SOCIETY FOR HUMAN RESOURCE MANAGEMENT EVENT, Palm Springs -

FEBRUARY 22, 2012

The setting here (Palm Springs) is so fantastic and the weather is so beautiful and

the food was so good that I feel like the cards are stacked against me. Either you’re

going to be in a hurry to go out and play golf or you’re going to be drowsy from having

that lunch in the sun, but I’ll do my best to talk a little bit about the global environment,

what I think is driving it, how I think it’s changing, and then I would kind of like to end up

talking about a few implications for human resource management. That’s the one area

where I realize I’m being coals to Newcastle and I won’t go into great depth because I

don’t have it in this area, but what I would like to do is just tell you what I think some of

the human resource implications are of the trends that I discuss.

And I think I will start or just say a few words about my background even though

you may have read it because I think that the older I get, the more I want to know

where somebody gets their source of information. It’s quite easy these days because

there is so much information to spout a line and to me what is equally important is from

whence does it come? Is it based on a lifetime of experience on something that is very

deep and very narrow? Is it based on a scholarly background? Is it based on experience

in the private sector or the public sector? It matters a lot. It’s not the only thing, but I

think it gives you a framework to evaluate what is this man or woman saying and with

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what credibility? And the thing about me is that I have had a lot of different

experiences, but I haven’t done just one thing and so it is no false modesty to say that I

am not an expert in anything. Where I think I can make a contribution to interacting

with people like yourselves is that I’m at the intersection of a lot of different things.

There are many different ways to build a life and for one reason or another, that’s how

it happened to me. So I have my professional life which started – if I don’t count the

military – it started in 1974, has been divided almost equally between being in the

federal government, and always working in the international economic arena, although

a lot of it was sort of political – it was in the State Department and the White House

staff; a third of it was on Wall Street where I started in 1980 and ended in 1992, and

spent a good part of that in Japan and Hong Kong and I was in charge of all of the Asian

investment banking business for Lehman Bros. And then, for the last 15 years, I’ve been

at Yale where as a Dean of the business school and as a full-time professor, I had the

opportunity to do a lot more reading and a lot more writing, and it’s very easy to bring

some of the most illustrious people in the world to that university and to get to know

them a bit and to exchange ideas with them. From Yale I also get to travel a lot. I am

actually going to China with a group of 20 students next week. I do it every year. And

somehow you travel with the students, you get access to people you never ever would

have before. And they’re very frank in what they say and so I’m not an expert in China,

but there are very few people who have had the same experience of sitting with the

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Vice Governor of the Central Bank or the Vice Finance Minister and having them really

let down their hair because it’s off the record and with bright young students. I just

wanted to say all this as a prelude because virtually everything I say there is somebody

in this room who’s going to know more about the issue and the details. And what I’m

trying to do is aggregate and sort of find some of the overlaps and some of the

connections.

So today what I’d like to do is I would like to start by talking about where we are

in the US and the global economy and kind of take a snapshot of the next few years

starting from where we are right now. Then I would like to go from there to several

trends that I think are important and I think are inexorable in the sense that they’re

going to happen no matter what happens in the short-term. These are the trends you

can really count on; they’re not the only ones, but I’m going to pick six that I think are

very, very important. And whether we lapse back in a recession tomorrow or whether

Greece defaults, or whatever happens in the next year, these trends I believe you can

bet on. And they will shape this world, they will shape our society, they will shape the

companies that you work for and the people that you work with. Having done that, I’d

like to talk about what kind of company is going to succeed in this environment. What is

the successful company of the future look like given the trends that I have outlined?

And then finally, I’d like to talk about some human resource considerations that I think

derive from both the trends and the kind of company that I’ll be describing. And I’m

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very open to any way of doing this, but I could talk about these things and we could

then have a Q and A, take a break, whatever you want. But I really hope that this does

morph into a discussion because every point that I make is much more interesting if we

open it up than if you just listen to a talking head.

Overview

So, my overall view is that we are in the middle – or actually at the beginning – of

a great historical transformation. Some people use the term supercycle, but it doesn’t

matter what you call it, it is a period of time in which the world and society are going to

undergo a massive shift. A supercycle occurs very rarely in history, and it occurs when a

lot of different things happen and they all happen at once. For example, the sources of

demand shift. Suddenly, people are consumers and customers and governments are

demanding something that is much different from what they did before. The sources of

investment shift or investment itself shifts. New technologies emerge which make

everything look different and which facilitate both the demand and the investment.

Growth expands exponentially. And this is really a radical shift in everything that we

know such that on the other end the society looks quite different. And in the last couple

of hundred years, there have only been two super cycles. There was the industrial

revolution which started in the UK and came to the US in the 18 and 1900s. And we all

know what a massive change occurred during that time. Just to vastly oversimplify it,

we went from basically an agrarian society to an industrial society, with everything that

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implied in terms of urbanization, the way we work, the skills we needed, how

investment was mobilized, what technology was used. Now I’m not going to argue

cause and effect, all I’m doing is describing a period of time. The second supercycle in

our lifetimes was right after the Second World War. It’s very hard for us to recall, and I

would look around the room, I’m on the oldest for sure, and I was born in 1946. But my

father was in the military and in the German occupation, so 1946, two weeks after I was

born I ended up in Germany and I spent a good part of my early life there, but it’s very

hard to reimagine exactly what Europe was like, let alone Japan. Totally decimated.

There was no industrial production. There was a massive number of people just

roaming the streets with no food, no shelter, and yet, in the next 20 years, we witnessed

a miracle of economic development, both in Germany and in Japan. In fact, by 1965,

let’s say 1968, already the US was screaming that Germany and Japan were becoming

too competitive. That was a supercycle. When you see what kind of technology was

applied and what kind of investment and what kind of energy was unleashed, that was a

supercycle, actually in much shorter period of time than the industrial revolution. And

what I’m saying is we’re in the third supercycle now. And I want to give you a few

features of this supercycle to my way of thinking.

The first feature is that in any supercycle all of the overarching political

arrangements change because the political framework actually – and I’m using political,

I don’t know whether it’s with a big “p” or a small “p”, I don’t mean political in terms of

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our political season, but in terms of how the world is organized. How the world is

organized politically, how nation-states relate to one another. From that derives a huge

number of things we don’t normally think about, but the economic system is derivative

from geopolitics. And the way companies compete, at least until recently, is really

derivative of political arrangements and economic arrangements. Well those political

arrangements are in the process of a very major change right now. I don’t have to

belabor this, because you all know what I mean, but it was just a few years ago that

there were two countries that ruled the world and then there was one called unipolar,

where it appeared that the US was solely dominant. And now we’re moving into

something that nobody really knows – we don’t know what role China will play. But the

odds are we are headed towards global arrangements that are multipolar. That is, there

will be no one country that will be able to exercise, no two countries, that kind of

condominium that the US and Russia did or the US did and this is a very, very major

change and will cascade down virtually to everything else.

A second feature of this supercycle I believe is that we are seeing economic

competition emerge from every direction. For all of our lives, it was either post-World

War II with the US very dominant or the US and Europe, and US Europe and Japan. This

expression which is being used now is “the rise of the rest”, but basically there are a

number of countries, it’s not just China, it’s not just China and India, it’s not just China,

India and Brazil – it’s a huge number of countries that are in their own regions, in their

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own spheres, are exercising a significant amount of influence. And you know, they just

got started. In everything that I’m talking about, we’re at the very early stages. What I

said at the beginning, we’re at the beginning of a supercycle, or a great transition. In

this supercycle, we’re also seeing the emergence of new business models that we never

would have conceived of ten, twenty years ago. These are models of companies that

are where the hierarchy is being squeezed out, where the decision-making is becoming

massively decentralized, where technology is substituting not just for the low wage, but

increasingly more sophisticated labor. It’s a revolution. We’re in a period where the

very relationship between business and government is changing. Now this is very

profound. You don’t have to give a lot of attention to Occupy Wall Street to believe that

the capitalist market system that we have is undergoing a significant amount of change.

That’s not a value judgment on my part; I’m just saying that we have been through a

period in which the prevailing mantra is the less regulation the better, government

should get out of the market, the entire 1990s and half of the past decade, that was the

prevalent philosophy and I think that the greatest standard bearer for this is Alan

Greenspan. We have undergone in my view a very significant shift – whatever the

rhetoric of our national election is – we are in a period where there are a plethora of

new risks, risks that we didn’t think about before. We have enormous political risk in

the system, and when I say political risk, in the past political risk was a government is

going to come in and expropriate a company. I’m not talking about that. I suppose

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that’s occasionally possible, but I’m talking about the risk of government policy shifting.

Shifting. And why is that risk so great? Is because governments are under enormous

pressure to come to grips with globalization. They don’t know exactly what policies to

follow. We’re seeing great alternation between different parties in virtually every

country. So if you’re a company and you’re trying to make a plan, or you’re trying to

invest the capricious behavior of government has become an enormous political risk and

I believe that it’s factored into the markets and is a real explanation of why the markets

are behaving the way they have. We have the risk of enormous economic volatility. We

have the risk of natural and manmade disasters much more than appears have

happened in the last several decades and with the world economy where everything is

so tightly connected which is a theme I’m going to keep coming back to, a disruption has

a contagious effect. Whether it was the tsunami in Japan, or whether it’s the floods in

Thailand, every company has created these very elaborate supply chains and every

company is at risk because of a lot of factors beyond their control. And I think that the

biggest risk of all here is that we don’t understand, nobody understands, nobody can

understand, the intricate connections in the world economy today. This is like a whole

bunch of wires that have been scrambled up, and if the financial crisis of the last couple

of years showed anything, it was that nobody understands what’s connected to

something else. Nobody understands the potential for collateral damage, how great it

would be, and consequently we don’t have the circuit breakers and we don’t have the

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policies to deal with that. And that’s not a criticism to anyone; that is just a fact that

over the last 20 years the global economy has become so interconnected and with

information technology that makes it even more intricate and speeds up the

transmission mechanisms, we will be unscrambling this or trying to deal with it for

longer than anybody here is alive.

And finally, in these transitional times, I would say we have almost

unprecedented opportunities. We talked about the risks, but the other side is over the

next couple of decades, we’re going to see the revitalization and the renovation of

industries, traditional industries, whether it’s automobiles, whether it’s energy. We’re

going to see a whole bunch of new industries, the combination of computers and

biology, nanotechnology. And I’ll come back to this but we’re going to see centers of

new vitality which I think are going to emerge around the world in the form of huge

hyper-urbanization. There are going to be many, many new cities that are created and

cities have historically been the source of most creativity and in fact I would say cities

are the source of 99.9% of all creativity. And why is that? I have no bias, and no urban

bias, it’s just that creativity occurs when people are pushed together. And when they

specialize. And it’s only in an urban area when you have extreme specialization, and the

more specialization you have, the deeper you go, the more innovation you can achieve,

or the more foundation you can make for innovation.

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So that’s my framework. Supercycle. Massive transition. Not totally

unprecedented, but very rare. And maybe we should be very pleased that we have the

opportunity to live in this kind of transition. Pleased in the sense that it’s very exciting,

it’s very challenging. It summons our energies and it summons our imagination and it

creates unprecedented competition.

Current Picture

So within this, let’s just talk about today. Let’s talk about today and maybe the

next couple of years. And I want to describe where I think we are this way.

We are in the wake of an enormous financial shock and a deeply serious

recession. Not everybody’s out of the recession, but let me just oversimplify and say at

least we and Asia are coming out of it. But there are huge scars and there are huge

lingering problems that will go on for quite a while. And I’m not even sure how

permanent this is; I'm giving you a snapshot in time. But if it was two months ago, I

would have said that the consensus is that we are headed back into recession. So I

guess who knows? I mean, two months ago for the previous six months, all the

projections were being revised downward. The International Monetary Fund the

Council of Economic Advisers, the OECD – no matter where you looked, they were all

looking ahead at the next year and saying their growth would be slower. Well it seems

to have stopped at least here. And it doesn’t obviate the fact that the world has

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undergone a very significant contraction, and it’s what we would have expected from a

major financial crisis. But it lingers.

The global situation is actually characterized by three different situations which

makes it very difficult to analyze and prescribe policies for. In emerging markets, the

growth is quite robust, although they do have a number of challenges and it’s not clear

that they can continue the breakneck pace that they have had. In Europe it’s near

recessionary conditions and it is almost impossible to conceive of why that would

change over the next couple of years. And in the US, as I say, it’s kind of a mixed bag.

Growth is picking up, employment’s dropping. But in fact, it is very hard to say that

anything fundamental has changed here. It is hard to point to any improvement, let’s

say, in our secondary education system. It is hard to show that there has been any

progress towards fixing the crumbling infrastructure. On almost every issue we face,

there is polarization. There has been nothing done so far in the fiscal situation other

than the likelihood or the possibility, but not the certainty that the money that the

failure of the super committee and the consequent sequestering of funds, that may take

place. And if that takes place, that will be our first real foray into fiscal retrenchment.

But anyone who’s been to Washington knows they have a hundred ways of squeezing

out of this. So I think that most of the risks in this global economy which some people

call the 3 speed economy, I think most of the risks are still on the downside.

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And I’d like to tell you… these are the things that I worry about: I worry about a

financial system that doesn’t regain its footing. You know, the financial system was

rescued, there’s certainly a lot of scrutiny about banks rewarding their executives much

too much and the banks gaining some profitability, and no one is talking about a

collapse of the financial system now. So we shouldn’t minimize that because it came

very close. But that’s a whole different thing than saying we have a healthy financial

system that is capable of mobilizing the massive amounts of money that are going to be

needed for investment around the world. If you look at the banks what you see is deer

in the headlights because they don’t know what’s coming down the road with regard to

regulation. We have in train the largest financial regulatory juggernaut since the 1930’s;

I think it might even be bigger. It hasn’t happened yet. It hasn’t happened because it

took a while to get the legislation, and the legislation then has to be interpreted through

regulations, but what is coming down the pike – there is this one thing I won’t go into,

it’s called the Volcker Rule, which started out as three paragraphs, then went to 18

pages, and now is 300 pages. And every one of those pages is a full employment act for

the accounting firms and the law firms. And I’m talking about one regulation.

So on an international scale, the problem is that we have our regulatory system,

but every other country has its, and there has been almost no harmonization. So you

have a global financial system that is being cut up into different pieces. So I’m not sure,

I worry about this because I’m not sure, I have no brief for the banks, but this is the

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circulatory system. This doesn’t work, there’s no way that we’re going to have the kind

of growth that is even being projected now and that is not such a robust growth any

way, either in the US or globally.

A second thing I worry about is a chaotic – let’s call it a second act – for Greece. I

think the overwhelming consensus is that the deal that was done for Greece, the debt

restructuring, is just an effort to buy a little time. The numbers don’t even come close

to adding up. And basically what was done is some of the debt was reduced and the

Greeks were forced into another round of austerity. One way to think about this is if we

tried to manage that austerity, and we have a much more sophisticated economy, we

would have a revolution. They’ve been in recession for 5 years. It would be as if we

would take our deficit in 3 years and cut it by 2/3. It would be as if we would sustain

unemployment of 20-25% for the sake of bankers. So there’s no way this is going to

work and therefore this shoe has yet to drop. And it isn’t so much about Greece itself,

but it is the contagion, because there are several other countries that the banks are

looking at and having been on Wall Street I know how this works – they’re delusional.

They’re totally delusional. They think that, well we got a deal; we’ll worry about this

later. Well, the handwriting is on the wall – what will happen to Portugal, what will

happen to Italy? I’m not predicting anything, all I’m saying is I worry about this. When I

think about the world economy going forward, I worry about that.

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I worry about a philosophy which the Europeans have embraced and which a lot

of Americas embrace and that is that the answer to growth is austerity. I don’t see it; I

don’t understand how austerity alone, other than some ideological sense, is a recipe for

growth. I’m not saying that austerity itself doesn’t have a place, but to have austerity

without investment, without new sources of revenue; without having policies that

enhance competitiveness; without all that, all you’ve got is austerity. And the

Europeans have embraced that and I worry that we’re headed in this direction too. That

in a polarized situation, the default that everybody agrees on is cut, cut, cut. And

whatever amount of waste is in the system, and we all know there’s a massive amount,

that will not make us more competitive. It’s not going to make the Europeans more

competitive. And you have sitting out there these emerging markets whose philosophy

is not about austerity at all. And who have massive amounts of capital and energy and

ambition. And we simply are not going to be able to compete with them, and I’m not

talking about just the low end of wages. So I think it’s a real flawed philosophy.

I worry about a geopolitical event. Now the one that’s on everyone’s mind of

course is war with Iran. I’m going to just put that aside because who knows? It’s going

to happen or it’s not going to happen. But I’ll tell you another one which I think is very –

I’m going to make a double negative – it’s not improbable. And that’s a cyber-attack

against a vital network, whether it’s energy grid or financial network. It’s too easy, it’s

one of those things that’s kind of like 9/11 where there were a lot of people who

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predicted it and others said that’s not going to happen. But the technical capability of a

cyber-attack is there. And you know whether or not we will be able to deal with it, I

think that if for example the New York Stock Exchange was shut down, I think that

would send tremors through the markets for a long time. Or if there was an attack on a

major bank, that would have cascading effects. So we’re very close to something like

that. And I’m not saying – I want to be clear – I’m not saying this to be alarmist. I’m

actually saying it to illustrate the fragility of a world economy where everything is so

closely connected. And I’m not accusing anyone of being asleep at the switch; I’m

certainly not the only person to say the least who’s talking about a cyber-attack. We

may be doing everything we can to anticipate it and deal with it, but I don’t believe that

we have the mechanism in place to stop it. So I worry about that.

And finally, I worry, just looking at today’s trends, that the world is out of gas

when it comes to crisis management. I think that there is something in the air – and I

don’t know why this has happened – but because the financial crisis really took it out of

countries in terms of marshaling common efforts. It was like a massive fire brigade –

the central banks, the finance ministries, the heads of states, the G-20 summit meetings,

this went on for a couple of years. And they did one thing – they stopped the financial

system from imploding. A huge victory. But in the wake of that, everyone is tired, but

even more significantly, we’ve kind of turned inward. You hear very little meaningful

discussion about serious global economic cooperation now. There are no global trade

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negotiations as there have been for most of the post-war period. Instead, there are

individual trade deals and some regional things, but the effort to have a global

negotiation has always existed. It’s dead. There’s not even a discussion of having an

international arrangement on currencies. We’re pounding the Chinese about the value

of their currency; but you know it doesn’t work, one country against another – it doesn’t

work. You have to have a multi-lateral arrangement. No discussion about that. Those

of you who are interested in climate change know that this has been one of the great

fiascoes of all times – inability to come up with even the rudiments of even a global

agreement. And I mentioned before about the financial regulations – every country

going its own way. So at a very time when I’m describing the interconnectedness and

the problems with the interconnectedness and the risks, we have a political kind of

gestalt which is moving in the wrong direction. It’s not vocal, it’s not that people are

standing up on the rooftops and swearing at one another, it’s just that the air is out of

the balloon. And so if any of the things that I talk about happen, I’m worried that we

don’t have the ability to really deal with it. Or deal with it effectively. It’s not a small

thing, but maybe a very concrete thing is that all the central banks who in other times

can be counted on to gun the engines, they’re all out of… everybody’s got zero interest

rates. You’re not going to have … the notion that somehow the central banks will come

to the rescue again, it’s far-fetched. So, no fire brigade and very little ammo.

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Whether I’m right or wrong, I tell you, I could be wrong – I’m going to give you

one or two scenarios to show you I can see the other side. I just painted a picture of a

lot of things that can go wrong. Let me tell you three things that can go really right and

make what I said look ridiculous in retrospect.

One is that we have a national election and no matter who wins, there is a burst

of energy in the next administration and congress and there’s somehow a realization

that in the first six months is the only time that they can actually come up with a long-

term fiscal policy and for reasons that none of us can predict now, it happens. It’s a real

framework. And it has significant cuts and it has a revamping of the tax code – not

necessarily higher taxes, but a fairer broader tax system – and at the same time

America’s corporations which are flush with capital, they decide now is the time and

some of this capital really starts to be invested. And so you have in 2013 a real

turnaround in American psychology. I might say the amount of corporate investment in

the US now relative to the GDP is the lowest that it’s been for 60 years. So you don’t

need an awful lot to declare victory. And the same with the fiscal agreement – we’re at

such a dead end that even something relatively modest would be hailed as one of the

greatest victories of all times. So that kind of exuberance could really get the US

economy going. And one thing about our economy is nobody can really fully

understand it, and we have enormous energy and enormous resilience. And who

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knows? It could just begin to move and that could have a contagion effect around the

world. And some of the things that I said would just appear to be totally wrong.

The second thing that could happen is that Europe gets a grip on itself. Greece

defaults; I don’t see any way that Greece is not going to default. Actually it has

defaulted, but basically the game is up and the Greeks say we have to leave the

European Union. And the European Central Bank says they’re right, they don’t belong

here, we’re going to help them. And a way is found for them to leave the European

Union without a massive fallout. And then suddenly everybody realizes you know what?

There’s going to be a smaller European Union. Take Portugal, you do the same thing.

Ireland, you do the same thing. And we are looking at a European Union which is

smaller, stronger, more competitive, and all of this pessimism in one-third of the world

economy is suddenly… it’s gone. And that has a massive contagion… and a comment to

both of these is there are trillions of dollars waiting to be invested if the atmosphere is

right.

And the third thing that could happen – and maybe these things would happen in

combination – is the third thing is that China – there’s a big question mark hanging over

China because China’s growth has been almost entirely a result of an export model.

They’re very logical, they have low cost labor, and for the last 20-30 years, they have

been an export machine and the west has been a very receptive destination. This game

is up for China. Let’s say, this game is ending because first of all, their wages are going

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up and secondly I believe, I’ll come back to this, we are about to … the whole trading

system is about to become much nastier with China as the target. The combination of

their exports and their violation of intellectual property rights, and the new industrial

policy that they have in which you can’t invest there unless you give up your technology,

the west is fed up. But China has one ace in the hole and that is it doesn’t have to be

this major exporter. It could actually generate all this demand from within China. It has

never done that; it has suppressed demand. But if it shifts this model – there’s a lot of

controversy as to whether it can – but if it did, suddenly, we can have a wellspring of

new demand there and not only would their own exports be reoriented, but we would

have a huge market.

So I picked these 3 things, I could pick some more, and say there are scenarios in

which the current situation doesn’t have to be as downbeat as I’ve made it sound. I

don’t believe any of that’s going to happen incidentally, but I think the better part of

valor is to say, is to be humble, because very few people can really predict these things.

Longer Term Trends

So let me go to the six long-term trends that I want to talk about. At any point,

you think we should take a break, you let me know. I’m going to just outline the six and

go through each of them.

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The first has to do with the wealthy industrialized countries, and I’m going to talk

about the ten year deleveraging that’s going to take place. And why that is so historical

and the impact so dramatic. Then I’m going to talk about emerging markets and how

the center of global gravity is shifting there. Then I want to talk about globalization itself

and how quickly it is accelerating. And almost counter intuitively, I want to talk about

the global trade and financial system and why it’s becoming more competitive and also

more brutal and tougher. Fifth, I’m going to talk about the political and economic

implications of communications technology. And finally I’m going to talk about the

vulnerability of the global system – two different kinds of shocks.

So I’m going to start with developed world, the industrial world, and the story

here is that wherever you look, the debts are unsustainable. The US has a better

situation than the others because our real crunch point is still several years away.

Nobody denies it’s unsustainable, but the issue is much less this year or next year – in

fact, some projects show that the deficit may go down a little bit before it really starts to

soar as a result of the baby boomers and health care. But in Europe and in Japan, the

debts are absolutely massive and there’s only one way out of this and that’s what’s

called “deleveraging”. That is that there has to be some combination of cuts in spending

and increases in taxes. But the European taxes are already very high; the odds of their

being able to tax significantly more and have any hope of being competitive is virtually

nil. And Japan incidentally has the highest debt of all; it has not been talked about so

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much because most of that debt is actually held by Japanese and there is a sense that

the Japanese citizens would never dump their own debt. As someone who’s lived in

Japan I can understand that; but I think that in an increasingly interconnected world,

this may be some nostalgia for Japan that no longer exists or will no longer exist 5 years

from now.

But let’s just say we’re all – the industrial world – in the same general boat. And

this deleveraging has some really big implications. For example, one of the things that it

means is that headwinds to growth are very strong. And they’re very strong because

the activity of government which has propelled a lot of these countries is going to have

to be cut back. We’re going to see massive withdrawal of governments from the

economies. In Europe that would mean selling state-owned companies; it would mean

safety nets, social security systems, health care systems, that would have to be much

more privatized. It means the removal of subsidies from a lot of industries, and it also

means once the government moves out, there’s going to have to be all kinds of

innovation to replace whatever was there. And this is a long process; we’re talking

perhaps 10 years. And I guess another way to say it is we’re seeing a massive structural

transformation in Europe and I believe we’ll see it here. We’ll see it here, for example,

that whatever happens our government and the perfect metaphor is the Obama

stimulus plan and the aspirations to invest in alternative energy, a lot of that went

astray, but one way or another it wasn’t going to last anyway. Because once that

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stimulus was over, we’ve seen our last bout of a major government investment for a

long, long time. And it raises real questions about the structures of these economies

and the relationship between government and the private sector, and it’s going to be

over a long period of time that all this is going to happen. And as I say, it will make

growth that much harder to do.

The second trend is actually much different; it has to do with emerging markets.

And here, whether we’re talking about Asia, but we can also talk about Latin America,

we’re seeing a shift of economic power, economic influence, to these countries. Right

now, over half the world’s GDP is coming from emerging markets. If I had talked to you

about three or four years ago, it would have been less than a third, and it’s moving up

very fast. But I think the bigger thing is that emerging markets on average are growing 3

to 4 times faster than developed countries. It used to be that the world economy was

propelled by the demand of the US consumer. That’s changing now. It’s going to be

propelled by the demand in emerging markets. And one part of that demand is going to

be the growth of a middle class – now it’s not necessarily middle class in terms of our

income level – but its middle class in terms of what they’re able to purchase in their

countries with their own currency. So, for example, it may cost us $50,000 to buy a

house; they can buy a house – I’m just making this up – for $20,000. So it’s what they

can purchase in terms of middle class; and I just want to give you two numbers which

are sort of starting, that over the last 30 years, the middle class in emerging markets

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grew from 700 million to 1.8 billion. So let’s say it more or less doubled. But the World

Bank projects over the next 30 years, it’s going to grow from that 1.8 to 5 billion, that is

a net increase of more than 3 billion. So in the 60 year period, and let’s go back to my

notion of the supercycle, we will have acquired some 5 billion people with middle class

purchasing power from emerging markets. By any measure that changes the entire

picture in the global economy, for anything you want to talk about. I’m talking about

demand, but I could talk about the labor supply as well. I could talk about cities.

Today’s February 22, that 180,000 people today moved from the country to the city in

emerging markets. How do I know it’s 180,000? It’s because it’s 180,000 every single

day between the year 2005 and 2045. Want to look at it another way – it’s about six

New York Cities every year that are being built. Now they’re not all brand new; some of

them are extensions of existing cities, but we’re talking about urbanization on a scale

that is totally unprecedented in history, and in all emerging markets.

We’re also talking about companies that are coming from emerging markets that

I sometime call “emerging blue chips”, but it’s a little patronizing because a lot of these

have emerged. I mean, you wouldn’t call Samsung or LG an emerging multinational or

CEMEX or Embraer. These are major global companies from however you want to

describe them, but behind them are hundreds. And these are companies that have

grown up behind very high walls. They know their own countries very well. They’ve

been protected. Now they’re kind of let loose, and they have access to all the capital in

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the world, not just because their countries may have some capital, but because capital

everywhere is very anxious to invest in them. They have access to all the technology

they could possibly want. And, very apropos of this group, they have access to

incredible talent. I see my students at Yale, and if you said to them, how would you like

to go to work in a growing company in an emerging market, they’d jump at it. They’re

convinced that this is where the future is. And as the job markets tighten in the western

world, the movement of labor to emerging blue chips is going to be great. Those

companies are also coming here to the U.S. So it’s not like you have to pack up and

move to another country; it’s just, you want to work for Tata, you can do that in the US,

you can do that in England. All I’m saying is there are going to be a lot of them, and they

have, in many cases, they have different business models, they have different

philosophies. I don’t want to overstate that, but there’s going to be a real competition

for style and ideas. And so when people talk about emerging economies and the shift,

it’s a lot more than just countries with an ever bigger GDP.

The third trend is the acceleration and intensification of globalization. A decade

ago, so it’s actually about 2002, was after the dot com bust, McKinsey estimated we

were between 10 and 20 percent; the world was 10-20% as globalized as it would

become. I can assure you it is far more than that now. Just the magnitude of capital

flows or the expansion of trade and the supply chains, or the enormous movement of

people, and especially communications technology, which all of you are deeply involved

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with, that has allowed people from different countries to collaborate, to interact, to do

research without moving to plan, to exchange ideas, that’s sort of off the charts. Or the

ability of groups, such as in the Arab Spring, to see what people in another country are

thinking and doing, and for that to happen… you know, it’s not that it hasn’t happened

in the past, it happened hundreds of years ago, but not with this speed, and not with

this intensity. In fact, I think what globalization has done is that the very notion of what

is a market, how do you measure what the size of a market is, you have to conclude

now, it’s global. Somebody came to see me the other day and he was a consultant to

the Stock Exchange in Laos. I said, what? A stock exchange in Laos? When I was in the

military, I was stationed on the Thai Laotian border, I mean, you couldn’t even find…

there wasn’t so much as a telephone. A stock exchange in Laos? We’re seeing the

expansion of everything we know to the far corners of the earth, and it just continues to

go, despite the fact that the risks are multiplied and the complexities have increased.

But this brings me to a fourth trend which I think is part of globalization, and I

think that is the international economic environment is increasingly unsettled, it’s more

competitive, and it’s becoming more confrontational. Countries are fighting with each

other over so many different things now because what globalization has done is it’s

brought people very close to their core concerns and the sensitivities. So for example

when maybe a year ago, the Federal Reserve, or it might have been less than a year ago,

the Federal Reserve decides to ease money in interest of helping the US economy and

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governments all over the world screamed that the Federal Reserve had no right to do

that without consulting with them, because in lowering the interest rate, they also

lowered the value of the dollar. And people felt that was their business. And the Fed

says, none of your business, the dollar belongs to us. Well a lot of people around the

world use the dollar and think the dollar belongs to them, too. So you’re getting into

fights on what are essentially domestic issues. There are trade battles that are going on

and nobody knows how these are going to be resolved.

I mentioned China, China’s decided to have an industrial policy which says

basically everybody wants to invest in China, fine, but you don’t invest here without

surrendering your technology first. Well, you know this is to an American or European

audience, this is anathema, this is scandalous. We have intellectual property on our

technology, where do the Chinese get off doing it? And they say, if you don’t like it, you

don’t have to invest here. Of course it’s the biggest, most thriving market in the world

and they have created a situation now that all kinds of trade discussions around this, but

this is going to be a very serious kind of problem as it multiplies all over the place.

Currency wars – every country has concluded that they need a cheaper exchange

rate because everybody wants to export. Well you know you don’t have to be a great

logician to know not everybody can have a cheaper exchange rate without cascading

down to where we were in the 1930’s where you really set off a major trade war.

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I don’t know how this is going to turn out. I do know, though, that there’s a

sense in the air that the atmosphere is very fraught. And going back to what I said

before, there’s no leader. There’s no one in the middle to say this is the way the system

has to work and we are willing to make some sacrifices if you are. Britain played that

role in the 1900’s, early 20th century, before World War I. United States played that

role. But there’s nobody to play that role now so you have a system that existed that is

beginning to fray with nobody who is actually in charge.

And there are a set of trade in finance issues that are really up in the air, for

example, I think that over the next several years, ten years from now, we’re looking

back, there are going to be two areas of the world where there’s a massive amount of

trade and investment that ten years ago we never would have believed. And one is

Eurasia. All those countries that used to be part of the former Soviet Union, they’re very

rich in resources. And they are – we go back, I don’t know if you believe in cycles in

history, but there was a time when this was the center of the world, and they’re

wealthy, but they had no rules. I mean, this makes our wild west look like downtown

New York City. And so with no rules and massive corruption and certainly nothing even

approaching intellectual property rights, right there in the heart of the world economy,

we are seeing something emerge which is going to be very problematic for any kind of

international cooperation. Or you have China, desperate for resources, looking at Africa

particularly, and basically buying off one country after another. To be sure, the US tried

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to do that at one time, I’m not saying that China’s got a monopoly on it, but they’re a lot

better at it than we are because they don’t care about anything else. We at least gave a

semblance of saying you’ve got to clean up your act; the government has to follow

certain policies. The Chinese don’t care about that; all they want is access to the

resources. If somebody wants to be a corrupt dictator, in fact, it’s a lot easier for the

Chinese, so long as that dictator can keep the peace.

So I think that the world economy, even as it gets much more interconnected,

and that interconnectedness accelerates, we have these centrifugal forces which are not

to be minimized because it’s not that we haven’t had them all along, but there’s always

been this central umpire or policeman and that country doesn’t exist anymore.

So the fifth trend is really the political and economic implications of the new

communications technologies. And you know you can go from the Arab Spring to the

mining of Big Data to the whole issue of how you get feedback from customers – three

very, very different things, hard to even get your mind around those three concepts in

one sentence. But they’re all connected by one thing and that is the new

communications technologies. And this connectivity is a real game changer to say the

least. Because it’s the first time in the world that virtually everybody can be connected.

And we don’t know exactly what those implications are; I mean, we don’t know whether

the Arab Spring is a precursor to the Russian Spring and the Chinese Spring. As

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somebody who goes to China fairly regularly, I can tell you the Chinese are not sure

either and this is their biggest nightmare. This is their biggest nightmare.

We don’t know what happens when several billion people are looking at the

exact same message at the exact same time. It’s going to happen very soon. We don’t

know what the mining of data combined with the communications technology will do to

our ability to prevent diseases which from time immemorial have put a limit on human

life. Or let’s say to predict natural disasters that kill tens of thousands and maybe more

people every year. So this is a trend in the sense that it is clearly a game changer, it’s

clearly transformational, it’s moving very fast and nobody can really pinpoint what it’s

going to mean in terms of the world we live in or even how companies are going to

operate and compete.

And finally let me talk about the sixth trend, which I say is the vulnerability and

susceptibility to shocks – the world economy being I think more prone to a massive

dislocation both by manmade or natural disasters. Let me just say as an aside, I’ve

started to teach a course at Yale called Managing Global Catastrophes. And we take ten

catastrophes, some of which are manmade and some of which are natural, and we look

at each. They range from the Asian tsunami to the BP oil spill to the famine in Somalia

or the radiation leak in Japan. And we’re trying to ask the question, what do these great

catastrophes have in common? How do you think about them? And one of the things

for sure is that what we kind of think of as once in a lifetime catastrophes seem to be

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coming much more than once in a lifetime. The financial crises alone – there have been

so many in the last 20 years that we don’t even think about them in terms of great

catastrophes, but they are if you look at how they have impacted human life. But

whether it’s financial, whether it’s political, whether they are natural disasters, they

have this in common – it’s about complex systems. The world is made up of complex

systems and complex networks that have exceeded our ability to fully understand. And

it creates a level of enormous risk which means that even a crisis that takes place in one

part of the world, the devaluation of the Thai Baht in 1996 can spread all the way across

in a very short period of time and nobody really understands the transmission

mechanism. And so this is a world economy that is very taut, that is like a string that is

very, very tight, and it doesn’t take very much for it to snap. And how we get out of that

is anybody’s guess because all the implications of globalization so far is to make that

rope tighter. In a different world, where the public authorities could match everyone

else in terms of their capacity, we might have cushions, we might have redundancies,

we might actually have a foundation that makes it possible to break that rope without

the great damage, but that is not what exists now and I’m saying it won’t happen for

many years to come.

THE COMPANY OF THE FUTURE

So I am now coming to the company of the future, trying to pull together some of

the themes that I’ve already talked about. And I just want to say that I think the

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company of the future is not some science fiction construct that assumes the company

of the future is totally different from today’s company. Obviously this evolution and

sometimes small changes make a huge difference. So in say even broaching the subject

I don’t want to give the impression that I don’t think that highly competitive companies

today are not equipped to deal with the trends that I talked about, only that I think

there’s going to be some more evolution. And I just think that we’re going to be in a

world where companies are going to have to think about how they adapt to change in

maybe a more intense way and a more deliberate way than they have done because the

nature of this change is so dramatic and sometimes almost discontinuous.

So I think the first thing I want to talk about is that the great companies of

tomorrow are going to deliberately articulate a purpose that goes beyond just pure

profitability. It’s not that any company can survive without being profitable. As

somebody said, if you’re not profitable all other issues are moot. But I think that we’re

moving into an era in which it will be essential to have a North Star to navigate the

complexity and that that North Star will have to have at its core some way to improve

society. If a company like Toyota, which is a great company, obviously wants to be the

world’s greatest automobile company, obviously riveted on making money for their

shareholders, but in addition, when you hear them talk, they are saying more and more

about making the transportation system greener and safer. I used to be on the

International Advisory Board of Toyota and they picked one thing which was really in

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their area of competence – green cars, safe cars – and decided that that’s where they

can make a major contribution to society. If a company like General Electric says

obviously we have a problem in terms of its profitability, at least in terms of the share

price, but sustainability, they’re involved in so many different industries that really

relate to sustainability, I think that that is increasingly going to be their focus, and the

focus of companies like that. And you can see it in their programs like Echo Imagination.

These just can’t be slogans; they have to be really at the core of a company to do

something that is very concrete, very measurable, and very needed by society. And I

think that the reason this is going to happen more and more is one, because as I

mentioned the complexity of the world, you need some sort of simplifying mission. But

secondly, I think it’s going to be the key that attracts the best employees. I’ve been at

Yale for 15 years, I’ve seen 15 different classes of students and it is very, very hard to

attract really good people without some motivating concept that translates into making

society better. And I know this isn’t a new concept; I’m just saying it’s going to be more

and more important and it’s going to be more and more of a differentiator. And if a

company doesn’t have – I guess this is the main point – if a company doesn’t have this,

they’re going to be at a tremendous disadvantage. I don’t care how efficient they are

and how profitable they are.

A second big feature of a company of tomorrow is that it has to have a global

mindset. Now I’ve met with lots of companies; I’ve talked to lots of companies that are

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very quick to point out they’re global. They’re in 50 different countries. They have

employees of 20 different nationalities. But that doesn’t constitute a global mindset.

I’m still trying to define exactly what a global mindset is in my own mind, but it has to do

with thinking about the context much more differently. Not so much as a group of

different countries, but as a market place that has no borders. And that as a series of

cultures that are important because you need to somehow find a way to harmonize the

differences, but they’re even more important because they are really different. And

how you maximize the benefits of that differentiation, that’s a global mindset.

I think a global mindset also has to do with how you are run at the very top. You

look at a board of a company and you examine whether there really is the knowledge

and the experience and you don’t find so many. Oh sure, you can find Joe who ran a

division of a company abroad and is now retired and he’s one of the international guys.

But that isn’t really, that doesn’t quite suffice for someone who is really in tune with the

rhythms of the global economy and the global market, and understands competition

from different angles coming from different countries. Or the workforce that is

composed of different nationalities, sure. But how much intermingling do you really

have? How much opportunity does the middle manager in Malaysia have to move up

the ladder and be a major player operating in the US? I think a global mindset has to do

with the way a company is organized. Many companies are decentralizing, but the real

leaders, the real global leaders, are moving whole operations, the headquarters of

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whole operations, to different countries depending on the advantage that that

particular country affords. General Electric just sent the head of all of its international

operations to live in Hong Kong. IBM is way ahead of companies in doing this, they

basically chopped their company into different parts and their headquarters are all over

the world, different divisions all over the world.

A global mindset has something to do with your appetite for ideas from every

single quarter. When Procter & Gamble said a few years ago that first 25% and then

50% and now I don’t know if it’s more than that, all of their new ideas are going to come

from outside of Procter & Gamble, it was a revolution for them because they were

known as being very tightly organized. And they set to work figuring out where are the

smartest people in the world and how do we tap into them? That is a global mindset.

IBM and what it calls its collaboratories where they have joined ventures with not just

other companies, but NGOs and research universities to mine ideas from every

possibility.

One of the real trends here is going to be that some of the greatest ideas are not

coming from the west anymore; they’re coming from emerging markets and they

require a whole new mindset because you can’t plumb those ideas by taking a western

product and trying to tailor it for an emerging market. You have to do it the other way;

you have to make something in an emerging market for the local population and then

figure out how that actually relates to a more sophisticated economy. So to use General

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Electric again, they basically cannibalized themselves; they created a disruptive

technology by making small x-ray machines in India for the Indian population, then

realized these handheld things are very useful in the US on accident scenes. And we are

at the cusp of a whole range of ideas that will be developed in emerging markets that

can come back here. Whether it’s a $5000 car or whether it’s the way we package

detergents, remember the numbers I cited about the emerging middle class, just

because they can’t use our products, doesn’t mean we can’t use things that are going to

be developed in that market for them, or that there isn’t an innovation that falls in

between. You know, Tata made a car that’s $3000, it’s not a great success yet, but it’s

going to enter the European market at $8000. And between $8000 and $20,000,

whatever our cars sell for, there’s a lot of room there. And how did they build that car?

By starting from zero. They didn’t take a Ford and try to cut down the cost; they started

from zero and built it up from the bottom. Taking every single part and figuring out how

to make it cheaper; or do you need the part to begin with; or what kind of material to

use? So this sort of disruptive technology from emerging markets is going to change the

entire world and the companies that are organized both structurally and mentally to say

three-quarters of the world is elsewhere, more than that, 80%, and you have this

enormous middle class emerging with appetites for everything, but they don’t want

exactly the stuff we have. We have a lot of built-in costs that really shouldn’t be there.

We have a lot of complexity that is probably not necessary. How you develop that

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global mindset to say this is the new market; it’s no longer about selling western

products there, it’s about finding out what works in those environments and how can

we adapt it and can we have a lower cost structure? Can we increase our range of

choice?

I think the third thing about the company of the future is that it’s going to be very

strategic and very agile, and I’d put these two together. Because in a world of change

you really don’t know where the ball is going to bounce. A company has to have the

ability to move in and out of a market, in and out of an investment in the same way that

venture capitalists do. So it requires a mentality of saying we’ll take a risk and we’ll cut

the loss - just because we made this investment doesn’t mean we’re wedded to it; on

the other hand, we don’t go into anything without knowing how we would scale it very

quickly because if it works everybody’s going to know it works and we’ll be in a

competitive dogfight right away. So that’s agility.

And agility also has to do with resilience. I talk about all these risks; I talk about

the possibilities of shock. It isn’t so much that a company can avoid being vulnerable or

prevent a shock; the question is how fast can it recover? How can it build in enormous

resiliency either by redundant supply chains or if you’re in a financial institution, making

sure you have more than the minimal amount of reserves. Or if you are looking at the

personnel system, do you have the right succession plans everywhere. But the

consciousness of extra resiliency in a world without the shock absorbers I think is going

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to be very, very important and will determine the competitive fate of a lot of

companies.

Fourth, I think the company of the future has a lot to do with the nature of

strategic planning. A lot of companies do strategic planning, but it is kind of pro forma

and I think that it is a legitimate question – how do you plan strategically in a world that

is so uncertain? I think that it is a real mistake to say that you don’t. But there is a right

way to do strategic planning which basically takes a leaf out of the book of Andy Grove

when he ran into it and he said “engage and then strategize”. Not the other way around.

That is, you’ve got to jump in the pool and you’ve got to figure out, okay, we’re in this

pool, how do we make the best of it, what are the longer term implications? And, by

the way, who else is in this pool and define the ecosystem very broadly? It’s a very

sophisticated strategic planning that requires people who are real collateral thinkers

and have very broad collateral vision because it’s not just about planning about what

you’re going to do, it’s planning about what your competitors are going to do and

planning what may happen in terms of external events. And I think the company of the

future is going to have massive amount of game playing, scenario playing, and trying to

basically think of all the different sort of contingencies that might happen as opposed to

laying out where are we going to be 5 years from now, because I don’t think that’s

noble.

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Fifth, I think the company of the future is going to have to be much more savvy

about understanding public policy. One of my themes here has been that the link

between public and private is changing, that market capitalism or market

fundamentalism is over. And for better or worse, we’re going to see the reinsertion of

government everywhere. It’s not going to be pretty, not going to be coordinated, not

necessarily going to be smaller, but I think that with globalization we had a kind of

globalization that was very free-market oriented. In the same way that the evolution of

the US at one time there was virtually, there was very little government. We didn’t have

big government of any kind in this country until Franklin Roosevelt. So it was a long

period of time in which basically the private sector got on with it. But those days are

over and on a global scale those days are going to be over too, although it’s going to be

far less intelligently done because we have so many different kinds of government.

That said, the company of the future’s going to have to really understand public

risks and they’re also going to have to understand public opportunities. I talked about

the deleveraging of the western countries. There are a massive amount of new

opportunities that are going to come with that. I’ve talked elsewhere about something

called the austerity boom. All this austerity is going to produce a huge number of

commercial opportunities because the austerity is going to translate into governments

moving out, subsidies being removed, needs that were met not being met, and therein

lies enormous opportunities for companies. So when I say the company of the future

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needs to really come to grips and have people who are very savvy about how

governments work and who field building relations with governments and

understanding government policy, is not something that is done over here on the side,

but is actually very core to the future of companies. It’s a very serious thing. And it’s

very different than what existed before because at least most people that I know in the

business world, they don’t want to get near that. They might have a public affairs

group; I’m not talking about that at all; I’m talking about the CEO and the top

management really having an understanding of how the public sector functions. And

looking at it both through a lens of risk and a lens of opportunity.

Which brings me really to the last point and that is the company of the future,

the successful company of the future, is going to have to have a superior way of

identifying and developing and engaging top talent. And that’s, of course, where you

live and I want to talk a little bit about some of the human resource dimensions of this

world that I have been painting. Again, with the caveat that this is an area where you

have thought much more than I have. But I think the first thing is that executives are

going to have to know a lot more than they know now, that the level of the ability to

somehow cram into their heads amongst all the other stuff – and I’m not talking about

dropping anything, but I’m talking about adding, this is going to be a real challenge. And

understanding of global business and economic dynamics. A lot of CEOs I’ve met, they

came at this very late. They arrived and suddenly this is something that they had to do

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and they always say, there’s no real training to be a CEO. It’s different than any other

job, and of course a lot of that is true. But I’m just saying, you want to look at the

company of the future, you are going to need people who have had a whole wealth of

knowledge and experience on these global issues before they actually get to the top

positions. And I think that goes also for the boards of directors. And among the skills,

among the many skills, is the need to be able to bridge different functions, different

cultures, it’s being able to operate at the intersection of all kinds of things that don’t

necessarily go together because when you think about globalization in its larger sense, it

really is kind of a combination of everything – of politics, and economics and social

change and risks and opportunities, and all of the different functions that exist in a

company.

I think the talent requirement in the future is also going to be, how do you create

entrepreneurs in big organizations? How do you spot them? Because often the most

entrepreneurial people are the ones that really don’t get so far ahead. They may think

too far out the box, they may not have exactly the right kind of personality to get along.

And yet in this world which I’m describing which is so unpredictable, you need more

than the usual quotient of people who are going to say, “Hey, it works much

differently.” How do you find those people? What is the test at an early enough stage

so they don’t get weeded out or stunted?

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I think that in a period of enormous change, there’s going to have to be a way to

make people extremely wedded to the organization that they’re a part of because

they’re riding a tiger. They’re really on a roller coaster. All of these companies are

going to experience ups and downs and they’re going to go down blind alleys and

they’re going to be clobbered by the most intense competition from sources that you

didn’t know before. So the question is, how do you build that loyalty and dedication?

And everybody here would say it’s not just about compensation. Well one thing it’s

certainly about in my view, or I take my cue from all of the students I’ve had, is the

opportunity for personal growth. And I mean really substantial opportunities. Not just

to get extra education on what you’re doing, but maybe something like United

Technologies does - get education on anything that you’re interested in. Somehow to

identify that organization as being a home that you would never leave and that you

would give your soul for because everything you want in terms of your personal

development is there. And every opportunity you could conceive of, whether you need

a sabbatical, whether you want to work on a special project for a year to see if it works.

Now I know a lot of this sounds very dreamy, but I’m talking about the ideal that it’s in

this area of non-compensation, personal growth, I think it’s going to become extremely

important in terms of competitiveness in this world that I’m talking about.

One area of learning and growing is crisis management – I see companies

undergoing many different kinds of crises. And how do you actually get the experience

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in crisis management so that when the crisis comes, you actually have some

background? I think that it is not so far-fetched in my view that some of the best people

would actually be assigned to organizations that are in constant crisis. Might be working

with an NGO in Haiti or Somalia where every single day brings problems that you simply

have to wrack your brain because there’s no way to deal with it other than to improvise.

But I think organization needs some people like that who in a way are kind of battle-

hardened, and it would be with an experience that is outside the box.

And finally, I think that there’s a real premium on being able to lead peers. We’re

moving towards less and less hierarchy and the question is what is the training that

allows you to deal with peers and lead at the same time? When I was a young military

guy, I was in the Rangers and the way we trained was we had a squad of about 8 or 9

people and you would go for 5 days, very little sleep, very little food, and every 6 or 7

hours the leader changed. Same people. And I remember rappelling down a cliff and I

had somebody on my back, and then we had to go up again, and I had to get on his

back. And I tell you I knew how scared I was when he was on my back, and how shaky I

was, the notion I’m going to get on his, I just couldn’t believe I was going to do it. I only

mention this because I think that companies need to create projects in which peers are

put on some assignment and they are rotated in such a way that it’s very clear that you

can be a leader one day and you can be a follower the next. Maybe that’s a crazy idea,

but there has to be some kind of very special training in my view, in the same way of a

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crisis management, that doesn’t occur in the routine. And so, there’s a theme here

which is the companies of the future that are the most competitive are going to do it

outside of the normal routines. There’ll be the best in a crisis. They’ll be the first to see

an opportunity that no one else does. It’s not in the day to day stuff, it’s in the

extraordinary events, of which there are going to be many. And it’s very important to

find some ways to train a handful of people, it’s not the entire workforce, but at least

have those kinds of opportunities.

I think that leadership development is vastly underplayed in most companies.

There’s no question that a huge amount of lip service is given to it, but I don’t believe

that it has the same level as strategy or the same level as risk assessment, and I believe

that’s very important that it does. Because I think what you are doing in trying to

identify talent and develop it, that is the heart of the company of the future. Without

that, all the rest doesn’t matter and with that done really well, all the rest comes much

easier. So I know that this is not necessarily in your hands, but I think that it is from the

standpoint if you asked the question, what’s going to really make the difference? I’m

quite sure it’s what you do that is at the heart of what makes companies the best.

Conclusion

I’m going to just conclude with something that derives from a book I’ve been

writing and it may be that this book won’t be finished in our lifetime. But it’s tentatively

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called “From Silk to Silicon” and it is a history of globalization as told through the lives of

ten people. And each of the chapters is about a different person who did something

absolutely monumental. And each chapter explains who were these guys, what did they

do, how did they do it and why did they do it? And why was it them and not somebody

else? So it starts with Genghis Khan, who brought east and west together in a way that

nobody had ever done before, and who actually was the first real age of globalization

because it wasn’t just about trade; he took doctors from Persia and brought them to

China, and he brought engineers and brought them to Persia. You already had the

elements of a globalization that was quite sophisticated. He was the first to do that,

first to do it in that huge span. There’s another guy in there, Prince Henry the Navigator

in the 1400’s who was the person who built the ships, financed the ships that went from

Europe to Asia and Europe to the New World. He started the age of exploration. And in

the process he created a kind of Bell Labs in Portugal, in which he brought all the talent

from around the world – the navigational talent, the shipbuilding talent – he got them

all together and he had this cluster. And of course the world changed with it. There

was a guy that built the Transatlantic Telegraph, which if you think the internet changed

the world, the transatlantic telegraph changed the world ten times more because

before that the news between Europe and the US didn’t move any faster than it did in

the time of Julius Caesar. So overnight, news became global and instantaneous.

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Anyway, there are ten of them and here’s the bottom line: I asked myself the

question, what was common to these guys? And one of the things that was common

was they all lived at a time when there were massive discontinuities and they took

advantage of them. That is, it was the historical circumstances that allowed them to do

something really great. I’ll leave for another time why them and not others, but the

point is there was an opening. And the opening was the result of a massive amount of

chaos and a suspension of the rules and everything disruptive technology, disruptive

investment, everything disruptive.

I believe that we’re at a similar historical juncture. For the time that we’re on

this earth now, certainly the first half of this century, that’s the kind of world we’re

going to live in. And if this history is any example, this is a time of massive opportunity.

History is giving us this opportunity; history is giving us this opening. The question is do

we have the talent to take advantage of it because it’s there for the offering.

Thank you very much.

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