Global Challenges at the TMF

How to create opportunity in a world of chaos, crisis and change from leading economic thinkers and business practitioners.

by Louisa Wah

Dark clouds hung over the Mediterranean Sea at Monte Carlo, turning a picture-perfect Sunday in mid-June into a thunderous Monday. Perhaps this weather best set the tone for the 27th Global Top Management Forum (TMF), a two-day conference jointly organized by Management Centre Europe and AMA.

More than 90 senior managers from 27 countries went to Monaco not for the famous casinos (at least not during the day), but rather the chance to learn how to create opportunity in a world of chaos, crisis and change from leading economic thinkers and business practitioners. Frances Cairncross, chairperson of the event and an editor of The Economist, kicked off the meeting by saying that the world seemed to be at a turning point in its economic axffairs and was facing greater challenges today than ever in its history.

"The single currency is already beginning to change the nature of events in Europe at a faster pace than expected," she said. "There [are] also merger waves, takeovers, privatized companies trying to buy each other and all sorts of exotic new changes as a result of the currency changes."

A New World Order?

In that same vein, conference attendees considered the kind of economic order--or disorder--found in today's environment. They were prompted to think about what globalization really means for businesses as we enter the 21st century. Manfred Perlitz, professor of business administration and international management at the University of Mannheim in Germany, said that businesses need to rethink the meaning of globalization if they want to understand business dynamics. Contrary to conventional wisdom, Perlitz said, globalization has nothing to do with the intensification of world trade.

Roughly 60 percent of world trade is confined to specific regions, such as intra-NAFTA and intra-EU. In Asia, nearly half of trade occurs within the region. More radically, Perlitz said, "Asia is a nice place to go, but from a significant point of view, it is something you can forget about." Why? He pointed out that the combined GDP of South Korea, Indonesia, Thailand, Malaysia and the Philippines equaled that of California before the economic crash. Today, it is equivalent to that of Ohio.

So what is true globalization? It's a new way of thinking, said the professor. It requires a company to ask on a daily basis whether each aspect of its value chain has been placed in the right location. "Is this knot an essential part of my network or should I get rid of it? How can I optimize my global network?" Perlitz believes the biggest challenge for management today is to develop corporate strategies and policies in a world where success is a moving target.

He used the analogy of "Chinese baseball" to describe the concept of an unfamiliar and constantly shifting worldview and suggested that companies move from classical management concepts to total business concepts. "Develop a unique total business concept that takes into account knowledge management, optimization of business processes and information technology--that is the company of the future."

Perlitz continued his dialogue and answered questions at an exclusive member luncheon organized by AMA's membership division, a new feature of the TMF. During the second day's member luncheon, another speaker, Jagdish Parikh, managing director of Lemuir Group of Companies in India, discussed with members how to better manage in a complex business world by learning to manage the inner self.

Everyday Chaos

In the face of changing global forces, companies that try to control and engineer change tend to achieve the opposite result. Conversely, those that acknowledge and adapt to the complexity and chaos of the business environment can achieve positive results, as demonstrated by organizations such as Sears, Shell and the U.S. Army. Richard Pascale, visiting scholar of the Santa Fe Institute and author of an upcoming book, Surfing the Edge of Chaos, said any assumptions that the world is predictable and controllable and that change should be driven by experts are no longer operative in today's economy.

An alternative to this social engineering mind-set, he said, is to learn from living things in the universe, which manifest themselves as complex adaptive systems. The disciplines that businesses can adopt from complex systems in nature include the following:

• Developing shared and intricate understanding of business.

• Practicing uncompromising straight talk.

• Managing from the future.

• Harnessing adversity.

• Practicing accountability in action and reciprocity with people.

• Creating a sense of relentless discomfort--a state of being "at the edge."

What does being "at the edge" mean? Kathleen M. Eisenhardt, professor of strategy and organization at Stanford University, explained that it is a state between chaos and order, innovation and efficiency, that helps companies stay competitive. An organization that has only a few simple rules and a clear vision can remain nimble in a business environment that runs on "Internet time."

Rather than develop rigid strategies, Eisenhardt suggested, companies should employ a few tried-and-true tactics that have been used by nimble organizations such as British Petroleum, Miramax, Intel, Starbucks, Gillette, Sony, SAP and General Electric. These tactics are time pacing, improvization, co-adaptation, igniting entrepreneurship within the organization, and "probing" the future rather than planning or predicting it. With time pacing, in particular, companies set their own rigorous schedules to introduce innovations, regardless of what competitors do. These companies often become market leaders, leaving others to play catch-up.

Planning in a Fishbowl

One example of increasing nimbleness came from Royal Dutch Petroleum Co. Managing Director Steven Miller, who serves as group managing director of Royal Dutch Shell Group in the UK, discussed how he turned the unprofitable business into a highly successful one by adopting the principles of a living complex adaptive system. In 1997, Shell was losing $10 million to $15 million a year in Austria. But within 18 months, the return was more than 50 percent thanks to a new retail effort that addressed the issue of complex change.

Miller said the company used a "fishbowl" approach to planning, in which senior leaders and the most junior people sat together to talk about business opportunities. This process tapped into the diversity and complexity of the whole system, and the videotape that was sent to all Shell units worldwide made the senior managers' decision-making process totally transparent. This approach puts a lot of stress on the senior team, he said, but it also ensures consistency.

Such meetings were meant to move the entire business team to the edge of chaos, pushing everyone out of his or her comfort zone so that creative proposals on how to improve business could be revealed. The managers had much less direct control but were more informed about decisions made along the way. "It means CEOs would become much more of a coach and a teacher than being a leader and director," Miller said. At the end of the day, broad targets like improved margins, rather than cost control, were the No.1 concern of management. "It doesn't take a genius to cut cost, but it does take a genius to generate continuous revenues," said Miller, adding that "you need a little bit of serendipity and luck in the process."

Shedding Assets

The tremendous success of Internet startups also shows that flexibility and nimbleness now rule in the business world, according to Stephane Garelli, professor of international business policy at IMD and the University of Lausanne, Switzerland. He said that the successful companies will be those that try to make as much money as possible and own as few assets as possible. "Suppliers, distributors and service providers--you work with them but you don't own them. Assets should never appear on the balance sheet. Rent them, lease them, steal them, but never own them!" he stressed.

In addition, companies need to use technology as a source of revenues, not just a productivity tool. Lastly, managing uncertainty and diversity will be the name of the game, and managers had better be prepared. "We are going to be in a world where different business models work parallel to each other. There won't be one single formula. We have to manage diversity in a world that's more and more different," Garelli said. In particular, he added, a larger than ever proportion of women managers will be one of the biggest management revolutions to come.