The recession of 2008 and 2009, and the lurking fears of a double dip recession dictate that due caution is exercised in understanding the new world realities and developing appropriate managerial strategies.
New World Order
The principal purpose of management is to establish and grow businesses profitably. Managers are engaged in planning and execution of various activities towards the fulfillment of this purpose. In this process, managers are required to define and understand the business in the context of the environmental opportunities and challenges.
Firms are increasingly focused on serving global markets as opposed to only domestic markets. Extending further, firms are not content with mere exports but are more intent on being a part of global network. Firms therefore need to understand the new world order that could determine their effectiveness.
The phrase “new world order” does not lend itself to easy definition. As vision expands and as competition intensifies, a business cannot be defined in terms of only product configuration or market opportunity. Several economic, industrial, social and cultural factors impact the businesses of industries and firms. A dynamic world order provides also its own share of changing opportunities and challenges.
The new world order needs to be viewed in terms of the following: (i) economic environment, (ii) industrial competitiveness (iii) social imperatives, and (iv) cultural factors. Each of these brings forth certain challenges to the managers.
(i) Economic environment
Recent events have brought out quite starkly how economic conditions can turn highly volatile, unsettling nations and industries in the process. Consequent to the global meltdown, which started in the USA, the world faced unprecedented recession in 2008 and 2009. The emerging economic environment is characterized by four aspects: (i) highly uncertain global liquidity conditions (ii) volatile and unpredictable exchange rates (iii) investments in infrastructure as economic stimulus, and (iv) geo-political considerations altering economic opportunities.
Economic forecasting, never a precise science, is now required to be much more robust and truly multi-factorial. Icebergs of asset bubbles move under apparently placid economic waters. The unpredictability of economic environment renders any planning for economic development or recovery hazardous. Global liquidity has in itself become a sixth competitive force that adds an entirely new dimension to Porter’s theory of competitive strategy (see the post “Beyond Porter’s Darwinism : The Sixth Competitive Force”, August 23, 2009 in my Blog, “Strategy Musings”).
The political framework has also been evolving over the last few years leading to new economic opportunities and challenges. Governments in advanced economies are turning more protective, introducing invisible barriers in the path of globalization whereas governments in emerging economies, especially China and India, are pursuing aggressive growth to move up the global economic order. Companies are required to have vastly different skill-sets including their own national comparators and risk mitigating strategies to provide a safe path for their global operations.
(ii) Industrial competitiveness
The emerging industrial framework is characterized by four new dimensions: (i) an accelerated level of technological convergence in product functionalities (ii) an unprecedented level of competitive frenzy among firms (iii) a twin and simultaneous pursuit of differentiation and cost-competitiveness and (iv) a near universal shortage of genuine talent that can take industries on a new creativity path.
Industrial competitiveness requires continuous investments in R&D and manufacture, better remuneration for intellectual talent and a quest for profitability in highly competed markets, which are characterized by increasingly shorter product life cycles. Management of firms is a challenge whether pertaining to sunrise sectors or mature sectors.
Industrial competiveness is determined by patenting capability on one hand and manufacturing efficiency on the other. So far, innovation has been an advanced market play while efficiency has been an emerging market option. Emerging economies now have a greater scope in redefining the balance in their favor, with increased share of innovation and dominant share of manufacturing, provided the opportunity is seized in the right manner.
(iii) Social needs
The social framework offers certain positive and encouraging triggers for a new world order: (i) societies across the world are increasingly conscious of the perils of profligate economies (ii) people are more aware now than at any time in the past on the need for environmental protection, global warming and renewable energy (iii) the governments and the societies are seized of the need to focus on quality education at a universal level to achieve national level competitiveness through human resource base.
Globally as a whole, societies today are better informed and more demanding in terms of quality-of-life enablers such as housing, healthcare, transportation and food security. Countries like America have, though belatedly, recognized the chinks in their social armor, for example, on healthcare. Countries like Japan and Korea are endeavoring to retain their competitiveness based on the traditional competitive nature of their society. Countries like China are on a massive drive for social uplift through aggressive growth. Countries like India are endeavoring with new paradigms to realize their own potential with a strong growth thrust, maintaining the delicate rural-urban balance.
(iv) Cultural factors
The cultural framework is a less studied aspect of globalization and the new world order. Globalization and growth typically require integration of cross-cultural resources as well as catering to their specific needs. Despite the Internet and information revolution, countries and societies remain rooted in their cultural systems. For example, without being judgmental, one may hypothesize that American culture continues to be transactional and impersonal, Japanese culture insular and cocooned, Korean culture aggressive and expansionist, Chinese culture competitive and domineering, and Indian culture philosophical and emotional.
The expectations of local work force and local customers and the intentions of global multinational corporations are often at variance. Lack of understanding on issues of science and technology, biodiversity, social relevance often impedes industrial development. The issue of genetically modified crops is just one example, where objective science rather than commerce should have influenced the debate and outcomes.
Strategies for Managers
Managers, and educational institutions committed to management development, have a lot to unlearn, and learn, to be effective in the new world order. Management programs have to be contextual and dynamic, in tune with the global trends. They also need to be sharper and contemporary in terms of conceptual and analytical tools. Traditional theories and practices of management have to be potentially supplemented, and in some cases, revised with more relevant perspectives. Managers have to develop combinations of skill-sets that can help them confidently tackle the varied challenges in the economic, industrial, social and cultural frameworks mentioned earlier.
(i) Economic skills
Contemporary managers must possess a deeper understanding of national and international economies and the interlinkages between economic development on one hand and industrial and social development on the other. Economic forecasting, never an exact science despite the proliferation of statistical tools, needs to be taken up as a key methodology for understanding future economic trends and opportunities, as well as risks. Making firms self-reliant in terms of capital structure and accessing international funding options in a timely manner are two critical tasks for managers. Financial prudence and reliance on cash rather than debt need to be hallmarks of a good financial manager. Exercise of caution and display of capability while resorting to exotic financial products will help the managers serve their companies well.
An understanding of international tax laws and international forex trading would be an important addition to the customary tool kit of a typical manager. In several cases, manufacturing and supply chain logic is often distorted by tax and exchange considerations. As India’s managers aim to be a part of global manufacturing and supply chain network, knowledge of these economic aspects help them negotiate with their MNC counterparts the logic of global investment, sourcing and supply decisions.
Globalization has led to an increased shift of resources to emerging countries. This runs opposite to the aspiration of human talent in emerging markets to seek employment in advanced nations. Global outsourcing tends to reduce the need for external talent in advanced countries. Managers of education systems and human resource systems have to reframe their talent development strategies to focus on advanced capabilities to position Indian talent as being internationally competitive. Management education programs, or for that matter scientific and technical education programs, have to focus on building advanced scientific and technical skills to prepare professionals for careers in advanced domains (not necessarily in advanced countries, of course).
(ii) Competitiveness skills
Industrial or business managers have to be well-versed in competitiveness skills, to meet the intensely fierce market conditions. Multiple abilities, capabilities and skill-sets are required to manage industrial competitiveness; for example, an ability to reduce time to market, an ability to balance continuous investments with sustained profitability, an ability to manage global operations and logistics and skills in global procurement and supply chain optimization are some of the essentials for the new manager.
Equally important would be the ability to achieve greater design and manufacturing variety without compromising scheduling simplicity and inventory optimization. An understanding of industry structure and competitive forces is essential for the managers. The requirement to achieve product differentiation with low cost manufacture and an ability to serve larger markets even with niche products pose new strategic and operational challenges for managers.
Competitiveness is a function of scale and scope as well. As firms seek to acquire higher scale and scope, through organic or inorganic growth, managers must also learn to balance business aggression with financial prudence. They must also balance growth-driving leverage with stability-providing internal generations. The recession of the last two years teaches us that companies which are aggressive but prudentially managed have not only successfully withered the impact of recession but are also well poised to growth in the recovery phase.
(iii) Social values
The products and services that are identified through business analysis and business execution need to reflect normative social values. Increased purchasing power no doubt vests in the society a certain degree of consumerism and profligacy. It is incumbent on the part of business managers to focus on product and manufacturing strategies that are good for the society. Energy saving equipment, green buildings, fuel-efficient vehicles, cloud computing and storage, web based services, digital publishing, renewable energy and alternate fuels represent some areas where managerial passion for environment and society could help corporations become better citizens.
Equally important would be the need to develop healthcare solutions for poorer sections of the society so that affordable medicines are available. In countries like India, where agriculture plays an important role in the national economy, the rural sector needs to be preserved by bringing modern amenities with appropriate adaptation to rural consumers. ITC’s e-choupal, for example, is a great example of how corporate vision and IT management can leverage modern technology for rural commercialization. Dr CK Prahalad has propounded, with several case examples, how unique business and technological models can help companies find fortune at the bottom of the pyramid.
(iv) Cultural issues
Globalization requires managers to interact with multiple nationalities and multiple cultures. Many corporations undertake cultural orientation programmes to enable their executives and managers deal with cultural ramifications with sensitivity. No such program, however, is perfect. In some cases they tend to be mere facades, turning out to be counter-productive in the end. Leaders and managers who have actually worked in overseas environments can act as mentors for executives moving over to other countries. Indian managerial education needs to integrate cultural training into managerial processes through such mentorship programs.
Management education has a different cultural implication as well. In India, management education is seen to lead persons into general management as a distinct profession. The reality, however, is that management education provides certain conceptual and analytical tools relevant for any professional or specialist to grasp and solve real life business, scientific or technological issues better. As a matter of fact, Japan, the world leader in industrial operations, has very few MBAs. In USA, it is not uncommon for scientists and technologists to acquire management education simply to hone their skills. With management education, specialists are enabled to conduct domain management more efficiently and more productively in a holistic organizational and business setting. Management education has to be seen more as a value-add to all the functions or domains rather than as an enabler for a stand-alone managerial career.
The fortunes of a business are intertwined with the evolution of the world order. Economic environment, industrial competitiveness, societal expectations and cultural moorings dictate the opportunities and challenges of the world order. Managers need to retool their strategies to navigate through global liquidity concerns, achieve industrial competitiveness with innovation and efficiency, adapt their strategies to societal needs and integrate with diverse cultures to understand needs and deliver solutions.
Posted by Dr CB Rao on March 6, 2009
(This is a marginal variant of the speech delivered by the author in the valedictory session of the program on “Strategies for Managers in the New World Order” held at MOP Vaishnav College for Women, Chennai on March 6, 2009)