LEADERSHIP
An Agenda for the Future of Global
Businessby Martin Reeves and Johann Harnoss
FEBRUARY 27, 2017
For all of the uncertainty and anxiety in headlines today, the world is a much better place than it has ever
been. In emerging markets, billions of people have moved out of extreme poverty. In the developed world,
we enjoy better medicines, connectivity, and mobility than most of us could have imagined even 20 years
ago. The promise of global progress has become a reality for many — but not for all.
Our global narrative of progress, the implicit case for embracing change in exchange for its fruits, is being
increasingly called into question by economically marginalized groups and populist politicians across the
globe. This narrative has rested on three propositions: that globalization is a major driver of growth and
prosperity; that technological progress enriches our lives; and that shareholder returns reflect businesses’
contributions to societal progress.
Those who question the continued applicability of this narrative have a case. While globalization has
increased aggregate prosperity and reduced inequality across nations, it has also created winners and losers
within nations.
Rising income
inequality has
become a driver of
the widening trust
gap between the
elites and everyone
else, which has
helped fuel the rise of
populism.
And there is an
increasing fear that
technology could
make matters worse by displacing jobs on a large scale. With policy makers distracted by political
polarization and limited fiscal and monetary room to maneuver in, one thing seems certain: Global
businesses must advance a new, credible narrative for globalization, technology, and the role of corporations
— and support it with purposeful action.
Where Did the Existing Narrative Break Down?
Popular support for globalization has largely rested on the premise that most people would benefit, many
could succeed through their own efforts, and a social safety net would temporarily protect the
disadvantaged. Traditionally, it has been government’s role to provide equality of opportunity (particularly
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through education),
an effective safety
net, and social,
political, and
economic stability.
Meanwhile, business
was free to focus on
generating growth,
productivity,
innovation, and,
ultimately, societal
wealth. This
approach was
credible as long as
economic inequality
was kept within
reasonable bounds.
Persistent and growing income inequality in many Western societies and elsewhere around the world
suggests these bounds have been passed. While we can disagree about how to fix the problem, we must
acknowledge that globalization is a hard sell if it doesn’t address these distributive issues.
The same goes for technology. At the current moment, enthusiasm about the new possibilities opened up
by artificial intelligence is increasingly tempered by fears of unequal gains and potential job losses. The focus
on the functionality of new technology and the absence of an inclusive narrative that emphasizes equality of
opportunity is already stoking a backlash. Here, again, the case for technological progress can be a hard sell if
wider criticisms are answered mainly with historical analogies purporting to demonstrate that everything
will work itself out in the end.
Lastly, the corporate focus on maximizing shareholder value has certainly advanced productivity and
created growth, wealth, and employment, but now it needs to contend with slow productivity growth,
stalling global trade, and a growing awareness of unintended social and environmental side effects. So far,
corporations have mainly reacted by increasing share buybacks, accumulating corporate cash mountains,
and driving dividends toward historic highs. Meanwhile, investment rates are in decline, despite prevailing
low interest rates. 2
As a result, more
companies are being
valued based on their
current earnings than
on their growth
potential.
Our research shows
that many companies
are increasingly
geared toward the
short term. Such
companies tend to
generate less growth
and value in the long
run.
What’s required for a
new narrative to be
credible? “Business as
usual” will not be
sufficient, even with
an increased
emphasis on
corporate social
responsibility. Cosmetic course corrections will not restore trust and credibility. We believe a compelling
story will require reworking both the plot and the roles of the key actors. Business leaders, along with the
companies they lead, will need to take an active stance, shaping the conditions for future success, rather
than merely reacting to twists in the plot.
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To preserve global progress, this new narrative will need to place increased emphasis on equal access to
economic opportunity. But a better narrative alone will not be enough. Business leaders will need to visibly
embrace and take action on a new agenda to shape the future, both for the direction of our societies and for
the sharing of benefits and opportunity within them.
Toward a New Leadership Agenda
To do so, business leaders must balance two apparently conflicting objectives. First, they must secure the
prosperity of their own companies. This remains a CEO’s prime responsibility, and it has become much
harder in an era defined by lower growth, impatient investors, geopolitical uncertainty, and rapid
technological change. Second, they must secure the conditions for sustained prosperity, which requires a
more inclusive model for global economic integration and technological progress.
To achieve those ends, we propose that business leaders support a new agenda, comprising seven areas of
opportunity. The agenda goes far beyond political activism; it attacks root causes by committing to
sustaining an inclusive model of economic growth. This action will entail making unfamiliar and
uncomfortable choices, including balancing short-term returns with supporting economic and societal
progress to strengthen enterprises for the long term. These are the seven areas:
1. SHAPE THE NEXT WAVE OF GLOBALIZATION. While the last wave of globalization centered on accessing
foreign markets and creating low-cost global supply chains, the next wave could follow a very different
pattern. In his 2016 commencement speech at New York University, Jeff Immelt, the CEO of GE, described
what it could look like: globalization that is less centralized, more geographically differentiated, more
digitally interconnected, more cognizant of social impact, and focused on building local capabilities rather
than exploiting labor cost differentials.
Business leaders can take an active role in shaping the next phase of globalization by looking beyond cost-
based offshoring and emphasizing the benefits of trade and technology across a wider geographic and
demographic base. Advanced manufacturing technologies, for example, are starting to reshape the supply
chain road map that’s been in place for the past few decades by reducing the importance of scale in
production, increasing flexibility, and enabling production to move closer to end markets. Software, sensors,
and analytics are shifting value creation from stand-alone products to combinations of products and
services.
Businesses can use these trends to reconnect with their customers and their communities. We already see
companies localizing time-sensitive and highly customizable forms of production to move closer to customer
demand, particularly in the fast apparel (Adidas, Zara) and automotive (Tesla) industries, thus turning global
supply chains into two-way streets.
“People Are Angry About Globalization. Here’s What to Do About It.”
2. SUPPORT ENTREPRENEURIAL BUSINESS GROWTH. Several decades of economic progress have resulted in a
concentration of economic activity in larger enterprises and a decline in startup activity. Depending on how
we harness it, further technological progress could either exaggerate or ameliorate this divide.
The emergence of platform businesses, which facilitate the collaboration of thousands of individuals and
enterprises in dynamic ecosystems, could help restore balance and sustainability. Such ecosystems even the
playing field for individuals and small firms to participate in technological progress, catalyzing both
employment and innovation. As corporations rethink their global supply chains and business models,
creating ecosystems of suppliers and aspiring entrepreneurs could be part of the solution.
Take, for example, providers of cloud-based web services, which give young companies access to scale
benefits and flexibility previously unavailable to them. These services are effective examples of long-term
investments, which some companies, notably Amazon, undertook and upheld even in the face of criticism
from impatient investors. Yet such ecosystems are not just the purview of web companies. Leading energy
companies are investing in decentralized energy grids, demonstrating the broad feasibility of such
approaches. Toyota’s integrated and highly collaborative supply network, celebrated for its leanness and
resilience, illustrates that such ecosystems can be built by traditional manufacturing companies.
“Strategies for Two-Sided Markets”
3. LEVERAGE TECHNOLOGY FROM FRONT TO BACK. The effects of technology on humans depends on how we
choose to develop and use it. If businesses leverage it from the back office forward, focusing mainly on
increasing efficiency and optimizing internal processes, then our use of technology will result in the
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displacement of labor. We will miss opportunities to enhance value for customers and to create new jobs and
improve people’s lives. Businesses should start from the front, with a clear focus on solving unmet customer
needs and delivering tangible new value.
Using technologies to spur innovation and help people make their lives more fulfilling is an opportunity in
nearly all sectors of the economy. But this inclusive approach may require some uncomfortable choices. Take
emerging blockchain technology applications, which could have vast potential in financial services
(currency, payment solutions, digital assets), insurance (contract and identity management), entertainment
(performance rights management), and many other sectors. The benefits could be extracted either through
internal efficiency enhancements — by eliminating intermediaries, probably shedding many jobs in the
process — or by creating valuable services and markets, which could lead to new opportunities for jobs and
growth.
Could we imagine that those who originate and develop new technologies take some responsibility to apply
them in an inclusive manner, creating new benefits and services while addressing transitional frictions?
Business leaders are starting to confront these questions. Microsoft CEO Satya Nadella recently said: “How
do we create AI to augment human capabilities and enhance the human experience? What are the things we
need to do so that human welfare is front and center? And that means building in trust, transparency, the
ability to take back control, and infusing technology with human values and empathy.” Definitive answers
are scarce, but business leaders are advised to start addressing these questions.
“How GE Is Disrupting Itself”
4. INVEST IN HUMAN CAPITAL. An increase in the dynamism and diversity of business environments means
that people must adapt their skills more quickly. This includes their ability to take part in the production as
well as the consumption of new goods and services.
Finding effective and affordable ways to help people
acquire transferable skills their careers, not just
before they start out, is a large social challenge.
Education is critical in creating career mobility and
equality of opportunity, which are at least as
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The New Science of Human Capital
important as, and closely tied to, income gaps. But it
takes too long for new work skills to become codified
and for the education system to deliver them.
Firms can help close the loop. As an example, look at
the digital skills gap. In 2014 AT&T was among the
first companies to experiment on a large scale with
targeted online education in data science and
computer programming. In addition to offering the
program to its own employees, AT&T offered fully funded scholarships to the public. As new tools become
available to build or rebuild human capital more effectively and efficiently, corporations could seek to
broaden their mandate in this area, both with their own staff and in the communities where they operate. We
also see it as paramount that business leaders be consistent, passionate advocates for improving access to
high-quality education for all ages and income levels.
“Inside AT&T’s Talent Overhaul”
5. BROADEN ACCESS TO BASIC GOODS. We produce in order to consume. Yet access to some fundamental
goods or services in our economies is too restricted because prices are prohibitively high. Housing,
education, and health care are just three well-known examples of basic goods that have substantially
increased in price over the last few decades, leading to unequal access. What’s more, the poor in our societies
often face higher prices for comparable goods and experience higher inflation. Access to basic goods could be
improved to broaden access to economic opportunities.
Providing access to such goods is often a consequence of competitive business activity and disruptive
innovation, which starts with someone creating a simpler, more affordable version of a product. Low-cost
airlines, for example, brought access to their services into previously underserved regions and customer
segments, and by providing such access helped sustain public transportation infrastructures. Such disruptive
innovation is also needed in areas such as health care, where outcomes are standardized, measured, and
resources allocated accordingly through the adoption of value-based approaches. Broadening access to basic
goods and services can be a winning strategy for investors, companies, and society.
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“3 Ways Businesses Are Addressing Inequality in Emerging Markets”
6. REBALANCE AND ALIGN REWARDS. People’s sense of self-worth and happiness is closely linked to the
nature of their work and their relative earnings. This is especially true when we consider not only wages and
benefits but also career mobility, merit-based recognition, and the intangible value of people’s purpose in
work.
Mismatches between rewards and performance along the entire pay scale, from entry-level workers to
leaders, undermine perceptions of fairness and faith in the system. Bringing rewards into a healthy
relationship with performance presents an opportunity for corporate leaders to directly shape people’s
perceptions of self-worth, fairness, and access to opportunity.
On executive compensation, leaders can move ahead by increasing transparency of compensation levels
(absolute and relative) by being open about the criteria for performance-based pay, and by ensuring that
executive remuneration is governed effectively. On rewards for employees, look at Walmart’s example. The
global retailer has recently increased its base salary for a substantial share of its workers. Equally important,
Walmart in parallel invested in opening training academies, rolling out training programs, including career
mentorship opportunities, and linking participation in these programs to career progression. Rebalancing
rewards and aligning them with access to opportunity can be the right thing to do in addition to being good
for business.
“Why ‘Good Jobs’ Are Good for Retailers”
7. REVITALIZE SOCIETY THOUGH A SOCIAL BUSINESS MINDSET. Business needs to remain deeply embedded in
society to positively affect it. In fact, business can create solutions to society’s most fundamental problems.
Take long-term and youth unemployment as an example. In Europe, numerous business-led
initiatives address this hard-to-crack issue, working closely with public agencies and thousands of volunteers
and employers. These initiatives offer structured labor market reintegration and skill-building programs.
Some programs do this very successfully, creating a three to four times higher chance to bring unemployed
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youth back into the labor market and helping small and medium firms tap into new pools of talent. Such
social business initiatives, if kept close to the core, also help build strategically relevant capabilities such as
the external orchestration of people and assets, a key skill in executing a shaping or ecosystem approach to
strategy.
“Creating Shared Value”
The case for renewing the narrative of progress and global businesses’ role within it needs to start with the
end in mind. It does not require a degree in modern history to imagine the ends that await us if we accept
deep political polarization in our societies as the new normal. In private discussions with us, many business
leaders have shared this sentiment, irrespective of their political views. Many are willing to take pragmatic
steps toward more actively shaping society, to not only sustaining economic progress but also helping to
bring about broad-based prosperity. Now is the time to act.
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Martin Reeves is a senior partner and managing director in the Boston Consulting Group’s New York
office and the director of the BCG Henderson Institute. He is the coauthor of
(Harvard Business Review Press, 2015). You may contact him by e-mail at [email protected] and follow
him at @MartinKReeves.
Johann Harnoss is a project leader in Boston Consulting Group’s New York office and an ambassador to the BCG Henderson
Institute. You may contact him by e-mail at [email protected] or follow him at @Johann_Harnoss.
Related Topics: GLOBALIZATION | ECONOMY
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Veronica Hudson 3 months ago
This blog is really insightful because of its information. The economy of the whole world needs to get stronger after the global
crisis 7 years ago. I have read something about the leading economic countries coming together to build a strong global
economy https://goo.gl/GeXdmr
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