1. Introduction

State-Owned Enterprises (SOEs) play a crucial role in many economies around the world, managing sectors considered critical to national interest, such as utilities, infrastructure, and energy. These organizations are often designed to serve the public good rather than pursue pure profit. However, how they operate and adapt to a changing environment can significantly impact both their performance and the broader economy.

A fundamental question arises: Do SOEs operate with a fixed mindset or a growth mindset? The concept of fixed vs. growth mindset, popularized by psychologist Carol Dweck, provides a framework to understand whether these organizations are adaptable, open to change, and innovative, or whether they tend to stay within established boundaries, avoiding risks and resisting transformation. This article explores whether SOEs are inclined toward a fixed or growth mindset, and discusses the implications of each orientation. The mindset adopted by these enterprises ultimately shapes their operational efficiency, capacity for innovation, and contribution to public welfare.

2. Understanding Fixed vs. Growth Mindset

• Fixed Mindset: A fixed mindset refers to the belief that skills and abilities are inherent and cannot change significantly. In organizations, this often translates into a reluctance to deviate from established procedures, an aversion to risk, and limited adaptability. In the context of SOEs, a fixed mindset might manifest in adhering strictly to historical operational procedures, resisting technology adoption, and avoiding the acknowledgment of mistakes. Avoidance of mistakes is often linked to cognitive dissonance—where admitting an error contradicts an organization’s self-image of competence.
• Growth Mindset: In contrast, a growth mindset embraces the belief that abilities can be developed through hard work, dedication, and openness to feedback. Organizations with a growth mindset strive for improvement, embrace change, and foster an innovative culture (Dweck, 2017). For SOEs, this might mean investing in digital transformation, encouraging employee upskilling, and actively seeking ways to enhance efficiency and performance.

The concept of «false growth mindset» is also relevant here. SOEs may claim to adopt growth-oriented practices but fail to truly embrace the necessary culture of change and learning. False growth mindsets involve espousing the language of growth while still maintaining fixed practices internally, which stifles genuine progress.

3. Examples of Fixed vs. Growth Mindset in SOEs

• Evidence of Fixed Mindset Traits: SOEs often display fixed mindset traits such as a dependence on state support, a lack of competition, and rigidity in adapting to market conditions. For instance, India’s state-owned power distribution companies have struggled to transition towards renewable energy due to a lack of incentives to innovate and excessive bureaucratic processes. Similarly, in South Africa, Eskom, the state-owned electricity supplier, has faced challenges in adapting to the energy transition, largely because of political interference, reluctance to adopt new technologies, and a focus on maintaining the status quo. Another example can be seen in Italy’s Alitalia, which repeatedly faced financial difficulties due to its unwillingness to make strategic changes and its dependence on government bailouts, eventually leading to its collapse.

The avoidance of recognizing mistakes, stemming from cognitive dissonance, is also a significant factor that perpetuates this fixed mindset. In Venezuela’s oil sector, PDVSA (Petróleos de Venezuela) has often failed to acknowledge operational inefficiencies and declining production capabilities, leading to further setbacks. Such dynamics demonstrate how a fixed mindset can hinder the ability of SOEs to evolve, innovate, and ultimately meet new challenges.

• Evidence of Growth Mindset Traits: Despite these challenges, there are instances where SOEs have adopted growth mindset behaviors. For example, Singapore’s Temasek Holdings has continually reinvented itself, focusing on a diverse portfolio and embracing international best practices. Temasek’s transformation involved adopting a corporate governance model more akin to private enterprises, emphasizing investment in growth sectors such as technology and sustainability, which allowed it to become globally competitive.

Similarly, Norway’s Equinor serves as a prime example of an SOE embracing a growth mindset. Equinor, formerly known as Statoil, made significant shifts by investing heavily in renewable energy projects and repositioning itself as an «energy company» rather than merely an «oil company.» This strategic pivot required embracing risk and actively learning from early setbacks in offshore wind technologies.

China’s SOE reform initiatives have also demonstrated elements of a growth mindset. SOEs in China have been encouraged to engage with private markets and adopt efficiency-focused reforms. For instance, State Grid Corporation of China has invested significantly in smart grid technology, incorporating lessons learned from initial pilot projects into broader implementations across the country. The application of black box thinking—where failures are studied rather than ignored, allowing for systematic learning and continuous improvement (Syed, 2015)—has been instrumental in these transformations, allowing for continuous improvement and adaptation to rapidly evolving energy demands.

4. Factors Influencing SOE Mindsets

• Government Ownership and Political Agendas: SOEs are often subjected to the political priorities of the government, which might favor stability over growth and innovation. Political agendas can make it challenging for SOEs to embrace changes that are perceived as disruptive. Syed’s work highlights that organizations under heavy political or bureaucratic influence tend to rationalize failures to align with political narratives, thereby limiting their capacity for meaningful reform.
• Market Dynamics: SOEs that operate in monopolistic environments lack the competitive pressure that often pushes private firms toward innovation. Without a market imperative, SOEs may prioritize maintaining operations rather than exploring new growth opportunities. However, those exposed to market competition, such as in China where certain SOEs have been pushed to compete globally, show a greater propensity for growth-oriented practices.
• Corporate Governance: Governance structures that emphasize accountability, transparency, and the reduction of political interference can foster a growth mindset. A board that includes real independent experts and experienced business leaders is more likely to encourage risk-taking and innovation. Effective leadership that is open to learning from failures plays a critical role in fostering a culture of growth. Growth-mindset leaders are crucial in establishing environments that support continuous development and the pursuit of ambitious goals (Dweck, 2017).
• Cultural and Regional Differences: The approach to SOE governance and expectations of performance varies across countries. For example, China has encouraged SOEs to become global players by integrating international standards, fostering a more growth-oriented approach, while other countries maintain rigid, bureaucratic SOEs with limited flexibility.

5. SOEs vs. Private Enterprises: Mindset Comparison

• Private Sector’s Growth-Oriented Nature: Unlike SOEs, private companies thrive in competitive environments, which necessitates a growth mindset. The need to differentiate, innovate, and continually improve is often essential for survival in the private sector.
• Lessons from Private Enterprises: SOEs can benefit from adopting some best practices from private enterprises, such as incentivizing innovation, implementing meritocratic management practices, and reducing bureaucratic red tape. The aviation industry’s emphasis on learning from every failure—described by Syed as “black box thinking”—is one of the most important lessons that SOEs can take from the private sector, as it emphasizes the value of analyzing failures deeply to prevent their recurrence and drive innovation (Syed, 2015).
• Direct Comparison: Private enterprises tend to be more agile, driven by profit motives and shareholder expectations, while SOEs often prioritize social objectives over efficiency. However, those SOEs that adopt a growth mindset tend to outperform their counterparts that are mired in bureaucratic inefficiencies.

6. Pathways for SOEs to Embrace a Growth Mindset

• Governance Reforms: By strengthening corporate governance, ensuring board independence, and reducing political interference, SOEs can create an environment that is more conducive to innovation and change.
• Performance Metrics and Incentives: Implementing performance metrics focused on growth, such as efficiency gains, customer satisfaction, and financial performance, rather than simply maintaining services, can help shift mindsets. Growth metrics should include indicators like adaptability scores, employee engagement with innovation initiatives, and customer feedback on new services. These metrics ensure that progress is linked to continuous improvement, learning, and innovative output. Metrics that encourage learning and improvement are essential for fostering a growth mindset. For example, metrics that track innovation efforts, such as the number of pilot projects initiated, employee upskilling rates, or successful new product launches, can help ensure that growth-oriented behaviors are being rewarded.
• Talent and Leadership Development: A significant factor in fostering a growth mindset is leadership. Transformational leadership, characterized by the ability to inspire and motivate employees through vision, support, and intellectual stimulation, can be particularly effective in driving a growth mindset. Unlike transactional leaders, who focus on maintaining the status quo and enforcing rules, transformational leaders foster a culture of learning and innovation that encourages employees to go beyond their comfort zones. Encouraging the development of leaders who value adaptability, learning, and long-term strategic thinking is crucial for SOEs. Leadership in SOEs needs to create an environment where employees feel safe to take calculated risks and learn from failures without fear of punitive repercussions.
• Case Studies of Transformation: Examples like Norway’s Equinor, which shifted from being a traditional oil company to an energy company focusing on renewables, demonstrate how leadership commitment to a growth mindset can enable an SOE to adapt successfully. Similarly, Telkom Indonesia’s partnership strategy helped overcome risk aversion, balancing the inherent risk associated with innovation while maintaining stability in core operations.

7. Challenges and Barriers to Change

• Political Resistance: Politicians may resist SOE reforms due to fears of losing control or jobs. Such resistance often results in maintaining the status quo rather than promoting agility and growth. Syed notes that entrenched interests and fear of accountability can foster a culture of defensiveness, which hinders learning and adaptation. This is particularly evident in countries where political influence on SOEs is deeply embedded in the governance structures. For instance, in many developing nations, SOEs serve as vehicles for political patronage, and any attempt at reform is seen as a threat to vested interests. The case of Petrobras in Brazil illustrates this well—where political interference contributed to corruption scandals and ultimately hampered meaningful structural reforms. Resistance to changes that promote transparency or efficiency is often a result of the fear of losing power and control over valuable state assets.

Moreover, political resistance is not limited to developing nations. In advanced economies, SOEs in sectors such as transportation and utilities also face political challenges when attempting to innovate or restructure. This is because political stakeholders often prioritize short-term electoral gains over the long-term benefits of reform, leading to suboptimal outcomes that reinforce the fixed mindset culture in these organizations.

• Cultural Challenges: Cultural inertia is a significant barrier within bureaucratic organizations. Shifting towards a growth mindset requires breaking long-held norms and reshaping organizational culture, which can be difficult to achieve. The concept of “just culture,” highlighted by Syed, is crucial in this transformation. A just culture encourages employees to admit errors without fear of blame, which is essential for learning and growth. However, establishing a just culture in SOEs is particularly challenging due to hierarchical organizational structures, where fear of retribution often inhibits open communication. For example, in India’s railway sector, the deeply ingrained hierarchical system has historically discouraged employees from reporting potential safety issues, thereby impeding the sector’s ability to learn from past mistakes and implement preventive measures.

Dweck also highlights the importance of developing environments where failures are seen as learning opportunities rather than definitive judgments on capability. In practice, this means fostering an environment that rewards curiosity and problem-solving, rather than punishing errors. For instance, the healthcare system in the United Kingdom, which has SOEs such as the NHS, has been trying to implement a more open culture of error reporting through initiatives like «Duty of Candour,» encouraging transparency and learning from mistakes. These cultural shifts are crucial but require sustained leadership commitment and structural changes to be effective.

• Risk Aversion: SOEs often operate in sectors considered critical to national interest, such as energy, transport, and defense, where failure is not an option. This limits the ability of SOEs to take risks and innovate compared to their private counterparts. The notion of «failure is not an option» is deeply embedded in sectors like nuclear energy or national defense, where the stakes are inherently high. However, this risk aversion can lead to stagnation, as opportunities for incremental innovations are often overlooked.

In contrast, sectors such as telecommunications have seen SOEs that managed to mitigate risk aversion through strategic partnerships and diversified business models. For example, Telkom Indonesia embraced digital transformation by partnering with private tech firms and expanding its digital services, which helped balance the inherent risk associated with innovation while maintaining stability in core operations.

8. Implications for Policymakers and Stakeholders

• Policy Recommendations: Policymakers should prioritize creating conditions for SOEs to embrace growth mindsets, such as by encouraging competitive practices, promoting transparency, and ensuring professional management free from excessive political intervention. Embracing failure as a learning opportunity should inform the design of policies that encourage transparent review processes and constructive feedback, much like the aviation industry does through detailed analysis of black box data to continuously improve (Syed, 2015).
• Implications for the Broader Economy: The mindset within SOEs has direct implications for economic growth, as SOEs often operate in critical industries. A growth-oriented SOE can drive national development, while a fixed-mindset SOE may impede progress.
• Role of International Bodies: International organizations can play a role in promoting mindset changes by providing technical assistance, highlighting best practices, and tying funding to specific governance improvements. Encouraging SOEs to adopt black box thinking through technical advisory and benchmarking exercises can be instrumental in driving mindset change.

9. Conclusion

In conclusion, SOEs tend to exhibit traits of both fixed and growth mindsets, often depending on their governance structures, market environment, and political influence. While many SOEs remain stuck in a fixed mindset due to bureaucratic inertia and political pressures, there are promising examples where SOEs have successfully adopted a growth mindset, driving innovation and contributing to economic development. For SOEs to effectively transition towards a growth mindset, reforms in governance, a focus on performance incentives, and strong leadership are crucial. Ultimately, embracing a growth mindset will not only enhance SOE performance but also significantly benefit the broader economy and public welfare.

References:

1. Syed, M. (2015). Black Box Thinking: Why Most People Never Learn from Their Mistakes—But Some Do. Portfolio.
2. McKinsey & Company. (2023). Improving Performance at State-Owned Enterprises.
3. World Bank. (2023). State-Owned Enterprise Challenges and Solutions.
4. Esade. (2023). Impact of Political Ideology on SOE Performance.
5. MDPI. (2023). Leadership and Innovation in SOEs.
6. Dweck, C. S. (2017). Mindset: Changing The Way You Think To Fulfil Your Potential. Robinson.

PS: Article researched and written with the assistance of AI