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BRAIN SCIENCE AND BUSINESS 56

JUN/AUG 2015 | dialoguereview.com

Liz Mellon reflects on the Chief Learning Officer Roundtable REVITALIZING HIGHER EDUCATION 66

Universities must develop a clear and relevant value proposition A SHIFTING MARKET LANDSCAPE 78

The digital natives are reshaping markets and industries

Building global growth: collaborate and compete Competition and collaboration should be complementary strategies underpinning globalization, to deliver long-term benefits for all PAGE 28 CULTURE VERSUS INNOVATION 38

BECOMING SELF-AWARE 62

MAKING SMART DECISIONS 71

CHARACTER AND LEADERSHIP 74

How cultural attributes impact on companies’ innovation capabilities

Identify your cognitive style to understand how you relate to the world

Our minds operate two systems of thought, each useful in different situations

A growing body of work ties measurement of character to measures of financial return


CONTENTS/FOCUS

30

The growing pains and gains of globalization

As capital moves from higher-cost, less competitive regions to emerging economies, there will be losers as well as winners in the short term

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38

Will more open trade in a global marketplace cause cut-throat competition or spread business and national prosperity worldwide?

Is the “culture versus innovation� relationship still valid in enterprises, and if so, what is the implication for managers and leaders?

How cultural attributes relate to innovation capability

Globalization: an impetus for competition or cooperation?

44

Nudging the market in the right direction Enabling wider participation in the global economy can boost a company’s competitive advantage and make the world a fairer place

48

Globalization, inequality and the rise of protectionism Curbing protectionism and enabling wide participation in the global market

Dialogue | Jun/Aug 2015

?

52

What to do today to build sustainable global business

Achieve global growth by taking investment in emerging markets more seriously

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CONTENTS/FEATURES

56

64

Liz Mellon reflects on the Chief Learning Officer Roundtable event in London

Self-awareness fosters an effective use of personal skills and increases managers’ sensitivity towards individual perspectives and ways of relating to the world

The benefits of applying brain science to business

Do you think like a hedgehog or a fox?

71

The key to making smarter decisions Andy Gibson, founder of social business Mindapples, provides advice on operating our two distinct systems of thought

66

The evolution of universities

Technological change and cost pressures are the twin dynamos of disruption forcing universities to evolve

74

78

Linking a measurement of character to measures of financial return risks assuming leaders can guarantee a certain future

The digital natives are restless and they are tapping into shifting social sentiments to reimagine sleepy industries

A focus on character to assess competence

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Transforming the global market landscape

Dialogue | Jun/Aug 2015


Editor’s letter

14

Michael Canning

In an age of consumer capitalism, businesses must shed the traditional “insideout” orthodoxy and refocus from the “outside-in”

24

16

Dave Ulrich

For HR operating models to deliver greater value, there should be a focus on relationships rather than roles

82 “The essence of this book is to encourage thinking beyond the short term. The publication posits where we are heading in the next 20 years. It starts by looking at what’s happened over the past 20 years and seeks to project the relevant trends forward. It sets out a number of capability sets which to me make such sense and concludes above all that while it is impossible to predict the future one has to prepare for it. ‘Luckier by Design’ to me is a much more fitting epithet for the next 20 years than just ‘Lucky Country’ or indeed ‘Clever Country’.” David Gonski AC “Nigel Andrade and Peter Munro have authored a highly credible article which captures and articulates many of the key forces at play in recognizing, responding to, and succeeding in Australian investment in Asia. They are generous in offering 20 years of grace for the changing Asian landscape to provide opportunities—as one can see the pace of change rapidly unfolding—with the lag from the developed world continuously shortening.” Duncan Brain, CEO, IAG Asia Pacific

£19.99 IN UK ONLY/ $29.99 IN US

NIGEL P ANDRADE | PETER D MUNRO

While the focus of this book is Australia and Australian business, the capabilities discussed are highly relevant for players in other markets—especially those that have been less fortunate—that are looking for ways to create their own “luck” in a world that seems to offer few second winds.

This issue, our expert reviewers share AUS their thoughts on T RA the latest books L I A on business 34 planning, social media and capitalism Australia has written one of the most remarkable economic growth stories of the century and is now poised to shape its future—not out of crisis but out of opportunity.

The past two decades have brought unprecedented change and major shifts in demographics, the economy, and business. The population has grown rapidly, adding five million people to the increasingly diverse ranks of those who call the country home. GDP and per-capita income have skyrocketed, and businesses are thriving as profitable ventures more than ever before. This important book sheds light on the road the nation has travelled and the efforts of the inspired business leaders who shaped that journey.

Drawing on examples from forwardthinking players, Australia 2034 charts the way for businesses and countries to navigate the next 20 years.

LUCKIER BY DESIGN

NIGEL P ANDRADE PETER D MUNRO

CRITICAL CAPABILITIES FOR AUSTRALIA’S CONTINUED ECONOMIC SUCCESS

With banking interest rates falling at an unprecedented pace, corporate and consumer savers are looking for alternative ways of raising money and for a return on investment

Diverse Egypt

Egypt’s economy is one of the largest and most diversified in the Middle East, with tourism, agriculture, industry and services at almost equal production levels

Focus all departments, levels and staff members on common goals by following three key steps to effective corporate alignment

AUSTRALIA HAS WRITTEN ONE OF THE MOST REMARKABLE ECONOMIC GROWTH STORIES OF THE CENTURY AND IS NOW POISED TO SHAPE ITS FUTURE NOT OUT OF CRISIS BUT OUT OF OPPORTUNITY

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Savings and investments

26

Alberto Andreu

Books & apps

10

SPARK!

The importance of human capital; investigating the DNA of a Game Changer; relationships been employees and managers; and the most desirable company to work for

David Woods examines the trend towards glocalization and discusses the need for both collaboration and competition in the global marketplace

LU C KI E R BY D E S I G N

ro is arney ased in ormerly the director a and and, Peter the firm’s practice ars of nce, he siness unit on, and

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AU STR A L I A 2 03 4

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CONTENTS/OPINION&REGULARS

88

Your Dialogue

The formula for an armistice on talent; looming pension poverty; and the importance of an economic coalition between schools and employers

90

Karina Robinson

Seven years after the financial crisis of 2008, it is time to focus regulation on enabling, rather than obstructing, financial services

17/02/2015 09:52

Dialogue | Jun/Aug 2015

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JUN/AUG 2015 

CONTRIBUTORS

EVE POOLE Eve Poole is associate faculty at Ashridge Business School and an associate research fellow of the William Temple Foundation. She teaches leadersmithing, neuro-leadership, and ethics; her research areas are in the neurobiology of learning, and theology and capitalism. After a BA in Theology and a first career with the Church Commissioners, she completed an MBA at Edinburgh University, and worked for Deloitte Consulting, specializing in change management in the financial services industry. She has a PhD in Capitalism and Theology from Cambridge University and has written three books, including Capitalism’s Toxic Assumptions, in 2015.

NENAD PACEK Nenad Pacek is president of Global Success Advisors and co-founder of the CEEMEA Business Group. He and his businesses advise more than 400 multinational corporations, helping them understand economic outlooks for virtually all countries in the world and implement best business practices for international expansion. He is the author of four books including The Future of Business in Emerging Markets and The Global Economy. He performs at least two advisory sessions or speeches every week for global and regional directors of major companies.

SUZANNE ROSSELET Suzanne Rosselet is founder of Global Competitiveness Consulting, specializing in issues of national/corporate competitiveness, sustainable economic development and strategic investment for global companies. She is a member of the Duke Corporate Education Global Learning Resource Network and a visiting professor at the University of Lausanne (HEC Executive Education) in Switzerland; EADA Business School, Barcelona, Spain; and CENTRUM Business School, Lima, Peru. She was affiliated with IMD Business School for 13 years, in Lausanne, and was deputy director of the IMD’s World Competitiveness Centre from 2002-2012.

ANDY GIBSON Andy Gibson is the founder of Mindapples, a social business which trains staff and managers, in some of the UK’s leading businesses, in mental wellbeing and performance, and a prominent campaigner for popular understanding of the mind and mental health. Before launching Mindapples, he co-founded School of Everything, an online marketplace for learning services. He writes books about innovation and change, most recently A Mind for Business, a guide to making the most of your mind at work, speaks internationally, and runs regular training events to share new ways of working and help businesses work smarter and more sustainably.

EDUARDO PEDROSA Eduardo Pedrosa is secretary general of the Pacific Economic Cooperation Council, having joined as director (policy program) in 2001. Prior to moving to Singapore, he coordinated the Konrad-Adenauer-Stiftung’s Southeast Asia cooperation program in Manila and co-edited its journal on regional economics and politics. He has worked for the Economist Intelligence Unit, advising corporate clients on economic, political and market developments affecting business in the Asia-Pacific, and for agencies of the Philippine government. He is a graduate of the London School of Economics and Political Science.

XIAODONG YANG Xiaodong Yang is the advisor to Duke Corporation Education in China. He is also an independent researcher, focusing primarily on innovation. He has an MBA from Case Western University, Ohio, in the US and a Masters in information technology/information systems from Indiana University. As a member of congress for the Panlong district of Kunming city, the capital city of Yunnan Province in southwest China, he plays an active role in the local community.

Dialogue | Jun/Aug 2015

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EDITOR’S LETTER

David Woods

EDITOR-IN-CHIEF

Going glocal In David Mitchell’s Booker Prize-winning novel Cloud Atlas, one of the characters exists in a post-apocalyptic world in which corporates control everything; all forms of coffee have become known as “Starbucks”, all cameras are called “Nikons” and the golden arches (presumably representing McDonald’s) are perceived to be a temple. Apocalypse aside, is this is what corporates yearn for: a world in which their brand name is synonymous with their product? Two of the aforementioned brands are moving towards this. Admit it. It is strangely comforting to see the green mermaid abroad when you want to order a mocha chocca latte. McDonalds and Starbucks are leading the field in “glocalization” (a portmanteau of globalization and localization) because they have been able to adapt their products to the cultures of the regions in which they operate. In Japan, you can order McSushi; in Korea, McDonald’s will serve you a Beef Borgogi burger or, in India, a Maharaja burger. In France, the familiar face of Ronald McDonald has been replaced with Asterix the Gaul. UK branches of Starbucks serve a traditional English scone with afternoon tea, while in the US, an Oprah chai latte, where a percentage of the price goes to Oprah Winfrey’s charity, is an option for the socially responsible commuter. Sociologist Roland Robertson coined the term glocalization, defining it as “the simultaneity of both universalizing and particularizing tendencies”. The concept now pervades business strategy, with multinational corporations encouraged to forge local roots. Glocalization seeks to involve local preferences and culture in products, to imply that global super-corporates are supporting the local communities in which they operate. Is this what globalization is really all about? Super-corporates competing with local traders, to make consumers believe they have always been there and understand their needs? I thought the age of empires and invasions had passed… If editing Dialogue has taught me anything it is that global competition is a good thing, with ideas from business greats in emerging economies challenging the excepted norms of the so-called “developed” economies. Competition leads to higher levels of service and better quality products, supporting long-term global economic growth. But competition is nothing without collaboration. Dialogue aims to nurture global collaboration so that business leaders can generate game-changing business ideas. Ironically, competition and collaboration are complementary strategies as the focus in this issue seeks to prove. Businesses with global aspirations should partner with companies operating in the foreign markets as the authors in our focus section (page 28) demonstrate. For example, Xiaodong Yang shares compelling research about cultural understanding when working with organizations in China, while Suzanne Rosselet gets to the core of the collaboration versus competition debate.

@davidpaulwoods david.woods@lidpublishing.com

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My view, as I write my last leader as editor of Dialogue, and move from commentator to entrepreneur, is that collaboration (with a dose of competition) could guide us through a volatile, uncertain, complex and ambiguous economic storm. We must share ideas, cross-market products and continue to nurture that all-important dialogue. Dialogue | Jun/Aug 2015


When the best leader's work is done the people say, "We did it ourselves." Lao Tzu

Roland Berger Strategy Consultants, founded in 1967, is one of the world's leading strategy consultancies. With more than 2,700 employees working in 51 offices in 36 countries worldwide, we are successful in all major international markets. Consulting is our passion. Along with Partnership and Entrepreneurship, Excellence is one of our company's core values. We deliver excellent results and develop world-class approaches. In this way, we create tangible and lasting value for our clients. We advise major international companies and public institutions on all issues of strategic management – from strategy to new business processes and structures. For more information on who we are and what we do, go to: www.rolandberger.com Join the discussion on strategic management and read our latest thoughts on leadership at: www.think-act.com/blog It's character that creates impact!

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41% Human capital is the primary fuel that will drive the engines of growth, according to the Conference Board CEO Challenge 2015 report.

of top-performing companies have brought in leadership from other industry sectors. This is double the percentage of low-performing companies. Accenture

CEOs’ top five challenges to drive business growth and the key strategies to meet those challenges are: 1. Human capital: Improve performance management processes and accountability 2. Innovation: Create a culture of innovation by promoting and rewarding entrepreneurship and risk taking 3. Customer Relationships: Engage personally with key customers/clients

In its fifth annual Emerging Consumer Survey, Credit Suisse reported drivers between the ages of 18 and 29 are the fastest-growing group of car owners in China – 43% of those surveyed in this age group reported owning a car in 2015, up from 22% in 2010. Unlike in many developed countries, where wealth is concentrated among retired people, young Chinese consumers have both the highest and fastest-growing incomes in the country.

4. Operational Excellence: Raise employee engagement to drive productivity 5. Enhance portfolio of sustainable products and services The report is based on 943 responses from CEOs, presidents and chairmen from around the world. For further discussion about its findings, visit: youtu.be/2OZ_NGsOc7o

2010

2015


+ WATCH THE VIDEO CLICK HERE to watch the videos on the DNA of game changers

DIALOGUE HAS LAUNCHED A SERIES OF SIX SHORT FILMS INVESTIGATING THE DNA OF A GAME CHANGER, FOLLOWING THE RESULTS OF OUR STUDY INTO THE PEOPLE SET TO SHAKE UP GLOBAL ORGANIZATIONS. Topics include: • What is a Game Changer? • The modern workplace needs to adapt to accommodate Game Changers • How is a Game Changer different to a leader? • Do we need a different talent management strategy for Game Changers? • Are you a Game Changer? • Are corporate cultures curtailing Game Changers?

Checking the results of a decision against its expectations shows executives what their strengths are, where they need to improve, and where they lack knowledge or information. Peter Drucker

I’ve learned that people will forget what you said, people will forget what you did, but people will never forget how you made them feel. Maya Angelou

JOHN LEWIS HAS BEEN NAMED THE MOST DESIRABLE COMPANY TO WORK FOR IN THE UK FOLLOWING A POLL OF ALMOST 11,000 WORKING- AGE ADULTS ACROSS THE UK, BY RECRUITER RANDSTAD. IT NARROWLY WON OUT AGAINST BMW AND BRITISH AIRWAYS, WHICH CAME IN AT SECOND AND THIRD PLACE RESPECTIVELY. Research carried out by Randstad as part of the award showed that salary and employee benefits dominated the most important aspect of employment for respondents when looking for a job – money led the way with 20% of respondents listing it as the single most important factor and 62% giving it a place in their top five. However, John Lewis’ attractiveness was based on a combination of long-term job security, a pleasant working atmosphere and a good work-life balance – the three categories most likely to appear in respondents’ top five motivating factors after monetary concerns.


+ FOR MORE DETAILS CLICK HERE to download the Towers Watson 2014 Global Workforce Study

THE POOR RELATIONSHIP EMPLOYEES HAVE WITH THEIR MANAGER IS ONE OF THE TOP REASONS THEY ARE CONSIDERING LEAVING THEIR CURRENT EMPLOYER ACCORDING TO RESEARCH FROM TOWERS WATSON, A GLOBAL PROFESSIONAL SERVICES COMPANY. Furthermore, a third of the workforce is likely to leave their employer within the next two years. The Towers Watson Global Workforce Study reveals a third of managers are not coaching employees on how to grow in their role and a quarter are failing to evaluate performance in personal development reviews accurately. Managers are also falling short when it comes to communication, with roughly only a third involving employees in decisions that affect them. These managerial failings are having negative consequences for wellbeing in the workforce, with a lack of support, recognition and feedback from supervisors being cited among the top causes of stress for UK workers. It seems however, that employees are sympathetic to the challenges managers face in doing their jobs well, with 37% acknowledging that their manager doesn’t have enough time to handle the people aspects of their job. In addition, the findings suggest managers are not being empowered in their roles by their organizations, with 21% saying they do not find the online tools and resources provided to help them manage direct reports easy to use. Just half of managers said the information they need to update their team about key organizational changes is readily available. This supports earlier research by Buckingham and Coffman (featured in their book, First Break All the Rules, Simon & Schuster 1999 and based on the Gallup survey of 1 million employees and 80,000 managers). Perhaps it is time for businesses to look at this issue more seriously and train and support their managers better.

THE 2015 CRANFIELD FEMALE FTSE BOARD CONFIRMS THAT THE UK’S TOP BOARDROOMS ARE SET TO MEET ITS 25% WOMEN ON BOARDS TARGET THIS YEAR. The report reveals 23.5% of FTSE 100 boards are now female (up from 20.7% last year), with 263 female held directorships across the FTSE 100. The percentage of non-executive directors has increased to 28.5% and women in executive directorships is at an all time high of 8.6%. The percentage of women directors on FTSE 250 boards has also risen to 18%, with 65 FTSE 250 companies having met the 25% target. However, it is not all good news for the FTSE 250. A total of 23 still have no women on their boards and the percentage of women holding executive directorships has fallen to 4.6%. In the US, women occupy nearly 17% of Fortune 500 corporate board seats according to a 2014 Report from the Committee for Economic Development. In the previous decade, that percentage has grew by just 3.3%.

Almost always, great new ideas don’t emerge from within a single person or function, but at the intersection of functions or people that have never met before. Clayton Christensen


I want every little girl who’s told she’s bossy to be told instead that she has leadership skills. Sheryl Sandberg

96%

of staff believe organizations should see little things that make people happy as an investment.

How Steam Are You

On November 9, 2015, the biennial Thinkers50 rankings of management thinkers will be announced, along with eight thinkers who will be honoured with Distinguished Achievement Awards. Several Dialogue contributors are candidates for the 2015 awards, including Liz Mellon (chairman of the Dialogue Editorial Board). The awards gala in London will follow a day-long event featuring some of the world’s most exciting and insightful management minds. The Distinguished Achievement Awards are: • • • • • • • •

BREAKTHROUGH IDEA AWARD DIGITAL THINKING AWARD IDEAS INTO PRACTICE AWARD INNOVATION AWARD LEADERSHIP AWARD SOCIAL ENTERPRISE AWARD STRATEGY AWARD TALENT AWARD

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VIENNA HAS THE WORLD’S BEST QUALITY OF LIVING, ACCORDING TO THE MERCER 2015 QUALITY OF LIVING RANKINGS. Overall, European cities dominate the top of the ranking along with major cities in Australia and New Zealand. Zurich, Auckland, and Munich are in second, third, and fourth places respectively. In fifth place, Vancouver is the highest-ranking city in North America and the region’s only city in the

+ PARTICIPATE CLICK HERE to participate in the voting. Voting ends on September 1, 2015.

top 10. Singapore (26) is the highestranking Asian city, while Dubai (74) ranks first across the Middle East and Africa. Montevideo in Uruguay (78) takes the top spot for South America. In the UK, London (40) is the highestranking city, followed by Birmingham (52), Glasgow (55), Aberdeen (57), and Belfast (63). Mercer conducts its Quality of Living survey annually to help multinational companies and other employers compensate employees fairly when placing them on international assignments. Employee incentives include a quality-of-living allowance and a mobility premium. Mercer’s Quality of Living Reports provide information and hardship premium recommendations for more than 440 cities throughout the world; the ranking covers 230 of these cities.


OPINION

Refocusing business from the outside-in

A Michael Canning CEO, Duke Corporate Education

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theme running across many of our leadership development programmes is accelerating an “outside-in” focus, turning external business trends and stakeholder expectations into internal actions. There are industry-specific aspects, but all industries are being pulled in this direction. While change is nothing new, I think we can agree the world now operates differently and the underlying pattern of change has shifted. As John Seely Brown points out, we’ve moved from a world that followed a pattern of S-curve changes (disruptive jumps followed by long periods of stability) to constant disequilibrium, characterized by continuous, rapid, disruptive changes with little stability in between. This macro shift is causing us to rethink and reframe strategy, our relationship with customers, and what we need to do as leaders. In the old world, corporations shaped the marketplace by leveraging their assets and capabilities. These were considered the sources of distinctiveness and advantage. This core idea, coupled with the ability to improve organizational performance and scale efficiently, were the starting points of a winning strategy and shaped our view of customers. With the emergence of new economies and global competition, pervasive digital technology and social media, plus customization rather than scale as the new norm, the half-life of our distinctive assets and capabilities continues to shrink as customer expectations escalate. In response, most companies are elevating their focus on customers. But are we going fast enough and have we shed the vestige of the traditional winning formula, and the associated “inside-out” perspective? Roger Martin coins this “the new age of consumer capitalism” (HBR, February 2010), ushering in a rebalancing of power between companies and customers; it’s time to make creating customer value, not shareowner value, the firm’s overarching goal. This requires a step change in the customercentricity journey. As Harvard Business School Professor Ranjay Gulati (The Outside-In Approach to Customer Service, Sarah Gilbert,

February 2010) points out, moving to outside-in means the focus migrates from thinking about customers as segments into which we sell products, towards a deeper understanding of, and commitment to, creating value by solving customers’ problems. This requires going beyond listening and responsiveness to deeper understanding of the challenges facing customers and the trends shaping their businesses. As leaders, the shift we have to make is more significant than filling data or knowledge gaps. Shedding the “inside-out” orthodoxy requires shifting our defaults and rewiring our thinking. As Duke Business School Professor Christine Moorman explains (Strategy and Leadership, Christine Moorman and George Day, 2013, vol. 41), the change begins with a shift in our beliefs about how we win. What would we change if we truly believed customer orientation, customer experience, and our ability to create more value for customers, were the keys to success? We must do a range of things to be true catalysts driving this new mindset throughout the business. I’ll mention three. First, we need to widen our lenses by instilling routines to scan the landscape and pick up on trends affecting our own, and our customers’, businesses. Second, we need to be better networked, particularly externally, to enable more diverse thinking about the problem and the ability to bring a broader set of capabilities to solve it. The third thing is more subtle but equally important. Jack Hidary, (Power of Pull, John Hegel III and John Seely Brown, 2012) asks: “How many surface areas do you have exposed?” drawing an analogy from the glycaemic index. Foods with a higher glycaemic index have more surface areas exposed to stomach acids, so deliver sugar faster. He asserts that if we limit our points of contact with the external world, we slow growth and limit our ability to adapt, reducing our impact. It appears Darwin’s theory endures: “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one most adaptable to change.” How many surfaces are you exposing to the external world?

Dialogue | Jun/Aug 2015


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10/11/2014 14:25


OPINION

Placing the emphasis on relationships rather than roles Dave Ulrich Rensis Likert Professor at the University of Michigan and partner at the RBL Group

D

ebate continues about how to organize HR departments. Should HR work be centralized (functionally driven across an enterprise), decentralized (uniquely applied to each business), or delivered in some combination of the two (shared services)? I have tried to define the roles that HR professionals play to achieve an optimal HR operating model. We have proposed that the HR structure should match business strategy and structure. In many cases, where a diverse business strategy has a divisional, networked, matrix, hybrid, or allied structure, we have proposed an HR operating model with service centres focused on technology-enabled transaction capability; centres of expertise with deep specialized HR knowledge and insight; embedded HR generalists who adapt HR services to deliver business needs; and corporate HR leaders who set overall policy. With the best of intentions, many keep tweaking these HR roles to help the HR department and professionals deliver increased business value.

Roles matter, but they matter less than relationships In our research looking at 12 key focuses of an HR department, we found that having “clear roles and responsibilities for each of the groups within HR (for example, service centres, centres of expertise, embedded HR)” is one of the strategies that is most often carried out but which has the least impact on business. By contrast, “connecting HR activities to external stakeholder expectations (customers, investors)” and “tracking and measuring the impact of HR” are the two activities with highest business impact, but are done least often.

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I have concluded that upgrades to the HR operating model will come less from roles defined on organization charts and more from improved relationships. Imagine a family which is not getting along and tries to improve things by buying new appliances or furniture, or by moving house. Most of us realize that new furnishings or floor plans won’t help family members get along better. Likewise, in HR, new tools and technologies are unlikely to improve operations; merely changing boxes on organization charts won’t help HR professionals work more collaboratively. For families to function better, they need to learn to belong and to focus on relationships. For HR operating models to deliver greater value, once the basic roles are satisfied (for example, matching HR structure to business strategy and structure), there should be a focus on relationships rather than roles. Many people have studied what makes relationships work within friendships, couples, families, and communities. John Gottman, a relationship scholar, has been able to predict, with more than 90% accuracy, which couples will stay together. Synthesizing relationship research, let me propose six principles that, when applied to HR, may improve the operating models more than debates about roles. 1. Share a common purpose. Partners in a relationship have different roles, but succeed when they realize they are stronger together than apart because they have binding, superordinate goals (such as raising children). Couples stay together when they share dreams, find meaning together, and create a culture of joint rituals and goals, while respecting individual skills. Likewise, in HR, each role represents unique expertise (service centres with technology-driven efficiency, centres of expertise with specialized HR insights, embedded HR

Dialogue | Jun/Aug 2015


OPINION

with business insights). The challenge is to find a unifying purpose, such as business performance (strategic HR) or improving customer or investor value (HR from the outside in). Each component of HR operations contributes unique value to serving customers, improving market value, and delivering business results. 2. Respect differences In couples therapy, each partner is encouraged to identify and appreciate the other’s strengths. Gottman found a 5:1 ratio of positive to negative comments in happy couples. In work settings, it has been found that leaders are more successful with a 3:1 positive to negative relationship ratio. Couples also succeed when they know and respond to their partner’s “love maps” – or what matters to their partner. While it might be awkward to talk about “HR’s love maps”, the same logic applies. Different parts of the HR operating model focus on different activities, with HR service centres emphasizing standardized, consistent, and cost-efficient solutions and embedded HR generalists working to create tailored HR solutions for unique business requirements. Embedded HR professionals define the talent, leadership, and cultural requirements to deliver business goals. Those working in centres of expertise have pride in their deep functional knowledge. Service centre HR professionals ensure systems do what they should. When these different groups respect one another, focus on what is right, more than on what is wrong, and yield to influence, they can form relationships that supersede their separate roles. When differences are respected, dissent becomes a positive, not a negative. Each of the groups within an HR operating model is a “partner” because each brings unique value. 3. Govern, accept, connect Researchers have found that 65% to 70% of relationship problems are never “solved” but “managed.” Most problems early in a relationship are worked around (for example, spending

Dialogue | Jun/Aug 2015

habits; division of household chores). It is important to solve solvable problems and not obsess about those that persist. Likewise, in HR, realistic expectations recognize that the processes used to govern HR will be more important than the solutions. For example, managing decision rights is less about who makes a decision and more about a process for who makes a decision. When different parts of an HR operating function can focus on creating a growth mindset, they worry less about the right answer and more about learning to negotiate and discuss. Managing differences with calmness, curiosity, and caring will help build connection among HR parts.

The challenge is to find a unifying purpose 4. Care for one another In relationship therapy, the most important questions that solidify a relationship are: “Can I rely on you?” “Are you safe?” “Will you be there for me when I need you?” Without positive answers to these questions, relationships will crumble under pressure. With positive answers, partners build trust and delight in, and celebrate, others’ success. In HR departments, it is important that different components of the operating model care for one another. There must be confidence that HR transaction work will be done on time and accurately. Centres of expertise should not impose answers, but collaborate to discover innovative solutions. Embedded HR professionals should be able to diagnose current and future business problems accurately. Trust in the HR function should be high due to each area being predictable, dependable, available, accessible, and reliable. Groups should be aware of each other’s scorecards and delight in each

other’s success. “We” language should replace “my” language and unity replace working in silos. 5. Share experiences together Personal or professional disappointments or stressful events can pull partners apart. To build stronger relationships, partners are encouraged to turn to each other in times of difficulty, to make bids to one another and to be emotionally vulnerable so as to share deeper feelings with each other. In the HR operating model, it is easy to isolate oneself in one’s group. It is more helpful to have individuals work across groups. This may mean career rotation; group HR meetings or calls where the groups share concerns and celebrate successes; problem-solving groups with representatives from each HR group; or informal contacts where HR bids are quickly addressed. When things go wrong in the HR operating model, and they will, it is important to have the emotional confidence to admit a problem and seek a joint solution rather than pointing the finger of blame. 6. Grow together Relationships morph and each partner learns and grows from constantly learning, focusing on the future and what could be, from letting go of grievances, recognizing vicious cycles and breaking them. Couples with positive relationships recognize growth by looking backwards and anticipate future growth looking forwards. HR departments must learn from the past. Stories of HR success can be woven together into an historical narrative and this should underpin future growth. When the growth of the HR department focuses on the shared purpose of delivering sustainable business value; when differences are respected; when governance is managed; when caring occurs; when HR professionals share time and energy; growth is likely to be sustained. For the HR operating model to deliver real value, HR roles matter, but they matter less than relationships. Maybe it is time for our discussions of the HR operating model to focus more on relationships than roles.

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FINANCE

SAVINGS AND INVESTMENTS W hat springs to mind when you think about savings and investments? Saving for a rainy day? Collecting loose change in a jar? Hiding banknotes under your mattress? In many cases, it could be argued these are sensible strategies… With banking interest rates falling at an unprecedented pace, both corporate and consumer savers are looking for alternative ways of raising money – and for a return on their investment. Similarly, alternative funding options are gaining popularity as traditional bank lending remains constrained. Data released in 2013 showed banks are not using the cheap cash offered by the Bank of England to lend to households or companies. Banks drew down just £13.8 billion from the Bank of England’s Funding for Lending scheme in 2012, well short of the £67 billion initially on offer. Alternative investment options such as investing in commodities (gold, mobile phones or wood) and crowdfunding have grown in popularity, moving from novel ways of using savings to strategic investment options. Over the next four pages we explore why this trend has emerged and look at some of the sensible – and less sensible – ways in which consumers and corporates are using their hard-earned savings.

HOW LOW CAN INTEREST RATES GO?

The DANISH CENTRAL BANK cut interest rates to -0.5 per cent in February 2015 Money market rates in SWITZERLAND have fallen to a low of -0.96 per cent THE FEDERAL RESERVE stopped cutting at 0-0.25 per cent and the BANK OF ENGLAND at 0.5 per cent

SOURCE FT/REUTERS

18

Dialogue | June/Aug 2015


FINANCE

27.1%

TOP 20 WAYS AMERICANS ARE WASTING MONEY

of gamblers

20. CREDIT CARD INTEREST 19. UNCLAIMED TAX REFUNDS 18. UNCLAIMED PROPERTY 17. DEAL SITES

who reported spending

16. WASTED FOOD

over 5% of their gross family income monthly,

15. BAD HEALTH HABITS

also report experiencing serious problems because of their gambling habit, including health problems, high debt levels, financial issues, guilt and other negative emotions.

14. SPEEDY SHIPPING/ NEXT DAY DELIVERY 13. ATM FEES 12. DESIGNER CLOTHING FOR BABIES OR CHILDREN

SOURCE: USA TODAY

11. GAMBLING 10. ALCOHOL

T H E AV E R A G E C R E D I T CARD DEBT PER US HOUSEHOLD IS

9. TOBACCO

$15,270.00

8. UNUSED GIFT CARDS 7. WARRANTIES THAT COST AS MUCH AS THE PRODUCT

$

AMERICANS OWE $856.9 BILLION IN CREDIT CARD DEBT SOURCE:AMERICAN HOUSEHOLD CREDIT CARD DEBT STATISTICS

6. UNUSED GYM MEMBERSHIPS 5. LOTTERY TICKETS 4. SPEEDING AND TRAFFIC TICKETS 3. PREMIUM CABLE PACKAGES 2. DAILY COFFEE TRIPS

The annual total amount for ATM fees in 2010 was

$7 billion

1. WASTED ENERGY AND FUEL SOURCE:MOTLEY FOOL/USA TODAY

Dialogue | Jun/Aug 2015

19


FINANCE

Americans spent $66.5 billion on lottery tickets

e rag e v an ea Th eric er Am sum s con icate ded

of % 1 eir h t all ding , n l spe lcoho1 of $ a to bout 100

in 2011...

$66.5 billion

a or ery $ ev

: CE UR SO REAU BU ABOR S L OF ISTIC T STA

...an increase of nearly 10% on the year before.

CROWDFUNDING IN A NUTSHELL: CROWDFUNDING IS THE PRACTICE OF FUNDING A PROJECT OR VENTURE BY RAISING MONETARY CONTRIBUTIONS FROM A LARGE NUMBER OF PEOPLE, TYPICALLY VIA THE INTERNET. Since 2009: KICKSTARTER has become the market leader in the Crowdfunding sector. Here’s why…

$1,611,799,674

total funds pledged to Kickstarter projects

SOURCE: KICKSTARTER

20

SOURCE: CNN

80,956

Successfully funded projects

8,230,109

Total backers

Dialogue | Jun/Aug 2015


FINANCE

ALTERNATIVE INVESTMENTS HAVE GROWN TWICE AS FAST AS NON-ALTERNATIVES SINCE 2005 CAGR 63.9 2005-13

Global AUM, 2005-13 $ trillions 46.9

50.9

Alternatives*

52.0

57.0

42.9

40.3

Traditional investments

48.1

51.6

37.1

42.8

46.0

37.9

42.8

45.7

45.7

50.2

56.7

3.2

4.1

5.0

5.0

5.3

5.9

6.3

6.8

7.2

5.4%

10.7%

2005 2006 2007 2008 2009 2010 2011 2012 2013

*does not include retail alternatives, i.e. mutual funds, ETFs and registered closed end funds

SOURCE: MCKINSEY GLOBAL ASSET MANAGEMENT GROWTH CUBE; PREQIN; HFR

BY 2020, ALTERNATIVES COULD ACCOUNT FOR AROUND 40% OF REVENUES IN THE GLOBAL ASSET MANAGEMENT INDUSTRY

TOP 10 ALTERNATIVE INVESTMENT OPTIONS FOR 2015

SOURCE: INVEZZ

Dialogue | Jun/Aug 2015

1. Bonds 2. Returns 3. Law of averages 4. Soaring assets 5. Smartphone supplies 6. Wood 7. Spin-off companies 8. Precious metals 9. Senior living properties 10. Fine wines

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OPINION

The three keys to corporate alignment

T Alberto Andreu General manager, corporate organization and culture at Telefónica and associate professor at Economics and Business Administration, Navarra University

24

hrough this column in Dialogue, I have tried to offer readers some hints on how to get an organization to align itself by focusing all departments, levels and staff members on a common goal. Saying that an organization should “align itself” is easy. Doing it, however, is quite complicated, more complicated than you would imagine, hence the need to describe the three keys which should help with this alignment, in greater depth: 1. Clarification. Chaos and disorder have their own charms, but when alignment is required, there are two things which must be made very clear: what, and who. On the “what” side, it is crucial to define a vision. But it is much more practical to define partial goals with a two- to three-year horizon designed to help shape the vision into a tangible goal; one which is achievable, realistic, measurable and challenging, for everybody involved. You do this by defining a “battle cry”, which can be translated into concrete goals at all levels of the organization. For example, one Spanish bank expressed its battle cry in this simple proposition: “In 1,000 days we shall multiply the bank by two”. That meant all departments translated the goal into concrete factors (double the assets, double the liabilities, double the customers, doubling and doubling). All this had to be done in 1,000 days. We should now clarify the governance model, or in other words, we should be clear about who does what, who is responsible for what. To achieve this, a lot of organizations define the levels of responsibility and duties of each of their managerial sections. They then know, at the end of each committee meeting, precisely what has been agreed, who is in charge of it, the maximum budget authorized for the job, what other areas or budgets might be related, the ultimate completion deadline, and the followup mechanisms in place. In brief, this is what we mean by the governance model. 2. Sharing. Sharing means doing things together. And, to avoid once again collapsing into chaos, we must know what is to be shared, and how. Why is collaboration the best option

in this situation? Here are a few examples: developing organizations by projects, not just by managerial hierarchy structures; streamlining cross-referenced goal-definition systems, so that the same person can have goals in a number of areas; and defining budgeting models according to their nature (not their department) in such a way that several areas can be covered by joint-financing systems on some projects. But what matters is knowing where to collaborate. It’s a good idea to distinguish between three types of project: those that are mature; that is, generating the business’ recurrent revenue; those that are emerging, which refers to projects that are barely making an income right now, but have enormous growth potential; and the R&D projects, bets on the future, currently generating losses, but which will bring in big profits if they come out right. Collaboration on these three types of project should be different, because their maturity level is different. In the case of mature projects, little horizontal collaboration is called for, but a lot of efficiency is needed; on the emerging projects front, a high level of collaboration on overlapping areas is required; and where R&D is concerned, a lot of freedom must be allowed, but the budget levels must be respected in order to avoid serious problems. 3. Emphasizing the “how”. The final stage of streamlining alignment is setting up a common way of doing things, measuring the “how much” (the goals of the business) and the “how” (the way in which they will achieve those goals). Organizations like pharmaceutical company Johnson & Johnson measure 50% of their professionals’ goals in terms of how far they achieve the defined “hows”. And it goes further than this, because they have managed to convert those “hows” into concrete actions and goals which are easily measurable. These are the three keys to streamlining corporate alignment. The entire process will take a minimum of three years. Does that seem a long time? Not to my mind. I’m quite convinced that you end up losing more time (and money) letting everybody have their own way.

Dialogue | Jun/Aug 2015


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COUNTRY FOCUS: EGYPT

EGYPT: A DIVERSE ECONOMY THE ARAB REPUBLIC OF EGYPT POPULATION:

82.06

CAPITAL:

CAIRO

MILLION (UN, 2012)

MAJOR LANGUAGES:

W

ith more than 82 million inhabitants, Egypt is the most populous country in North Africa and the Arab World, and among the Next 11 emerging economies classified by Goldman Sachs. The majority of its population lives near the Nile River, an area of 40,000 square kilometres, providing the only arable land. Regions of the Sahara desert, which constitute most of Egypt’s territory, are sparsely inhabited. Half of the country’s residents live in urban areas. Despite political turbulence, modern Egypt is a regional and middle power, with cultural, political, and military influence in North Africa, the Middle East and the Muslim world. Its economy is one of the largest and most diversified in the Middle East, with tourism, agriculture, industry and services at almost equal production levels. Obstacles include the limited trickle down of wealth to the average citizen; corruption is often cited as the main impediment to further economic growth.

ARABIC English and French are also understood by many

MOUNT CATHERINE IS THE HIGHEST MOUNTAIN IN EGYPT, STANDING AT 2,629M (8,625 FT)

THE LONGEST RIVER IN THE WORLD, THE NILE, RUNS THROUGH EGYPT

(OFFICIAL)

MAJOR RELIGIONS:

ISLAM & CHRISTIANITY

RECENT EVENTS POLITICS: President Hosni Mubarak stepped down in February 2011 during an uprising, handing power to the military. The Islamist Muslim Brotherhood won elections but was ousted by the army a year later amid mass protests ECONOMY: The Egyptian economy is the second largest in the Arab world after Saudi Arabia, but struggles to support its growing population

US$10,790

INTERNATIONAL: Egypt, a leading ally of the West since the mid1970s, has played a major role in the Israeli-Arab conflict. In 2014, it began to assert itself against Islamist extremists at home and abroad

SOURCE: WORLD BANK, 2013

SOURCE: BBC

GNI PER CAPITA:

26

Dialogue | Jun/Aug 2015


COUNTRY FOCUS: EGYPT

ENERGY RESERVES SUBSTANTIAL COAL DEPOSITS in the northeast Sinai are mined at the rate of about 600,000 tonnes per year

OIL AND GAS are produced in the western desert regions, the Gulf of Suez, and the Nile Delta

Egypt has huge reserves of gas, estimated at 2,180 cubic kilometres (520 cu mi) and LNG, up to 2012, exported to many countries. SOURCE: US ENERGY INFORMATION ADMINISTRATION

THE SUEZ CANAL IS AN ARTIFICIAL SEA-LEVEL WATERWAY IN EGYPT CONSIDERED THE MOST IMPORTANT CENTRE OF THE MARITIME TRANSPORT IN THE MIDDLE EAST, CONNECTING THE MEDITERRANEAN SEA AND THE RED SEA.

FINANCE

An estimated 2.7 million Egyptians abroad contribute actively to the development of their country through remittances (money earned by Egyptians living abroad and sent home, US$78 billion in 2009), as well as circulation of human and social capital and investment. Remittances reached a record US$21 billion in 2012. SOURCE:WORLD BANK

Egyptian society is unequal in terms of income distribution, with 35-40% of the population earning less than the equivalent of $2 a day, while only around 2–3% may be considered wealthy.

35-40% EARN>$2 PER DAY

2-3% CONSIDERED WEALTHY

SOURCE: FOREIGNPOLICY.COM

Egypt’s economy depends mainly on agriculture, media, petroleum imports, natural gas, and tourism; there are also more

than 2.7 million Egyptians working abroad, Opened in November 1869 after 10 years of construction work, it allows ship transport between Europe and Asia without navigation around Africa. The revenue the country generates from the canal is one of its main forms of income alongside tourism and remittances. 

Dialogue | Jun/Aug 2015

mainly in Saudi Arabia, the Persian Gulf and Europe. SOURCE: WORLD BANK

27


FOCUS THE GROWING PAINS AND GAINS OF GLOBALIZATION GLOBALIZATION: AN IMPETUS TEXT FOR COMPETITION OR COOPERATION? HOW CULTURAL ATTRIBUTES RELATE TO INNOVATION CAPABILITY NUDGING THE MARKET IN THE RIGHT DIRECTION GLOBALIZATION, INEQUALITY AND THE RISE OF PROTECTIONISM WHAT TO DO TODAY TO BUILD SUSTAINABLE GLOBAL BUSINESS

28

Dialogue | June/Aug 2015


FOCUS

A GLOBAL DEBATE Globalization has the potential to spread business and national prosperity worldwide. This process of international integration, arising from the interchange of views, products, ideas and culture, cannot be bad for business, levelling the playing field and boosting interconnectedness. So say proponents. Critics of globalization warn it undermines national sovereignty, fosters homogeneity and encourages cut-throat competition rather than collaboration, benefiting emerging nations at the expense of established economies. The debate rages on. But must competition and collaboration be mutually exclusive, or can they be complementary strategies, supporting long-term economic growth for all?

Dialogue | June/Aug 2015

29


FOCUS THE GROWING PAINS AND GAINS OF GLOBALIZATION GLOBALIZATION: AN IMPETUS TEXT FOR COMPETITION OR COOPERATION? HOW CULTURAL ATTRIBUTES RELATE TO INNOVATION CAPABILITY

The growing pains and gains of globalization

NUDGING THE MARKET IN THE RIGHT DIRECTION GLOBALIZATION, INEQUALITY AND THE RISE OF PROTECTIONISM WHAT TO DO TODAY TO BUILD SUSTAINABLE GLOBAL BUSINESS

30

As capital moves from higher-cost, less competitive regions to emerging enconomies, there will be losers as well as winners in the short term, writes Tom Albanese. ILLUSTRATION: STUART HOLMES

Dialogue | Jun/Aug 2015


out-of-town/internet purchases don’t support THERE ARE FEW more polarizing issues than Main Street US or High Street Europe. Even where the globalization debate. What is more purchases are still ostensibly local, geographiimportant, local variety or global cally, the way they are delivered is stimuhomogeneity? Drinking Coke used to lating structural change and concern. make you part of a global world. Now I’ve thought about this debate from Coca-Cola and other brands are trying to the vantage of being a former CEO of an be “glocal” – global but with a local twist. OECD-based multinational, and now as The world’s capital markets and multiCEO of an Indian-based multinational, national corporations have benefited WATCH THE VIDEO living in India. I’ve seen the impact of from acting globally. They can allocate TOM ALBANESE TALKS job compression from high wage juriscapital, almost instantly, to the most busiABOUT THE NATURAL dictions, with fewer jobs bringing the ness-friendly, cost-efficient jurisdiction, RESOURCES SECTOR benefit of high per unit productivity, but improving competitiveness and returns. with people having to work harder. I have As capital moves from higher-cost, less also seen the importance of job growth, competitive regions, unemployment rises albeit at lower wages, in India, where many and wages decrease in what were some of still live without electricity and with basic sanitathe world’s wealthiest communities. For much tion. Employment guarantees food on the table at of the developing world, capital re-allocation least. A growing adherence to global standards of has led to job creation, as countries which safety, environmental, and community rights, and previously had few resources become manua need to benchmark worker productivity against facturing powerhouses. best standards is creating convergence, although Jobs created in emerging (or re-emerging) it will take time, and progress will not be uniform. economies can be low paid, with poor standIn developed nations, employment standards ards of health and safety and employment bring higher costs, making companies vulnerable rights, but are often seen as better than nothing. to lower-cost competition from emerging econoHowever, as prosperity grows, so does disparity mies. In developing nations, initial gratitude for a of income, which can lead to civil unrest. Where job at any price will provide less of a cost advanfamilies stepped in to support unemployed relatage over time, as global employment standards tives, people look to government to bridge the are imported. gap. Countries that survived on low levels of tax I understand those who say, “Why can’t things collection must pay for this growing demand. stay as they are?” How can we give the world’s Corruption, previously unnoticed or unreported, poor an opportunity to see each generation live becomes apparent as societies strive to be fairer. better than their parents, without disadvantaging The wealth that businesses transport around the those who have already attained middle-class lifeworld stimulates, but does not provide, the social styles? But the world can’t stand still. Market forces infrastructure needed to underpin economic will naturally lead capital to the geographic and growth. Companies which provide corporate market locations that bring the highest returns. social responsibility initiatives are not the norm. And those returns will be eroded over time, as The 2015 Conference Board CEO Challenge first mover advantage always is. Surely every indireport listed customer relationships as the second vidual has the right, whatever their background or most important challenge facing global CEOs nationality, to seek self-improvement? Progress today, after human capital. Whether in the busiand technology inevitably bring societal change. ness-to-business or business-to-consumer Everyone has aspirations to live better than their market, CEOs acknowledge a burgeoning “expeparents. I don’t see this march slowing, and the rience economy” where customers, of products world is probably better for it. But it’s not without and services, want the experience of purchasing, winners and losers; the debate will continue, as well as the quality of the deliverable itself, to be ideally with recognition of the multiple lenses pleasurable. To prosper, companies find themthrough which it should be viewed. I hope the East selves focusing more on what their customers are will benefit from the West’s technology, creativity, trying to achieve, than on what they are selling. best practice, and emotional intelligence skills With cheaper sources of supply, consumers and the West from the East’s demographic inflow, often gain a lower-price product, or access to a youth, energy, and strong IQ quotient. I can’t take service not previously available, but it’s genersides but I can speed up the integration, working ally purchased at that new Big Box store out of towards the world becoming more level. town, or via the internet. Does this matter? It’s questionable how easy it is to deliver a pleasurl Tom Albanese is CEO of Vedanta Resources. able purchase experience via these methods. Also,

+

Dialogue | Jun/Aug 2015

31


FOCUS THE GROWING PAINS AND GAINS OF GLOBALIZATION GLOBALIZATION: AN IMPETUS FOR COMPETITION OR COOPERATION? HOW CULTURAL ATTRIBUTES RELATE TO INNOVATION CAPABILITY NUDGING THE MARKET IN THE RIGHT DIRECTION GLOBALIZATION, INEQUALITY AND THE RISE OF PROTECTIONISM WHAT TO DO TODAY TO BUILD SUSTAINABLE GLOBAL BUSINESS

32

Globalization: an impetus for competition or cooperation? Will more open trade in a global marketplace cause cut-throat competition or spread business and national prosperity worldwide? asks Suzanne Rosselet. ILLUSTRATION: STUART HOLMES

Dialogue | Jun/Aug 2015


THIS ISSUE OF Dialogue addresses globalization Nations do not create wealth themselves, only and ponders “How important is national business business enterprises do that. In the long run, in building the global economy?” Given that glocompanies succeed relative to their competibalization and its consequences continue to take tors where they possess sustainable competithe world by storm, this article will debate whether tive advantage within a favourable environment globalization is an impetus for nations to compete that can provide sufficient stability to with one another or to cooperate, to help their support them. businesses succeed. Competition, whether domestic or global, is Amartya Sen, winner of the 1998 Nobel often considered to be the driving force behind Prize in Economic Sciences, stated in 2001 that improving productivity. As companies race “globalization has enriched the world scientifiahead in an attempt to win new customers, cally and culturally and benefited many people market share and entry, or to take the lead in economically as well”. Similarly, Financial Times technologies, they are constantly forced to columnist Martin Wolf wrote that “globalization is upgrade, invest, train and re-train employees, the great economic event of our era… It is now and most of all, to manage risk. bringing unprecedented opportunities to billions The benefits of this enhanced productivity can of people throughout the world.” – and should – include multiple investments (in On the other hand, the Columbia University capital, technologies, human capital) that are more economist Joseph Stiglitz penned an entire long term in nature, rather than speedy, short-term book, entitled Globalization and its gains that are, ultimately, unsustainable, eventually Discontents (2002), detailing the undermining competitive advantage. many shortcomings of globalizaProductivity gains are also derived from tion. Consequently, as a result of the a quest for more innovative ways of academic reflection that has taken doing business, across all activities of a place over almost three decades since company’s supply chain. Globalization the term “globilization” was created, can, in certain cases, provide signifithe following two questions must now cant advantages to companies able to WATCH THE VIDEO be asked: develop a global logistics supply chain VIEW AN INTERVIEW l Is globalization a rising tide that lifts all that allows them to leverage lower ABOUT SUSTAINABLE boats through enhanced cooperation, or costs and respond rapidly through COMPETITIVENESS WITH SUZANNE do global market forces drive nations to existing supply partners. ROSSELET cut-throat competition in the race to get Ultimately, these gains are shared ahead? among companies’ stakeholders and even l What arguments support competition the population at large, in what Porter calls or cooperation and their implications for “shared value” and others name “corporate social business profitability and national prosperity? responsibility”. Governments also gain through higher tax revenues, if and when competition Arguments for competition boosts profitability. Even rivals gain when new Competitive advantage technologies become open-source, skills are The widely regarded “guru of competitiveness”, enhanced and industries benefit from the spread Michael Porter, argued in his seminal book, The of the upgrading process. Competitive Advantage of Nations (1990), that a Porter, supported by a great many academics nation’s environment plays a central role in the and economists, claims that the objective of competitive success of firms. Some environimproved and sustained productivity is best ments support the competitiveness of enterachieved through competition. His influential prises while others hinder their potential to article The Five Competitive Forces that Shape grow and to be profitable, for example, excesStrategy, published in the Harvard Business sive regulation or frequent policy changes. His Review in 2008, describes how competitheory takes a bottom-up approach where the tion is not only concerned with industry rivals competitive advantages reaped by individual but should take into account four additional industries and competitors drives the competicompetitive forces: customers, suppliers, potentiveness of nations. tial entrants, and substitute products. Porter, consistently over the years, has Government policies and chance are “addsuggested: “The only meaningful concept of ons” that also influence competition. An industry competitiveness at the national level is national structure is thus defined by the rivalry that results productivity”, where a rising standard of living from all five forces, which determine how firms depends on the productive capacity of firms. compete within an industry.

+

Dialogue | Jun/Aug 2015

33


Competition, trade and foreign direct investment In 2000, the International Monetary Fund (IMF) identified four basic aspects of globalization: trade and transactions: capital and investment movements; migration and movement of people; and the dissemination of knowledge. As globalization advanced in the mid-1990s, countries, companies and people benefited from these movements, especially from increased trade and foreign direct investment (FDI). This was particularly true in larger emerging nations such as Brazil, China and India. Greater openness spurred economic growth and convergence between nations, and was an incentive for increased competition (through rivalry) and continuous upgrading (due to the increased pressures from competition) of domestic firms and multinational companies. Trade encouraged the internationalization of firms and the subsequent learning (for example, new technologies, improved knowledge and skills), which contribute to enhancing productivity, profitability and competitiveness.

Global competition

Firms have increasingly become “market seekers”

As the internationalization of business gathered steam with the opening up of new markets, the nature of competitive advantage took on a global dimension. Global competition generally occurs when domestic markets become saturated and companies wish to expand internationally. After gaining competitive advantage and/or market dominance at home, it is natural for companies to seek to penetrate foreign markets. Globalization has made international expansion that much easier, with more porous frontiers and the relatively free movement of goods, capital and people. Historically, companies went abroad to access resources, mainly natural resources (gas, oil, minerals, land), such as the British East India Company, one of the world’s first multinationals. Today, there are many other motivations for “going global”. Companies are driven abroad to access low factor costs – known as offshoring – to raise productivity and profitability and gain market share over competitors. Companies outsource various activities of their supply chain to take advantage of abundant and inexpensive manual

34

labour for manufacturing or to access a pool of educated and skilled but cheaper, engineers for R&D. In addition, companies strive for strategic advantages by making investments in locations with a high quality of scientific and technological infrastructure. Firms also seek to raise capital wherever they can find the best terms. In a more open and global world, firms have increasingly become “market seekers”: this means they have been expanding abroad to produce and sell products in foreign markets and tap into their population’s purchasing power. Singer Sewing Machines, a brand well-known in households worldwide, was one of the world’s first “global companies”. Founded in the US in 1851, Singer built its first large factory for mass production in 1863 and sold its sewing machines in countries all over the world. Investing in a host country in order to serve the market directly entails increased competition since the company is competing not only with domestic companies but also with other foreign rivals. Thus global markets present opportunities but also increased competitive risks. With globalization, emerging markets started presenting additional prospects for companies seeking new and growing consumer markets. Some forecasts show China becoming the second-biggest consumer market in the world this year, and the total number of Chinese tourists is expected to reach 100 million by 2020. There is a fast-growing middle class population in Brazil, India and Russia too. In emerging economies, some 2.8 billion people have recently escaped from absolute poverty (measured at $2 a day) and are increasingly eager to buy goods, sometimes for the first time (mobile phone, car, computer). By 2030, the global middle class is estimated to more than double in size, from 2 billion today to 4.9 billion. Globalization has created a more competitive playing field upon which companies can vie for these customers, plus greater prosperity in these emerging countries. Other companies seek to penetrate foreign markets to supply companies that are themselves multinationals, and by doing so, facilitate for themselves opportunities in new markets. Often known as clusters, global competition attracts the best and the most efficient support partners in a company’s supply chain to one location (for example, Silicon Valley in California,

Dialogue | Jun/Aug 2015


Basel in Switzerland). In a global world, firms are more likely to locate activities in other nations not only to access lower costs but also to perform R&D, tap into specialized local skills, develop relationships with suppliers and distributors, or serve their customers more effectively. Last, but not least, globalization creates a huge market for knowledge-seeking companies, also competing to access advanced technologies, expertise, or skills. Some examples include automobile design, software development, or R&D in pharmaceuticals. Competition is often fierce in these industries since any first mover advantage can have a significant impact on profitability. One only has to look at the important rivalry between Apple and Samsung or between Boeing and Airbus. Globalization has been a significant stimulus for competition as companies seek out the world’s best knowledge, no matter where it may be. The rise of patents worldwide, and increasingly from the developing economies, is an indication of how open markets have encouraged the race to achieve global dominance in innovative products and services. But, as with Darwin’s Law, this global marketplace spurs robust competition where some companies will survive while others die. Those that thrive will have prioritized and acquired the resources, competencies and know-how that perpetuate their success and lead to sustainable competitive advantage. At the same time, globalization, as an inducement to greater competition, has also skewed the playing field when competitors do not play by the same rules. Governments, through various subsidies, industrial offset policies, incentives or even nationalization of companies, can influence competitive advantage in an “unfair” manner; for example, to protect infant industries or attract foreign direct investment to obtain certain technologies or know-how. Location decisions can also be made to overcome trade barriers, import restraints or non-tariff protectionist measures. Despite government intentions to make industries more competitive in an increasingly competitive global environment, all of the above can, in the end, distort the efficiency gains that competition is supposed to drive.

Arguments for cooperation Global cooperation The worldwide economic integration and increased economic interdependence that have been both causes and consequences

Dialogue | Jun/Aug 2015

of globalization, have spread cooperation between nations and companies in breathtaking ways: lifting vast numbers of people out of poverty; spurring convergence of living standards and international best practices; and fostering freer markets and increased opportunities. Globalization has also created a huge global labour force, which has risen fourfold over the past 25 years, as China, India and Eastern European countries have integrated with the world economy. Increased cooperation between nations and companies has been facilitated by the easing of global barriers to trade, decreased costs of communications and transportation, the freer movement of goods and services, and the international mobility of people (for example, the Schengen Agreement in Europe). Cooperation has also resulted in more standardization of regulations, for example, EU harmonization of accounting standards and financial disclosure, creating efficiencies, reducing risk and improving the quality of services. Trade is the essence of the global market economy. Since the mid-1970s and up to the financial crisis of 2008, world trade grew twice as fast as output, and the countries that benefited from the fastest growth were those that were the most open. The decline in protectionism (tariffs, quotas, subsidies) and the opening up of markets that has gone hand-in-hand with globalization has boosted the dynamic gains from trade as well as encouraged the transfer of essential skills and technology through foreign direct investment, industrial offset agreements, and companies partnering with other companies in external markets. Increased trade benefits populations through greater choice of goods and services, often driving down the price of traded goods due to outsourcing and offshoring, thus contributing to higher standards of living and improved prosperity. The rise of China, although seen as a huge competitor, has also benefited many neighbouring countries (for example, Japan and Southeast Asia) through increased trade opportunities and access to low-cost labour. In addition, trade between nations (what better form of cooperation?) has created ties that expand that cooperation to other realms: international relations, geopolitics, defence and security, student exchanges (such as Europe’s Erasmus programme), greater financial integration, and global governance. These benefits have mostly been seen in the consumer goods industry, which took advantage

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of the various regional trade agreements (EU, NAFTA, ASEAN) that facilitated the relocation of some activities in the supply chain to countries with lower factor costs; for example production facilities in Eastern Europe. And companies gained access to the approximately 1.5 billion new workers, mainly from China and India, who joined the global labour force and could be hired at wages much lower than those in the developed world. Today, however, those labour costs (for example in China) are starting to converge with those in richer nations due to other positive consequences of globalization: improved worker protection, the shifting from low-end manufacturing to higher value-added production and tougher regulations to meet international best practices – not to mention demand for higher wages as consumerism rises with new-found prosperity.

protect minority shareholders, especially in countries where there exist problems of corruption, nepotism, collusion and/or other unethical practices.

Cooperation in investment Globalization also enhances cooperation between nations in terms of investments. The diffusion of knowledge often characteristic of foreign direct investment, assists domestic firms in moving into more innovative, higher value-added activities, increasing profitability and competitiveness in international markets, and helps firms in emerging markets move up the learning curve. Firms seek foreign partnerships through acquisitions, joint ventures or strategic alliances for several purposes: to access resources and bridge into new markets, acquire technologies, develop skills and learn best practices, all with the objectives of benefiting from economies of scale and increasing profitability. The spillovers from foreign investment and knowledge transfer generate wealth both for firms and populations, enhancing economic development and shared prosperity. Often what separates less developed from more developed nations is not only a gap in resources but a gap in knowledge. Trade liberalization and foreign investment have boosted global cooperation in terms of promoting important reforms, in both institutions and labour markets, thus encouraging positive spill-over effects of improved governance, skills and corporate responsibility. The internationalization of finance has also boosted companies’ access to global financial markets and increased opportunities for foreign investors who can positively influence corporate governance and

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Some companies will survive while others die

Strategic partnerships Cooperation between nations presents valuable opportunities for companies to enter into strategic partnerships with foreign competitors, suppliers or distributors. These partnerships allow companies to pool resources and share risks. In addition, firms can acquire new capabilities and competencies, new market opportunities, as well as harness innovation and technologies. These cross-border alliances provide companies with access to markets, and also valuable insights into the cultural mores and business climate of a foreign country. Not having a clear understanding of the traditions and consumer tastes of a foreign market can often be the cause of failure in the absence of such alliances. Emphasizing cooperation through cultural diversity and a balanced representation of national and foreign board members often goes hand-in-hand with improved profitability. For example, the board of directors of Swiss-based nutrition, health and wellness company Nestlé comprised of eight different nationalities with only six board members out of 14 being Swiss. Finally, globalization has created a more open world economy in which multinational corporations can thrive. These “global companies” are a major source of the transfer of international technology, workplace practices and know-how, and in the best of all possible worlds, should contribute to spreading these competencies to companies and industries less well-endowed or positioned. A country that remains closed to the outside world will find it extremely difficult to generate higher levels of income and well-being for its population, and companies that fear or reject foreign ideas and influence may lose out on opportunities to raise productivity and increase profitability, thereby assuming greater risk. Open trade and an attractive investment climate will almost always have positive consequences for corporate success and national competitiveness. l Suzanne Rosselet is an international professor and lecturer at HEC Lausanne and Duke Corporate Education, and advisor and a speaker at Global Competitiveness.

Dialogue | Jun/Aug 2015


FOCUS THE GROWING PAINS AND GAINS OF GLOBALIZATION GLOBALIZATION: AN IMPETUS TEXT FOR COMPETITION OR COOPERATION? HOW CULTURAL ATTRIBUTES RELATE TO INNOVATION CAPABILITY NUDGING THE MARKET IN THE RIGHT DIRECTION GLOBALIZATION, INEQUALITY AND THE RISE OF PROTECTIONISM WHAT TO DO TODAY TO BUILD SUSTAINABLE GLOBAL BUSINESS

How cultural attributes relate to innovation capability Is the “culture versus innovation” relationship still valid in enterprises, and if so, what is the implication for managers and leaders? Xiaodong Yang considers innovation cabability in China. ILLUSTRATION: STUART HOLMES

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Dialogue | Jun/Aug 2015


PREFACE BY LIZ MELLON The Conference Board CEO Challenge 2015 report highlighted 10 big-picture trends as companies seek to maintain growth and momentum in a slowing global economy. One element the report highlighted was a surprising lack of emphasis on building cross-cultural competency. The world market is not homogenous. Globalization brings with it more diversity in the workforce as well as fragmented markets, but even the largest companies in the survey placed low emphasis on developing cross- cultural competencies. Yet we know that lack of cultural sensitivity challenges organizational alignment and effective global leadership. On a personal level, lack of training and insight leads to failed overseas assignments among expats and stops effective local leaders developing the skills to step up to take their places once the expats return home. In her thought-provoking article in this issue (page 32), Suzanne Rosselet looks at the economic arguments and considers how cross-border alliances provide companies with access to markets. She explains that not understanding the traditions and consumer tastes of a foreign market can often cause failure. She further recommends a balanced representation of national and foreign board members, which often goes hand-in-hand with improved profitability. Put simply, cross-cultural competency and insight matter. Xiaodong Yang’s research provides us with a valuable and rare perspective.

Culture is vital to innovation Innovation is about something new and it is impossible to set rules effectively for something that does not yet exist. Culture therefore plays a critical role from idea generation through to idea commercialization. The formula: “How are cultural attributes related to innovation capability?” This is an intriguing question for managers all over the world. To answer this question, the starting point in our research is at country level, identifying datasets reflecting different countries’ innovation capability and cultural attributes. Geert Hoftstede, the father of modern research

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into national culture since 1980, has studied cultural dimensions of countries, and in his 2010 co-authored book Cultures and Organizations, five cultural dimensions were summarized: l Power distance index (PDI) expressing the degree to which the less powerful members of a society accept and expect that power is distributed unequally l Individualism versus collectivism (IDV) expressing the degree to which individuals are integrated into groups l Masculinity versus femininity (MAS) describing the distribution of emotional roles between the genders l Uncertainty avoidance index (UAI) describing a society’s tolerance for uncertainty and ambiguity l Long-term orientation (LTO) describing society’s time horizon and indulgence versus restraint (IVR) expressing the extent to which members of a society try to control their desires and impulses As culture evolves over time, an index of countries’ innovation capability during specific time periods is needed. In 2009/10, The Global Innovation Index (GII) report, powered by INSEAD and the Confederation of Indian Industry, scored and ranked 132 countries’ innovation capability. After some data purging and consolidation, a list of more than 60 countries with both cultural dimensions and GII scores was defined, as outlined in box 1 (see page 34), in alphabetical order. The regression model between national cultural attributes and innovation capability can now be investigated. As PDI (power distance) and IDV (individualism) have a very strong inverse correlation, we will not include IDV (individualism) in our regression model. The purpose of regression is to find out how countries’ innovation capability can be predicted, according to their cultural attributes. In other words, the regression model can predict the extent to which each cultural attribute contributes to a country’s innovation capability. The regression formula is as follows: National Innovation Capability (GII) = 3.921+(-0.018)×PDI (power distance)+0.016 ×LTO(long-term orientation) +(-0.007)×UAI(uncertainty avoidance)+ 0.009 ×IVR (indulgence versus restraint) What does this equation mean? l As national innovation capability is derived from country-based research, it can apply to countries all over the world and has great potential to become a general guideline for

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BOX 1 PDI

INV

MAS

UAI

LTO

IVR

09-10 GII Score

Argentina

49

46

56

86

20

62

2.91

Australia

38

90

61

51

21

71

4.28

Austria

11

55

79

70

60

63

4.21

Bangladesh

80

20

55

60

47

20

2.52

Belgium

64

75

52

95

82

56

4.31

Brazil

69

38

49

76

44

59

2.97

Bulgaria

70

30

40

85

69

16

3.26

China

80

20

66

30

87

24

3.32

USA

40

91

62

46

26

68

4.57

Country

any innovative sub-culture, for example, corporate culture l MAS is irrelevant. Male value-driven culture is as innovative as female value-driven culture l High PDI is the most unfavorable to innovation as it has the highest positive coefficient l High LTO is the most favourable to innovation as it has the highest negative coefficient. The stronger a culture’s desire to avoid uncertainty, the less innovative it is l Desires and impulses can lead to greater innovation For instance, Chinese culture, according to Hofstede’s research, is characterized by high PDI and high LTO. The former can curb innovation, but the latter can facilitate innovation. US culture is the opposite way round.

Thinking about corporations

China is in the process of establishing an innovationdriven economy

Is the “culture versus innovation” relationship still valid in enterprises, and if so, what is the implication for managers and leaders? To make this link between national culture and company culture, a survey was sent to 30 Chinese enterprises. Some were state-owned enterprises, (wholly – or partially – owned by the government) such as Sinopec and China International Intellectech Corp. Some were not, such as MinSheng Bank and Lenovo.

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In the survey, the C and C1 level participants were asked to score a number of cultural attributes: transparent and flat; diversified; lenient; forward-looking; open and open-minded; risktaking; collective; and strongly hierarchical. Most of these cultural attributes are self explanatory, but several require further clarification: “lenient” gauges the attitude to failure; “collective” aims to determine whether collective leadership, which is prevalent in Chinese firms, can benefit innovation. Strong hierarchies are a reality in all the organizations surveyed, so “strongly hierarchical” was included to find out whether the firms think this reality is favourable to innovation. Scores ranged from one to 10. A score equal to six or more indicated that the participant thought this cultural attribute was favourable to innovation in his or her company (10 being most favourable). A score equal to, or less than, five indicated that a cultural attribute was not favourable to innovation (one being least favourable). Two inversely related attributes: “transparent and flat” and “strongly hierarchical” were included to reinforce each other. According to the survey results, the two most favourable cultural attributes were “lenient” and “open and open-minded”. “Being lenient” is a trait of traditional Chinese culture. Senior people in society are expected to take care of the junior ones and the relationship between senior and

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CASE STUDY China National Building Materials Co Ltd (CNBM) is the core corporation in the China National Building Materials Group, a Global Fortune 500 state-owned enterprise (SOE). The group is an example of mixed ownership, and state-owned equity accounts for approximately 30% of the total equity. Traditional SOEs follow a top-down management style, which fits high power distance culture. The ownership structure of CNBM gives the private owners more power and rights. CNBM holds a monthly meeting for around 60 company leaders; around 50% of the participants are private owners and professional managers without any state background. The important announcements about production, marketing, investment and key HR changes will be made during this half-day meeting. Questions are welcomed from each participant. CNBM has another preparation meeting before this. In the preparation phase, all the related business units and stakeholders discuss different topics thoroughly and decide which topic(s) can move forward to be discussed at the monthly meeting. For instance, if a sub company plans to acquire an asset, the business people, the investment people and senior managers from both the sub company and head office will discuss and decide whether this is worth pursuing and whether this plan can be announced in the monthly meeting. On average, around 50% of the people involved in such discussions do not have any state background.

junior people can tolerate insignificant innovation failures. All the companies surveyed were industry leaders and it is easier for them, relatively speaking, to form external partnerships that benefit innovation.

Least favourable cultural attributes

The ownership structure and the variety of managers’ backgrounds ensure the co-existence of one-way announcements and multi-way dialogues in the enterprise. These practices, together with other methods, contribute to the reduced power distance within CNBM. The Catalyst Program is a symptom of the reduced power distance index (PDI). During the consolidation and rationalization process, many smaller companies joined CNBM family. Many new members were privately-owned and had their own technologies, processes, styles and even languages. To standardize management practices and create a unified culture, CNBM sends “catalysts” to these new member companies to bring them in line with a corporate standard. These catalysts are change agents and domain experts, and work with the member companies on technology, production, marketing and management issues to drive changes and close gaps. The Catalyst Program helped CNBM grow quickly through consolidation and rationalization, without falling apart. The catalysts are usually not high in the corporate hierarchy, thus only a reduced PDI can make them influential and enable them to make changes. The Catalyst Program also reinforces lower power distance culture. Reducing power distance and strengthening longterm value are the keys to nurturing a culture of innovation in China. Achieving this requires reforms to the social and political systems and they have become the critical elements of the concept of the Chinese Dream.

non-SOE. SOEs scored higher on “collective” and “strongly hierarchical” than non-SOEs and non -SOEs scored higher on all the other attributes. For example, for “collective”, SOEs scored 26% higher than non-SOEs, on average. For “forwardlooking” and “open and open-minded”, non-SOEs

The two least favourable cultural attributes were “risk-taking” and “strongly hierarchical”. The Chinese companies that were surveyed are generally not encouraged to take risks or to make changes; also the hierarchical distribution of power inhibits the incubation of innovative ideas. The findings are in alignment with the national culture versus innovation relationship discussed earlier. Being lenient is a LTO expression; risktaking is related to UAI; and being strongly hierarchical is another way of referring to “high PDI”. The results also highlight the difference between state-owned enterprises (SOE) and

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scored 24% higher than SOEs, and for “diversified”, non-SOEs scored 30% higher than SOEs. These findings are similar to the outcomes of comparisons between public and private organizations across the world. They also echo the general impressions we have about SOEs and non-SOEs: SOEs are better with collective leadership. Non-SOEs, as they are not the centre of the business ecosystem, are more open-minded to the outside world and open to third-party collaboration. Non-SOEs are also more diversified and the diversification contributes positively to their innovation. “Strongly hierarchical” is another way of saying “not transparent” (10 – the full score – minus the “transparent and flat” score produces the “not transparent” score). The average of these two produces another reinforced value called “power hierarchy” which is a indicator of how high power distance contributes to innovation in each firm. On power hierarchy, SOEs score 4.96 and non-SOEs score 3.88. As the scores are both lower than five, it can be concluded that high power distance is an innovation inhibitor to both types of organization, but to a different extent. The companies surveyed can also be grouped into manufacturers and service providers, so differences can be analyzed. The biggest gaps reside in the “collective” and “strongly hierarchical” scores, with a difference of more than 35%. Manufacturers view these two attributes as being much more favourable to innovation than do service providers. Manufacturers even believe that “strongly hierarchical” can actually benefit innovation. These fall into accepted thinking about manufacturing in which execution and collective movements are critical. On the other hand, service providers score much higher on “transparent and flat” and “open and open-minded”. For them, a quick response to customer needs and simple internal procedures are keys to innovation. The difference in mindsets/preferred culture models in these two sectors also highlights the fact that it is extremely challenging for any company to excel in both practices.

Long-term orientation is a traditional Chinese value. However, certain policies and regulations impose great challenges to Chinese SOEs thinking long term. The leadership teams of SOEs run on three-year terms (which can be extended to six years). This forces leadership teams to focus on short-term benefits and prevents leaders effectively planting seeds for trend-based long-term innovation. In addition, SOEs are still very sensitive about using stock options as incentives to compensate long-term risks associated with innovation, in their fear of eroding state assets. This exemplifies how policies and regulations can twist traditional cultural values and impact on ability to innovate. Approaching Chinese companies with a long-term view will lay a good foundation for collaboration. Private companies will appreciate this more; for SOEs, short-term milestones, with a longterm goal, fit their needs seamlessly. Meanwhile, high power distance is still a reality. Foreign companies need to understand how power is distributed in Chinese firms. Best practice is to work closely with your business counterpart in a Chinese organization, and move up the organizational ladder, via his or her introductions. Equal status is an important concept in Chinese corporate culture, and it is critical to bring people at the same level to the table. If this is not practical, you could rely on your business counterpart to push, internally, for decision making. Personal relationship are definitely important and it usually takes a number of meetings and activities to develop that relationship. In the era of globalization, cultural walls are diminishing, and it is unlikely that foreign companies hit these walls. The key to success is understanding and communicating the desires of both parties and trying to formulate strategies around these, in order to benefit both. This process of communication and mutual understanding is subtle. Keep an open mind, learn and adjust as you go along, and success will not be far away.

“Strongly hierarchical” is another way of saying “not transparent”

Tips for working with Chinese firms The implications of this research go far beyond innovation. International businesses wishing to work with Chinese firms should pay close attention to specific cultural considerations. China is in the process of establishing an innovation-driven economy.

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l Xiaodong Yang is an advisor to Duke Corporate Education in China. He is also an independent researcher, focusing primarily on innovation. As a member of congress for the Panlong district of Kunming city, he has an active role within the local community in Kunming, which is the capital of the Yunnan Province, in southwest China.

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Nudging the market in the right direction

FOCUS THE GROWING PAINS AND GAINS OF GLOBALIZATION GLOBALIZATION: AN IMPETUS FOR COMPETITION TEXT OR COOPERATION? HOW CULTURAL ATTRIBUTES RELATE TO INNOVATION CAPABILITY NUDGING THE MARKET IN THE RIGHT DIRECTION

Enabling wider participation in the global economy can boost a company’s competitive advantage, improve business in the longer-term, and make the world a fairer place, writes Eve Poole. ILLUSTRATION: STUART HOLMES

GLOBALIZATION, INEQUALITY AND THE RISE OF PROTECTIONISM WHAT TO DO TODAY TO BUILD SUSTAINABLE GLOBAL BUSINESS

LET’S START BY being clear about what the market is. The market is a simple mechanism that matches messages about supply and demand, using pricing, based on the rule of law. The market we currently have is the sum total of all of those messages. This is because the “market” is created by individual actions and interactions, which influence others in the market, and is what is called a “complex adaptive system”. A key characteristic of complex adaptive systems is their susceptibility to “nudges”, because they are such delicately-balanced ecosystems. Those market players that provide the most supply and demand nudges are thus most likely to be able to influence the market in their favour. In the world today, it is the richer nations in general who have this power, and the rich and powerful people within these nations. So one way in which we can help the market reach those for whom it is not yet working, is to cast proxy “votes” into the market for those who have no access, domestically and internationally. If we don’t do this, the market shapes itself beautifully to suit those who are taking an active role. Eventually, we end up with a market that accelerates away not just from the poor but also from the comfortable, to cater increasingly for only the super-rich,

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because they have, quite literally, cornered the market. This isn’t anyone’s fault, it is simply what the market does – it matches supply and demand, so that if there is more demand for designer handbags than there is for clean water, that’s what it delivers. And what we are learning is that this kind of market is not sustainable, neither is the inequality it drives conducive to global happiness. Enlightened companies realize that a better market is better for business over the longer term. And even if they are driven by short-term profits, the good news is that nudging the market can deliver these too, whether directly to the bottom line through new product lines or new customers, or indirectly through brand enhancement and the ability to attract and retain talent. In general, companies are responding to the market’s lop-sidedness in two main ways: either they are enabling and increasing demand by building platforms to enable market participation, or they are creating and improving supply by using their know-how to provide products and services that it’s hard for local providers to supply.

developing world market, which has a battery life of 500 hours for villagers without regular electricity, and extra-loud volume settings for use in noisy markets. In Africa, companies like Vodafone and Visa have devised ways to use mobile phones as platforms for banking and other transactions, to get round the issue of market access for the threequarters of the world’s poor that the World Bank estimates are un-banked, often living in shanty towns and rural areas. According to 2012 data from On Device Research, in Kenya, which has the highest penetration in terms of this market 96% of mobile phone users use their mobiles to conduct financial transactions, which becomes a general average of 53% when data is included from Ghana, Nigeria, India, and Indonesia. Together, these technologies could transform scattered and impoverished communities into viable and thriving economies, and accelerate their entry into the global economy.

Supply-side nudges

On the supply side, companies are inventing innovative products that are designed, over time, to create new markets. For example, Nudges on the demand side ToughStuff and SELCO have pioneered On the demand side, one way to the use of solar power and rechargecultivate this is by using grey-market able batteries in Africa and India, to behaviour to create new “bottom fuel lights, mobile phones, radios and of the pyramid” business models. sewing machines. What is a grey market? It’s an unoffiAlso in India, in response to a need cial market that has been created by a for clean and affordable cookers, WATCH THE VIDEO community denied access to the global BP has developed a hybrid cooking EVE POOLE TALKS marketplace. appliance that integrates liquefied ABOUT THE The Peruvian economist Hernando de petroleum gas and a biomass UNDERPINNINGS OF CAPITALISM Soto, argues that “extralegal” sectors in burner to reduce indoor polluthe developing world account for 50-75% tion. Its offer includes home of all working people, and are responsible delivery, an LPG cylinder, and microfor anywhere between a fifth to more than financing for the initial capital cost. two-thirds of the total economic output of Meanwhile, in South Africa and India, HP has lower-income countries. In his book Stealth introduced a new solar-powered digital camera of Nations, Robert Neuwirth estimates the and backpack printer, distributed through selfsize of the “informal economy” to be $10 trilhelp groups of local women. Villages can also rent lion worldwide, making it the second-largest a video projector, a DVD player and speakers, and economy in the world after the US. And whatcheap wireless computers are now available, with ever you think about the legality of such markets, antennae made from recycled tin cans. All of these they show that these communities are already will create local markets in services and repair, as embracing basic market behaviour, and they are a well as improving basic living standards. huge opportunity for legitimate business. Canny business leaders often watch the One example is in mobile telephony. There not-for-profit sector for the next opportunity, are now more mobile phones in Africa than there because many of the business models established are in North America. Rather than copying the by them, such as fair trade, have been profitably slow evolution of Western telephony, mobile main-streamed by commercial operatechnology offers the developing world a way tors, both in the developing world and closer to leap-frog ahead. For example, Motorola has to home. One example of this is micro-finance. developed a $40 no-frills mobile phone for the Now that charities and social enterprises

+

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Dialogue | Jun/Aug 2015


POSITIONING Globalization, long-term, is probably the best way to improve everyone’s life. Global, unlike national, prosperity lifts the whole world, rather than just certain geographies. However, there are plenty of bumps and potholes on the long road to global well-being. Disparities between developed and developing economies will take time to equalize and both sides can feel like losers. Employees in developing economies can feel unfairly exploited, while those in developed economies fear losing jobs to countries where

have demonstrated the attractiveness of the micro-finance market, through organizations like Oikocredit, Shared Interest, Opportunity International and Five Talents, banks are increasingly entering the sector for commercial gain. This, like the adoption of own-brand fair trade lines by the large supermarkets, is not unproblematic, but both examples serve to show how the not-for-profit sector often blazes a trail for the rest of the market to follow, helping more people gain access so that the marketplace responds to their needs too.

Charitable nudges to pull more people into the market As well as intervening directly though the levers of supply and demand, successful businesses can also share their know-how and expertise through “nudges” designed to encourage the complex adaptive market system to deliver benefit even for those who can’t participate directly. Often, these nudges are about influencing the “choice architecture” to make it easier for people to behave well, like flashing up warning signs when a car is edging over the speed limit. A direct charitable nudge is the Pennies “digital charity box” charity, championed by the likes of Zizzi restaurants and The Entertainer toy shops, which helps retailers raise money for good causes by asking customers to round up their bill. Just adding a few pence makes a huge difference. Zizzi raised £80,000 in a year, and The Entertainer £100,000 in just six months. Nudges might also be about smoothing the path, rather than just about influencing choice. For instance, the UK fair-trade company Traidcraft has a policy designed to help its suppliers stay sustainable, by giving preference to

labour is cheaper. In the absence of global regulation, successful and effective globalization depends upon good will, cooperation, honesty and openness, which are not always in guaranteed supply. In Capitalism’s Toxic Assumptions, Eve Poole argues that the seven tenets underpinning capitalism should be re-examined. If the ideological battle has already been won, and capitalism should be the model underpinning global growth, then the model needs to be overhauled to work better.

those who have more than one crop or product to offer. When for example, they wanted to assist Peruvian honey farmers, whose sole focus made them vulnerable, they encouraged them to expand into blueberries. Simultaneously, they launched a new Geo snack bar, using nonfair trade US blueberries until the market for the new range was established, allowing a smooth and profitable transfer to Peruvian blueberries over time. Information is at a premium in many parts of the world, and one famous developing world nudge is Trevor Baylis’ clockwork radio, designed to help communicate health messages about AIDS. That’s a “hardware” nudge. Its “software” equivalent is the UK government’s current funding of the BBC World Service, which broadcasts in 27 languages and reaches a weekly global audience of 166 million. In the UK, the BBC’s radio soap opera The Archers was devised by the BBC with the Ministry of Agriculture in 1951, as a nudge to encourage farmers to try new techniques to increase productivity after the Second World War. Its success has been replicated in broadcasting throughout the developing world, from storylines encouraging sewing in Peru, establishing positive inter-caste relationships or promoting girls’ rights in India, teaching sexual health in the Sudan, or advising how to avoid land-mines in Afghanistan.

Canny business leaders often watch the not-for-profit sector for the next opportunity

Dialogue | Jun/Aug 2015

Planning your own nudges Whether your ultimate aim is short-term profit or a desire to contribute to building a fairer world, you can plan your own nudges. Take Michael Porter’s Five Forces as your starting point and think about risk-proofing your value chain by looking at nudges designed to strengthen it,

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through enhancing relationships with customers, suppliers, competitors and collaborators. Some of these nudges might be about the future – from where will your next generation customers come, what will be important to them and how will you attract and retain their loyalty? Other nudges might be about paying suppliers promptly, so that in times of scarcity they are more supportive, or planning win-wins with complementors. Or you could work out where, as an organization, you have underutilized or spare capacity, particularly if your work tends to vary seasonally. Coca Cola’s distribution network is the poster-child for this kind of approach, because of its distribution of medicines in Africa. Do you have any spare distribution capacity, excess stock, or curious employees who love to problem-solve on holiday? MIT’s Amos Winter spent time in Tanzania, where he noticed that wheelchairs were designed with the developedworld user in mind. Without a health service that can loan out expensive wheelchairs, and legislation about accessibility, the estimated 20 million people in the developing world who need a wheelchair have to resort to hand-powered tricycles, which are too large for indoor use and too heavy to move over rough terrain. So Winter designed a lever-powered mobility aid, like a mountain bike, with a large range of mechanical advantages to cope with hills and mud as well as paved streets. It was constructed with easy-to-source bicycle parts, so that it could be repaired easily and cheaply at a local bike shop. Could one of your engineers do something similar?

Future-proofed solutions Alternatively, you could take the view that the developing world is a good laboratory in which to work out future-proofed solutions for home markets. Scarcity of resources like water, that drive innovation there, teach companies about efficiencies in connection with their core products. For instance, Hindustan Unilever has introduced a shampoo that works best with cold water and is sold in small packets to reduce the barrier of upfront cost for the poor. Recent moves by Unilever in London to develop washing powder that needs only small quantities of cold

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water to be effective will also be useful for communities where water is scarce. While there is not yet the perceived consumer demand for these innovations in the developed world, companies like Unilever which have developed this know-how for developing economies will have already done most of the legwork when demand shifts at home. Could you re-engineer any of your core products to reduce resource usage?

Competitive advantage as an employee brand Apart from creating new markets, there are also significant side benefits in motivating and retaining talented people. Let’s take the example of GSK, which has partnered with international charity Save the Children. As part of GSK’s initiative to reinvest 20% of the profits it makes in the developing world in projects that strengthen healthcare infrastructure in these countries, GSK is working with Save the Children to improve access to vaccines for children in remote communities, to invest in training frontline health workers, and to develop affordable nutritional products to alleviate malnutrition. For example, GSK is reformulating the antiseptic from mouthwash into a gel to clean the umbilical cord stump of newborn babies to prevent serious infection and mortality. Companies that trailblaze in this way are finding that it gives them substantial HR advantage. In the graduate market, it’s a seriously compelling sakes pitch. In the talent retention stakes, knowing that your organization has a heart can provide a sense of meaning and purpose, which improves employee engagement and job satisfaction. And the careful use of secondments into these areas of entrepreneurial innovation is a great way to develop talent on the job. Whether your motive is altruistic or building competitive advantage for your company, the outcome is ultimately the same: more people are enabled to participate in the global economy and in the long run; everyone wins. l Eve Poole is associate faculty at Ashridge Business School and an associate research fellow of the William Temple Foundation, teaching leadersmithing, neuro-leadership and ethics.

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Globalization, inequality and the rise of protectionism To prevent creeping protectionism from undermining free trade, integration and globalization, governments and organizations must harness technology and ensure workers are able to participate in the global market, writes Eduardo Pedrosa ILLUSTRATION: STUART HOLMES

FOCUS THE GROWING PAINS AND GAINS OF GLOBALIZATION GLOBALIZATION: AN IMPETUS FOR COMPETITION TEXT OR COOPERATION? HOW CULTURAL ATTRIBUTES RELATE TO INNOVATION CAPABILITY NUDGING THE MARKET IN THE RIGHT DIRECTION GLOBALIZATION, INEQUALITY AND THE RISE OF PROTECTIONISM WHAT TO DO TODAY TO BUILD SUSTAINABLE GLOBAL BUSINESS

OVER THE PAST 35 years the world has witnessed an almost unprecedented increase in the creation of wealth and a reduction in global income inequality. As figure 1 (page 48) shows, since 1970, the share of global income of the richest countries has, in fact, decreased from 87% to 74%. At the same time, the average global income has doubled from around US$4,000 to close to US$8,000 (in constant US dollars). This is a remarkable achievement. Over the past 2,000 years it took roughly 1,900 years to double income from around US$500 to more than US$1,200. While some were fortunate enough to live in countries in which the doubling of income took place much earlier, the fundamental point is that, for much of modern history, global living standards were more or less the same for centuries. To put this into perspective, for generations, life would be no different for the vast majority of people. There was no expectation that the next generation would somehow be better off – why would it? This had never happened before. Today, globalization has allowed a far greater number of people access to new products and services at affordable prices. Consider for a moment, the telephone: it took 75 years for 50 million people to be connected, while it has taken just four years for the internet to reach the same

Dialogue | Jun/Aug 2015

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Figure 1: High income economies’ share of global GDP 88% 86% 84% 82% 80% 78% 76% 74% 72% 70% 2012

2010

2006

2008

2002

2004

2000

1996

1998

1992

1994

1990

1986

1988

1982

1984

1980

1976

1978

1972

1974

1970

68%

number of people, as illustrated in figure 2 (below). Of course, many are still excluded from this. Even though there are now more than three billion people connected to the internet, there are still some four billion who are not. This is changing, however; both Google’s Loon project, and theinternet.org project from Facebook founder Mark Zuckerberg, aim to spread internet connectivity. Since 1990, the cost of a television set – a traded good – has decreased by close to 100%, while school fees – non-traded – have increased by almost 300%. Of course, the televisions we have today are not the same as in the 1990s, they are far more sophisticated. In 1980, a 19 inch colour set cost around US$560. That $560 is worth a lot more today; adjusting for the general rate of inflation it means that the TV would have set you back around US$1,000 in today’s money. A quick price check shows me that a 19 inch television set today actually costs in the region of US$150.

Creeping protectionism

Figure 2: Number of years to reach an audience of 50 million 80

75

70 60 50

38

40 30 20

13 4

3.5

Internet

Facebook

10 0 Telephone

Radio

TV

Source: http://blogs.wsj.com/economics/2015/03/20/50 -million-users-the-making-of-an-angry-birds-internet-meme/

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Technological advances mean that a far greater number of people are participating in the global economy than ever before, because they can afford to. Openly-traded goods become cheaper, so free global trade has brought a TV set within reach for millions more people. School fees, on the other hand, have gone up pretty much every year and ahead of the general rate of inflation. This contrast is made clear in figure 3 (page 49). While it is inevitable that globalization has led to some jobs being lost, it has also kept prices in check for a range of products and services. And while some jobs are going to be lost in this process – the bank teller versus the ATM machine is an obvious example – others are being created. The trouble is that with this growth has come increased income inequality within countries. For example, the top 10% of income earners in the US account for almost half of all income. This situation brings the level of inequality to that of the “roaring ‘20s”. That all came crashing to an end with the Great Depression.

The fear when the global financial crisis struck was that we were heading towards a similar situation. But while asset markets tanked just as they did in 1929, the policy response was different. Instead of countries adopting “beggar thy neighbour” policies to protect jobs at home, there was unprecedented global policy coordination and cooperation. The G20 and APEC alike disavowed the use of trade protectionism as a response to the crisis. At their summit in Washington DC, the leaders of the world’s biggest economies underscored the critical importance of rejecting protectionism and not turning inward in times of financial uncertainty. They also committed to “refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports”. On an almost annual basis, the G20 and others have made similar statements. What saved the world in 2008 from another Great Depression was a willingness to keep the doors to trade open. The statements and actions of G20 and APEC prevented an outright onslaught of tit-for-tat measures such as occurred during the 1930s. However, the cracks are showing. Although there was no Smoot Hawley Act (the Tariff Act of 1930, which was sponsored by Senator Reed Smoot and Representative Willis C Hawley raising US tariffs to record levels on more than 20,000 imported goods), according to the WTO, some 2,146 trade-restrictive measures have been

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The dangers of income inequality

– School fees – Television

350% 300% 250% 200% 150% 100% 50% 0% -50%

2014

2013

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

-150%

1990

-100%

Source: http://www.bls.gov/data/ ;authors calculations

income inequality. Perhaps what matters more is the perception that it does. In a survey of policy experts conducted by the Pacific Economic Cooperation Council, 36% of respondents disagreed with the idea that trade and investment facilitation has caused greater income inequality in their economies, while 27% agreed. However, there were marked differences among regions; those from Oceania (Australia and New Zealand) were the least likely to see a correlation between globalization and income inequality, while those from Southeast Asia were the most likely (see figure 4, page 50). This matters; 2015 is supposed to be the year when the Association of Southeast Asian Nations (ASEAN) achieves an economic community – a single market and production base; a highly competitive economic region; a region of equitable economic development; and a region fully integrated into the global economy. Given that the PECC State of the Region survey was of experts from business, government and academia, the sentiment expressed in Southeast Asia, that globalization creates income inequality, is a worrying finding. There is a danger that those economies are becoming wary of economic integration and this perception could lead them down the path towards protectionism. In fact, as far as the global picture is concerned, Southeast Asia, and East Asia more generally, have been the biggest beneficiaries of globalization through their integration into global value chains – the “factory Asia” phenomenon. In the aftermath of the global financial crisis, attention turned to the potential of emerging

Globalization has been stopped before and it can happen again

We are not at that stage yet, but should governments and societies at large fail to deal with the issue of income inequality, it is imaginable that the calls for protectionism will become increasingly shrill and politicians will become more amenable to such populist polices. Income inequality is damaging. From an economic perspective, estimates suggest that rising income inequality is actually responsible for slower growth – between six to 10 percentage points for some economies in the lead up to the global financial crisis. More worrying, though, is that it undermines the political constituency for the types of polices that support growth over the longer term. It paves the way for protectionism. Economists are divided on the extent to which globalization is to blame for rising levels of

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Figure 3: Globalization – impact on the price of goods and services

Change in pricxe relative to 1990

introduced since 2008. However, unofficial monitoring points to a much higher number. The Global Trade Alert counts some 5,784 measures – many by the very same G20 members that disavowed the use of such polices. The Global Trade Alert report warns that “the G20 members are not just adding to the stock of protectionism each year, but are now doing so at an accelerating rate.” This has been deemed “creeping protectionism” – it matters less because of the percentage of trade that it covers, but because it sends the wrong signal. It leaves businesses unsure of what will happen next. Who will invest in a multi-billion dollar power plant if they are unsure of the policies that affect them? Who will invest in a new factory when there is a risk, though small, that their overseas markets are going to begin imposing additional costs and regulations? Creeping protectionism is troubling and slowly governments have been implementing measures that discriminate against foreign businesses. Many think globalization is inevitable – they are wrong. Globalization has been stopped before and it can happen again. Prior to the First World War, the movement of goods, capital and indeed people, were relatively free. Some went as far as calling war a futile exercise given the levels of interdependence. That period ended badly as we know. Should globalization come to a halt, the consequences could be dire. The Economist Intelligence Unit suggests that, should the process become unstuck, it would knock two percentage points off global growth – instead of growing at 3.3% as forecast, it would grow at 1.3%.

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markets, especially those in Asia, to drive global growth. While much emerging market growth had been contingent on selling to middle-income consumers overseas, this is changing. Many of those factory workers are now themselves middle income and on the cusp of being significant customers for the products that had been inaccessible to them before. Typically, in those economies with average incomes of less than US$5,000, foods accounts for around 30% of total consumption expenditure; when incomes go above that level it drops to about 15%. The shift in expenditure goes towards things like health, transportation and restaurants. While these numbers are at the country level, they are also true for individuals and households. When people begin their careers, typically they spend more on getting by; as they are promoted and earn more, more money becomes available for buying luxuries like cars and dining out. National economies are built on the back of the rising middle class. This could be a significant driver of growth for the emerging economies and thus for the global economy. Wider access to goods and services is exactly what globalization is able to achieve.

Backlash against trade The belief held by some that globalization causes income inequality has resulted in a backlash against trade, as seen in headlines such as, “Is Wal-Mart Destroying America? 20 Facts About Wal-Mart That Will Absolutely Shock You”. These stories argue that “Wal-Mart is about crushing

Figure 4: Globalization and income inequality – are they connected? Question: To what extent do you agree with the statement “Trade and investment liberalization and facilitation have caused greater income inequality in my economy”? n Agree n Disagree

50% 40% 30%

small businesses and manufacturers here in the US and getting us all to buy their super-cheap Chinese-made goods. While imports seen in that context are considered a negative, this ignores the benefits that trade brings, such as consumers’ access to a lifestyle that they could not otherwise afford. The problem is not globalization, but that globalization has not reached enough people. Reading the papers today, one might imagine that the rising level of income inequality across the world is a recent phenomenon; that is, only since the global financial crisis of 2008-2009. The runaway success of the book Capital in the Twenty-First Century by French economist Thomas Pikkety, and an Oxfam report released in early 2015 at the annual gathering of corporate and political leaders at Davos that said that half of global wealth was in the hands of the top 1%, have kept the issue high on the agenda. The billionaire investor Warren Buffet agreed, saying: “Inequality is getting wider, the rich are doing extremely well and business is doing well. Business profit margins are terrific compared to records historically.” While drawing attention to a critical issue that could define the future course of the global economy in a way that few would have imagined possible before the global financial crisis, it is hardly a new development. In 2007, a year before the crisis, the IMF’s annual economic forecast noted that “globalization is often blamed for the rising inequality observed in most countries and regions”. Before this, other popular literature with catchy titles like Globalization and its Discontents had been topping the bestseller lists. Even though this is hardly a new issue, why is it getting traction today? Anaemic growth in advanced economies, slowing growth in major emerging markets, rapid technological change, and continued dislocation resulting from the global financial crisis are just a few of the tinders being added to the fire that could burn down the house that globalization has built. This would be a tragedy. Prosperity has largely come about as a result of the rapid integration of national markets into a global economy.

20%

Reduce income inequality rather than trade

10% 0% -10% -20% -30% -40% -50% -60% Asia-Pacific North America Northeast Asia Oceania Pacific South America Southeast Asia

Source: PECC State of the Region Report

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What can be done? While some believe that trade is responsible for growing income inequality, the problem is not openness per se, but the inability of societies to respond to the changes taking place through technological transformation. The world has witnessed other equally important leaps before – the invention of electricity, telephones and steam-powered shipping to name just a few. While those inventions resulted in higher incomes

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Figure 5: How to promote inclusive growth? 50%

55%

60%

65%

70%

75%

Education and vocational training for workers displaced by trade and technological changes Structural reforms to improve the functioning of markets Trade-related infrastructure (eg ports, airports, logistics services) Policies that assist SMEs in entering into global supply/value chains Effective and fiscally sustainable social safety nets Labour market reforms to allow greater flexibility Effective and progressive tax policies Source: PECC State of the Region Survey

in some places the wealth was not shared much around the world. What differentiates the modern era is both the extent to which technology is being spread and the pace of adoption. This gives us the possibility to share more widely the income generated from technology advances. The challenge ahead is making growth more inclusive without reducing trade or the pace of globalization. Out of a list of seven policies, AsiaPacific policy experts placed education and vocational training for workers displaced by trade and technological changes as the most important, followed by structural reforms to improve the functioning of markets (see figure 5, above). Trade-related infrastructure, and helping SMEs enter global markets, came third and fourth. Interestingly, effective and progressive tax policies, the traditional tool for redistributing wealth in an economy, came bottom. The message from this should be clear – the problem with globalization and income inequality is on the supply side. Workers need to have the tools to adjust to new realities in the labour market and markets need to function better to allocate resources more efficiently. People want to be able to participate in the global market – if they lack the infrastructure to do so, it is a losing proposition. This is not to say that safety nets are unimportant – 62% of respondents ranked them as important to promoting

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inclusive growth – it is just that education was seen as more important. The significant point is that education and training are essential to coping with change. The education system we have currently seems to suggest that somehow formal learning ends when students leave school or universities. When change is so rapid, what one learns in school quickly becomes outdated. The role for cooperation between learning institutions and businesses is critical. If this era of integration and globalization is to continue – and the benefits of it should be clear – then there is a prerogative for businesses, governments, learning institutions, and indeed unions, to work out programmes that are effective in providing the right kinds of skills for workers to compete in this environment. With technological change so rapid this is an enormous challenge but one that is not unsolvable. l Eduardo Pedrosa is the secretary general of the Pacific Economic Cooperation Council. The views expressed here are his own. FURTHER READING The Madison Project Database was updated in January 2013 and incorporates much of the latest research in the field, presenting new estimates of economic growth in the world economy between AD1 and 2010: http://www.ggdc.net/maddison/ maddison-project/data.htm Piketty’s inequality story in six charts: http://www. newyorker.com/news/john-cassidy/pikettysinequality-story-in-six-charts

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FOCUS THE GROWING PAINS AND GAINS OF GLOBALIZATION GLOBALIZATION: AN IMPETUS TEXT FOR COMPETITION OR COOPERATION? HOW CULTURAL ATTRIBUTES RELATE TO INNOVATION CAPABILITY NUDGING THE MARKET IN THE RIGHT DIRECTION GLOBALIZATION, INEQUALITY AND THE RISE OF PROTECTIONISM WHAT TO DO TODAY TO BUILD SUSTAINABLE GLOBAL BUSINESS

What to do today to build sustainable global business Companies will only achieve global growth if they take investment in emerging markets more seriously, plan for the long term and become systematic rather than opportunistic, writes Nenad Pacek ILLUSTRATION: STUART HOLMES

IT SOUNDS LIKE a clichĂŠ but it is true: competition in international markets has reached unprecedented levels and will get much fiercer over the coming years. There are four sources of fast-rising competition. First, multinationals will be further stepping up their efforts in emerging markets to look for growth. This desire is visible in every company I have recently visited. Second, emerging market multinationals are growing more aggressive than ever. There are hundreds of Chinese, Indian, Brazilian, Turkish, South African, and other companies, going abroad. They do it flexibly, with good value propositions, lower margin objectives, enough cash, immense speed and sometimes questionable compliance. They have access to finance and find emerging markets similar to their home countries. While large Western corporations form committees to debate expansion, some of these companies are already on the ground, executing their expansion plans. Third, European and US medium-sized firms are going deeper abroad too. Their value propositions are usually very good and so is their speed and flexibility. Many want to export and go global and they are doing so. Fourth, purely local competitors are stronger and stronger in almost every market. Of 400 multinationals that we advise, all report how difficult it is to fight against innovative competitors. Many of our clients are revamping their competitive intelligence in order

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to track exceptionally fast competitive changes. To succeed in the coming years, multinationals need a very proactive set of strategic and operational initiatives. So where will growth come from? Most companies believe that sales and profit growth will largely come from international/emerging markets in the next decade. But at the same time, many executives feel that their companies are currently not fully prepared to take advantage of this huge growth opportunity. Too many multinationals operate in the sphere that I would call “false sense of progress” in emerging markets. They are often growing, but gradually losing market position. They also see a massive increase in competition that is seriously undermining their existing business internationally.

Questions to ask if you really want to grow globally Every company that is serious about achieving growth internationally should ask themselves the following questions: l Is our international business built in such a way that it can last? l Is our set up such that we can outperform competition in each market year after year? l How resilient are we against rising competition in each market – have we, through our proactive approach to markets, raised barriers to entry for all kinds of competitors? l Are we locally relevant? l What gaps would we have to close urgently to create a sustainable business that will last and deliver global earnings for decades to come? Multinationals that take these questions seriously will be able to establish a strong foundation for the future. The root cause of too many opportunistic approaches often lies in corporate short-termism, where companies focus too much on the next three months. Corporate shorttermism has killed more emerging market strategies than just about any other in the past 25 years. Building an international business properly and with enough depth is an expensive exercise, where returns are not immediate. Investing ahead of the curve with upfront investment is essential, but with often negative impact on quarterly earnings. Therefore, to boost their stock price in the short term, quite a few CEOs run their international business at arm’s length. Then they later wonder why their performance in emerging markets is trailing behind key competitors. I often find that players who are among the top three in Europe or the US in terms of market share, are not even in the top 10 in Brazil, Indonesia, Poland or Saudi Arabia.

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Currently, the excuse I often hear is that the economies of emerging markets are now growing more slowly and that it makes no sense to pour money into them because returns will be uncertain. But these companies fail to see that the current softer patch in emerging markets is largely a temporary and cyclical downturn rather than a fundamental economic problem. I would, however, agree that Russia, Ukraine, Venezuela and a few war-torn countries in the Middle East could be problematic for quite some time, but they represent a small minority of international business opportunity in the next decade. Emerging markets, at purchasing power parity, are already bigger than the developed world. They already buy more than half of the world’s exports. They have more foreign exchange reserves than ever in their histories (and there are very few exceptions to this). Other than a few Central Eastern European markets, they have historically low foreign and public debt accumulation and therefore a low need to deleverage. Their population is growing by 6 million people every month, compared to 300,000 people in the developed world (driven by immigration, at least as far as the US is concerned). They will grow at least three times quicker, on average, than the developed world over the next 10 to 20 years. Companies that do not succeed in emerging markets will also eventually fail as companies overall because of their limited growth potential.

What to do today to build sustainable global business After conducting several hundred structured and unstructured conversations with global and regional leaders of major multinationals over the past few years, I have collected some wisdom about what companies should do now to build a successful international business that will last, with specific focus on the emerging economies as the fastest growth opportunity. Here is the list, which is not necessarily in order of importance: Focus senior executive time Start by treating the new emerging market with as much focus as the developed market. Traditionally, companies have placed more focus on large-volume business in the developed world while emerging markets were treated as a place that only supplemented developed world business and added opportunistically to the bottom line. This is no longer sufficient. Emerging markets should receive the same level of corporate attention as the developed world. The emerging market needs its own voice and developed and developing markets should be

53


structurally separated. There should be a global should receive corporate resources based on its head of emerging markets in every company that own opportunity and potential. Too often, high has global aspirations. This is because companies growth markets are not given enough resources need two distinct mindsets to be able to develop if a company is cost-cutting in one of its slower an emerging market business in a proper way. One growth, or more developed, markets. mindset is taking care of large volume but low Global leaders must support upfront investgrowth in the developed world, while the other is ments in emerging markets without the expecabout investing for the medium and long term in tation of quick returns. Do not expect automatic emerging markets. Geographic leadership, or at market leadership, but invest substantially in brand least co-leadership, is an important element of the building, even if this means lower profitability corporate structure. In companies with multiple during the build-up phase. In the words of former business units, allow more geographic leadership. CEO of Nestlé, Peter Brabeck: ”If I want sustainToo many times, some business units go internaable profits, I am going to invest for the longer tional while others stay at home. Geographic term, even if it has a negative impact on the short structure pushes everybody outside term. For some of the members of the financial and it ultimately spreads fixed costs community, whose timeframe is between half a over multiple business units. year or year, it is very difficult to explain what At the most senior level, it is critit means to build up a business in China or ical to diversify corporate boards to Russia, where you have to invest for fiveinclude executives with emerging to-10 years before you get into sustainmarkets knowledge. Too many boards able profitability.“ WATCH THE VIDEO are too uniform in terms of nationDo not finance emerging market NENAD PACEK SPEAKS alities, international exposure and so expansion just with earnings from ABOUT INTERNATIONAL on. Make sure corporate leadership is emerging markets. Avoid saying the GROWTH FOR aware of the opportunities and chalfollowing to your regional and country COMPANIES lenges in emerging markets. Visit the managers: “You will get more resources regions and countries and see it for yourwhen you prove there is more business“. This self. Decentralize decision making to creates a suicidal Catch 22 situation in emerging local markets (but not to the extreme). markets, but it still happens too often. In compaCompanies that are too centralized often nies where this happens, you then simply never fail in emerging markets because head generate enough earnings to build the business quarter decisions are taken with inadequate properly. It slows you down. Think about other knowledge of what’s really happening in the sources of financing for EM expansion, because emerging market. increasing resources adequately is not cheap. Think about how you use incentives. Make Many of our clients are raising local corporate gaining market share a priority and see that manabonds or even listing on local stock exchanges. gerial incentives are aligned with long-term key Close geographic and resource gaps as fast as performance indicators (KPIs). possible with a long-term view – make sure you do not under-penetrate markets. Keep shifting Invest properly R&D and manufacturing to the most competitive Start by spending a substantial amount of money and most appropriate locations, especially as you on fresh research before any new market develop new products for emerging market expansion. Too often, companies go into customers. new territories half blind. Or they attempt to expand the existing business without Take the long-term view actually preparing the expansion. Avoid corporate short-termism. This is Your emerging markets should also easier said than done, but a growing number receive a large share of business of companies are now refusing to development investment. Do not give quarterly guidance to so-called treat an emerging market as a cash investors. When CEOs refuse to play cow. Any fool can squeeze shortthe quarterly gain game, the stock term earnings from distributor driven, price falls but then it attracts longlow-risk business. But such busiterm investors and the ownership nesses never last for long and in structure changes. The best thing the new competitive environment, companies can do for their emerging their longevity is shrinking at an market business is to provoke owneramazing speed. Each region/market ship change from short-term traders

+

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out for a quick profit to serious investors who will understand what it means to build business internationally. You need long-range planning and investment for emerging markets. Some of our clients have 10- or even 20-year plans for emerging markets, while some Asian companies have internal documents talking about “doing the right things now that will serve the company well in the next 100, even 200 years.” Then make sure that you execute against the long-range plan. It is dangerous simply to talk about grand visions for emerging markets, but then not follow up on what is needed in terms of upfront investments. Sustain growth initiatives and do not over-react to short-term market turmoil. Emerging markets will always have their volatile and softer episodes and this will not go away, but this should not derail your long-range plan. Contingency planning is critical. Be ready for future rounds of volatility and react without being surprised, but do not lose the strategic long-term view of such markets. Besides, emerging markets are now more fundamentally stable (with record reserves and low debts) than at any point in past decades.

Build local resilience in the face of rising competition from all kinds of companies and innovate to keep up and to keep ahead. Be flexible in approach and structures – emerging markets often require more flexibility and companies should build flexibility into their corporate DNA. Speed, urgency and agility are essential otherwise the competition will eat you, as well as your lunch. Competitors from emerging markets are moving at an incredible speed. Never ignore even the smallest competitor and ensure your competitive intelligence is the best in the market. Your HR policies also need to be tailored to meet local needs. Ignore global pay and pay rise scales and adjust to local supply and demand as well as current conditions. You will need to employ unorthodox measures to attract and to retain scarce white-collar talent, so hire even when you do not need anyone, especially in high growth markets, in case you lose momentum when you lose staff. Invest in leadership training and mentor local talent to take over countrylevel leadership roles and making sure that you are totally in tune with the employee needs in each market – motivational drivers differ and fluctuate.

Be seen as a local and compete like the locals Deepen country-level local presence, local infrastructure, local capabilities and local competencies, especially for face-to-face functions – regional strategies are insufficient today. Never underestimate the value of personal relationships in emerging markets. Friendship often precedes business. This is why deep local presence is essential. Build local relevance to the point where you are seen by consumers and customers as a local. Consider acquisitions as a way of doing this as well as a way of growing. As emerging market companies grow and spread their wings, multinationals should consider buying them before they become too big and too expensive. Temporary economic and currency downturns are usually good times to buy. Many multinationals are now forming proactive internal acquisition teams to look for opportunities. But keep in mind that every due diligence in emerging markets can take time and you will still not know everything you need to know.

Conclusion

Dialogue | Jun/Aug 2015

Too many international businesses are distant from the markets, overly reliant on local distributors only and running irrelevant marketing campaigns that do not resonate locally. All in all, many companies are still too opportunistic internationally at a time when they should be exceptionally systematic. And opportunistic companies currently see their business gradually eroded by companies that are actually serious about emerging markets. In addition to the advice provided above, I would also accelerate knowledge and best practice-sharing within your company. Any new initiative in, for example, Colombia, should be known to the heads of Egypt or Malaysia within hours. Intensify market monitoring. Markets are volatile and so do not allow yourself to fall into budget traps or unrealistic forecasts through lack of up-to-date knowledge. Frequent, scientific, granular and per country market research is needed to keep track of changing customer needs and to adjust product portfolios. Innovate so that your product portfolio always matches rapidly changing market needs. Develop the speed and agility of your local competition so that you remain relevant, while slower competitors fall by the wayside. l Nenad Pacek is president, Global Success Advisors and co-CEO, CEEMEA Business Group

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LEARNING AND PRODUCTIVITY


LEARNING AND PRODUCTIVITY

APPLYING BRAIN SCIENCE TO BUSINESS Gaining an understanding of the workings of the brain will enable learning and development professionals to support leaders facing unfamiliar challenges. Liz Mellon reflects on the Chief Learning Officer Roundtable event in London and shares insights from neuro coach Dr Srini Pillay ILLUSTRATION: CHARLES WILLIAMS

uke Corporate Education’s research with CEOs and work with clients reflects that leaders believe the challenges facing them are less familiar than formerly, and the knowledge they need to address them is less reliable. So, for the Chief Learning Officer Roundtable event in London on 10 March 2015, we gathered to try to understand the brain science behind leaders’ reactions when faced with untenable levels of uncertainty. If, as learning and development professionals, we understand the brain better, perhaps we can support our leaders to face turmoil more effectively. Dr Srini Pillay, founder and CEO of NeuroBusiness Group, spends his working life trying to help people understand more about how the brain works in such situations, and is ideally suited to lead such a conversation.

Stress blocks learning Pillay’s opening remarks confirm our suspicions – stress precipitates habit pathways in the brain. When under pressure, we resort to what we know, rather than opening our minds to what we don’t know. In essence, learning becomes irrelevant at the precise

Dialogue | Jun/Aug 2015

moment when we need it most. So the key question remains: are there methods we can employ that can both educate and enable leaders to keep learning when they are overwhelmed, rather than shutting down? Pillay likens it to constructing a building in an earthquake. The buildings – and leaders – that survive definitely don’t have the same characteristics as the ones that crumble. So it’s not so much about training leaders to cope in a crisis, but about laying down the foundations for resilience so that when crisis strikes, the ability to learn prevails over the need to be right. In new times, leaders need to try new things – the polar opposite of avoiding mistakes. And making learning sticky, is, as we know, a challenging process. Learning is even more than double loop, it’s multi-layered. To learn, an individual needs to receive inputs, retain these in short-term memory, then lay them down in the long-term memory and retain the learning in compressed files, ready to be retrieved on demand. It’s a complex process and it’s why learning professionals worry about measuring the return on investment for the training expenditure. Partly, it’s about value for money, but crucially it’s also about demonstrating that effective learning actually took place

and resulted in change. During the session, Pillay asks a lot of questions – he’s demonstrating how to stimulate ownership of the material he’s delivering from his listeners, as ownership is the first step in retaining the ideas and much more effective than passive listening. He even makes us chant technical words that describe the brain – because the words shouldn’t just belong to him. If you are trying to change personal habits, or if you are involved in learning design, you are effectively re-engineering the brain. So why not understand more about the brain in this context?

Challenging learning orthodoxies Complex, global, interdependent problems and continuous change at all levels mean that step one in continuing to learn is for a leader is to have the courage to be able to say “I don’t know”. We have talked a lot about a post-command and control world as a precursor to dealing effectively with volatility, uncertainty, complexity and ambiguity (VUCA); yet the reality is that command and control as a leadership style is alive and well and living in many companies. VUCA exacerbates this unproductive leadership style, as leaders take refuge in their comfort

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LEARNING AND PRODUCTIVITY

SUMMARY TABLE: BEST PRACTICE LEARNING METHODS AT WORK IN THE BRAIN ADULT LEARNING ACTIVITY

WHY IT WORKS IN THE BRAIN

Action learning and business projects

Experimenting using serial hypotheses allows the brain to operate without being frozen by fear. Encourages divergent thinking and thus creativity

Experiential learning and physical activities

Forces the brain to close the learning loop itself, encouraging the positive cycle of engaging the pre-frontal cortex in thinking; attaching an emotion to the event through the amygdala; and laying down memory in the hippocampus, to be retrieved later

Mindfulness and reflection

Quietens the amygdala, prevents the individual becoming paralysed by fear. Allows meaningful space to encourage true self-insight and thus enables improved self-management and creativity

Instructor asking questions

Learner prompts ownership and greater recall of the learning, allowing for brain regions to integrate learning and remember it rather than offload it

Activities to encourage self-confidence and personal resilience

Fear is the emotion most readily experienced, confidence and resilience reduce the temptation for the individual to cling to the status quo

Creating a safe environment where learners can acknowledge and combat stress; supporting individuals in learning how to learn as well as how to unlearn

Too much stress prevents learning

Focusing on the positive, for example, building on your strengths

If asked to suppress a thought such as the name of an animal (for example, “do not think of a white bear”), it takes time for an individual to stop focusing on the forbidden thought. Focusing on the negative interrupts learning and change

Johari window

Imagining how our brain is physically changing can improve learning – so bringing the “unconscious box” into conscious conversation can help us learn and change

Be goal-aware, not goal-driven – expect goals to change over time

Goals by themselves do not motivate; we are motivated by conscious and unconscious impressions of ourselves. Brain science offers very specific scaffolding for managing goals, with specific interventions for brain targets in order to manage these goals effectively

Alignment and collaboration among leaders to lead “one company” together and support culture change

Once embedded, fear becomes a systemic issue and has to be tackled at the organizational, as well as the individual, level

Teaching the fundamentals of psychology and brain science – we are all brain specialists of a certain kind

Enable individuals to recognize and avoid psychological traps that keep them in negative emotional learning loops

360 degree feedback in a feedback-rich environment where learning through failure is permitted

Allows the individual to acknowledge flaws without fear and to achieve deep personal change

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LEARNING AND PRODUCTIVITY

zones when faced with uncertainty. Starting with “I don’t know” allows a leader’s brain to search for relevant, rather than habitual, solutions. Our brains are better at detecting fear than any other emotion. Fear is registered in the unconscious without us even realizing it, so that, if asked, we would say that we were not afraid, while our bodies tell a different story. The amygdala, the emotional centre of the brain, registers fear first and the leader hits a wall in thinking and reacts as though nothing new has occurred – taking comfort in known routines. As one definition of insanity is to keep doing the same things while expecting different results, it’s not surprising that the leader thus starts making recurrent mistakes – old solutions don’t address the new challenges. The brain at rest consumes an astonishing 20-25% of our energy resources, and when distracted, detached or suppressing emotions, our anxiety levels increase and use up even more energy. That’s why stress makes us feel tired. If leaders could only view their authority as influencebased, rather than control-based, and admit to the stress they are feeling, energy would be released to meet the challenges facing them. How to achieve this nirvana? Pillay offers some heuristics that can help:

Heuristics for learning to face new challenges 1. Get fear out of the system. Fear is a pervasive emotion that undermines our ability to respond appropriately. The first step is for leaders to accept that they are feeling stress, rather than convince themselves that they are invincible. Of course, a certain amount of stress is good because it stimulates activity. But when stress levels are high, they can result in inappropriate responses – challenges are not met. When really acute, stress can result in panic attacks, phobias and disruptive thoughts. Fear registers in the amygdala and this part of the brain needs to be consciously reset. It is possible to manage this part of the brain consciously. The

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acronym is CIRCA. This means chunk up the problem; ignore your own mental chatter (practise mindfulness); reality-check the situation by acknowledging that it won’t last forever; control check, focus on controlling only what is in your power to control; and attention shift, don’t dwell on why the situation has happened, but identify possible solutions. When faced with VUCA, 75% of us may naturally over-emphasize doom and gloom – we need to shift gears to focus on what to do next. And the good news is that by reframing a situation to focus on the long-term rewards, rather than immediate gratification, we can stimulate the reward centre of the brain and exercise self-control without willpower. Being more strategic and planning ahead makes our lives easier, not harder. 2. Increase self-insight to have the confidence to fail. Self-defence mechanisms are important for survival, but also reduce selfawareness, block learning and lead to burn-out. Increasing self-insight means more than offering a 360 degree feedback instrument, which can, in any case, be a superficial and flawed process unless used in a feedback-rich environment. The truth is that our self-image is lodged deep in the hippocampus

(our long-term memory) and was laid down long before we started work. To open our mind to learning, Pillay recommends that we look at the picture gallery of “self-portraits” that we have hung in the hippocampus and re-curate the pictures. The picture gallery represents a heady mix of messages we received as young children, life experiences and wellrehearsed defence mechanisms. Once we know, understand and accept or reconsider the person we believe ourselves to be, we can be a lot more open to learning and innovation. Excellence requires openness to failure and leaders need to learn how to fail like Olympic champions. 3. Be aware of, and avoid, the psychological traps. Anchoring a decision in emotion, sticking with the status quo, trying to recoup sunk costs rather than letting them go, looking for confirming evidence of our first instinctive decision, over-confidence or over-prudence,

PREPARING LEADERS FOR AN UNCHARTED WORLD On March 10, Duke Corporate Education (Duke CE) convened its London CLO Roundtable, Preparing Leaders for an Uncharted World. The annual event is designed to engage Global 1,000 organizations in a thoughtprovoking and practical dialogue during which they can benefit from the latest thinking and exchange ideas with like-minded talent and HR leaders. Duke CE was joined by Dr Srini Pillay who helped attendees consider how to apply brain science to help organizations and their leaders thrive in uncertainty. Proactive and informative discussions surrounding complex issues facing global leaders emerged throughout the day along with ideas on how we can help leaders adopt a new paradigm to get “rewired” for a world of constant disequilibrium. Participants from 25 leading organizations shared insights and a handful of companies showcased innovative learning approaches they are implementing to shift mindsets and transform their businesses.

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LEARNING AND PRODUCTIVITY

DR SRINI PILLAY

+

WATCH THE VIDEO

Srini Pillay talks about how the brain is wired to help us achieve success and goals

Srini Pillay MD is CEO of global organization NeuroBusiness Group (www.neurobusinessgroup.com), which helps people use the latest research in brain science to lead happier, more productive lives. He is also assistant professor of psychiatry at Harvard Medical School and teaches in the Executive Education Program at Harvard Business School and Duke Corporate Education. He graduated with the greatest number of awards during residency training at Harvard and was one of the top award winners in the US. He was formerly director of the Outpatient Anxiety Disorders Clinic at Harvard’s largest psychiatric facility. As a strategy consultant and certified master executive coach, his expertise is in helping companies reach goals via coaching strategy acceleration, change management, innovation, sales optimization, stress management and other methods. Dr Pillay explains unconscious factors that impact corporate performance and can outline specific brain-based interventions. He brings 17 years of experience in brain imaging and an international reputation as a human behaviour expert. His integrated learning and coaching approach fills in gaps that have long been ignored in the coaching and learning space. He has authored award-winning book Life Unlocked: 7 Revolutionary Lessons to Overcome Fear (Rodale, 2010), voted Motivational Book of the Year by “Books for a Better Life”, and one of the five best health books for 2010 by Men’s Health. In addition, he has authored:

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Your Brain and Business: The Neuroscience of Great Leaders (FT Press, 2011) and The Science Behind the Law of Attraction). Clients include some of the world’s leading consulting companies, international multilaterals such as the UN and The World Bank as well as Fortune 50 and Fortune 500 companies such as Lockheed Martin and Novartis. His programmes on organizational change, high stakes leadership, managing stress, diversity and inclusion, organizational agility and creativity and innovation have received very high scores on their relevance and applicability to organizational challenges. Dr Pillay has been invited to speak and teach in France, Brazil, England, Switzerland, India, Greece, Bulgaria and Romania at companies including The MITRE Corporation, Novartis, Genzyme, The World Bank, Lockheed Martin and CEO Clubs of Greece. He has been featured in Forbes, The New York Times, Greece’s Financial Times, Brazil’s Época Magazine, CNN Headline News, Fox News Boston and Business Television Network in Canada. He has recently published papers on Applying The Brain Science of Conscious Capitalism in The Ivey Business Journal, Applying The Brain Science of Innovation on “The Mark” and “Supply Chain Management: Unique Insights on Collaboration and Communication from Brain Science” in Material Handling and Logistics. He is currently focusing his efforts on software development for sustainable learning and connecting this to applied brain-based research. Dr Pillay was recently featured on 33voices.com as one of the most progressive thinkers of our time.

using the wrong frame for a decision and recall – focusing on something that was high drama and easily remembered rather than highly relevant – all decrease our ability to make good decisions in the face of VUCA. Leaders need to be alert to avoid these traps. Good leaders make bad decisions because they tag them to emotion – none of us is as rational as we’d like to believe. 4. Engage in active, not passive, learning. The intent here is to pass the learning over, so that the person under instruction takes ownership – the first step in recalling and acting upon what has been learned. An instructor should ask lots of questions, to stimulate ownership of ideas voiced in the listener. When an individual by comes up with their own ideas, they own the resultant learning and recall it better. Learners should also be offered experiential learning activities, especially physical ones. Playing an active role stimulates the learning cycle. The pre-frontal cortex is engaged, which in turn, manages emotions in the amygdala and the memory of the experience is laid down in the hippocampus. Passive learning doesn’t stimulate this virtuous cycle – so as an educator, don’t offer advice, ask a question so that the learner has to work it out for themselves. If we literally, physically move ourselves when we consider ideas – on the one hand or on the other hand – we can create more ideas, and divergent thinking is core to creativity. It was F. Scott Fitzgerald who said: “The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.” Learners asked literally to step out of a box have been shown to come up with more ideas than if just asked for ideas. This is why acting classes and improvization techniques can encourage creativity. The technical term for this is “embodied cognition”. When toddlers name an object upon which they fixate,

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learning takes place. Naming objects without this fixation doesn’t have the same effect. Also, learning should be structured to allow for real experiments in the market – a big tick for action learning projects. 5. Learn to unlearn. Letting go of learning can create space for innovation as long as we allow ourselves a period of divergent thinking. Some of the tricks that served us well in the past will not continue to work in the future. 6. Don’t rely so much on goals, SMART or otherwise. We all know that goals conflict and the more goals we have, the more conflict they engender. More than this, Pillay explains that goals conspire with our brains to serve themselves, not us. For example, suppose we want to enter a steady relationship. We might slim down a bit and invest in some new clothes – so far, so good. But what if we add an unhealthy fad diet or invest in fake tanning on sunbeds? Now we are doing things that move us towards our goal but aren’t good for us. So be goal-aware, but not blindly goaldriven, which can happen to us when under stress.

The bottom line If we take Pillay’s insights one by one, we can see that the efficacy of sophisticated learning and development techniques is now being explained by real insight into how the human brain works. Most professionals would say they already employ many of the techniques listed here, like action learning, experiential, physical learning activities, self-reflection, mindfulness and self-awareness. That said, specifically referring to brain science and taking it into account, confers added advantages. The first is that imagining how your own brain is changing as it embraces new ideas actually improves learning (a principle based on neuro-feedback). Second, self-talk in very specific ways can change brain circuits (not just selftalk in general). And third, if insights about the subconscious become part of the daily dialogue with oneself

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and others, then you are bringing the unconscious brain into play and not leaving it to Freudian psychoanalysts. As a leader, you are managing your whole self better, not just the physical self that others see.

What didn’t we know? Pick your own specific “aha!” from this wealth of insight. My own was the truly pervasive and destructive role of fear in the human brain and how goals can drive us towards activities that disadvantage us. But the major lesson we have been overlooking to a greater or lesser extent, and what Pillay’s work highlights, is how much preparation the adult brain needs in order to open itself to learning in the first place. I recall a classroom session talking about preparing for important meetings and presentations, where we engaged in some of the same activities that actors use to get ready to perform, including relaxation (someone always falls asleep). The discussion turned to how to implement these at work, where there is an understandable reluctance to lie on the floor using breathing exercises in an open-plan office. Actors often use vocal exercises and deep breathing in the restroom as a warm-up to an important occasion. Sadly, the most senior executive in the room greeted the whole idea with derision, at which point, conversation effectively stopped and learning withered on the vine. Whether he was in denial about his own need to prepare for tough questions or whether he was supremely self-confident doesn’t really matter – the outcome was that learning stopped. Pillay’s research tells us that preparing executives to be open-minded to learn – and unlearn – should be a core part of every development initiative – and that it may take more effort than we think. And, just as importantly, most learners design for information input, but how many of us design for the whole learning cycle of shortterm memory, long-term memory, compressed files and retrieval? We can, and should, build in the other brain-based components that will allow leaders to act in time.

Following Dr Pillay’s thoughtprovoking presentation, four companies presented some of their more important executive education initiatives. Geraldine Harrison of RollsRoyce, Carla Costa from Generali, Dana Bernstein from Statoil and Rebecca Casey and Stephanie Mitchell from Roche shared their insights. Content, style, target audience and activities all varied.

Company examples Geraldine Harrison described Rolls Royce’s emphasis on learning from appreciative enquiry into what is going well and the importance of a retreat-style event to allow executives the space and time for mindfulness. Carla Costa used a reversible mirror to emphasize the move from “me” to “we” in encouraging senior leaders to take collective, aligned responsibility for driving the business forward. Dana Bernstein described a one -year, five-module immersion for 10 leaders – a luxury practically unheard-of in business today – to encourage their leaders to become context makers, rather than context takers. Rebecca Casey and Stephanie Mitchell talked about creating a common organizational culture from the divergent cultures of Genentech and Roche, from distant starting points, and about focusing on common purpose to lead one business. They all used many of the best practice techniques listed above – but all four initiatives had one important aspect in common: they focused on evolving culture and treated learning as a collective responsibility. Of course, individuals are being asked to reframe how, what and why they lead – but their development is seen as a systemic intervention. This moves these companies away from relying on the vagaries of individual leaders, to reframing the context within which leaders are expected to align and interact. Dr Pillay helps us understand how susceptible we are as individuals. These companies wisely compensate for this by concentrating on getting the whole system right.

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PERSONAL DEVELOPMENT

DO YOU THINK LIKE

A HEDGEHOG

OR A FOX?

T

here are basically two types of person: one that believes that there are two types of person, and another that doesn’t. Despite having reservations about over-simplistic categorization, there are some theories which carry both practical wisdom and managerial relevance. One of the inspiring ones is the distinction between hedgehogs and foxes made by British philosopher Isaiah Berlin. He distinguishes between people who strive for a coherent world view with logic and an organizing principle (hedgehogs), and others who are comfortable with loose ends and with not relating things systematically to a bigger picture (foxes). In essence, this animal metaphor describes fundamental differences in human beings, concerning their preferences regarding organizing and processing information and experience. Above all, it teaches us not to blame others for not seeing the world “correctly”. The metaphor, instead, urges us to respect different styles of relating to the world around us. Referring to the famous line by ancient Greek poet Archilochus: “The fox knows many things, but the hedgehog knows one big thing”, Berlin identified a number of writers and

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thinkers as hedgehogs and foxes. He sees, for example, Dante, Nietzsche and Hegel as hedgehogs, while he considers Shakespeare, Goethe and Molière to be foxes.

We should also be talking about hybrid creatures and those without a dominant profile In a famous study on the judgment of political experts in predicting future events, published in 2005, US professor of psychology Philip Tetlock found that while foxes outperform hedgehogs, the latter receive more public acclaim. In today’s world, the animal metaphor unfolds still with great power. In 2014, The Economist wrote: “The problem is that, like the fox, the West knows lots of different things but is not sure what it really wants, while Mr Putin is like the hedgehog that knows just one big thing, namely that Ukraine, especially in the south and east, is really part of Russia’s world.”

Analyzing real world problems from the hedgehog-fox-perspective is also attractive to others: we can easily detect that Scottish moral philosopher and pioneer of political economy Adam Smith, in his Theory of Moral Sentiments (1759), was aware of what we have come to define as hedgehog traits: “The man of system, ... is apt to be very wise in his own conceit; and is often so enamoured with the supposed beauty of his own ideal of government, that he cannot suffer the smallest deviation from any part of it.” Jim Collins, in his management bestseller Good to Great (2001), argues for a hedgehog concept as a key success factor for companies. Famous management writer John Kay has also deployed the idea, describing how effective decision makers recognize the limits of their knowledge. Hedgehogs, too often, seem to know an answer before hearing the question. Statistical data guru Nate Silver has argued that hedgehogs are too often caught up in their models. In our research, we found that, in top management positions, there are many more hedgehogs than foxes. In turbulent times, this might not be the optimal choice, since foxes are more able to sense ambiguity and paradox (Gomez and Meynhardt, 2012). In today’s multi-stakeholder and shared-power world, we may need both hedgehogs who see patterns

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Self-awareness fosters an effective use of personal skills and increases managers’ sensitivity towards individual perspectives and ways of relating to the world, write Timo Meynhardt, Carolin Hermann and Stefan Anderer ILLUSTRATION: GONÇALO VIANA

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PERSONAL DEVELOPMENT

Figure 1: Hedgehogs and foxes see the world differently

and connect the dots, and foxes who are able to absorb the complexity without a “nothing-else-but” attitude of generalization that is based on past experience. This holds particularly true when managers talk about value creation. Being confronted with changing expectations in society, new political conflicts, and a totally changed transparency culture, we need to boost our mental capacities by exploiting the power of diversity. Figure 1 (above) displays the hedgehog, whose world view is associated with one overarching framework and one coherent organization principle. Clear rules govern his or her thoughts. This allows the hedgehog to indulge in confident decision making and action. On the downside, he or she might be portrayed as having a complex and yet mechanistic, world view. In extreme forms, the need for coherence and clarity and devaluation of real world complexity

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can lead to inappropriate information processing or even an inability to incorporate new ideas and information into thoughts and actions. Conversely, the fox recognizes several world views. As illustrated, he or she acknowledges multiple truths and frameworks. The way foxes think reflects a systemic, and sometimes inconclusive, perspective, so ambiguity and information overload may lead to confusion and an inability to act. The different routes or detours open to him or her can easily lead to paralysis.

What about you? To understand your preferences better, ask yourself about the role of rule and order in your life and your openness to new ideas and experiences. Do you sometimes feel angry when people fail to “get it” or do not communicate “clearly”? Do you accept that different routes may lead to Rome? In spring 2014, we interviewed 4,500 people in Switzerland to develop a tool that facilitates the assessment of differences in decision making and information processing. Those cognitive styles can be defined as the ways in which people think about, and perceive, information and how they interact with the people around them.

The focus lies not so much on the person’s cognitive ability, but rather on the process and personal strategies via which information is analyzed. People were asked to agree or disagree with statements such as: “I normally make important decisions fast and confidently” or “In most conflict situations I do understand both sides.” Our sample was representative of the German-speaking section of Swiss society and included respondents from various educational and professional backgrounds, working in different industries. The study results were surprising: the prevalent rigid differentiation of people as foxes or hedgehogs is short-sighted. We clearly identified hedgehogs and foxes, but also people with no dominant profile, and with a dual profile. We found individuals can demonstrate characteristics of hedgehog and fox. Only the extent to which a dimension is predominant varies. We should be talking not only about hedgehogs and foxes but about hybrid creatures and people without a dominant profile. The four different types of person and their distribution in our sample are illustrated in figure 2 (opposite). Individuals with a stronger tendency towards hedgehog-like characteristics show a preferences for clear rules, fast decision making and goal attainment. Scoring high on the foxiness dimension indicates openness to ambiguous opinions and an active desire for multiple viewpoints. If a person reveals strong preferences for both dimensions and neither outweighs the other, as with the hedgefox, you may question how one individual can exhibit those seemingly contrary characteristics simultaneously. Recent studies point out that thinking styles may not be set in stone; individuals might be flexible in terms of the style they use, according to situational factors. The working context may demand certain methods of information processing and personal experience plays a significant role and can shape the application of different types of cognitive preference. This implies that actively switching between cognitive styles might be

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a strategy in which people could be trained, to an extent. There is certain stability in the way in which people think about and perceive the world. However, we know from psychology that our preferred way of thinking is manifested through its application over a life’s course rather than being a pre-determined way of looking at the world. Most of us can learn to think, perceive, judge, act or perform more like a fox and/or more like a hedgehog. For instance, training that fosters “foxiness” can expose participants to multi-faceted and diverse realities and develop awareness of complexity and help participants to become more competent in dealing with paradoxes and ambiguity. In contrast, “hedgehogness” training can increase forward-facing proactive qualities.

Self assessment A starting point could be self-assessment with the HedgeFox tool, which we recently developed; please contact the authors for further information. Self-awareness not only fosters an effective use of one’s unique skills, it increases managers’ sensitivity towards individual style in general. When it comes to strategic decision making, knowing one’s individual style preferences is crucial for team composition or staff selection. We also developed a management tool (the Public Value Scorecard) to help team members with diverse styles to find a common language. In other words, we enable the fox to put his ideas in a nutshell, and we try to stimulate the hedgehog to open up to more than his or her perspective. But let us also be pragmatic: there is no need to change your innate

Figure 2: Hedgehog-Fox Matrix, (top 33% and low 33% of the data used to display high versus low Foxiness and Hedgehogness, n= 1810)

HEDGEFOX

27%

32%

FURTHER READING The Hedgehog and the Fox, I Berlin (1953/1997), In: The Proper Study of Mankind, 436-498, New York: Farrar, Straus and Giroux Expert Political Judgement: How good is it? How can we know? P Tetlock (2005), Princeton: Princeton University Press More Foxes in the Boardroom: Systems Thinking in Action, P Gomez, T Meynhardt (2012), In: Systemic Management for Intelligent Organizations: Concepts, Model-Based Approaches and Application,83-98, SN Groesser and R Zeir (eds), Heidelberg, New York: Springer To find out more about the HedgeFox tool, email: timo.meynhardt@unisg.ch

l Professor Dr Timo Meynhardt is managing director of the Center for Leadership and Values in Society at the University of St Gallen. He holds the chair of management at the Leuphana University in Lüneburg. l Carolin Hermann is a doctoral student at the University of St Gallen. Since 2014 she has been working as research assistant for the Center for Leadership and Values in Society.

FOX

10% LOW

HEDGEHOGNESS SCORE

HIGH

HEDGEHOG

“foxiness” or “hedgehogness”, or to apply new tools in order to profit from it already here and now. Opening yourself up towards more hedgehogor fox-like characteristics is fruitful, but should not be at the expense of losing your authenticity. Be who you are.

NO DOMINANT PROFILE

31%

LOW

l Stefan Anderer is a doctoral student at Leuphana University, Lüneburg. Since 2014, he has been working as a research assistant for the chair of management.

HIGH FOXINESS SCORE

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HIGHER EDUCATION

RIDING THE TIDE OF DISRUPTION IN HIGHER EDUCATION

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HIGHER EDUCATION

In the face of technological change and cost pressures, universities, and non-elite institutions in particular, must develop a value proposition that resonates with stakeholders and clearly articulates what makes them relevant to the market, write John Davis and Mark Farrell ILLUSTRATION: ANDY BRIDGE

I

t’s time to get comfortable being perpetually uncomfortable. The known, mostly predictable, rhythms associated with universities of the past 100 years have given way to syncopation caused by two off-beat troublemakers: technological change and cost pressure. Taken individually, these twin dynamos of disruption are not unfamiliar. Indeed, both have been found residing side-by-side within the business world, upsetting the status quo, frustrating otherwise well-intentioned people, and forcing less nimble competitors out of existence or into extreme makeovers just to survive. We’ve seen the cycles of disruption in industry, from the invention of the horseless carriage to the veritable dissolution of the newspaper industry. Transitions like these rarely occur easily, and many unprepared organizations have quickly found themselves in the ashbin of history. For the “glass half empty” crowd, such change is fraught with danger, pain and loss. But for “glass half full” believers, the changes represent opportunity and the chance to revive and revitalize one’s future. The challenge lies not in deciding which half of the glass represents your perspective, but in how you plan to thrive in this decidedly uncomfortable new world. This dilemma confronts universities around the world today, especially those we describe as “nonelite”. We are quite familiar with the elite: Duke, Stanford, Oxford, MIT, the Ivy League, University of Tokyo, and more; the names are familiar to all.

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These universities have attained an extraordinary level of prestige, with international reputations for excellence across multiple domains. Non-elite institutions may be perfectly competent and known in their local markets, but they increasingly struggle for relevance and visibility in a global higher education world competing for the best talent (students, faculty, staff, partners). With technological change bringing new

Transitions like these rarely occur easily content delivery platforms and, along with them, radical new cost models (i.e. free), the need for non-elite institutions to redefine who they are, what they do, and how they do it, is essential if they are to survive, let alone thrive, against the superior funding and resources of elite institutions and the elegant simplicity of technologies offering free content. In effect, technological changes and cost pressures mean universities must do more than just deliver content. They must take clear advantage of the contexts in which they operate to have a differentiated position that resonates with target stakeholder audiences. If you are a faculty member from an elite research university, then you may well be quite comfortable with

the discomfort wrought by technological change and cost pressures. After all, your institution has weathered the storms of change for decades, if not centuries. Elite institutions are in a unique position of marketing a product with relatively inelastic demand. College tuition fees rise every year, typically faster than inflation. According to Bloomberg, US universities, for example, have experienced tuition increases outpacing inflation for decades, yet demand remains stronger than ever. According to US News & World Report, Stanford University had the lowest acceptance rate in the US in the autumn of 2013 at 5.7%, and the first 10 schools on the list had acceptance rates under 9%, with acceptance rates for the top 25 institutions under 15%, including seven of the eight Ivy League universities, according to US News. Of course, most institutions are not among the elite, nor even recognized beyond local markets. The main ranking bodies review only the top 500 institutions, out of more than 17,000 universities worldwide, yet we suspect they operate in highly competitive markets and compete for many of the same talented students as the better known schools. While we don’t believe that all of these universities are under threat, we do believe that a good number of them will struggle unless they develop a value proposition that not only resonates with their stakeholders (students, faculty, employers, the professions, government), but clearly articulates what makes them different and why that distinction is relevant to

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Universities that do not embrace new technology will lose students the market. Even with a clear value proposition, departments within universities may not all be protected, despite the valiant efforts of the faculty within to maintain viability, forcing some to close down entirely, or merge with others. Of course, for the least prepared institutions in extreme situations, merger or even demise may be their only options. Clayton Christensen’s work in innovation and growth provides useful insights into the challenges posed by organizations that fail to innovate, and the opportunities for those that do. In 2002, Christensen and colleagues contended that disruptive innovation represented a growing threat to education in the US. More than 500 institutions had closed down the previous decade, and more than 2,000 corporate universities and online/distance learning institutions had grown rapidly. Disruptive innovation appeared to be a key driver of these changes. Christensen argues that disruptive innovation explains why corporate training constitutes a threat to traditional approaches to business education. Why? Simply put, corporate training offers a more accessible, often uncomplicated and tailored product well-suited to problem solving at work, at a price point that competes favourably with the high cost of a top tier MBA programme. In addition, Christensen cites the University of Phoenix (enrolment 200,000 plus) as another example of an education disruptor because it targets non-traditional education consumers, and emphasizes a student-centric philosophy

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through its online course offerings designed for the busy lives of adult learners. In a similar vein, Lindsay Tanner, the former finance minister in the Labour government in Australia, gave a speech which warned that universities that do not embrace new technology will lose students and ultimately face closure.

Technological innovation Of course, the technological advances in the 2000s have impacted businesses and industries around the world, so we should not be surprised that higher education is also being affected. Companies everywhere are using new technologies to contain costs by streamlining back office, operations and supply chain activities, and universities are facing their own cost pressures for which these technologies offer practical solutions. Beyond operations, new technologies are impacting one of higher education’s most hallowed traditions: knowledge dissemination. The advent of MOOCs (massively open online courses) have made course knowledge accessible to anyone with a computer, tablet or mobile device far less expensively, or even free, dramatically increasing the reach to hundreds of thousands of students for the most popular MOOCs. A study from Wharton University revealed Coursera, a leading MOOC (along with edX and Udacity) has more than 10 million users. The early media buzz for MOOCs in 2012 mirrored the excitement that ushered in the dot. com era in the late 1990s, with many reports suggesting that traditional brick and mortar universities would

go out of business. As we now know, traditional retailers didn’t disappear and, indeed, are thriving while online retail has also thrived. By the same token MOOCs have not replaced universities. Instead, they may well be serving a more complementary function, even inspiring faculty to deliver content in innovative ways. Adaptive learning platforms are yet another example. According to an article in Forbes published in 2014, offering students a range of new media and related instructional tools designed to adapt to their learning needs, including dynamic ebooks, video tutorials, animated case studies, games and simulations, adaptive learning technologies are a potentially powerful complement to existing in-class instruction. The software identifies a student’s knowledge weaknesses, redirecting them to the content requiring additional study. Periodic assessments can be designed to measure progress at intervention points designated by faculty. Data captured by the system helps it adjust to each student’s unique learning needs. However, even with the potential represented by new technologies to enhance and complement higher education delivery and student learning, legacy structures within most universities will increasingly hinder their ability to successfully adapt and, thereby, avoid being

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disrupted. For example, academic promotion, tenure and salary increases are primarily dependent on research productivity and quality. While teaching is an expected responsibility, it is a far less influential factor in tenure decisions. The challenges are clear: there are not enough incentives for faculties to practise innovative teaching approaches since rewards are skewed towards research productivity; and many academics perceive teaching as a distraction from their research initiatives, reinforcing the view that the emphasis on research productivity negatively incentivizes academics to satisfy only the minimum requirements in their teaching (Massy, 2003). Despite the research emphasis of most universities, actual research productivity and quality is not evenly distributed among academic staff. According to one study, research output per academic was a median of three journal papers over a fiveyear period (West, Hore and Boon, 1980). Another study of 18 economics departments in Australia, by GT Harris for the Australian Economic Papers in 1990, revealed that the average economist published less than one refereed journal paper every two

years, and 25% had no publications over a five-year period. Yet another research productivity study of 22,271 economists from 600 European institutions in 18 countries, carried out by PP Combes and L Linnemer for the Journal of the European Economic Association in 2003, revealed the following: a) economists published 2.7 articles each between 1971 and 2,000 on average (journal quality was not factored into this figure); b) even more interestingly, nearly two-thirds (60%) of the sample published nothing. When research outputs were divided by length of career, the top 1% of top producing economists published an average of two papers per year and, across the entire sample, the average economist published one paper every five years. Based on these findings, the evidence suggests that, even with a promotion and tenure model structured to reward research activities, universities are not always getting the proverbial bang for their buck. Examining academic salaries leads one to wonder how long institutions can continue to invest in research using the current model when the returns are uneven at best.

In the US, full-time academic salaries range widely, from $99,000 at private nonprofit doctoral institutions, to $85,400 at private non-profit institutions, to $73,900 at public institutions, and $45,700 at private for-profit institutions (US National Center for Education Statistics, 2014). As one study by A Astin in 1993 showed, the ROI expectations are further complicated because a faculty’s research-centric orientation was inversely related to its student-centric orientation which was also negatively related to salary compensation. More simply, being a productive research scholar was counterproductive for teaching excellence. As the studies show, faculties that

For the least prepared institutions merger or demise may be their only options

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emphasized teaching excellence were more likely to have lower salaries, reinforcing a dilemma many universities face as they confront a future in which they must increasingly justify how they will survive, let alone thrive alongside better funded, better-known elite institutions. At the risk of sounding heretical, bold thinking is in short supply at many, if not most, universities. Rather than chart a new direction and work towards conceiving ways of innovating their education model (a variation of the old maxim “necessity is the mother of invention”), most universities and their leadership continue to imitate the legacy standard represented by the top tier institutions, yet the deck is stacked decidedly against them (Christensen and Eyring, 2011). In one sense, this is understandable since most university leaders are products of the system in which they gained their expertise. Few are therefore brave enough to be disruptors or have the perspective born of pushing boundaries from working in other organizational contexts. One can almost hear them collectively rationalizing “imitation is flattery (i.e. cost effective), and, according to Christensen and Eyring, innovation is foolhardy (i.e. expensive).” But we wonder if the real cost comes from a misguided belief that maintaining the status quo, or making tiny incremental changes, will allow non-elite institutions to survive. Most universities as we know them today continue to operate a very costly business model, saddled with brick and mortar facilities requiring constant upkeep (and, in the case of the US, a plethora of collegiate sports-related investments), a proliferation of expensive graduate programmes, and an expensive reward/incentive model that disproportionately favours research productivity over teaching excellence, yet too often with underwhelming results in both areas. We are steadfast advocates of higher education as a means of bettering oneself, gaining vital critical thinking skills, and preparing for

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a lifetime of valuable contribution, but is the current university model up to the demands of 21st century society, including its accompanying expectations that graduates are equipped to solve this century’s most vexing problems? We believe universities must address these challenges head-on. The vast majority of students will not study at the world’s elite institutions, enrolling instead in programmes that offer a compelling education and prepare them for life postgraduation. With the rapid advances in technology providing affordable access to higher education almost anywhere in the world, along with the promise of lower costs, we believe the time is ripe for university leadership everywhere to disavow imitation and instead exhibit bold thinking designed to unleash the tremendous intellectual capital that is otherwise constrained by a static education model designed for a bygone era.

As Christensen and Eyring state, “For the vast majority of universities, change is inevitable. The main questions are when it will occur and what forces it will bring about.” Those institutions that bravely embrace this imperative, place students at the centre of learning, and pursue imaginative new initiatives will find themselves thriving, even with continued cost pressures and technological advances. l John Davis is executive director at Duke Corporate Education, Singapore, and Professor Mark Farrell is head of the Graduate School of Business and Law at The Royal Melbourne Institute of Technology FURTHER READING Disruption in Education, C Christensen, S Aaron, and W Clark (2002) in: The Internet and the University: Forum 2001, eds. M Devlin, R Larson and J Meyerson, Boulder, Co: EDUCAUSE The Hype is Dead, but MOOCs are Marching on, January 5, 2015, from Knowledge@Wharton. Retrieved January 8, 2015 from http://knowledge. wharton.upenn.edu/article/moocsmaking-progress-hype-died/ Rethinking Higher Ed: A Case for Adaptive Learning. Forbes, October 22, 2014 Honoring the trust: Quality and cost containment in higher education, W F Massy, (2003), Bolton, Mass.: Anker Pub Publication rates and productivity, L H West, T Hore, P K Boon, (1980), Vestes, 23, pp.32-37. Research output in Australian economics departments: an update for 1984-1988, G T Harris, (1990), Australian Economic Papers Where are the economists who publish? Publication concentration and rankings in Europe based on cumulative publications, P P Combes, L Linnemer, (2003), Journal of the European Economic Association What matters in College? Four critical years revisited, Astin, A, (1997), Wiley The innovative university: Changing the DNA of higher education from the inside out, C Christensen and H J Eyring, (2005)

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DECISION MAKING

+ WATCH THE VIDEO Andy Gibson speaks about why understanding our minds is key for success

HOW TO MAKE

DECISIONS The key to making good decisions lies in understanding how our automatic thinking system interacts with our controlled system, and how to use both effectively, writes Andy Gibson

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here is an old philosopher’s joke, often attributed to 14th century French theologian Jean Buridan, about a perfectly logical donkey. This unfortunate animal, affectionately known as Buridan’s Ass, is placed equidistant between two identically-sized piles of hay, and starves to death. With no reason to pick one pile over the other, it simply cannot choose. We are not like the logical donkey. Unlike Buridan’s Ass, our minds have evolved to take action. Rather than being perfectly rational in our choices, we are surprisingly emotional, making quick choices, taking action and moving on with our days.

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Without emotions, we struggle to get anything done Indeed, without emotions, we struggle to get anything done. Research conducted with patients with brain damage showed that people who lost their emotional systems also lost the ability to make even the most minor choices. They could think through the options, but like the logical donkey, they never knew when it was time to stop thinking and take action.

One mind, two systems That’s not to say we are not capable of making thoughtful and considered choices. It’s just that we are also designed to make quick, instinctive decisions when we need to. Our minds seem to operate two distinct systems of thought, each useful in different situations. Research by psychologists such as Daniel Kahneman and Keith Stanovich on these two systems of thought have revolutionized how we think about how we think. One system – let’s call it the “automatic” system – is designed to make quick choices based on previous experience, deciding when to cross the road, answering familiar questions we’ve heard before, undertaking all the basic operations of the day. We then have a second system – a “controlled”

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system – which can consider decisions in more detail. Faced with an unfamiliar situation, or a choice that is particularly important, we can consider our instinctive response in more detail, and either stick with it or overrule it. The key to making good decisions, then, lies in understanding how these two types of thinking interact, and how to use them effectively. The first thing to understand is that your automatic system is much more than a mindless choice machine. It is actually extremely smart, and forms a central part of cognition. We are constantly bombarded by confusing and conflicting information, and our automatic system filters all this for us and makes sense of it. It is where we multi-task, holding multiple things together and weighing up their relative merits, and deciding what deserves most attention. So if you thought smart decision making was just a matter of thinking things through properly, think again: most of your decisions are made without you even noticing, because your attention is elsewhere. Your automatic system also filters information for you when you are making a decision, screening out irrelevant details to help you focus your mind. So unless you are careful, you can make very thoughtful decisions based on the wrong evidence. Your automatic system also has an answer for everything, even if it knows nothing about the subject under consideration. Its job is to give you a default choice, based on what’s worked for you before, so you can take immediate action if you need to. This stops you from getting stuck, like the logical donkey. The trouble is that your automatic reactions can be fooled, either by prejudiced assumptions or by unrelated factors in your environment. We call these repeated mistakes in our automatic choices “unconscious bias”. Many things can cause you to make biased decisions. Some of these

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biases seem to be hard-wired into our minds, such as a preference for familiar things, or a tendency to overestimate positive outcomes and underestimate risks – a trait innocuously known as “optimism bias”. Some biases are culturally constructed too, such as positive or negative associations with certain places or people, which in their extreme forms, can become sexism, racism and bigotry. Noticing these biases and correcting for them is therefore very important in making good decisions. We don’t always have time to think through every decision, but on important issues, we need to think a little bit harder.

Many bad decisions are made under stress, and repented at leisure

Controlling your mind To overcome the limitations in your automatic system, you can use your controlled system to interrupt and overrule your instinctive responses. We use the controlled system to analyze situations in more detail, imagining scenarios, assessing risks and costs, and making more informed, careful decisions. The trouble is that overruling your automatic reactions takes work. When you use your mind in this way, your muscles tense, your pupils dilate and you use up mental resources – meaning that the more conscious, controlled thinking you do, the harder you find it. Mental energy is finite, so after a certain amount of time you run out of steam, and start going with your default choices again. Running out of mental energy – at least according to the influential

experiments of Roy Baumeister and colleagues – can be very bad for your ability to control your impulses and think through decisions. This was perhaps most worryingly illustrated by a study by Danziger and colleagues of judges in Israel. Early in the day, the study showed, judges were more lenient, setting free two-thirds of the people in their appeal cases. Yet that figure dropped to nearly zero the longer each judge went without taking a break or having a snack. After a certain amount of controlled thinking, they ran out of steam, and stuck with the status quo. The findings of these experiments have huge implications for how we work. If our decisions are prone to bias, and if the mental energy it takes to overcome these biases is finite, then conserving our mental resources becomes essential to making good decisions at work. Yet this may well mean changing a lot about how we run our businesses and design our working routine.

Working smarter Making smart decisions, then, is not just a matter of using the right analytic process or considering the right information – it is about getting into the right state of mind. Here are five things to do if you want to ensure your decisions are as unbiased and wellinformed as possible. Focus your mental energy. Since you are depleting your mental resources every time you think things through or control your impulses, you need to save this energy for what is most important. If you have a big decision to make, try to limit the extraneous decisions that day and focus your mind on the key things. This might mean doing the most important things first, or just trying to stick to a routine during busy periods so that you have the most energy possible for the big choices. Either way, think about managing your mental energy, not your time, and keep yourself sharp for when it matters. Avoid stress. Stress is your mind’s emergency response, a sign of fear and threat. When you feel stressed, or in

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PHOTOGRAPH: BEX SINGLETON

any sort of negative mood, your automatic system narrows its focus, tuning out everything except the threat. This means you miss opportunities, forget key resources and make less informed choices. Stress also seems to increase appetite for risk – particularly in men – making us more likely to do something risky that we wouldn’t think was smart in a calmer situation. Many bad decisions are made under stress, and repented at leisure. Avoid multi-tasking. When you do many things at once, your automatic system processes all of them together, which means sometimes it can get confused. You can have a good feeling about one thing that you are doing, and then misattribute it to something else, meaning you end up doing something you might not have done if you’d been focusing properly. When you have a big decision to make, turn off everything else and resist the temptation to do other things at the same time: it makes it much easier to know what’s going on in your mind. Pay attention. Maria Konnikova’s research into decision making has revealed an interesting angle. She argues that good decisions are partly about how we recall information and use it in the decision-making process. If our memories are scattered and confused, it makes it harder to recall relevant information; if we store memories better, we can remember what we know when we need it. Her advice is that by training yourself to concentrate better throughout your day – such as through mindfulness meditation – you can remember things more easily and make more informed decisions. Breathers and restorers. Your mind needs regular breaks, so maintain your health and wellbeing, and make time for things that restore your energy and help you relax. There are many things that can help with boosting your wellbeing and restoring your mental energy levels, but they all work much better if you enjoy them and they feel right for you. So give yourself permission to unwind, take breaks, relax and recharge, including

Sometimes the best thing to do is to do something during the working day. Your mind – and your decisions – will be much better for it. Decision making is a tricky business, of course, and there is no magic formula for getting it right every time. The most important thing is to give yourself the best possible chance of making a good decision in the moment. If you have done everything you can to make the right choice, then if you make a mistake, it was probably something that you couldn’t have avoided anyway. If you find yourself looking back on what you’ve done and wondering why you thought that was a good idea, it might be time to slow down and take stock of why this might be. Don’t get too worried about all your decisions though: sometimes the best thing to do is to do something. Remember the logical donkey. We take millions of decisions every day, and we tend to get most of them right. The occasional mistake is the price we pay for keeping moving through

the day. We may not always choose the right pile of hay, but at least we don’t starve. Keep your mind healthy and rested, properly focused and free from stress, and you have a good chance of making smart decisions most of the time. Trust your mind, but keep it in good condition and you should be fine. And as the old saying goes: “It’s better to regret something you have done, than something you haven’t done.” Well, most of the time, anyway. l Andy Gibson is the founder of Mindapples, which trains staff and managers, in some of the UK’s leading businesses, in mental wellbeing and performance, and a prominent campaigner for popular understanding of the mind and mental health. His latest book, A Mind for Business, a guide to making the most of your mind at work, is available now, published by Pearson. mindap.pl/amindforbusiness

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A FOCUS ON CHARACTER TO ASSESS COMPETENCE Linking a measurement of character to measures of financial return risks assuming leaders can produce a certain future and provides just another metric propping up a false belief, warns Tom Gibbons

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n the aftermath of the 2008 semi -collapse of investment capitalism and the ensuing, and continuing, global recession, there is a growing trend calling for “more character” from those who we see as leaders in our organizations. Business schools around the globe have picked up on the need for character by emphasizing and expanding curricula in ethics, sustainable growth, stakeholder value, community responsibility and a range of related topics. And, as would be expected when something is seen as necessary to lead successful organizations, research and metrics are being developed to measure character. Indeed there is already a growing body of work that ties measurements of character to measures of financial return.

Blame culture Think for a moment what this may mean as this spreads out into a more general understanding of how we see organizations, success and leadership. It used to be that if your organization did not produce the results expected of it, leadership was simply incompetent. Now, that leadership might be judged both incompetent and of questionable character. How would you like to carry that judgment around with you? Think for a moment further about what this may mean generally, not just for leadership. There is a virtual maelstrom of blame being thrown around now to avoid the judgment of incompetence in organizations. Add in the variable of questionable character and it will inevitably get worse. Few of us will escape the onslaught of avoidance techniques (including our own) and we can also expect greater consequences: higher turnover, lower engagement, greater stress and pressure, and perhaps worst of all, a turning away from accountability in its most basic form. I am not at all against a focus on character in our organizations. However, what I am against is how this focus on character is beginning to play out in our organizational lives. There are three critical areas that I consider to be highly problematic:

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character in the service of certainty; character being defined as owned by the individual; and the dumbing down of the concept of character by metrics. I have explained this in more detail below: 1. Character in the service of certainty. How have we reached this point, this growing trend? The primary, fundamental and mostly unquestioned assumption regarding how we understand organizations is that those who lead can plan the future they want for their organizations. Leadership can create a future that is highly predictable/certain to happen; if leaders are sufficiently competent.

Research and metrics are being developed to measure character So how can the economic events leading up to 2008, and ongoing, be explained within the framework of this assumption? If you landed on a lack of competence as the reason for the financial crisis, you would be saying that there were an awful lot of incompetent people running large and important organizations. Many of these leaders were educated and trained in Western business schools. Many of them had the latest management gurus’ books on their office shelves. Many were coached or counselled by leading consulting companies. And prior to the 2008 economic crash, many were doing exactly what we wanted of our leaders: making a lot of money for their organizations and shareholders. If you land on incompetence as the reason for the economic mess that has affected most of us, then there is an awful lot of incompetence in the entire realm of organizational life, likely including you and me. So we tucked away the incompetence reason and landed on

character as the explanation. Interestingly, this is a very typical shifting of accountability in trying to explain why things don’t go as planned when the assumption of the ability to create certainty is unquestioned. This shift is one from perceived objective metrics to subjective ones. If, for example, as a leader of an organization, you were to make an investment decision that didn’t succeed as planned, you could be accused of not analyzing with sufficient care or attention and objective reasons for this found. If objectivity doesn’t produce a sufficient reason for failure, then the move is to something subjective, like character. No objectivity is needed here, no hard proof. If someone, especially someone in a position of power, accuses you of a character flaw it is very, very hard to refute this since the definition of character is subjective. You do have a character flaw from the perspective of their definition, and their definition is right if they have enough power. Character in the service of certainty is painfully uncreative, it becomes simply another “thing” upon which we can hang our hopes for a certain future. Unfortunately, as noted above, the consequences when character does not produce certainty are even more painfully personal and destructive. If we want to have productive discussions about the need for a different kind of character in organizations we must, at the very least, decouple it from our assumption that certainty can be created. It would be more effective to do away with this assumption in the first place. Then we could talk about character as the highly subjective and context-dependant thing it really is. We could talk constructively about character and power, character and the requirement for profit, character and personal compromise. Are these not the discussions we should be asking our leaders to have; the debates that we should be having ourselves?

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2. When character is defined as being owned by the individual. Character as something “owned” by the individual is simply another example of the cult of individualism that is so prevalent today. This assumes that character is created by an individual, that it is owned solely by them and that it is open to change as a result of individual, personal choice. Context is irrelevant. Relationships are irrelevant. Power is simply something to be dealt with consciously. The idea that character emerges through interaction with others, and is only relevant within the context in which we find ourselves, is an inconvenience best ignored. Otherwise, the assignment of blame becomes too challenging; we might find ourselves in the mix, since we are part of the context. Keep in mind that many of the people who are now blamed for being so instrumental in the economic collapse in 2008 were considered to be exemplary contributors to their organizations only months earlier. As the tide of public opinion turned against them, including that of their own shareholders, the perception of their characters, as if by magic, turned as well, from beacons of light to demons of greed. If we genuinely want to understand how character can impact on our organizations, we must acknowledge that character, to a very large part, emerges in a sociallyconstructed manner; that any valuation of character cannot be separated from the context in which it exists. While this may edge us towards the chasm of relativism, where character means nothing and context means everything, we will be a great deal better served by nearing this edge than we would be by simply ignoring it altogether. Only by considering context can we really seek to understand the impact our

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character may have, or the impact context is having on our character. We are faced with much greater clarity about the choices we are making. Is this not what we want from our leaders? Is this not what we should expect of ourselves? 3. The dumbing down of the concept of character by metrics. As soon as you link a measurement of character to a measurement of financial return you are falling into the trap of assuming someone or some group in power can produce a certain future. Character simply becomes another metric propping up the false belief in the capacity of leaders to create certainty. It is no different than return on investment, cost-benefit analysis, sales projections and all the other much more “objective” things we measure and assume if done right will get us what we want. When we apply metrics to highly subjective concepts, eventually the concept, and challenges associated with it, get “dumbed down”. By this, I mean something that is very complex, and which should remain very complex, gets thought about in very simple ways because what looks like a simple measurement now defines the concept. We are quite close now to having numbers measure character. If you hit eight out of 10 you will be of “good character”; a five and you are thrown on the trash heap. No discussion needed on character at all, just the numbers please; I’ve got recruiting to do here! Another example: I have asked a number of financial services people what they think caused the 2008 crash. Every one of them said the same thing, with different examples used; that it was a relatively few greedy, powerful people that caused it all. And when asked what might prevent such a thing from happening again? More or less: find a way to get rid of the greed or the greedy people. Simple reason, simple solution, and no personal accountability at all.

And all the while, their own jobs are to do exactly what those greedy people were doing so effectively just prior to the crash: make lots of money on investments. It becomes so simple when you attach a metric to character. Simple to determine good character from bad, simple to assign blame when things go wrong, simple to say “I had nothing to do with it’. And you never really have to talk about character at all, you just need the number. What is interesting here is that some very good work is being done leading to finding metrics related to character. Serious and important conversations and considerations. True caring about what is needed in organizations to make them better across a broad spectrum. There is real hope that the work will make a difference. The dumbing down occurs when all this good work becomes a measurement. We would be far better served to forget the metric and push for conversations and considerations in organizations that uphold the complexity of character; that ask people to grapple with that complexity and keep the conversations going; to realize there will never be a definitive answer, just more conversation, just more moving forward as best we can. So what can we do, what can you do? The don’ts are: don’t let the concept of character be connected to certainty. Don’t let character be defined as an individual attribute. Don’t let the concept of character become simple.

The dos and don’ts And the dos? Ask yourself what character means to you; what is it for you. Engage in conversations with others about the same questions. Keep the conversations going and see what emerges. Talk about power and context and how it impacts character, yours and others. And perhaps, most importantly, let yourself be human with regards to character. The ideals of what we think our character should be will always be

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compromised in some way by being members of an organization. Always. Let that be alright, even if it is uncomfortable. Letting it be ok keeps the conversations about character going. The discomfort keeps those conversations valuable.

Afterword This article is primarily about character and organizations. Bear in mind that is very difficult, if not impossible to put a boundary around organizations and not find their influences outside of those imagined boundaries. The reality is that organizations leak; everywhere. I believe the issues discussed in this article will leak outside of our organizations as well. Imagine a scenario not in a formal “work” organization. Perhaps

your son or daughter at school, struggling with grades; your brother facing foreclosure on his house, your mother without adequate retirement savings. Imagine hearing people discuss these situations, and why they have come to pass, starting with this statement: “It was a flaw of character.” In the light of something not going as planned, imagine hearing this statement about your family members or friends. Would you be hurt? Angry? Shamed? How will you defend someone against such a statement? How might the person at whom this statement is aimed be perceived in the future? How will you look at them?That statement and the questions that will be posed in its wake are on the brink of mainstream conversation. It is frightening.

l Tom Gibbons is managing director, sustainable development, at TMS Americas FURTHER READING Payback: Debt and the Shadow Side of Wealth, Margaret Atwood, House Of Anansi Press Inc, 2008 (A good resource on differing perspectives on debt and how these perspectives shape our thinking of personal value, including character) Complexity and Organizational Reality: Uncertainty And The Need To Rethink Management After The Collapse Of Investment Capitalism, Ralph Stacey, Routledge, 2010 (This book puts forward the ideology of complex responsive processes and book applies it to the real world occurrence of the 2008 economic crash)

To stimulate discussion, Liz Mellon provides an alternative perspective on character focus:

COMMENT BY LIZ MELLON Tom Gibbons raises questions about the suitability of focusing on character as a means of assessing a leader’s competence or capability. He is not just cautious about the prospect of such subjective assessment, he is alarmed. Gibbons is concerned that the search for character will allow leaders and followers alike to avoid accountability – because we can’t help our character, can we? Like any good Dialogue article, Gibbons’ ideas promote debate. In times of need, I turn to the dictionary. Character is defined as “the mental and moral qualities distinctive to an individual” (synonyms: personality; nature, disposition; temperament; mentality; turn of mind; psychology; constitution). Gibbons interprets what he sees as the call for “character” in our leaders today as a desire from followers for certainty or getting decisions right 100% of the time. He claims that if things go wrong and we can find no other rational or objective cause, we will unfairly resort to blaming the leader’s character – and that this is both misguided and personally hurtful. Surely, ‘twas ever thus? The leader is paid the big salary because when things go wrong, for whatever reason, fairly or unfairly, the buck stops with him or her. Sometimes, the accompanying commentary is fair and objective – but the natural human delight in gossip means it is often pretty personal. While we exhort people at work to comply with the etiquette of effective feedback, through eschewing judgment or character assassination, this rarely happens in social situations. It’s not nice, or fair, but it’s human.

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It’s why we spend time building stamina, resilience and self-confidence in our leaders – so when the unfair buck stops at their door, they are ready for it. Of course, we shouldn’t tolerate something just because it feels inevitable and that includes character assassination. Libel can, and should, land you in court. I would turn this argument on its head and suggest that character is critical for any leader, in addition to any capabilities, competencies and talent. As well as being credible – that is, competent to do the job – leaders should be believable. And being believable is a mix of personal conviction and good character. A leader’s moral compass, the values they use to drive their own life and the lives of others, is critical. Leaders should have integrity and should not be open to corruption. When a leader says something we should be able to believe it. The call for character means we are looking for leaders with courage, open, honest and ready to own up. Not superheroes who never make mistakes, but fallible human beings who do their best and are not afraid to say when they don’t know the answer. Looked at from another angle, how do we develop character in an individual and define what character is needed? For example, charities and governments need more than self-serving do-gooders, they need people of principle, looking out for the common good. Businesses need leaders with humility who consider very carefully decisions that make good economic, but poor social, sense. I’d argue for more character, not less.

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GUEST OPINION

TRANSFORMING THE

GLOBAL MARKET LANDSCAPE

The digital natives are restless and they are tapping into shifting social sentiments to reimagine sleepy industries, writes Jeffrey Kuhn

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ILLUSTRATION: BEN TALLON

’ve been in monk mode for the better part of a year while writing a book on strategic leadership. In an early chapter, I explore the maelstrom of socioeconomic and technological forces that are converging and recombining to create the 21st century market landscape. Not withstanding the relentless gyrations of our global economic system, and the pervasive scarcity narrative that too often clouds our minds, we are on the cusp of a postindustrial renaissance that is being fuelled by a tangle of digital technologies, wireless communication, open design, 3D printing, demographic shifts, and new sources of capital formation. Wave upon wave of technological advances and a welter of socioeconomic shifts are lowering barriers to entry around the world, providing access to multitudes of would-be entrepreneurs who are united by a zealous belief in progress and prosperity for a wider swath of participants. As I sift through various strands of research, one thing stands out clearly: the coming of age of the digital natives – the first generation to grow up as “native speakers” in the digital era – and how this powerful economic force will reshape the global market landscape in the years to come.

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In an article titled Digital Natives, Digital Immigrants researcher Marc Prensky points out that the digital natives “have spent their entire lives surrounded by and using computers, video games, digital music players, video cams, cell phones, and all the other toys and tools of the digital age”. On the other hand, digital immigrants – baby boomers like me who grew up in the primitive analogue world of blackand-white television (often with rabbit ears wrapped in tin foil to improve reception), AM transistor radios, and eight-track tape players – have had to adapt to the digital world later in life. As innovation expert Jeff DeGraff notes, the key difference between digital natives and digital immigrants are their world views: “Digital natives view the world horizontally, in equalitarian terms. Rather than dividing the world into hierarchies, they see everyone as existing on an equal level. They embrace the benefits of sharing things and ideas with each other.” Digital natives tend to have vast social networks, are naturally collaborative, are sceptical of traditional institutions, and are driven by an unmistakable entrepreneurial verve. In the workplace you probably know these digital natives as the “millennials”, the idealistic, idiosyncratic, impetuous,

unrealistically ambitious, pampered generation born after 1980 that wants to turn your business upside down and inside out in order to change the world. Despite the “slacker” moniker that has followed the millennials into adulthood, these techenabled alchemists of the 21st century are reimagining sleepy industries in unprecedented ways. Take, for example, Uber and Airbnb, two San Francisco-based, early-stage growth firms that hold the coveted crown of nonpareils in the sharing economy. Founded in 2009 by technopreneurs Travis Kalanick and Garrett Camp under the mantle of “ridesharing”, Uber connects a roving band of drivers in private cars (in the old days we called them jitneys and gypsy cabs) with legions of loyal riders through a proprietary smartphone app that offers sharing economy devotees a welcome alternative to the gruff traditional taxi experience. Uber cut its teeth in the luxury car segment in San Francisco with its UberBlack service, and has since expanded its offerings to include UberSUV as well as UberX, which is open to any qualified driver with a vehicle that meets certain standards. In its few short years of existence, Uber has ignited a firestorm of

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Digital natives are driven by an unmistakable entrepreneurial verve

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controversy, provoking the ire of regulators and taxi drivers alike, who, in a show of solidarity, under the guise of concern for passenger safety and fairness, have staged mass protests that have shut down urban thoroughfares for hours. As the business press has chronicled, Uber has locked horns with bureaucrats in cities around the world, resulting in fines and vehicle impoundments for Uber drivers. Despite these speed bumps, Uber is on a growth tear. It operates in 53 countries and in more than 200 cities worldwide and was recently valued at a jaw-dropping US$40 billion. There is big money to be made in the sharing economy. Airbnb is making similar waves, but in the hospitality industry. Founded in 2009 by design school graduatesturned-hospitality-industry-impresarios Brian Chesky and Joe Gebbia, Airbnb provides a community marketplace for people to list and book unique host-owned accommodations around the world. In an interview with New York Times columnist Thomas Friedman, Chesky said, “We have over 3,000 castles, 2,000 treehouses, 900 islands, and 400 lighthouses available to book on the site. On a recent night, over 100 people were staying in yurts.” You can even sleep in the trunk of a Tesla for US$85 through Airbnb. Similar to Uber’s rapid rise, Airbnb’s growth is nothing short of staggering. Over the past few years, the company has booked more than 25 million guests in 34,000 cities in 190 countries. By some estimates, Airbnb is already the fifth-largest hotelier in the world, with a global reach that no hotel chain can come close to matching. There are different motivations for becoming an Airbnb host. Most people value the kinship derived from hosting interesting guests from around the world and the opportunity to make a few extra bucks from their spare bedroom. Other hosts, however, operate like mini-hoteliers with multiple properties generating seven-figure revenues. The latter are in the crosshairs of regulators, industry groups, and wellheeled tenants in residential apartment

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buildings who are vexed over the influx of Airbnb guests who traipse into their exclusive buildings at sundown for a cheap crash pad or tryst. Uber and Airbnb are prime examples of how digital natives are tapping into shifting social sentiments to upend long-established industries through a combination of design thinking and killer apps. However, unlike their dot. com predecessors that imploded at the turn of the millennium (remember Boo. com?), these are real businesses, with real customers, making real money through sophisticated, highly scalable technology platforms.

By some estimates, Airbnb is already the fifth-largest hotelier in the world Countless other firms are disrupting traditional industries such as Casper in mattresses (now there’s a sleepy industry) and Arizona-based Local Motors, which is revolutionizing automobile design and manufacturing through open source design, 3D printing of body panels, and a regional network of micro-factories. Even the bra industry has been given a muchneeded lift from True&Co, a custom online intimate apparel shop founded by former Bain Capital principal Michelle Lam. As the above examples illustrate, no industry is immune from the gales of creative destruction in the digital era. Years of eking out slow, singledigit growth in mature markets have conditioned leaders of traditional firms to think in safe, incremental terms, while these digital denizens are making bold, strategic moves to create

the customers, markets, and industries of tomorrow. The socioeconomic forces that are forming the new market landscape are as structural as they are paradigmatic. The changes are so pervasive and so unrelenting that they are difficult to see. However, one thing is for certain: you definitely won’t pick up the weak signals emanating from the periphery of the market if your field of focus is limited to the current quarter, or to fighting over a half point of market share in your core business. The annals of business history are littered with examples of incumbents who dismissed startups like Uber and Airbnb as inconsequential – right up until they were caught flat-footed by the future. Just ask executives in the recording or video rental industry. The digital natives are reshaping the 21st century socioeconomic landscape in previously unthinkable ways. But just as the steam engine took several decades to gain critical mass to power the Industrial Revolution, we are still in the very early stages of realizing the full potential, and disruptive fury, of the digital era. Today’s business environment reminds me of a powerful quote from Tom Stoppard’s Arcadia:“A door like this has cracked open five or six times since we got up on our hind legs. It’s the best possible time to be alive, when almost everything you thought you knew is wrong.” The market landscape that is unfolding before our very eyes requires a fundamental shift in our business world view – a transformation in the cognitive architecture that influences what we see and how we see it. As futurist Alvin Toffler noted years ago, “The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.“ Leaders benefit from experience in a stable world, but it can quickly become obsolete if the environment shifts rapidly. Perhaps we should add “unlearning agility” to our list of leadership competencies. Jeffrey Kuhn is founder and CEO of GrowthLeaders®

Dialogue | Jun/Aug 2015


IS THE MODERN WORKPLACE READY FOR THE AGE OF IDEAS? COMPLETE THE HOW STEAM ARE YOU? ONLINE SURVEY TO HELP DIALOGUE FIND OUT In their new book, My Steam Engine Is Broken: Taking the Organization from the Industrial Era to the Age of Ideas (LID Publishing, 2014) authors Dr Mark Powell and Jonathan Gifford argue that many structural and operational aspects of the modern organization are still based on an industrial-era model, and that these outmoded, managerial behaviours will not deliver success in today’s knowledge economy: the Age of Ideas. The book looks at ten “paradoxical” behaviours: old-fashioned, industrial-era behaviours that persist in many organizations, producing unintended and damaging consequences. A short online survey launched in association with the book invites respondents to explore whether these outmoded behaviours still persist at their own place of work. Two sets of ten questions explore respondents’ perceptions of the structures and behaviours that they encounter at their place of work, and their views on what they believe their working environment should be like. Dialogue invites its readers to complete a special version of the questionnaire aimed at senior executives (see link below) and will report on the results of this exclusive survey in the September issue.

Help Dialogue to explore readers’ thoughts on the extent to which organizations are adapting to the knowledge economy by completing the short, anonymous, online survey How Steam Are You?, selecting the code ‘Dialogue’ when prompted.

We will present our findings in the September issue of Dialogue to give an intriguing picture of the working environment that our worldwide community of business leaders and managers would personally like to experience, and what they perceive to be the reality.

mysteamengineisbroken.com /executive-survey

00_how steam are you.indd 2

11/05/2015 13:23


nd the short e next 20 past 20 years out a number cludes above as to prepare epithet for the er Country’.”

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REVIEWS

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LUCKIER BY DESIGN NIGEL P ANDRADE PETER D MUNRO

CRITICAL CAPABILITIES FOR AUSTRALIA’S CONTINUED ECONOMIC SUCCESS

In association with:

blue bottlebiz

Australia has written one of the most remarkable economic growth stories of the century and is now poised to shape its future—not out of crisis but out of opportunity.

Australia 2034

The past two decades have brought unprecedented change and major shifts in demographics, the economy, and business. The population has grown rapidly, adding five million people to the increasingly diverse ranks of those who call the country home. GDP and per-capita income have skyrocketed, and businesses are thriving as profitable ventures more than ever before.

Luckier by design Critical capabilities for Australia’s continued economic success

This important book sheds light on the road the nation has travelled and the efforts of the inspired business leaders who shaped that journey.

Drawing on examples from forwardthinking players, Australia 2034 charts the way for businesses and countries to navigate the next 20 years.

Nigel P Andrade, Peter D Munro LID Publishing

17/02/2015 09:52

Business planning is never easy but planning 20 years ahead is more of an art than a science. This is particularly true given the rapidly changing world in which we now live. Statistics cited in Australia 2034 reinforce the value of long-term planning for all businesses which desire longevity. Of the top 100 Australian companies in the Australian Securities Exchange (ASX) in 1994 only 29 were still part of the index in 2013. The survival rate in other countries is no better. While this book is aimed at Australian businesses, the messages are relevant for businesses everywhere. In the wake of the global economic crisis, the world is still struggling to find stable growth, and after 20 years of growth, Australia is now facing a similar challenge. Doing more of the same will not be enough. For long-term success the key messages are clear: Asia matters, but to succeed, Australian businesses must be clear about its value proposition and recognize that this it is not a monolith, but 27 very different countries with individual cultures. Successful businesses will be those that recognize and acknowledge local cultures and understand the concept of shared value creation; notably, that there is a direct correlation between a company’s success and the health of related communities, including suppliers, customers, employees and shareholders. The importance of a focus on value will be particularly

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true with respect to the customer. Tomorrow’s customers will expect products and services relevant to their specific lifestyles. Achieving these outcomes will require a very different approach to business management. Organizations that succeed will be those that understand and accept that change is a constant. This means businesses will have to be agile, with a focus on ongoing improvement, a passion for productivity and continuous use of analytics to ensure that customer and organizational dynamics are understood and that the organization can respond appropriately. This is not a world in which businesses can stand still. Australia 2034 provides many case studies of companies, both those that have recognized and adapted to the changes around them, and those that have failed to do so, outlining the consequences. For all those business leaders who have identified the challenge but are struggling to know how to tackle it, this book provides a practical approach to the steps required. As the book concludes: the future will be inherently uncertain, so businesses need to arm themselves with the necessary capabilities to navigate uncertainty. Reading Australia 2034 is an essential first step towards a more certain future. Anne Weatherston, former CIO and management board member, ANZ Bank.

Dialogue | Jun/Aug 2015


REVIEWS

DISCOVERY PATH: ATTRACTING CONSUMERS THROUGH SOCIAL MEDIA Social media is a very broad topic and much can, and has, been said about it. The objective here is not to bombard readers with every aspect of social media, but to demonstrate, specifically, how organizations can attract new customers and retain their existing ones, through this ever-growing and evolving marketing medium. Dip into this selection of books to decide whether or not your current social media strategy is working, to discover ways of attracting new customers, and to ascertain what not to do when developing your social media strategy. Take inspiration from the examples and case studies of companies and individuals who implemented successful strategies.

THE SOCIAL MEDIA BIBLE Tactics, Tools, and Strategies for Business Success, Third Edition Lon Safko CHAPTER 22: ANALYZE YOUR EXISTING MEDIA Before considering how to attract new customers, take a step back and review your existing social media. This chapter provides helpful advice on the best way of doing this, providing examples of how an author and a live-stream blogger implemented successful strategies.

GOING SOCIAL Excite customers, generate buzz and enegize your brand with the power of social media Jeremy Goldman CHAPTER 4. HOW TO DEVELOP CONTENT THAT PROMOTES ENGAGEMENT Now that you have received advice on enhancing your social media strategy, let’s dive into how to attract and retain customers. This chapter is a good place to start because it offers practical tips for capturing customers as well as guest posts with examples of how the strategies have worked for a range of different companies.

This discovery pathway was created by Travis Bernard, a social media analytics and strategy specialist based out of the Washington DC metro area in the US. He works on the audience development team within AOL’s analytics division, and helps build brands and drive traffic to AOL’s properties through social media. Prior to this, Travis worked on the advertising agency side, assisting clients such as the National Guard and Walt Disney Studios with social media strategy, research, reporting, and trend analysis. He was a speaker at the SMX Social Media Marketing Conference in 2013, and writes for Search Engine Watch. See more at: bluebottlebiz.com/book/attractingconsumers-through-social-media#sthash.HgBfdw3T.dpuf

SOCIAL BUSINESS BY DESIGN Transformative Social Media Strategies for the Connected Company Dion Hinchcliffe, Peter Kim CHAPTER 6. SOCIAL MEDIA MARKETING For more advice on how to keep hold of the consumers in your grasp, read this chapter. Here, the infographics and graphs illustrate how participation with the consumer is key.

MARKETING COMMUNICATIONS Integrating offline and online with social media PR Smith, Ze Zook CHAPTER 21. WEBSITES AND SOCIAL MEDIA The end of this chapter outlines steps for integrating social media into your company and common mistakes to avoid. Also included are two case studies that briefly guide you, step-by-step, through the experiences of two example companies, demonstrating exactly what they did with social media in to increase brand awareness.

SEE MORE AT: WWW.BLUEBOTTLEBIZ.COM

Dialogue | Jun/Aug 2015

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REVIEWS

BACK TO THE FUTURE HEALTH – BLUE BOTTLE BIZ’S TOP FIVE

Strategic Management Hitt, Ireland, and Hoskisson Cengage Learning

The eleventh edition of Strategic Management: Competitiveness & Globalization offers learning features and new case studies examining critical issues confronting managers today. The global focus, and examples from emerging and leading companies, place ideas in context.

Capitalism’s Toxic Assumptions: Redefining Next Generation Economics Eve Poole

What Is Global Leadership?

Bloomsbury

Gundling, Hogan, Cvitkovich Nicholas Brealey

A global economy requires leadership imbued with a global mindset, crossfunctional and effective across cultures and nationalities. Whether you are leading an organization, a business unit, or a geographically-dispersed team, this guide provides an important resource.

Firm-Level Internationalization, Regionalism and Globalization

Dr Jenny Berrill, Dr Elaine Hutson, Professor Rudolf Sinkovics Palgrave Macmillan

Regionalization is part of globalization, but can also be a counter force as stakeholders act to protect perceived interests. The authors expand the debate on this topic.

Designing the Purposeful Organization Clive Wilson Kogan Page

Hard-hitting management may deliver short-term results but in the longer term key people burn out or leave. This book demonstrates how business performance can be inspired beyond boundaries by aligning people to a compelling purpose.

Globalization’s Limits Dimitris N. Chorafas Ashgate

Globalization, internationalization of trade, and financial integration have big implications for businesses and countries. Dr Chorafas argues research shows there may be limits to globalization and amalgamation, which need to be defined to prevent problems stalling progress.

When the Berlin Wall fell, we concluded that communism didn’t work as a system. But in 2008, we experienced a dive in the world’s economy comparable with that of the 1930s, exposing significant problems with capitalism. Where does that leave us, if both our dominant economic systems are deeply flawed? As a senior banker said to me of capitalism: “governance works on paper, but not when human beings are added”. It doesn’t look like a good model to export to developing economies. In Capitalism’s Toxic Assumptions, Eve Poole suggests improvements to future-proof capitalism. Hers is no polemic against capitalism, but a treatise for reform. She also highlights examples of uncoordinated reform, such as peer-to-peer lending platforms such as Zopa and new currencies like the bitcoin. As a psychologist, I have long known that collaboration works better than competition for creating collective wealth and that humans make decisions based on emotion. I believe in holding shares for the long term to support my favourite enterprises, unlike spread-betters who hold for an average of 11 seconds. As a woman, I know business models based on competition will remain male-driven. Poole offers explanations for why such concerns about capitalism are valid. The foreword alone is a splendid summary of why the dated assumptions underpinning capitalism must be changed. I enjoyed Chapter 6, questioning the hegemony of the shareholder and Chapter 7, exploring alternative forms of organization to that of the limited liability company. The book is engagingly well written. The one area I would have liked better explored is business today being as much a global phenomenon as a national one. International institutions struggle to regulate global business. While she looks at imbalances between developed and developing nations in Chapter 2 and, in Chapter 6, considers the role of the UN in encouraging triple bottom-line accounting, there is scope for more. Still, this leaves room for a sequel. Liz Mellon, chairman of LID’s editorial board

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Dialogue | Jun/Aug 2015


REVIEWS

Cultural DNA

APPS APPS FOR LEADERS: SLACK

Gurnek Bains Wiley

Most people consider biology and culture to be separate and distinct from one another. They are the bastions of nature and nurture, respectively, and discussions about whether leadership, talent, and creativity are “born” or “made” highlight this perspective. In his insightful book Cultural DNA, author Gurnek Bains adopts a much “bigger picture” approach by exploring and explaining the connections between human biology and culture. In particular, the book illustrates the historical influence of our DNA in shaping cultures across the world. Authoritative and thoroughly-researched, Cultural DNA is a must-read book for anyone who is interested in, and asking deeper questions about, the origins of modern cultures. All too often, conversations about this topic are superficial and confined to what is considered to be common sense, but Bains does an excellent job of digging deeper to explain the biological origins of the modern rules that govern everyday life in different parts of the world. He achieves this through the combination of his academic expertise, psychological insight (his background as a doctor in clinical psychology endows him with an unusual sensitivity when it comes to discussing human behaviour), and his underlying understanding of business and politicals. Gurnek Bains comes across as being somewhere between a modern entrepreneur and an old-school intellectual, and Cultural DNA will provoke a timely and much needed debate about the evolution of social life. Tomas Chamorro-Premuzic, is a professor of business psychology at University College London in the UK, and CEO at Hogan Assesments. He is an international authority in psychological profiling, consumer analytics and talent management.

Dialogue | Jun/Aug 2015

There’s a growing school of thought that links unproductive, misunderstood actions and communication by email. If you believe what you read, at least three hours a week is wasted deleting, sorting, searching and managing emails. The stress chemical cortisol tends to be higher in those with high-volume or uncleared inboxes. Excess cortisol impairs our ability to make the right (or even rational) decisions, be creative and generally isn’t good for us. So, Slack is an app that proudly declares itself to enable team communication for the 21st Century. Indeed, users of Slack declare a greater sense of inclusion, fewer meetings and more cohesion across their project teams. Slack is a message board-type app organized around hashtag-themed discussions. Searchable by keyword or user or combination, it can be used to mention people (by using the @username convention) or simply to post information others can read if they choose to. It can also be used for file exchange and here’s the good thing: it can integrate with Dropbox, with Google Drive and other file-sharing apps, plus it can integrate with GitHub, Trello and other efficiency/ project-related apps, your Twitter feed, Google Hangouts, GoTo meetings, MailChimp, RSS feeds and Zendesk customer service app. Slack is not a project/ work app in its own right, it is a communication and integration app which handles other apps and platforms through an extension/connecting function which means you can use it as your hub. And yes, you can dispense with email for those people with whom you are working who are part of your Slack entourage. It will take work but the growing list of companies providing testimonies proves that Slack is anything but, well, slack. l Perry Timms is an independent HR/OD practitioner, writer and speaker, and is CIPD adviser on social media & engagement. Follow him on twitter @PerryTimms

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REVIEWS

BACK TO THE FUTURE

The Tipping Point Malcolm Gladwell In his first book, The Tipping Point, published in 2000, Malcolm Gladwell shows small things can make a big difference, puncturing the bubble of those always looking for the next big thing, the big idea, or pushing for a larger budget. He defines the “tipping point” – the moment at which ideas, trends and social behaviour cross a threshold, tip and spread like wildfire. Just as one ill person can start an epidemic, minor adjustments to products or ideas can make them more likely succeed. Contrary to the belief that big results require efforts beyond the capacity of the individual, one imaginative person applying a well-placed lever can move the world. Gladwell suggests individuals can make a significant contribution, citing the example of Paul Revere who, in 1775, overheard a conversation and rode all night to warn Americans in Boston, Massachusetts, that the British would attack in the morning. The Americans were ready and defeated them. He outlines three areas that are a good working template for helping an idea to spread: 1: The Law of Few (the nature of the messenger is critical) 2: The Stickiness Factor (the quality of the message has to be good enough to be worth acting on) 3: The Power of Context (people are exquisitely sensitive to changes of time, place and circumstance) These areas are similar to the medium, message and target audience sections that can be found in any campaign brief. That is not to do them down, because the language used may spur the writer of any brief on to more original thinking. Gladwell’s typologies do, however, come with a word of caution. It is easy to get distracted by the three groups of people whom he claims may start a tipping point: connectors (people who know a lot of people); mavens (those who accumulate knowledge, but are not persuaders); salesmen (people who are very persuasive). These typologies have captured the imagination of the marketing world, but are not really the book’s central message. Identifying these types of people may get you no closer to starting a tipping point. All of which leaves the reader with a nicely-balanced conundrum: even if a marketing strategy overtly sets out to create a tipping point, it is probable that these are so idiosyncratic and hard to predict that such a marketing strategy might prove impossible to enact. Kevin Duncan is a business author. His blog greatesthitsblog.com summarizes 200 important books. Contact him on kevinduncanexpertadvice@gmail.com

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The CustomerFunded Business: Start, Finance or Grow Your Company with Your Customers’ Cash John Mullins Wiley

When I read the premise of John Mullins’ book I was thrown. He states that the prototypical path that conventional wisdom holds as gospel today is: Step 1: Come up with an idea for a new venture Step 2: Write a business plan Step 3: Raise some venture capital Step 4: Get rich! As a marketer, this was an anathema to me. I kept wondering where the customer was and how could this be “wisdom”. Then I realized it was obvious; I’m not an investor or entrepreneur and my perspective is different. Mullins is, in fact, quick to point out it is a false gospel and most of the world’s fastest-growing companies did not start this way. He goes on to identify six groups of target readers: aspiring entrepreneurs, early stage entrepreneurs, angel investors, people running incubators, “3Fs: family, friends and fools”, often the backers of early start-ups, and innovators in big companies looking for the next big thing to buy. For angel investors, incubators and big company innovators, I think this is an enjoyable, informative book. It identifies five approaches 21st century entrepreneurs have used to kick-start businesses, using customers’ funds to get going. He illustrates the approaches with case histories and anecdotes. I hadn’t heard the story of Michael Dell stashing computers he was working on behind the shower curtain in his roommate’s bathroom to hide his fledging business from his parents who thought he was focused on his pre-med major. Each chapter draws lessons about the approaches and finishes with questions investors should ask of entrepreneurs following any of the five models. Some seem a little obvious, but they are a good checklist. Aspiring and early-stage entrepreneurs may benefit from the book,if they are not too busy launching their businesses; the 3Fs, being “family, friends or fools” may well ignore the advice and invest anyway. Giles Lury, executive chairman of The Value Engineers, a strategic brand consultancy and author of The Prisoner and The Penguin and 75 other modern marketing stories

Dialogue | Jun/Aug 2015


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The formula for an armistice on talent Eugenio Pirri, VP People and Organizational Development at The Dorchester Collection Findings of the 18th PwC Annual Global CEO Survey, revealed CEOs were planning to hire even more talent over the next year, suggesting the “war for talent”, declared by consultancy McKinsey in the pre-recession noughties, is raging on. Some commentators have gone as far as to suggest that this “war” is over and the talent has won. But what does this even mean?

Good is the Enemy of the Great. Think about it. #motivation #leadership WOW Small Business @ wowsmallbiz

5 ways to tell if you are becoming a terrible boss bryanorr. com/32/ #Leadership #Inspiration #boss Penny Ferguson @ PennyFerguson1

How great #leaders use humour ow.ly/LAf9K via @Inc #leadership Ctr4OrgExcellence @ CorexConnect

Can You Lead - Or Do You Just Think You Can? ow.ly/Lhze2 #Leadership

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Get online; get social; get involved

I also have to question why employers and recruits are allegedly battling with one another, when there is enough competition facing both in the global recruitment market. Surely there is a way both employers and recruits (or employees) can win? At Dorchester Collection, we’re no stranger to competition. The hospitality sector experiences labour turnover rates of 30% to 50%. Staff are actively targeted by other hotels and restaurants; in some cases offered pay rise incentives of 35%. Rather than analyzing “talent pools” or “talent pipelines”, my team has adopted a simple, yet tactical approach to hiring, keeping and developing the best people. This approach has the vital remit of selecting the right people for the right roles; in our opinion, this is core to delivering the ultimate guest experience and growing our business. It was based on the formula that you must combine values-based talent attributes with alignment to company culture when selecting the right employee. If done correctly, once you have recruited them, by providing the right learning, development and coaching this will ensure success and growth for both the employee and the organization.

GLOBAL WARNING Financing the low carbon economy: profit opportunity, moral imperative, or both? As part of our ongoing campaign, Christopher Wedding explains that an increasing number of corporations, financial institutions, and foundations are making headlines with bold initiatives and investments focused on mitigating climate change. Is this just about positive public relations? He argues it is about much more than that. The discussion starts with doom and gloom, but does not end there. Though this topic seems to focus on environmental goals, or a partisan agenda, it represents a financial opportunity, and some of the biggest capital providers and asset managers in the world are taking notice. Are you doing the same? Find out more at www.dialoguereview.com

Find out more about “the talent formula” at www.dialoguereview.com

Pension poverty looms Russell Davidson, MD of Davidson Asset Management A report from The International Longevity Centre (ILC), describes the UK state pension as “one of the least generous in Europe”. Due to be worth £155 a week within the next year, it represents a third of the average worker’s salary compared to an average of half, in the rest of Europe. The UK ranked 21st out of 27 countries in the list. To put this

inperspective, in Columbia, only the poorest older people are eligible to receive a social (non-contributory) pension equivalent to up to US$35 a month. India and Bangladesh both offer means-tested, non-contributory pension schemes, again for poor, older people – although respectively they have the second and third largest populations of poor older people in the world. Both spend less than 0.5% of their GDP on social pensions, benefitting fewer than 20% of over-60s.

Dialogue | Jun/Aug 2015


YOUR DIALOGUE

China has been praised by charity HelpAge for introducing a national pension equating to £5 a month, but for every developing country that has a similar scheme, there are nine that do not. Meanwhile, in the US, warnings have been issued that increasing life expectancy will result in decreases in social security benefits and devalue private and public pensions. With the ‘silver tsunami’ upon us, there is pressure on employers to develop a strategy around retirement and financial education and communicate it early in employees’ careers, as an HR priority. The pay-off is happier employees, enhanced recruitment and retention and greater engagement with reward offerings; it fulfils your duty of care as an employer. Read more at www.dialoguereview.com

The most important economic coalition should be between schools and employers Tanja Kuveljic, CEO of Believe in Young People Currently 16% of UK 16- to 24-yearolds are not in employment, education or training (versus 10% in India). Neither work experience nor employer-led careers guidance is statutory. If a young person is able to engage with prospective employers before making decisions about subjects to study to qualification level, they can make informed decisions. Taking part in an apprenticeship, even for a week, might help them realize a job they had not previously considered, could provide a compelling career path. Structured work experience, connected to employer-led careers,

schools and colleges, delivers quality future employees and the chance to engage with local schools to enhance social mobility. Believe in Young People (BiYP) has a mission to reduce youth unemployment by 11% by the 2017 academic year. To date, 300,000 people have taken part in our employer-led programme, which includes personalized careers information, structured work experience placements, school workshops and careers talks, managed through a 21st century technical platform connecting employers with education across the country, at local level. Of the students who completed the programme in 2014, 62% were offered ,or assessed as suitable for, an apprenticeship or entry-level employment. Read more at www.dialoguereview.com

> COMING UP NEXT MONTH: BANKING: REFORM OR DIE DIALOGUE IS BROUGHT TO YOU BY... EDITORIAL BOARD

EDITORIAL

Dr Liz Mellon

David Woods

CHAIRMAN

EDITOR

Tom Albanese CEO VEDANTA RESOURCES

Michael Canning CEO, DUKE CORPORATE EDUCATION

Irene Dorner FORMER PRESIDENT AND CEO, HSBC US

Professor Pedro Nueno

JUN/AUG 2015

Laura Hawkins ART DIRECTOR

Sarah Wild COPY EDITOR

Amrita Brard MARKETING AND COMMUNICATIONS MANAGER

PRESIDENT, CHINA EUROPE INTERNATIONAL BUSINESS SCHOOL

Karina Robinson FOUNDING PRINCIPAL, ROBINSON HAMBRO

David Woods EDITOR

MANAGEMENT Martin Liu PUBLISHER

Copyright 2015 by Duke Corporate Education and LID Publishing Ltd. All rights reserved. Material may not be reproduced without permission of the publisher. While we take care to ensure that editorial is accurate, independent, objective and relevant for the readers, Dialogue accepts no liability for reader dissatisfaction rising from the content of this publication. The opinions expressed or advice given are the views of individual authors and do not necessarily represent the views of Dialogue. This journal is also supported by Knowledge Partners, including Duke Corporate Education as Lead Knowledge partner. Whenever an author is related to a Knowledge Partner it will be noted as such. Dialogue takes every effort to credit photographers but we cannot guarantee every published use of an image will have the contributor’s name. If you believe we have omitted a credit for your image, please email the editor. ISSN: 2053-4361 Printed by Pensord, www.pensord.co.uk

Niki Mullin BUSINESS DEVELOPMENT MANAGER niki.mullin@lidpublishing.com

Dialogue | Jun/Aug 2015

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THE LAST WORD

IT IS TIME TO MOVE ON

FROM 2008 Karina Robinson Founding partner, Robinson Hambro, and former senior editor of The Banker

F

ew could disagree with the need for a regulatory transformation of the banking sector following the 2008 financial crisis. Yet after seven years, the blitzkrieg of rules continues, amid a confusion of overlapping, contradictory requirements. It beggars belief that the rules on “too big to fail” were only agreed in principle in November 2014 by the G20, with details to be finalized. Speaking to bank CEOs and chairs in the UK and Europe, who dare not complain publicly, the regulatory fatigue of which Bank of England Governor Mark Carney spoke is apparent, as are a number of the unintended, negative consequences. Capital has become local as global banks withdraw to their home markets. Surpluses of capital are not being used, while demand lies unfilled. When you factor in anti-money laundering and counter terrorism requirements, even long-standing, legitimate businesses in Africa are having their bank accounts closed down. And there is HSBC’s strategically absurd decision to exit Brazil, still responsible for approximately 60% of South America’s GDP, at the worst time, when the country is struggling.

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In addition, loan capital has diminished substantially. The creation of credit is a problem. And the sector or instrument to which credit goes is determined by regulatory requirements rather than business sense. This could, in itself, lead to a new crisis. Competition has contracted, with banks either going bust or being absorbed by others, while regulatory requirements have increased the barriers to entry. As the latest results from the big US banks testify, only the large institutions can absorb regulatory burdens and fines. JP Morgan has moved from being a significant financial institution pre-2008 to bestriding the world like a colossus. There are some so-called “challenger banks” – new entrants unencumbered by the legacy of old systems and debts – while internet-only loan providers are growing at a dizzying pace; but it will take a very long time for them to fill the gap, if they manage to do so. Lastly, even as banks cut down on frontline staff, there is a vast increase in their recruitment of compliance specialists, as well as the IT personnel needed to change systems to comply with new rules. Regulators are demanding traceability of all credit decisions, even the smallest, all of which consumes management time. Top bank executives complain that they spend hours in meetings with junior, inexperienced, supervisors, who have never before worked in banks and are more intent on protecting

themselves from criticism by painfully ticking every box. Increased complexity is not progress. At board level, the situation is no better. According to members, bank board meetings revolve around modelling risk, and are rarely about strategy or how to grow the business. One FTSE100 financial services institution tried out 29,000 different simulations. The non-executive director in charge of the risk committee was dismissive of the exercise. Meanwhile, potential nonexecutive directors with insight and experience, say you would have to be “reckless” to jeopardize a 30-year career by taking up an appointment on a bank board – even more so if criminal liability is extended to independent directors, as has been proposed in the UK. Seven years after the financial crisis, regulation needs to focus on enabling, rather than obstructing, financial services. On the macro front, the focus should shift to stimulating the capital markets so that the provision of credit does not lie mainly on bank balance sheets, as it does in Europe, while capital requirements should be lowered and the focus should shift to the leverage ratio. Speaking to the Worshipful Company of International Bankers, the Archbishop of Canterbury, Justin Welby, said: “2008 continues to lurk around as an impediment, which undermines confidence. Creativity and confidence go hand in hand...Creative leadership that does more than manage is essential.” It is time to move on.

Dialogue | Jun/Aug 2015


of Sciences 5 I 6 Nov. ViEnna I Hall Aula der Wissenschaften

Claiming our Humanity – Managing in the Digital age SPEAKERS INCLUDE

Rachel Botsman Founder of the Collaborative Lab and author Charles Edouard Bouée CEO Roland Berger Strategy Consultants Robin Chase Entrepreneur, Founder & CEO of Buzzcar, former CEO of Zipcar Tom Davenport Distinguished Professor in Management and Information Technology at Babson College Claudio Fernández-Aráoz Senior adviser at Egon Zehnder and author Charles Handy Social Philosopher, former professor at London Business School James P. (Jim) Keane President and CEO of Steelcase Inc. James Manyika Director, McKinsey Global Institute Henry Mintzberg Cleghorn Professor of Management Studies at McGill University Dambisa Moyo Global economist and author Kevin Roberts Executive Chairman, Saatchi & Saatchi, and Head Coach Publicis Groupe Gillian Tett US Managing editor and columnist, Financial Times Sherry Turkle Professor of the Social Studies of Science and Technology at MIT; Director of MIT Initiative on Technology and Self Adrian Wooldridge Management Editor, The Economist, and author

w w w. d r u c ke r fo r u m . o r g


Immediate impact, growing advantage. At A.T. Kearney, we pride ourselves on our uniquely collegial culture and care passionately about our work and our people. We offer our clients a range of global capabilities anchored in our heritage of essential rightness. The same promise we make to our clients—immediate impact, growing advantage—we offer to our people. Working together, we drive immediate results and help build lasting, transformational advantage. Consulting Magazine has recently named A.T. Kearney as one of the Best Firms to Work For 2014 and honored the firm with an Achievement Award for Excellence in Diversity. For more information about A.T. Kearney and to read some of our latest thinking, please visit www.atkearney.com.

A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues. For more information, visit www.atkearney.com.

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06/02/2015 10:39

Profile for LID Business Media

Dialogue Issue 8 June 2015  

Dialogue is an original, practical and world-class journal, which focuses on key issues and challenges encountered by business leaders and m...

Dialogue Issue 8 June 2015  

Dialogue is an original, practical and world-class journal, which focuses on key issues and challenges encountered by business leaders and m...