The BIG
Shift
Vinod Mahanta;
ET (08-03-13)
Leading CEO
Coach, Ram Charan, talks about the global economic shift, the forces shaping it
and how to win in a changing world
Last few years
have seen multiple forces change the global business landscape. Through the
noughties and thereafter, the common refrain has revolved around the
shifting economic locus from the developed world towards the emerging pack. And because change confuses,
constricts and cripples, it is important to understand the nature and extent of
its impact. So when one of the world's best-known business advisors, Ram
Charan, decided to study the flow of jobs, wealth and power to the newer
worlds, it was bound to be a path-breaking deep dive into the once-in-centuries
phenomenon. In his latest book, Global Tilt, Ram Charan studies the North to
South (countries below 31st parallel) power shift, what it means for countries
and companies, and how to deal successfully with the great power shift. In an
interview with CD, Ram Charan discusses the Global Tilt, the forces shaping it
and how to win in a tilted world. Edited excerpts:
What is 'Global Tilt' all about?
The world has
changed dramatically since the Chinese began to create economic growth in
China. There has been a permanent shift in terms of jobs, economic growth and
political power. All companies in the world must come to terms with these
shifts - which I call as 'the tilt'. They must understand what does this
tilt mean, how to thrive in it and how to deal with it. It is more demanding on
companies in developed countries like America, Japan, Europe, who need to learn
to deliver their shareholder value in times of permanent economic power
shift.
So what are the
drivers for 'the tilt' phenomenon?
I see five
drivers. The first one is the rise of China, which has
largely been built by western countries. Western companies went to China for
labour arbitrage and used the low-cost labour force to export out of China to
more developed nations. The second major shift
is the composition of the GDP, which is changing because of multiple
factors, which include
digitization, mobility, sensors, cloud, mathematics and software. That is a different kind of a tilt. Third is that the Chinese, in particular, have amassed a
large amount of foreign reserves, close to 3 trillion dollars, that
gives them substantial economic power. However, the opportunity for growth
is in the south, which is seeing a population growth and rapid emergence of the
middle-class. It is interesting to see that China has now managed all the
resources they need; they do not have to beg from the western world anymore and
are not dependent on Japan any longer. Today, the Chinese can get the best
consultants and the best talent. They still need a few things from America,
particularly the market, technology and some managerial know-how.
Another important development has been the financial crisis that accelerated the tilt because it undermined Northern economies by vastly increasing government debt, raising unemployment, stifling consumption and shrinking investment.
Enter The Dragon
Going forward,
innovations will come from all around the world. We will witness the invention
of a type and scale never before seen. Major innovation in the latter part of the 20th century
was for most part, institutionalized: highly concentrated in companies such as
Intel, Motorola, Bell Labs etc. But then, American tech entrepreneurs, like
Steve Jobs, Marc Andreesen, Jeff Bezos, Mark Zuckerberg, have been changing the
world. The new innovations will come due to real-time openness and
democratization of knowledge and availability of startup funds in a digitized
world.
What does this
tilt mean for India and what do Indian CEOs have to watch out for?
First,
in India, entrepreneurship is alive. Second, we have state governments, like
Gujarat, that are changing the game. I saw big ads from the Uttar Pradesh
government too. States can do a lot. If they begin to look at the globe as a
whole and then say how they can get a fair share in the global GDP, India will
have a very good future. Many things do not require a parliamentary pulling as we have seen in
the case of Gujarat and Tamil Nadu. The states can achieve a lot without having
to worry about anything. At the same time, we need to get more FDI; FDI brings talent, technology and management expertise,
but we need to think with a global mindset. Just like Godrej has 3X3
strategy (expanding into 3 continents in 3 categories)-looking at it, going at
it, managing it. But there is no hurry, whatever Indian business people do,
you would find that there is expertise and reputation for three things:
execution, developing employable talent and continued innovation and
productivity. We do not need Government of India at the Center to do those
things. Therefore, when you look at the situation from this lens, we are
better than China in many areas-like software and mathematics. We can do better
manufacturing in a new way because it is expertise-oriented. Nonetheless,
we need to go and knock at the doors of the companies outside India who
want to come here and assure a
stable policy environment.
How ready are leaders of companies for this new reality?
The reason this
book was written is that I began to see a very high proportion of companies
in the US and Europe not attuned with this tilt yet. The reason? They have
inertia; they are hung up on the core competence concept. They are going
inside-out and are unable to see that the core competence has a life. It is
never for eternity. Further, the executives of these companies do not
travel. They are unaware of what is really happening. They use West-based
consultants and do not keep a tab on what is happening outside their own
turf/country. Another reason is that it is a low-margin business in this part
of the world. But that is the reality. It is in their interest to enter the
market and convince the shareholders that by not making inroads, the
shareholders will lose in the long run. On the other hand, you would see that
there are many western companies that make good money here. So the blind side
is there, ignorance is there, but the larger problem is the inflexibility to
make shifts. For example, let us say there is a company that has 20% of
their sales outside America and 80% in America. They know the future is to go
50:50, yet they are hesitant to cut the number of officers in that country and
double the number of officers in emerging countries. That is the reality!
What is the whole outside-in strategy that you talked about?
Most strategies
have been inside-out so far. People look at it from 'what's my core competence' perspective and where can it be
applied. They do a SWOT analysis, in which threats are looked at from the
inside lens. Outside-in means that you look at the external landscape first.
It does not matter who you are and you look at the external landscape from
different multiple lenses and different industry lenses. If you are a global
company, you look at the lens through China, through India, through Brazil, not
just the headquarters in New York. By outside-in
approach, you are looking at the landscape as a picture; asking that if I had
no core competence and I was entrepreneurial, where I would position myself and
how I would position myself.
That would require a very different mindset...
It's a
180-degree change in the mindset from the leader and his team. So I have this 98:2 rule. Two per cent of the critical leaders
in the company have 98% of impact of the company's survival and
thriving. If they do not change their mindset, the rest will not.
What is the new
leader like? How will he have to think differently in this scenario?
The new leader
and his team have to spend a significant portion of his/her time in the
external social networks. He has to try and create a picture of the external
landscape before he thinks about his company. If
people say what is your vision for the company, then I am saying before you do
that, you got to have a vision of the external landscape, how dynamic is it,
how it is changing, what are the catalysts to change. You have to
answer these and that is an outside-in approach and leaders got to invest in
it. In other words, I am also saying that perceptual skills of the leader and
of the team have to be honed over time and perceptual skills are worth 1,000 IQ
points! No schools train it. It is critical to build the mechanism to do
that.
In this new world how important is digitization?
I just think
every single industry is going to be totally transformed by the combination of
six factors and they are all here, you do not have to forecast. These are digitization, mathematics, known algorithms,
software, cloud and mobility. They all converge. They are changing the
location of profit pools. They are changing the value chain by eliminating
intermediaries. If you get it
right, you would have built a flexible organization; with standardization, you
build speed, lower cost and lower intensity. The best examples are Amazon
and Best Buy.
I am sure CEOs must be asking you some questions about the tilt. What is the most pertinent question that comes to you regarding the tilt?
I think if I
look at the companies in the West, their most pertinent question is how do they
make money here (in emerging markets).
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