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:
- Companies will need to select leaders with a global, big picture perspective.
- Invest in long-term growth strategies – capture market share, not just quarterly profits
- Invest in intellectual capital as well as data, algorithms and software
- 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
- Find ways to constantly disrupt the status quo – before your competition does it for you
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