Managing in a interdependent World

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drjohn11aDr. John Psarouthakis, Executive Editor of www.BusinessThinker.com

Many centuries ago a fellow Greek, Plato, said, among a few other things, that “Nothing endures but Change itself”

Let’s take a look at the global scene today:

Major changes in communications and information technology; great and rapid progress in transportation; international institutions and agreements; strong commitments to globalization, etc., have resulted to a significant economic and financial interconnectedness between nations and markets, which in effect have created a “BORDERLESS WORLD”

Capital, Technology, and Information do not have nationalities anymore. They flow essentially freely in and out through national borders.

Fifty years ago the USA, with a 27% of the world’s Gross Domestic Product was the world’s economic power

The poorest countries such as India & China, were barely making 4% of the world’s GDP each.

Now let’s jump ahead in today’s world. Let’s look at the state of the economies, about 50 years later and see what changed:

The USA portion of the world’s GDP has dropped to 22%

The “poor” countries of fifty years ago are growing at a rate that in another 30 years or so their economies will surpass those of the USA, Western Europe, and Japan together!

Population Growth: with 6.5 billion people, the world demographic results in increase in life expectancy; drop in fertility rates; increase in population age. This might enhance economic growth in Africa and other underdeveloped areas.

Labor flow: the world has about 180 million migrants today. This number could expand significantly when we consider those regions with low income.

Multinational agencies such as the World Bank, world Trade Organization, and International Monetary Fund, have a very important role to play particularly if they evolve and continue to offer more effectively the needed expertise on economic issues such as development, monetary policy, and trade.

With these relatively rapid changes come risks, this time of major consequences, i.e. the recent melt down of the financial markets that are creating a recessionary environment due to uncertainties and credit tightness.

From my own experience as a technologist, business executive and entrepreneur I can tell you that:
These global changes require of us to focus on a range of issues that have ramifications for every one of us.

In addition to looking at international flow of goods and services and financial capital, exchange rates, poverty, hunger and agriculture, urbanization, and the role of women, however, we must consider the importance of the following:

Businesses that used to be of low-uncertainty, “core” businesses, are actually not. Instead, they are being buffeted by the very same uncertainties that have always been an issue in new businesses.

For example:
• Uncertainty about customer needs – created by shifts in the environment
• Uncertainty about technological possibilities – created by rapid shifts in technological
discoveries
• Uncertainty about distribution channels – created by power shifts in the value chain
• Uncertainty about the viability of an existing business model – created by potential changes
in regulation or industry standardsIt’s.

It is not unreasonable that companies today run their businesses still using the conventional tools that they have gained comfort with over the years. I believe that these tools are fatal for the development of innovations or new businesses, because they impose requirements for knowledge that are not attainable in a high-uncertainty world.

However, let’s say the core business has just found itself in a far less certain situation than it formerly enjoyed. In such situations, one can predict that the application of tools assuming more knowledge than exists is likely to be dangerous at best, lethal at worst.

Consider planning. In a high-certainty world, a good measure of the effectiveness of a manager is whether the numbers and commitments in the plan are what happens later. This makes absolutely no sense when you simply don’t have enough knowledge to accurately predict what is going to happen. Insisting that managers stick to plan can lead to dangerous escalation of commitment to a failing operation or unwarranted investment in the core business well beyond the returns a company is going to receive. Further, imposing the expectation that one will ‘make one’s numbers’ or ‘deliver the earnings’ is unrealistic when the underlying business logic for an operation has shifted.

To take two examples:

Consider General Electric. This icon of American business has been pilloried in the press. Why? Because the unexpected happened in its core financial services operations and it failed to hit targets. Analysts, journalists and observers have been howling in dismay.

General Motors went into bankruptcy. Why? Because for too long management did not realize that due to technology advancements and the borderless world the car had begun to be a commodity product selling on price and service criteria.

For many years, I’ve been studying and researching how companies can drive organic growth and innovation. An argument that is central to this line of work is that one needs to use different disciplines when operating in an environment in which one has to make many more assumptions than one has knowledge. One must think “out of the Box” in at least the following areas:

A New Organization: We’re used to thinking about organizations in 20th century terms: we design them to be vertical, or horizontal?

But vertical and horizontal are concepts built for an industrial era. They force us to think – spatially and literally – in two dimensions: vertical organizations command unresponsively, and horizontal organizations respond uncontrollably.

Today’s Borderless world needs an organization that combines the positives of both vertical and horizontal organizations. It turns out to be more spherical with a small and tightly controlled core, surrounded by self-organized cells or operating units to respond to the local demands and challenges. By organizing in this way one will be able to reverse tremendous asymmetries in finance, marketing and distribution and do not get trapped in the command and control rigid management system.

Resilience: The 21st century organization must not maximize outputs, or minimize inputs, but to remain resilient to turbulence. What happened when the a 20th century competitor attacks with aggressive ads? Such attacks would most likely deplete its financial coffers and ours if we were to attack in kind. We must respond instead, in exactly the opposite way: reflexively hitting back to an existential threat by growing, augmenting, or strengthening resources.

Elastic Strategy: Do not waste resources trying to dominate the market, or strong-arm the competition, or out-triangulate competitors’ positions. Rather, have a flexible strategy that does not kill a deeply-lived sense of purpose, destroy credibility, and corrupt meaning.

Unify and Broaden your Vision: The 21st century is about a world that changes rapidly. Bigness of purpose is what separates 20th century and 21st century organizations: yesterday, we built huge corporations to do tiny, incremental things – tomorrow we must build small organizations that can do tremendously massive things. And to do that you must maximize, stretch, and utterly explode your sense of purpose.

New Market Concept: The traditional approach to a market is to segment and target and slice to small segments the market. We have been good at it. We are terrible at unifying it and particularly now with ever expanding borderless world. Unified markets are what we need in a world that is collapsing due to hyper-consumption of our life style. We should look to reducing the hundreds variations of a product with the related mushrooming costs due to complexity and waste, down to perhaps one that customers from the slams of Rio to the lofty shops of new York.

Corporate power: The power many large corporations wield is to instill fear and inculcate greed. The 21st century-corporation uses the power to inspire, lead, and engender belief. You can beat people into subjugation – but you can never command their loyalty, creativity, or passion. This type of power is radically more durable, less costly, and more intense.

Asymmetrical ideals: A world driven by economic meltdown, religious conflict, resource scarcity, and intractable poverty and violence – such a world demands fresh ideals. We must mold and shape a better world – or we will surely all suffer together.

In such a world, forget about a short-lived, often meaningless “competitive advantage”. It’s a concept built for the 20th century. In the 21st century, there is nothing more asymmetrical – more disruptive, more revolutionary, or more innovative — than the world-changing power of an ideal.

Where are the ideals in your organization? What ideals are missing – absent, bankrupt, stolen – from your economy, industry, or market? What ideals will you fight and struggle for – and live? Because the ultimate problem with industrial-era business was, as Wall Street has so convincingly demonstrated, this: there weren’t any.

That seventh lesson is the starting point for tomorrow’s radical innovators – because it’s the thread that knits the others together. And it’s where you should start if you want to use these seven rules to start building 21st century institutions – whether businesses, non-profits, social enterprises, or political campaigns.

Despite, however, progress in many aspects of our civilization, people have found, and still find change uncomfortable and even threatening, and resist it.

What can we do to overcome our own internal fear of and resistance to change?
We can and should view change as an opportunity. Stay away from negative thinking, and have a positive mental attitude at the future.

The breath of impact of today’s rapid change, including the sophistication of today’s communications, greatly broadens the number of people who know something about and will be affected by new ideas.
As a result we are more closely interrelated with and interdependent on other people than ever before. Therefore, each of us, whatever our role, has to be more aware of other people as we initiate and adopt change, because they, these other people, can either help or hinder our ability to succeed by their cooperation or resistance. We want them to come on board.

You will need to develop your abilities and perspective in areas that your parents and even your older brothers and sisters might have been tempted to ignore.

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