Posted by Adam Gordon on Aug 11, 2011 in all, decision-making, leadership, management
Jeff Bezos
When I was at INSEAD for my MBA, I noticed it was fashionable for young men on the move in their careers to wear genuinely expensive watches. We’re talking $5,000 a pop and more (and no doubt they would upgrade in time.)
Me, I’d rather invest in my wine cellar: each to his own. The point is, it’s nothing new for rich men to spend handsomely on their timepiece. And nothing new for even richer men to lavish a fortune on signature and-or vanity projects.
So it’s all to type that Amazon founder and CEO billionare,Jeff Bezos, is spending $42m on his timepiece. The clock the size of a building, which will still take a number of years to complete, is being constructed deep in the Sierra Diablo Mountain Range, Texas. It is designed to run for 10,000 years.
On the clock’s web site Bezos says: “It’s a special clock, designed to be a symbol, an icon for long-term thinking… As I see it, humans are now technologically advanced enough that we can create not only extraordinary wonders but also civilization-scale problems. We’re likely to need more long-term thinking.”
This is partly the standard, “world-going-to-hell-in-a-handcart unless we wake up and change our lifestyle” plea for a long-term, sustainable, perspective.
But, in fact, the general thrust of communications around the 10K Clock is refreshingly low on planetary doom. Long Now Foundation founder member Steward Brand says of the clock: “Ideally it would do for thinking about time what the photographs of Earth from space have done for thinking about the environment.”
Builders in clock tunnel. Image: http://www.10000yearclock.net/
So the clock is in fact about exactly what it says on the tin: just a symbol of long-term thinking, a monument to the value of a long-term perspective.
And while 10,000 years is no business horizon, it’s possible to interpret the clock as symbol not just socially, but also in terms of dollars and cents. In a short-term world, where most businesses are rated by the quarterly numbers, it is a living monument to making scaled-up and lasting investments, and not pulling the plug too soon.
Who better than Bezos to put up this monument? In his first report to Amazon.com shareholders in 1997 he said: “because of our emphasis on the long term, we may make decisions and weigh trade-offs differently than some companies.”
The company was founded in 1994, listed in 1997, and but didn’t post profit until 2001. But by the time it did, it was far bigger and more influential than imagined. It was on the road to becoming what it is today: the world’s biggest online retailer, period. Reflecting a final coming of age after 15 years, the share price (AMZN) has doubled and doubled again in the last two years.
Arguably Bezos’ true leadership genius at Amazon in the early days was not just seeing the long-term and scalable possibility (beyond book retailing) but also being able tactically to hold the short-termers at bay for long enough to do the building required.
As a business culture, we’re locked into annual reports and rapid product life cycles. We’re quick to say “fail-fast” and pull the plug on a fledgling project that’s in the red. Or we make a return, so good, let’s cash it in and do something else.
But Bezos was able to see and to say that a critical component of business leadership success is looking beyond your own or your competitors’ time horizons and scale horizons.
The leadership message in the clock is “Don’t think small. Forget short-term wins. Look beyond your time horizon. Give weight to the long-term possibilities. Build for tomorrow and allow the full potential of a project to evolve.”
Posted by Adam Gordon on May 24, 2011 in 2025, all, leadership, strategic foresight
The World Bank on May 18 released a report “Multipolarity: The New Global Economy” with outlook for the geo-financial system to 2025.
“Multipolarity” catches the World Bank up with what has been clear for a long time: an actually, genuinely different global economic order is unfolding as growth moves to emerging economies, with countries such as China, India, South Korea, Russia, and Brazil accounting for the majority of economic growth in the next decade and beyond. And, on the back of this, the dollar will lose its pre-eminence as global reserve currency.
The report is nevertheless important at a meta-level. When the World Bank puts out a perspective, that means the perspective becomes more-or-less institutionalized wisdom. Global financial revolution, effectively, is no longer a theory out there. It is the “official future,” and financial and political institutions are more likely to act in line with it. Therein a reinforcing feedback loop.
Renminbi
A couple of things stand out. Report author Mansoor Dailami says the euro and renminbi will establish themselves on an equal footing to the dollar. This seems plausible, but one is left wondering – given the pace of innovation in finance, and in computing, and in communications and networking, and the 14 years to 2025 – will we still be looking at a system where national or regional currencies are “dominant?” Could the world financial system not evolve differently, for example away from a global reserve requirement altogether, or towards more multi-currency baskets? (The report does entertain the adoption of the IMF’s Special Drawing Rights system.)
The foresight principle: In looking at the future it’s tempting to see new agents dominating current structures, but often the structures themselves change.
The other point that pops out is an expectation that cross-border M&A deals originating in emerging markets will be an increasing feature of the new corporate landscape.
This is as solid a prediction as one will find. But it surely will not be one way. While cash-flush emerging-market companies will look to diversify into European and American companies, or take them over entirely – particularly ones that have Asian brand recognition and prestige (remember the Japanese corporate shopping trips of 1980s) – developed-world companies will be returning the favor, buying their way into emerging market companies to get a piece of their growth.
And we’re not talking passive investment here. The action will be immersive developed-meets-emerging market M&A (and surely also corporate raiding, hostile takeovers, etc.)
M&A is “speed” for corporate leaders. A big high, often followed by acrash. But if history is any guide, the lure of buying someone else’s growth, not to mention instantly enhancing a company’s industry size-power footprint, is more intoxicating than the sirens of Odysseus, so one can confidently predict it going forward.
Which is to say the spreadsheet-anticipated wins in economies of scale, scope, market synergies, or vertical integration of M&A will be up against the problems of marrying company cultures, systems, products, brand values and business models — a vexing problem that routinely defeats even the best business leaders.
But add to this, here, very significant cross-cultural management and staff issues, problems of distance, and regulatory systems that are often purposed to different ends, and you have a leadership challenge indeed for firms that venture down this path. But venture they must, because companies in low-growth markets can only buy back their shares for so long (aka “we’ve got no ideas about what to do with investor money, so we’re giving it back to you”) — witness GE’s $12bn share buy-back announcement this week.
Posted by Adam Gordon on Apr 28, 2011 in all, forecast filtering, history, leadership, social change
Kate Middleton's new coat of arms
Tomorrow’s wedding of Prince William and Catherine Middleton dominates the airwaves around the world, and even Harvard Business School professor Rosabeth Moss Kantor has an HBR blog post offering business insights thereto, including that it is an example of the coming of the “experience economy,” where people pay for the chance to participate at particular times, and expenditures on goods and services come in bundles tied to particular events. She councils how the “soft stuff” and “joy factor” can offer big audiences and revenues; romance and ritual matter…“sentiment sells.”
Fair enough. To this, permit me to add a thought or two about how the fact of the royal wedding can improve out judgment of future business environments and opportunities.
First, in the race to the future, leaders should never underestimate the power of traditionalism and continuity –particularly in changing times. Business leaders may be tempted to view the latest gizmo or the new lifestyle choice as the future. But this would be thinking poorly about tomorrow. Yes, new things get adopted all the time, and real and rapid change happens, but at the same time the broad market also has a vast, seemingly unquenchable, appetite for tradition.
The point is, the two are closely correlated. The faster society and technology moves the more people cling to apparent past certainties and traditions.
If you’d looked at the future of the British monarchy anytime through the turbulent, democratizing 20th century you might have be tempted to say it must soon be phased out, given the estimated $65m-a-year cost to the taxpayer (not including the spiraling cost of security.) You would think that the public would tire of upper-class toffs prancing around from polo matches to garden parties, wearing Chloe and drinking Krug at their expense.
Popular
But, in fact, no. The British monarchy is as popular as ever. There is some truth in the view that royalty is good for UK tourism. But mostly the monarchy survives because the public wants vestiges of the past as it peers at the changing future and the steady erosion of tradition and other fixed points from middle class lives.
A handsome military prince, a girl in white, a horse-drawn carriage, a bishop, a cathedral … is a psychological balm for most of us, even if we are, or more exactly because we are, viewing it all streamed on an iPad.
In industry foresight, we call this a “counter-trend.”
Another counter trend at work here is marriage itself. The figures are clear that people are marrying later, if at all, and staying married for a shorter time. William and Kate represent a minority: the number of weddings that are a first-time marriage for both parties is down to 150,000 a year, 35% what it was in 1940. That’s the trend. So the royal couple and their public ritual affirms publicly what most ordinary people are denying or denied privately.
The point not to be missed is the middle-class compromises most people are making drives counter-trend nostalgia for what once was, and marketing campaigns or business units, if not entire companies, can be built thereon – not only on traditionalist revivalism specifically, but on any strong counter-trend.
American Dream
Finally, the wedding of Prince William to “commoner” Catherine Middleton shows us how, despite all its apparent protestations, the UK is yet still Americanizing faster than one might think, and not just in splurging on cheap Chinese imports or putting university education on a pay-to-play basis.
Kate is very much an “American” princess, in the sense of being from a self-made family. Her mother was a flight attendant, her father too, before becoming a flight dispatcher for BA. (Rumor, hotly denied, is that Prince William’s friends used to snigger “doors-to-manual” among themselves on Kate’s arrival, in reference to her parents’ profession.)
But then “the American dream” could and did happen: The Middletons hit it rich with an online party supplies company (Party Pieces), were able to send Catherine to the right schools, and the rest is history.
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Posted by Adam Gordon on Apr 8, 2011 in 2025, all, economy & finance, leadership, policy, politics of the future
The new axis in world diplomacy and global leadership flexes its muscles next week on Hainan Island – the southernmost tip of China – with the BRICS summit on April 14 in Sanya, and the Boao Forum the following day.
BRICS (Brazil, Russia, India, China, and South Africa) is already something of a “G5” of non-Western nations. Next week its leaders (China’s Hu Jintao, Brazil’s Dilma Rousseff, Russia’s Dmitry Medvedev, India’s Manmohan Singh, and South Africa’s Jacob Zuma) will set themselves to discuss their joint concerns in international affairs, economics, development, trade, security, etc.
More than anything, the event signals growing intention to coordinate views and act in closer alignment, and press towards future empowerment and responsibility of non-Western world leaders. Political clout has always gone with economic clout, and in this respect the future can be depended on to “rhyme” with the past.
BRICS countries already account for 40% of global population and 20% of global GDP – and they are the nations expected to grow most rapidly in GDP terms in the next decade and beyond, and to provide primary succor to neighbors in their regions.
Hainan 2011 is the third summit of the BRIC countries. The acronym BRIC was coined by Goldman Sachs (NYSE: GS) in 2001 in a chicken-and-egg prophesy: causing Russia, China, Brazil and India to see their interests as potentially aligned, and politically worth aligning. South Africa was accepted into the group in February.
Without stopping for breath, the diplomatic caravan moves 125 miles overnight up the coast of Hainan Island to Boao, where President Hu will give the keynote address the next day at the annual Boao Forum for Asia (BFA).
Boao is an undisguised knock-off of the World Economic Forum in Davos (with skiing replaced by snorkeling perhaps): a high-level gathering for policy and business influencers, with a similar nudge-and-influence mandate, here with an Asian focus. In attendence, in addition the the BRICS representatives, will be by Korea’s Kim Hwang-Sik, Spain’s Jose Luis Rodriguez Zapatero, Ukrainian’s Mikola Azarov, and New Zealand’s Bill English.
Posted by Adam Gordon on Mar 16, 2011 in all, decision-making, forecast filtering, leadership, management, managing uncertainty, risk management, strategic foresight
Fukushima plant, Japan. Picture: digitalglobe.com
At the time of writing, Japan is battling a nuclear meltdown and radiation emergency, and Fukushima could become a word suddenly the whole world knows, like Chernobyl.
Bloomberg News has called the whole tsunami crisis Naoto Kan’s “Katrina moment,” and one can only hope and pray for all concerned that the Japanese prime minister is a more competent leader than Bush was at this moment of human catastrophe.
As to the nuclear meltdown: If ever we have been warned about anything in the future, we have been warned about nuclear plant catastrophes. Not only have there been, as it were, verbal warnings going all the way back to the 1950s, but real-world events such as Three-Mile-Island and Chernobyl have fully fleshed out the scenario of nuclear reactor failure or near failure in populated areas.
If nuclear-generated electricity makes sense anywhere, it makes sense in Japan, which famously has no coal or gas reserves. But these are nuclear plants … built right on the Pacific Ring of Fire? Japan is a small island with 125 million people densely packed into urban areas. As we face the possibility of this many people put at risk, however the next few days play out it’s clear the risk and reward of nuclear energy here is out of alignment.
This is hardly news. The question is, why are the plants are there? And the answer is not a simple one of collusion or corruption of government, or shenanigans of power companies, although there may be some of that. It comes down to a misapprehension of probability and risk among leaders and decision-makers such that it appears that risk and reward are in balance, when in fact they are not.
Year 869AD
To think about this, consider yesterday’s BBC Story: Japan tsunami ‘could be 1,000-year event,” saying last week’s tidal wave was equivalent to a giant wave that hit the Sendai coast in 869AD. The report says: ”It is not unusual for undersea earthquakes to generate tsunamis in this part of Japan. Offshore quakes in the 19th and 20th centuries also caused large walls of water to hit this area of coastline. But previous research by a Japanese team shows that (only) in the 869 ‘Jogan’ disaster, tsunami waters moved some 4km inland, causing widespread flooding.”
The point is, tsunamis are common, but “the big one” is a one-in-thousand year event — an extremely low probability outcome.
Here I’m strongly reminded of the days following the depth of the Credit Crunch, Bear Stearns’ collapse, and general world financial system meltdown of 2008. If bankers said one thing sensible through the whole period it was: “this was a one-in-ten-(hundred, etc.)-thousand probability outcome, and extreme ‘outlier’ event!”
A low-probability event means we can relax, right? Wrong. The problem is probability says zilch about impact. “Wild Cards,” or now more famously in Nassim Taleb’s terms, “Black Swan” events are low probability but of game-changing impact.
Taleb’s point, made repeatedly across his various books and articles, is that standard probability theory and Gaussian statistics lull analysts into thinking that because an event is low probability – an outlier in a normal bell-curve distribution – it is of low or lower consequence.
Ignoring the tail of the Bell Curve is okay if events are genuinely assessed as low impact. If they are high-impact aka “fat-tailed” events, they are the most important events we face in the future, in building or maintaining any system or organization.
A probabilistic framework misleads decision-makers because it degrades their attention to crucial events (by tagging them low-probability,) which means next thing they are betting banks on mortgage-backed securities, or building nuclear plants on earthquake fault lines.
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Posted by Adam Gordon on Mar 1, 2011 in all, decision-making, leadership, management, strategic foresight
In the pivotal moment of the movie “Remains of the Day,” US Congressman Trent Lewis (Christopher Reeve) in England in 1936 declares to the “gentleman-amateurs” around him who are blunderingly cosy-ing up to the Nazis: “leave politics to the professionals.”
It’s an expression of the 20th century zeitgeist shift to professionalization of not only politics, but all significant decision-making and management. Business certainly led the way through the century with the rapid rise of managers as a distinct class of professional, expecting the commensurate erosion of family-run firms of any real size and clout.
The problem with family firms are legion: under-qualified if not downright incompetent heirs thrust into positions they can’t cope with or don’t want, family wrangles, inheritance disputes, relative non-accountability of management leading to quixotic decision-making, secrecy mitigating against access to capital and therefore growth, and so on.
So the wisdom became that the family-firm management was appropriate in start-up mode, and then as companies scaled up and moved to external funding and responsibility to multiple stakeholders, professional management should take over for the good of everyone.
Generations
Or so we thought. There is a long-running counter-argument that family firms do many things better, even at scale. Key decisions are made with the fearless straight-talk that is often required, and without bureaucracy up and down the chain. Families may have their politics, but they don’t have the chronic office politics nor resume-polishing that besets so much of corporate life, wasting countless person-hours.
Furthermore, industry and business wisdom that is built up over generations stays in the firm rather than getting washed down the river every time the executive door revolves. The bottom line: family firms remain a more-than-viable model very much alive and kicking all across the world.
These are background issues to Randel Carlock (INSEAD) and John Ward’s (Kellogg) new book “When Family Businesses are Best,” (Palgrave, 2010) which is broadly about navigating a family firm in the changing, globalizing world.
What got my attention particularly is the authors’ contention that family firms are better at developing, retaining, and working to a long-term management perspective. That is, the family is an inherently long-term institution, and well-run family enterprises are run in such a way as to endure for the future for the family – and this is an advantage in navigating and surviving a changing world.
The term the authors’ use is for this kind of management is “stewardship.”
The root problem of most professionally managed businesses is they are run without stewardship – without concern for long-term well-being of the firm or its stakeholders. If we needed reminding, the banking crisis was the product of management that couldn’t be further from stewardship – taking absurd risks with other people’s money for short-term personal wins.
Banks have become the poster child for the follies of short-termism, but the reality is short-termism remains endemic across professional management, both in business and politics. Long after “après moi le déluge” CEOs have taken their packages and are on the golf course, others – employees, taxpayers, the environment, etc. – are paying the price.
What’s measured
At least, post-crunch, it is now incontrovertible that short-termism is an extremely poor strategy for managing a complex and uncertain future. “What gets measured gets managed,” and when what is measured is only the next quarter’s profit figures, bigger failure looms.
The family-run businesses offers a model of long-term management. It is a conservative non- “bet-the farm” model to be sure, but perhaps the path a real steward of value genuinely operating in the best interest of valued stakeholders would follow.
So how might one, without the real flesh-and-blood bond of family ties, get senior executives to think through the effect of their behavior on employees or stakeholders 10- or 20 years in the future, as the head of a family would? Surely only by creating incentive structures that mimic family stewardship – incentives that mean that leaders can’t walk away smiling until the organization (or the value it represents) has been safely passed on to the next generation.
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