Speeches - Claude Smadja

"COMPETITIVENESS IN THE NEW GLOBAL ECONOMY: THE SIX COMMANDMENTS" By Claude Smadja Managing Director, World Economic Forum  Brussels, 18 May 2000

As the globalization wave was continuing to sweep the world with an increasing momentum – despite the backlash that it is now creating – the Internet revolution has just emerged as the new reality affecting not only economic life and the way we do business but also the way we relate to each other and to society at large. The cumulative impact of these two revolutions coming together is what is creating the new global economy.

In this respect, much has been said about the new economy being the multiplication of the Internet start-ups with the creation of new business models. In some respect, it was depicted as the start-ups versus "the dinosaurs". But in reality, what we realize more and more is that this new economy is in fact increasingly the blending of the start-up types of activities and business models with the more traditional activities and structures. It is, in other word, emerging as a result of the massive injection and integration of IT technology into the full range of economic activities.

In practical terms, no "traditional" company which would fail to integrate fully the internet dimension and the IT dimension in its activities and modus operandi can expect to survive, let aside compete successfully in the future. No internet company beyond the domain of services, in the strict sense of the term, can hope to develop if it is not able to master critical areas such as supply and distribution – areas typical of a "traditional economy" – if it wants to realize the potential for development that the market capitalization of some of these companies imply.

What are today the key requirements to be competitive and to be always one step ahead of the curve in this new global economy? Of course we know the key factors for competitiveness as they are reviewed in the Global Competitiveness Report published each year by the World Economic Forum in order to assess and benchmarks the performance of about 60 economies in the world. We know the role and importance of a sound and transparent institutional and legal system, the importance of management, the role of technology, infrastructure and finance as major factors of competitiveness.

What I would like to do here with you is to share some thoughts on what has to come in addition of all these factors, of what has to be highlighted in conjunction with all these factors – crucial as they are – for the competitivity or corporations and national economies.

The first requirement is, of course, to be able to master what can be called today knowledge and innovation power. What counts today is not only the ability of a company to innovate and to integrate technological developments into its activities but to be able to leverage IT developments in an optimum way, as soon as these developments occur, in order to create new business models and strategies. It is not only anymore a question of integrating new technologies, but to use this integration as a trigger for introducing news ways of conceiving and doing business.

In this respect, one of the most illustrative examples of the leveraging of IT to create new business models is how traditional industries, such as Automotive or Airlines, are today, using the internet to completely revamp their relationship with suppliers by creating their own internet ventures in order to take care of their supplies, on a pool basis, despite the fact that the companies creating the pools are themselves in a cut-throat competition situation.

But mastering the knowledge and innovation power has also other far-reaching implications, because it raises the issue of how the company is able to share knowledge among its ranks. How it is able to recycle that knowledge and to nurture its ongoing development and integration through its management practices and culture.

In this regard, the drastic change stems from the fact that, whereas power used to come, among other things from a monopoly on knowledge by the top management, efficiency and competitiveness imperatively dictate now the sharing to the greatest extent of knowledge and experience inside the company.

In line with the first one, the second requirement for competitiveness is definitely to be up to the challenge of speed and mobility, which are today a key feature of the economic and business scene. As much as globalization has meant the disappearance of borders, the Internet dimension has accelerated the process of time and distance compression. In fact, time and distance have now become almost obsolete concepts. And everything is now dependent of the ability of a corporation to be in the top league in the came of time compression and mobility.

This is translated into the race for being the first to integrate IT development into new products, but also being the first to drax the conclusion of IT developments with respect to the creation of new business models and strategy. And the premium on that is even higher considering that the business models of the new economy are for most of them, based on the notion of high volumes and low margins which means that the time span in which a company can benefit from the premium of innovation for its profit margin is getting shorter and shorter.

But if the notion of leveraging mobility is today becoming paramount – mobility of capital, mobility of ideas, mobility of people, mobility of services – the implication is that whatever factor comes into the way of increasing speed and mobility becomes a major threat ot competitiveness. The transpor tindustry is of course amongst the key sectors in which this new requirement can be validated every day. The notion of time to market is not only today valid for describing the process from the emergence of a concept to the reality of the product available to consumers. It is also valid in all the processes which need to reduce the time for suppliers to reach their clients and for producers to reach their consumers.

The time premium has today become a major factor, not only in business strategies but also as a key marketing incentive and as prominent criteria for efficiency and competitiveness. Any company or national economy, which does not attach a priority attention to this factor, is bound to see its position deteriorate. But the mobility and speed factor have also much wider implications because they affect every single aspect of the chain of decision making and communications inside the corporation. And thus affect the management structure and processes as well.

But is has also the same wide ranging implications when it comes to national policies, when it comes to the priority need to eliminate bureaucratic layers which reduce speed and mobility, when it comes to eliminating the various factors of rigidity which still today, in most economies, affect competitiveness and increase costs. Any corporate structure or national economy which cannot devote enough energy and attention to making sure that it has created all the conditions for accelerating speed and mobility is bound to discover that at its own expense.

The third requirement for competitiveness is what could be called networking power in a more and more integrated economic structure. And of course the Internet is today one of the key tools for networking. Business leaders and corporations today have permanently to demonstrate their ability to master and leverage a more and more intricate and complex web of relationships and partnership where suppliers are at the same time customers, where competitors can become partners and where the lines which tended to define precisely roles and activities become so blurred to the point of almost losing significance.

We have seen that, with the example mentioned before of fierce competitors creating joint ventures to ensure the most efficient lines of supply, using Internet technology. But is also applies in the case of joint ventures created among rivals for the development of new products or services. This networking capability becomes an indispensable necessity for the corporation to expand its reach and to compensate for strategic vulnerabilities or weaknesses.

The fourth requirement is today the necessity to manage in an optimum way complexity and diversity. As the lines of supply get localised, as corporation stand to operate more and more as one entity with many outfits, operating in different locations, and different cultures, as the search for talent compels corporations to attract the best and the brightest, wherever they are, and whatever their origin, and as markets at the same time globalise and localise, the complexity and diversity of the environment in which corporations and business leaders operate become almost limitless. This is also complicated by the wave of mergers and acquisitions which oblige companies to constantly integrate new people and new corporate culture.

The mastering of complexity and diversity is today proving to be one of the major challenges in the permanent quest for competitiveness. And the increasing use by corporations of consulting companies to address this issue is an indication of how much this challenge is taxing the capabilities of corporations.

In a new economic and psychological environment where interaction and communication is key where the element of bringing people along become essential, the fifth requirement to succeed in the new global economy is undoubtedly what can be called "communication power". This is truly the ability not only to be able to communicate with people, with employees, customers, shareholders and stakeholders but to make them share the same goals and objectives – make them part of the action – to create communities of interest.

In an era where the power of the public opinion and the leverage of public pressure groups is multiplied by the very efficient use of internet capabilities the examples abound where corporate strategies or corporate images have been completely derailed by failure to anticipate adverse reactions or by "taking the public for granted". Communication power has now become a full part of the arsenal of tools at the disposal of the CEO and the corporation in advancing their objectives.

In the same vein, in an era where more and more of the real assets of the corporation are in the domain of the intangible, in the "amount of knowledge" – tacit and explicit – that can be brought to bear in creating ever increasing added-value, there is no way to truly mobilise the creativity and innovation power of the staff if communications strategies and practices are not designed to ensure "buy in". This applies also with respect to shareholders and stakeholders and the need – now permanent – to bring them along.

But in addition to this communications power, one new requirement is now emerging which is now attracting a lot of attention from corporations and their leaders: it is the ability to be a social player, to demonstrate through policies, behaviour and actions a sense of corporate social responsibility.

The current backlash against globalization, is not a short-lived phenomenon. It was to be anticipated as the destabilisation impact of the globalization process and the accelerated pace of change were creating anxieties among many segments of the public. This does not affect only the categories which are seeing their situation or their acquired advantages put into question by the impact of globalization.

We also see quite a number of groups – especially among the young generation – expressing today in quite a vocal way their frustration and their anxiety about there perception that the logic of the maximisation of profits is developing its impact, with an increasing momentum at the expense of any other consideration. This is today seen as taking an increasingly heavy toll on the environment in some countries, on the quality of life, on the respect of social values in certain emerging economies eager to please to the maximum the foreign investor. These are the kind of reactions which were manifested on different occasions such as the WTO meeting in Seattle or the IMF meeting in Washington. This is also the kind of emerging context that global companies have to face because their strategies would seriously be endangered by a backlash from the public.

In this context, wise CEOs and corporations, looking at their long term competitiveness have had to integrate more and more this new dimension in their thinking and in their actions. This is even more needed because of the public perception that governments are in retreat, that the consolidation and concentration of economic power create today disequilibria in view of the shrinking power of governments. It is becoming essential that business leaders and corporations be seen – not because of "cosmetics" but as a result of a genuine commitment – as a social player ready to play its role for the community beyond the priority given to the bottom line and the maximization of shareholders returns.

You may remember the famous title chosen by Andy Grove for his book three years ago: "only the paranoid survive". I am not sure that we should add paranoia as a seventh commandments to succeed and keep a competitive edge in the new global economy. But it is increasingly true that as the pressure on CEOs and corporations keeps increasing, as the necessity for speed, for being at the same time a marathon runner and a sprinter requires a new mindset, a new organisation structure, a new culture, the new global economy is already creating new types of CEOs and corporations. There will be no salvation for those trying to cling to the status quo or acquired positions. The option today is not whether we adjust or not to this new global economy. It is whether we will move fast enough. In this respect, let’s remember that one feature which characterises this new economy is that it is not anymore an environment in which the big eats the small. It is one in which the fast eats the slow.

There would be no more appropriate advice for an audience such as this one to be – definitely – on the fast lane.

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