We
instinctively create our expectations around our past experiences – but what if
our past experiences are no longer a predictor of future behaviour – how easy
is it for us to re-position our future expectations to a state we’ve actually
never experienced before? This is the state of the global economy – which is
predicted to change in the next ten years to a state we’ve not experienced for over
30 years, i.e. to a state many people simply have no experience of, other than
through economic history books.
In
October 2015’s Harvard Business Review, Richard Dobbs, Tim Koller and Sree
Ramaswamy highlight how “North American and Western European companies now
capture more than half of global profits, and measured as a share of national
income, are at their highest level since 1929. It has been a remarkable era,
but it’s coming to a close. Although corporate revenues and profits will
continue to rise, the overall economic environment is becoming less favourable,
and new rivals are putting the Western incumbents on notice. Many of the new
players are from emerging markets, but some are surprise intruders from next
door, either tech companies or smaller-technology-enabled enterprises. These
competitors often play by different rules and bring an agility and an aggressiveness
that many larger Western companies struggle to match. In this new world,
corporate performance will no longer outpace the global economy. We forecast
that in the decade ahead, although operating profits will continue to grow in
absolute terms, they will fall to 7.9% of global GDP – around what they were
when the boom began,” (p.50).
The
impact this has on the world, especially the Western world, cannot be
underestimated as the upcoming changes will, for example, require organisations
to be visionary and innovative enough to see the errors of many current
business ‘philosophies’ and ‘consulting’ interventions and will require
organisations to be open enough to develop and implement ‘business principles’
that are ‘new’ – in that they will actually shape organisations for a future
state, that many organisations and their respective boards may not believe is
coming.
Just
this ‘small’ strategic re-alignment will create significant opportunities for
SME organisations to take significant leaps forward against established larger
organisations who, like a large tanker, are often much slower at responding to
a future state, significantly different to what they are expecting and planning
looking for.
But
it’s not just organisations that are going to need to re-adjust, employees are
going to have to re-adjust as well to the changes to come as they will have to
re-align their own career and salary expectations. Some will rightly argue that
employees in many countries are already battling with having had to except
lower salary levels and lower salary increases, less than the annual increase
in the consumer price index, leaving them with less consumable income year-on-year
– where the counter argument to this hypothesis is that employee expectations
were that the global financial crisis was just a ‘phase’ that they would have
to work through and that the good ‘old’ times would return again – and the fact
that salary levels may never go back to what they were, may be something many
employees find hard to swallow.
On
a global scale, we’re already seeing large Western corporates laying off
thousands of people in 2015 – and these events, though reported as single
events, have not yet been reported at the cumulative level and when they are
many employees in Western organisations will start to sit-up and be more
concerned for their own future stability and welfare.
Dobbs,
Koller and Ramaswamy suggest that “the challenge facing big North American and
European companies is to maintain and even extend their lead in the face of
much tougher and more varied competition and a less favourable environment.
Half of the worlds GDP growth over the next decade, and many of the new competitors
will come from smaller cities in the emerging world – places such as Kochi and
Kumasi – places that most Western executives would be hard-pressed to locate on
a map. Even the most global firms retain a strong local bias in their
operations, making close to half their revenue at home. The local market also
influences how firms choose to innovate; the products they create, their supply
chains, and their investment strategies. For Western executives, an ‘emerging
market’ view or even a view of the ‘Chinese’ or ‘Indian’ market is not enough,”
(p.60).
Accepting
a complete change to how Western organisations approach business in the not too
distant future will definitely sort out the exceptional leaders from the mediocre.
But the fact that many Western jobs in the large corporates will be in the
hands of their leaders, should make both employees and stakeholders stand up
and start, maybe genuinely for the first time – to truly question the
capabilities and vision of their organisations executive leadership.
Though
tough times are ahead – as always there is a great opportunity to put right one
of the greatest errors of the first decade and a bit of the 21st
century – and that is to not only make leaders truly accountable for their
actions – but to identify who the best leaders are, not just for the ‘now’, but
for the sustainable future of your organisation – as they could hold your
future in their hands.
So
in conclusion Dobbs, Koller and Ramaswamy suggest that “North American and
European multinationals have enjoyed an exceptional three-decade ride, and they
have plenty of reasons to remain upbeat as they look ahead. But to maintain or
increase profits, they’re going to have to shake things up. The competition
will be relentless and less predictable, and the operating environment not
nearly as supportive. Vigilance, agility, and optimism have always been prized
characteristics of successful companies; but over the next decade they will
have to be doubly so…..” (p.62).
References:
Dobbs,
R., Koller, T. and Ramaswamy, S. (2015). The Future and How to Survive It.
Harvard Business Review, October, p.48-62.
