Asymmetric global growth has been throwing up new challenges for multinationals, more so since the slowdown. What does this mean for global corporations? How should they reorient their organisations and strategies? Hans-Paul Burkner, president and chief executive officer, The Boston Consulting Group (BCG), talks to Kanika Datta about the organisation of the future. Excerpts:
There has been a lot of talk lately about a “two-speed world” — where developing countries like India and China are growing significantly faster than the developed world — especially after the global slowdown. What implications does this have for global corporations?
This is indeed a very big issue because we see relatively modest growth in Europe, north America and Japan — between 1 and 3 per cent — and in the emerging markets, it’s between 5 and 10 per cent, with India and China being at the higher end. For global corporations this means that, in a way, they have to be schizophrenic — they have to have two very different business models in their mind. Say, you are operating in Europe and you want to be successful in Asia. In Europe, you have to continuously drive for efficiency because growth will be limited. In Asia, you have to drive for growth — and you have to drive for maybe 20, 30, 40 per cent growth because 10 per cent means you will lose market over the next four or five years because your industry may be growing at 20 per cent. Make no mistake, 10 per cent is good compared to what is happening in Europe but it may not be enough. There are, of course, enormous tensions involved in being part of that twin game because you’re driving for profitability in one market and investing massively in another.
What does this mean for a corporation in operational terms?
Well, in emerging markets you have to be really local in terms of designs, production, marketing, building a local brand. Some of the models that may work in one country may not work in another country. Certainly, some of the approaches in manufacturing need to differ. For instance, when you talk about commercial vehicles, there are more potholes on roads in India so you have to have a much more rugged design than you have in north America or Europe. And, of course, you will see more and more of your production and sales being done in emerging markets. So you have to drive a lot of the design from Asia. If you think about mobile phones, for example, all the growth is from emerging markets so it would be better to satisfy customers there.
At the same time, business environments and markets are becoming more volatile, especially in developing markets…
You can appreciate the opportunities and challenges only if a significant number of your decision-makers are from the emerging markets. You can’t run this sort of business purely with a US, French or German team. So more and more of these companies will have to decentralise their decision making and involve people who are on the ground in India and China, play a strong role in overall strategy but also know emerging markets well enough to grasp the opportunities and the challenges. It is already happening. For instance, HSBC has moved its headquarters back to Hong Kong from London — the headquarters had moved from Hong Kong to London, now it’s back to Hong Kong. I think you will see a lot more headquarters moving to Asia.
Many emerging market corporations are investing outwards in Europe and north America. If you were to advise Indian companies going global, what would you tell them?
Much the same thing. Like Indian companies, Chinese companies are also very centrally managed, and now you have significant activities in Europe, north America and other parts of the world and you also have to diversify the leadership and decentralise decision-making. It’s a specific kind of thinking: involving Europeans and north Americans in the management of your companies takes some guts just as it does the other way around, for European or Japanese companies for that matter.
Coming to corporate social responsibility (CSR), the concept is shifting from a “good-to-have” idea to a “must-have” for competitive advantage. How can corporations achieve this?
The important thing is to move away from glossy brochures and marketing and see your social activities as part of your core activities. That could have to do with sustainability, HR, education and ensuring that people in your neighbourhoods — which could be anywhere in the world — have a reasonable standard of living and are motivated and engaged. So, if you say, I just want to squeeze out the highest profits but don’t get the people, then your company will fade away. It’s the same thing with sustainability. It makes good sense to say, let’s make sure our processes and products are safe not just because it’s cost-efficient but it’s also good for the environment.
So what you’re saying is that CSR should be within a company’s operating ecosystem rather than, say, investing in an orphanage.
Ideally, CSR should be part of your core business and processes; it should not be just a marketing activity. Of course, you could also say, for instance, that we are investing a lot in education because we also look forward to a skilled labour base. In Europe and Japan, the population is declining and you can see skill shortages in the future. So, it makes good sense for companies to be involved in training and education and making sure they have a good supply of skilled people. We need to align those investments because they are key not just for society at large but also for your corporation.
BCG’s Big Idea was the growth-share matrix in the seventies and there have been no Big Ideas since then. Why is that?
That’s not true. Without diminishing the importance of the competitive matrix, it is fair to say that in the sixties and seventies there were very few ideas so any ideas stood out. But we have been involved in developing time-based competition, healthcare management, deconstruction. These days, we are working a lot on the organisation of the future in a much more networked world. It’s not about the long-term big advantages but a series of small advantages to make organisations more flexible. Of course, you can ask: are these big ideas? I think they are very big ideas but it is not the one big idea that changes everything. In any case, the matrix did not change the world — it was an important tool.
So what does the organisation of the future look like?
It will be asymmetric, with overlapping networks, much more fluid. The key issue is how to make people work together — from R&D, design to marketing — to come up with the right outcomes. Such an organisation cannot be hierarchical, you need to create the connectivities at the bottom of those functions. It’s a very different approach — people get together in a committee for a project that has a certain lifetime, it gets dissolved and then other committees are formed.
I am trying to picture iconic CEOs — like Jack Welch — trying to function in such an environment...
One needs to be very careful not to put leaders on a pedestal — the hero is the team. The enemy is often within, when organisations paralyse themselves by pulling in different directions. The CEO’s task is to mobilise many people moving in broadly the same direction with everyone having clear responsibilities so that they are engaging and helping each other rather than pointing fingers.