Lessons for the New Enterprise Lessons for the New Enterprise The Center for Global Enterprise A Re-Think series publication Growing Global © 2015 CGE. All rights reserved. No part of this book may be reproduced in any form or by any means, electronic, mechani- cal, digital, photocopying or recording, except for the inclusion in a review, without permis- sion in writing from the publisher. Published in the USA by: The Center for Global Enterprise 200 Park Avenue Suite 1700 New York, NY 10166 http://thecge.net Printed in the United States of America ISBN: 978-0-9968580-0-7 (Hardcover) 978-0-9968580-1-4 (Ebook) Book design by Darlene Swanson • www.van-garde.com Cover design by Daniel Swanson • www.van-garde.com Table of Contents Introduction vii SAMUEL J. PALMISANO Beyond Translation 1 SHELLY LAZARUS Company Culture: The Foundation for Lasting Performance 17 DOUGLAS D. HAYNES A Market Force Like No Other 41 CHRISTOPHER G. CAINE Spurring Creative Genius for Society’s Benefit 65 DAVID J. KAPPOS Advantage: Supply Chain 81 JEAN-PASCAL TRICOIRE AND ANNETTE CLAYTON A 20-Year Arc of Rapid Change and Innovative Disruption 97 JERRY YANG Forces of Change: Networks, Data and Platforms 113 PETER C. EVANS Where Did the Growth Go? 141 MICHAEL SPENCE AND KEVIN M. WARSH v Growing Global Managing the Opportunities and Challenges of Innovation 159 SAMUEL J. PALMISANO Conclusion 177 SAMUEL J. PALMISANO Acknowledgements 185 Endnotes 187 Appendix 195 About the Authors 199 vi Did You See It? Samuel J Palmisano he world has changed — really changed — in the last ten years. And I Tsuspect the pace of change is going to accelerate. In 2005, I was two years into my tenure as CEO of IBM and I could see big changes unfolding in the business climate of the United States and of countries throughout the world. Global integration had transformed the corporate model and the nature of work itself. Ongoing technology ad- vances were making it ever easier to trade, interact, and transact across geographic boundaries, time zones and languages. We saw that the new leaders would win not by surviving the storm, but rather by fundamen- tally changing the game — a process I describe in my previous book, Re- Th ink: A Path to the Future. Today, ten years later, companies still need to change the game if they are go- ing to achieve long-term competitive advantage. And while many of the trends described in Re-Th inkremain the same, now they are playing out at greater speed. Consider how much has changed since 2005. Some of today’s ubiqui- tous products and platforms — Airbnb, Flipkart, the iPhone, Rocket Inter- net, Twitt er, Uber, and Xiaomi — didn’t even exist. Others, like 3-D printing, fracking, Facebook, and YouTube, had not yet been commercialized. vii Growing Global I fully expect the next 10-20 years will be just as dynamic as the past 10. Consider the following statement, made in 2014, by one of the founders of Wired magazine: If we were sent back with a time machine, even 20 years, and re- ported to people what we have right now and describe what we were going to get in this device in our pocket—we’d have this free encyclopedia, and we’d have street maps to most of the cities of the world, and we’d have box scores in real time and stock quotes and weather reports, PDFs for every manual in the world—we’d make this very, very, very long list of things that we would say we would have and we get on this device in our pocket, and then we would tell them that most of this content was free. You would simply be declared insane. They would say there is no economic model to make this. What is the economics of this? It doesn’t make any sense, and it seems far-fetched and nearly impossible. But the next twenty years are going to make this last twenty years just pale. We’re just at the beginning of the beginning of all these kind of changes. There’s a sense that all the big things have happened, but relatively speaking, nothing big has happened yet. In 20 years from now we’ll look back and say, “Well, nothing really happened in the last 20 years.”1 Fundamental to this dynamic change is innovation. That means new technol- ogies, but also new products and new business models. The cumulative effect of this innovation is to shake up how companies — and individuals — need to operate if they are going to stay competitive in the global marketplace. What’s exciting — and sometimes intimidating — is that the pace of innovation has been steadily accelerating. Indeed, it “has never been shorter,” as a writer for the New York Times Magazine has pointed out. An African hand ax from 285,000 years ago, for instance, was es- sentially identical to those made some 250,000 years later. The viii Did You See It? Sumerians believed that the hoe was invented by a godlike figure named Enlil a few thousand years before Jesus, but a similar tool was being used a thousand years after his death. During the Mid- dle Ages, amid major advances in agriculture, warfare and building technology, the failure loop closed to less than a century. During the Enlightenment and early Industrial Revolution, it was reduced to about a lifetime. By the 20th century, it could be measured in decades. Today, it is best measured in years and, for some prod- ucts, even less.2 Just as important, innovations are being adopted rapidly, particularly in devel- oping countries, as a 2014 Pew Research report showed. In Kenya, for exam- ple, while just 9 percent of adults owned a cell phone in 2002, 82 percent did by 2013. During the same period, Chinese cell phone ownership increased from 50 percent to 95 percent.3 (By comparison, just 91 percent of American adults own a cell phone.) Within the United States, the pace at which technologies are being adopted is also accelerating, as the following chart makes clear.4 Consumption Spreads Faster Today Percent of U.S. Households 100 Stove 80 Color TV Electricity Refrigerator Computer 60 Clothes VCR Air Condi- Washer tioning 40 Cell Telephone Clothes Dryer Dish Phone Radio Washer Internet 20 Microwave Auto 1900 1915 1930 1945 1960 1975 1990 2005 Source: Michael Felton, The New York Times HBR.org Amid these changes, global economic integration continues, but with differ- ent characteristics. For the first time in human history, more people now live ix Growing Global in cities than in rural areas. A larger share of the global population is middle class than ever before. And developing economies are generating a greater share of outbound foreign investment than ever before. But the outlook is also for slower economic growth than what was seen during the boom years in the second half of the 1990s and 2003-2007. And there’s evidence that the volume of trade is declining. These forces, coupled with others, makes it incumbent upon CEOs and busi- ness leaders to pursue opportunities, and manage their enterprise, using new and more nuanced approaches. Growing Global: Lessons for the New Enterprise is focused on helping business and societal leaders understand these changing social and economic dynam- ics. It offers insights about how the world has changed and where it is trending over the next 10 years. Lessons for enhancing enterprise agility and productiv- ity are brought forth by accomplished global leaders affiliated with The Center for Global Enterprise (CGE). Shelly Lazarus, the former worldwide CEO of Ogilvy & Mather, writes about the changes sweeping through the world of branding. She says that even amid the incredible diversity of languages, living standards, cultures, and beliefs spread across the world’s seven billion people, it’s possible to develop a global brand — but only if at its core the company’s brand projects a universal truth. It’s critical for companies to identify their “promise” of who they are and what they want to be known for. Doug Haynes, president of Point72 Asset Management and a former director at McKinsey, says that shaping culture positively should be a pressing manage- ment matter for all types of companies, and especially so for those engaging customers and clients around the world. He cites a number of reasons why culture matters. This includes its ability to define an enterprise and hold it to- gether across regions, businesses, and generations; and its importance for new business models, such as platform companies. x Did You See It? Chris Caine, president of CGE, and IBM’s former vice president for govern- mental programs, points out that the sheer size of the world’s governments, and their reach, makes it vitally important for leaders of every company — regardless of country, size, and industry — to develop a management point of view about their relationship with the public sector. He explains how com- panies can optimize their relations with governments, what kind of organiza- tion is needed to optimize the management resources devoted to dealing with government, and the importance of building trust with government officials. David Kappos, the former director of the U.S. Patent and Trademark Office, observes that in an era marked by information and content always being avail- able and transparent, innovators must be prepared to play offense and defense with their IP assets. That means seeking patents for innovations and ensuring these patents are enforced in a climate marked by widespread infringement. For that reason, he expects IP disputes will continue to play a prominent — and pivotal — role across the world’s economic and legal landscape during the next 10 years.