Monday, December 29, 2008

Corporate culture shock and the IT revolution

By Robert Heller

Robert Heller is Britain's most renowned and best-selling author on business management. Author of more than 50 books, he was the founding editor of Management Today and the Global Future Forum. About his latest title, The Fusion Manager, Sir John Harvey-Jones wrote: "The future lies with the thinking manager, and the thinking manager must read this book". [more]

Back in 1990, a book I was commissioned to write by Rank Xerox was published. It was called Culture Shock: The Office Revolution.
I have to say that, before I began researching the book, I had no clear idea of where corporate culture might be heading as it absorbed all the frenetic developments of the Silicon Age.
But my revelation of revolution occurred in a Rank office in High Holborn, where I was shown a Chinese-born whiz-kid metaphorically crossing the Atlantic, travelling coast-to-coast to LA, and accessing a colleague's PC file to add his own input.
The conclusion to me seemed obvious. The networked PC was bound to conquer the world and revolutionise corporate culture across the globe. In particular, collaborative working suddenly had a whole new significance and potential. The subsequent advances have been massive across the board.
But back in 1990, many were blind to the revolution. Similarly, many didn't understand the significance of the World Wide Web when it was unleashed around three years after my book was published.
Even worse, many are still blind in 2008. Trouble lies ahead for them.
Directly linked to Wall Street's mania and downfall was ignorance of the real revolution. While Amazon was sneered at because it made no money for so long, there was a rush to invest in the day-dreams of con-men who lavished their venture capital on themselves up-front. Insane amounts were paid on the basis of 'hits' and 'eyeballs', and an unreal clientele was built up.
Unsurprisingly, most of these ventures ended in failure. No more surprisingly, those companies which operated in the real world with real markets, such as Amazon, stayed the course, making real breakthroughs and winning real rewards for their life-changing innovations. Competition had achieved total lunacy, as was the case with the sub-prime massacre years later.
The years that followed l990 were full of big disappointments (and vast ephemeral rewards) for followers of The Cult of Shareholder Value and The Cult of the Chief Executive. These two aberrations of corporate culture were naked invitations to maximise both the share price and the amounts which the boss could extract from the stock markets.
Regardless of all the fiascos and financial scandals, managerial IT is much fitter for purpose than it was in 1990 or 2000 – and so it should be. Those two Rank Xerox employees I witnessed working together while 7,000 miles apart represented forerunners of whole armies of collaborators, using shared and networked electronic information to remould their organisations, businesses and respective corporate cultures.
The Office is now everywhere and anywhere, and we're all home workers now. What's more, a worker's knowledge of what's actually happening inside their organisation and outside is much greater and gained much quicker.
The new cult is (or should be) the Cult of Collaboration, which I caught my first glimpse of in 1990.

Firms should co-create with customers: C.K. Prahalad (Interview)

Chennai, Dec 25 (IANS) US-based management guru Coimbatore Krishnarao Prahalad says companies should join hands with customers to co-create products of value.”The role of the consumer has changed. Traditionally, companies create products based on their market research and exchange that for a value. But it has changed now, with customers equally involved in solving the problem,” Prahalad, 67, told IANS in an interview here. “Co-creation is not customisation, but it is personalised,” he said.
A professor at the University of Michigan and author of several books, Prahalad was in Chennai for an IIT alumni meet. He calls himself a serial entrepreneur and says his reputation is his risk capital.
“I generate ideas and sell them as books. If the ideas are of value to the customer, the book sells well or else it bombs. I risk my reputation,” said Prahalad.
Prahalad’s latest “risky” venture is “The New Age of Innovation”, co-authored with M.S. Krishnan that indicates corporates can co-create products by partnering with customers.
Increased connectivity, convergence of technologies, digitisation and creation of social networks, globalisation and ‘Googlisation’ of the world have thrown up an important challenge as well as opportunity for corporates across the globe, Prahalad said.
He said opening up borders for business increases competition but it also enables corporates to join hands with customers and co-create products of value.
But is not co-creation similar to the concept of open innovation?
“Open innovation is not necessarily co-creation as a company’s vendor may also contribute to the innovation. The concept is based on the principle that no single company has all the tools to innovate. So they will access others for innovation.”
For corporates to venture into co-creation, they have to have deep understanding of the product technology and the IT architecture. “The company’s managers should be able to anticipate and respond proactively.”
Agreeing that managers may not initially accept co-creation options, Prahalad said companies should train managers on the creation of new skills, develop suitable performance metrics to enable co-creation, and inculcate customer-centric focus.
He referred to the current global economic meltdown, saying, “Crisis is the time for nations and corporates to make fundamental change. In 1991-92, India faced the balance of payments crisis, which in turn resulted in the opening up of the economy.”
Though free market preaching countries are busy nationalising failed corporates, Prahalad said one ought not to “draw wrong conclusions” on the free market economy. “We need to strengthen the regulatory framework,” he said.
Prahalad also does not foresee foreign investors shying away from investing in Indian companies following the aborted attempt by software major Satyam to buy two companies run by sons of the promoter.
“Global investors are of the opinion that there is a reasonable level of corporate governance and one or two wrong incidents will not deter them,” said Prahalad.

Seven Questions: Jeffrey Sachs

The global economy is in crisis, but there may be more hope for the poor than you think.

In the shadow of a financial crisis that has sent the U.S. stock market tumbling nearly 25 percentage points in the last month, the world’s finance ministers and central bankers gathered in Washington recently for an urgent discussion of how the economic peril will spread—and how to stop it. Days later, leaders from London to Berlin promised hundreds of billions in bailouts to embattled banks and financial institutions.
Throughout this crisis, there’s been much talk of how it is affecting Wall Street and Main Street. But only a few public figures, such as World Bank President Robert Zoellick, have sounded the alarm about how the credit crunch will hurt the poorest of the poor—people who may not have a street at all. So, FP’s Elizabeth Dickinson caught up with Jeffrey Sachs, a renowned economist and World Bank and International Monetary Fund (IMF) advisor who has made his name with his passionate calls for an end to poverty. She asked him if he still thinks such an ambitious goal is possible and what world leaders can do to prevent the worst suffering.
Foreign Policy: Western finance ministers and central bankers were in Washington Oct. 11 to 12 for the IMF and World Bank annual meetings and to hash out a coordinated global strategy to deal with the financial crisis. How would you describe the mood?
Jeffrey Sachs: I think in general there’s fear, naturally. This is a very big financial upheaval and there are profound risks. We are far from out of the woods. Certainly, there will be a significant financial crisis as far as the real economy [is concerned]. Everyone is uncertain about what’s happening.
FP: U.S. Federal Reserve Chairman Ben Bernanke wrote in the Wall Street Journal Oct. 14 that, “the tools are in place to respond effectively and with force.” Is he right?
JS: I think that it all depends on the terms. I don’t think we’re going to have a Great Depression, and we’re not going to have an outright crash where there are mass bank failures and bankruptcies. But we are going to have a deep recession. We will feel it, and it will be very painful. Unemployment will go up several points; the drop in growth will be significant in absolute terms. It will be prolonged, and it will be a difficult recovery because of all of the imbalances in the economy and because households have high levels of debt. The scale is a major recession of an economy that has business cycles. We’re going to have a meaningful-sized business cycle.
Other areas of the world are experiencing the crisis for lots of reasons—because their own banks did what U.S. banks did; because our monetary policy led to bubbles that spread; because their economies are dependent on imports. I don’t think it will lead to a worldwide downturn everywhere. China, for example, will continue to experience good growth during this period.
FP: As the crisis spreads around the globe, can you give us a sense of how it is affecting people in developing countries?
JS: I think the effects probably are ironically felt more in middle-income countries, because one of the attributes of the poorest countries is that they are more disconnected to the world system. Their banks are not connected and are very small relative to the economy. People don’t own stock, so they don’t lose their pensions. In middle-income countries like Brazil and India, there could be more substantial risks.
FP: At last weekend’s meeting, Robert Zoellick noted that 100 million people have been driven into poverty so far this year. Do you think that number will go higher?
JS: That crisis is a result of commodity prices, especially rising energy prices and higher fertilizer prices. It is not the result of this crisis, and I don’t think that the direct effects of this crisis will be significant.
The question of course is whether the crisis distracts [countries] from all of these [antipoverty] policy agendas, which is relevant and often a life-or-death issue. That’s obviously a real concern. My general take is that in good times or bad, it’s hard to get people to focus on these issues. I’m not sure [this crisis is] going to diminish from the low levels of focus we usually have.
I expect the whole attitude toward governance to change, especially if [U.S. Senator Barack] Obama becomes president. The days of laissez faire recklessness and greed are over, and the idea that government has responsibilities in the financial markets and to the poor and even to the world’s poor will become more important.
FP: You wrote on your blog, “The basic message of this week is that the world must find a new model of collective leadership following the collapse of US authority.” You seem to think a multipolar world will be better suited to combating global challenges such as poverty and global warming. But isn’t it equally likely that we end up with a power vacuum—no leadership at all?

JS: Well, this is what we’ve had over the past several years: The United States has abandoned its old role as system stabilizer. Really already in the Clinton administration that was true, but it was bravely accelerated in the Bush era where policies were neglectful.
I do expect China, the European Union, and other actors can play a responsible role especially on these developmental, climate, and global investment issues. But no one should expect U.S. leadership, only U.S. cooperation.
FP: Even if the financial crisis doesn’t touch the poorest of the poor, what about emerging economies such as Nigeria, Angola, and Kenya where the banking system, for example, was just getting on its feet? How will the crisis affect these places?
JS: Of course Nigeria fluctuates with the oil prices, and that’s also the case for Angola. Kenya is a lot more complicated because you have a more diversified economy. Its banks are not strong to begin with, and now the easy go-go days are [over]. But I don’t see that as a major loss for the development of these countries. They will have their work cut out for them in attracting serious investment, but it can remain possible in this setting. Linkages that can be forged with the United States, China, India, will continue to go forward.
FP: As president of the Millennium Promise Alliance, which aims to help countries reach the U.N.’s Millennium Development Goals by 2015, you have spent a great deal of time advocating for increased foreign aid. With hard economic times hitting big donors such as the United States, Europe, and others, how much do your efforts need to change?
JS: The main point I have been trying to make is that promises are for less than 1 percent of income—which is true whether we are in a good year or a bad year. Less than 1 percent is manageable. These are commitments that we can afford. It’s important for the world, and I’ll continue to argue that case.
Second, the idea of $25 billion for Africa suddenly doesn’t sound like so much after a $700 billion bailout in the United States or $2 trillion in bank guarantees in Europe. We’ve just been making choices to ignore the poor rather than calculations based on real resources available. We made a choice to let millions of people die and not honor our commitments. The crisis doesn’t change our quantitative ability to follow through. And now, I think everyone is more of a macroeconomist than they were before. They can evaluate for themselves that it’s just not a lot of money compared to the amounts mobilized in recent weeks.
Third is that one of the core strategies is looking at multiple donors, not only traditional donors in the United States and Europe. The Middle East can and should put in more money; China can and should put in more money. We are going to see those connections grow, to the good of everyone.
Jeffrey Sachs is director of the Earth Institute at Columbia University and author of Common Wealth: Economics for a Crowded Planet (New York: Penguin Press, 2008).

Will the Economic Crisis hit Asia Harder than the U.S.?

By:Michael Mandel {Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.}
The latest news out of Asia is not good. On December 26 the Japanese government announced that factory output fell by more than 8% in November, the biggest drop in 55 years. Toyota—now the world’s largest automaker— expects to report its first annual operating loss since World War II. And Chinese exports are down over the past year, the first year-over-year decline since 2001.
What’s happening is that the global economic crisis is moving into its third stage. The first stage hit finance and housing. In the second stage, the downturn spread to the real economy in the U.S.
Now, with consumers cutting back around the world, the downturn has jumped to the exporting countries in Asia. And it’s not just China and Japan—countries such as Taiwan and Thailand are seeing sharp plunges in merchandise exports as well.
What’s more, there may be no easy answer: Without the housing and credit bubble in the U.S., there may be a long-term glut of global manufacturing capacity. The major exporting countries in Asia can produce far more electronics, clothing, and cars than their own populations can consume, at least for now.
The key question is: What happens next? One possibility is that fiscal stimulus—in the U.S. and around the world—will boost demand and get consumers buying again. Then the Asian factories can get back to work.
Alternatively, the global manufacturing glut will turn out to be real and persistent, even with the stimulus. Prices for imported goods will fall and fall and fall, because there are simply too many factories around the world. After all, how many flat screen TVs do we really need?
For workers in the U.S. who still have a job, this drop in prices could be a bonanza. But as factories around the world shut down, the result will be devastation in manufacturing-dependent regions.
In the end, it may turn out that the worst effects of the global economic downturn will be felt in countries which are dependent on manufacturing. China, especially, will find out how much of its economic boom was real, and how much was credit-fueled. The answer may not be pretty