Follow the Trends

• Almost 70 percent of executives around the world say that global social, environmental, and business trends are increasingly important to corporate strategy, according to a McKinsey survey. Yet relatively few companies act on the global trends they think will affect them most; among those that do act, only 17 percent report significant benefits.
• One reason might be underinvestment in trends. For instance, many companies that pursue growing consumer segments in emerging markets build operations there but don’t develop lower-cost products.
• Companies that don’t act on trends they think will be important cite a shortage of skills and resources, higher strategic priorities, or a lack of possible responses to these trends.

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The Coming World of Collaboration - Follow up

Howard Rheingold, author of Street Mobs and invited lecturer at California’s renowned TED conference explains the phenomena of collaboration and its evolutionary effect on creating new forms of wealth and perhaps reforms to traditional economic theory. He initially notes that traditional success in both business and politics was fueled by the notion of Darwin’s biological theory of evolution; that the strongest and fiercest survive. But while this ideology has held true throughout the life of capitalism – he’s sure to emphasize that capitalism will continue to rule – the birth and growth of technology has vastly spread cooperation, collective action, and complex interdependencies. This, he notes, has forced competition to make a little room.

What Howard is really trying to get across to us is that through the cooperation, collective action, and interdependencies new forms of wealth can and are being created. In an example he gives early in his lecture he compares this collaboration to prehistoric times when small family units survived by hunting small game like rabbits and other animals. At some point however, hunters gathered together and collaborated to hunt the massive mastodon. His point being that today we can collaborate to conquer bigger “game.”

While the ideas presented could be criticized as rudimentary, it’s no farce that this level of collaboration is occurring today and is being led by some of the world’s biggest corporations. IBM, Sun Microsystems, and other leading IT firms are open-sourcing much of their software and encouraging other developers, be it graduate students or high school kids, to work and advance the available research. Toyota gives extensive training to its suppliers to help them increase their production efficiency even though many suppliers also work with their direct competitors. Even within these fierce markets, companies are opening up and welcoming collaboration. Why? Rheingold argues this is happening because it is a certain kind of sharing in self-interest.

For example, by allowing bloggers to earn money through its Adsense program, Google enriched itself by creating a new market for advertisers. Amazon.com opened its application interface to over 60,000 designers which in turn has grown the number of Amazon stores significantly while making money for virtual store owners. EBay, the auction giant, created an enormous market by creating a feedback mechanism that allows users to trust each other. All these examples reinforce how collaboration can turn a Prisoners Dilemma into an Insurance Game.

The Prisoners Dilemma, as in all game theory, states that “the only concern of each individual player is maximizing his/her own payoff, without any concern for the other player's payoff. The unique equilibrium for this game is a Pareto-suboptimal solution—that is, rational choice leads the two players to both play defect even though each player's individual reward would be greater if they both played cooperate.” The distrust players have for each other in this model is what dictates their rationale. If both could trust each other, they would be apt to work together and obtain larger rewards. This model in which trust is present between actors is known as the insurance game. This is what is beginning to happen. The most evident example of this is EBay. By establishing trust between buyers and sellers a huge new market was established where lower prices are often found for buyers and many new markets for goods that normally can’t be sold are now a click away for sellers.

These actions are all about self-interest to grow and add more to the already existent. Rene Descartes, the famous philosopher explained that we need a new way of thinking to understand absolute truth. While absolute truth would be nice, we can start by understanding the sociological and economic evolution that is the future of commerce and innovation. Globalization is shaking the foundation of traditional thought. To finish, I will leave you with the question Rheingold poses in his book Street Mobs. Are the populations of tomorrow going to be users, like the PC owners and website creators who turned technology to widespread innovation? Or will they be consumers, constrained from innovation and locked into the technology and business models of the most powerful entrenched interests? The answer seems to be getting clearer.

Sources:

TED Lecture – http://www.ted.com/talks/view/id/216

Wikipedia: Game Theory & the Prisoners Dilemma –

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Companies Want Intercultural Managers

In today’s world the list of qualifications for many management positions is of more and more resemblance to the Renaissance man. Sure you must understand some finance and economics and of course business strategy is a must-have for success. Then throw in some leadership and marketing know-how with a dash of sheer creativity and what do you get? You get someone who still needs to understand how to deal with people from a multitude of different cultures and then capitalize on burgeoning international markets.

Cultural diversity is extremely prevalent in our work force and populations. A company who wants to be successful needs management that both embraces this notion and understands it. The reality is that this is not happening enough. “Many leaders are operating on an old conception of the world around them and of human nature, including the nature of work, the worker, and the management process itself,” John Saee explains.

Further, many international assignments bring along with them high costs, low performance, and social challenges for involved parties. “The predominant reason for such failure is not a lack of managerial technical competence but the dynamics of intercultural experience”. What are these overpaid managers lacking? It turns out that our list of skills just lengthened. “These ‘dynamics’ include differences in cultural perceptions, in values and practices that influence understanding, in attitudinal satisfaction with living in a foreign culture, in relationship development, and in the accomplishment of goals”. In other words many international ventures involve people who cannot adjust to these environments.

As organizations begin to understand these complexities the first step they have taken is for the installment of language training programs for employees. While this is a step forward most make the assumption that speaking a language and understanding culture go hand in hand. The author notes, “Cultural dimensions to communication go far beyond syntax and vocabulary”. He goes on to say “Studying intercultural communication without studying culture is analogous to studying physics without looking at matter”.

Obviously placing emphasis on cultural understanding is important, but how do we become inter-culturally competent managers and people? Saee emphasizes Cultural awareness, the valuing of differences, and being non-judgmental as some of the most significant ways to improve on being culturally proficient.

How we become more culturally competent is important but for arguments sake we need to understand more clearly why it is important to diversify our cultural competency. In one word that answer is opportunity. The world is becoming interconnected. International trade is growing year after year and people want what developed nations have had for decades. It means that as more and more people make more and more money in emerging economies the demand for products and services is going to increase significantly. For example, think of the fraction of the 1.2 billion Indians who can now afford DVD players and Play Stations? What can your company bring to their market? It’s happening now. The companies who are successful in penetrating these markets will be the ones who are culturally diverse and understand how to work with all kinds of people.

This article is a testament in and of itself to the importance of globalizations role on our accepted business practices and management theory. It is quickly shifting the status quo of what is necessary for success. The list of qualifications may be long for top-tier managers but if you take the time to educate yourself and embrace cultural diversity you may find yourself in a much better place than you thought possible.

Origional Article

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Shift Happens

This is a stylization of a slideshow originally created by Karl Fisch, examining globalization and America’s future in the 21st century. I thought this was really interesting...

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Beating the Currency Crunch

Written by: Grant Deken

Thomas Friedman’s The World is Flat explains to readers the concept of “wholesale” and “retail” reformation within economies. As transitioning economies adhere to these reforms globalization’s spread continues to reach the farthest places on the globe. The end results are more businesses, faster production, and fiercer competition in the marketplace. As this phenomenon takes place, the familiarity of the micro multinational company is more and more common as businesses aim to tap the brightest minds for the best price. What happens though, when your country’s currency declines to a thirty year low? What do business owners do to overcome this adversity? These are questions many American business owners are asking as they try to cope and develop strategies to beat the currency crunch.

WineCommune, a California based wine company that does a great deal of business through its e-commerce outlets has noticed a decline in growth compared to its stellar $17 million in sales for 2007.The company decided to mitigate its losses by entering into forward contracts. The idea is to lock in a price early with speculation that U.S. currency may be headed for a downturn. WineCommune locked in an exchange rate when the euro was worth roughly $1.25. When they were ready to purchase in the spring the euro had risen to $1.36, saving the business about eight percent. What’s especially intriguing (and ironic) is that the French consumers are now turning to WineCommune to take advantage of lower prices. What they lose in currency they are making up in higher sales volume.

Other companies are working with international vendors to make flexible payments since rates may be more favorable on different days of the week. This gives businesses a chance to try and pick the best day to pay suppliers. Naomi Novotny, whose company SaltWorks utilizes this practice explained that “when you’re dealing with hundreds of thousands of dollars, every last penny counts.”

Other companies have struggled to beat the crunch and are seeking domestic suppliers. Rainbow Packaging, which primarily handles distribution, made the switch from German machines to ones manufactured in the U.S. “It’s like starting from scratch,” CEO Wes Henriksen said.

Certainly globalization isn’t the culprit of our current problems, but is it guilty by association? While some may be quick to point fingers, they need only to point to themselves. Third Quarter GDP in the United States, driven by exports and fueled by a weakening currency, soared this past year.

Globalization is responsible for our diversified collaboration, global work forces, shifting market places, and new opportunities if we open our eyes to see them. Millions of people in emerging countries like China and India are now able to afford products and services they thought they would never be able to enjoy. Labor costs are lessoning as more people gain the needed skill sets abroad. So while many businesses are struggling to stay afloat with a weak U.S. dollar I have just one question- Why?

With international market places growing, every company’s marketing department should be conducting extensive research on the three billion new capitalists in the first world. What’s the best way to reach these people? What do they prefer? How much does the average household buy online? Take advantage of a weak currency to grow and open new international markets. Your cost of doing business may be higher, but sales volumes will soar which should make up for loss in the short term and build your business’s international presence. Think “business cycle.”

Source: Inc. Magazine March 2008 Issue

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Chinese Inflation Affects You

Sources: http://www.forbes.com/markets/2008/02/19/china-inflation-food-markets-econ-cx_vk_0219markets04.html
http://www.china-embassy.org/eng/default.htm

Have all good things come to an end with China? Highly doubtful, but Chinese officials reported Tuesday of record high inflation rates. Their Consumer Price Index (CPI) was up 7.1% for January, making rates higher than they have been since 1997. The problem stems from the detrimental winter snowstorms which devastated crops and cattle. This, according to both Forbes and BBC News, was the main force behind rising inflation rates.

Unfortunately things are only expected to get worse. Goldman Sachs expects inflation to worsen in February as the severe winter storms took place only after January 21^st. “In our view, the inflation impact from the snow storm may have not been fully reflected in the January inflation data,” they said. They also made note that the suggested 7% CPI reading for February is likely to be closer to double-digits.

As a result of the inflation levels China’s central bank is expected to increase interest rates at least four times this year. Monetary policy is expected to continue to be very tight with higher reserve requirements, accelerated currency appreciation (yuan), and more “heavy-handed controls on bank lending.” Speculators note that China continues to constrain monetary policy despite the United States’ economic slowdown. The extremely fast growing money supply of China is another potential threat that could play a role in keeping rates higher. To be blunt, China needs to slow down, and they know it.

As China tightens policy we can expect the economy to slow down as it tries to stabilize itself. Record high Chinese interest rates will cause Foreign Direct Invest (FDI) to increase. With the United States at such low interest rates, a spike in investment from China could be just the thing we need to catalyze us back into motion.

On the opposite side, FDI to china should decrease, which could mean higher prices for durable goods. This would in turn decrease consumption for Americans and other countries who buy Chinese produced goods. Because of globalization, the interconnection between countries not only affects the stock markets, it also affects how monetary policy in one country could potentially effect consumption, prices, and growth in another. That’s globalization.

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Globalization does my work for me!

What if I could click a button and have someone else write this post for me? Believe it or not, some people are now given this luxury in the workplace. “OOF,” which stands for Office of the Future, is the result of years of flattening and globalization and companies like Pfizer and other major corporations are taking advantage of it. many other people are focusing on globalization and their wheels are turning too.

As the result of a major financial crisis in 2005, Pfizer had to create ways to work more effectively while also reducing costs. Senior director of Organizational Effectiveness Jordan Cohen, who at the time was reading Thomas Friedman’s “The World is Flat,” decided to take advantage of globalization and convergence. After some research he found that employees were spending 20% to 40% of their time on tasks that could be done by someone else. Who did he call? The companies Friedman mentions in Chapter two of his book (The World is Flat, 2005)!

This scenario is as real as it gets when we’re talking about outsourcing and globalization. What’s more fascinating are the initial results and the struggles that occurred. At first things went poorly. Assignments were often flawed with typos or incorrectly analyzed data. The problem stemmed from both sides of the world. Pfizer employees were communicating ineffectively and Indian firms found it difficult to tackle the multi-step projects and were unorganized. As a result the process had to be reorganized and tweaked to work effectively. Office Tiger, the Indian firm working with Pfizer, decided it would create teams that would tackle certain assignments, and the work would be passed around. Speculation by Cohen and others circled management meetings as people discussed the high number of “handoffs” for outsourced projects.

Fortunately after minor adjustments the pilot took off and the program grew to two-hundred Pfizer employees. The benefits for Pfizer are huge. The amount of time to complete projects is cut close to half, while savings are huge. “Pfizer pays $15 to $35 per worker hour, far less than they would pay the McKinseys of the world, whose rates typically start at $215 per hour.”

Globalization is an unbelievably significant opportunity for businesses. This article is significant in showing how globalization can be helpful to your operations and employee effectiveness. But information outsourcing isn’t without its own flaws. The convergence of technology and collaboration has been available for years, but even in 2008 it can still be a struggle to effectively integrate these tools and processes into your business. This was clearly seen as Pfizer struggled to identify an effective process for outsourcing menial tasks. However Cohen notes that after the kinks had been worked out things we’re significantly more efficient. “It’s kind of amazing,” he said. “I wonder what [our employees] used to do.”

Source from Fast Company February 2008 Issue.

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