Sunday, November 8, 2015

Are Western Organisations Prepared for Global Economic Change?

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).
Dobbs, R., Koller, T. and Ramaswamy, S. (2015). The Future and How to Survive It. Harvard Business Review, October, p.48-62.   

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