenges is how to get new clients. My experience is that word-of-mouth is the best way. DHL has certainly opened up a new opportunity, because DHL is the largest warehousing company in the world. Anybody who is looking for DHL to provide services for them in Panama — they will come to us. They’ll say, “Look, this is a client. Let’s see what we can do.”

Kaizen: What’s the nature of your relationship with DHL? They are the largest warehousing company in the world, so what is your value-added?

Pierpoint: They figured that it is easier for them to piggy-back on our established infrastructure rather than trying to replicate that. For them, we’ve done the capital investment in the Free Zone. So their relationship is: “We can plug-in to what you do. So you will be our agent for warehousing and we we’ll take the transport side of it.”

Kaizen: DHL is based in Germany?

Pierpoint: The Deutsch Post — the German post office. DHL was three surfer dudes out of San Francisco who figured out that a good way to get to Hawaii to surf was to take documents for shipping lines that went from San Francisco to Hawaii. DHL is the first letter of the last names of the three guys.

Kaizen: They have since been acquired by …

Pierpoint: The German Post Office, which said that they were going to be the largest courier company, so they bought DHL, the largest warehousing company. They also bought Excel out of the UK. We have a bank in Germany. In Germany, they have a monopoly on the post office, which is where they generated the funds to pursue this global expansion.

SurseKaizen: Two of your major clients are pharmaceuticals, is that correct?

Pierpoint: Yes. Novartis and AstraZeneca are the pharmaceutical clients.

Kaizen: Novartis is out of Switzerland?

Pierpoint: Yes.

Kaizen: What do you do for them?

Pierpoint: Like everybody else, they ship from their factories all over the world to Panama. From there we service their client-orders for the region, which is Central America, the Caribbean, Venezuela, Colombia, and Ecuador.

Kaizen: Sometimes it’s just a matter of re-routing the product?

Pierpoint: Those are in transit. They come in and then they stay for a while in the warehouse and then they are shipped back out.

Kaizen: On the warehouse tour yesterday, Eduardo Lazarus showed me rooms where everything was taken out of boxes and labels were applied. Is that another part of the service that you offer?

Pierpoint: That’s a value-added portion of the service that isn’t just moving the goods but doing something with the goods. The Standard Export Pack means that when the goods arrive to Panama, our clients don’t necessarily know where they are going to go at the moment, so they are holding that inventory.

Kaizen: It could go to Peru; it could go to Guatemala.

Pierpoint: It could go anywhere. That’s the beauty; it takes out the uncertainty of trying to anticipate what each country is trying to buy. But, in general, if you try to project on a regional level, the fact that one country may not meet that budget means that another country might take up that product so you don’t have to worry; it smoothes it out. You can say, “Okay, I expected to sell this much in this country and it didn’t happen, but I have a country over here.” So they just shift that product.

What that means is that that product can then be customized. In pharmaceuticals, the number one client in Latin America is the government. So government tenders tend to have specific requirements that require you to identify that the product is property of, say, the Honduran Social Security. So you have to do ink-jetting and labeling and that kind of stuff. That is what we do in that value-add portion that you saw.

Kaizen: Customizing it for each country’s specifications.

Pierpoint: At the moment of sale, which is a huge advantage. From a factory in Switzerland, you can’t anticipate that; and they aren’t going to deal with the nuisances of a small run, at least from their perspective. We can do that for them here.

Kaizen: Procter & Gamble makes personal care products, and they are based in the United States; but they send product to you in Panama, and you re-route it to all of the particular countries in Latin and Central America.

Pierpoint: Yes. It’s the same model, just a different commodity.

Kaizen: And Payless Shoes. Did that client also come through DHL?

Pierpoint: Yes. At first we thought: shoes? Traditionally we had been a pharmaceuticals company. Shoes were different. But that relationship has been tremendous. We’ve really developed systems, as you saw: everything gets scanned in and out.

Kaizen: Payless is an American company?

Pierpoint: Based in Topeka, Kansas.

Kaizen: Though the shoes are manufactured in China and then they come to Panama?

Pierpoint: The model before us was China to Long Beach, Long Beach to Topeka, Topeka to Miami, and Miami to the stores.

Kaizen: A lot of transfers.

Pierpoint: That was a very cumbersome supply chain. They saw Panama as an opportunity where it would be China to Panama and Panama to the stores. They took out that component of having to bring the shoes to the United States and re-exporting them out to Latin America.

Kaizen: If you bring your product into Long Beach and you want to get it to Topeka, would it be on trucks or trains?

Pierpoint: Trucks, typically.

Kaizen: Then all the way to Miami and back onto ships.

Pierpoint: They cut out that whole component and lowered their supply chain costs.

Kaizen: Right. Then it’s only on ships from China to Panama. Then?

Pierpoint: It ships from Panama to the country. As a mode of transportation, ocean is cheapest. So that lowered their cost. And as the name “Payless” implies, they don’t want to pay any more than they have to. They want to be able to sell a cheap shoe to their Latin American customer base.

Kaizen: Take a standard work week for you as a general manager. How do you typically spend your time? How much cultivating clients, dealing with existing clients, meeting with your board, on the floor?

Pierpoint: Dad taught me that the best kind of management is management by walking around and visiting clients. One of his favorite things to do was to go see an operation, like Novartis’s in Europe. And he would always pick up something from walking around and just looking. To be aware of what’s happening and then looking at it from the perspective of “What are you doing that I can copy and use in Panama?”

Once a month I have a board meeting. I will be in the office looking at results; meeting with the managers who handle the different operations. I have five executives under me and each one is in charge of a different area: finance, quality, operations, technology, and human resources. We’ll review what is happening with the clients. What are the issues?

There’s always a problem. We’ve got the push at the end of the month when we need to be able to ship everything out before the last day of the month in order to book sales. The last week is when the pressure is compressed.

Kaizen: Management by walking around means visiting clients …

Pierpoint: Or being in the warehouse, going to the different operations and talking to the managers. What is it that makes their job difficult and what can I do to resolve them?

Kaizen: How much travel is involved? Payless is in the United States, as is Procter & Gamble. Novartis is in Switzerland.

Pierpoint: In my dad’s days it was a trip to Switzerland to meet with Novartis. What the modern corporate world has tried to push that down to a regional level. So it is no longer going to Basel, Switzerland; it’s meeting in Guatemala or Costa Rica or Bogota with the regional managers.

Kaizen: So the travel is not as intensive and overwhelming.

Pierpoint: The travel now is more related to working as the President of the User’s Free Zone Association or going to the Mont Pelerin Society Meeting in Prague. Of course with Skype, email, and phone, there is not so much visiting. Maybe that is an area where I need to improve. There is still a huge value in face time and building relationships.

Panama Canal History

Kaizen: You talked earlier about the free zone and the history of the Panama Canal. There was a failed effort to build it in the 1880s or 1890s.

Pierpoint: 1880 to 1888 was the French effort.

Kaizen: Why did it not work?

Pierpoint: Malaria and yellow fever. De Lesseps was the king of the world because he had done the Suez Canal. He figured, “Heck, I did it in Suez. Panama is the next narrow spot in the world where a canal is needed, and I know how to do canals. So let’s go to Panama and do it.”

Kaizen: But he under-estimated malaria and yellow fever.

Pierpoint: Malaria, from the French mal air. People figured that it was the bad air from the swamp that caused yellow fever. Paradoxically, that was part of the lore from my great-grandfather. In the hospitals in Colón it was very typical to have little trays of water on the foot of each hospital bed because you didn’t want the ants to get into the bed. That little pool of water became a place where mosquitoes could breed. But they didn’t know any better. They say that the hospital is the worst place to get better.

Kaizen: The canal was built successfully and opened in 1914?

Pierpoint: Yes.

Kaizen: When did the American effort to build the canal begin?

Pierpoint: 1905.

Kaizen: So it was a nine year process from conception to completion. By then malaria and yellow fever had been figured out?

Pierpoint: Yes, during the Spanish-American War in Cuba—by Dr. Walter Reed, who has that army hospital in D.C. named after him. He, along with some Cuban doctors, figured out that the vector was the mosquito. That’s what was transmitting the malaria and yellow fever. That’s where my great-grandfather got involved, in the public health effort in trying to control the situation so that at least the challenge wasn’t going to be that workers were dying off. Incidences of death by malaria dropped precipitously as that public health effort took hold.

Kaizen: Wonderful. There were other engineering challenges. The Atlantic and the Pacific aren’t at the same sea level, and the interior waterways are also at different levels. So they built locks on the Pacific side and on the Atlantic side, and flooded the middle to make a giant lake.

Pierpoint: The original design was to copy the French effort to make it sea level. One engineer started the effort, but it was a mess. There wasn’t much digging going on and, of course, the tropical environment made it difficult.

John Frank Stevens, the second engineer, came along. He was involved in building railroads in the American West. I think he worked on the effort to put a railroad through the Rockies, so he was a brilliant engineer. He came through and figured out: “Okay. What we need to do is to get the dirt out of here as quickly as possible.” He came up with some very innovative ideas. The story is a PBS documentary that’s available online. It’s a fascinating story of how he came up with steam shovels and trains to move the dirt in a very efficient manner.

But his design was: “We aren’t going to do sea level. Let’s do locks.” The design is that 60% or 70% of the canal is the flooding of a river valley to create Gatun Lake. Then the portion of digging through the Continental Divide and out to the Pacific was the digging challenge. Parallel to the digging was the creation of the locks and the flooding. That was the inaugural moment — the blowing up of the dyke in Gamboa where the Chagres River met the dyke. Once the digging portion was completed, water flooded in. That was in 1914.

Kaizen: Awesome. What was the nature of the business arrangement between the United States and Panama? Revenues? Control of the canal? How did that work out?

Pierpoint: A friend of mine wrote a book called, How Wall Street Created a Nation. And that is an interesting story about the “black” legend of how Panama was created. Was it truly a bunch of Panamanian patriots who wanted to be free from Colombia? Or was it New York money that convinced and funded the revolution, and the United States backed them after Colombia said to the United States: “No. We don’t want to give you an option to build a canal.” The United States then chose the path of least resistance: “Well, if we can’t convince Colombia, let’s let Panama become independent and then we can negotiate with Panama and not with Colombia.”

Practically, one of the first acts of the Panamanian government was to sign a treaty with the United States to grant them, in perpetuity, a 50-mile wide by 50-mile long sector of the middle of the country to operate as they saw fit. So it was a piece of the United States in the middle of the Republic of Panama.

Kaizen: And that revolutionized world transportation. Shipping is suddenly coming through there instead of having to come all the way around South America. What is the average savings? Let’s say that you are sending something from China to the eastern part of the United States. Before the Canal, you can send everything to Seattle or to California and truck it across by land, or you can send it around South America.

Pierpoint: Or through the Suez.

Kaizen: Yes. Is there some average dollar number savings one is likely to get by going through Panama?

Pierpoint: It’s all about days of travel, so going through Panama certainly eliminated having to go around South America. But getting from Asia to Latin America you either go around through the Indian Ocean, the Suez, the Mediterranean, and the Atlantic — or you come across the Pacific to Panama, through the canal to the east coast. It’s faster through Panama. How many days, I’m not sure.

Kaizen: It’s a significant enough savings that there has been huge traffic through the Panama Canal over the last century.

Pierpoint: Well, the original lock design — the Army Corps of Engineers said, “If this is going to last a hundred years, how big can boats get into the future?” That’s what is really amazing, the foresight of these guys to say, “Let’s make it really big. There is nothing on the drawing boards for that size, but we have to think long term.” So that is what we saw with the expansion: 1,000 feet long by 100 feet wide. People were like, “You’re nuts! That’s crazy! That’s way too big” “Maybe it is now,” they replied, “but we don’t know what the future is going to be like.” That created what is known as the Panamax type of a vessel with the maximum weight and width that can fit through the locks.

Kaizen: How long does it typically take, to go from one end of the canal to the other end?

Pierpoint: The transit on average is ten hours.

Kaizen: How much does it cost to send a ship through? I know it depends on the size of the ship.

Pierpoint: It can be all the way up to $350,000 or $400,000 for transit. The off-set of that is that, though that sounds like a lot of money, if I had to go another way, those days of operation from the vessel makes the amount worthwhile.

Kaizen: $350,000 would be for the largest of the large? Cruise ships and so forth?

Pierpoint: Yes. You’ve got the bulk carriers, container ships, cruise ships, and car carriers. The Canal measures that. The biggest category is container vessels.

Kaizen: From the early twentieth century to Noriega, let’s say. What was Panama’s political history? Was it stable?

Pierpoint: Alternating governments in power — some populism, strongmen, and elections. 1964 was a watershed year because many Panamanians resented the fact that the United States controlled a portion of the country into perpetuity. Of course it depends on your world-view, but the nationalists and certainly the anti-imperialists saw the United States as an evil empire — amongst the student population especially. On January 9, 1964, some Panamanian students said, “We are going to Balboa High School to raise the Panama flag.” There’s Cristobal High School, where I went to school on the Pacific side, and there’s Balboa High School. The firebrands marched on the campus of the Balboa High School to raise the Panamanian flag because only the American flag was waving before then. That set off about a week’s worth of riots, and some of these students were killed.

Kaizen: Here in Panama City?

Pierpoint: Yes. But it spilled over to Colón as well. The president broke off relations with the United States. He said, “You guys have killed some of my students, and we have to talk about this issue because perpetuity isn’t going to work.” The president was tapping into nationalism from a political perspective, obviously. He was popular because he was backing our students, but it must have been a difficult situation. That began a process: in 1968 there was a military coup and the leader of that coup’s claim to fame is that he said, “One day I’m going to walk in the canal zone because it is going to be a part of Panama.”

Kaizen: What was his name?

Pierpoint: Omar Torrijos. He was politically very shrewd because he realized that that gave him legitimacy with the populace; that was his reason for living: “I’m going to push the fact that I’m going to sign the treaty where we will abrogate the existing treaty and renegotiate it in our favor.”

Kaizen: He was in power for how long?

Pierpoint: About 15 years. Jimmy Carter and Omar Torrijos sat down in the Organization of American States in Washington, D.C. and signed the treaty in 1977. That treaty established that by December 31, 1999 everything would be given back to Panama.

Kaizen: But then Torrijos died in a plane crash, and his second-in-command, Manuel Noriega, became the new military dictator. What was Noriega’s regime like?

Pierpoint: Noriega wasn’t as charismatic as Omar Torrijos. And if you remember the 80s, with massive amounts of cocaine moving north from Colombia — we are a natural transit point. It was rumored that Noriega was friendly with all parties: drug traffickers, the CIA — anybody he could make a buck from, he was willing to sit down and make a deal.

His regime coincides with a political spring where parties begin to come back into play. One was a gentleman who had been deposed in 1968 and went in exile, Arnulfo Arias. He came back, and elections were held in 1985, I believe.

Many felt that the election was stolen; the official candidate won by a narrow margin. But it created the effervescence where the losing side began a resistance effort to challenge the result and started lobbying the United States to do something about it: “You guys have been here so long; you’ve created this problem; now you have to help us get rid of Noriega.” That culminated in the invasion on December 20, 1989.

Kaizen: In what way was the U.S. seen as having contributed to the Noriega problem? Was there explicit support for him?

Pierpoint: There was an entendre because the U.S. thought, “Don’t rock the boat.” But then Noriega started getting out of hand. The Panamanians were very successful at linking him with drug trafficking and money laundering. So Noriega started clamping down. “The Crisis,” as it is referred to here, from 1987 through 1989, is when things got tougher and tougher, and the United States started applying measures. It was a downward spiral where people were resisting and Noriega was resisting going out.

Within the military, there was a failed coup attempt to take Noriega out. The plotters were captured and executed. That is the really dark portion. The trigger for the U.S. invasion was the arrest and manhandling of a U.S. military officer who supposedly ran through a police road-block. The car was fired upon and that US officer was killed.

Kaizen: So at that point the United States invaded and removed Noriega.

Pierpoint: And they installed the loser from the 1985 elections.

Kaizen: The 1985 elections that were thought to be rigged.

Pierpoint: Yes. After the invasion, Guillermo Endara was put into power, and elections, were held in 1989.

Kaizen: So democracy returned to Panama through the 1990s, and in 1999 the U.S. formally transferred ownership of the Canal Zone to Panama.

The decision to expand the canal — the engineers back in the 20th century had good foresight, but nonetheless technology has advanced far and there are a significant number of super ships that can’t get through the current canal. When was the decision for the expansion project made?

Pierpoint: A few years ago. There was a national referendum. You know the movie Cars?

Kaizen: Yes.

Pierpoint: The rise of the interstate highway system in the United States meant that Route 66 was no longer the main road. I use that example to highlight the fact that the carriers, especially the container carriers, are looking to lower the cost per container of moving a boat around the world. So from the year 2000, Panama took over the Canal, they started to think: We are coming up on 100 years, and we need to widen the canal because we are seeing the trends in the industry. If we don’t widen it, we’re going to be Route 66 instead of Interstate 40. A national referendum was approved overwhelmingly by over 70 percent of the population.

Kaizen: That was what year?

Pierpoint: October 22, 2006.

Kaizen: This is a multi-billion dollar project.

Pierpoint: About $5.5 billion.

Kaizen: Involving new locks at both ends.

Pierpoint: Two new locks and raising the level of the lake to have more water, deepening the draft for the bigger vessels—not just in the lakes, but in the approaches on both the Atlantic and Pacific sides coming into the new chambers.

Kaizen: Currently, how many ships can be in the system at a given time?

Pierpoint: Between 35 and 40 per day.

Kaizen: When the new locks open in 2014 or 2015, the current locks will still be in operation. What’s the anticipated number of ships that will be able to go through?

Pierpoint: By the time they’ve ironed out all of the kinks, they expect to be able to double the capacity.

Kaizen: 70 to 80 ships per day.

Pierpoint: Yes. And some of them will be much larger, and they are going to pay more money, so it is a huge economic benefit for the country as well.

Kaizen: Currently how much revenue does the canal generate in transit fees?

Pierpoint: It shifted over the years. The Americans always ran the canal on a cost-basis: “We are going to charge whatever it costs.” The Panamanian administration adopted a much more business-like attitude: “Let’s charge what the market will bear.”

One of the proud facts of the Panamanian administration of the canal is that what we’ve gotten from 2000 to 2011 far surpassed what we got from the United States as a stipend for running the canal from 1914 to 2000. We are talking about over a billion dollars last year that the canal gave to the national treasury. It is expected that when we double the capacity, it’s going to be more than two billion. Again, it’s a question of what the market can bear. So the tolls have been rising.

Kaizen: Most of that money gets invested in infrastructure?

Pierpoint: It goes into the kitty to deal with infrastructure: security, health, and education.

Kaizen: The Panamanian skyline is extraordinarily impressive, and most of the buildings look new. Is that Canal money or Free Zone money? A combination of the two?

Panama-skylinePierpoint: In the last five or six years, since 2007 or 2008, it made a lot of sense for Panamanians to reinvest in Panama. A lot of the banks in Panama — their capital base comes from Free Zone money. A lot of the skyline is due to the Free Zone. The profits generated are reinvested in the country.

Kaizen: I’ve never seen so many construction projects in one place.

Pierpoint: With this administration, it’s not just buildings, but also roads, overpasses, highways, and new airports. A lot of money is being reinvested in infrastructure.

Kaizen: How is the rest of the world reacting to the Canal expansion? For example, it affects the ports on the west coast of the United States. The super-ships that can’t go through the Canal currently might off-load in California and truck across the United States. But with the expanded Canal, lot of that traffic will start to come through Panama.

Pierpoint: There is a website called beatthecanal.com, which is an effort by a group of Californians worried about what the Canal is going to mean for Los Angeles-Long Beach traffic. It might mean up to 20 percent less movement through L.A.-Long Beach, which is the largest port in the United States. So they are very concerned about what is called the all-water route: Asia, through the canal, to the east coast of the United States. Demographically, most of the U.S. population lives east of the Mississippi. China is the United States’ factory. All of those goods have to get to the east coast and right now, L.A.-Long Beach is the preferred destination.

The longshoreman strike was a wake-up call for a lot of retailers. Because of today’s just-in-time supply chain, that type of interruption creates havoc. So people were looking at alternatives. What that means is if you can get to Savannah, Georgia, by boat, then that is going to be a cheaper landed-cost than off-loading it in L.A. and moving it by road or rail to the big box stores on the east coast that the Walmarts, Targets, and Home Depots have.

Kaizen: Is the east coast of the United States prepared for more traffic and larger ships?

Pierpoint: The Washington Post had an article recently that is a good summary of the different ports. A lot of federal money is being spent in getting prepared for the impact of an expanded canal. The Savannah River has to be dredged for the Port of Savannah; the Bayonne Bridge in New Jersey has to be raised because these larger vessels can’t currently come under the bridge. That article mentioned something like $6 billion in different projects along these major ports, which are all vying to be the destination for these carriers. Miami is investing money; Savannah is investing money; Charleston is investing money; the Port of New York-New Jersey is investing money. They all want to be the place where those big ships will stop and off-load their containers. So they are competing for the L.A.-Long Beach market as well.

Kaizen: Traffic going from Europe to the west coast of the United States: will the Canal make any difference in that?

Pierpoint: The main trade-flow is Asia to the east coast of the United States. There is a lot of stuff going that way, but not much going the other way. Grapes from Chile going to Europe — the boat comes back relatively empty. Banana ships going from Ecuador to Europe mostly come back empty.

But there is talk that now maybe because of these fracking fields on the east coast of the United States, the LPG tankers could go from the east coast, through the canal, to Japan. Japan has a huge demand and they pay a premium for LPG. So you have a lower cost. Put it on a boat and now you don’t have to go the long way around to get to Japan; you can go through the Canal and get to Japan much more quickly than it would be crossing the Atlantic. It just doesn’t happen right now. So there is a lot of speculation right now about what the new trade flows will be.

Kaizen: Fascinating. To come back to you personally: you have been GM at Colón Import-Export for 23 years. What will you be doing over the next four or five years?

Pierpoint: One of the challenges is to do the same thing my dad did. I came aboard right around the time he was looking to transition. So who’s going to replace me? That’s what worries me now.

Kaizen: You are in your mid-fifties now.

Pierpoint: Fifty-four.

Kaizen: What will the transition involve?

Pierpoint: To bring somebody on board who will have five or six good years of training so that he will be in a position to take over.

Kaizen: Are you planning to grow the business in any new directions? I saw the huge warehouse you just built. Do you plan to bring in more customers to grow the company?

Pierpoint: We’ve had a bit of organic growth. Procter & Gamble has been a tremendous client. They just came on board three years ago, and they are doing what Novartis did from 1960s. So I see a lot of opportunity.

Part of what we hear from our conversations with consultants is that Panama and the Free Zone can start looking northwards to the United States. We just signed a free-trade agreement with the United States. So there are opportunities there. The United States is kind of undiscovered territory, and the fact that Procter & Gamble has validated the model means that other people will also be interested in looking at Panama as an option for a redistribution point—not necessarily for this region, but for other areas.

Kaizen: Technologically, these are revolutionary times. A significant amount of what is done in your warehouses now is by hand. Do you see improvements in technology on your horizon?

Pierpoint: Kiva Systems was bought by Amazon. With Kiva, instead of a picker going to the product, the product is brought to the packer. Part of what I do as well is keep abreast of what is happening in the industry. It’s still the cost of the robot versus the cost of labor, and it’s still heavily in favor of the cost of labor.

But part of the challenge is that we need to have smarter laborers; a high school degree isn’t enough anymore. They need to have a university degree so that they are conversant with a PC, able to use Excel, able to use the scanners, and that kind of stuff. A big challenge is the very bad education system that we have; it means that we have to create our own education system so that we can bring our people up to speed.

Kaizen: The University of Colón Import-Export.

Pierpoint: Yes.

Kaizen: You have interests outside of work, including your busy family, and you are on the Free Zone Users’ Association Board (FZUA).

Pierpoint: I got on the board in 1988, and I was very honored. But my father said, “You are a fool.” The problem was that 1988 was one year before the invasion; it was terrible. There weren’t many executives who wanted to be on the Free Zone Users’ Association Board. My father thought it would make me lose focus on managing the business.

Kaizen: What is the FZUA’s function?

Pierpoint: It was created in 1980 as a place where all of the users could get together and have a channel to talk to the government. Every five years a new administration comes in, and that new administration, unfortunately, doesn’t know much about the free zone. The perception of the free zone is that we all have gold bricks in the warehouse and the streets are paved with gold — that there is a whole lot of money and it is the natural place to come get money. What we say is that the FZUA is like the firehouse: When the bells go off, we are the guys who jump in the truck and try to put out the fire — in this case, the government trying to hit us up for funds.

Kaizen: Is educating each new administration straightforward? They can see the economic impact?

Pierpoint: We need to educate them because, while it is true that we’re part of the country, we’re not immune from losing competitiveness as more fees are tacked on. It makes us uncompetitive because it’s a huge drag. Then people start saying, “Well, why are we shipping to Panama? Why not just let it go through?” And you can do that today — China direct to Venezuela — without having to unload the container. And if that happens, you are talking about 30,000 people working in the Free Zone. The Canal’s labor force is around 11,000 people. So we are three times the size of the Canal. A lot of people know the Canal, but we are a significantly more sizable employer, especially in an economically-depressed zone like Colón.

Kaizen: So you make the economic case, and typically administrations understand, but it has to be redone on a regular basis.

Pierpoint: Exactly. Every five years.

Business Success and Rest of Life

Kaizen: What have you enjoyed the most about being GM at Colón Import-Export?

Pierpoint: One of the things that frustrates my wife — she runs a furniture store — she says, “Oh, you’ve got people for that.” Because she’s the chief cook and bottle washer in her operation. I accidentally got into logistics; but what is interesting to me is the international nature of the business, and how what you read in the newspapers impacts what we do. It really is a globalized world, and I’m a fan of current events.

Kaizen: Is there one area in your job as GM that you’ve consistently struggled with or found challenging? Or you wish that you didn’t have to do it?

Pierpoint: The most important part is dealing with people, and that is the challenge: dealing effectively with people. You have to be careful about everything that you say because it can be misinterpreted.

One of the benefits of being on the Free Zone Users’ Association Board is dealing a lot with politicians. You realize how they are very good about going on and on about nothing. That’s not necessarily what I do, but you begin to realize the nuances of what you say. That’s opened up not just sticking to the inside of the job. That was one thing my dad did; he didn’t like extraneous issues. But I think that is part of the marketing: get out there, get known, and you’ll be the go-to guy when an opportunity pops up.

Kaizen: The skills and character that people need to be successful in business: people skills, clear communication, aligning incentives. Also being able to deal with frustrations, make gutsy decisions, admit mistakes, and so on. Which traits, in your experience, stand out?

Pierpoint: One thing that I’ve learned is that if you’ve made a mistake and it’s going to be really expensive, you still have to say, “I screwed up.” That’s a hard decision. It’s in line with business ethics: at the end of the day, you have to be as good as your word.

One thing that makes me look at the ceiling at three a.m.: we have very expensive products being handled by people who don’t make as much as that product is worth, and a screw up can be a huge cost. So making sure that everybody is motivated to do their best is a challenge.

And the skill-set, I think, is just to be a guy who is very transparent and doesn’t have a hidden agenda and is sincere. So one of the things I’ve tried to develop is empathy and try making the other guy understand what my situation is and to try establishing a relationship. That has been one of the teachings of the free market is the free exchange between two parties where we both benefit. And that is a challenge, certainly, with this environment with big corporations that are always trying to squeeze, squeeze, squeeze — is to convince the other side: “Let’s not compromise quality for cost.” It’s a challenge.

I think as you get older, you get tired. There is this natural cycle, and I’m an anachronism in the sense that I’ve been at the same job all of my life. What you need to do is be energized, and that is where innovation comes in. That’s another thing my coach Humberto — I refer to him as a coach more than as a consultant — has been helpful with. I’ll look to see what the latest and greatest and currently topical book is, and I’ll buy that book and he’ll read it and we’ll discuss it. What’s the applicability of that idea in the company?

Kaizen: Keeping yourself young through innovation.

The first thing you mentioned was being able to admit when you’ve made a mistake. We all struggle with that; we don’t like to admit that we are wrong. How does one cultivate that in oneself? Is it a courage issue? An honesty issue?

Pierpoint: I think those are the two key words. “Courage” because it is a scary conversation to say “Yes, I screwed up.” But the more you do it, the easier it gets because people generally understand that you are being frank and honest.

Kaizen: You’ve mentioned several people who have been mentors to you in various ways. Is there any one piece of advice or a mentor who stands out in your mind?

Pierpoint: My father, obviously. It was a blessing to be able to work with him. Not everybody has the opportunity to work with their father. Looking at him and his work ethic. Also Humberto, the life coach, and the Board of Directors who have been very supportive. Those constant conversations are especially important, particularly with the Board of Directors because they are such a diverse group; they are always giving insights.

But one thing I learned from my father is: You have to be on time and you have to go the extra mile. Finish the job.

With Humberto, I’ve learned to be more analytical because he’s the engineer. My dad was a history major, so he had no special training for the job that he had. But Umberto as an engineer affected me so much so that my oldest daughter is now an engineer because I thought being analytical was so important. Humberto says, “Remember, what isn’t measured can’t be controlled, and what can’t be controlled can’t very easily be improved.” Those are stand-out points that stick in my mind as far as how I’ve been able to be relatively successful up to now.

Kaizen: What advice would you give to young people about their careers and lives ahead of them?

Pierpoint: One thing I’ve struggled with — and I’ve realized I’m an old-fogey — is the fact that in the résumés you see today, young kids jump around. I have to understand that today that is good because you have to keep your options open.

But there is that saying that to be an expert at anything, you have to have spent 10,000 hours doing it. That’s a long time to become good at something. So you have to pick something that you like — and I’m not saying that I’ve loved being a logistician my whole life — but you learn to like it because you see the challenges and the opportunities to get better at it.

I don’t know if you’ve seen the documentary, Jiro Dreams of Sushi. I highly recommend it. It’s about a Japanese gentleman who owns a sushi shop in a subway station in Tokyo. It has a Michelin three-star rating, I believe. In the Michelin guide, that means it’s worth going to that country to eat at that restaurant. He says, “I’ve been making sushi for 60 years, but I still feel like I’m not as good as I could be at making sushi.”

I still feel like that: I have so much to learn. I have been here for about 30 years, so you would think, “Isn’t that enough time to have learned?” No.

Kaizen: Always striving for excellence; always striving for improvement.

Pierpoint: Yes. Kaizen. [Laughs]

This interview was conducted for Kaizen by Stephen Hicks. For more information about Surse Pierpoint, please visit his company’s website. An abridged version of this interview was published in Kaizen, Issue 28, December 2013.

© 2013 Stephen R. C. Hicks. All rights reserved.