The Future of Corporate America

www.hbr.org – October 2015

The Future and How to Survive it

Good research and actionable advice can be difficult to find in magazines.  It certainly exists, and far more so in The Harvard Business Review than in many others.  Recently, I came across an article that reshapes the way we think of the future for corporations.  Authors Richard Dobbs, Tim Koler and Sree Ramaswamy change the way we see the future of corporate America in “The Future and How to Survive it”, October 2015 edition of HBR.

The biggest European and North American corporations have experienced tremendous growth in the past thirty years.  Strong revenue and cost-efficiencies have increased net income in western corporations over 50% faster than global GDP.  Privatization and deregulation caused growth and profit to accelerate through western cultures, eventually spreading to China, India and Brazil.  The landscape is changing rapidly, however, and leaders will need to act differently in the future in order to ensure their company’s existence.

The authors argue that multinational companies were in the perfect position to take advantage of growth and profit for three reasons.  One, the size of companies allow economies of scale.  Companies with greater than $10 million in sales captured over 70% of the profits in America in 2013, up from 55% in 1990.  Two, global presence has allowed the companies to capture shares of emerging markets.  Three, costs have plummeted due to globalization of labor and increasing technology.

The Tides are Turning:

  • Emerging markets such as China are growing rapidly, causing labor costs to increase.
  • Interest on borrowing has bottomed out – in fact, it can’t go much lower.  Also working against the continued growth, populations in emerging markets and the western world are aging rapidly, which will only further increase the cost of labor.
  • Skilled workers will already be in higher demand, allowing them to garner more wages.  Overall, consumers and employees will benefit at the cost of corporations.
  • Companies who require large physical investments will be at a disadvantage going forward.  The trends are already shifting towards equity in non-tangible assets such as brand loyalty.

Publicly Owned vs. Family/ State Ownership:

Dobbs, Koller and Wamaswamy argue that many western companies focus on short-term profits because they tend to be publicly traded companies.  The bottom line on the next quarterly earnings report is more important than the sustainable, long-term growth.  Emerging markets bring companies with broader focus, however, which threatens the future of western companies.  State owned or family run businesses tend to invest more in the future and therefore capture market share, longer-term growth and sustainability.  The authors argue that companies who require large physical investments will be at a disadvantage with technology changing so rapidly.

Leadership and Strategy Takeaways:

  1. Companies will need to select leaders with a global, big picture perspective.
  2. Invest in long-term growth strategies – capture market share, not just quarterly profits
  3. Invest in intellectual capital as well as data, algorithms and software
  4. Change the function of HR –  With talent in short supply and high demand, HR will need to play a far bigger role in “human capital management” –  Talent acquisition, growth and retention
  5. Find ways to constantly disrupt the status quo – before your competition does it for you

Please enter your email address at the bottom right to follow this blog.  Thanks for reading!

Tom Harper

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Outliers – The Smart get Smarter

Malcolmgladwell

Visit http://www.malcolmgladwell.com

For my first post, I’ve chosen takeaways from the book “Outliers” by Malcolm Gladwell. A fitting start to a site centered around success in business and in life, Outliers will encourage some paradigmatic shifts in the way you think of success. There is so much information in this book that I’ve had to break it into separate posts – more to follow.

Note about the Author: Malcolm Gladwell is considered one of the most influential writers and thinkers of the modern age. So few can claim that their ideas and thoughts were so impactful that we’ve termed a new adjective with their last name like Malcolm Gladwell can. “Gladwellian” is a term that refers to the clear and concise writing style that smacks you in the face and challenges your inner beliefs about social phenomena.

How is Success Achieved?

Why are some people more successful than others? In Chapter 1, Gladwell outlines the questions we typically ask of the successful people around us. “What is the question we always ask of the successful? We want to know what they’re like – what kind of personalities they have, or how intelligent they are, or what kind of lifestyles they have, or what special talents they might have been born with. And we assume that it is those personal qualities that explain how that individual reached the top.” Gladwell is here to explain, people do not rise from nothing. That the successful are “beneficiaries of hidden advantages and extraordinary opportunities”. The case presented by Gladwell is quite compelling.

The Smart get Smarter:

Gladwell uses professional hockey to explain his argument. If you look at the birthdates of hockey players in Canada at all levels, the overwhelming majority were born between January and March. The month with the most birth dates is January, second is February, third is March. What could be the cause of such a striking statistical phenomenon? The answer is simple: “in Canada the eligibility cutoff for age-class hockey is January 1. A boy who turns ten on January 2, then, could be playing alongside someone who doesn’t turn ten until the end of the year”. Coaches see the older, more mature kids who are playing at a higher level as more deserving of attention and coaching. The older kids are picked for traveling teams, all-start squads, even summer camps. Very quickly, the kids actually are better after receiving better coaching, more opportunities and positive feedback. The story doesn’t end with hockey in Canada – the phenomenon can be found in American baseball or even gifted students in the U.S. school system. Essentially, Gladwell is saying the rich get richer, the poor get poorer… and here’s proof.

In later chapters, Gladwell expounds upon the success in the school system. Students from underprivileged homes are known to be less intelligent and lag behind children who come from homes with higher income levels and higher social status. Using scientific research, it can be proven that the gap doesn’t happen in the classroom but rather during the summer breaks. Students from underprivileged homes do far less during breaks. Their parents do far less to encourage their development. While one student is taking piano lessons, playing baseball and reading books, another student may not even have a book to read or a bike to ride to the library. Are gifted students truly gifted? Or just a beneficiary of a system that has given them advantages? What about having a higher IQ level?

Leadership Implications: How many people have we worked with that have been given a “golden ticket” in some area of life? Are there some of us that haven’t had opportunities, haven’t been given a chance to prove themselves, or can’t catch a break? Look harder for talent – someone in your organization has the IQ, drive, practical and analytical intelligence but lacks opportunity. As leaders, shouldn’t we seek them out and drag them with us to succeed? We may not be able to change their internal drive, but we can certainly provide the environment necessary to flourish. Jack Welch compares it to Olympic Curling – Leaders should sweep away whatever is in front of the talent within an organization so that they may go further. I love this analogy. Fight for talent; Good people will be imperative to the success of your organization in the age of global competition.

Actionables:

  1.  Look for talent in places you haven’t considered.
  2. Analyze their background – Have they been given the right opportunities to succeed? Is there something you can do as a leader to improve the environment?
  3. Fight for talent as if it’s your most important asset… because it is!

Stay tuned for more key takeaways from Gladwell’s work. Feel free to leave comments and feedback!

-Tom Harper