Currently, 16 per cent of the world’s population has 60 per cent of the world’s GDP. This is set to change. Business leaders must therefore use a macro lens to focus attention on their corporate structures and to inform and change behaviours in their own organisation. How can businesses respond swiftly and effectively to uncertainty and take advantage of the opportunities in growth markets?
“The pace of change in the global economy continues to accelerate, driven along by the forces of shifting economic power, industry convergence and new technologies,” says Mark Spelman, Global Head of Strategy at Accenture. “The ability to see the new global order through the lens of both the developed and emerging worlds will provide critical context for the next generation of winning business strategies. Leaders will have to demonstrate a new level of versatility and foresight if they are to navigate their organisations successfully into both short-term and long-term success.”
Important in spotting opportunities in the changing global landscape is a clear and well articulated medium-term outlook. At a recent Criticaleye debate, Mark outlined four key concerns that businesses should focus on to form their ‘Horizon 2 view’:
- Realising the growth potential in the ‘silver economy’ – with 20 per cent of the UK population over 60, connected healthcare and financial equity release products, for example, will be key to servicing this demographic, as will keeping them digitally enabled
- Tapping into the possibilities of the resource economy – there’s a need to decouple growth from commodity consumption. For example, agriculture consumes 70 per cent of water so agri-business has the opportunity to innovate in food production and distribution
- Taking advantage of a multi-technology future – the growing impact of mobile, cloud and social media will enable more flexibility in business models and proactive networking with global innovation centres like Palo Alto can maximise regional competitive advantage
- Breaking out of legacy export patterns – increasingly, emerging markets are trading with each other so, if you’re not swimming in the emerging market trading ecosystem, you are confining yourself to a steadily reducing growth cycle
The long and the short of it
Globally, growth is expected to slow to 4.6 per cent in 2011 and, with financial and social crises still unfurling, more bumps should be expected on the road ahead. Supply chains have largely de-stocked and fiscal stimulus packages are all but spent. Structural imbalances have also created an uncertain longer-term economic outlook, while many large UK plcs will have sovereign wealth fund ownership stakes from entities in Asia.
“Research on sovereign wealth funds seem to suggest that, for the most part, they take a long-term view and have little interest in assuming management control,” says Bala Chakravarthy, Shell Professor of Sustainable Business at Swiss-based business school IMD. “Assuming that the management team in place has a long-term vision, sovereign wealth funds will not be the problem. In fact, they can act as a nice antidote to short-termism and inefficiency.”
Alison Carnwath, Chairman of Land Securities Group, adds: “As the share register for UK plcs continues to change, the variety of shareholders with differing goals and expectations grows. A well-run investor relations department and senior management attention to the major shareholders - top 20 minimum - is important. Keep on top of what they want to know and run and deliver your business the way you want to run and deliver it.”
Harnessing global talent and opportunity
“The labour market is becoming more and more segmented,” says Mark. “A one size fits all approach will no longer work – companies need to develop an employee brand strategy as well as a market brand to attract the scarcest and best skills in an interdependent global skills market.”
Important, too, is the ability to observe and adapt innovative ways of thinking from new frontiers. Only by being involved in emerging markets and learning to adapt their products and organisations to the local market can the Western companies take full advantage of them.
“Emerging markets companies are competitors around the globe, so Western companies need to stay in touch in order to see, understand, and perhaps copy some of their competitive strategies,” agrees Nandani Lynton, Adjunct Professor of Management, China Europe International Business School in Shanghai. “Through South-South investments, China-India-Brazil in Africa and India in China and China in Brazil, for example, we are seeing businesses become enormous, with approaches Western companies have never considered. Western companies need to observe and participate. However, they should not or cannot become borderless. If you are British, be British; but have operations all over. Use your heritage, use your strengths and identity, but figure out how to bring that as a new ingredient to the mix while adapting locally. I believe such cultural agility is the new competitive advantage.”
Innovation execution begins in the boardroom
Boardrooms are increasingly challenged by how to manage the schizophrenia between growth/innovation and cost/complexity. In the current uncertain and complex environment, has there been a change in the way boards manage the risks inherent in big ticket decision making?
“Now is a good time to get rid of some of those excessive management layers,” says Alison. “Expect more of people and use technology effectively. Boards are more risk aware and are beginning to quantify risk as well as describe it. This is a good start. If you want to make returns of 10 per cent you have to work out what risks you need to take to achieve that return.”
Indeed, while added complexity may suggest company boards require more time to make key decisions, Alan Thomson, Chairman of Hays plc, believes the opposite is true. He says: “The financial strain experienced by companies in recent periods means that effective restructuring and organisational de-layering now mean that companies have reduced their operational complexity and have far greater understanding of their fixed and variable costs. With growth opportunities arising as large customers seek to conserve cash by outsourcing key activities to global service companies, the winners will be those companies whose boards can efficiently review and approve innovative growth projects, thus seizing the new market opportunities which are now arising in the emerging markets of Asia and South America. This change in board processes may also require chairmen to critically assess the skills and expertise of non-executive directors to ensure that boards are able to provide sufficient challenge to management on those innovative projects which offer attractive returns, albeit with more risk than previously.
Mike Turner, Chairman of Babcock international plc, adds: “Uncertainty, cyclicality and the timing of business cycles are not new phenomena. What should remain as a constant is the pursuit of the company’s strategy. While the strategy has to be regularly reviewed by the board, executives should always remain focused on executing the strategy and the pursuit of growth, both organically and by acquisition.”
Agility in risk response
To be increasingly responsive to change, organisations must speed up their cycle time for decision-making. A critical first step, perhaps, is to assess who makes the critical decisions, then decide how they can be delegated to other localised leaders. And empowering local businesses to respond to local challenges is important.
David Brennan, CEO of AstraZeneca, explains: “I may be involved in some of the business development decisions of opportunities in an emerging market like China, for example, where there’s a changing dynamic and of which you can take advantage if you make the right acquisition. That’s a decision that ultimately sits with the CEO. But this means having a really good understanding of what that opportunity is and getting close to customers and local markets in order to develop a strong local understanding. Key to this is channelling quality local feedback, for example, bringing the president of the Chinese marketing company to the table to discuss their thoughts and generate the right conversations that will enable you to decide how far you want to take it a certain direction.”
Alison adds: “Businesses need to build the maximum flexibility in to their operations. They should have a balance sheet that can withstand shock, financing facilities at the ready and key performance indicators that are forward looking, not only historic. Securing a leading advantage in this way will see off the competition.”
Of course, many organisations have already responded to financial crisis by trimming their business portfolio and right-sizing their organisations. They are now looking to exploit opportunities for growth.
“Besides proven risk management techniques what top management needs to be more adept at is a proactive engagement of various stakeholders, notably governments and inter-governmental agencies, which shape the business landscape,” explains Bala. “This will be the big change post crisis. Very few firms are skilled at this. Most stop with public relations, but what is called for is a true partnering with stakeholders.”
Organisations that wish to empower employees, increase organisation capability and retain control and governance of key decisions are faced with a challenging dilemma, as Ian McCubbin, Head of Supply Chain at GlaxoSmithKline, explains: “There is a massive leadership behaviour change needed and it really does have to start at the top.
“Key to enabling this is to have a clear, transparent governance process which is understood by all. Equally, symbolic changes need to be made which will create a tempo throughout the organisation. For instance, GSK previously had a monthly governance cycle for operational matters, which has since been changed to a global weekly process for key decisions and escalation. This creates more time for meaningful strategic business discussion. Of course, as leaders we must live by the behaviour we set. Ultimately, we must walk the talk.”
Opportunities for growth in the global economy are clearly there for the taking. To take advantage of them, a greater premium must be placed on an organisational agility, both in terms of accelerating the cycle-time for decision-making and in spotting innovation from outside the normal channels. Key to this is a leader’s ability not only to make structural adjustments but to drive cultural change throughout their organisation.
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