Innholdsfortegnelse for Spring 2016 i Rotman Management

UNTIL RECENTLY, A BUSINESS COULD THRIVE by focusing on customers in developed countries — perhaps combined with one or two megacities from an emerging economy like Brazil or China. Today, such an approach still provides exposure to markets boasting 70 per cent of the world’s GDP. But not for long: by 2025, this approach will target only about one-third of global growth. Within the next decade, 440 cities in developing nations will generate nearly 50 per cent of global GDP growth. Clearly, these changes have significant repercussions for business strategy across industries. Whether you work in financial services, consumer products or run a tech start-up, growing your company will increasingly be about finding new markets and scaling them to global success. In this issue of Rotman Management, we focus on…

The Internet, as it is currently designed, is not all that good for doing business, let alone the peer-to-peer business that can democratize prosperity and engage the world’s population more directly in the global economy. Overall, it has enabled many positive changes — for those with access to it. But without an economic layer to the Net, we can’t establish each other’s identity or trust each other to make transactions without validation from a third party like a bank or a government. Quite the opposite: the internet allows people to commit fraud, collect our data, and invade our privacy; it excludes 2.5 billion people from the global financial system; and it channels power and prosperity to those who already have it, even if they are no longer earning it. The…

IMAGINE THAT YOU ARE HIRING AN EMPLOYEE for a position in which a new perspective would be valuable. While reviewing resumes, you find yourself drawn to a candidate who is quite similar in age and background to your current staff. You remind yourself that it is important to build a cohesive team, and offer her the job. Or, suppose you sit on a board, and are planning to vote against a significant new investment. This is the second time it’s come up, and you voted No before. A colleague argues that conditions have changed, and you can’t afford to lose this opportunity. Upon closer examination, you agree that his data is convincing, but nevertheless, you vote No again. Something about the new information just doesn’t feel relevant. These are examples…

THESE DAYS, BUSINESS LEADERS SPEAK OPTIMISTICALLY about the prospects of globalization, and for good reason. Globalization has fostered an increasingly interconnected world, with nearly $30 trillion in goods and services traded and more than $1 trillion in corporate investment in 2013 alone. Advances in information technology and transportation have facilitated this — connecting developed and developing worlds and lifting some 400 million people out of poverty. There is no turning back: nations are now inextricably linked through global trade and investment. Accordingly, leaders often see themselves as explorers embarking on a mission to conquer far-off, unexplored lands. They salivate at the potential for double-digit sales growth and are seduced by opportunities that promise to slash costs by half or more, simply by shifting operations overseas. Sadly, most companies fail to…

“WE MAY LIVE ON THE SAME CONTINENT, but a Moroccan, a Ghanaian, a Kenyan and a Zambian are quite different. If I take my Kenyan business model and superimpose it on Burundi, I will not be successful.” So declared Joshua Oigara, CEO of Kenya Commercial Bank Group (KCB). And he should know: KCB has become the largest indigenous banking group in East Africa, with operations in Burundi, Rwanda, South Sudan, Tanzania and Uganda. His was a message I heard time and again during my recent research sabbatical to sub-Saharan Africa: copy-and-paste strategies will not work in Africa. For companies wishing to expand their operations across the continent, quantitative data and statistical analyses are meaningless unless they go hand-in-hand with a deeper understanding and appreciation of the non-traditional factors that make…

Abbott Labs Accenture Aditya Birla Group Amex Amsted Rail Amway Anadarko Astellas Pharma BP Bank Mandiri Bank Permata Becton Dickinson BNY Mellon Bank Chevron Chubb & Son Cisco Commerzbank Dell Dover Dow GAP GlaxoSmithKline Goodyear Grupo Alfa Henkel Hershey’s HUAWEI Infinity IBM Intel China Intuit J&J Ketchum Lenovo Maersk Group Nestle Newmount Mining Nippon Sheet Glass Northrop Grumman Orient Pharma Petronas Raytheon Recruit Inc. Rich Products Rakuten STC Saudi Arabia Shiseido Co Smith International Statoil Steelcase Telkom Indonesia Telstra Textron Thomson Reuters Timken Vale Varian Medical Systems Walmart Unidad de Conocimiento…

IT IS 1995, and Procter & Gamble’s Pantene shampoo has just reached a global milestone: $1 billion in sales. Following is an exchange between a journalist and the Pantene brand manager at the time. While the conversation is fictional, the strategic details are factual, as recalled by one of the authors — the former Director of Consumer and Market Knowledge at Procter & Gamble Global. Reporter: How is it that Pantene shampoo is the brand of choice for women all over the world? Brand Manager: Pantene has unrivaled healthy hair benefits versus any mass brand, because of its patented Pro V formula. The brand is very much in touch with the kind of beauty that women everywhere aspire to: all of our TV and print advertisements showcase fabulous hair, but…

You have said that we are in the midst of the world’s third globalization. Please explain. The first globalization ended with World War I, in 1918. After that, we didn’t reach the same level of globalization — in terms of trade, people and ideas — until the 1990s. To paraphrase John Maynard Keynes, on the eve of World War I, what an Englishman could do from his bed while sipping orange juice from Africa and using the wire to do financial transactions, was not repeatable until the beginning of the 1990s. The second globalization was led by the Americans and ran from 1990 to 2007. The third globalization is underway now, and much of it is happening in virtual reality. Just look at the daily transfer of exchange rates, which…

The financial sector is not renowned for creating shared value for society. Tell us how you set out to defy this expectation. A significant portion of our companies operate in emerging markets, so we actually believe that financial services are in a great position to have a major impact on global communities. We have found that succeeding in emerging markets demands one simple thing: being focused on creating mutually beneficial, long-term business partnerships. We started out with a vision that ‘Doing Good is Good Business’, and we proceeded to slowly transform our day-to-day decision making, taking this notion into consideration at every level — from the front lines, to our operational teams, to the board level. We are upbeat about the prospects for emerging markets. The middle class in these…

IN CASE YOU HAVEN’T NOTICED, capitalism is in the midst of a paradigm shift, from an industrial model to one based on creativity and knowledge. In place of the natural resources and large-scale industries that powered industrial capitalism, the growth of ‘creative capitalism’ turns on knowledge, innovation and talent. Creativity differs in fundamental ways from traditional, tangible factors of production. Unlike the resources of the Industrial Age, it is not a stock of ‘things’ that can be depleted or worn out, but rather, an infinitely-renewable resource that can be continually replenished. Based on our research, creativity is attracted to places around the world that embrace and foster three things: Technology, Talent and Tolerance. Introducing the 3Ts Just as the old model of industrial capitalism was organized around major classes —…

Rolling Regional Crises— Divergence and Low Growth Global Deceleration— Convergence With Slower Growth Global Synchronicity— Convergence and Rapid Growth Pockets of Growth— Divergence with Rapid Growth DAY-TO-DAY DEVELOPMENTS in the world economy have become increasingly complex and global in their implications. From Greece to China to Russia, economic shocks are now of greater concern because around the world, traditional policy tools have already been used and financial resources depleted to help economies recover from the last downturn. As a result, strategic decisions have become more consequential. Shocks are inevitable, but strategists must find ways to extract the signals from the noise to understand what lies over the horizon. Three interlinked factors have the potential to shift the global economy from one long-term outcome to another. First, in the near term,…

SIMILARITY BIASES In-group Bias: Perceiving people who are similar to you (in ethnicity, religion, socioeconomic status, profession, etc.) more positively. (“We can trust her; her hometown is near mine.”) Out-group Bias: Perceiving people who are different from you more negatively. (“We can’t trust him; look where he grew up.”) EXPEDIENCE BIASES Confirmation Bias: Seeking and finding evidence that confirms your beliefs and ignoring evidence that does not. (“I trust only one news channel; it tells the truth about the political party I despise.”) Halo Effect: Letting someone’s positive qualities in one area influence overall perception of that individual. (“He may not know much about people, but he’s a great engineer and a hardworking guy; let’s put him in charge of the team.”) EXPERIENCE BIASES False Consensus Effect: Overestimating the universality…

Don Walker CEO, Magna International Inc. ANALYSTS PREDICT that by the end of this decade, global demand for vehicles will grow from roughly 80 million per year to more than 100 million — and most of that growth will come from emerging markets. We consider China to be an ‘emerged’ market. Even though its economic growth has slowed recently, it will continue to be sizeable going forward. Our experience in China has been very good: it has a large and growing population, skilled workers and excellent infrastructure. There is a great deal of opportunity for a global company like ours to thrive there. India, a still-emerging market, is also projected to grow, but there are some challenges there. While it also has plenty of intelligent and skilled people, a lack…

ALTHOUGH CHINESE TELECOM giant Huawei surpassed Ericsson in 2012 as the world leader in terms of sales revenue and net profit, the company is still relatively unknown in the West. Its road to success started in 1987, when it was founded in the economic testing zone of Shenzhen. In the early years, as a private company, it had to battle primarily the State-Owned Enterprise (SOE) dominated market. Its fighting spirit, however, made it resistant to many negative influences, and today Huawei can proudly call itself ‘the only truly global Chinese company’. Indeed, looking at the Fortune Global 500 list, Huawei is the only mainland Chinese company (out of 91 listed) that earns more of its revenue abroad (67 per cent). And the company only seems to be growing stronger: in…

Describe some of the ways in which culture impacts business. A decade ago, the average multinational company might have worked with one foreign culture. But today, a huge percentage of managers have team members from many different countries — so it is imperative that they understand how the various cultures perceive one another, and how to improve collaboration between them. Whether or not we realize it, small variations in communication patterns can have a tremendous impact on how we understand each other. These subtle differences — such as when to speak or stay quiet, or how to provide feedback — may seem minor, but if you don’t understand them, it can lead to a frustrated workforce. Here’s an example: in France, people tend to be quite high-context, or implicit, in…

INDIAN CONSUMERS have embraced the Internet, and global businesses would do well to pay attention: almost 200 million consumers are already connected, and another 200 million will be in the next few years. Some estimates put the total number of Indian Internet users at 550 million — 40 per cent of the population — by 2018. As a result, we expect the Internet to contribute $200 billion to India’s GDP (five per cent of total GDP) by 2020. While these numbers are impressive, we believe the more interesting story lies in the changes taking place behind the numbers. Already, India’s connected consumer is a very different individual (or group of individuals) than he or she was a year or two ago. And the universe of users only a few years…

Global brands offer value across different countries and cultures. What is the best example of a brand that has achieved this? I would have to say Coca-Cola. It rolled out a very interesting global campaign in 2009 called, Open Happiness, with the slogan, ‘Enjoy life’s simple pleasures’. The campaign is about shared happiness, comfort and optimism. In addition to the global rollout, the company allowed its local teams to develop custom campaigns around the concept that made sense for each local community. For example, at the National University of Singapore, they installed a Coke machine with ‘Hug Me’ written on it; and whenever someone hugged the machine, they would get a free Coke. In Latin America, they built a Coke machine with a coin slot that was too high to…

1. Align the Approach. Very early on, we evaluate the business opportunity while also assessing the host government’s approach to its broader national development agenda. Do our values and strategies align with decision-makers’ institutional goals? Does our presence help to achieve other outcomes that are important to the country – like training people with new technical expertise or creating a new industry? Can we find shared outcomes that ensure we will be working together for the long run? If a business doesn’t engage a government in this dialogue before entering a market, the potential value of the partnership quickly diminishes. In the Philippines, for example, government spending increased 17 per cent in a year, with major investments in innovation and efficiency, the two pillars of our water efficiency business, Miya.…

You have said that the modern corporation is in the midst of a ‘perfect storm’. Please explain. Four drivers are transforming the firm as we know it. The first is a new paradigm in technology that includes the social web, Big Data, the Internet of Things, cloud computing, robotics, machine learning and mobility. And there is much more to come. The next stage of the Internet will be based on the underlying technology of bitcoin: The Blockchain is a globally-distributed database of potentially all structured information, and it holds profound implications for the architecture of the corporation and how we create goods and services. The second change is demographic — but it’s not about the aging population, as most people think. Rather, it’s about the young generation of digital natives…

SUPERLATIVES HAVE BECOME COMMONPLACE in describing China’s global position: it has the world’s largest population and secondlargest economy, is the largest exporter of goods, holder of the largest foreign exchange reserves, the largest automobile market and the largest carbon emitter; the list goes on. By 2030, the Asian Development Bank estimates that China will be home to 20 per cent of the world’s middle class, an urban population of more than one billion people, and a related explosion in demand for housing, education, healthcare and financial and environmental services. The Chinese are known to actively study Western history and culture with a view to adapting the best foreign ideas and institutions. However, the reverse is not true: those in the West have been slow to learn about China, and there…

DESPITE GOOD INTENTIONS — and widespread acknowledgement of the importance of innovation — efforts to innovate at large companies often lack a clear mission and framework, and as a result, they go off the rails. Without realizing it, even well-managed businesses versed in modern practices can generate an environment that is hostile to innovation. At one big European energy company we studied, no less than four separate corporate functions were supposed to be working on innovation — yet none was supporting the firm’s critical needs at the Business Unit (BU) level. To make matters worse, the various functions involved were competing internally for space and resources, while duplicating each other’s work. For all of these reasons, large companies need to have a distinct Innovation Unit headed up by a senior…

FOR MILLIONS OF PEOPLE LIVING in lower- and middle-income countries (LMICs), affordable, quality healthcare remains out of reach. It is far too easy to find dismal differences in outcomes in infant and maternal mortality, infectious disease, chronic illness and other conditions. In 2013, the World Health Organization (WHO) reported that the maternal mortality rate in low-income countries was 450 per 100,000 live births, compared to 17 in high-income countries. The reason: only 46 per cent of births in low-income countries are attended by skilled health personnel, compared to 99 per cent in high-income countries. The WHO also reported that infectious diseases disproportionately affect developing countries: mortality from HIV/AIDS was 12 times higher in low-income countries in 2010, while 90 per cent of malaria deaths in 2012 occurred in Africa. In…

THE BATTLE OF HASTINGS was an international summit, sort of. Harold, then England’s king, and William II of Normandy had been unable to sort out who had true title to the British throne; so they resorted to fisticuffs. Poor Harold succumbed to a spear through the eye, and the triumphant William was forever known as the Conqueror. Issue identified; issue resolved. The year was 1066. The Battle of Hastings shares many of the defining characteristics of modern summitry. Above all, leaders were directly involved, dealing with a pressing issue of the day. The matter at hand was international — what with William sailing in from Normandy; and there were competing positions and differing ‘national’ interests, all calling for some form of resolution. Nowadays, the world’s biggest challenges are global in…

Globalization creates massive opportunities for business; but at the level of the individual manager, it presents some significant challenges. Please describe them. For a global manager, the challenge is both emotional and cognitive. On the cognitive side, they need to learn a lot about different cultures, political systems, customers and competitors in different parts of the world. They also have to be skilled at analyzing all of that information to make strategic decisions such as, ‘what kind of products should we sell in Turkey? And in what ways should they be similar (and different) from what we sell at home?’ Then there is the emotional side. Sure, someone can learn about different cultures, but that doesn’t necessarily mean they enjoy interacting with them. The emotional side entails having curiosity about…

1. COMMUNICATION This scale goes from Low Context • Good communication is clear, simple and explicit: don’t try to tease out hidden meanings or read between the lines. to High Context • Good communication is sophisticated, complex and nuanced. When listening, hear not only the words but seek implicit message(s). 2. EVALUATION This scale goes from Direct Negative Feedback • Negative feedback should be provided in a clear, frank manner. to Indirect Negative Feedback • Negative feedback should be provided in a soft, diplomatic manner. 3. LEADERSHIP This scale goes from Hierarchical • Respects and defers to authority to Egalitarian • Believes a good leader is someone who empowers his employees and behaves as if s/he is no more knowledgeable or powerful than the members of his team. 4. DECISION…

You believe that global diversification is critical to both asset pricing and portfolio management. How so? In general, diversification is known as one of the few ‘free lunches’ in finance. The idea is simple: you should spread your assets either across asset classes or across geographic areas — or even within asset classes, across different securities. By doing this, you reduce your risk without affecting your expected return. Let’s say you hold a very concentrated portfolio of just five stocks. Those stocks could all perform badly, in which case you would lose a lot of money; or, they could turn out to be winners and you could gain a lot. But the bigger and broader your portfolio is, the less likely that you will face any extreme movements. You basically…

IN THINKING HOW TO SOLVE some of our biggest global problems — issues like poverty, malnutrition and climate change — a good place to start is by identifying some of the small changes that could yield big improvements. This is not a new principle. In 1961, MIT meteorologist Edward Lorenz constructed a mathematical model containing a set of 12 differential equations to predict weather patterns. One day, he wanted to re-examine a sequence of data and, to save time, he manually entered data from a printout of the previous run in the model. To his amazement, the results from the second run were dramatically different from the results of the first. Upon further examination, he realized that he had entered the data to three decimal points — whereas the previous…

REGARDLESS OF INDUSTRY, modern organizations are under pressure to innovate faster than ever. New offerings often rapidly zoom to dizzying market heights, only to be brought low just as quickly by the next great thing. As a result, many leaders are realizing that going it alone won’t get the job done. Instead, they are seeking to accelerate innovation by collaborating beyond their own boundaries. In the past, companies have been highly constrained by their physical proximity to potential partners, but today, new technologies and capabilities can provide any organization with digital proximity to a full range of potential collaborators. Our research indicates that some innovative firms are taking advantage of an approach we call ‘digital shoring’ to work with a wide range of partners around the world. As organizations connect…