Summary and Conclusions

usiness

usinessFIVE FORCES THAT WILLRESHAPE BUSINESS—AND HOW TO MAKETHEM WORK FOR YOUFRED HARMONKIPLINGER BOOKSWashington, DC

Published byThe Kiplinger Washington Editors, Inc.1729 H Street, N.W.Washington, DC 20006Library of Congress Cataloging-in-Publication DataHarmon, Frederick G.Business 2010 : five forces that will reshape business--and how to make them workfor you / Frederick G. Harmon.-- 1st ed.p. cm.Includes index.ISBN 0-938721-84-4 (cloth : alk. paper)1. Business forecasting. I. Title.HD30.27 .H38 2001658.4’062--dc21 00-069012© 2001 by the Kiplinger Washington Editors, Inc. All rights reserved. No part ofthis book may be reproduced or transmitted in any form or by any means, electronicor mechanical, including photocopying, recording, or by an information storageand retrieval system, without the written permission of the Publisher, except wherepermitted by law.This publication is intended to provide guidance in regard to the subject mattercovered. It is sold with the understanding that the author and publisher are notherein engaged in rendering legal, accounting, tax or other professional services.If such services are required, professional assistance should be sought.First edition. Printed in the United States of America.9 8 7 6 5 4 3 2 1Kiplinger publishes books and videos on a wide variety of personal-finance andbusiness-management subjects. Check our Web site (www.kiplinger.com) for acomplete list of titles, additional information and excerpts. Or write:Cindy GreeneKiplinger Books & Tapes1729 H Street, N.W.Washington, DC 20006e-mail: cgreene@kiplinger.comTo order, call 800-280-7165; for information about volume discounts, call 202-887-6431.

DedicationOnce again, this book is for Nancy.

AcknowledgmentsALTHOUGH MY NAME APPEARS AS AUTHOR ON THISbook, it is, in a real sense, a collaboration amongmany individuals in several organizations.In my Preface, I have already noted my debtto Garry Jacobs, Bob Macfarlane and HarlanCleveland, who provided major contributions to my thoughtson the development of organizations. I also thank members ofthe World Academy of Art and Science, who invited me toattend a meeting that included presentations that proved mostrelevant to the themes explored in this book.I add my great appreciation to the Kiplinger organizationfor the opportunity to prepare and present the ideas in thisbook. While I have read Kiplinger publications for many years,I have not previously had the chance to work with the company’soutstanding staff.The basic theme of this book, Business 2010, was the ideaof Kiplinger Books publisher David Harrison. When Davidasked literary agent Rob Kaplan to find a suitable author forthe project, Rob, an old friend, as well as my agent, broughtthis challenging opportunity to me.Knight Kiplinger, editor in chief of The Kiplinger Letter andKiplingerforecasts.com, showed a special interest in the bookfrom the beginning, reading and commenting on both mydetailed outline and the completed draft. In each case, he providedmany helpful and insightful comments.My closest collaborator at the Kiplinger organization wasPatricia Mertz Esswein, managing editor of Kiplinger Books.Pat relentlessly pushed me to come up with a better exampleor a clearer explanation for each of my themes. Despite excep-

tionally tight deadlines, she maintained such a cheerful andoptimistic manner that I found it difficult to object to the additionalwork on what I had naively supposed was a nearly finishedmanuscript. The final text benefited enormously fromher dedicated effort.I am also grateful to the editors and writers of the Kiplingerpublications. Articles on the Web-based Kiplingerforecasts.comproved to be an invaluable source of information about manyof the key business trends discussed in this book.Thanks also to Priscilla Taylor, who copyedited andsmoothed the manuscript, and to Heather Waugh, whodesigned the book.Katherine Yarrusso-Mosley of First Coast Business Centerin Jacksonville, Fla. once again ably served her invaluable roleof helping me with research while providing support for mybusiness consulting assignments. Sue Holmes calmly and effectivelykept my Virginia office running smoothly while I workedon the book. Janani Ram of Pondicherry, India, brought highenergy and intelligence to demanding research assignmentsfor the book.To all of the above people and organizations, my deepestthanks.

PART II: Five Keys to Profit and Productivity. .........................77CHAPTER FIVE: The Market Rules ..................................79Unprecedented Opportunities • Market Strategy #1: Recognizethe New Balance of Power in Every Marketing Thought and Action• Market Strategy #2: What Have You Done for Me Lately? •Market Strategy #3: Customer Satisfaction Is a Promising FirstDate, But Customer Loyalty Is the Real Relationship • MarketStrategy #4: Build Relationships With Customers ThroughTargeted Information • Market Strategy #5: Jump the ClockForward From Planned Time to Real Time • Market Strategy #6:Follow the Demographics to New and Expanding Markets •Summary and ConclusionsCHAPTER SIX: The Vast Profit Potential of Expanding Knowledge ....109Knowledge Revolutionizes Production • Pioneers Reap theRichest Rewards • The Roots and Growth of the TechnologyRevolution • The Top 10 Emerging Technologies • AcceleratingServices Fuel Our Job Growth •Services: More ExponentialGrowth in Productivity • Production Amid the Shift From Physicalto Mental Technology: Four Priorities for Business • RethinkingYour Definition of Value • Adding ‘Intangibles’ to Your Productor Service • Keeping Up With—or Anticipating—RisingExpectations of Quality • Scaling Up From Physical to MentalTechnologies • Summary and ConclusionsCHAPTER SEVEN: Toward “Uncentralized” Organizations ............145Converting Human Energy Into Performance • The Basis ofAll Creativity • Organizations Today: Five Issues to Consider •Keeping Pace With Growth • Adapting to New Technology •Designing for ‘Uncentralized’ Thinking • Adjusting to theEffects of Economic Convergence • Moving Toward a GlobalPerspective • Summary and ConclusionsCHAPTER EIGHT: Capital—An End to Limits .........................181Technology: Organized Thought • Material Resources: FromHeavy to Light, From Shortage to Surplus • Water, WaterEverywhere, But a Higher Cost per Drink • Information:A Resource That Keeps Growing • Money: New Ways toSpread It Around • Summary and Conclusions

CHAPTER NINE: People—No Truce in the War for Talent .............213From a Surplus to a Shortage of People • Recruiting the BestPeople—But Best for What? • Four Key Recruiting Strategies •Going Deeper Into Nontraditional Labor Pools • Diversifyingand Upgrading Recruiting Practices • Taking Advantage ofthe Temp Boom• Taking the Jobs to the People • To Retain YourMost Valuable Assets, Build a Great Place to Work • Summaryand ConclusionsPART III: Priorities for Success ....................................249CHAPTER TEN: Riding the River of Opportunity—Aligning Your Company With Accelerating Change ..................251The One Sure Thing in a Climate of Change • A ContinuingEvolution of Societal and Business Values: Implications forBusiness • From War to Peace • From Industrial to TechnologicalCivilization • From a National Toward a Global Perspective •From Centralized Authority Toward Freedom • From Conqueringto Sustaining the Environment • A Values Shift for Government• Positioning Your Company: Five Priorities (Values That Energizeand Questions to Ask) • Priority #1: Anticipate Market Needs •Priority #2: Accelerate Response Times • Priority #3: DevelopAll Your People All the Time • Priority #4: Organize for Tomorrow• Priority #5: Elevate Operational Excellence • Summary andConclusionsENDNOTES ........................................................299INDEX ...........................................................317ABOUT THE AUTHOR ..............................................329

IntroductionARE WE LIVING TODAY IN A TIME MORE EXCITING,more dangerous, more dismaying, more encouragingthan any previous era in world history?Well, yes and no.One of the most misguided human conceitsis the assumption that current circumstances are profoundlyexceptional, whatever the superlative might be—”themost treacherous,” “the fastest changing,” “the richest inopportunity”—of all eras. There is a natural human tendency,especially among those who are not avid students of history, toascribe unique traits to one’s own era.Of course, each new era presents a particular set of challengesand opportunities that have not been seen before inexactly their present form. But before we crown our era as “themost,” “the best” or “the worst” of all, let’s remember that theworld has experienced similarly deep and far-reachingupheaval in the past—but not often, and not very recently.Consider the incredible changes that will be wrought in theyears ahead by such forces as the Internet, biotechnology, andthe globalization of world business. Such world-changingupheavals don’t come along very often, and are rarely synchronized.Have they equals in world history? Perhaps only theinvention of movable type for printing, the steam engine, electricityfor motors and lighting, the telephone, the automobile,powered flight, radio and television, antibiotics, high-yieldhybrid grains would qualify.Notice that in this list of world-changing technologies, thetime intervals between them has kept shrinking, from severalcenturies to a few decades to a few years.XIII |

Preface: TowardBusiness 2010TODAY, AMERICAN BUSINESSPEOPLE DEFINE CHANGEprimarily in terms of technology or markets, butan equally important element is our changedperspective. In a few decades we moved fromrelying on limited material assets to dependingon virtually limitless, intangible resources.The foundation of our economic system has shifted fromphysical production to mental services. In the 1990s, we wentfrom worrying about how we had too many people for too fewjobs to wondering how we could find the workers we need.Perhaps most important, we extended our horizon fromnational borders to global cyberspace.These are not small changes. Taken together they create aclimate of rare challenge and opportunity.We are certain to miss the true significance of such developmentswhen we constantly look around the corner for thenext disaster, or when we interpret the latest stock marketgyration as an accurate predictor of long-term trends. It is farmore practical—and energizing—to look periodically at thedeeper, long-term forces of change in our society than to continuallyfocus on short-term effects.That’s the central message of Business 2010: Expand yourunderstanding of five specific forces of change that are reshapingyour business, and reposition your company—internallyand externally—with those forces.Part One of this book focuses on the five forces behind the acceleratinggrowth reshaping our world—technology, freedom,XVII |

BUSINESS 2010education, demographics and globalization—placing theseforces in a historical context as well indicating their likelyfuture direction.Part Two deals with five key components within every companythat must be realigned with the forces of change. Whetherstart-up or established giant, every company must have a marketfor its products or services. It requires people to make, sell,develop and account for what it sells. Capital in the form ofcash or other physical assets is the fourth component. Finally,tying the others all together is organization—the network ofstructures and systems the company uses to manage the othercomponents.The five forces described in Part One have overturned conventionalwisdom, and all require fresh thinking. Each chapterin Part Two focuses on one component and shows you how toevaluate the likely evolution of that component in light of thechanges described in Part One.Part Three brings together key issues and priorities that any companymust address in accordance with the analysis in Parts Oneand Two. This part emphasizes how to increase profits and productivityby emphasizing values like speed, value-added serviceand development of people—all benchmarks of success in thenew business equation.The Question of DevelopmentAlthough this book frequently deals with growth, the moreimportant theme is development—the process of buildingcompetitive advantage by strengthening the componentsof your business in alignment with the forces of change.My ideas about business development are adapted from atheory of societal development, produced by my frequentconsulting and writing associates, Garry Jacobs and RobertMacfarlane. Their rigorous work on this project focuses onconcepts, but their aim is very practical—to increase thespeed and effectiveness of any development project, whether|XVIII

Prefacefor individuals, companies or even countries.They first presented their ideas in papers published byMother’s Service Society, a research and service organization inPondicherry, India. Later their core ideas appeared as a keyelement in the 1994 United Nations report “UncommonOpportunities: An Agenda for Peace andEquitable Development.” Jacobs andMacfarlane have since expanded their workin a series of papers written with politicalscientist and author Harlan Cleveland, presidentemeritus of the World Academy of Artand Science.In their papers (available at www.mirainternational.com), the three authorsfocus on development as a process by whichsocieties move from lesser to greater levelsMany of thedramatic changeswe now see aroundus can be explainedby our currentevolution to a moremental stage ofdevelopment.of accomplishment. They argue that all societies developthrough three overlapping stages, which they call physical,vital and mental:In the first stage, physical aspects of life dominate human existence.Society focuses on physical survival, protection andpreservation of the status quo.In the second stage, increasing productivity of physical resourcesgenerates surplus produce, energy and wealth. Commercereplaces agriculture as the predominant source of wealth.In the third stage, societies advance by mental development. Thisstage is characterized by the generation of new inventions,higher levels of organization, and an elevation in the status andrights of individuals.The progression from one stage to the next stimulates anexponential increase in the productivity and accomplishmentof society. They contend that our current evolution to a moremental stage of development explains many of the dramaticchanges we now see around us.Up to now, they contend, development has been largelyXIX |

BUSINESS 2010unconscious, proceeding “by a slow, cumbersome trial anderror process from experience to knowledge.” Conscious development(the aim of their theory) moves in the other direction,from knowledge to experience. “The more conscious theprocess, the more rapid the progress.” That, of course, is whyeducation is such a powerful lever for development.I gratefully acknowledge their contribution as well as theirgenerous support for my effort to translate their societal theoryinto an explanation of business development.Keeping Up With ChangeACEO of a successful and rapidly growing midwesterncompany recently confided to me that he was “scared”by the ferocious pace of change, by his uncertaintyabout whether he or his company could keep up. I certainlyempathized with his feeling. A dozen times, while preparingthis book, I felt overwhelmed by the volume and complexity ofinformation available all around me. My task was to find patterns,yet each day’s newspapers and TV broadcasts brought adeluge of fresh information and analysis. Like my friend, Iwondered how I could ever keep up. Over time, however, Ilearned to ask two questions that always helped me separate theephemeral from the significant. These questions may proveuseful to any reader when confronting change.First, how does this new development connect with the past? I am convincedthat developments that connect with strong historicalforces—the expansion of human freedom, for example—arelikely to prove the most significant for society and businessover time.Second, what is different this time? Too heavy a reliance on continuitywith the past encourages complacency, a world-wearyconviction that there is nothing new under the sun. For example,the Internet clearly links with the telegraph, the mid-nineteenthcentury breakthrough technology that first providedinstant communication across great distances. However, the|XX

PART ONE BUSINESS 2010Understanding theForces of ChangeWE’VE TRIED CHANGE THREE TIMES AROUNDhere,” an exasperated manager complainedto a consultant friend of mine. “It’s neverworked.” Many executives share this manager’sfrustration. Keeping your companyaligned with technological change, rapid market shifts, risingexpectations of customers and employees, and unyieldingcompetitive pressures is a daunting task.Success begins with a deeper understanding of the forcesaround you. A partial understanding breeds partial solutions,leading to partial success at best. Just as inevitably, a morecomprehensive vision produces a wider perspective, which, inturn, opens the way to integrated, rather than piecemeal,responses to change.This first three chapters of this book aim to provide thatwider perspective. They identify the five predominant forcesreshaping business and society today and explain how thoseforces, acting separately and together, create new opportunitiesfor business growth and development. Chapter Four,the last chapter in Part One, explores how societies and businessesevolve in response to the challenges created by theforces of change.

CHAPTER ONE BUSINESS 2010A Moment ofOpportunityKEY CHAPTER THEMES■ Five forces of change■ Technology: Making labor mental■ Freedom: New definitions of competition and choice■ Education: The irreplaceable engine for growth

CHAPTER ONE BUSINESS 2010“We can’t pretend to forecast just what willhappen or when. But we already know somethingmore important: why it will happen.”—HARLAN CLEVELAND, PRESIDENT EMERITUS, WORLD ACADEMYOF ART AND SCIENCE“One cannot manage change. One can onlybe ahead of it.” —PETER F. DRUCKER, AUTHOR, PROFESSOR,CLAREMONT GRADUATE SCHOOL, CALIFORNIASTRATEGIES TO ANTICIPATE CHANGE REQUIRE FAR MOREthan predictions, projections, or forecasts. If youdoubt that, take a look at your company’s five-yearold,long-term projections of sales, costs and profits.As a management tool to focus attention on whatwere then the critical issues, the numbers probably had value;as a window on the future they were probably next to useless.As Samuel Goldwyn, the shrewd but sometimes tongue-twistedHollywood producer, once put it, “Never make forecasts, especiallyabout the future.”Anticipating the future begins not with projections but withan understanding of five fundamental forces that are reshapingbusiness: technology, freedom, education, demographicsand globalization. Each of these forces began gathering speeddecades or even centuries ago. Each has reached new levels ofacceleration in recent years. Individually and collectively theyare changing the way that societies, individuals and companieslive and work.Within these five forces, lie find the root causes for theshorter-term trends businesspeople encounter every day. Forexample, demographics are a major factor behind the current5 |

CHAPTER ONE BUSINESS 2010shortage of people, skilled and unskilled, in virtually everyindustry. Think demographics next time you see a sign in thewindow of a fast-food restaurant or a local small businessannouncing, “Now accepting applications.” Whom do theythink they are kidding? “Now pleading for applications” wouldbe closer to the truth.Or take the expanding sense of freedom. From time to time,do the expectations and attitudes of young workers in yourcompany frustrate you? If so, you have front-line experience ofhow an expanded definition of freedom is redefining traditionalrelationships at work. This expanded sense of freedom alsocontributes mightily to the pressure that business leaders todayfeel to decentralize authority and “empower” people.When you understand these five forces, you will be betterable to anticipate the direction of related trends in your market,industry and company. You will also be more alert tounfolding opportunities for your business. That’s because theinteraction among these forces has placed American business atthe center of a new launching point for human choices andopportunities.If American business realizes the potential of this moment,America’s rapid growth in the 1990s will be remembered neitheras a fortuitous occurrence nor an extended run of goodluck. Instead, the ’90s will be recalled as the forerunner of aneven more rapid and broader pace of development.It took the convergence of these five powerful engines ofprogress to create this moment of opportunity:Technology hourly extends human capacity and converts physicalenergy into ever-higher forms of mental energy.The spread of freedom daily multiplies the potential for humanchoice within closed societies and organizations.Education expands mental horizons and intellectual skills at anever-increasing pace.Demographics overturn all of our traditional definitions of bothcustomers and employees.|6

A Moment of OpportunityGlobalization opens vast new markets while raising hope andopportunities among people whose ancestors had little of either.This chapter discusses the first three of these forces—technology, freedom and education. Chapter Two reviews thebig demographic changes that are coming in American societyand analyzes how they will affect markets and the workplace inthe years ahead. Chapter Three looks at the outlook for globalization—thepowerful force that is creating so many newopportunities for growth and threats of competition today.Chapter Four explains how successful businesses respond andadapt to the increased momentum of these forces of change.For readers who are already familiar with the demographictrends that are discussed in Chapter Two, projecting evenfaster economic growth may seem counterintuitive. That’sbecause so much of our growth in the past has resulted from aquantitative expansion of population, a trend that will slow inthe U.S. in the next 20 to 30 years. This book proposes thataccelerating qualitative advances now accompany this continuingquantitative expansion, and that the shift becomes moreimportant every year.Qualitative advances refer to developments like the expansionof lifelong education at home and at work, the rapidevolution of technology to replace a permanent shortage ofworkers and improve the physical health and longevityof Americans, and the development of new services for thecomfort and convenience of people at work and at home.These advances—and dozens of others discussed later—translate into spectacular opportunities for business.Exploiting those opportunities requires a basic shift in perspective,that is, an understanding that the paths to tomorrow’sopportunities lead in vastly different directions from the wellworntrails of yesterday.For a century or longer, the word more has driven business:More cars. More houses. More refrigerators. More TV channels.More hospitals. More retail outlets. And, of course, morepeople. The new watchword is better: Better-quality cars. Bettereducation. Better health care. Better recreation. Better valueaddedservices offered as an addition to standard products.7 |

CHAPTER ONE BUSINESS 2010Adding to the potential of this qualitative expansion athome is the parallel expansion of quantitative growth in thedeveloping world. A growing, global middle class every yearexhibits a larger appetite and, increasingly, an expanding purchasingpower for U.S.-style comforts.The resources that have fueled the economic growth of thelate 20th century are potentially infinite. We have only begunto see what technology, freedom and education can accomplishindividually and, even more important, in combination withgreater demographic diversity and globalization.Driving Force #1: Technology—Extending Human Potentialand Making Labor MentalTechnology’s power derives from its capacity to enhancehuman capacities. Our ancestors developed the handax to extend the power and reach of their arms. Thecommunications revolution extended the range of our eyesand ears to send and receive information. The computer simulatesaspects of our mental powers. By combining communicationtechnologies and the computer, we created the relentlesspace of the Information Age.Information Age technology has radically altered the wayAmerican companies do business, creating what some executivescall a New Economy. Between 1995 and 1998 the informationtechnology sector (IT), which accounts for only 8% ofU.S. gross domestic product (GDP), contributed, on average,35% of the country’s economic growth. At century’s end, softwarecompanies alone employed 800,000 people. These companieswere growing at a rate of 13% a year, compared with2.5% for the economy as a whole. 1More widely defined, IT represents something new inevery business. The new technology provides instantaneousinformation. Business used to count inventory at the end of theyear, month or even day. Now, information about inventory is|8

A Moment of Opportunityavailable immediately, reducing inventory stockpiling, unnecessaryworkers and capital equipment. Some of the productivitygains of the 1990s are clearly linked to these improvements.American business has been quick to see the potential ofthis change. As early as 1990, U.S. business was spending moreon equipment to automate the handling of information thanon the combined outlays for all of physical production, includingfactory equipment, transportation systems and constructionprojects. By century’s end, shares in a single informationcompany, Microsoft, were worth more than all the shares inevery company in the U.S. auto industry, that undisputed symbolof the industrial age.What is not new about the New Economy is what Harvardprofessor Joseph Schumpter long ago called “creativedestruction.” In this continuous process, leading-edge technologiespush out the old, as companies replace obsolescent,capital-intensive production equipment with more moderninformation systems. Creative destruction has been aroundfor centuries. Today it is accelerating, driven by innovationsin information technology.One can celebrate the achievements of technology and stillbe alert to its limitations. At the creative end, creative destructionis a heady brew for 30-year-old Silicon Valley dot-com millionaires.At the destruction end, the same brew has a bittertaste for 50-year-old redundant Akron factory workers.Then there is that famous “right to be left alone.” Advancesin technology make it easy to collect data at home and at work.Databases combining public and consumer information nowencompass some 95% of American households. Surveys repeatedlyshow that when Americans become aware of this electronicsnooping, they don’t like what they see.The Biological FrontierEven greater technological change is just over the horizon.Physics, the dominant science of the 20th century, changed ourworld through innovations such as the atomic bomb and thetransistor. The 21st century promises to be the Century ofBiology. At one level, the biotech revolution merely extends9 |

CHAPTER ONE BUSINESS 2010developments in the life sciences that have brought vaccinesagainst smallpox and polio, antidepressant drugs, the “greenGenetics will bethe key enablingtechnology of theearly 21st century,rivaling informationtechnology inimportance.revolution” in agriculture, as well as increasesin life spans around the world.But when Watson and Crick decodedthe structure of DNA, they opened new possibilitieson the scientific frontier. Geneticswill be a key enabling technology of theearly 21st century, rivaling information technology,energy technology and materialstechnology in importance. It is already clearthat genetic research opens the potential forus to redirect the evolution of our own and other species. Totake just one example, it is no longer certain that there needbe any limit to life expectancy. Recent research suggests thataging and cell degeneration are genetically controlled processesthat could potentially be turned off.Explosive IssuesThe biotech revolution raises potentially explosive issues.Biotech research is uncovering the genetic foundations of diseaseslike Alzheimer’s, breast cancer and schizophrenia. Now,the “germ-line” research of the future has the potential to eliminatethose diseases not only in treated individuals but also inall of their subsequent descendants.The emerging issue is how to draw the line between legitimatetherapy and artificial enhancement of the human race.For example, there is growing evidence that a tendency for violenceis both genetically inherited and more characteristic ofmales than females. Suppose we establish that this is true(which is certainly possible) and we are able to isolate the violencegene (which is even more likely within our capacity)? Whynot intervene genetically to correct an obvious danger to society?“Those who think that this sounds like science fiction havesimply not been paying attention to…the life sciences recently,”says George Mason University Professor Francis Fukuyama.Business often dismisses people who question technology’scost-benefit relationships as neo-Luddites, those 19th-century|10

A Moment of OpportunityEnglish craftsmen who rioted against the textile machinery thatwas displacing them. However, the success of activists in the past20 years in reframing the environmental cost-benefit argumentand then winning public support for their position provides aclear model for debates that are only now beginning.Lists of new technological marvels and miracle cures arenow commonplace in every newspaper, magazine and TVshow. It is only a small exaggeration to say that Americans havebecome addicted to technological progress. This widespreadsupport is closely linked to the two trends discussed in theparagraphs that follow. Freedom—of opportunity and fromexcessive regulation—creates a climate in which innovationthrives. Expanding education in schools and on television producestechnologically friendly customers and workers with agrowing appetite for the latest innovation.Driving Force #2: Freedom’s DanceTom Brokaw, anchor of NBC Nightly News, stood nearthe Berlin Wall at 1:00 A.M. on November 10, 1989.Hours earlier, the East German government hadannounced that its citizens could travel to the West. By midnight,East Germans began pouring through border checkpoints.As Brokaw watched, the “first to reach the wall was ayoung man in a brown jacket. The crowd parted and cheeredas he raised his arms in triumph and danced along the concreteslab that hours before had imprisoned him.” ForBrokaw, as for many others, “my enduring memory willalways be of that young man’s dance…he transformed TheWall from a sinister symbol of oppression to a platform forcelebration and liberation.”That night could serve as a celebration not just of one victorybut of a century of hard-won victories for popular rule. In1900, only six of 43 then-recognized nation-states had somethingthat could be described as a political democracy. In theU.S., eligible voters included only some men and no women.By the close of the century, democratic rule had extended to117 of 193 countries, some 54% of world population. 211 |

CHAPTER ONE BUSINESS 2010Asian ValuesFreedom breeds a hunger for and expectation of greater individualchoice. That’s why the so-called Asian model, popular inthe 1970s and 1980s, could only be a temporary way station togreater freedom. The Asian model held that economic andpolitical freedoms were divisible. In theory, Asian willingness todefer to authority could produce sustained growth without thepolitical upheavals that sometimes shake Western democracies.The Asian model turned sour when key decisions were left tobureaucrats who claimed to have all the answers. Uncheckedrule by bureaucrats led to corruption, collusion with favoredcompanies, and questionable loans to friends and family of governmentleaders.While the lessons of this setback are important, the fundamentaleconomic strengths of Asia were apparent in its rapidrecovery. Necessary reforms that opened up society took holdin the aftermath of the “Asian flu.” Assuming that necessaryreforms continue, the region should have an expanding productionbase as well as offering a huge market for most ofthis century.Why did Asian values so quickly change from being astrength to being a weakness? Korean economist UngsuhKenneth Park identifies the most probable explanation:“Strong governments, meek people and wide cooperation”are valuable in the early takeoff period of economic growth.However, once basic needs are met, “people everywheredemand greater participation in the decisions that shapetheir lives.” 3All true development “can be seen as the process ofexpanding the real freedom that people enjoy,” says AmartyaSen, winner of the 1998 Nobel Prize in economics. Futuredecades will see a widening of definitions of freedom beyondcreating political democracy and unchaining markets.Effective development requires the removal of all majorsources of “unfreedom,” Sen insists. Under this definition,expanding development will inevitably create strongernational agendas to reduce poverty and health risks as well aseliminating political tyranny, and to expand education andeconomic opportunities as well as liberalizing markets.|12

A Moment of OpportunityCompetition and ChoiceIn the marketplace, people express their greater freedom bydemanding more choices. As a result, producers must providemore opportunities for customers to choose what the productlooks like, how they purchase it and what customized featuresthey want.Henry Ford pioneered the vast expansion of the freedomto travel when he offered his customers an $850 automobile,but competition decades ago repealed his famous limitationthat customers could have any color car they wanted “as longas it is black.” Before long, Ford customers will be able to ordertheir car with exactly the individual features they want andhave it delivered from the factory in a matter of days.Rapidly expanding choice breeds chaotic market competition.Giant corporations cede control in every business field.Entrepreneurial companies rise from nowhere to challenge thegiants and become giants themselves. In fewer than 20 yearsthis is the story of MCI, Microsoft, Dell, Federal Express, Wal-Mart and Amazon.com. Today a few entrepreneurs with a Website can compete for market share, funding and excitementwith established giants.In the 1950s, billion-dollar mergers would have shakenWall Street and Washington alike. Today, no one worries seriouslythat merged giants in traditional industries can monopolizemarkets. The Justice Department expressed far moreconcern about the potential monopoly of a single company,Microsoft, on the Information Age frontier. As economicpower decentralizes, federal antitrust officials will look moreclosely at a company’s domination in particular geographicregions, not just in the country as a whole. An aggressive pushby the federal government in this area will mean still furtherdecentralization of the economy and still more competition.The jobs lost because of mergers would have createdgreater controversy in earlier eras. In 1999, there were fewheadlines about the more than 55,000 merger-related job cuts.Smart small-business owners hired some of this talent, acquiringa knowledge pool developed by big companies. Otherdownsized executives took their skills into the entrepreneurialeconomy, decentralizing economic power even further.13 |

CHAPTER ONE BUSINESS 2010Erosion of Top-Down PowerWithin companies, the expanding, explosive power of freedomtranslates into decentralized authority and empowered workers.In a fast-moving technological age, the economic freedom representedby “a fair day’s wage for a fair day’s work” is a given,rather than a competitive advantage. Today’s rapid turnover oftalented people arises in part from the “unfreedoms” in toomany large American corporations. The entrepreneurial economy,in contrast, promises both greater economic freedom andthe social freedom of greater personal autonomy.The same people who demand more choice at the supermarket,who want access to more television channels and whowant more control over the curriculum at their local schoolshunger for more choices in their work. To keep competitionand choice synchronized with the rhythms of Freedom’s Danceis a major business opportunity of the new century.Driving Force #3: Education—The Irreplaceable Engine for GrowthEducation is an irreplaceable engine for business growth.“In the knowledge society, the knowledge base is thefoundation of the economy,” says Peter Drucker.Education’s primary contribution to business is its capacityto transform business’s greatest resource—people—intohuman capital. The quality of that human capital determineshow well any business can produce, innovate and compete.In its second great contribution, education helps business byraising people’s aspirations for self-improvement. Thisincreased awareness expands market opportunities. Expandingprint literacy sells more books. Expanding computer literacysells software. Wider health education sells pharmaceuticals.Third, education accelerates the diffusion of scientific andtechnical knowledge. The technical know-how used in anyindustry, from agriculture to computer science, regularlyreaches the front-line worker through formal schooling, adulteducation, correspondence courses or in-company training.|14

A Moment of OpportunityEducation’s Support for FreedomEducation has traditionally supported the expansion ofAmerican freedom and economic opportunity. Education gavethe early leaders of the American republic the knowledge ofEnlightenment ideas on which they based both our Revolutionand our Constitution. Many of these people, including ThomasJefferson, were the first of their families to attend college.Setting forth the new American perspective, John Adams saidhenceforth it was education, not birth or privilege, that wouldmake the gentleman.By the mid-19th century the great educator Horace Mannhad won for every American child the right to basic educationat state expense. Although it took decades to turn this rightinto a reality, access to free public schools served as a great cauldronof Americanization. Millions of children walked intoschool as foreigners and graduated as Americans with a commonlanguage, values and the basic skills of a literate society.The G.I. Bill gave millions of American veterans theopportunity for advanced technical, professional and academiceducation. For 50 years after World War II, this bold strokeprovided the country with educated leadership at every economiclevel. In addition, by subsidizing a massive expansion ofour elitist higher educational system, the G.I. Bill increasedaccess to higher education for millions more.Our hot political debates about education are justified bythe importance of the challenges confronting us, but the clamorof the debates tends to drown out appreciation of the continuingand genuine achievements of our education system. Inboth quantitative and qualitative terms the numbers areimpressive. Consider:■ In the 1949–50 academic year, just over 31 million Americanswere enrolled at all levels of education. Fifty years later, thenumber had more than doubled, to 67.6 million.■ Just 30 years ago, more than half of Americans who were 25years of age or older had not graduated from high school.Today, 83% of Americans over 25 years old are graduates ofhigh school.■ More than 90% of school-age Americans under age 18 arestudents.15 |

CHAPTER ONE BUSINESS 2010■ Many older Americans are back in the schoolroom. In 1996,nearly 3 million people who were aged 35 or older wereenrolled in school.■ A college education is no longer an elite entitlement. In 1994–95more than 1 million prospective college students took theScholastic Aptitude Test. That compares with 11,000 in 1941,the first year the test was administered.■ Meanwhile, the SAT scores of minority groups have been risingsince 1975–76. Among African Americans, verbal scores in1994-95 were 24 points higher than they were 20 years earlier.Math scores rose 34 points during the same period. 4Absorbing this level of change has put the education systemunder enormous pressure. Dissatisfaction with quality is at anall-time high. Yet America’s fundamental faith in the power andpotential of its education system remains strong.Diffusion of Scientific InformationTechnology stalls without effective educational channels tospread scientific and technical information. Recognizing thistruth, the French established the Ecole Polytechnique in 1794.Originally designed to train engineering and artillery officers,the school eventually concentrated on math, basic science andtechnical capability.The success of the Polytechnique sparked imitators inPrague, Vienna, Zurich and Moscow. German universitiesinvented the teaching laboratory in 1830, a breakthrough inmaking their university technical education the world model bythe end of the 19th century.This growing reliance on formal education to spread technicaland scientific knowledge had “momentous consequences,”says historian David S. Landes. As the frontiers of technologyshifted to fields like chemicals and electricity, formal instructiongrew in importance. Nations that continued to rely too heavilyon experiential learning slipped to the rear ranks of economicprogress. For example, Landes compares the power of formalschooling on the continent of Europe with the British approachof learning by doing—the experiential strategy that had driven|16

A Moment of Opportunitythe Industrial Revolution by combining and recombiningknown techniques. As technology grew more complex,“Continental reliance on schooling paid off, generating andimparting new technologies…while Britain, caught in the netof habit, fell behind.” 5Educational Requirements for BusinessToday, American business needs an effective school system atevery level to stay competitive. The raw knowledge available tothe average business keeps growing exponentially. Accordingto at least one expert estimate (probably more of a guestimate),the Internet causes available information to double every 80days. Staying on top of these mounting data dumps requiresbusiness owners and managers to have an educated perspectiveand an ability to organize knowledge across companies. Astatistic, no matter eye-catching, represents only a point intime. Even a short-term trend can be misleading when isolatedfrom a deeper, more comprehensive understanding of how theforces of change are reshaping a company’s total environment.Before a company can make the best use of new information,that information must be organized and readily availablethroughout the whole industry. Today, too often, the bestpieces of information are isolated in individual company siloscalled market research, financial data and product development.Dissatisfaction with the current system among businessleaders and, increasingly, among the American population as awhole has reached such a fevered pitch that reforms and innovationswill roll out in the early years of this century. Distancelearning is already widely available. In March 1999, JonesInternational University became the first Internet-only universityto be accredited to grant college degrees by the NorthCentral Association of Colleges and Schools, the group responsiblefor evaluating institutions of higher learning in the midwesternU.S. At century’s end, a million people were studyingonline, a number that is expected to double by 2003. Closedcircuittelevision has the potential to raise the level of instructionin classrooms throughout the nation by bringing superstarteachers to students in remote locations.17 |

CHAPTER ONE BUSINESS 2010UNext.com provides one innovative model of how educationcould evolve in the next decade. The founders of the company,Andrew Rosenfield, a lawyer and legal consultant, andGary Becker, a Nobel Prize-winning economist at theUniversity of Chicago, want to sell online courses to companieseager to improve the skills of their employees. To get the supportof brand-name business schools, they offered a deal worthat least $20 million to founding institutions. In short order, TheNew York Times reports, they had signed up Carnegie Mellon,Chicago, Columbia and Stanford universitiesas well as the London School ofEconomics. That support enabled UNext torecruit faculty for its courses and acquirecurriculum expertise from the institutions.UNext is targeting adult learners inclient companies like Merrill Lynch andAOL–Time-Warner. One added appeal: students can also accumulatecredit toward a diploma from UNext’s own businessschool. Only four months after offering its first online courses,UNext was negotiating to offer courses in Brazil, China, Indiaand elsewhere. 6Business recognizesthat, to get theskills it needs, itmust educate itsown workforce.Business UniversitiesBusiness recognizes that, to get the skills it needs, it must educateits own workforce. Corporations are now investing asmuch as $70 billion annually on their own “universities” totrain and educate workers at all levels. Employee schools aregrowing at 100 times the rate of academic institutions, accordingto a study by the consulting firm KPMG. The need isurgent. KPMG estimates that 75% of today’s workforce needsretraining. 7At century’s end there were about 1,600 company universities,four times as many as there were 15 years ago, accordingto Corporate University Xchange (CUX), a research andconsulting firm. If this pace continues, there will be more corporateuniversities than traditional ones by 2010. High-techcompanies like Motorola and Dell are leading the currentexpansion. In the next decade, leaders among more tradi-|18

A Moment of Opportunitytional industries will certainly expand their education effortsto meet the shortage of skilled workers and to train employeesto their own specifications while on the job. 8Education for Technologists:A Competitive AdvantageAs with any expense, business must ask: Where is the greatestcompetitive advantage from educational investment?Peter Drucker, who for years has identified pivotal linksbetween education and productivity, offers this surprisinganswer. Today, training and development budgets focus onbringing senior and middle-level managers and professionalsup to speed with changing requirements. In addition, fundsare invested in teaching young employees the skills of thebusiness. However, according to Drucker, true competitiveadvantage may come quickest by educating those he calls“technologists”—the large number of people whose “knowledgework” is relatively subordinate to their manual tasks.This category includes the lab technicians, the machinistsrunning a complicated prototype machine, and all kinds ofrepair and installation people such as auto mechanics andelectricians.Drucker reasons that theoretical (or high) knowledge nolonger has national borders. Once knowledge is available, anycountry can train a substantial number of high-knowledgeworkers. India, for example, has been training some 75,000,highly skilled computer programmers every year. Similarly,there is no longer much competitive advantage to investing inthe development of techniques to improve productivity of manuallabor. Everyone knows what to do and how to train for it.“Only in educating technologists,” Drucker says, “can thedeveloped countries still have a meaningful competitive edge,and for some time to come.” 9 The U.S. has a current and substantialadvantage here in its network of community colleges.For at least 50 years these colleges have been combining technicaland academic education in partnership with local businesses.Today, more than 90% of the 1,132 members of the19 |

CHAPTER ONE BUSINESS 2010American Association of Community Colleges have trainingcontracts with local businesses. According to an AACC study,95% of business organizations that use community collegeswould recommend them for workforce education and trainingprograms.Our educational system is poised for a creative change.Existing technology opens the way for more individualizedlearning, and more of it at home. We will continue to rely onschoolrooms for socialization and interactive learning ingroups. Minorities and immigrants will continue to use educationas the vehicle for progress and access to the expandingopportunities of American economic life.Summary and ConclusionsPowerful forces with deep historic roots are reshaping thebusiness arena. Some changes are already in place.Others just over the horizon are now clearly visible.Technology, to paraphrase Sir Isaac Newton, progresseson the “shoulders of giants.” Every year, information technologywill consolidate and expand previous gains. Some oftoday’s high-tech stars will be a memory by 2010, devouredby the revolution they created. Yet faster, more customizedcommunication tools will keep overturning 20th-century businesspractices. The ability to respond to customers faster,cheaper and more comprehensively will be the watchwords intraditional and leading-edge companies alike.Today’s primitive program crashes and access delays willfade. In the early days of the auto age, drivers acted as mechanics,restarting machines that failed on the road. Before long,drivers could assume that the new horseless carriage wouldwork. Information technology follows the same pattern. Moreuser-friendly machines and programs are on the way.Fear of FrankensteinCounterpressures are inevitable. The ancient fear ofFrankenstein—science gone amok—will mobilize stronger|20

A Moment of Opportunityforces against technology. Critics will focus on the erosion ofprivacy and unregulated tampering with genes in plants, animalsand people. Concern over inequality between technology“haves” and “have-nots” will grow domestically and internationally.Those people who are left out will provide a cause andrecruits for reformers.While pressures will mount, the undeniable benefits oftechnology will prevail. The failure of the much-heralded Y2Kcatastrophe to materialize energized technology’s proponents,reinforcing the belief that even major downside risks can bemanaged—at a price. For the next decade at least, business canassume accelerating progress in technology.More Emphasis on Health, Education and EqualityFreedom’s Dance will swing to a faster, wider, more inclusiverhythm. The benefits of free markets and free institutions willcontinue to gain converts. Other freedoms will move to theforefront. With 2 billion people still living in grinding poverty,democratic governments will place more emphasis on widerdefinitions of freedom that promote better health, educationand equality of opportunity.Freedom evolving with technology will create unexpectedresults in economics and politics. Traditional economic theoryfocuses on scarcity, diminishing returns and finiteresources. As technology redefines value as a mental ratherthan physical resource, allocation enters an exciting newarena. Today’s technology theoretically makes it possible toprovide everyone on the planet with basic food, health careand education. As this ability becomes more apparent, definitionsof freedom will expand to include greater equality ofopportunity and access.Between Education and Catastrophe“Civilization is in a race between education and catastrophe.”That observation is as true today as when the visionary writer H.G. Wells said it at the end of the 19th century. Expanding freedom,coupled with the unfolding wonders of technology, gives21 |

CHAPTER ONE BUSINESS 2010humans greater potential for progress—or mischief—than everbefore. Education is our best tool to ensure sensible choices.Practical reasons underpin business’s mounting concernabout U.S. education. Tomorrow’s workers need an educationalbase that provides an understanding of science, math andtechnology; a facility to gather, digest and use information; andan awareness of threats and opportunities beyond local andnational borders.In addition to a skilled population of workers, businessneeds a broadly educated one. Support for economic and politicalpolicies that underpin business success depends on aninformed, rational electorate. Stability in a democracy dependson reasonably rational judgments by a majority of the population.Making such judgments in the world today depends onsome understanding of the principles of science and economics,and of the elements of sustainable growth.If the education system stalls, freedom and technology willsputter and slow. Business progress will limp, forcing companiesto depend too heavily on the knowledge, skills and enthusiasmof educated immigrants. The native born’s resentment ofimmigrants will grow, creating instability and a downward cycleof increased regulation and repressive legislation.Fortunately, we are entering an era of educational experimentation,supported by media and business attention. As aresult, there will be more progress in educational content andmethodology in the next 10 years than in the past century. Bysupporting this effort through funding educational innovationand excellence at the local level and through providing its owneducational infrastructure, business helps ensure a favorableoutcome for itself.Later chapters look further at how technology, freedom andeducation are reshaping business. For example, as a result ofthese forces, organizational design is undergoing more profoundchange than any time since business borrowed the militarystructure of command and control more than a centuryago. These forces have catapulted speed of response to anentirely new dimension. What we call the globalization of businessbegan with the commercial empires of the colonial era. Yetthe pace and possibilities created by the acceleration of technol-|22

A Moment of Opportunityogy, freedom and education are opening the way for a wholenew world of business opportunity.The next chapter, however, highlights a fourth group ofimportant opportunities—shifts in the demographic patternson which business depends for customers and workers.23 |

CHAPTER TWO BUSINESS 201021st-CenturyDemographicsKEY CHAPTER THEMES■ Population declines in most of the Westernworld will create unprecedented changes inbusiness, politics and societies.■ The aging of the U.S. population will presentnew challenges to marketers and managers.■ Immigration will force rethinking ofone-size-fits-all management and marketing.■ Women in business will rise in numbers, andeven more rapidly in power.

CHAPTER TWO BUSINESS 2010“Every night and every mornSome to misery are born;Every morn and every nightSome are born to sweet delight.”—WILLIAM BLAKE, ENGLISH POETIN THE SECOND HALF OF THE 20TH CENTURY, TECHnology,freedom and education remade populationpatterns in the developed and developing worldsalike. Technology delivered the world’s first safe, reliablecontraceptives, which lowered fertility rates.Technology also provided miracle cures for diseases, expandinglife spans everywhere.Education accelerated the diffusion of knowledge, sanitation,nutrition and health care. In less than a half-century,nations everywhere converted theoretical knowledge to widespreadapplication. Higher standards of education, particularlyfor women, lowered birthrates in many countries.In the U.S., education proved to be a pivotal engine ofbusiness progress by raising both the educational attainmentand the business potential of women and minorities.The expansion of freedom opened new opportunities atwork, enriching both the general workforce and the professionswith the energy and enthusiasm of previously excludedor marginalized women and minorities. The growth of freedomencouraged the unchaining of state monopolies and theliberation of markets. Greater opportunities for economic andpolitical freedom attracted additional millions of immigrants tothe U.S, changing the demographic map forever.27 |

CHAPTER TWO BUSINESS 2010Greater freedom opened opportunities for Americanwomen outside the home, further depressing birthrates. Therise of female executives and women-owned businessesbrought new attitudes and issues to the workplace.The problem forbusiness is not thequantity, qualityor availability ofdemographic data.Rather, the issueis how to sortthrough the datato identify the fewcritical trends.In the developing world, freedom, educationand technology raised living standardsand lengthened life spans faster thanat any time in history.Each of these changes shifted powerinside companies, countries and markets.Business, society’s most pragmatic arm,responded to new opportunities and threatsthat are only just beginning to play out inthe world of work.Demographics, the scientific study ofpopulation statistics, give us a way todescribe, quantify, and potentially to makesense of these trends in population. Demographics identifytrends in birth and death rates, immigration, education, aswell as population shifts from one region to another.Demographers routinely provide mounds of statistics, thousandsof figures relating to everything from the number ofmaster’s degrees awarded by subject to life expectancy by raceand sex and spending patterns by age of households.In anticipating the future, demographics come as near tocertainty as we get. Most projections of the future mustassume a series of variables. In demographics, the biggestvariable is already known—the people who will compose theAmerican workforce and consumer population are alreadyhere and can be counted. Demographers can even give usreasonably accurate projections about the composition ofthose worker-consumer populations, including: where theywill live, and how well educated they will be. The problem forbusiness is not the quantity, quality or availability of demographicdata. Rather, the issue is how to sort through the datato identify the few critical trends.The trends listed in the next section are my candidates forthe changes that are most likely to challenge American businessin the next decade.|28

21st-Century DemographicsFalling Birthrates in theDeveloped WorldOver the next 20 to 30 years, the U.S. will be the onlylarge, advanced nation that will add population.Japan, Germany, France, Italy, Russia and others willlose population. The U.S. will add some 2.5 million people ayear, on average; more births than deaths will account forabout 60% of the gain, and immigration for about 40%. Evenso, the U.S. will be growing far more slowly than in the recentpast, from 274 million at 20th century’s end to 298 million peoplein 2011.There is no modern precedent for this kind of change.Governments and businesses alike have traditionally assumedan expanding population except for periods of war or pestilence.More people traditionally meant bigger markets and aplentiful supply of workers. Now most of the Western worldmust build strategies on the premise of shrinking population.According to conventional wisdom, this deceleration ofpopulation growth means that any business growth strategyin the U.S. must include the more rapid assimilation of immigrantsas workers and consumers. Another key strategymust focus on even faster substitution of human labor by technology.That will mean further mentalization of work, requiringstill higher educational attainment in the U.S. workforce.A third strategy will center on accelerating the growth of productionand sales in the developing world, where population isstill growing rapidly. (Chapter Three presents a more detaileddiscussion of this strategy.)Europe and Japan will be confronted with even moreurgent choices. If Europeans want to keep their economies andsocial services running at the present pace, they will have tolower their traditional barriers to immigration. Europeancountries “will face the wall,” says Joseph Chamie, director ofthe United Nations’ population division. “They either bring inmigrants or they are going to decline in size.” 1 Germany, forexample, will have to import 500,000 people a year to keep itspopulation at 1995 levels. How practical is that kind of growthin nations traditionally reluctant to absorb immigrants?29 |

CHAPTER TWO BUSINESS 2010Today, the conventional wisdom and the proposedresponses to demographic change just described are firmlyrooted in the experience of the agricultural and industrialages and are based on a quantitative approach. That wisdomdictates this formula: More people equal bigger markets, moreworkers and more production, whereas fewer people equalless consumption, fewer workers and lessproduction. That formula almost automaticallynarrows the choice to immigration orstagnation.However, the advanced nations couldchoose instead to pursue 21st century qualitativepolicies, which would open a wider,more creative range of options. Qualitativerather than quantitative policies wouldfocus on growth through developmentrather than on just expanding by the numbersas in the past.For example, today strong vested interests in the WestQualitative ratherthan quantitativepolicies would focuson growth throughdevelopmentrather than onjust expanding bythe numbers asin the past.resist exporting factories as well as increasing trade andimports. Support for such positions might gradually declineonce it becomes clear that the alternative is more immigrantworkers. Even in the U.S., historically the nation that has beenmost successful in absorbing immigrants, periods of rapidimmigration have frequently been followed by periods of legaland social resistance to the absorption of new immigrants.Qualitative-driven policies might also focus on developingstill underutilized pools of potential workers. Such an approachcould lead to concerted efforts to use technology and educationto improve work opportunities for people in inner cities andrural areas as well as for women who prefer to work for anemployer from home.Fewer people might also make it possible to improvethe quality of education and health care services. Certainly,the quality of both services has been strained in the Westunder quantitative pressure to extend their benefits to morepeople. It can be argued that a reversal in population growthwould present an unexpected opportunity for improvementwithout a dramatic increase in costs.|30

21st-Century DemographicsThe Graying Baby BoomPart of the pressure on health care services arises fromimprovements in health technology, better educationand greater freedom from backbreaking toil and lifethreateningscourges. These three advances have dramaticallyextended life spans in the U.S. 2Americans in the 55-to-64-year-old group who are still inthe workplace will increase by a stunning 56% in the firstdecade of this century. This cohort’s share of the workforce willclimb to 13. 3% by 2008 (up from 9.6% in 1998). Baby-boomwomen, the first generation of women to take up full-timework outside the home en masse, are moving into that agegroup, causing much of the increase.Looking at this so-called age wave through the marketingtelescope reveals that in the early 2000s, people over age 50will grow fastest in numbers and purchasing power. Althoughthey accounted for only 25% of our population at the 20thcentury’s end, they already controlled half of our disposableincomes and 75% of financial assets. This shift will acceleratesignificant changes already under way in employmentand marketing.Until recently, years on the job were shrinking as a resultof voluntary and forced early retirements. Now, labor forceparticipation by men aged 55 to 59 is projected to creep up to79% by 2006 (from 78% in 1996). Even that small gain is goodnews for the economy. It signals that a decades-long trendtoward early retirement may be coming to an end, as businessesbegin to trim early retirement incentives.Many people want to work longer because they enjoyhandling the growing number of mental jobs created by technologyand education. Others will stay on the job becausethey don’t think they have enough money for a worry-freeretirement. For one reason or the other, nearly 70% of U.S.workers today expect to work for pay in retirement, accordingto a 1999 survey by the nonpartisan Employee BenefitResearch Institute.If past patterns hold, these older workers will be more loyalto employers. They will have better people skills and be lesslikely to take sick leave than younger workers. Investment31 |

CHAPTER TWO BUSINESS 2010banker Peter G. Peterson, who wrote a book on aging (GrayDawn: How the Coming Age Wave Will Transform America and theWorld, Times Books, 1999), says that keeping people at workmeans overturning traditional views of age. “An entire stereotypewill have to be reversed,” he writes, “along with all theinstitutional rules and habits of thought that perpetuate it.”Businesses that today are still pushing 55-year-old employeesout the door will try to keep older workers on the job, atleast part time. A phased-in retirement will become more common.Even today, as the shortage of skilled workers becomesmore intense, companies are frequently rehiring formeremployees to work part-time on a contract basis. Governmentand company benefits putting a premium on early retirementwill be rethought.For Aching Backs, Whirlpool BathsOn the marketing side, industries from automakers to softdrinkbottlers are already developing what The New York Timesidentifies as “a new generation of easier-to-use products specificallydesigned and marketed to a population that refuses toacknowledge the prospect of failing eyesight, hearing and dexterity.”Boomers can choose to believe that life hasn’t changed,adds The Times, “but the landscape of products is changing subtlyaround them,” as manufacturers find ways to appeal toolder consumers.For aching backs, whirlpool baths with grip rails are replacingstandard tubs. Shower stalls with seats are now routine.Lear Corp. has introduced a minivan refitted with largercontrols, more legible instrument panels, and powered swivelingseats to help passengers enter or leave. Pepsi Cola is testmarketinga two-liter plastic bottle, called The Grip, thatrequires less hand strength. Wide-headed tennis rackets andlarge-headed golf clubs now dominate sales in their categories. 3The Hourglass-Shaped WorkplaceAs the number of middle-aged workers declines over the early2000s, a countertrend will come to the forefront. For the first|32

21st-Century Demographicstime in 25 years, the youth labor force—of 16- to 24-year-olds—will grow faster than the overall labor force. This shift suggestsanother strong argument for keeping the graying workforce inplace. Older workers will be needed as mentors for the young.This new hourglass-shaped workforce—a large, older generationat the top, a small, middle-aged group in the middle,and another large group at the bottom—will encourage businessto offer more cafeteria-style benefits. Seniors will favor betterhealth and pension benefits, while the younger group willlook for bonuses and training in the latest technology. Firmsthat traditionally invest most of their training dollars in theyoung will have to redirect more of those funds to keep theirmiddle-aged workers up to date.From One Melting Potto a Tossed SaladLured by the promise of greater freedom, immigrants willaccount for nearly half of U.S. population growth in thefirst two decades of the 21st century.Hispanics will account for nearly 40% of our populationgrowth. Every year some one million foreigners arrive here.Nearly half of them are Hispanics, many of childbearing age.By 2005, Hispanics will be the country’s largest minority,about 36 million people, or 13% of total population. That willcompare with 35 million, or 12.5%, of the population forAfrican Americans.Asians are the fastest-growing immigrant group. The numberof Americans from countries like Japan, China, India,Vietnam and Cambodia will double between 2000 and 2020.This group will still be less than 6% of our population in 2020,but in terms of the sheer speed of increases, Asian Americanshave everyone else beat.Non-Hispanic whites are already a minority in NewMexico and Hawaii. Early in this century California will passthat milestone. Texas will follow by around 2015. Hispanics33 |

CHAPTER TWO BUSINESS 2010have already overtaken African Americans as the largest minoritypopulation on the Pacific Coast, in the Southwest and theMountain States, as well as in much of New England.Two-thirds of recent immigrants live in just 10 metropolitanareas: New York City, Los Angeles, San Francisco, Chicago,Miami, Washington-Baltimore, Houston, Dallas, San Diego andBoston. In contrast, only one in four native-born Americanslives in those areas. In New York City, at the past century’s end,one of every three residents was an immigrant. Of those, nearlyhalf had arrived since 1985.While non-Hispanic whites will remain the majority untilabout 2050, the influence of minorities in the workplace willcome much earlier. By 2030, most Americans under aged 18will be minorities: Hispanic, African American, Asian and other.As early as 2006, minorities will fill one in four U.S. jobs.Stretch your definition of minorities to women and the numberssoar. In 2000, some 85% of new entrants to the workforcewere women and people of color.Education Propels ProgressBig advancements in education among minorities will translateinto gains in jobs, incomes, homeownership and personalwealth in the early decades of the 21st century. By 2030, morethan 90% of African Americans over 25 will have a high schooldiploma. That compares with 75% in 1997 and 50% in 1980.By 2020, slightly more than 60% of the over-25 Hispanicpopulation will have high school diplomas, up from 55% in2000 and 45% in 1980. The surge in Latino immigrants fromcountries that lag behind U.S. educational standards tends tohold back the graduation rate for Hispanics as a whole.Asian Americans age 25 or older already have an 85% highschool graduation rate! Even more impressive is their collegegraduation rate—42%, compared with 26% for whites. Earningstatistics once again document the power of education as anengine of progress. In 1998, Asian Americans had the highestmedian family income in the country at $42,250 a year, comparedwith $38,970 for whites, $26,630 for Hispanics, and$25,050 for African Americans.|34

21st-Century DemographicsPurchasing power (the combination of total size of a communityplus its ability to spend based on income) will soar forHispanics and African Americans in the years ahead. By2000, Hispanics already represented a market of $350 billiona year. Current projections show that number climbing by60% to 70% over each of the next two decades. Similarly,African Americans will see their purchasing power—nowabout $500 billion a year—climb by roughly 55% in each ofthe next two decades.New Strategies Highlight DiversityInside companies, growth strategies will promote diversity as acompetitive weapon rather than as a moral issue, particularlyin the metropolitan areas listed earlier. In part this shift inemphasis will exemplify that time-tested American practice ofmaking a virtue of necessity, but there are also indications thatworkforce diversity produces greater success in innovation.Research by Harvard Business School professor DavidThomas suggests that a multicultural work force produces aricher variety of possible solutions to problems. And, althoughcause and effect remains unclear, Fortune’s “50 Best Companiesfor Asians, Blacks and Hispanics” consistently match or outperformthe S&P 500 stock index. 4Religion Becomes a Bigger IssueThis changing mosaic of cultures in the workplace makes religiona far bigger concern for employers. Christianity is still themost common religion in the U.S., but workers adhering toIslam, Buddhism and Hinduism are growing in numbers.Religious discrimination charges already follow sexual harassmentamong the fastest-growing discrimination claims.The Civil Rights Act of 1964 requires that employers “reasonablyaccommodate” religious preferences. Most casesinvolve company demands for work on the Sabbath or otherreligious holidays. However, Muslims have challenged companypolicies prohibiting beards and requiring women to wearcompany uniforms with pants.35 |

CHAPTER TWO BUSINESS 2010Diversity Will Be the Norm in MarketingEthnic and racial diversity will become the norm in marketingfor many parts of the country. That situation opens new sales,marketing and management positions to minorities. Companieswill increasingly choose advertising and product selection toappeal to distinct communities. Insurance companies like NewYork Life, Metropolitan Life and Mony Life are already aggressivelywooing high-profile members of immigrant communitiesto become agents.Businesses will find hidden profits by catering to racial andethnic preferences and by cultivating brand loyalty among newimmigrants, many of whom are overwhelmed by the numberand variety of products offered in their new country.Successful businesses will reconsider who their customersare now and who they will be down the road. Already, morethan one-fourth of U.S. consumers are nonwhite. By 2020 thatproportion will be over one-third, and one in two children willbe Hispanic, African American, Asian or American Indian.The Gender Gap ClosesThe growth of women’s participation in the labor forcewill slow but will still exceed the growth of men’s participationby 150%. By 2008, women’s share of the laborforce will reach 48%. More women will reach upper-level management.At the end of the past century, they occupied only12% of the highest-level executive positions.Women’s higher rates of college enrollment and graduationwill accelerate their progress. Over the past two decadesthe earning power of a college education has more than doubled,as the U.S. has shifted from primarily physical to mentalwork. In that period, the number of women earning collegedegrees surged by 44%. By 2008, women will significantly outnumbermen in both graduate and undergraduate classrooms,according to the Digest of Education Statistics. 5The impact of this tide of educated women is already visiblein companies everywhere. The number of women aged 25to 34 in managerial and professional jobs increased by nearly|36

21st-Century Demographics15% in the last five years of the 20th century, rising to a total of5 million. 6Corporate America needs to hold on to this talented femaleresource pool to fill white-collar and managerial positions, particularlyin the expanding service sector. As a result, competitivepressure will narrow pay gaps between men and women,opening more opportunities and providing greater flexibilityin schedules and benefits.Flexibility of schedule is a prime tool in recruiting andretaining talented women workers. Paul Klaasen, founder ofthe Sunrise Assisted Living chain andchairman of a task force on workforcepreparation for the U.S. Chamber ofCommerce, says that schedule flexibility isthe least utilized, simplest, most efficient,and most productivity-increasing benefitan employer can provide. 7Lang Group, Chartered, a Bethesda,Md., accounting firm, launched an outsourcingbusiness through a strategy ofworkplace flexibility. When Lang takesover management of its clients’ financialCorporate Americaneeds to hold onto this talentedfemale resource poolto fill white-collarand managerialpositions, particularlyin the expandingservice sector.departments, it often staffs positions with skilled women whohave left the workforce full-time to be with their children.There is a good supply of such talent among young motherswho want to work two or three days a week.Flexibility at work also increasingly means providing goodchild care. A few vanguard companies like Hewlett-Packardand Dayton Hudson have created on-site schools for workingparents. Nearly all the Fortune 100 companies now offer theiremployees a dependent-care spending account, according toHewitt Associates. Some 8,000 companies provide on-site childcare services, up from 1,000 in 1986, says Burud & Associates,a California research firm. 8The next round of benefits geared primarily towardwomen’s needs will focus on elder care. Women in the workforceare more likely to be primary caregivers of elderly orinfirm parents. The number of employers offering elder carehotlines and referral services is sure to grow. The pressure will37 |

CHAPTER TWO BUSINESS 2010mount on employers and government to provide paid familyleave to care for old folks as well as babies.Women-Owned BusinessesWill MultiplyThanks, but no thanks,” say the growing number ofwomen who are leaving the corporate world to starttheir own businesses. Part of the reason is that businesseslag in providing more opportunities for women to reachthe executive suite. Of women who formed businesses in thepast 10 years, 22% cited a corporate “glass ceiling” as a reasonfor starting their own firms, according to a study by theNational Foundation for Women Business Owners (NFWBO)and Catalyst, a women’s issues research firm in New York. 9The size and scope of this demographic pattern will growin the next decade. The stereotype of businesswomen as ownersof mostly small retail and service firms will continue tofade. Growth of women’s businesses between 1992 and 1999was strongest in construction, wholesale trade, transportation,communications, agriculture and manufacturing, accordingto NFWBO. Women won’t just own more companies, butthey’ll own bigger companies as well. As more women-ownedfirms start tapping the equity market, the size of womenownedbusinesses will soar.Summary and ConclusionsTechnology, education and freedom have reshaped boththe American and the world workplace in terms of customers,workers and expectations. Slowing growth inthe U.S. population will produce an “hourglass” workforce—more graying boomers at the top, a shrunken middle cadre,and a large Internet generation at the bottom.The U.S. will fare better than other Western nations andJapan largely because of the traditional U.S. openness to immi-|38

21st-Century Demographicsgration. Japan and Europe, in contrast, must liberalize theirimmigration policies or face economic and social stagnation. Athird option is to reverse traditional habits of thinking andexploit the developmental options created by smaller populations.By necessity Japan and Europe must decide first. ThusU.S. policymakers and businesses will have the opportunity toanalyze and refine policies the basis of the experience of others.Whatever the choices, demographic debates will dominatethe politics of all developed countries for the next 20 to 30years. Political battles over Social Security and Medicare areonly the beginning. We will inevitably have “a politics of greatturbulence,” says Peter Drucker, because neither political partiesnor countries are really prepared to deal with an issue thatcuts across ideological lines. For example, is keeping workerson the job longer a liberal or a conservative policy? 10Shortages of skilled workers in the U.S. will prompt morecompanies to establish subsidiaries or alliances in developingnations where both population and education standards continueto rise. In the U.S., the divide between technologicallyeducated “haves” and “have-nots” will widen, creating tensions.Efforts to elevate performance of school systems andto develop more company-sponsored education are critical tomaintaining internal stability as well as U.S. living standards.America’s capacity to absorb and Americanize immigrantsremains one of our greatest competitive strengths. Otherunderutilized resources (minority and female workers andmanagers) will become more prominent in the next decade.Partially by necessity and partially by evolution, progressivebusinesses will see diversity less as a moral and regulatory issueand more of a dynamic competitive advantage.Meanwhile, as the next chapter discusses, more businesses,large and small, will be seeking opportunities beyond our borders,in rapidly expanding global markets.39 |

CHAPTER THREE BUSINESS 2010The Global FrontierKEY CHAPTER THEMES■ Beyond economic globalization■ Three types of cross-border economicactivities■ Widening global perspectives■ Accelerating global income and demand■ The case against globalization■ The influence of changes in behavior onglobalization

CHAPTER THREE BUSINESS 2010“The merchant has no country.”—THOMAS JEFFERSON“Interdependence re-creates the world in the imageof a global village.”—MARSHALL McLUHAN, CANADIAN EDUCATOR AND AUTHORASSESSING GLOBALIZATION REQUIRES A NARROWLYfocused and a wide-angle lens. The narrowfocus sees globalization primarily as an economicphenomenon; the broader perspective considersdeeper social implications as well.Amazingly for a term that is so widely used, there is noprecise, generally agreed upon definition of globalization.Indeed, the World Bank has noted that the meanings attachedto this term seem to be increasing rather than narrowing,“taking on cultural, political and other connotations in additionto the economic.” 1Our differing understandings about what is really happeningcontribute to making globalization one of the most chargedissues of the day. Turn on the evening news or public affairsprograms and you will find extreme opponents insisting thatglobalization continues to impoverish the poor, enrich the richand devastate the environment. With equal fervor, supporterscontend that the globalization of opportunities is creating ahigh-speed elevator to universal peace and prosperity. Whohas the better case?Using a narrowly focused lens, let’s begin with the mostcommon, or core, sense of globalization—the indisputable factthat a rapidly rising share of economic activity now takes placeamong people and companies in different countries.43 |

CHAPTER THREE BUSINESS 2010The World Bank identifies three primary forms of crossbordereconomic activities:International trade. Exports and imports are growing rapidly innations around the world. In the developed countries, forexample, foreign trade as a proportion of total economic activityrose from 27% in 1987 to 39% in 1997.Foreign direct investment (FDI). Total investment in one countryby firms based in another country more than tripled, risingto $610 billion (U.S.) in 1998, compared with $192 billion(U.S.) in 1988.Capital market flows. Savers, especially in the developed world,increasingly diversify their portfolios to include foreignassets such as foreign bonds, equities and loans. Meanwhile,borrowers increasingly turn to both domestic and foreignsources of funds.Any serious discussion of the effects of globalization mustconsider these three forms differently. Each raises distinctissues and has distinct consequences. Generally, the evidencesuggests that in trade and FDI, “the payoffs for economicdevelopment and poverty reduction tend to be large relativeto potential costs or risks,” the World Bank says.Liberalization of capital market flows, however, “can sometimesfoster boom-and-bust cycles and financial crises withlarge economic costs.” 2An Evolutionary TrendThroughout human history, widely scattered populationshave gradually become involved in increasinglycomplex economic relations. A more developed formof economic globalization—one we would recognize today—flowered in the late 19th century, as the rich European nationsexpanded foreign trade through their colonial empires.However, this peak was reversed in the first half of the 20th|44

The Global Frontiercentury, a time of growing protectionism, national and greatpower strife, world wars, revolutions, and massive economicand political stability.In the past 50 years, the tide has again flowed towardgreater economic globalization and relations have become moretranquil, compared with those of the previous halfcentury.Institutions like the General Agreements on Tariffs andTrade (GATT; today the World TradeOrganization) provide a framework ofrules and procedures for countries tomanage their commercial policies.As part of a general shift towardgreater reliance on markets and privateenterprise, governments have reducedpolicy barriers to greater internationaltrade and investment. Among the moststriking examples of this trend areChina’s sweeping economic reformsbeginning at the end of the 1970s, theEven today the eveningnews is full of soundand fury of opposingnations and eventribes. Yet that sameevening news shows ushow significantly andrapidly our perspectivehas widened.peaceful dissolution of communism in the Soviet bloc at theend of the 1980s, and the steady growth of market-basedreforms in democratic India in the 1990s.The rush toward greater globalization has significance wellbeyond economics. Economics is only one aspect of the expansionof human perspective over time, from a narrow focus onfamily, to an ever more inclusive view of clan, tribe, feudal systemand nation-state, and now to a global view.To be sure, there have been countless reverses in thisexpansion of perspective followed by new initiatives and stillmore setbacks. Even today the evening news is full of soundand fury of opposing nations and even tribes. Yet that sameevening news shows us how significantly and rapidly our perspectivehas widened. In looking at the news, remember thatas late as 1940, significant portions of the American people—perhaps even a majority—insisted that the U.S. had no stakein a fierce war that pitted Germany and Italy against Franceand Britain. Now we debate our proper role in conflicts inareas that used to be considered far to the periphery of ourinterests—in Bosnia, Africa and the Mideast.45 |

CHAPTER THREE BUSINESS 2010Global Bargain HuntersThis shift in perspective influences us all personally,especially members of a younger generation. Today’syoung, cosmopolitan businessperson sees everystranger, regardless of national origin, as a potentialcustomer, supplier, employee or partner. Innovative companiesnow routinely look for solutions beyond their nationalborders. When the Olive Garden, one of America’s largestchains of Italian restaurants, wanted to enhance the culinarysophistication of its nearly 500 units, it opened a cookinginstitute to train its chefs—not in the U.S., but 20 milesoutside Sienna, Italy. 3When we shop, we all search for bargains and qualityfrom the global market—for our autos, shoes, shirts, suits andToday’s young,cosmopolitanbusinesspersonsees every stranger,regardless of nationalorigin, as a potentialcustomer, supplier,employee or partner.vacations. Global shopping is more thanan American phenomenon. In East Asia,the craze for Japanese popular cultureand products, especially among youngpeople, “is unprecedented in its scopeand size,” according to The New YorkTimes. In South Korea, Japanese-stylecafes and teahouses are replacingAmerican fast-food restaurants andEuropean-style coffeehouses. In HongKong, newsstands can’t stock enoughJapanese fashion magazines. In China, Singapore, Indonesia,the Philippines and Thailand, thriving markets move bootlegcopies of Japanese music, movies and merchandise. 4Social and economic globalization is driven by—and inturn contributes to—the forces of technology, education, freedomand demographics. Technological progress reduces thecost and difficulty of transporting goods and services. It speedsthe communication of information and ideas between countries.Formal and informal education makes distant nations andcultures more familiar and accessible. Greater freedom liberatesflows of investment and capital while facilitating travelbetween and among nations. Changing demographics createshuge new markets in Asia, Latin America and Africa just aspopulations decline in the West.|46

The Global FrontierAccelerating Global Incomeand DemandThe next 10 years will see even faster growth in livingstandards and consumption around the world. You cansense the accelerating pace in the following figures:The U.S. doubled output per capita in 47 years beginning in1839. Starting in the 1880s, Japan took 25 years. The pacequickened after World War II. Indonesia doubled its output in17 years, South Korea in 11 and China in 10. 5This success extends beyond material output. A reasonableguess would put worldwide life expectancy at about 30 years in1900. By the late 1990s, life expectancy worldwide averaged 65years, more than a doubling of life spans in one century. Thedeveloping nations shared in the bounty created by the “healthexplosion” around the world. The gap between life expectancyin rich and poor regions narrowed from 25 years in theearly 1950s to around 11 at century’s end.The Pessimists Were WrongOnly a couple of decades ago, reports like “The Limitsof Growth” and “The Population Bomb,” by PaulEhrlich, predicted an end to progress on “SpaceshipEarth.” By this time, the volume of new mouths was supposedto swamp our capacity to feed, clothe and protect them.The pessimists overlooked the fact that resources are nolonger fixed so much as they are the creation of human ingenuity.Again and again in human history, we have developedsubstitute or improved materials to replace those that are inshort supply. This amazine adaptability of the human mind willcontinue. For example, Knight Kiplinger, editor-in-chief of TheKiplinger Letter and Kiplingerforecasts.com, predicts: “Longbefore the world’s petroleum reserves run out, biotechnologywill havedevised countless ways to substitute plant and animalsubstances for petrochemical feedstocks in the making of plastics,fuels and lubricants.” What the pessimists overlooked withtheir focus on population growth in relation to existing47 |

CHAPTER THREE BUSINESS 2010resources, says The Wall Street Journal, is that every newbornchild comes equipped “with not only a mouth but a mind.” 6To be sure, success has generated new problems and exacerbatedold ones. Population in the developing world continuesto grow, increasing urban overcrowding, pollution and crime.And, despite an incredible half-century of progress, some 2 billionof the world’s 6 billion people still live in dire poverty. In awired world of instant communication, such a serious imbalancecreates a constant threat to stability.That said, accelerating economicprogress is clearly expanding politicalfreedom, economic security, educationand modern conveniences for billions ofpeople in the developing world. Oneimportant product of this change is anewly energized global “middle class” withrising expectations, aspirations and purchasingpower.For many Western consumer industries,this opportunity comes along just asthey face slowing growth in domestic marketsbecause of demographic trends. The opportunity is twosided.Developing countries can respond more quickly to therising aspirations of their expanding middle class only by participatingmore fully in the global market.Despite such obvious advantages, there is strong and evenunderstandable resistance to the rapid expansion of the globalmarket. However strong the opposition, the information technologyrevolution makes defending a commercial fortressnation more difficult.Not that threatened interests won’t try. Lands’ End, theDodgeville, Wis., mail-order retailer, set up shop in Britain in1991 and Germany in 1996. Before long, the company learnedthat its Web site had run afoul of a German law banning marketinggimmicks such as an unconditional lifetime guarantee—one of the company’s key selling points. The German authoritiescontended that the cost of the guarantee was hidden in thesales price and was therefore illegal under German laws protectingconsumers. 7Some 2 billion ofthe world’s 6 billionpeople still live indire poverty. In awired world of instantcommunication, sucha serious imbalancecreates a constantthreat to stability.|48

Seizing New OpportunitiesThe more skillfully governments and vested interests tryto block global electronic commerce, however, thehigher the price they are likely to pay in their cost ofliving and the dynamism of their economy. Rather than resistthe force of globalization, some nations are seizing the opportunitiesto leapfrog from the agricultural to the informationage. The Philippines lagged far behind in the Asian boomof the 1980s. Today, the products of its recently establishedtechnology companies account for more than 70% of thenation’s exports.In the 1990s, Ireland shook off thetwin demons of poverty and despairto become “the most dynamic, successful,fastest growing nation in Europe,”says Fortune. “What struck me mostforcefully,” says the magazine’s RobNorton describing a 1997 visit, “was asingle statistic: Ireland’s GDP [grossdomestic product] per capita was aboutto surpass Britain’s.” 8The Global FrontierBarring unexpectedreversals, the openingof new markets indeveloping countriesmeans that the volumeand diversity of worldtrade will soar in thenew century.Foreign investment, especially high-tech manufacturing,has been one of the mainstays of Ireland’s transformation.The Intel factory in County Kildare, the company’s biggestoutside the U.S., will employ 4,000 people once constructionis completed on a $2 billion extension. When the facilityopened in the early 1990s, many of the senior engineers werereturning Irish immigrants. After two centuries of losingpeople through immigration, Ireland today is a net importerof people.Barring unexpected reversals, the opening of new marketsin developing countries means that the volume and diversity ofworld trade will soar in the new century. In recent times, U.S.export strength has been built on high-priced capital goodsand other business-to-business transactions—jet liners, computersand scientific equipment, for example. More recently,hard goods have been joined by a surge of consumer products.Levi’s, Disney and McDonald’s are worldwide rather thannational brands.49 |

CHAPTER THREE BUSINESS 2010Getting closer to these new customers will encourage thetransfer of still more Western production plants, raising livingstandards in the developing world still further. To compete,U.S. companies will be continually challenged to upgrade theirskills and asset base, raising the productivity of U.S. industry.The Case Against GlobalizationWith all these benefits, how good is the case againstglobalization? Critics contend that the rapid growthof international trade increases world poverty, worsensinequality between and within nations, and creates “a raceto the bottom” in environmental standards. Also, globalization’sopponents harbor a deep distrust of multinational corporations.For each charge, critics muster compelling anecdotal evidenceto support their case. Recent studies, however, give evenstronger ammunition to those supporting expansion of the globalmarketplace in goods, services and ideas. The sections thatfollow outline some of the findings of these studies.Economic Growth and Poverty ReductionCritics accurately note that global progress on poverty reductionhas been painfully slow even as global trade has accelerated.The number of people living on $1 (U.S.) a day or lessfell only slightly from 1.3 billion in 1990 to 1.2 billion in 1998.Behind those grim global totals, however, are extremelyuneven regional differences, which add a different perspectiveto the argument.Poverty fell dramatically in East Asia, whose 1.8 billion peoplerepresent over a third of the population in the developingcountries. During the 1990s, East Asia was the world’s mostrapidly growing region. Yet, between 1990 and 1998, EastAsian economies created the largest and fastest reduction inpoverty in history, according to the World Bank.During that period, the percentage of people living on $1or less a day in all of East Asia fell from 27.6% to 15.3%. To besure, improvements in living standards in just one huge coun-|50

The Global Frontiertry, China, accounted for a major portion of that improvement,but there was significant improvement elsewhere in the region,too. Even excluding China, the poverty rate for East Asia fellfrom 18.5% to 11.3%.Still, critics can argue that even if per capita income rises,that famous rising tide will not in the end lift all boats, butWorld Bank studies challenge this argument. Indeed, the Banksays “recent work suggests that higher average incomes in acountry are generally associated one-for-one with higherincomes for the poor.” 9International Trade and InequalityMacro statistics, however, seem to bolster the critics’ case. Thedistribution of per capita income between countries hasbecome more disparate. For example, in 1960, the average percapita GDP in the richest 20 countries was 15 times the averagein the poorest 20 countries. Today, that gap has widened to 30times, because the rich countries on average have grown fasterthan poor ones.However, greater openness to trade is unlikely to explainwhy poor countries on average have grown less quickly thanrich ones. Poor countries that are open to trade have grown"slightly faster than rich ones,” and a lot faster than poorcountries that remained closed to foreign trade, the WorldBank reports. 10Globalization and the EnvironmentAll this growth must inevitably lead to more industrial pollutionand environmental degradation, other critics argue. This,of course, is an argument against economic growth in generalrather than against globalization specifically. Further, manydeveloping countries are stepping up the fight against pollutionat much lower levels of income than the rich countries didat the same stage of development.In Indonesia and the Philippines, for example, pilot projectsbased on public disclosure of information about factorypollution have significantly reduced industrial pollution. China51 |

CHAPTER THREE BUSINESS 2010has stabilized or improved its average air quality in large citiessince the mid 1980s—the same period in which the countryexperienced both rapid growth and increased openness totrade and investment. A study of steel production in 50 countriesfound that open economies led closed economies in theadoption of cleaner technologies by wide margins.Critics also contend that developing countries will keeptheir environmental standards low to attract foreign industriesin what they call “a race to the bottom.” Yet no evidence existsto prove that the cost of environmental protection has everbeen a determining factor in foreign investment decisions. Farmore important are issues such as the cost of labor and rawmaterials, the existence of transparent regulations, and protectionof property rights. 11Growing Power of Multinational CorporationsToday’s noisy outbreak of hostility against multinationals is onlythe latest round in a boom-and-bust cycle in the reputation ofthe global corporate giants.In the 1950s, multinationals were often seen as missionaries,extending the benefits of what was then called “Americanmanagement” to eagerly receptive businesspeople overseas. Inthe 1960s and 1970s, the giants were denounced for their size,irresponsibility and monopolistic practices. In the 1980s, theywere dismissed as clumsy dinosaurs, too big and plodding tomatter in an entrepreneurial world. In the 1990s, they wereagain hailed as the great instruments of modernization, bringingforeign capital, technology, know-how, and hope of higherliving standards to people around the world. Now the pendulumis swinging back again.Size and speed of growth have made multinationals a highlyvisible symbol of globalization. If multinational corporationswere national economies, 50 of them would be among thelargest nations in the world. “Even in rich, well-run countries,their sheer size can seem threatening,” The Economist notes. InIreland, cited earlier as a beneficiary of globalization, “foreignfirms account for almost half of the country’s employment andtwo-thirds of its output.” 12|52

The Global FrontierAs with any group, individual firms can and do abuse theirstrength. Still, The Economist adds, “as a class the multinationalshave a good story to tell.” For example:In the rich world, foreign firms pay better than domestic ones and createnew jobs faster, according to figures that have been publishedby the Organization for Economic Cooperation andDevelopment (OECD).This is true even in many poorer countries. In Turkey, for example,foreign firms pay wages that are 124% above average, and theirworkforces have been expanding by 11.5% a year, comparedwith 0.6% in local firms.Multinationals also provide a principal conduit for new technologies.Seventy percent of all international royalties for technologyinvolve payments between parent companies and their foreignaffiliates.No matter how strong or logical the case for globalization,opposition—vocal, persistent and dedicated—will surelyincrease. Doubts extend far beyond the pony-tailed protestorswho disrupted the December 1999 Seattle meeting of theWorld Trade Organization. Still, the existing and potentialbenefits of a global economy are too tangible to cast aside, nomatter how loud the protests. As a result, the future appears tooffer evolving reform rather than a reversal of direction.Changes in BehaviorReform will probably bring significant changes in behavior.There are already indications, for example, that the WorldTrade Organization may behave in a much more multinationalstyle than the American and European hegemony thatcritics say has dominated the organization in the past.Although that will not be an easy transition, it could producea more globally popular balancing of priorities—for example,between the demands of rich countries that want greater protectionfor intellectual property and the poor nations that53 |

CHAPTER THREE BUSINESS 2010want still greater access to rich markets.Also, public opinion will probably drive changes in behavioramong the more progressive and pace-setting multinationals.No corporate leadership that is really paying attention canignore how public attitudes are changing. The Millenium Pollon Corporate Social Responsibility included interviews withmore than 25,000 typical citizens across 23 countries on six continents.The survey, conducted by Environics InternationalLtd., in cooperation with the Conference Board and BusinessLeaders Forum, showed the following:Two in three citizens want companies to go beyond their traditional socialresponsibilities of making a profit, paying taxes, employing peopleand obeying all laws.In the view of those surveyed, there are now 10 areas of corporate socialaccountability that rate higher than contributing to charities and communityprojects. These areas include protecting health and safetyof employees, protecting the environment, and never participatingin bribery and corruption.Fully half of the population in the countries surveyed now pays attentionto the social behavior of companies, and two in five consumersreported either rewarding or punishing companies in the previousyear on the basis of their perceived social performance. 13Summary and ConclusionsWhatever the pace of reform in the process, globalizationrepresents a major evolutionary step inhuman perspective. Throughout history, changesin perspective that challenge the existing order have alwaysengendered opposition, and the history of technology offersmany such examples. The loom and the steam enginewere once viewed as instruments of the devil. Mass-marketcredit instruments like home mortgages were once seen asdestroyers of thrift and responsibility. The opening of theeconomy in India was viewed by many there as a return to|54

The Global Frontiercolonialism. The evolution of democracy was fought byEuropean monarchs and aristocrats.Rising expectations are driving globalization. For thatreason alone, despite the opposition, the tide of globalizationwill not be substantially reversed. Its benefits far outweigh itscosts, even though specific sectors and communities will beseverely damaged. Consumers want wider, cheaper choices.Intellectuals want an expanded network of ideas. Businesssearches for profit in global markets and international technologies.Investors seek new growth opportunities over thehorizon. Nations have learned that greater security can beachieved collectively rather than alone. Especially in developingnations, some citizens may wish their countries to escape“foreign influence,” but a growing number understand thatthey can’t afford to pass up the advantages of foreign investment,technology and ideas.Globalization is not just an economic or commercialphenomenon. It is a social evolution bringing individuals,organizations, nations and cultures closer together. Given thisimportance, every organization should take the present andpotential effect of globalization into account in formulatingits strategy.55 |

CHAPTER FOUR BUSINESS 2010Business EvolutionKEY CHAPTER THEMES■ Accelerating change reflects a largely invisibleevolutionary process.■ Successful businesses reflect and adapt to thatevolutionary process.■ Successful adaptation requires that businessesenergize one or more of five key components.■ Successful positioning requires keeping all fivecomponents in alignment with each other andwith societal evolution.

CHAPTER FOUR BUSINESS 2010“Life is the continuous adjustment of externalrelations.” —HERBERT SPENCER, 19TH CENTURY BRITISH AUTHORTECHNOLOGY, FREEDOM AND EDUCATION ARE RESHAPingour world. The previous chapters showedhow these three forces interact with populationshifts and changing global perspectives to createnew patterns of business activity. Those patternsinfluence what, where and how business sells. The changedpatterns also dictate new strategies for recruiting and retainingtalented people.Fully understanding the changes around us requires morethan identifying the five forces discussed in the previous threechapters. Anticipating the future requires gaining a broaderunderstanding of how societies and businesses actually evolve.A broader perspective recognizes that business evolutionreflects—rather than causes—developments in society. If weextrapolate current economic trends without gaining a betterawareness of the context in which those trends operate, ourperspective remains limited.Author’s Note: In this book I have adapted a recent theory of societaldevelopment to business development. This societal development theoryis the work of Garry Jacobs and Robert Macfarlane, my frequentconsulting and writing partners, and political scientist HarlanCleveland. For further information about their work, see the Preface(page xvii) or visit their Web site at www.mirainternational.com.59 |

CHAPTER FOUR BUSINESS 2010Aspiration Shapes Economic ProjectionsIn the 1980s, experts projected existing trends to predict thatJapan would tower over the rest of world business by earlyin the 21st century. Thirty years of disciplined effort gave theJapanese an aura of economic invincibility. Adding to this mystique,their success had produced huge surpluses of capital.Surplus cash can be absorbed for growth of existing activities.It can be invested in new and higher levels of activity, orchanneled into speculative investments.The differencebetween Japan andSouth Korea is not thedegree of structuralreform, but thedegree of vision.Great excesses in speculative investmentscreate dangerous economic risks. Theroaring Japanese economy of the late1980s was created by a brilliant exportledstrategy that overshot its ambition tocatch up with the West. The existingJapanese economic model lacked thecapacity to absorb the country’s huge savingssurplus. Without a new national aspiration, surplus fundsflowed heavily into speculative investments.As the Japanese economy strained and then stalled in theearly 1990s, conventional wisdom concluded that the key torecovery rested on making structural changes, such as modifyingthe traditionally close relationships between Japanese banksand major industrial firms. Certainly, structural changes areimportant and are needed in Japan, as they are in the U.S.However, structural changes by themselves are not the answer.Arguably, Japan has accomplished more restructuring thanall other East Asian countries combined. Compared with the situationin 1988, the country is far more open in its disclosure offinancial information and in its opportunities for foreign firms.If structure were the problem, why are there not better results?The rapid recovery of other East Asian countries from thefinancial crisis of 1997 offers a clue to the true nature of Japan’schallenge. As with Japan, leading economists prescribed radicalstructural surgery for victims of the Asian economic flu.Further, they predicted that recovery would require 5 to 10years of hard labor. Yet, in less than 2 years, with structuralchanges still in their infancy, South Korea again achieved neardouble-digit growth.|60

Business EvolutionThe difference between Japan and South Korea is not thedegree of structural reform, but the degree of vision. SouthKorea is still playing catch-up. Its direction is clear. The energyof its people is fully engaged, regardless of structural obstacles.Japan, in contrast, has enormous underutilized potential. It hasabundant human energy, productive skills, technology, organizationalcapacity and money. Those resources need a newnational ambition and a channel for productive employment.Aspiration Determines,Technology FulfillsProjecting technological innovation without a context ofsocietal aspiration is similarly risky. Today, every businesspersonwould rank the Internet at the top of developmentsreshaping business. The deeper truth is that theInternet’s electrifying growth is far more than a technologicalexpansion; it is also an expression of the aspirations of societyto expand individual freedom.Test that thesis by imagining that the Internet was developedand generally available in the Soviet Union at the height of theCold War. An impossibility to imagine? For that matter, it strainscredulity to imagine the Internet in 1950s America. The aspirationsand priorities of both societies were clearly so different.The economics and culture of the Internet feel veryAmerican today, because the Internet so clearly reflectsAmerican values and aspirations even though many of its technicalinnovations came from other countries. For a start, theInternet reflects ingredients of the American entrepreneurialclimate. Those ingredients, says The New York Times, include“venture capital financing…a deregulated business environment,and a culture that celebrates risk-taking, ambition andgetting very, very rich.” 1Culturally, Net technology also reflects late-20th-centuryAmerican society. It tends to be “informal and individualistic . . .decentralized and hard to control,” The Times continues.Fareed Zakaria, managing editor of Foreign Affairs, adds, “TheInternet is profoundly disrespectful of tradition, established61 |

CHAPTER FOUR BUSINESS 2010order and hierarchy, and that is very American.”These underlying societal aspirations rather than the technologyitself have slowed acceptance of the Net in countrieslike France and Germany. The political values of those countriessupport more regulated economies. The countries alsovalue social cohesion more, and diversity less, than Americadoes. In time, of course, the Net’s interaction with those societieswill influence societal aspirations, eventually creating afar more global-looking, less predominantly American, societyin cyberspace.Young Tom Edison Learns a LessonTechnological entrepreneurs fail when they get too farahead of society’s aspirations. As a young man, ThomasEdison wanted to convert his knowledge of telegraphtechnology into a practical, profitable product. He invented anapparatus to record votes in legislative assemblies instantaneously.To Edison’s amazement, potential customers in theMassachusetts legislature and the federal Congress reactedwith horror. Instantaneous counting of votes closed too manyopportunities to bribe, cajole or persuade legislators to changevotes. “Young man,” they told him in Washington, “if there isany invention on earth that we don’t want down here, it isthis.” 2 Edison learned the lesson. Thereafter, he concentratedon applying technology to meet society’s aspirations.Even inside companies, adoption of new technologydepends on a company’s aspiration. Any business today canbuy a computer system to streamline its activities, but makingfull use of the new software requires changes in virtually alloperating procedures. One company with an aspiration forcontinuous improvement readily adopts the technology andmakes the procedural changes. Other companies in the sameindustry postpone the adaptation or, worse yet, spend millionson the system and then fail to exploit its benefits. Months oryears later, the threat of competition—or a new CEO with differentaspirations—will make acceptance of the technologyseem obviously easy.|62

Business EvolutionFor country or company, the principle is the same.Aspiration determines direction. Technology fulfills.Growth or DevelopmentAspiration also influences how a company grows, developsor stagnates. Because growth and development areclosely related, many businesspeople use the wordsinterchangeably. Montreal retailer and entrepreneur JohnBanks defines the distinction using the example of coaching hissalespeople: “When we help the salespeople by updating theirsales materials, we are promoting their growth. We are helpingthem to close more sales. When we encourage them to changetheir attitudes toward the customer, we are promoting theirdevelopment.”It is the same for the company, Banks continues. “When weconcentrate on growth, we focus on ways to sell more productto existing or new customers. We increase our advertising oradd more salespeople. When we concentrate on development,we ask what we need to do inside the company to serve ourcustomers better. We improve our speed of response. Weexpand training, not only our salespeople but our back-officepeople as well.”Growth is a multiplication of existing activities at the samelevel of organization. A company grows by opening newbranches or franchises. Another way to grow is to expand therange of product choices in a given category. An industrygrows when new companies enter its field, creating moresales. Individual managers grow when they get promoted torun bigger units.Where growth is quantitative expansion, development isqualitative enhancement. Companies develop by elevating valuessuch as quality, customer service, and respect for people. Anindustry develops when a consolidator organizes smaller, disorganizedunits into a more cohesive, cost-effective, competitiveentity. Individual managers develop when they add newknowledge, skills or attitudes that expand their personal competenceand self-confidence.63 |

CHAPTER FOUR BUSINESS 2010Walton Stinson, a successful Denver entrepreneur, says thatthe challenge for any business is to find the resources to investin both growth and development. Part of the problem ariseswhen business leaders fail to understand that growth anddevelopment are separate strategies. Stinson, who has foundedand headed several organizations of small businesses, adds,“From a practical point of view, even the smallest businessesmust make some investment in development.”Symptoms of lagging development are not always apparent.Any slippage in growth shows up quickly in a company’ssales volume or in market share reports.However, a company’s visible energy is onereliable indicator of its level of development,John Banks believes. A lack of developmentshows up as “boredom in the company,”he says. “Development by its naturereleases more energy. It’s more inspiring.While growth is certainly exciting, when Isee people or companies develop, theyseem to be expressing a higher level ofenergy.” The fabled, around-the-clock energyof the dot-coms stems at least in partfrom the fact that both the companies and the individuals aredeveloping at such a rapid rate.For a more personal example, think of the surge of energyyou felt the last time you acquired a new business skill. Keepingfocused on development is understandably difficult in a rapidlyexpanding economy. The opportunity to expand units orsales is attractive and immediate. The challenge of developmentsometimes feels like trying to rebuild the jet plane whileflying it through turbulence. Yet at no time has a focus ondevelopment been more important.Business reflects society. U.S. society is going through anintense period of development. Organizations that invest energyin development have a far better chance of staying in tunewith society. They will more easily discover the paths to growth.A look backward at three entrepreneurs illustrates howdeveloping a company in alignment with changing societal valuescan lead to rapid growth:The fabled, aroundthe-clockenergy ofthe dot-coms stemsat least in partfrom the fact thatboth the companiesand the individualsare developing atsuch a rapid rate.|64

Business EvolutionRay Kroc didn’t invent either fast food or franchising but he elevatedthe values of quality and consistency for both. As a result,McDonald’s became the gold standard of food franchises.Walt Disney rode a more affluent society’s hunger for betterentertainment and used four developmental values—safety,courtesy, show and efficiency—to transform the dingy amusementpark industry into a worldwide giant.William Randolph Hearst caught a wave of expanding literacy inthe early years of the 20th century. He created or revampedpublications to feed a new appetite for easy-to-read information.Newly literate millions, many of them immigrants, purchasedhis products. From two papers in 1895, his empireexpanded over 40 years to a high of 28 major newspapers, 18magazines, several radio stations, movie theaters and his ownwire service.Surplus Energy for Growthor DevelopmentFor either growth or development, a company must haveavailable more energy than what is required for survival.A society in a desperate war consumes its available physicalor mental energy for survival. The same is true of a businesson the brink of bankruptcy. Neither has much surplusenergy for further development.The initial source of energy in a business flows from theentrepreneur’s aspiration for personal advancement, service toothers, or both. If the entrepreneur’s aspiration sparks sufficienteffort and if that effort is sufficiently in harmony withsociety’s direction, the business generates enough energy foran initial take-off.Growth brings more physical, mental, and even psychicenergy into the company. Entrepreneurs recruit new peoplewith higher knowledge and skills, raising the physical andmental energy in the company. Entrepreneurs expand the65 |

CHAPTER FOUR BUSINESS 2010technological assets, elevating human physical energy into systemicmental energy. They transmit to their employees theirown enthusiasm for the product and their commitment to thecustomer, expanding the available pool of psychic energy.To grow, a company channels this surplus energy intodoing more of the same activities. To develop, the companyinvests a portion of its surplus in raising its activities to a higherlevel of skill, organization, speed or other values to match theevolving direction of society. Growth requires greater physicalenergy to do more. Development requires greater psychologicalenergy to do better.The Creation of Higher Levelsof OrganizationThe institutions of society (business, government, themilitary, education, science and the arts) all representorganized channels through which energy is distributedaccording to a society’s priorities. From the beginning,the U.S. has supported education as an important priority forsocietal development. Accordingly, the U.S. has organized andfunded education at higher and higher levels of more andmore complexity. In 1870, only one doctoral degree was conferredin the U.S. In 1999, American universities awardednearly 46,000 academic doctorates.Once a new or wider organizational channel is available, pioneersseek to exploit it. In business, our acclaimed pioneer is theentrepreneur. Few entrepreneurs actually create a whole newmodel of business organization. Fred Smith, founder of FedEx,and Thomas Edison, creator of the research laboratory, areexceptions. However, the hundreds of thousands of jobs createdby more traditional U.S. entrepreneurs over the past 20 yearsare testimony to the power of opening new and more complexchannels of organization. The growth provided by an innovativeorganizational structure like franchising is a prime example.Until 1899, Coca-Cola was sold only through soda fountains,by the glass. In that year, two men from Chattanooga attending|66

Business Evolutiona baseball game came across a soft drink that was sold in a bottle.They approached Asa Candler, who owned Coca-Cola at thetime, to suggest that he sell Coke in bottles. Candler was notinterested but agreed to give the two men a perpetual franchiseto sell bottled Coke virtually throughout the U.S. Candlerawarded the franchise for $1. Legend hasit that even that dollar was never paid. Ifso, it was the best dollar Coca-Cola nevermade—“a master stroke” as Fortune calledit. 3 This was the beginning of the company’sfranchise bottling system—thegranddaddy of all franchising—consistingof independent bottlers whose entrepreneurialspirit has carried Coke to thefour corners of the world. Today, Coca-Once a new or widerorganizational channelis available, pioneersseek to exploit it.In business, ouracclaimed pioneeris the entrepreneur.Cola and its subsidiaries operate in 200 countries. Following thefranchising model that the company pioneered, bottling anddistribution operations are, with some exceptions, locallyowned and operated by independent businesspeople who arenative to the nations where the operations take place.The franchise system adopted by Coca-Cola in 1899 hasformed the basis for many entirely new industries. The fast-foodbusiness actually began in 1921, when White Castle opened itsfirst hamburger stand. The company had the right idea but notthe system. White Castle never sold a franchise. Sixty years laterit still had only 175 units. If it had not been for the franchise system,there might be only 175 McDonald’s restaurants instead ofmore than 25,000 in about 120 countries. Ray Kroc opened hisfirst McDonald’s franchise in 1955, and within five years he hadsurpassed the level reached by White Castle over a half-century.The power of the franchise organizing system stems fromthe entrepreneurial initiative associated with private ownershipcombined with the name, expertise and experience of theparent company. The system has transformed the way retailbusiness is carried out in the United States and around theworld. Adopting an organizing system that is already prevalentin a field enables an entrepreneur to compete with leaders inthe industry. Adapting a system to a new field enables a companyto become a leader of the industry.67 |

CHAPTER FOUR BUSINESS 2010Five Channels for Corporate EnergyThe critical corporate task in the next decade is to balancequalitative development and rapid growth in a climateof immense opportunity and accelerating change.Entrepreneurs who start a successful business have anintrinsic advantage. If their concept is right, they are closelyaligned with societal direction at the moment they open forbusiness. Also, they do not have to deal with the clogged systems,obsolete skills or bureaucratic encumbrances that sometimesslow their more established competitors.In time, of course, success will multiply the challenges. Withrapid growth, informal one-to-one direction will cease to be practical.As people are added, the entrepreneurs can no longer relyon rudimentary policies, procedures and systems. Competition,Leaders of establishedcompanies can findnew paths to growthand profit by lookingmore deeply insidetheir companies foruntapped reservoirs ofcreative energy.as well as those new shareholders acquiredthrough the IPO, will require the entrepreneursto be more disciplined. However,they will still be far ahead of the curve foras long as they can keep their companydeveloping in tune with society.However, the American economy, asdistinct from the American stock market,draws its greatest strength from millionsof companies that were not founded yesterday.In that pool we find establishedmidwestern metal benders, far western auto dealers, northeasternfood wholesalers, eastern supermarket retailers, southerncontract manufacturers, southeastern contract retailers,exporters and importers, professional services firms, publishersand dozens of other categories.For these established companies, the challenges of developmentalrenewal are more complex. However, leaders ofthese established companies can find new paths to growth andprofit by looking more deeply inside their companies foruntapped reservoirs of creative energy. Specifically, each of thefive engines listed below provides a field of potential creativityand profit. Elevating performance in any of these components—orbetter yet in all of them—is a sure path to releasinghigher creativity, productivity, profitability and growth.|68

Business EvolutionA healthy business expands or abandons functions, structuresand activities as it evolves with society. As society hasengines of progress (technology, freedom, education, demographicsand globalization) companies have their own engines.Individually and collectively, the productivity of these enginesdetermines how well a company can stay positioned with societalevolution. Whatever its size, market or product, every businesshas underutilized assets in the form of these five enginesor components. Each of these components represents a channelfor the effective and creative redistribution of corporateenergy. The five are:1. Market: The full array of social requirements and desires thatcreate the market for business, as well as the tools and techniquesthat the company uses to serve society’s needs.Successful businesses have traditionally focused on serving thecustomer. The opportunity today is to anticipate future needs.2. Products and services: The profusion of technical applications,products and services that business uses or provides to serve itsmarket. The force of the technological innovation discussed earlieropens extraordinary opportunities in this component today.3. People: The potentially limitless strength created by theknowledge, skills and attitudes of the workforce available tobusiness to deliver products and services to its market.Higher educational attainment, a shortage of skilled peopleand the rapid mentalization of work are creating the potentialfor exciting innovations in this critical component.4. Organization: The structures, systems and vehicles for communicationand coordination inside the company and insidethe arena in which business operates. The driving forcestogether are rewriting the rules of traditional organizationaltheory. Information-technology enthusiasts refer to the rapidproductivity gains expected from technological progressinside the high-tech sector as the New Economy. As the informationsector has spread to other more traditional industries,the term New Economy loses meaning. A recent study by two69 |

CHAPTER FOUR BUSINESS 2010Federal Reserve Board economists reports that the “noninformationtechnology” industries have contributed more togains realized through technology investments than has thecomputer industry. 4 Any company can benefit by lifting itsorganization component to a higher level through use ofinformation technology, making the terms Old Economy andNew Economy even more meaningless.5. Capital: Financial and other nonhuman assets available tobusiness to support its activities. Availability and flexibility ofsources of capital, key ingredients in the boom of the 1990s, willbe even more important in the decade ahead.New Opportunitiesin Every ComponentThe driving forces identified in the first three chapters ofBusiness 2010 create new opportunities in each thesecomponents. For example, look at how three of thoseforces—technology, education and freedom—are redefiningopportunities within each of the five business components.The Effects of Information TechnologyInformation technology (IT) has responded to our societalaspiration for faster service. That interaction converted speedto a higher value in every component.MARKET. In the market, customers demand instant response—instant coffee, instant communication, overnight delivery. In1915, the American transcontinental telephone system couldhandle three simultaneous voice calls. A generation later,AT&T developed a coaxial cable handling 480 calls at once. Bythe 1980s, individual Telstar satellites had enough capacity fornearly 100,000 telephone links. New forms of transmissioncoming on line can handle 1 trillion bits per second, enough forthree centuries of a daily newspaper. 5|70

Business EvolutionPRODUCTS AND SERVICES. The World Wide Web rapidly revolutionizedthe technology for producing many products andservices. In publishing, seemingly overnight, newspapers,bookstores, book publishers, radio and television networks,record producers and software distributors all faced newthreats and opportunities. The annual product update isbecoming passé as more companies figure out ways to downloadtheir product improvements directly to customers.ORGANIZATION. Through information technology, organizationhas evolved to higher levels in industry after industry. Just-intime-inventorytechnology enabled retailers like Wal-Mart tocut costs and prices. Online networks helped companies poolresources. For example, the National Transportation Exchange,Inc., in Downers Grove, Ill., helps trucking company driversand dispatchers find cargo in range of their trucks. NTE fillsempty rig space, making driver time more productive.PEOPLE. Although experts argue over details, informationtechnology has clearly made people more productive.Macroeconomic Advisers, a St. Louis forecasting firm, saysimprovements in technology have raised the productivitylevel so sharply that the U.S. economy should be able to growat 3% a year for the next decade without significantly addingto inflation.CAPITAL RESOURCES. Information technology expands the availabilityand reduces the cost of the capital resources on whichbusiness depends. Businesses avoid long-term telephone orInternet contracts with full confidence that lower costs are onthe way. Despite sometime disruptive swings in individual commodities,overall lower commodity prices from metals to plasticsare now the pattern, as technology speeds the availability ofcompetitive prices and quickly identifies new sources of supply.The Effects of Advancing EducationAnother driving force—advancing education—creates opportunitiesand challenges in every component.71 |

CHAPTER FOUR BUSINESS 2010THE MARKET. Greater awareness created by formal and informaleducation multiplies a desire for wider, more individualizedcustomer choices in the market component. The “I’ll have it myway” mentality spreads from burgers to BMWs. Higher levelsof education fuel and support customers’ demands for better,safer products.PRODUCTS AND SERVICES. Higher levels of education create ademand for more complex, smarter products and services.More companies are adding an educational component to theirservices. Stockbrokers become “financial advisers.” HomeDepot opens a store a week. Its competitive advantage is thehome repair education provided by its salespeople.ORGANIZATIONS. Organizations that used to depend on physicalenergy depend on mental systems created and operated bybetter-educated people. Reengineering any organizationstructure for faster customer service requires trained workerson the front line.Complex businesses today depend more on teams of educatedprofessionals. Twenty years ago business problems weremore likely to be passed from one “silo” of experts labeled marketingto another labeled product development. Many companiestoday are staking a big piece of their future on a strategy knownas cross-selling, that is, offering a diverse mix of a company’sproducts and services to the same customer. To be successful,cross-selling depends on ad hoc organizations of experts builtaround a customer’s needs. This development has helpedspark a boom in teamwork training.PEOPLE. Better-educated people seek more mental and lessphysical challenges on the job. Thirty years ago, businessdepended on the expertise acquired by key people over a 20-year career. On-the-job experience was the training norm.Businesses today depend on people well educated in disciplineslike finance, marketing, and research and development. Thedrain of educated and skilled workers from old style to newer,high-tech-based companies illustrates the premium paid foreducation in business today.|72

Business EvolutionCAPITAL RESOURCES. Education expands both the variety andavailability of all resources, including capital. Using IT, highlyeducated engineers in Germany can update a manufacturingline in China. Distance learning online gives the entrepreneurwith a high school education access to the financing knowledgebase of today’s MBAs. Rising education permits more individualchoices among benefit plans for employees, opening theway for better allocation of resources by companies.The Effects of Expanding FreedomA third driving force—expanding freedom—unleashes competitionand creates more choice in every market and insideevery company.THE MARKET. In the market, greater freedom from regulationexpands competition across and between industries. Choicehas transformed customers from the kings of yesterday to theabsolute monarchs of today, and fickle monarchs at that. Pricepoints are exposed everywhere on the Net and in the media.Top companies learn that a premium brand is invaluable onlyas long as it is not linked to too high a premium price.PRODUCTS AND SERVICES. The societal aspiration for greater freedomendorses entrepreneurial products and services as neverbefore. Parents boast of children creating new products at anunknown high-tech company. A generation ago they braggedof offspring in management training programs at GM or Sears.As women exploit their new freedom of access to executivesuites, entrepreneurial companies expand services from daycare to housecleaning. The fashion industry reinvents its productsto accommodate the new freedom to express yourself by“dressing down” at work.ORGANIZATION. Freedom invades the organization structure byspawning new structures like self-directed or continuousimprovement teams. Both depend on granting greater freedomto front-line workers. As choice expands customers’freedom, companies like Wal-Mart and Southwest Air reorga-73 |

CHAPTER FOUR BUSINESS 2010nize around distribution channels rather than product linesor market segments. The “Channel Champion,” the new jobat the center of the new structure, ensures that the companyhas faster information about customer preferences and thatit introduces the appropriate value-added benefits, such as24-hour phone access, ahead of the competition.PEOPLE. Inside companies, intellectual assets have replacedphysical assets as the prime competitive weapon. Humanknowledge is the most strategic asset in any enterprise, thesource of all creativity, innovation and economic value. As aresult, there is a new premium on attracting and retaining talentedpeople. Expansion of flexible schedules and telecommutingreflect the greater physical and mental freedom oftoday’s workplace. The new sense of self-realization at workactually encourages the kind of job-hopping that was a careerkiller only 20 years ago.CAPITAL RESOURCES. Freedom from regulatory restraint permitscapital resources to flow toward areas of greatest potential,nationally and internationally. New, freer standards for judgingcompanies value mental assets more than physical. Want to starta shoe factory today? Forty years ago, you would rent space, buyequipment and raw materials, and hire workers. Nike built aworldwide brand while doing few of those things. It outsourcedproduction to its suppliers, reserving its human and physicalcapital to elevate its skills in design and distribution. The suppliersfinanced the capital necessary for production.Summary and ConclusionsThe accelerating change around us arises from a largelyinvisible process. Successful businesses evolve inreflection of that process. Societal aspiration, a nevercompletedrevolution of rising expectations, is the hiddendriver of change in societies and in business.Societies or companies embrace innovations, includingtechnological innovations, quickly or slowly, depending on the|74

Business Evolutionpower of the aspiration the innovation supports. A societyvaluing greater freedom for individuals will seek and supportinnovations that advance that freedom. A company valuingcontinuous improvement will find the resources to advance tothe next level of performance.Societies create higher levels of organization to channel thesurplus energy. In business, that surplus energy flows throughfive channels or components: the market, product or service,organization, people and capital. Each component is critical tothe success of any enterprise. All components must be in reasonablebalance to keep a company positioned for success in achanging environment.The five forces of change discussed earlier (technology,education, freedom, demographics and globalization) arereshaping the boundaries of every business component.Although all of these boundary shifts create opportunities orthreats for specific business organizations, their influencevaries widely with the industry and the positioning of individualcompanies. (This issue is discussed in greater detail in thenext five chapters). Keeping any component in alignment withforces of change requires a conscious effort to develop, not justexpand that component.Every business planning team should assess where itscompany, and its five components, falls today within each ofthe trends highlighted in the next five chapters. Some ofthese trends may be inconsequential to a particular business,while others may have a dramatic effect. No trend should bedismissed until the team has thought through all of the implicationsit may have for the business in the next 10 years.Some trends, not particularly important today, may loom farlarger on the horizon tomorrow.In light of those trends, the team must ask, How strong—thatis, how well developed—is each of the company’s five components?Answering that question, the team will quickly uncover previouslyunseen opportunities and threats. The next five chaptersexplore that question as it applies to each component, or engineof business. Chapter 10 includes a list of key, open-ended questionseach team to consider in reviewing the company’sstrengths and opportunities to improve in each component.75 |

PART TWO BUSINESS 2010Five Keys toProfit and ProductivityPART ONE IDENTIFIED FIVE FORCES OF CHANGE—technology, freedom, education, demographics andglobalization—and described the new environment inwhich business now seeks to achieve productivity,profit and growth.Part Two—the next five chapters—explores how leadingcompanies are responding to the changes described in Part One.Any company in any industry can usefully adapt many, if not all,of the strategies for success outlined for each major componentof business.Chapter Five looks at the market, the key component of businesssuccess defined by customers’ rising expectations. ChapterSix analyzes technology, which includes products and services, andthe tools and techniques companies use to produce what they sell.Chapter Seven looks at the dramatic changes now unfolding inorganization—the network of structures, systems and accountabilitiescreated by companies to improve the speed and efficiency oftheir operations. Chapter Eight describes changes in capital andother nonhuman resources, as business redefines traditional conceptsof limits. Chapter Nine explores the implications of a worldin which people have become the resource most in demend forbusiness success.For sustained success, every company must keep these componentsaligned with the forces of change and in reasonable balancewith one another. This part describes how to achieve this goal.

CHAPTER FIVE BUSINESS 2010The Market RulesKEY CHAPTER THEMES■ New opportunities to expand existing andnew markets■ Six strategies to stay better connected withthe market:1.Exploit the power shift toward consumers.2.Individualize products and services.3.Discover new ways to build customer loyalty.4.Provide more targeted information.5.Shift from planned time to real time.6.Follow the demographics.

CHAPTER FIVE BUSINESS 2010“Business is going to change more in the next10 years than it has in the last 50.”—BILL GATES, CHAIRMAN OF MICROSOFTFAST. SMART. CONNECTED: THEY’RE THE FORMULAfor success in a leap-before-you-look market.Businesspeople have always focused on themarket. Street peddlers in Babylon certainlyarranged their wares to entice potential customers,and an exciting new Web site is only the latest spin on anancient skill.What’s new, however, is the speed at which markets movein unexpected directions. Ten years ago, companies chartedchanges in customers’ needs and desires in months or years.Now, new plans, price quotes, or requests for bids fly throughcyberspace at the click of a mouse. For all companies, thatspeed creates urgent, new priorities: respond faster, keepadding value, and treat your customer as an individual.Customers who find your service slow or unresponsive can easilytype in the name of a competitor who may be more in tunewith today’s requirements.Instant availability of information adds another dimensionto speed. Nineteenth-century science and inventions createdan expectation of continuous progress through expandingknowledge. It quickly became second nature to measureprogress quantitatively. As early as 1816, prison, temperanceand school reformers in Boston and Philadelphia publishedstatistical surveys to bolster their demands for reform. By the1830s, businessmen regularly employed double-entry bookkeepingto keep their accounts in a more systematic way.The American Statistical Society was founded at the end ofthat decade.81 |

CHAPTER FIVE BUSINESS 2010Early in the 20th century, the pursuit of business successthrough the numbers became “scientific management.” By midcentury, American business had adopted the quantifiedapproach to information in market research, production engineeringand financial analysis.What’s new is that information has become broader anddeeper than ever. Most important, it’s more widely available.Any desktop computer provides quicker access to better informationthan General Motors enjoyed a generation ago. Long,ponderous market studies are out. The new definition ofsmarter marketing depends on continuous connection withnew and potential customers, while more advanced modelsanticipate customer desires.Having the right information faster is a start toward smartermarketing, but maintaining market leadership requires carefulfocus and constant connection across companies and betweencompanies and markets. This chapter focuses on strategies tostay better connected with the market. Chapter Seven looks atthe effect of connectivity inside companies.Market refers to all existing and potential customers for acompany’s products or services, including all the tools andtechniques that companies use to understand and better servetheir customers.Unprecedented OpportunitiesThe forces of change discussed in the first four chaptershave combined to open unprecedented opportunitiesin the market component. Freedom expressed politicallycreates an explosion in democracy. Freedom expressed economicallykeeps expanding choices in the marketplace.Simultaneously, education raises aspirations and awareness ofopportunities for a better life. Technology lowers the barriersbetween haves and have-nots, between customers and suppliers,between price and availability. Demographics changes theprofile of customers in almost every industry selling directly toconsumers. Globalization creates stunning new market threatsand opportunities.|82

The Market RulesThese accelerating engines pulling together will propel theglobal consumer boom for at least the next 50 years. It will takethat long before the world even begins to exhaust the expansionof comforts, acquisitions and possessions that energizedthe U.S. population after 1950. Starbucks Coffee, for example,now operates 3,000 outlets but is planning to push that numberto 20,000, mainly through expansion overseas. 1Meanwhile, in the U.S., sophisticated technology opens theway to the kind of customization of products and services thatwas once limited to royalty. The customer is truly becoming theking, with all the escalating desires and capriciousness thatwere once the prerogative of monarchs.The sections that follow list six key strategies to help anycompany to take full advantage of the unfolding riches in thenewly energized markets at home and around the world.Market Strategy #1: Recognize theNew Balance of Power in EveryMarketing Thought and ActionIf you’re still not used to it, get used to it in a hurry: Themarket rules. The traditional balance of power betweenproducers and customers is now reversed. In the not so distancepast, producers controlled the flow of information to customers.Suppliers had the best data about costs, prices, quality,competition and availability. Now all that information—andmore—is readily available to consumers. Their range ofoptions for price, selection and availability widens every day,putting producers and suppliers of all types of merchandiseincreasingly on the defensive.Currently, customers weary of shopping for the best priceoften pay more than the lowest price available, but technologyerodes this equation every day by lowering customers’ searchand other transaction expenses, in terms of both time andmoney. Today’s search engines are the organizers of theInternet; tomorrow’s engines will give personalized advice oncustomers’ selections, creating a new set of challenges for man-83 |

CHAPTER FIVE BUSINESS 2010ufacturers. How, for example, will “value-added” be defined ina world where both a better price and customized advice are amouse click away?The burgeoning wireless Internet will add a new dimensionto this challenge. OracleMobile.com, a subsidiary of Oracle, nowpermits consumers to select information they want to receive ontheir cell phones. If your flight is late or a favorite stock dropsbelow a prearranged level, automatic alerts are sent out.Other new services are raising the stakes in comparisonshopping.Debating whether to buy that stereo receiver? Punchin the barcode number on your cell phone, and suppliers areready to provide independent information about the product,including a list of lowest prices and details on how to order.New TransparencyTo be sure,the auction economyhas not repealedthe adage “Buyerbeware.” And would-besuppliers may suffer“winner’s curse.”Online auctions have brought new transparency to the purchasingof goods and services, one of the most time-consumingprocesses in industry. The explosion of business-to-business(B2B) Internet exchanges permits groups of companies to buysupplies (such as car parts) or sell products(such as airline or other travel tickets)in direct online auctions between buyersand sellers. These Internet exchangeshave thus far gone through three phases,notes The Economist. The first phase sawfirms such as General Electric and Wal-Mart gain big savings in procurementtime and costs by simply moving to buyingonline. Suppliers could immediately see,and feel the pressure of, their competitors’ low bids. Next camethird-party exchanges—independent firms bringing togethermany buyers and sellers to create a genuine independentmarket. In 1999, one such organization, FreeMarkets.com,auctioned more than $2.7 billion worth of industrial parts,raw materials, commodities and services online. The companyestimates that it saved purchasers 2% to 25% on those orders.The third phase has seen industry giants getting togetheron their own to create their own multiple-company online|84

The Market Rulesmarkets. For example, in February 2000, Sears, Roebuck andFrance’s Carrefour announced a retail consortium that willbring together $80 billion of annual purchases. 2GM, Ford and DaimlerChrysler have created a similarsupply network that will also feature online auctions.Suppliers that want to sell to these companies must bid onlinein an open market. Marriott and Hyatt agreed to form a similarInternet auction company to supply the hotel industrywith everything from bath soap to electricity. Transora.com,which was announced in June 2000, created a packaged consumergoods exchange backed by 49 major manufacturers,including Coca-Cola, Procter & Gamble, Unilever and SaraLee. 3 Forrester Research, an independent Cambridge, Mass.,firm that analyzes the future of technology change and itseffects on businesses, consumers and society, projects that thevalue of this type of online group purchasing will reach $1.3trillion by 2003.Buyer BewareTo be sure, the auction economy has not repealed the adage“Buyer beware.” “Winner’s curse” still occurs online when awould-be supplier, in the heat of excitement, agrees to providea product or service at too low a cost. Collusion on either sideof the auction fence is another risk. Bidders can work as partnersto price most others out of the market before the highbidder drops out, leaving the winning bid with the partner.Or sellers can employ shills to drive up prices.These risks cannot mask the basic power propelling thisnew model of buying and selling. The technology-driven accessto the latest information made product comparison far easier,forcing products that once competed on special features orbrand image to compete on price. The inevitable outcome ofthis seismic change is already easy to see: an increasingly competitivemarketplace in which it is difficult to raise prices. Withpricing so competitive, gaining a better market position byadding a valued service like better information remains themost accessible path to sustaining profit margins.One advantage of this shift in the balance of business85 |

CHAPTER FIVE BUSINESS 2010power is a more efficient, and therefore more productive, economy.The flip side is the rising threat to producers who dependon profits created by inefficiencies. For years, companies in themetalworking field depended on increasing prices to “cover”inefficiencies in purchasing, scrap and reworking. Now thatcosts and prices are far more transparent—and more competitionis coming from companies overseas—these companieshave been forced to accelerate their efforts to improve qualityand efficiency at lower cost. They have also been required toprovide more accurate and up-to-date information to their customers.This example, multiplied across dozens of industries,has helped create a far more productive economy. Findingreplacement profits in a very productive economy “is a veryhard life,” says Intel Corp. Chairman Andrew Grove, becauseraising prices is less and less an option.The challenge of that hard life puts a premium on attractingand retaining managers who can find new sources of profitin a world where the customer rules. “I think managers willhave double reasons for existence,” says Grove, “because wewill have to figure out how to earn profits that replace the profitsthat some of the change has sucked out of the world.” 4Now, all effective market strategies will accept acceleratingprice pressure as a continuing reality, which puts an even higherpremium on efficiencies in production and finding new definitionsfor value.Market Strategy #2: What Have YouDone for Me Lately?Traditionally, marketing managers respond to competitivepressure by turning up the volume of their advertising.Although new technology provides exciting newtools for marketers, there are plenty of signs that customers aretuning out.A time traveler from 50 years ago would be astonished bythe expansion of advertising and marketing messages in ourhomes and public spaces. This growing intrusiveness reflects an|86

The Market Rulesescalating conflict between marketers and consumers, withtechnology the weapon of choice, notes Wall Street Journalwriter Jonathan Kaufman. 5Marketers use the technology of television to shotguntheir commercials into people’s living rooms. An average hourof prime time TV now contains 15 minutesand 44 seconds of commercial time.Consumers fight back with remotecontrols to mute the TV and VCRs tofast-forward through commercials. “Thewheel has been considered the greatestinvention of all time,” says syndicatedcolumnist Dick Boland, “but the remotehas to be in second place.”Marketers have counterattacked byinserting their products into shows andimplanting their messages into the backgroundsof televised sporting events.Between 1995 and 2000, the number ofsports stadiums with brand names roseThe assault onconsumer attentionhas gotten so bad thatsome experts predicta growing demand forwhat Phillip Kottler,professor of marketingat NorthwesternUniversity, somewhatfacetiously calls“designated marketfreezones.”from 6 to 50, reports IEG, a research company that trackscorporate sponsorships. 6 Taking a page from the TV playbook,companies now offer “free” Web information and services inreturn for viewing ads when we download from their sites.Predictably, consumer resistance is mounting. People armthemselves with caller identification to slow the telemarketingoffensive, and use computer-filtering software to evade e-mailspammers. Or they simply tune out.The assault on consumer attention has gotten so bad thatsome experts predict a growing demand for what PhillipKottler, professor of marketing at Northwestern University,somewhat facetiously calls “designated market-free zones.” Wewill pay to take vacations in such camps “to be cleaned out ofbrand assault,” Kottler suggests. 7Strategies more closely aligned with changes in the marketwill lower the volume of generic noise in favor of more attentionto individual customer choice. More and more businessesare employing software that looks at customers as individualsand then delivers what they would like.87 |

CHAPTER FIVE BUSINESS 2010More Manipulative Than EverWhen the software or its users get it wrong, however, marketingseems more manipulative than ever. Amazon.com regularlyrecommends to customers a list of new books they mightlike on the basis of previous purchases. Amazon recentlyrecommended a new book to an author friend, which was,in fact, a book he had just published! Yet, when the systemworks, it empowers individuals still further.Focusing more onindividual customerneeds increasesthe emphasis onmarketing that isbased on informationand solutions.Focusing more on individual customerneeds increases the emphasis on marketingthat is based on information and solutions.Travel agents can no longer compete byproviding airline schedules and reservations,because online “reservation agents”have taken over that function for many customers;however, the market for customizedinformation about travel andrecreation is expanding. Similarly, HMOsare diversifying into more comprehensive preventive services,such as diet, exercise and stress reduction. Universities increasinglyare teaming with businesses to offer education and trainingmodules custom-tailored to businesses’ needs.A New Expectation for Brands“The central problem for consumers is shifting from getting a‘good buy’ on a standardized commodity to deciding preciselywhat they need,” says former Labor Secretary Robert Reich, nowa professor of economic and social policy at Brandeis University.This development changes brand management strategies forever,adds Reich. “Yesterday’s highly valued brand name cameattached to a standardized product customers could count on. Itwas always the same, exactly what it was advertised to be.”Tomorrow’s brand offers customers more than a promise thatthey are getting what they got last time. Successful brands of thefuture will provide “a trusted guide to what’s new.” 8Already, some of today’s highest-value brand names(including Dell Computers, Oracle, Merrill Lynch, Amazon,Cisco and Anderson Consulting) no longer stand only for spe-|88

The Market Rulescific products or services but for continuing, individualizedsolutions.The classic mission statement answers three key questions:What business are we in? Who is our customer? What do weoffer of value? Each of those questions must now be elevated toa new level in keeping with the changed expectations of customers.It is no longer enough for a company to say, “We arein the trucking business,” or, “We are in the shipping business,”for example. Rather, a business must specify the solution itoffers. For FedEx, the solution was overnight delivery.Expanding the definition of what the customer values leadsany supplier beyond the actual product into intangibles likecustomer service and rapid response.Conversations, Not MonologuesIn the future, the most successful marketing will engage thecustomer in more of what appears to be a conversation, ratherthan talking at the customer in a monologue. The conversationwill be solution oriented rather than hard sell; it will askthe customer “What do you need?” and “What do you careabout?” instead of telling the customer, “I have what youneed.” Tying those rising trends together will foster theexpansion of “cause-related marketing.” In this approach,companies use advertising dollars to sponsor or support activitiesthat address issues of importance to their customers.For example: Cisco Systems effectively combined anevent—the first Internet Age “We Are the World” concert—with a legacy Netaid Web site. Netaid.org uses the Internet toenable people to take action on extreme poverty around theworld. The concert, broadcast simultaneously from London,Paris and New York in October 1999, reached the largest radioaudience in history. The Web site, which features the Cisco logoon every page, has raised $8 million for the Netaid endeavor.Empowering customers is the primary business challengeof the next 10 to 15 years, says management expert TomPeters. Empowering customers, Peters explains, means providingchoices on how “to customize your products and services—to meet their specific needs.” 989 |

CHAPTER FIVE BUSINESS 2010Strategy #3: Customer SatisfactionIs a Promising First Date, but CustomerLoyalty Is the Real RelationshipExcitement about the New Economy persuaded somebusinesspeople that customer loyalty was as dead asJapanese Quality Control Circles. Customers by the tensof thousands seemed to be abandoning brands they had supportedfor decades in favor of dot-com upstarts.New Economy media hype, however, disguised a centralfact that emerged when dot-com profitability problems caughtthe attention of Wall Street. The ever-receding profitability ofthe dot-coms stemmed in considerable part from the large marketingbudgets they were having to maintain to get customersand earn their loyalty. “If there is one element of the dot-comexperiment that can be declared a categorical failure, it’s [the]attempted creation of the instant company,” says Fortune.“Except in a handful of cases (Amazon.com being the mostnotable), huge up-front ad expenditures failed to translate intobig sales, leading to customer acquisition costs as much as fourtimes higher than those of offline competitors,” according toMcKinsey & Co. 10 After the dot-com crash, it certainly seemedan appropriate time for another look at that old-fashioned ideaof customer loyalty.Although many companies accept low customer loyalty as afact of business life, some companies have always profited byhanging on to customers longer than their competitors. In thelife insurance industry, policy persistence is the best single measureof policyholder satisfaction. Northwestern Mutual, ofMilwaukee, Wis., had a persistence rate of just under 96% in1999, among the best in the industry. It can’t be entirely unrelatedthat the company’s 1999 financial results were so strong.The company accrued policyowner dividends of $3.1 billion,paid in 2000. That distribution represented more than 20% ofthe policyholders’, ordinary life dividends distributed by U.S.,legal reserve, life insurance companies. With one-half trilliondollars of life insurance in force, Northwestern is the nation’slargest provider of individual life insurance. Statistics like thesehave put Northwestern Mutual at the top of Fortune’s annual list|90

The Market Rulesof “Most Admired Life Insurance Companies” for 17 consecutiveyears.A Wrong Way to Increase ProfitOne thoughtful view of customer loyalty comes from FrederickF. Reichheld, a senior management consultant at Bain & Co. inBoston. Companies pay too little attention to hanging on tocustomers because of the model that dominates business thinkingtoday, says Reichheld. 11 That model dictates that only profitsdetermine whether a business is performing well.Rigid adherence to this model can lead to short-term profitsnot by creating customer value, but by destroying it. Cutresearch and development and training budgets. Reduce qualitystandards and critical support functions. Pay your talent lessthan competitive wages. Any of these actions can increaseshort-term profit margins. All of them risk taking value awayfrom customers.To be sure, this is an old idea. In the 1940s and ’50s, PeterDrucker identified creating customer value as the most importantfunction of any business. Even before that, Henry Fordnoted: “Business must be run at a profit—else it must die. Butwhen anyone tries to run a business solely for profit—thenalso the business must die, for it no longer has a reason forexistence.”The Power of ComplaintsMost businesses by now have learned the value of good customerservice. Just to stay competitive, most companies haveimplemented policies, procedures, training and systems toensure good (or at least to avoid bad) customer experiences.Even so, companies have been losing the loyalty wars, accordingto Reichheld. Bain’s figures show that, on average, a U.S.company loses half its customers in five years, and half ofits employees in four. Other studies support this trend. Onesurvey in the appliance industry showed customer satisfactionratings of more than 90% for most manufacturers, but thecorresponding loyalty rating even for the best barely reached91 |

CHAPTER FIVE BUSINESS 201050%. 12 Xerox has identified customer loyalty as the single mostimportant ingredient in determining its long-term financialsuccess. Its commitment to customer loyalty led to in-depthcustomer studies tracing the relationshipWhile losses in theearly stages of anInternet relationshipare higher, profitgrowth acceleratesat an even fasterrate in future years.among various levels of satisfaction andcustomer loyalty. One study showed thattotally satisfied customers were six times aslikely to repurchase Xerox products within18 months as merely satisfied customers. 13The purpose of an effective customerservice system should go far beyond helpingjust one customer at a time. A customerwho complains often tests a company’scommitment. True, some customers are jerks, but the vastmajority of complainers are decent people who have beenabused by a company’s systems or people, or both. As customerservice expert Chip R. Bell notes, a customer from hellis critically different from a customer who’s been through hell.Companies that assume the latter point of view reap rewardsof priceless feedback about their operations. Best of all, thatadvice is free! 14 This approach contrasts sharply with the viewin many companies that a complaint is an isolated incidentrather than a symptom of an underlying problem and anopportunity to improve.Success Through LoyaltyIn the average company, loyalty is dead, says Reichheld. Bain& Co. a decade ago first documented the relationship betweenprofit and customer retention over a period of years. The companystudy, carried out with Earl Sasser of the HarvardBusiness School, analyzed the costs and revenues derived fromserving customers over their entire purchasing life cycle. Thestudy showed that, in industry after industry, the high cost ofacquiring customers makes many customer relationshipsunprofitable in their early years. Only in later years, when thecost of serving customers falls and the volume of their purchasesrises, do relationships generate big returns.In most businesses, satisfied customers spend more money|92

The Market Rulesover time. In addition, established customers take less salessupport time, energy and money. Established customers typicallypay more than new customers, who often must be attractedby introductory offers, discounts or special coupons.Referrals from existing customers are the cheapest, yet mosteffective, form of marketing.This is a sobering analysis for companies who live or die onthe Internet. When Bain applied the same methodology toanalyzing customer life-cycle economics, Reichheld says, “Wefound classic loyalty economics at work. In fact, the generalpattern—early losses followed by rising profits—is actuallyexaggerated on the Internet.”At the same time, Bain’s studies offer some definiteencouragement to Internet companies that are stepping uptheir efforts to improve company loyalty. While losses in theearly stages of an Internet relationship are higher, “profitgrowth accelerates at an even faster rate” in future years. Inapparel e-tailing, for example, repeat customers spend morethan twice as much in months 24 to 30 of their relationship asthey do in the first six months. Also, because it is relatively easyfor Web stores to extend their range of products, they canoffer more and more different kinds of goods to loyal customers.Evidence so far indicates that Web customers tend toconsolidate their purchases with one primary supplier as partof their daily routine. This trend is particularly apparent inbusiness-to-business Internet sales.Market Strategy #4: Build RelationshipsWith Customers Through TargetedInformationDell sells about 40% of its daily sales volume online, butDell still welcomes your order by phone so that thehuman order taker can tell you about things you didnot know you needed. For some 20,000 large customers, Dellhas created individual Web pages that give each customer informationabout any order. Even for a smaller business, ordering93 |

CHAPTER FIVE BUSINESS 2010perhaps 50 computers a year, the company will set up one ofthese Premier Pages in three or four minutes over the phone.Dell also takes its information show on the road. “Dell onWheels,” the company’s 18-wheel, specially equipped travelingshowroom, has stopped in 50 cities to show customers, particularlysmall-business customers, its latest technology. Dell isbetting that the bond it is forging with its small-business customerswill be unbreakable by the timeDell’s currentstrategy is to use itspowerful, one-on-onerelationships withcustomers to sellthem a wide arrayof other products.they are big enough to be noticed by IBMor Compaq. 15Dell’s efforts to build stronger customerrelationships reflect intensifyingcompetitive pressure. Not so long ago, Dellwas happy to be a hugely successful retailerof low-cost, mail-order computers. Nowyesterday’s hot product has become a commodity.In 1999, sales of desktop PCs in theU.S. declined 3.5%, while sales in Europe grew by only 20%.Dell’s annual sales growth, which averaged 60% in the 1990s,has slowed to about half that pace. Dell’s current strategy is touse its powerful, one-on-one relationships with customersto sell them a wide array of other products, including digitalcameras and office equipment. 16Strengthening customer relationship through better informationtakes many forms. Microsoft purchased Firefly Networkin 1998. Microsoft made the acquisition to speed its delivery ofsoftware and services that conform to emerging privacy standardsas agreed upon by the World Wide Web ConsortiumPlatform for Privacy Preferences. Firefly’s products—FireflyPassport, Firefly Office, and Firefly Catalog—allow end-usersto create profiles of information to be provided to specific Websites. The sites can then provide content in accordance withusers’ profiles.Increasingly, news services seek to individualize their customerservice by tailoring clipping services and bulky marketreports. Dow Jones Interactive, The Economist, BloombergBusiness News, Dialog-Nexis, Kiplingerforecasts.com andothers package a wealth of information that their subscriberscan download according to their interests.|94

The Market RulesSuch moves are instinctive for retailers. Now, heavy manufacturersare learning how to reinforce their customers’ loyaltythrough faster, more personal online information andattention.No one buys million-dollar, electricity-generating turbinesby phone, much less online. Yet General Electric PowerSystems has opened a Web-based information tool. This “turbineoptimizer” enables a power-company turbine operator tocompare current performance of its GE turbine with that ofsimilar GE models everywhere in the world.The optimizer will then show the operator how to improvethe turbine’s performance and to calculate the value of theresulting savings. Naturally, the tool lets the operator schedulea service call to make the suggested improvements. In addition,Power Systems provides customers with useful informationat the customer’s special Web site. 17Market Strategy #5: Jump the ClockForward From Planned Timeto Real TimeEffective businesspeople instinctively choose speed as amarketing strategy. The “Sundowner Rule” is part of theculture at Wal-Mart. The idea was founder Sam Walton’stwist on the adage, “Why put off until tomorrow what you cando today?” The working principle at Wal-Mart is that everycustomer request gets same-day service.People feel a power surge anytime they execute prioritieswithout delay. General Electric CEO Jack Welch, a longtimeadvocate of speed as a competitive weapon, makes the case likethis: “Speed exhilarates and energizes. Whether it be fast cars,fast boats, downhill skiing, or a business process, speed injectsfun and excitement into an otherwise routine activity.”In business, Welch argues, “speed tends to propel ideasand drive processes right through functional barriers, sweepingbureaucrats and impediments aside in the rush to get tothe marketplace.” 18 After adopting speed as a value in the mid95 |

CHAPTER FIVE BUSINESS 20101980s, GE cut production time for its locomotives in half, from92 days to 46.The modern economy runs by a beat of time that used tobe measured in days, then hours, and now seconds. “It’s nolonger about the big beating the small, it’s about the fast beatingthe slow,” says Larry Carter, chief financial officer of CiscoSystems. 19 Bill Gates defined the unfolding era when he calledhis recent book Business @ The Speed of Thought.When FedEx opened its doors in 1971, competitors werebaffled by its prices. In delivery services, you charged byweight or size. FedEx strangely thought that it could chargefor speed. A decade later, as the speed of delivery service accelerated,just-in-time inventory management swept throughAmerican manufacturing. By 1999, Dell could boast that partslingered an average of only eight hours in its factories beforeleaving as finished PCs.Multiply speed of manufacturing and delivery by today’sconnectivity of communications and a new dimension is created.In 1984, only 8,000 fax machines were sold, mostly to lawoffices. Five years later, annual sales totaled 2 million machines.The start of an even faster boom in e-mail addresses was sixyears away.One fax machine alone is useless; add another one somewhereelse and you have a new, but limited, communicationtool. Add millions more in a year and you create a powerfulnetwork that can connect the globe. By the end of the 1980s,Chinese students protesting in Tiananmen Square instantlyfaxed reports of repression to sympathizers in the U.S. TheInternet is now dwarfing the network created by faxes. TheComputer Industry Almanac estimates that more than 717 millionpeople worldwide will use the Internet by the end of 2005.The IBM Speed TeamForward-thinking companies have been aware of the power offast product development for some time. A study byMcKinsey & Co. in the 1980s showed that high-tech productsthat came to market six months late but on budget earned33% less profit over five years. In contrast, coming out on|96

The Market Rulestime and 50% over budget cut profits by only 4%. 20IBM became a symbol of the slow-moving corporate culturein the late 1980s and early 1990s. Now IBM is on themove, aiming to imitate the speed and agility of its start-uprivals. IBM’s 100,000-person information-technology staffrecently created a temporary “Speed Team” dedicated toreducing product time to market.The Speed Team tapped company leaders with a recordof pushing projects through ahead ofschedule. The leaders set a six-monthlimit to the team’s operation. Shorttermpriorities focused on”speedbumps,” steps in the process that couldbe accelerated or even eliminatedentirely. Longer-term fixes were to takeno more than 90 days. “The SpeedImperative,” as IBM calls it, is not aboutdoing the same things faster and forlonger hours. Rather, says Steve Ward,IBM’s vice president of business transformationand chief information officer.IBM’s Speed Teamvalues: strong leaders,team members whoare speed demons,clear objectives, astrong communicationsystem, a carefullytailored process anda speed-orientedtimetable.“We’re really about getting people to change the way thatthey do things, about blowing up the process and discussingways to avoid speed bumps.”After reviewing many successful fast-moving projects, theteam found six common characteristics, according to FastCompany magazine. It then created its list of Success Factors forSpeed: strong leaders, team members who are speed demons,clear objectives, a strong communication system, a carefully tailoredprocess (rather than a one-size-fits-all approach) and aspeed-oriented timetable. 21The Speed Team learned the importance of getting everyoneinvolved. It held online “town hall meetings” to ask forideas about problems and opportunities to improve. E-mailand other electronic media were used to explore possibilitiesand to bounce ideas off other team members. Face-to-facemeetings were used to keep the momentum strong. 22Other tradition-bound companies are also using speedto-marketas an energizing weapon. Thomas O. Ryder arrived97 |

CHAPTER FIVE BUSINESS 2010at Reader’s Digest’s Pleasantville, N.Y., headquarters determinedto remake the staid publishing company into a nimble, Webwisepublisher and marketer. The new CEO discovered thatthe company required nearly a year to develop direct mail campaignsto sell the company’s products. Ryder broke tradition byoutsourcing work previously handled in-house. Predictably,long-time employees resisted overturning decades of standardprocedure, but Ryder and John Klingel, his new circulationdirector, kept pushing back. Reader’s Digest now develops directmailing campaigns in 13 weeks. 23A New Perspective on Time and SpaceFor awhile in the late 1990s, the drive for faster responsivenesswas summarized by the jargon phrase “Internet Time.”Popularized with the Silicon Valley slogan “You have to run onInternet Time—or die,” the concept’s adherents persuadedthemselves that Internet Time meant that everything had torun 7 to 10 times faster than basic business time. How theycame up with that measurement was never clear. “The Internetfolks have been running way ahead of us, like a hunter’s houndchasing a fox,” says USA Today technology columnist KevinManey. “But, eventually, they and their wagging tails have towait for us hunters to catch up, and we can only ambulatethrough technological change so fast.” Even though, “Internettime seems destined to become another quaint mind-set from aspecific moment in history,” Maney adds, “major technologiesoften do change our concept of time.” 24In 1801, when Thomas Jefferson became president, informationtook six weeks to travel from the Mississippi River toWashington, D.C. People expected that it would always be likethat. In 1861, when Abraham Lincoln moved into the WhiteHouse, information moved almost instantaneously by telegraph,but only from one point to another. By 1963, an estimated68% of the U.S. population knew of President Kennedy'sassassination within a half-hour. During the Gulf War, we couldsee combat half a world away as it happened. Clearly,Americans who lived in the eras of Jefferson, Lincoln andKennedy and who have lived in our own era have seen time|98

The Market Rulesand distance from different perspectives. So, while Internettime may soon be a forgotten phrase, faster, more responsiveinformation will be a growing expectation among all types ofcustomers from here on.Toward Internet Economy 2.0It’s a safe bet that in five years, today’s speed limits will seemslow. Internet Economy 1.0 is now accelerating into a fastermodel—Internet Economy 2.0, according to InternationalData Corp., a leading provider of market data and analysis tobuilders, providers and users of information technology. Themillions of new Internet users comingonline in the next few years will be “farmore demanding and far less patient”than today’s relatively patient users,”says IDC’s eBusiness Advisory ResearchService Group vice president SeanKaldor. 25 They will expect to operateever more exclusively in “real time.”The notion of operating in “realtime”—or gathering information, makinga decision and acting almostinstantaneously—came of age with theIn managed time,companies run likebuses, with specificroutes and schedules.Real-time organizationsare more like taxis,responding to acustomer wavingan arm or calling in.widespread use of the computer, a machine defined by speed.Real time means the computer can actually keep up with thejob, processing input with no delay in output. Now we havereal-time scheduling, real-time analysis, real-time auditing:The use of the term has expanded in the business world tomean more than fast. It means get the answer and act on itnow! And as computers get faster, real time accelerates.Stephen Haeckel, an IBM strategist, likens the differencebetween managed time and real time to the difference betweena scheduled service and an on-demand service. In managedtime, companies run like buses, with specific routes and schedules.Real-time organizations are more like taxis, responding toa customer waving an arm or calling in. 26 In the post-PC, wirelessworld, real time is faster yet.There’s big money to made—or saved—in switching from99 |

CHAPTER FIVE BUSINESS 2010planned time to real time. Experts estimate that the averagefast-food restaurant can increase sales by $54,000 a year simplyby improving the efficiency and speed of a drive-through windowby 10%. 27 Alcoa says that switching to real-time systemshelped reduce inventories by more than a quarter of a billiondollars while increasing sales by almost $1 billion in 1999. Thekey was providing a steady stream of real-time data whileenabling workers to make corrections on the spot. 28Time to ThinkWith all this speed, do we risk losing something important liketime to think? A New Yorker cartoon captures the present moodwell. It shows a man answering the phone, “No, I don’t havefour seconds to talk.”Real-time decision-making still requires slowing downlong enough to think—ahead. The quality of real-time decision-makingreflects the quality of the advance thought thatprecedes it.Effective real-time decision-makers must:■ Get the basic framework right,■ Be able to explore available alternatives rapidly, and■ Be willing to decide without delaying for one more fact.To casual observers, doing all this looks like leaping beforeyou look. However, first looking carefully and then leaping fastis a more apt description.Getting the fundamental framework right is often the mostdifficult challenge for today’s fast-transaction managers.Building a solid framework requires anticipating where yourmarket is heading next. Answering that question has never beenmore difficult, yet there is no time for paralysis by analysis.That’s where thinking through and then regularly rethinkingthe fundamentals discussed in this book will pay off for anymanager. Consider what effects each of the following will haveon your business:■ Technology■ Rising standards of education■ Changes in demographics|100

The Market Rules■ Globalization of markets■ Changing expressions of freedom among your customersDepending on your answers to these questions, what doyou think your current customers will want next? Can youthen project emerging needs in potential customers? Perhapsmost important, do you have in place a team that shares yourvision of the evolution of your market?When you sense where your market is going, what segmentsyou want to keep or abandon, and what value you proposeto sell, then—and only then—are you truly ready forreal-time decision-making. The rest of your preparation toincrease responsiveness should focus on techniques that anyonecan master:Surround yourself with teams of speed demons, and make sure theteams have clear goals congruent with the basic framework youhave chosen.Use the latest technology to communicate: instant messages, teleconferences,videoconferences and software tools to control thekey factors that spell success or failure in your business.For maximum speed, shift every possible decision to the point closest tothe customer. To get a bank balance, you used to have to go tothe bank and ask the teller. Now you can call and get youranswer by phone. Or, if you are a manufacturer subcontractingto another firm and you wanted to change your specificationsor order, you used to have to go to a “boss” three levels up fromwhere you work was being handled. The boss then had to golook at the job on the floor, make a decision and call you. Now,depending on the degree of complexity and cost involved, inmany companies it is the worker on the floor who makes thatdecision and tells you on the spot.Respect your business processes. Follow them when they help;revise them quickly when they slow you down.Set continuous improvement targets for speed. There is always a better,faster way to do anything.101 |

CHAPTER FIVE BUSINESS 2010Market Strategy #6: Follow theDemographics to New andExpanding MarketsAs was discussed in Chapters Two and Three, shiftingdemographics are opening unprecedented marketopportunities in the U.S. and abroad. Customers everywherehave a different look, speak a different language andvalue different priorities. Those companies that react quickestseize an important advantage.Wal-Mart has always been agile in following demographicsignals overlooked by competitors. In becoming the world’slargest retailer, the company avoided the suburbs and targetedsmaller, underserved rural areas. That same alertness—andwillingness to ignore conventional wisdom—now points to newdirections driven by changing demographics, such as the rapidgrowth of the Hispanic market.On May 20, 1998, Wal-Mart opened Store No. 2568 atPanorama Mall, the first Wal-Mart within the city limits of LosAngeles. In keeping with the company positioning, signs in thestore display such familiar messages as “Always low prices.Always.” However, at Panorama the signs actually read,“Siempre precios bajos. Siempre.” While most Wal-Marts featurea McDonald’s, the Panorama store includes a Mis AmigosMexican restaurant and snack bar.The opening was “definitely something new and unique forWal-Mart,” says assistant manager Javier Rincon. The companysignaled its commitment to the community through causerelatedmarketing. It linked its opening to a Los Angeles PoliceDepartment gang prevention program. Wal-Mart gave $34,000to the LAPD program plus more than $15,000 to other communityorganizations and causes.Panorama City responded by making the new store one ofthe most successful Wal-Mart launches ever. Sales on openingday exceeded projections by 20%. More than 43,000 customerspassed through the check-out lines in the first week. An averageof 9,500 customers have bought something at the storeevery day since it opened.Internet entrepreneurs also have been quick to seize the|102

The Market Rulesopportunity created by changing ethnic demographics andhave combined it with technology. EthnicGrocer.com CEOParry Singh launched the site after hearing a relative complainthat her husband wouldn’t accompany her on a long drive toan Indian grocer where she could buy pickles and curry.Singh, a graduate of Northwestern University’s KelloggBusiness School, saw the potential in bringing convenience tothis market. Overall, ethnic populations spend $64 billion ayear in North America. Now, in addition to Indian food,EthnicGrocer.com offers Chinese and Latin American foods,spices, recipes, cooking utensils and household items.Working Woman BarbieThe expanding role of women in the workplace suggests otheropportunities. Mattel, Inc., in partnership with Working Womanmagazine, brought out Working Woman Barbie in 1999. Thedoll comes equipped with a miniature computer and cellphone, as well as a CD-ROM with information about understandingfinances. Appropriately, Working Woman Barbie facestough competition in the marketplace. Late in 1999, twoCalifornia entrepreneurs introduced the Smartees line of dolls.Among the members of this family are Ashley the Attorney,Emily the Entrepreneur, Destiny the Doctor and Jessica theJournalist. 29Generational demographics open other opportunities.Sony Corp. hopes to capture the attention of the Generation Yyounger crowd with its new line of digital music devices.Meanwhile, live entertainment companies like Cirque du Soleiland Ringling Brothers try to lure more upscale, older customersby offering the opportunity to watch a circus performancewhile sipping champagne and dining on fancy foods.Growth in the African American MarketAmong the biggest opportunities come from the growth inAfrican American spending power. Some companies likeMcDonald’s and Coca-Cola have marketed effectively to blacksfor decades. Ford has long sponsored programs for African103 |

CHAPTER FIVE BUSINESS 2010American dealers, franchisers, suppliers and distributors.Other alert retailers are now opening stores in Harlem, long afocal point of the African American community. The area nowboasts such upscale names as Starbucks, the Disney Store, Gapand the Body Shop.In 1999, American Express opened 20 “diversity learningcenters” for individual investors in minority communities. Thetarget for this effort is the U.S. African American population of31 million, which has $500 billion in total annual income anda pool of investments that has quadrupled in two years to$13.6 billion. 30Perhaps the most intriguing aspect of this investment potentialis the opportunity to put it to work in minority markets inthe U.S. Nathan Chapman Jr., a Baltimore financial entrepreneurand mutual fund manager, argues that instead of lookingfor opportunities in Asia, Latin America or Africa, investors canget the same growth and diversification from a U.S. “emerging”minority market. As an added selling point, Chapman notes thatthis market avoids political and currency risks. The idea may becatching on, reports Fortune. Aetna added Chapman’s DEM(Domestic Emerging Markets) Equity fund to the list of 100-plusmutual funds it offers its 2 million 401(k) customers. In addition,Aetna has created its own domestic emerging-markets divisionto sell financial services. 31While African American marketing efforts tend to focus ona single group, Asian Americans are more effectivelyaddressed as separate nationalities. Charles Schwab & Co., forexample, produces separate marketing brochures forCantonese- and Mandarin-speaking Chinese, MandarinspeakingTaiwanese, Taiwanese-speaking Chinese, and clientsoriginally from Hong-Kong. This tailored approach letsSchwab speak to present and potential customers in a moreintimate and individualized manner.Global DemographicsWhile demographic-driven opportunities at home are formidable,they will be dwarfed by potential sales in the rest of theworld. After all, the U.S. population of 270 million represents|104

The Market Rulesonly about 5% of the world’s 5.7 billion potential consumers.Today, about 20% of world output is produced and consumedin global markets. Within 30 years, this total will rise to80%, according to McKinsey & Co. 32 “As such markets emergein food, healthcare, telecommunications, the mass media,accounting and many other industries, the profit opportunitieswill be reckoned in the hundreds of billions of dollars,”McKinsey adds. “Companies will have access to the most talentedlabor, the largest markets, the most advanced technologies,and the best and cheapest suppliers of goods and services.”Before counting on all those potential profits, however,companies should note one important McKinsey caveat. Inthis unfolding cornucopia, “every business will have to competewith the best, and integrating markets are volatile anduncertain.”Brainpower and New WealthAs already noted in Chapter Three, all this internationalintegration of markets is the latest acceleration of an oldpattern of human history. Now, technology is driving the nextwave of change.Wealth creation traditionally grew from efficiency andeconomies of scale in the production of goods and services.A bigger steel mill or auto plant was once the key to outproducingand outperforming your competitors. Today, size andlocation matter far less, and the smaller high-tech companyrunning on brainpower often has the competitive advantage.India’s new generation of software engineers who are creatinga whole new industry is only one example.U.S. Companies Positioned to WinFortunately, American companies are well positioned in theemerging battle for world markets.Distance across two oceans was once a barrier to Americansin world trade, but accelerating technology has steadily pusheddown the cost of connecting with customers overseas. The cost(in inflation-adjusted dollars) of a three-minute phone call105 |

CHAPTER FIVE BUSINESS 2010from New York City to London dropped from $245 in 1920 to$9 in 1950 to 78 cents in 1999. Meanwhile, from 1950 to 1999,the cost of air travel fell from 68 cents a passenger mile to 12cents.Government policies still form a crucial backdrop to corporateinternational success. However, since the end of the ColdWar, leading corporate players like General Electric, IBM, andCisco Systems have been the drivers of global change.Household names like Manpower, Mobil, Citicorp, Gillette,Avon Products, Xerox and McDonald’s now have more thanhalf their assets outside the U.S. 33According to the Center for the Study of American Business,at Washington University in St. Louis, a U.S. company is numberone worldwide in 17 industries. A host of companies includingCoca-Cola, Colgate-Palmolive, Hewlett-Packard, Proctor &Gamble, Texas Instruments and 3M now get at least two-thirdsof their sales from overseas markets. Perhaps even more significant,among the top 10 companies in Fortune’s worldwide mostadmiredlist, only one (Sony) is not American. 34Smaller Companies and the Overseas MarketThe time is also ripe for small businesses to expand their horizonsoverseas. Already, about 97% of U.S. exporters are businesseswith fewer than 500 employees. All you really need to goglobal is a computer server and the ability to receive creditcards, says Mark Rosen, director of strategic alliances at theSmall Business Administrations Office of International Trade.Small companies can make initial contacts with foreign businessesover the Internet, often through trade portals sites thatconnect them with potential overseas trading partners. 35Summary and ConclusionsThe growth of the information economy has altered butnot repealed the basic principles of effective marketing.Understanding—better yet, anticipating—customerdesires remains at the heart of any effective marketing strategy.|106

The Market RulesWhat has changed are the range and depth of customerexpectations and the speed with which these higher aspirationsare spreading. People who for generations were content with—or at least accepting of—their lot in life now want more of thecomforts, conveniences and luxuries enjoyed by “the rich.”Over the coming decades, freedom, education and technologywill accelerate this “revolution of rising expectations.”Carried by a wave of demographic change, this revolutionis now opening market opportunities that barely existed a generationago. At home, the growing spending power and wealthof minority groups will change how and where companiesprospect for sales.Opportunities internationally will dwarf the growth of newU.S. markets. Exports to China alone willrise by about $4 billion a year through2005. Lower tariffs and no quotas willencourage more U.S. small businesses tojoin the China trade. Exports to Chinafrom American small and midsize firmswill probably hit $10 billion by 2005.Another irrevocable change is thepower of new technology to deliver tocustomers what they want, when theywant it and how they want to receive it.One principle mustnever be lost amid allthis change, however.In the Old Economyor New, customerloyalty is what paysthe bills this monthand next year.This capability puts a premium on speed. You will get exactlythe car you want built for you in 14 days. You’ll also get betterinformation and solutions packaged with your products andservices. From here on, the race to see which competitor pleasesthe customer the most will intensify even as competitionbecomes more transparent.For most companies, all this will represent a big stretch. Aslater chapters discuss, organization structures must be overhauledand rebuilt. Employees from the shop floor to the executivesuite must acquire a host of new skills. Technology mustbe upgraded. Vast sums of capital will be needed to keep technologyrolling, to explore new markets, to keep up with customerexpectations.One principle must never be lost amid all this change,however. In the Old Economy or New, customer loyalty is107 |

CHAPTER FIVE BUSINESS 2010what pays the bills this month and next year. Cool marketingor cutting-edge technology will never be enough to turnbutterfly customers jumping from one Web site to anotherinto true profit spinners. Sooner or later—and increasinglysooner—shareholders always demand a return for theirmoney. Then, survival and growth will hang on one issue andonly one issue: the capacity of a company to find and delivervalue to profitable customers.|108

CHAPTER SIX BUSINESS 2010The Vast ProfitPotential of ExpandingKnowledgeKEY CHAPTER THEMES■ Rising aspiration liberates a worldwide marketfor products and services.■ New knowledge revolutionizes production.■ Accelerating services fuel an unprecedented growthin productivity and jobs.■ These trends set four priorities for business:1. Redefine value.2. Add intangibles.3. Aim for perfection in quality.4. Upgrade mental-level production.

CHAPTER SIX BUSINESS 2010“Knowledge is power.”—SIR FRANCIS BACON, ENGLISH STATESMAN AND PHILOSOPHER“The newest battleground in world trade won’t bemanufactured goods, farm products or fuel, butsomething you can’t even see or touch—services.”—KNIGHT KIPLINGER, EDITOR-IN-CHIEF, THE KIPLINGER LETTERAND KIPLINGERFORECASTS.COMKNOWLEDGE AND SERVICE ARE TWIN PATHS TOprofit in an unfolding revolution in products andservices.In the 1990s, the U.S. economy expandedmore rapidly and continuously than mostexperts predicted. Even in retrospect, the cause of this expansionstirs debate. Some see demographic changes as the rootcause while others cite the increased productivity created bythe information-age economy. According to this thesis, we haveentered a new economic model in which nonmaterialresources, inherently less limited than material resources,drive the economy.Rising standards of education, expansion of democraticprinciples and growing globalization all have their advocates asprimary or secondary contributors to a prosperity that caughteven the most experienced economists by surprise. (One noteworthyexception is the Kiplinger organization, which accuratelyforecast the major elements of the 1990s boom in 1986with The New American Boom, and again in 1989 with America inthe Global ’90s). 1As was argued in earlier chapters, each of these developmentsrepresents an important but partial explanation. Themarket for products and services in any country reflects thesum total of the aspirations of people in that market. Whenconfidence rises, companies and individuals produce more,111 |

CHAPTER SIX BUSINESS 2010spend more and invest more. That situation, in turn, leads toboom times.The experience of the 1990s will, in time, seriously challengethe dogma that developed economies can grow by onlyabout 3% annually without serious inflation. In 1999, before theFederal Reserve put on the brakes, the U.S. economy was growingat an annual rate of 5.8%, on top of 5.7% and 6.5% increasesduring the two previous years. Unemployment was nearinghistoric lows. Inflation was asleep. The political debate shiftedto what to do with unexpected surpluses in government revenuesrather than how to deal with deficits. It couldn’t be happening,according to traditional economics, but it was.If this “new model” can be traced to any single event, themost likely candidate is the end of the Cold War. For 40 yearsthe U.S. economy operated on a semi-war footing maintainedwith vast amounts of our productive and research capacities.The threats posed by that struggle encouraged the expansionof a larger centralized government, which absorbed still moreresources. Some of the brightest minds of at least two generationsdevoted their energies and working careers to ensuringAmerican success in this vast and critically important nationaleffort. The sudden, unexpected lifting of a great psychologicaland resource burden ignited American optimism and faith inthe future. That release of energy, supported by all the importantforces discussed earlier, fueled the unexpected boom.Rising aspirations for a better, more comfortable life, notjust in the U.S. but around the world, have liberated a worldwidemarket for goods and services. At the same time, risingexpectations coupled with changes in demographics and newtechnologies have rearranged the positioning of virtually allproducts and services.Knowledge Revolutionizes ProductionOne continuing force driving this change is an acceleratingrate of expanding knowledge. Rapidly expandingknowledge revolutionizes production in every ageand in every field.|112

The Vast Profit Potential of Expanding KnowledgeEighteenth-century Enlightenment gave birth to the modernvision of man dominating the natural world throughknowledge and reason. Visible results included a period of scientificexperimentation and the Industrial Revolution, whichstarted in the English Midlands in the 1770s.Mechanization of production through application ofknowledge quickly gave birth to rising expectations andunprecedented prosperity. Between 1780and 1860, British income per head doubled.As a new nation with an optimistic view ofthe future, the U.S. eagerly adopted thenew manufacturing and transportationtechnologies. By 1900, the U.S. producedenough economic surplus to devote 18% ofits workforce just to creating and distributingknowledge in office jobs. That percentagekept rising all though the 20th century.By 1970, the U.S. could afford to have asMechanization ofproduction throughapplication ofknowledge quicklygave birth to risingexpectations andunprecedentedprosperity.many people working in offices as in our factories and farmscombined. That growth was one reflection of the shift in ourlabor force toward more knowledge work—a trend that continuesto accelerate. For example, between 1996 and 2006, thenumber of database administrators, computer support specialists,computer engineers and systems analysts will double.In contrast, precision production jobs will grow only 7%.The power of knowledge to transform production is aworldwide phenomenon. New agricultural knowledge createda Green Revolution, lifting crop production to previouslyundreamed-of levels in India and elsewhere. The introductionof computers changed manufacturing processes in industriesthroughout the world.In 1973, Daniel Bell named the emerging era when hecalled his seminal book The Coming of Post-Industrial Society.Bell noted that, from here on, “what matters is not rawmuscle power, or energy, but information.” Bell’s insightgrows truer every year. We are accumulating knowledge andinformation at a dizzying rate. Scientific knowledge doublesevery decade. Our pool of business information expandseven faster.113 |

CHAPTER SIX BUSINESS 2010Pioneers Reap the Richest RewardsTwo significant technological revolutions undergirdtoday’s knowledge explosion. The communications revolutionovercomes distance as a barrier. Meanwhile,computers accelerate the speed with which we organize anddistribute knowledge. These twin forces are creating the socalledInformation Age. Regions and producers who mostquickly and effectively stay on top of these technologies reapthe richest benefits.The introduction of electricity early in the 20th centuryprovides a parallel insight into today’s extraordinary opportunity.When Ezra F. Scattergood became chief electrical engineerof Los Angeles in 1909, he set out to make California thefirst “all-electric state,” notes historian PaulThe introduction ofelectricity early inthe 20th centuryprovides a parallelinsight into today’sextraordinaryopportunity.Johnson. By 1924, 83% of the homes inCalifornia had electrical wiring, versus 24%nationally. Nationally, the cost per kilowatthouraveraged $2.17. In California it was$1.42. The state boasted one of the first, allelectrictransport systems—the PacificElectric, which ran for 1,164 miles, tyingtogether 42 incorporated cities and townswithin a 35-mile radius of central LosAngeles. The huge, thundering electric engines are gone now,familiar only to fans of early movies because they appear inmany Keystone Kops and Laurel and Hardy short films.However, the Los Angeles freeways even today follow PacificElectric routes. Cheaper power helped turn SouthernCalifornia into the world center of the new movie industry.Low-cost electricity fueled the continuing California boomthrough the 1920s and difficult ’30s. It gave the state a powerfulinfrastructure advantage for war production in World WarII and for the subsequent growth of the economy.Further north, in Seattle, J. D. Ross, a Scattergood disciple,preached the virtues of cheap electricity the way some businessleaders tout the virtues of cheap computing today. Ross wasright. By the 1930s, Seattle had more electric ranges than anyother American city. A few years later, its electrical base enabledit to share in the wartime industrial expansion, laying the foun-|114

The Vast Profit Potential of Expanding Knowledgedation that today makes it a center of the U.S. aviation andhigh-tech industries. 2The Roots and Projected Growthof the Technology RevolutionEven with the backing of visionaries, electrification tookdecades. Today’s pace of technological progress justdoesn’t seem far faster than that—it is. Now almost allknowledge workers in the U.S. have networked personal computerson their office desks. Fifteen years ago, such networkswere rare. In the early 1990s, the Internet was cutting edgetechnology; now it is routine. Households that account for twothirdsof the purchasing power of the domestic economy wereexpected to have home connections to the Internet by the endof 2000. The pace of change toward more accessible, fasterinformation technology continues unabated. By 2010, Webenabledinformation appliances—personal digital assistants,intelligent automobile options, wireless phones—are expectedto outsell PCs by a factor of 10 to 1. 3The accelerating impact of the information revolutionspawns a far greater and wider technology revolution in adozen fields, says management professor William E. Halal. Adecade ago, Halal launched the George Washington University(GWU) Forecast of Technology and Strategy. The Forecasttracks about 100 emerging technologies in fields such as transportation,medicine and farming. Periodically, the Forecastgathers expert panels to predict when each technology willmost likely enter the mainstream in the next decade. In selectingits 10 potential breakthroughs (see box), the expertsattempt to identify not just technological breakthroughs, butdevelopments that will have significant economic potential andsocial impact.Halal argues that the speed-up in technology rests on atleast three related trends, all linked to information technology:1. Scientists and engineers worldwide are using sophisticated informationnetworks to share their work much more quickly.115 |

CHAPTER SIX BUSINESS 2010BOX 6-1 The Top 10 Emerging TechnologiesThe George Washington UniversityForecast of Technology andStrategy in June 2000 selectedthe 10 technologies listed belowas the most likely candidatesfor important breakthroughs inthe next decade.1. Portable information devices.The GWU panel of experts forecastthat these appliances, which combinethe computer, the Internet,television and the telephone, willbe used by at least 30% of thepopulation in developed nationsby 2003.2. Fuel-cell technology. Toyota,Ford, and DaimlerChrysler planto introduce fuel-cell autos by2003–04, although the carsare still likely to be experimental.Despite the high potential of abreakthrough in fuel cells,many technical and economicobstacles remain before sucha sophisticated technology willbe commercially viable forcommon use.3. Precision farming. Satellitedata sent directly to a tractor’scomputer controls the amountsof irrigation water, seed, fertilizerand pesticides to optimize landproduction yard by yard. Today,farm equipment manufacturerssell precision farming systems onstandard tractors as an optionalextra. The GWU panel projects thatin 10 years all farmers will usethis technique, which offers aviable way to increase crop yieldson limited farmland.4. Mass customization. DellComputer provides people withthe precise machine they want,delivered in three days, at adiscount. (Mass customizationis the tailoring of a mass-marketproduct to individual customerneeds, as compared with massproduction, which is the manufactureof exactly the same productfor a mass market.) As Dell recognizedearly, the Internet makes itfar easier to get customers to participatein this kind of transaction.5. Teleliving. Even now, homes,autos, and offices are being wiredinto linked, intelligent networksthat work together. Companiesare already embedding 4 billionchips every year in everythingfrom coffee makers to Cadillacs.Increasingly, wireless networks willlink disparate electronic devices.6. Virtual assistants (VA). TheGWU expert panel envisions asmart program stored in yourPC or portable information devicethat monitors your e-mail, faxes,messages, computer files andphone calls. Eventually, this virtualassistant could take over routine|116

The Vast Profit Potential of Expanding Knowledgetasks like writing a letter, retrievinga file, making a phone call orscreening people.7. Genetically altered organisms.While resistance to geneticallymodified (GM) food appears tobe increasing in the West, alleviatinghunger globally will requireimproved yields in crop and animalproduction. The GWU expert panelforecasts that in the next decademore nations will opt to risk dangersto gain the benefits of plantsthat resist disease, grow faster,produce their own fertilizers andcontain more nutrients.8. Computerized health care. Thehealth care industry has lackedthe interconnected hardware andsoftware for the type of major computerizationthat has changedbusiness operations over the pastdecade. All that could change asmore integrated computer systemsimprove medical record keeping,prescription fulfillment, monitoring,self-care and almost all otherfacets of medicine. Smart chipsin a more computerized healthcare system can provide a completerecord of patient history frombirth, replacing the paperwork thatinvariably seems to get lost whenpatients transfer from one providerto another. Computerized diagnosticsystems can exceed the knowledgeavailable to many physicians.9. Alternative energy sources.Carbon-based fuels will continuetheir dominant role in industrialsocieties, but alternative energysources will probably increase from10% of all energy use at presentto 30% by the end of the decade.Included in this forecast are wind,geothermal, hydroelectric, solar,biomass and other alternativeenergy sources. Technologicaladvances are bringing down thecosts of alternative energy sources.In 1998 the cost of wind andhydroelectric power approachedthat of oil, coal and gas.10. Smart, mobile robots. Robotstoday lack sensory devices andsophisticated artificial intelligencesystems. The GWU panel estimatesthat by the end the decade, robotswill be commercially available toperform more sophisticated factorywork, run errands, do householdchores and assist people withdisabilities.Source: William E. Halal, “The Top 10Emerging Technologies: Researchers atGeorge Washington University ForecastComing Technological Breakthroughs,”originally published in the July–August2000 issue of The Futurist. Used withpermission from the World Future Society,7910 Woodmont Avenue, Suite 450,Bethesda, MD 20814; 301-656-8274;301-951-0394 (fax); http://www.wfs.org.117 |

CHAPTER SIX BUSINESS 20102. In every field, researchers can now use far more powerful computersand instruments.3. As industrial work yields to knowledge work, the sheer number ofresearchers in every field is expanding rapidly.The pace of innovation in information will accelerate evenfaster in the years ahead, according to Halal’s Forecast panels.For example, they project that optical computers, operatingon light waves rather than electricity, will replace currentcomputer technology within 20 years at the most. The GWUpanels estimate that, as chip circuits shrink to one moleculewide, today’s computer technology will reach its limit in adecade or so and be able to miniaturize no further. Theoptical computer, using light—the fastest known power in theuniverse—is likely to be the next major evolutionary step.One thousand times faster than today’s electronic models,optical computers may be commercially available by 2015.Much of the infrastructure for computing with light isalready in place. Fiber-optic cables provide high-speed transmissionlines, lasers serve as modulating devices and CDs allowhigh-capacity optical storage. At present, Halal says, more than3,000 companies are hard at work trying to create optical computerbreakthroughs. 4Accelerating Services FuelOur Job GrowthThe acceleration of services is another force reshapingthe patterns of what and how we buy and consume.This change has fostered nearly as many myths as thereare theories behind our recent astonishing growth. One fact isindisputable, however: The service sector is now our greatestengine for job creation.More than 30 years ago, Peter Drucker identified a majortrend in the American economy: Increasingly, organizationswere creating new jobs far faster for people who manipulatedknowledge than for people who manipulated physical things|118

The Vast Profit Potential of Expanding Knowledgesuch as industrial machinery. Now, this growth of servicejobs—in fields such as insurance, the media, government,public affairs, publishing, securities trading, education, leisureactivities and health care—dominates our economy.Twenty years ago, people feared this shift, warning that wewould end up as a nation with no jobs except service jobs likeflipping burgers and cutting hair. I remember the astonishmentof a friend who retired 15 years ago to SouthernCalifornia after a long and successful manufacturing career inthe Midwest, who commented, “Nobody out here makes anything,but they all seem to have plenty of money.” While attitudeshave evolved slowly, most business leaders now fullyunderstand that offering an intangible service can create asmuch economic value as producing a tangible product, andsometimes even more.What has occurred since then is not so much a declinein agricultural and manufacturing jobs as an acceleration ofservice jobs. Between 1975 and 1996, the total number of U.S.jobs in agriculture and manufacturing remained fairly steady.However, during that period the American labor force grewby slightly more than 60%. Virtually all the new jobs were inthe service sector.Changing societal aspirations account for much of thisshift. Aspiration does not decline when people meet their basicneeds—for food, shelter and security. A whole new level ofwants and desires kick in. As your level in life rises, look howmuch larger a share of your income goes to entertainment,travel, and services to improve your health, to provide bettereducation for yourself and your family, or to make your lifemore comfortable or pleasant.Purists may deplore this all-too-human tendency for needsto escalate. They may even embrace a simpler style of life—a choice that most of us in an economy of abundance can lookupon with indulgence and perhaps even admiration as long asit remains a distinctly minority choice. High-pressure urbanprofessionals seeking to unwind by taking a vacation in a bucolicarea provide a good illustration of this dichotomy in ourthinking. As one such vacationing professional said to me:“I love it here, the way everybody is so centered, so laid back.119 |

CHAPTER SIX BUSINESS 2010I’d move here tomorrow except the service is so slow.”Despite contrary evidence, some critics still argue stronglythat the shift to service jobs is harmful because too manyservice jobs are low-pay, low-benefits, low-skill dead-ends. Infact, the accusation of physical drudgery, low skill requirementsand barely subsistence wages canContrary to thelow-skill, low-payargument, some of thefastest-growth sectorsof the service economyrequire high skill andoffer high pay.be leveled as accurately at many manufacturingfactories and farms in the U.S.and abroad.Contrary to the low-skill, low-payargument, some of the fastest-growthsectors of the service economy requirehigh skill and offer high pay. Theseinclude jobs for software engineers,technical support staff, financial analysts,scientific researchers, marketers, logistical experts, educatorsand medical practitioners.Even within the manufacturing and agriculture sectors,many of the new jobs rise above physical drudgery. These newagricultural and industrial jobs are service-related, supportpositions such as sales and customer service, research engineering,and the programming and maintenance of sophisticatedmachinery.Services: More Exponential Growthin ProductivityThe historic advance from land-based agriculture tomachine-based manufacturing produced exponentialgrowth in human productivity, employment opportunities,incomes and living standards. We are already seeing thatthe move from machine-based manufacturing to informationbasedservices represents the next important evolutionary stepat home and abroad.The physical barriers that constrain both manufacturingand agriculture count for far less in services. Work, employment,money and accumulated wealth are all expressions ofhuman productivity. In agriculture, human productivity is|120

The Vast Profit Potential of Expanding Knowledgetraditionally tied to and limited by land. In industry, the traditionallimiting factor is the capacity of mechanical processes. Inservices, human energy relates to and releases the energy inother humans. The fact that human energy is virtually unlimitedsuggests that the further evolution of services will continueto generate higher living standards and more abundantemployment in every society. It also suggests that as the traditionalindustrial and agricultural sectors become more linkedwith the information and service sectors, the traditional sectors,too, will create new opportunities for growth and higher livingstandards although their net employment of people relative toservices will continue to decline.To understand the job growth that will continue to comein services, let’s look at three important service-sector industries—education,health care and tourism.The Education Job EngineEmployment in education soared in the 20th century but hasyet to approach a saturation point in any country. Since 1900,the number of teachers in the U.S. has grown fivefold.Between 1994 and 2005, total employment in noncollegeteaching positions is projected to increase by nearly 30%; forcollege teaching positions, the projected increase is 18%.Behind this growth is an increase in the number of schoolagechildren and a mounting demand for qualitative improvementin education. Experienced teachers are now in suchdemand in San Francisco that the city is building federally subsidizedapartments for teachers who can no longer afford BayArea housing. 5 The push for quality shows in macro classroomnumbers as well. From 1960 to 1995, the average studentteacherratio in the U.S. dropped from 26.4 to 17.Internationally, the growth of education as a job machineis poised for a spectacular takeoff. Student-teacher ratios inmany developing countries are 60 or 70 to 1. Given the risingdemand for education as well as projected demographicgrowth in these countries, just reducing the ratio to anywherenear the U.S. level would create millions of new jobs, withresulting increases in incomes and living standards.121 |

CHAPTER SIX BUSINESS 2010The Health Care Boom AheadIn coming decades, modern health care, now available to lessthan a quarter of humanity, will be another fast-growing serviceactivity. Between 1980 and 1995, the number of peopleemployed in the U.S. health care industry nearly doubled(from 5.3 million to 9.3 million). In the last 25 years of the 20thcentury, the ratio of nurses to population doubled.Even after assuming the growth of computerized healthcare in the years ahead, demographic trends will fuel evenfaster increases in health care jobs. As the baby boom ages,average life expectancy will rise from 79 years to 84 for womenand 74 to 80 years for men. The demand for assisted-care lodgingand other geriatric medical services will increase rapidly.The biggest generation in our history will have the politicalclout to ensure that government policies and expenditures supportthis demand.Once again, the potential growth of jobs in the developingworld is more striking yet. The ratio of physicians to populationin Western Europe is roughly 10 times as high as the ratio inIndia, 40 times as high as that in the Philippines, and 50 timesas high as that in Bangladesh. Bringing those ratios upthroughout the developing world will create millions of newjobs in the health care industry alone.Achieving such phenomenal growth in education andhealth care jobs can be accomplished without the supply anddemand limitations imposed by agriculture and industry. Thekey factor in the growth of these service industries—humanresources—is available in great numbers in every developingcountry. Given the will, the technology to leverage thatresource is readily available.The Expanding Global Leisure BusinessThe tourism and hospitality industry is already among thelargest sources of global employment, yet the scope for futureexpansion is enormous. Increasingly affluent societies, andparticularly their healthy, wealthy retirees, will create new jobsrelating to leisure, entertainment and travel.Examples include more jobs in hotel, restaurant, resort and|122

The Vast Profit Potential of Expanding Knowledgeclub management; travel planners and tour guides; airlineoperations people; film and music production; golf coursedesign and maintenance; live entertainment management; andsports management. In the U.S., employment in the entertainmentand recreation industries has tripled since 1975.Employment in retail food-service establishments grew by 50%between 1980 and 1995.Production Amid the Shift FromPhysical to Mental Technology:Four Priorities for BusinessExpanding knowledge and service are overriding themesin the ongoing revolution in what is bought, sold andpaid for around the world. One basic challenge forproducers of goods and services today is to stay on top of theaccelerating shift from physical to mental technology. Thistransformation changes the way producers must organize, aswell as the requirements for recruiting, retaining and motivatinga 21st-century workforce, that is, harnessing the energy ofhuman resources. The chapters that follow will focus on organization,capital and people. This chapter, however, focuses onthe implications of the change to mental technology on howcompanies produce, distribute, and sell products and services.For every product the new question is, What knowledge orinformation does it convey, either inherently or indirectly? Forevery delivery system or channel—whether it is direct mail, anindividual salesperson or the Internet—the key question is nolonger just what product will we deliver, when and at what cost,but also how can we provide better, faster, more complete serviceto support that product?Given the magnitude of these changes, every product orservice development and marketing team must ask four basicquestions:1. Have we rethought our definition of value? If we are delivering aproduct with no distinction except price, we have becomea commodity producer, the toughest possible position to123 |

CHAPTER SIX BUSINESS 2010defend in a market in which pricing is becoming increasinglytransparent. We need to ask, What else, beyond the productitself, does the customer consider of value?2. How can we add more “intangible” value to our product or service?3. In building quality into our product or service, are we keeping up with—or better yet anticipating—customer expectations?4. How well do our products, services and production systems reflect theaccelerating shift from physical to mental technology?The remainder of this chapter discusses how a few representativecompanies are answering these questions today.Rethinking Your Definition of ValueMichael Dell, founder of Dell Computers, says we areall now redefining value. “There used to be valuearound inventory; now there’s value around information.”Dell’s point is that many businesses still tie up largeamounts of their assets in inventory to ensure that they canhandle a rush order from a key customer. Traditionally, theyconsidered those huge inventory costs as a business necessityor perhaps even as a competitive advantage in dealing withcustomers. Also, large inventory surpluses were often theresult of inefficiencies in the production processes. Withtoday’s more transparent pricing, however, customers see noreason pay for inefficiency or for the costs of financing, producingand storing all that surplus inventory. That leaves thesupplier with higher costs and lower profit margins.Dell operates with six days’ worth of inventory, comparedwith about 60 days for its competitors. That practice translatesinto faster service for customers, because Dell has used moreeffective information to narrow the gap between what the customerwants today and what is on hand at the moment to fillthe order.Dell is able to control its inventory by using informationtechnology to stay in close touch with suppliers who provide itscomponents. Technology enables the whole Dell productionsystem, including suppliers, to operate in “real time” rather|124

The Vast Profit Potential of Expanding Knowledgethan the older model “planned time,” represented by stacks ofinventoried component parts waiting for orders to come in.Also, because the value of computer components declines overtime, Dell does not have to charge the customer for parts purchasedearlier at higher costs.The new principle, says Michael Dell, is “an inverse correlationbetween the quality of the information you have and theamount of inventory you need.” That is, the higher the qualityof the information you have, the less inventory you need. Toomany businesses still tie up assets anticipating things that maynot actually happen, says Michael Dell. “If they had a systemthat was customer-demand driven, they would be much moreefficient in their assets.” Put another way, intellectual assets nowtrump physical assets. Not all physical businesses are therebydoomed, however, but any business that was originally built orpredicated on physical assets must now reconsider its basis.Just being physically close to your customer is no longer anautomatic advantage, for example. We will still go to nearbyrestaurants we like for a good eating or social experience.However, five years from now, how many of us will stand in lineat a drugstore to buy embarrassing items?If you are going to continue in a physical business, saysMichael Dell, “you’ve got to deliver something that is morevaluable than can be delivered online.” 6‘A Fundamental Rethinking of theNature of Disease’Rethinking value can prompt a company to reinvent itself andcreate a new vision of its future. That’s been a continuingtheme at Medtronic, Inc., the Minneapolis company Earl E.Bakken and his brother-in-law founded in Earl’s garage in themid 1950s. The company began by repairing medical electronicequipment for hospitals and research labs. The firstmonth’s sales were $8. Then, in 1957, Earl patented the firstwearable external heart pacemaker. Two years later, the companyhelped develop the first implantable pacemakers.By the mid 1990s, Medtronic was selling nearly $2 billionworth a year of a product line built on pacing technology, but125 |

CHAPTER SIX BUSINESS 2010including other types of medical devices. By the end of 1999,the company had sales of $5 billion, and its 24,000 employeesserved physicians and patients in 120 countries.In January 2000, Medtronics chairman and CEO BillGeorge announced a “new vision for Medtronic.” By 2010, hesaid, Medtronic aims to become “the world’s leading medicalThe source of thatnew-found power forpatients? Abundantinformation via theInternet and theexpectation thatpeople will havegreater influence inmanaging their health.technology company, providing lifelongsolutions for people with chronic diseases.”The new Medtronic strategyclearly grows out of trends discussed inthis book: rapid technological change,aging populations, rising expectationsfor a better life, a better-educated public,and international opportunities.Focusing on how such changeswould affect Medtronic’s future persuadedthe company’s leaders to redirectits product strategy. Today, Georgeexplains, “Medtronic products treat patients in relatively latestagedisease . . . as a series of acute events.” With its new focus,Medtronic will provide products for more holistic treatments“from wellness through diagnosis to the treatment ofadvanced disease.”Medtronic Vision 2010 is based on the premise that healthcare in the new century “will be radically transformed by the risingpower of the patient and the consumer.” The source of thatnew-found power? Abundant information via the Internet andthe expectation that people will have greater influence in managingtheir own health. Already health care information sites areamong the Internet sites most frequently visited on the Internet.One way that Medtronic will seek to capitalize on thischange is by enhancing the “direct connectivity” betweenpatients with chronic disease and their specialists. Medtronic isjoining Microsoft and IBM in a project to connect patients athome with cardiac physicians’ offices around the world via asecure Internet connection. As now envisioned, a monitortransmitterwould download information from a patient’s cardiacdevice even while he or she slept at home. In effect, thesystem would provide a house call over the Internet.|126

The Vast Profit Potential of Expanding KnowledgeWhat’s required, says George, “is a fundamental rethinkingof the nature of disease itself and the organization of healthcare to address the diseases that are prevalent today....”Today’s primary-care system is well equipped to handle a widevariety of acute diseases, but the system is not nearly effectiveenough in disease prevention, especially in addressing theneeds of the whole person—body, mind, heart and spirit.The next real revolution is neither genetic therapy norbioscience, important as they will be, George insists. What willmost shape the future of healthcare—and Medtronic—is empowerment of the patient. 7 By focusing on the changingexpectations of patients, Medtronic is redefining the value itprovides to its customers.Adding ‘Intangibles’to Your Product or ServicePoliticians lament the declining importance of manufacturingjobs in our economy. Businesspeople, however,should understand this decline as the inevitable andhealthy result of economic development. We don’t complaintoday that 3% of the American workforce can produce all thefood we need and then some. Americans in the future won’tlook back with nostalgia to a time when most of our workingpeople were employed as manual workers in factories.“Every offer [of service] has both a tangible and intangibleeconomic value,” according to consultants Stan Davis andChristopher Meyer of Ernst & Young’s Center for BusinessInnovation. 8 For example, the tangible value of that high-endmultimedia entertainment center you purchased from a specialtyaudio-video dealer is the physical entertainment centeritself. The intangible value consists of the service and informationprovided by the technicians who came to your house to setit up in exactly the right place for the best possible performance.You might have received the same tangible value bypurchasing the same or similar entertainment center from alarge super store, but you probably would not have received127 |

CHAPTER SIX BUSINESS 2010the intangible value. You would most likely have had to put thepieces of the entertainment center in the back of your car at thestore’s loading dock and have had to try to figure out theinstructions for putting it together from the manual at home.The key question for any supplier today is how to identify anddeliver an intangible value that will win customers while stillselling at a competitive price.Davis and Meyer see a “meltdown of all traditional boundaries,”in which products and services are merging. They notethat product cycles are a fraction of what they used to be becauseof rapid obsolescence through advances in technology. Whenselling the same product to the same customer every six months,the consultants ask, doesn’t the business begin to qualify as a servicebusiness? For example, computer software updates are nowdelivered over the Web ready for customers to download. Bytraditional definitions, is that a product or a service?“The intangible portion of the economy has grown quietly,altering how we see the world without calling too much attentionto itself,” Davis and Meyer continue. In their book Blur:The Speed of Change in the Connected Economy, they note thatintangibles now appear in four forms:1. Services, which have dominated the economy for decades, arethe most familiar. They include everything from barbers tobrain surgeons.2. Information, including specialized knowledge in databasesabout customers’ likes and dislikes as well as comparativeinformation on how to get the best price for that applianceyou are thinking of buying.3. The service component of products, which includes after-saleservice and the opportunity to create the product you wantthrough computer simulation.4. Emotions, the intangible that Davis and Meyer define as “thetrust and loyalty that people feel for a brand, the prestige conveyedby a label, the attraction exerted by a celebrity. . . ”endorsement of a product. 9IBM Shifts to ServicesThis intangible portion of the economy is now growing much|128

The Vast Profit Potential of Expanding Knowledgefaster than the market for physical products. Throughout the1990s, companies were repositioning the value they offer totheir customers to respond to this change. A cornerstone ofIBM’s remarkable recovery is its emergence as the world’slargest provider of information technology(IT) services, rather than primarily as amanufacturer of office products.In 1999, IBM’s customers bought newIT service contracts worth more than $38billion. Meanwhile, Big Blue’s backlogof IT service engagements (work the companywill do and be paid for in 2000 andinto the future) grew by 18%, to more than$60 billion. In 1999, IBM’s revenue in e-business services alone increased by 60%,to more than $3 billion. 10 IBM’s service business has evolvedfrom consulting with customers about which computers andsoftware to purchase, to advising corporate clients on how toestablish and maintain their e-commerce businesses.Alliances are a major part of IBM’s strategy to expand itsreach into information technology services. In June 2000, thecompany signed deals with eight Internet consulting companiesto provide technology and support for businesses buildingwireless Internet services for mobile e-commerce. 11The key question forany supplier today?How to identify anddeliver an intangiblevalue that will wincustomers whilestill selling at acompetitive price.Home Depot’s Personalized StrategyHome Depot, a retailer of products for building contractorsand the do-it-yourself market, recently added a service componentto its sales strategy. Small contractors, who are HomeDepot’s most valuable customers, now get a password to log onto a site full of valuable information and solutions. For example,when builders enter details of their jobs, the Web site tellsthem what materials they need, how to schedule the work andwhat difficulties they may encounter. 12The company even offers loans for up to 10 years to helpcustomers pay for its goods. Starting in the fall of 2000, creditlines from $3,000 to $30,000 were available in all 900 HomeDepot stores in the U.S.129 |

CHAPTER SIX BUSINESS 2010Services Take Off at GE Aircraft EnginesAdding services can sometimes help a company overcome businesssetbacks in traditional products. GE Aircraft Enginesdecided to enter the service business in the early 1990s amidcutbacks in defense spending and a recession that hurt commercialcustomers. Pressure mounted as some commercial airlinesfiled for bankruptcy. Surviving airlines wanted more valueWelch’s initiativeturned the companyaway from the“wrench-turning game”toward providingservices to helpcustomers becomemore productive.and longer life from the engines they hadalready purchased.The push to services accelerated in1995 when GE’s CEO Jack Welch urgedall senior executives to optimize their servicepotential. Before then, product developmentwas the main job of GE’s hugecorps of engineers and scientists.According to CEO Jack Welch: “The bestand brightest of these wanted to work onthe highest-thrust jet engine, the fastestmedical scan or the leading-edge electrical turbine design.Product services consisted of less exciting maintenance of ourhigh-value machines—turbines, engines, medical devices andthe like.”Welch’s initiative turned the company away from the“wrench-turning game” toward providing services to help customersbecome more productive. In 1995, when the initiativewas launched, GE derived $8 billion a year in product servicerevenues. In 2000, the figure was projected at $17 billion. 13Selling ConvenienceConvenience is another popular intangible. We are all pressedfor time, and we favor those businesses that make it easier forus to buy. We also favor those that provide useful auxiliary services,particularly services we find unpleasant. Today you canhire pet sitters, house sitters, party planners, closet organizers,yard workers, personal fitness trainers. The nation’s largestmaid service companies—Maid Brigade, Inc., in Atlanta; theMaids International in Omaha, Neb.; Molly Maid in Ann Arbor,Mich.; and Merry Maids in Memphis, Tenn.—are all expand-|130

The Vast Profit Potential of Expanding Knowledgeing. “There is so much business out there, most of our [franchise]owners have waiting lists for customers,” says Molly MaidPresident Linda Burzynski. 14Kodak has an online service called PhotoNet. Pay anextra few dollars when you drop off your film and the nextday when you get your prints back, your photos will also beposted at the PhotoNet Web site. You can then download theimages on your PC, send them to friends as e-mail attachments,or use them to decorate greeting cards, coffee mugs,T-shirts or other trinkets.Traditional grocery chains were built on price and one-stopshopping. Now new e-retailers such as Peapod, Inc., orGrocer.com enable consumers to transfer themselves with aclick to their favorite market’s front door. These virtual storesusually promise delivery in 24 hours within a half-hour window.In providing this convenience, these entrepreneurialcompanies were following a clearly defined social trend. AnAmerican Demographics survey of the “top 10 most-dreadedchores” found that 65 percent of Americans strongly dislikedgrocery shopping. 15The Internet also offers traditional retailers new waysto feature a higher level of convenience. 1-800-Flowers wasbuilt on the convenience of placing same-day orders by phonefor bouquets, gift baskets, plants, and balloon arrangements.The company created an interactive division as early as 1992.It established its presence on America Online in 1994, and createdits own Web site the next year. 1-800-Flowers’s onlinereminder service uses sophisticated technology to alert customersto upcoming birthdays and holidays. 16Bookseller Barnes & Noble is also using the Internet tomake one of its established marketing tools more convenientfor customers. For some years, the company has broughtcrowds to its stores by offering free author lectures. The companyis now working with powered.com. to offer free Webbasedcourses to bring people to its site and encourage themto buy its books and other products. 17 Powered.com, formerlynot.Harvard.com, was established in 1999 to create privatelabeluniversities for organizations seeking to attract moree-commerce customers.131 |

CHAPTER SIX BUSINESS 2010Retail Imitates the NetMeanwhile, retail life is aiming to imitate the 24-hour, sevendays-a-weekInternet. In March 2000, 13 of Washington, D.C.’sHome Depot stores went round-the-clock. Also in the capital,seven of Kinko’s eight photocopy stores are open day andnight. Super Kmart stores also are staying open 24 hours.Some experts predict the coming of the 24-hour shopping centers.To be sure, there is a price to be paid for the round-theclocklifestyle. “The big question becomes ‘When does workend and play begin?’ You feel like you are always on,” saysCathy Rusinko, who teaches classes on management in the 21stcentury at Philadelphia University. “In one way or the other,I’m bemoaning all this,” Rusinko told The Washington Post, “buton the other hand, when I want to go to Home Depot at 11 P.M.,or the supermarket or Kinko’s at midnight, I’m almost indignantif these places aren’t open. 18Retail developers have also picked up signals from consumersthat they want a speedy shopping experience, not theentertainment and browsing often associated with enclosedsuburban malls. Drugstores are opening free-standing storeswith drive-in windows in inner-city locations. Movie theaters, akey component of many enclosed malls, are choosing sites awayfrom malls to build multiplex facilities offering tiered, stadiumtypeseating.Developers will not sit still and watch their customers leave.To facilitate their customers’ shopping, they will latch onto the“streetscape” trend that is already part of downtown revival andcreate new “suburban downtowns.” Inward-facing malls built 20to 30 years ago today typically house the clusters of big-boxstores meant for browsing. With the new emphasis on convenience,these malls will be overhauled to provide more open air,new signage, and new entrances to let customers skip the wholemall experience and rush to their destinations quickly. 19To be sure, other developers are seeking to trump pureconvenience by combining that value with another customeraspiration—bigger and better entertainment. In a state thatboasts Mount Vernon, Monticello and a host of Civil War battlegrounds,Potomac Mills, situated in Prince William County,is quickly becoming Virginia’s biggest tourist attraction. In|132

The Vast Profit Potential of Expanding Knowledge1999, the Mall attracted 24.3 million visitors, a third of themfrom more than 50 miles away. The same developer, MillsCorp., opened the $230 million Arundel Mills project nearBaltimore in November 2000.We want to be “so compelling that people would payadmission to get in,” says Mills Corp. chairman Laurence C.Siegel. Among the attractions, Bass Pro Shops features fishingdemonstrations in its huge fish tank. Sun & Ski Sports offersrock climbing. The Nascar “speedway” features simulators. A24-screen movie complex evokes the early days of movie theatres.The mall provides a variety of food service—everythingfrom fast-food restaurants to white-tablecloth establishmentswith outdoor dining. 20The Southwest Airlines AdvantageSouthwest Airlines has sold convenience as a benefit to its customerssince its maiden flight in 1971. The company introducedself-ticketing machines in 1979. By 1995, Southwestoffered ticketless travel systemwide. The Southwest RapidRewards frequent-flyer system creates a competitive advantageby increasing the convenience of a benefit now offered byvirtually all airlines. It awards points based on the number oftrips taken, not miles flown. Award tickets are fully transferable—toanyone you choose. There are few blackout dateswhen ticket recipients can’t use them. The program receivedthe travel industry’s 1998 “Best Award Redemption” for theease of earning and using Rapid Rewards Tickets.Keeping Up With—or Anticipating—Rising Expectations of QualityIn barely more than a decade, American consumers havecompelled companies to shift from a search for excellenceto the pursuit of perfection.In a slower-paced, less-demanding world, keeping up withthe competition was a serviceable standard. Today, as the race133 |

CHAPTER SIX BUSINESS 2010to better quality at lower cost enters a new dimension, the oldtarget defines mediocrity.Whereas the old business slogan was, “If it ain’t broke,don’t fix it,” today’s slogan should be, “If we ain’t fixed it lately,it’s liable to break.” Thus, there remains a role for continuousimprovement programs such as “Kaisan,” a system originatingin Japan that offers techniques for continuous incrementalimprovement of production processes in accordance with suggestionsfrom front-line employees. Another program growingin importance is “ISO 9000,” the international quality systemthat measures a company’s adherence to specific proceduresand standards. However, as pressure on margins increases, anysystem that defines quality strictly by conformity with standardsestablished inside the company can no longer guarantee successin the marketplace or ensure an improvement on the bottomline. The old question was, Did we produce and deliver thisproduct or service in conformity with our standards? Today’squestion is, Did we produce and deliver this product or servicein conformity with the customer’s expectations?”The built-in limitation of most quality programs is thatthey focus too heavily on internal improvements, particularlyimprovements in making and delivering products and services.Customer expectations today go far beyond the effectivedelivery of a quality product. Too often, even good companiessettle for 98% conformity to an internal production standardwithout realizing that the other 2% of performance is whatreally annoys the customer and reduces customer loyalty.That last 2% may be a four-hour delay in a delivery that animpatient customer awaited at home. It might be a delay ina follow-up service call to fix a small glitch in an expensivepiece of machinery—a delay caused by a technician whoneglected to bring the right part.Companies like Motorola, GE, Honeywell and Polaroidhave become strong proponents of a system known as SixSigma. The goal of this management strategy goes beyond justimproving quality. It aims to improve profitability, even thoughimproved quality and efficiency are immediate by-products.“Six Sigma is about asking tougher and tougher questionsuntil we receive quantifiable answers that change behavior,”|134

The Vast Profit Potential of Expanding Knowledgeaccording to Mikel Harry and Richard Schroeder. Harry isfounder and CEO and Schroeder is president of the Six SigmaAcademy, Inc., in Scottsdale, Ariz. 21 Sigma, taken from a letterin the Greek alphabet, is used in statistics as a measure of variation.Harry gave the name to themethodology he developed and helpeddeploy at Motorola in the late 1980s.Companies undertaking Six Sigmarelentlessly question every process,number, and step from design todelivery while aiming for a so-calledSix Sigma performance target: 3.4defects per million “opportunities,”which is quality-control language forthe individual steps that go into producingand delivering a product orCompanies undertakingSix Sigma relentlesslyquestion every process,number, and step fromdesign to delivery whileaiming for a “Six Sigmaperformance target”:3.4 defects per million“opportunities.”service. That’s more than just an escalation of traditionalquality standards. It’s a whole new dimension. Consider:Achieving a performance level of 3.4 defects per millionopportunities translates into products or services that are99.9999999% defect-free—or near perfection. By way ofcomparison, a product that is 97.7% perfect still allows for308,538 defects per million opportunities.In their book Six Sigma: The Breakthrough ManagementStrategy Revolutionizing the World’s Top Corporations (Doubleday,2000), Harry and Schroeder use this everyday example toillustrate the demands of the system:If wall-to-wall carpet in a 1,500-square-foot home werecleaned to the three-sigma level, that would equal 66,800defects per million opportunities, or about the level of qualityprovided by many typical companies. Looking at this threesigma-leveljob on your carpet, you would see that about foursquare feet of carpet (the carpet under your average-size reclinerchair) would still be soiled. In other words, a three-sigmalevel would lead to a good number of disgruntled customers. Ifthat same carpet were cleaned to the Six-Sigma level, the soiledarea would be the size of a pinhead—virtually invisible.” 22Today’s demanding customers are satisfied only when theyreceive the near-perfect value they expect. When an organiza-135 |

CHAPTER SIX BUSINESS 2010tion reaches the Six-Sigma level, it can be 99.99966% confidentthat it is delivering a product or service that meets the customer’sexpectations.GE and Six SigmaGE CEO Jack Welch, no particular fan of other quality programs,fully embraced Six Sigma starting in 1996. Since then,the company has applied the system to most aspects of itsbusiness—designing, producing and delivering products aswell as billing and other follow-up interactions with customers.The system’s heavy emphasis on defining customer expectationshas reduced costs while lifting quality throughout GE.The system has been particularly helpfulas the company has moved into moreWeb-based applications. For example, GEAppliances in 1999 decided to set up a Webbasedsystem to arrange delivery of GEproducts to people who bought them atHome Depot. Intuition suggested that customerswould put a high value on havingtheir new appliances delivered within 24 hours. However, SixSigma focus groups showed that customers assigned little valueto this fast delivery.“Six Sigma eliminated any perceived need for eveningdeliveries, next-day deliveries, Sunday deliveries, all sorts ofcostly things we had wrongly thought would be important tocustomers,” says Michael P. Delain, GE Appliances qualitymanager for local delivery service. Instead, the companylearned that as long as delivery took place within the promisedtime window, customers cared most about how they weretreated by installers and delivery people. That discovery, inturn, led to training for installers and delivery personnel onpeople skills. 23GE estimated that the quality gap between where it startedin 1996—at about three sigma—and Six Sigma was costing thecompany as astonishing $7 to $10 billion in profit every year.That figure was the estimated cost of quality errors inside thecompany resulting in scrap, reworking of parts, correction of“We quickly movedfrom complaints tochocolates andpraise,” said one GECapital executive.|136

The Vast Profit Potential of Expanding Knowledgetransactional errors, inefficiencies and lost productivity. GEwent at the task with typical energy, commitment and cash. In1997 alone, the company trained some 60,000 people—morethan a quarter of its workforce—in the new system. By 1998,GE had invested $500 million, but that cost had already beenoffset by more than $750 million in savings. 24Service companies can learn from the experiences ofearly Six Sigma adopters like GE. One division of GE Capitalkept trying to improve its response time to queries from institutionalclients seeking information about the company’sannuities services. It answered some queries in less than aday, or even within a couple of minutes, but it took as long as65 days to respond to others. Division officials wanted toaccelerate the response time to a satisfactory level for all customers,regardless of the nature of the question. In barelyfour months, Six Sigma teams pushed the response time to 24hours or less for all queries. “We quickly moved from complaintsto chocolates and praise,” said one GE Capital executive.The chocolates came from one of the division’s previouslymost critical customers. 25Six Sigma and Smaller CompaniesFor the moment Six Sigma programs are mostly the provinceof larger manufacturing companies in the U.S., but in view ofthe program’s success to date, that situation will surely change.A report in the Toronto Globe and Mail predicts that companiesaround the world “will be falling over themselves to adopt GEstyleSix Sigma” because of the improvement in profits forcompanies that have adopted this system.Small to mid-size companies supplying Six Sigma giantswill also be under increased pressure to adopt the system orlose their contracts, because their customers will depend on thetotal quality of parts provided by the suppliers. As for smallercompanies that insist they are too small for Six Sigma, Harryand Schroeder respond that carrying out a Six Sigma projectin a large company usually consists of a series of smaller projectswithin individual divisions that are similar in manyrespects to smaller stand-alone companies of similar size. 26137 |

CHAPTER SIX BUSINESS 2010Scaling Up From Physicalto Mental TechnologiesIn mid 1999, IBM CEO Lou Gerstner described the newdot-com companies as “fireflies before the storm—allstirred up, throwing off sparks.” However, he continued:“The storm that’s arriving—the real disturbance in the force—is when thousands and thousands of institutions that existtoday seize the power of this global computing and communicationsinfrastructure and use it to transform themselves.That’s the real revolution.”That revolution is now shifting into high gear, and it is foreverchanging the way companies, particularly large companies,buy, sell and account for products and services. Some examples:CISCO’S use of the Web has shortened the time needed to closeits quarterly books from 10 days four years ago to 1 day now.Financial data that used to take weeks to gather and verify isnow collected automatically as a part of everyday business. 27HEWLETT-PACKARD saved $75 million when it moved some personnelfunctions onto an internal Web site. The company’s inhousetech team uses an HP-built “agent” to keep tabs onwhere human resources are needed. 28MERCK & CO. has shown how a giant company can use Webfriendly corporate infrastructure to elbow aside an Internetstart-up. The company’s Merck-Medco unit runs a large mailorderpharmacy network and administers drug benefit plansfor 60 million workers. Today, says Forbes Magazine, Medco is“clobbering the competition. Every week it processes 80,000online prescriptions, raking in $8.5 million in revenues—aboutwhat PlanetRx.com sells in a quarter.” 29SUN MICROSYSTEMS needs about 6,000 new hires a year to supportits rapidly expanding sales, product development andsupport efforts. Sun recruiters are searching in a talent poolwhere competition is particularly intense. Sun lists openings onits internal intranet and uses bonuses to encourage employees|138

The Vast Profit Potential of Expanding Knowledgeto suggest candidates. In 1999, about 41% of new hires startedwith referrals from current workers. Sun’s home page featuresa helpful resume builder for job seekers. Those prospectsunwilling to submit a resume can simply register with an onlinematchmaker service called the Sun Agent. Sun Agent will thenalert job seekers when a suitable job becomes available. 30Now that the early excitement about “e-tailing” has cooledsomewhat, the power of the Internet to market business productsand services has come more sharply into focus. Some 72%of Internet trading in 1999 was business-to-business (or B-to-B),a figure that is projected to increase to 87% in 2003, accordingto International Data Corp. A report by the CommerceDepartment, “The Emerging Digital Economy II,” notes, “By2006 almost half of the U.S. workforce will be employed byindustries that are either major producers or intensive users ofinformation technology products and services.”The Third Stage of Net EvolutionIn May 1999, Intel’s Andy Grove made a statement that in twosentences captures the next stage of Internet evolution. “Infive years time there won’t be any ‘Internet companies.’ Allcompanies will be Internet companies.”The Internet is now rapidly evolving into a third stage ofevolution, according to a report by the investment bankingand trading firm Bear Stearns. The first stage was theInternet’s creation by the Department of Defense. The secondstage—its infancy—was its commercialization by companieslike Amazon.com and Yahoo. The current stage is widespreaddeployment among leading corporations everywhere.“Beyond that stage,” says Bear Stearns, “will be its deploymentin virtually every commercial organization in America. 31That rapid deployment will include the use of sophisticatednew personal digital assistants (PDAs), which are quicklybecoming as necessary as pagers and cell phones in the businessworld. These PDAs (also mentioned in the previous chapter)will undergo radical advances in form and function overthe next few years. Prices are falling so fast that technology139 |

CHAPTER SIX BUSINESS 2010budgets—and individual wallets—will not be greatly strainedby the cost of purchases, upgrades or replacements.Today’s PDA is a small, palm-sized computer useful forstoring appointments, phone numbers, notes and other data.It often has rudimentary word processing, spreadsheet anddatabase capabilities. Many PDAs use wired and wirelessmodems to share information from either the Internet orAlready, personaldigital assistantsare becoming anintegral elementin the businessstrategy to create“enterprise networks.”company intranets. However, despitetheir reduced costs and handy size,PDAs still lack the sophistication of notebookcomputers.Already, PDAs are moving beyondelectronic substitutes for jotting notes onpaper. They are becoming an integralelement in the business strategy to create“enterprise networks.” Sophisticatedenterprise software applications from Oracle, SAP and otherscan now tie together an entire corporation’s informationsources and then distribute them over the Internet or companyintranets. PDAs increasingly will tap into these enterprisenetworks via wired and wireless links, thus allowing employeesoutside the office to retrieve and share data, track billings andexpenses, and coordinate their schedules. 32It’s More Than Information TechnologyWhile information technology captures the imagination—and the headlines—other aspects of the technology revolutionwill have a major impact on how business produces productsand services.Maytag, for example, is using advanced technology to createa value-added sale. In the early 1990s, the company beganbuilding newly designed, more expensive washing machines,refrigerators and vacuum cleaners that used new technologyand carried fancy features that helped them stand out in thecrowd. It was a risk to market premium-priced machines in amarket that views such products as a commodity.However, rather than turning consumers off, Maytag’sproducts were an innovative hit—and sales took off. In 1998,|140

The Vast Profit Potential of Expanding Knowledgethe Iowa-based company posted the best showing of its 106-year history, as sales rose 19% to $4.1 billion and net incomeclimbed 56% to $281 million. In adopting this approach,Maytag was returning to a value that made its brands popularmany decades ago—selling an innovative product for whichthe company could charge extra money. 33Here Come the Mechanical MenAmid excitement about information technology, we don’t hearmuch about robotics these days. Yet robots represent anotherfast-moving mental and technological process that has thepotential to change the way we do business in the next decade.Japan took an early lead in this technology. Some expertsspeculate that progress in the West has been slowed by anancient distrust of manufactured men. After all, Frankensteinstarted out to be an ideal man and ended up a terrifyingvillain. However, economics represents a more likely rootcause. The worker shortage reached critical proportions inJapan far earlier than in the West.Whatever the reason, in 1997, Japan used 277 robots forevery 10,000 people working on manufacturing lines, accordingto the International Federation of Robotics in Geneva,Switzerland. In the U.S. the proportion was just 50 robots forevery 10,000 people. 34A Japanese consortium has already produced “3P,” a lifelikerobot that can walk, wave, shake hands, go up and downstairs, and pick things up. Members of the consortium—Panasonic, Mitsubishi, Hitachi, Honda and several leadinguniversities—plan to hook the 3P to powerful fiber-opticnetworks controlled from a central location. That will changerobotics forever. Each robot can be freed of its own internalsuper computer, enabling it to be smaller, lighter and cheaper. 35The New Materials FrontierTechnology is not only driving how products are manufacturedand delivered, but it is changing what raw materials areused to make them. “There is no simple product today—141 |

CHAPTER SIX BUSINESS 2010whether made of metal, wood, glass, concrete, plastic or anyother substance—that will not be made from some entirely differentmaterial 20 years from now,” says Knight Kiplinger,editor-in-chief, The Kiplinger Letter and Kiplingerforecasts.com.Researchers working with advanced technology are aimingto design and build new materials, molecule by molecule.Using computers, the researchers are extending the boundariesof materials science into new fields such as “computationalchemistry”—the use of computers in the analysisof chemicals. Also on the technology frontier is “molecularnanotechnology,” the effort to manufacture complex devicesinexpensively by controlling the arrangement of individualatoms that make up that device. The possibility of maneuveringthings atom by atom is expected to materialize in 15 to 30years. If so, it will revolutionize not only manufactured productsbut the processes used to make them.As these new sciences mature, manufacturers will customorderprecisely the materials they need from chemical companies,which will custom-build the materials for just the rightcombination of characteristics—flexibility, resistance to heat orcorrosion, or enormous strength with minimal weight.Find that difficult to believe? Forty years ago, saysKiplinger, people could hardly envision tennis rackets made ofplastic and carbon fibers, stovetops made of glass, golf clubsmade of titanium, synthetic lumber extruded from a hot doughof hardwood sawdust, and grocery bags formed from shreddedpolyethylene. Yet all these products exist today. 36Summary and ConclusionsWe are living in an era of convergence. Markets areconverging. Distinctions among market distributionchannels are more arbitrary. Products and servicesare no longer separate, but integrated, categories. Global competitionturns once impregnable brands into commodities thatincreasingly sell on price rather than collecting a premium fortheir name recognition.Yet for product and service champions there remain basic|142

The Vast Profit Potential of Expanding Knowledgeprinciples that must always be observed and regularlyaddressed. The old product manager strategy sounded like thesheriff in a 1940s western movie: “They went thataway.” In thislate and sometimes lamented model, the product and servicepeople studied the demographics, listened to the focus groups,watched the competitors, and hired marketing gurus to interpretthe changing landscape. Then, after long—usually toolong—deliberation, they followed the customer, and frequentlythe competition, “thataway” by introducing a “new andimproved” product or tweaking an old service.Today’s model might also be compared to another, moreproactive, sheriff in the old westerns: “Head ’em off at the pass.”The key to today’s product and service success lies in anticipatingcustomer aspirations earlier than the competition does.In a world of upheaval, how can one possibly anticipatesomething as apparently fickle as customer aspirations? Toanswer that question, look at the fundamentals stressed in thisbook and, specifically, in this chapter:■ Customers are smarter today and will be even smarter tomorrow.■ Customers have increasingly efficient tools to search for lower prices.■ Customers want to be treated like individuals.As a result, you should:■ Add information to your product.■ Use technology to cut your service costs.■ Use technology to customize your service through better, more exactinformation.Keeping up with rising customer aspirations requires externallyfocused quality programs. Internal standards are useful aslong as they mirror what the customer wants today. Too oftenthey reflect a management bias toward what is easily measurablerather than the emerging “intangibles” that may be moreimportant to customers.“Six Sigma” is justifiably the rage today. This programcarries the quality crusade to new levels of exactness. However,its biggest strength—and one that can be usefully adopted byany company—is its absolute insistence on determining firstwhat really matters to the customer. From then on, the chal-143 |

CHAPTER SIX BUSINESS 2010lenge is to align the measurements of performance with thecustomer’s rising expectations: For faster service, for morecomplete service, for customized products, for better, morecomplete information, for convenience, for entertainment.Yes, following this advice is hard, but it will get harderstill, because the pace of aspiration is not slowing down.But there has never been a time when the rewards for successhave been higher, or when the tools for achieving thatsuccess have been more readily available.|144

CHAPTER SEVEN BUSINESS 2010Toward “Uncentralized”OrganizationsKEY CHAPTER THEMES■ Organization: Humanity’s greatest invention■ Converting human energy into performance■ Rethinking organization—five issues to consider:1. Keeping pace with growth2. Adapting to new technology3. Designing for “uncentralized” thinking4. Adjusting to economic convergence5. Moving toward a global perspective

CHAPTER SEVEN BUSINESS 2010“None of us is as smart as all of us.”—WARREN BENNIS, AUTHOR, CHAIRMAN OF UNIVERSITY OFSOUTHERN CALIFORNIA LEADERSHIP INSTITUTE“Real sustainable advantage comes…fromthe way a company’s activities fit together.”—MICHAEL PORTER, AUTHOR, AUTHORITY ON COMPETITIVE STRATEGYTHE END OF THE 20TH CENTURY PROMPTED FREquentdebates about humanity’s greatest inventions.The sextant permitted the sailing ofuncharted oceans, and the printing press openedthe doors for universal education. The steamengine ushered in the Industrial Revolution. The electric light,the locomotive, the auto, the telephone, the air conditioner, andthe computer all played revolutionary roles.The practical application of all these inventions dependedon a far older innovation. Without organization, however, theseinventions would have been rendered useless. It is organization—thecapacity to bring together the physical and mentalenergy of humans and then combine that human energy withtechnology—that translated each of these breakthroughs intoa boon for humanity. In a company, organization encompassesthe structures, systems, and networks of coordination and communicationthat the company uses to stay attuned to changesin its market and to deliver the right products and services toits customers at a profit.Growth is impossible without organization. What is the differencebetween the CEO of a $1 million company and theCEO of a $1 billion company? The latter is not 1,000 timessmarter or more experienced than the former. The differenceis organization. It is the power of organization that permitsindividuals to extend their capacity to perform thousands of147 |

CHAPTER SEVEN BUSINESS 2010actions simultaneously, to accomplish work that would beimpossible for one person or a small group. Archimedes saidthat with a lever long enough and a fulcrum to rest it upon, hecould lift the earth. At its best, organization approximates thepower of such a lever.Competitiveness depends on how effectively companiesorganize themselves: how well they assign and monitor thetasks and responsibilities they give to individual managers,workers and suppliers; how effectively they coordinate availabletechnology and other resources; and how smoothly andquickly they respond to customers.Converting Human EnergyInto PerformanceIn all fields of life, we rely on organizations, and the structuresand systems that compose them, to convert humanenergy into higher levels of achievement. Educational institutionsseek to achieve the organization and distribution ofknowledge. Hospitals seek the cure and prevention of disease.Business seeks greater productivity, profitability and growth.The greater the capacity of a company’s organization to releaseand focus the creative energy of its leaders and staff on thework at hand, the greater the company’s potential for sustainedachievement.Think of your company early on a Monday morning as avast pool of raw human energy. How usefully that energy ischanneled by your company’s structure and systems will determineyour success this week and every week.You can determine the effectiveness of your organization byanswering questions like these:■ Does the structure of your company clearly define who is responsiblefor what, or■ Do people spend valuable time and energy duplicating their work orsquabbling about responsibility?■ How often does your company waste human energy when the right systemcould accomplish the same task in far less time? For example,|148

Toward “Uncentralized” Organizationsare there well-defined, current systems for hiring, for orderingsupplies, for defining and monitoring work?Think of some recent problems that slowed the pace ofachievement where you work. How many of them could havebeen avoided either by a clearer definition ofauthority or by well-defined systems and procedures?The Six Sigma quality system(described in the last chapter), which demandsscrutiny of all processes and systems, has literallysaved GE billions of dollars in wastedscrap, rework and lost productivity. Inessence, Six Sigma has enabled GE to achievea higher level of organization throughout thewhole company, increasing productivity byavoiding the waste of time. That is the true power of organization:It organizes and optimizes those most precious humanresources: time and energy.The true powerof organization?It organizes andoptimizes thosemost precioushuman resources:time and energy.The Basis of All CreativityHuman energy is the basis of all creativity. It is the fuelthat feeds the fire of inspiration. Read the biographiesof great business leaders, especially leaders who createdgreat enterprises in their lifetime, and you will invariablyfind references to their boundless energy.Few individuals have created as much wealth for the worldas Thomas A. Edison. An indomitable worker, Edison frequentlywent days on end with only short naps. He producedthe equivalent of one patentable invention every two weeks ofhis life—1,100 in all—giving birth to entirely new industries,including motion pictures, the phonograph and recordings,and the electric and household appliance industries.Edison’s genius for practical industrial organization gave usthe research laboratory, where teams of experts are broughttogether to solve complex scientific and industrial problems.The General Electric Co., which Edison founded, is today theworld’s most valuable corporation in terms of shareholder value.Continued on page 154149 |

CHAPTER SEVEN BUSINESS 2010BOX 7 -1Converting Corporate Energy to Profitability, Growth and QualityFor some years, I have collaboratedwith Garry Jacobs and RobertMacfarlane, the founders of theconsulting firm Mira International.Together we have used the accompanyingillustrations (Figures 7-1Aand 7-1B, on pages 152–153)to help senior managers thinkthrough the strengths and limitationsof their companies asconverters of human energy.Figure 7-1A pictures a perfectlyfunctioning business model—the ideal. I rush to add that myconsulting associates and I havenever found any company thisperfect.Figure 7-1B shows a malfunctioningbusiness model. This illustrationin particular invariablyproduces an “ah-ha” from anyexecutive audience.RAW ENERGY. Taking apart theelements common to both illustrations,consider first the energyinitially available to any company,indicated by the arrows at the topof the illustration. This is the sumof all human energy available tothe organization. It can be comparedwith the energy of a roaringriver—powerful and yet diffusedand unfocused, impressive but oflittle use for any specific purpose.DIRECTION. The second step—labeled direction in the illustrations—captures,moderates andredirects the flow of the energy.In a company, that direction canbe autocratic, damming up andeven, if the dam is too high, providinga powerful repression ofthe force of the flowing energy.However, when direction is artfullyconstructed, in tune with theenvironment, it converts the raw,initial energy into a focused force.ORGANIZATION. The third majorelement in both illustrations isorganization, the primary focusof this chapter. Organizationdefines the structures, systemsand networks of coordination andcommunication that a companyuses to stay attuned to changesin its market and to deliver theright products and services toits customers at a profit.An appropriately designedorganization efficiently transformsthe human energy channeled bydirection into an alert responsiveness—responsivenessto changesin society, to shifting customerdesires and requests, to informationacquired by employees. Usingthe analogy of the raw energy inthe raging river, if direction is thedam, organization is the combinationof hydroelectric generatorsand transmission lines that convertand carry the energy channeledby the dam, transformingit into useable power.Organization encompasseseverything from the system usedto recruit employees, to the|150

Toward “Uncentralized” Organizationsprocess of product research anddevelopment, to the proceduresused to convey information fromthe executive suite to the shopfloor and back again. Organizationincludes the decision-makingprocesses that determine whatand how capital equipment ispurchased, what acquisitions areappropriate, and how employeesare evaluated and compensated.Organization functions as astrong—or weak—link betweenall other basic components of acompany: market, products andservices, people and capital.PEOPLE. The fourth element onour energy conversion and dispersionillustrations is labeled people,the theme of Chapter 9. Includedwithin this element are all theknowledge, skills and attitudes ofthe human beings who sell, produceand account for, or supporta company’s goals and objectives.From the point of view of energyconversion alone, this peopleelement can be compared withthe electricity lines and applianceswithin an individual houseor office. It is the energy containedhere that converts everythingthat has gone before intoactions that produce productivity,profitability and growth. An energydrain here can be as devastating—andoften far more immediatelyvisible—than any drain indirection and organization.DISPERSION: A FAILURE TOCONVERT ENERGY. When anorganization fails in responsiveness,we seldom think of thewhole process of energy conversion.Our attention focusesinstantly on the last, mostimmediate step in the process.That’s almost always a person,usually someone on the frontline: The sales rep who did nothave the right answer. The customerservice rep who lost theorder. The engineer who misreadthe specifications. The accountantwho was late with figures.Yet the root cause of any failurein responsiveness can occuranywhere in energy conversion,just as it can in an electric powerfailure. Lack of clarity in directiondissipates energy, pursuing thewrong goals. Faulty wiring inorganization causes key systemsto sputter and fail. Failure to trainpeople or help them understandcorporate goals produces late,inadequate or wrong decisions.The CEO of a Fortune 100Company once summarizedsuccinctly for me how one shouldreact to any failure in corporateresponsiveness. “Never wastetime asking who messed up,” heinsisted. “Always start by askingwhere did our system fail?” Whilethis is seldom the instinctiveresponse, it is the right questionto convert any failure into higherlevels of responsiveness.151 |

CHAPTER SEVEN BUSINESS 2010FIGURE 7-1ACorporate Energy ConversionEnergyDIRECTIONEnergizing vision•Unifying mission•Commitment to values•Clear sense ofstrategic direction aligned with customerand worker aspirationsForceORGANIZATIONFreedom•Discipline•Well-defined structure•Excellent systemsof operation and communication•Excellentcoordination and teamworkPowerPEOPLE•Knowledgeable•Interested•Positive•SkilledProfitabilityGrowth(outcome)Quality|152

Toward “Uncentralized” OrganizationsFIGURE 7-1BCorporate Energy DispersionEnergyLACK OF DIRECTION•Skepticism•Uncertainty•Rumors•Outdated policies•Pessimism•Lack of planningForcePOOR ORGANIZATIONLack of freedom•Lack of discipline•Undefined structure•Inadequate systems•Poor communications•Poorcoordination and teamworkPowerUNDERDEVELOPED PEOPLE•Lack of knowledge•Lack of interest•Negative attitude•Lack of skillLow productivityLow revenues(outcome)Low profits153 |

CHAPTER SEVEN BUSINESS 2010Edison’s amazing physical and mental energy neverflagged. When he was 60, Cosmopolitan magazine asked him toauthorize a serialized autobiography. “When I go into seniledecay I may consider the autobiographical scheme,” Edisonreplied, “but as long as I can put in 18 hours daily, I don’t wantto waste time on it.”I don’t expect to encounter many Thomas Edisons as I visitcompanies, but I always look for clues revealing the availablelevel of human energy:■ Do the layout and decor of the offices suggest that this is a place forpurposeful work?■ Do people move briskly, with a sense of urgency?■ Does there seem to be an orderly flow of information and communicationbetween people?■ Do the faces of people that I see in the hallways reveal a sense ofconfidence?Styles, of course, differ. Some companies are formal, somemore relaxed. Some are quiet and others raucous. Geographymatters, too. Travel in a single work week to an old-line southernbank, a midwestern metal-working company, and a hightechSilicon Valley corporate headquarters, and you will feel theeffects of different geographic and corporate cultures. Butwhatever the outward differences, successful companies invariablyhave a hum of human energy so palpable that you canalmost hear it when you listen closely.At Intel, I asked a senior executive what was the first thinghe noticed when he came to the company. “Energy,” he replied.“Energy is certainly one of the striking characteristics of thiscompany and this industry.” I heard a similar comment on a visitto a far older, East Coast–based pharmaceutical company,Merck: “There’s an energy here,” a senior executive told me.“Everybody feels it.” Or as executive at Northwestern Mutual inMilwaukee put it, “There is “a kinetic energy that flows throughall of us.” What they feel is the power of the human energy availableto the organization.Feeling the potential of that power, of course, is not thesame as converting it to achievement. (See the discussion andillustrations on pages 150-153.)|154

Toward “Uncentralized” OrganizationsOrganizations for Today:Five Issues to ConsiderThere are at least five specific issues for business leadersto consider in designing or redesigning an organizationthat effectively channels human energy for achievementin today’s marketplace. The balance of this chapter discussesthese issues.Organization Issue #1: Keeping Pace With GrowthThe first challenge—an old one with a new urgency—is how tofind ways to get the competitive payoff that comes with growthwhile preserving flexibility. In many respects bigger is better. Agrowing company has the resources—or can more easily getthem—to launch more new products, attract more bright professionals,invest more in training or even acquire competitors.By centralizing functions such as accounting, humanresources or research, a growing company can develop thecapacity to support a wider number of operating units.Company leaders can more easily divide work among specialists,bringing more focused expertise to every specific task. Intheory at least, all these advantages add up to the once highlyadmired “economies of scale.”But bigger also has a price. Policies and procedures mustbe more uniform, often circumscribing creative thinking andaction. Political negotiations among centers of power inside thecorporation grow in complexity. Bigger traditionally meansmore hierarchy, which in turn slows decision-making, asapprovals must move up the line two, three, or more levels.Bigger is more likely to attract the attention of union organizersand activists who will seek to limit the company’s flexibilityin their areas of concern. Customers are often irate whenworkers, because of greater specialization, answer a request forinformation with an abrupt “that’s not my job.”As a growing entrepreneurial company gets bigger, suddenlythere’s more to manage. Inventory that previously was handledin an informal, manual system begins to pile up. (The Dell155 |

CHAPTER SEVEN BUSINESS 2010system described in the previous chapter is still an exceptionamong many rapidly growing companies.) The staff that used towork within the sound of the owner’s voice have scattered to differentbuildings, perhaps in different parts of the world.In the early days, the owner was the marketing department,as well as the customer service staff. Now, with more customers,extended markets and a more diversified product line,management of specialists has become a necessity and an addedcomplication. The owner no longer decides how to coordinatemarketing and production plans while driving to work; a geographicallydispersed sales force must now communicate withthe marketing department, the product line managers and thecustomer service people.The growing adolescent company quickly captures theattention of outsiders—suppliers, regulators, venture capitalists,the media, perhaps even unions and Wall Street. Thisbrings a host of new relationships to manage.Growth and its attendant complexities are seen as a virtue,as the goal of any successful business enterprise.DIMINISHING RETURNS SET IN. At a certain point, however, diminishingreturns may set in. As the organization becomes morecomplex, important tasks sometimes misfire. Translating thatinnovative idea into a money-making application takes monthsrather than days, and the organization loses agility. Although itsbigness is still valued, a certain envy develops for smaller, fastercompetitors—those tiny idea factories that seem to be havingall the fun.This decline after achieving bigness is not inevitable, but itis common. Already about half the companies on the Fortune500 list of 1980 are gone. Some have been replaced on the 500list by newer companies that are more attuned with the market,such as Microsoft. Others have been acquired by more successfulgiants and are now either entirely gone or live on as divisionsof their more successful acquirers. RCA, for example, ispart of GE.An adaptable organization is a critical factor in successfullykeeping up with the rigors of growth. Yesterday’s structure andsystems will creak and groan under the pressure of rapid expan-|156

Toward “Uncentralized” Organizationssion. Although most business leaders would agree in principle,many still take organization too much for granted when theymake plans to expand product lines or enter new markets.When working with business groups, I often ask them toidentify the five most important components of their business.The first four always come quickly—market, product, peopleand capital. Then there is an uncomfortable pause. Only oncein 15 years, after posing that question todozens of groups of experienced businesspeople,have I ever gotten a spontaneousreply that identifies the fifth component—organization.It is not that these business leaders areunaware of the importance of creatingand continuing to develop an effectiveorganization. They all devote considerabletime trying to find better ways to organizetheir companies. Even so, they take organization so much forgranted that they don’t fully consider how its direct power toshape their success in the market is equal to the power generatedby their products, their people or their available capital.Yet, as many an entrepreneur has learned, an expandingmarket and a popular product, even combined with dedicatedstaff, are not enough to ensure success without effective organization,as the following example shows.Many business leadersstill take organizationtoo much for grantedwhen they makeplans to expandproduct lines orenter new markets.WHO IS STEERING THE SHIP? Lyle Bowlin’s Internet bookstorebusiness, based in Cedar Falls, Iowa, became an overnightmedia darling in 1999. But within a year, the company hadclosed, the victim mainly of inadequate organizational developmenteven as its sales grew.Two glowing op-ed columns in The New York Times and aTime magazine profile had featured Bowlin’s Web site:www.Positively-You.com. He had appeared on Good MorningAmerica and Fox News. He had received an advance for collaboratingon Mom&Pop.com, a book of advice for other startupsseeking to go online.Before the media flurry, Bowlin had made a small profitfor four months by keeping his expenses down. There was lit-157 |

CHAPTER SEVEN BUSINESS 2010tle organization. He answered each e-mail personally, and hiswife packed and delivered the books. Most customers were intown, so she dropped the books off by car.With the media attention, Positively-You’s monthly ordersshot up from $2,000 to $50,000 a month. Books began to pileup in the Bowlins’ living room. TV crews knocked at the door.Their friends joined them after work to pack and ship books.They taught their children how to address labels.As the business grew, more friends and relatives helped outas volunteers and paid staffers. Yet, as The Wall Street Journalnotes, “with all those helping hands, it was unclear who wassteering the ship.” When the media flurry passed on, salesdeclined while margins stayed tight. In November 1999, theinvestors agreed to fill orders for Christmas and then shutdown the site. 1As this entrepreneur learned, a business must develop as itincreases its sales. Specifically, it must acquire or enhance thecapacity of its organization—the structure, systems, and networkof accountability that the company uses to create anddeliver its products to customers.There was plenty of human energy in Cedar Falls. A marketwanted the product. Capital was available for promisingdot-com businesses. What was missing was an organization tolink the other components together in a pattern of sustainedproductivity, profit and growth.It seems so obvious that it’s all too easy to forget.TERADYNE ADAPTS ITS ORGANIZATION TO THE PROJECT. Many of thenew approaches to markets and products discussed in theprevious two chapters will require major changes in organizationaldesign. Trying to implement new directions in what issold, to whom and how requires far more than tinkering withorganization structures and systems. It requires rethinkingorganization patterns simultaneously with shifting direction inmarkets or products.Teradyne Corporation, a $1.8 billion Boston company thatdominates its market for making automated testing equipmentused by electronics and telecom companies, illustrates howinnovative organizational structures can be used to release|158

Toward “Uncentralized” Organizationshuman energy. In 1998, Teradyne introduced a tester, calledIntegra, based on a new, lower-cost technology.To bring Integra to market, Teradyne’s founder andchairman, Alex d’Arbeloff, established a novel governancestructure. The project’s leader, Marc Levine, reported not toa boss but to an internal board of directors. The internal executives,including current Teradyne CEO George Chamillard,operated like a venture capitalist board. They set guidelinesand stayed clear of everyday operations.Once the product was launched, Integra became a regulardivision of Teradyne. Levine gets his budget through the sameprocess as everyone else. He has customers to serve, targets tomeet, improvements to make.Chamillard told Fortune’s Thomas Stewart, “We could havegiven the project to a division, but they would never have puttheir best people on it.” Integra’s strategy—to start out producinglower-cost product for the low end of the market—wasfundamentally different from what the rest of the company wasdoing and would have conflicted with the strategy of any divisionin which it was placed. The strategy of reporting to aninternal board also allowed Levine to take technological riskswithout worrying about existing customers. As Stewart notes,“As business increases in speed and knowledge intensity, structureshave to adapt too.” 2Organization Issue #2: Adapting to New TechnologyA second challenge in organizational design—another old onewith new urgency—is to keep up with the evolution of technology.For example, keeping up with major technologicalchange often requires not just an organizational redesign but awhole new concept—or central organizing idea—of how abusiness affected by that change should operate.Since the mid-19th century, people had been sendingmessages over wires in Morse code. Then, in 1901, GugliemoMarconi successfully completed the first transatlantic wirelesstransmission. Pioneers like David Sarnoff, who was to leadRCA for 40 years, saw the entertainment potential of usingthe new medium as a “household utility” to send entertain-159 |

CHAPTER SEVEN BUSINESS 2010ment into homes. By the early 1920s, radio stations weregrowing like dot-coms, from 30 in 1922 to 556 in 1923.All that was lacking was the right concept to turn the newmedium into a money-maker. Then in August 1922, WEAF, aNew York station owned by AT&T, aired a real estate ad, andThe challenge: todetermine howtechnology willnecessitate redesigningthe structure andsystems of companiesto align with theirindustry’s newbusiness concepts.advertiser-supported commercial radiowas born. 3Thomas Edison’s original businessconcept for electricity required customersto pay a flat fee to connect with the network,much like today’s model forInternet access. But Edison soon realizedthat the dramatic difference in wealth andusage between his first customer—the J.P.Morgan Bank—and his subsequent smallbusinesscustomers required a more flexibleconcept. So he invented a device tomeasure electricity use, charged accordingly and created theconcept of a public utility business. 4GROPING FOR NEW BUSINESS CONCEPTS. Today, Forbes notes, muchof the experimentation on the Net involves the same gropingfor new business concepts to accommodate the distinct characteristicsof the new technology. Entrepreneurs experimentwith revenue-making ideas such as subscriptions, advertisements,banners, links, licensing and auctions. Investors wait tosee whether enough people buy. When the right conceptemerges, companies, indeed whole industries, will be organizedaround it. 5RENEWING AN OLD SEARCH. Business everywhere, on the Netand off, is now engaged in a widespread search to find newbusiness organizational concepts. This search is not new, however.As Peter Drucker observes: “For more than a century thestudy of organization has rested on one assumption: ‘Thereis—or there must be—one right organization.’ What is presentedas the ‘one right organization’ has changed more thanonce. But the search for the one right organization has continuedand continues today.” 6|160

Toward “Uncentralized” OrganizationsThe challenge here—not just for high-tech companies, butfor all businesses—is to determine how information-age technologywill necessitate redesigning the structure and systems oftheir individual companies to align with their industry’s newbusiness concepts.Industries that propose to shift a major portion of theirsales to the Internet, for example, will have to reorganizetheir sales forces. This change is already quite visible in companiesin the financial services industry. Companies likeMerrill Lynch and American Express Financial Advisors, forexample, are reorganizing their sales distribution channels byseparating “high-end” clients who still want—and are willingto pay for—personal relationships with sales reps from amore mass-market distribution channel that wants to buy ata cheaper price largely over the Net.Organizational Issue #3: Designing forUncentralized ThinkingTraditional organization structure was based on commandand-controlauthority—a top-down flow of information anddecision-making modeled on the military. The information agemakes that structure increasingly obsolete. Responsiveness tocustomers requires faster action, not layers of approval. Thetechnology permits this change, but patterns of thinking stilllag in many companies.Information technology’s power to move information athigh speeds is, of course, one reason for the massive layoffs inmajor corporations in 1980s and 1990s. Middle managerswhose primary purpose was relaying information up anddown the hierarchy were suddenly gone, their functionreplaced by networked computers moving information fasterand often more accurately than human beings.A PREMIUM ON SELF-DISCIPLINE. If the traditional business organizationresembles a military battalion, the information-drivenorganization more closely resembles a symphony orchestra.161 |

CHAPTER SEVEN BUSINESS 2010“All instruments play the same score” in the orchestra, PeterDrucker notes, “but each plays a different part. They playtogether, but they rarely play in unison. There are more violinsbut the first violin is not the boss of the horns; indeed the firstviolin is not even the boss of the other violins. And the sameorchestra can, within the short span of an evening, play fivepieces of music, each completely different in style, its scoring,and its solo instruments.” 7There is at least one important difference between anorchestra and a business, however. In the orchestra, the scoreis given in advance to both players and conductor. In business,Drucker adds, “the score is being written as it is being played.”That puts a premium on self-discipline at every level of thebusiness, as well as on clearly defined expectations and operatingvalues for every job.As was discussed in the two previous chapters, work issteadily becoming more mental, less physical. Information-agetechnology is accelerating this trend. As a result, an everincreasingnumber of people will work as professional specialists—marketresearchers, editors or computer programmers.Organizational discipline among a group of professional specialistscan no longer rely primarily on financial controls, whichwere the major form of discipline in the command-and-controlbusiness structure. Instead, following Drucker’s orchestra analogy,organizations will evolve toward discipline that dependsmore on shared values, open communication, and clearlyunderstood responsibilities. With these self-discipline tools inplace, the “soloists” can play in unison and harmony.For example, by the end of 2000, about 75 companies hadalready created “chief privacy officers,” a new, high-profileposition that didn’t exist two years earlier. The number of thesepositions is expected to grow as large corporations seek to allaythe fears of consumers about privacy issues. According to astudy by the consulting firm Fiderus, about one-third ofAmericans still say that concerns about privacy prevent themfrom shopping online. 8Coordinating the new flow of information to and fromthese privacy watchdogs cannot easily be left to traditional command-and-controlstructures. For these positions to succeed,|162

Toward “Uncentralized” Organizationsresponses to customer concerns will have to be fast, while delegationof authority to fix problems will have to fly throughand around the older hierarchical structure. That will requireredesigning structures and responsibilities with new flows ofinformation to cope with the new challenge of privacy.TOWARD THE UNCENTRALIZED ORGANIZATION. All this rethinkingabout organizational concepts and structures may be leadingus toward what some experts call the “self-organizing” or“uncentralized” organization.In the early 1990s, the “self-organizing system” was aremote idea, discussed in fairly theoretical terms. By 2000, however,self-organization was “rapidly becoming a very hot idea,”according to Bernard Wysocki Jr. in The Wall Street Journal.The essence of the concept: Top-down planning has ceasedto be the only way, or even the best way, to build something bigand lasting. Notes Wysocki, “Unorganized assemblies of peoplecan create everything from marketplaces to computer systemsalmost spontaneously, on the fly, from the bottom up.”To illustrate the concept, Wysocki compares the organizingprinciples of Microsoft’s Windows platform and the Linuxoperating system. Microsoft employs an army of programmerswho churn out proprietary code while on the company payroll.Linux is an evolving collaboration of thousands of softwarewriters around the globe. “The brains behind Linux programmingexist not within the walls of any company but inside theheads of people who amount to volunteers,” says Wysocki.The self-organizing system seems made for the Internetculture. As Wysocki says, the concept “doesn’t respect traditionalhierarchies. It brings in expertise from the edges of thenetworks.” To proponents of self-organizing as a businessmodel, these advantages can be profound and commerciallypowerful.” 9DECENTRALIZATION: NOT A TRUE ALTERNATIVE. Internet technologyhas brought self-organizing to the forefront, but the managementconcepts behind self-organizing systems have beengaining ground for years. For most of the past century, saysHarlan Cleveland, “the search has been on for alternatives to163 |

CHAPTER SEVEN BUSINESS 2010centralization.” Cleveland says the obvious candidate—decentralization—is not a true alternative.In one version or another, decentralization has been a popularmanagement concept since GM’s Alfred Sloan set upquasi-autonomous business units in the 1920s to produce andsell cars to different market segments under the brand namesChevrolet, Pontiac, Oldsmobile, Buick and Cadillac. The strategywas a brilliant success. Anyone who bought $25,000 of GMcommon stock in 1921 was a millionaire by 1929, when GM wasearning the then-astronomical profits of $200 million a year.But Cleveland believes that decentralization is an unsatisfactoryalternative to centralization, because the former keepscontrol centralized even while subdividing and parceling outthe work to be done.Cleveland deftly mixes long reflection on leadership issueswith decades of practical experience. He is author or co-authorof a dozen books on executive leadership and internationalaffairs. He has served as a UN relief executive, AssistantSecretary of State, U.S. Ambassador to NATO, president of theUniversity of Hawaii and president of the World Academy ofArt and Science.NO MORE PYRAMIDS. The opposite of centralization, Clevelandinsists, is not decentralization but uncentralization. As early as1972, in his book The Future Executive, Cleveland foresaw thatorganizations that get things done in the future “will no longerbe hierarchical pyramids with most of the real control at thetop. They will be systems—interlaced webs of tension in whichcontrol is loose, power diffused, and centers of decision plural.‘Decision-making’ will become an increasingly intricate processof multilateral brokerage both inside and outside the organizationwhich thinks it has the responsibility for making, or at leastannouncing, the decision.” 10In the same book, Cleveland identifies public universities asan early example of the shift toward multiple power centerswithin the same organization. While administrators had the bigoffices and high salaries, university centers of influenceexpanded to include professors, students, generous alumni,and even politicians and their constituents. 11 Looking back|164

Toward “Uncentralized” Organizationsfrom today’s perspective, the former university president noteswryly, “Only when a campus crisis blew up, did the administratorsnotice a sudden absence of volunteers to share in theuniversity’s governance.”In government, Cleveland says, public officials often mustlisten more to legislators and pressure groups than to theirnominal administrative superiors. Eventhe military is not exempt. As early as1970, in Vietnam, platoon leaders held“consent-building discussions about whyit was important to take that next hill—or even to fight that war.”The Internet is the currently prominent—andperhaps the most dramaticexample—yet of an uncentralized organization.No one is in charge, but everyoneOrganizations thatget things done in thefuture “will no longerbe hierarchicalpyramids with mostof the real controlat the top.”has mutually agreed to adhere to a well-defined set of technicalstandards and procedures. Yet, within that “uncentralized”universe, competition rages without relief or quarter.No centralized controlling authority dictated our e-mailaddresses the way the centralized Post Office dictated ourzip codes or our phone company assigned our area code.Yet while choosing an individual address, we agreed voluntarilyto accept a standard Internet format that enables aMicrosoft Network subscriber to receive a message from anAmerica Online subscriber. So far at least, the sense ofindividual freedom energizing the “uncentralized” Internethas proven stronger than two formal and usually centralizedrestrictions—censorship and taxation.VISA AND ISO. Before the advent of the Internet, business wasdeeply involved in other uncentralized systems. Cleveland citestwo easily recognized examples:Visa operates a highly visible, uncentralized system. Owned by22,000 financial institutions and accepted by 15 million merchantsin more than 200 countries, Visa’s “products” are usedby three-quarters of a million people, who make 14 billiontransactions a year worth $1.25 trillion—the world’s largest sin-165 |

CHAPTER SEVEN BUSINESS 2010gle block of consumer purchasing power. The network hasbeen growing by 20 to 50 percent a year for three decades.What is especially interesting is that the banks that issue yourVisa cards all fiercely compete with one another. Yet, they haveall agreed on technical standards like the size and format of acard in order to expand the market for their individual services.ISO, the international standard-setting organization, based inGeneva, Switzerland, has published some 9,300 internationalstandards since starting operations in 1951. The technical workcarried out by ISO’s 30,000 technical volunteers is both complexand uncentralized. As the organization’s Web site notes,2,700 committees and working groups bring together “qualifiedrepresentatives of industry, research institutes, governmentauthorities, consumer bodies and international organizationsfrom all over the world.” The committees operate as equal partnersin resolving problems of global standardization.Three specific strengths underpin the ISO system, saysCleveland:1. The standards are voluntary but are enforced in the marketplace. Tryproducing screws that aren’t ISO standard. The word getsaround fast, and customers will shun you.2. Approved standards are industrywide. That means they providethe same solutions to satisfy suppliers and customers aroundthe world.3. ISO develops standards by consensus. Everyone does not have toagree for standards to be adopted, or the system would beineffective. However, final publication requires approval bytwo-thirds of those actively involved and endorsement bythree-quarters of the national standard-setting bodies thatvote on the issue. 12FROM PERSONAL AUTHORITY TO STANDARDS AND VALUES. A paradoxexists in uncentralized systems. “The key to a genuinely uncentralizedsystem is mutually agreed [upon] standards [for] whateveris central to the system,” says Cleveland, and thus cannot beleft to individual choices or market outcomes.” 13Movement toward more uncentralized decision-makingdepends on the continued shift of centers of power from per-|166

Toward “Uncentralized” Organizationssonal authority, that is, power vested in an individual at the topof an organizational hierarchy, toward impersonal standardsand values. People at the periphery must have guidance tomake rapid and correct decisions. If the source of that guidancewill be less dependent on personal authority, then it mustbecome more dependent on something else.That something is already evolving—more emphasis onclear standards and well-defined values that give front-linepeople the authority and confidence to take action withoutwaiting for authorization from above.No less a numbers man than Federal Reserve ChairmanAlan Greenspan argues that today’s economy promotes—andrewards—adherence to corporate values like trustworthiness.“Having a reputation for fair dealing is a profoundly practicalvirtue,” according to Greenspan. He says that this is especiallytrue today, when service-sector companies are replacing manufacturingfirms as the main engines of growth. Building theright kind of reputation in the service sector, where humanrelationships are key, takes commitment not just to financialresults, but to values like quality and customer service. 14Any business leader contemplating an organizationalredesign should ask: Does our new design move us moretoward uncentralization or is it an attempt to preserve anincreasingly obsolete centralization?Organizational Issue #4: Adjusting to the Effectsof Economic ConvergenceThe driving ethos of the Cold War was economic and politicalseparation. The driving ethos of post–Cold War globalizationis economic integration—the convergence of markets, industries,and even relationships between individual companies.Each of these developments presents new challenges in organizingcompanies.In the marketplace, convergence plays out among nations.The U.S., Canada and Mexico formed NAFTA. European economicunity moved forward with a common currency.Coordination among national central banks became a regular167 |

CHAPTER SEVEN BUSINESS 2010tool in isolating economic epidemics. Technology facilitatednonstop global movements of cash and securities, raising internationaleconomic coordination from desirable conceptto necessity.Corporations are instruments of society. When a seismicshift in political and economic direction occurs, corporationsrespond. Consciously or unconsciously, they mirror the evolutionof society. International coordination and convergencebecame a major catalyst behind the current drive for greaterintegration among corporations of every size.Corporate convergence cuts across industries and nations.In its present stage it includes common forms, such as:■ National and cross-border mergers,■ Formal and informal alliances, and■ Closer collaboration between larger customer companies and theirsuppliers.NATIONAL AND CROSS-BORDER MERGER MANIA. Cross-border mergersand acquisition (M&A) activity grew by nearly 50% in 1999,according to the Organization for Economic Cooperation andDevelopment (OECD). In all, the 29 industrialized countriesthat make up the OECD spent about $767 billion buying companiesin other countries, up from $515 billion in 1998.The Paris-based research and policy coordination groupoffered several reasons for the M&A boom:■ Traditional operational reasons, where the one company hadassets or capabilities lacked by the other.■ Changing national attitudes toward takeovers, especially hostileones. (Chapter Three, on globalization, showed how, as morecountries welcomed the capital and expertise brought bymultinational corporations, legal and other barriers to crossborderacquisitions lessened in many countries. In the 1980s,for example, there was outspoken, often bitter, opposition toforeign takeovers in the U.S., particularly by the Japanese. Abest-selling book and popular motion picture, MichaelCrichton’s Rising Sun, caught the mood of the moment. Adecade later, as confidence rose about America’s overall competitivenessin the global market, major foreign takeoverscaused barely a stir in the U.S.)|168

Toward “Uncentralized” Organizations■ A booming stock market, providing more currency to use inacquisitions.■ The introduction of the Euro, which reduced transaction costsand eliminated intra-European currency risks.“Asia has started to catch up in the worldwide surge inM&A,” the OECD Financial Market Trends bulletin noted. Thebiggest Asian acquirer remains Japan, followed by Singapore,Hong Kong and China. Companies from the U.S. spent $20billion buying Asian firms in 1999, more than companies fromany other country.Industry-specific forces. Industry-specific forces also drive crossborderacquisitions: Retailers want to exploit the capacity ofnew technologies to manage cross-border supply chains andcentralized purchasing, tying together companies in differentcountries far more easily. Pharmaceutical and chemical companiessee the potential for expanded scale in research and development.The fragmented European financial service industrywants to consolidate. 15“A mixed bag.” Popular as they are, mergers are a mixed bagwhen it comes to increasing shareholder value. To borrowSamuel Johnson’s famous comment about second marriages,mergers are too often “a triumph of hope over experience.” Areport by consulting firm KPMG concluded that more than80% of corporate mergers and acquisitions failed to enhanceshareholder value.” 16Cautionary statistics are unlikely to slow the pace. In 1999alone, worldwide M&A activity rose by more than one-third, tomore than $3.4 trillion. 17 The hot pace of cross-border mergersand acquisitions will continue unabated, because the underlyingcauses are just too strong to resist. Deregulation, growingglobal markets, the benefits of scale in integrating industriesand rising stock prices will continue to provide an importantrationale for consolidation.As one analyst put it in describing how the pressure toimprove top line growth will continue to drive the mergerwave, “The most important goal is to be number one or num-169 |

CHAPTER SEVEN BUSINESS 2010ber two in the marketplace, and internal growth won’t getyou there.” 18 Although the analyst is probably correct, companiesshould approach any mergers or acquisitions strategy witha healthy dose of caution. The financial people and investmentbankers always seem able to run numbers that make that proposedmerger look like a no-brainer.After champagne, a values conflict. The problems usually arise afterthe numbers are run, the papers are signed and the champagneglasses are empty. That’s when strong value conflictsoccur, or when customers become disenchanted with servicedelivery that no longer seems so prompt or personal as it didwhen the smaller unit ran the business. Or when smaller, moreagile competitors leap in to take advantage of uncertain marketingdirection. Or when talented professionals who said “nothanks” to the search consultants last week begin thinking,“What if my job is one of those rationalized cost savings they arebragging about in the merger or press release?” Or perhaps thethoughts run, “The senior executives took care of themselveshandsomely in this merger, so maybe it’s time for me to lookout more for myself.”THE STRATEGIC ALLIANCE SOLUTION. Companies wary of mergersoften turn to strategic alliances with customers, fellow suppliersand even competitors. This strategy has much to commend itfrom the point of view of converting corporate energy intoprofitability, growth and quality. Continuity of individual corporatemanagement is preserved (direction). Commitments areless binding and involve less legal hassle (organization). Fewerjobs are threatened (people). The focus is usually precise—well-defined areas where collaboration will probably pay off forall partners (direction), and that often means finding ways toeliminate or reduce overlapping costs or serve customers better(organization).For example, alliances among trucking, shipping and railcompanies offer customers “seamless transportation,” with noworry about how freight will transfer from one mode to thenext en route to its final destination. The next step will aimfor greater consolidation for e-commerce deliveries. Freight|170

Toward “Uncentralized” Organizationsvolume from electronic transactions keeps growing, encouragingwholesalers and retailers to look for alliances amongshippers to streamline delivery systems and lower costs.To be sure, alliances have drawbacks. If mergers are marriages,strategic alliances are agreements to live together withoutthe “till death do us part” commitment. In business, as inlove, that missing “link” may allow one partner to shirk thework necessary to make the relationshipwork or even to part company at will, leavingthe other partner in the lurch.If mergers aremarriages, strategicalliances areagreements to livetogether withoutthe “till death do uspart” commitment.Interpersonal skills for alliances. For all theirrisks, alliances and partnerships are becominga far more important part of work inthe information age than even 10 years ago,says Harvard Professor Rosabeth MossKanter. This means, Kanter adds, that people throughout acompany “need to take partners into account when they aredeveloping their own strategies.”Kanter cites the example of airlines, many of which arenow part of global networks sometimes linking eight or ninedifferent companies. As a result, people in each airline sharecomplex relationships with other partners, says Kanter. Theymust simultaneously be “diplomats for the partner, ambassadorsfor their company to the partner, and diplomats interms of dealing with situations in which their own company’sgoals might be in conflict with those of a partner.” 19Although few companies are yet offering diplomatic trainingon partnering skills, many are making alliances a key organizationalstrategy. Consulting company Booz, Allen &Hamilton estimated that between 1995 and 1998 some 32,000corporate alliances had been formed around the world. Threequartersof these alliances have been across borders. Booz Allenalso estimates that strategic partnerships in 1998 accounted for18 percent of the revenues of America’s biggest companies. 20COLLABORATION BETWEEN CUSTOMERS AND SUPPLIERS. In additionto mergers and alliances, corporate convergence appears frequentlytoday in a third guise—closer collaboration between171 |

CHAPTER SEVEN BUSINESS 2010large companies and their suppliers. Information technologylinking operations of geographically separate organizations willraise the potential gains, and the stakes, for thousands of companies.Already, sophisticated electronic auction programs tellThe disadvantage ofopenness will be thesuppliers’ loss of abilityto hide costs causedby inefficiencies.buyers just how much money the companyis saving compared with the lasttime it bought the same product.In the pre-Internet days, supplierssubmitted sealed bids and buyers selectedthe best offer. In an Internet auction,competing suppliers see each other’sbids online. By 2010, such networked databases will be a commonfeature everywhere in business.Technology will change far more than just the purchasingphase of production. It is already changing the way customersand suppliers work together after a bid is accepted. For example,using Internet links, Honeywell’s Avionics Division can keeptrack of production schedules at one of its major customers.Honeywell today has much more exact information about howmany planes Cessna will make in the months ahead, how manyof each model it will make and what their delivery dates will be.Honeywell, in turn, is now setting up similar links withsome of its 800 suppliers. When the system is fully operational,Honeywell will take the information about Cessna’s productionplans and convert it into parts numbers for its suppliers, whocan then bid on the work. 21Suppliers enjoy decided advantages in the new collaboration.Inventory management, for example, can be more profitablymanaged when customer requirements and supplier’savailable raw materials can be more closely calibrated. Thedisadvantage of openness will be the suppliers’ loss of abilityto hide costs caused by inefficiencies. There will simply be less“give” in the relationship, and from the point of view of manysuppliers, far more “take” on the part of large manufacturers,who will have a new weapon with which to push suppliers tosell to them at even slimmer profit margins.Organizing the electronic marketplace. Information-age technologyis also breeding a new type of electronically organized market-|172

Toward “Uncentralized” Organizationsplace, in which, companies in the same industry are offeringtheir products jointly to buyers on a common Web site (discussedin Chapter Five).In addition to compressing costs through greater transparency,the Internet is changing two other important aspectsof business in the U.S., according to New York Times reporterLewis Uchitelle:First, in a step back from convergence, customers are discountinglong-term relationships in accepting bids from suppliers.They tend to give their business to the qualified bidderwith the lowest price.Second, the Internet makes worldwide bidding far morefeasible, although recruiting of overseas suppliers remains arather old-fashioned task for the moment. Half of the 500employees of FreeMarket, a Web auction site, “spend their timenot running electronic auctions, but searching for suppliers intrade association directories and trips abroad,” Uchitellereports. 22 As databases of suppliers grow in size, accuracy anddepth, however, the existing trend toward worldwide biddingwill certainly accelerate.Long-term relationships under pressure. A disadvantage of this globalsearch for lower bids is the rising level of acrimony it has createdbetween some of America’s most respected manufacturersand their long-time suppliers.The tooling and machining industry is composed of smallto mid-size businesses that make tools, dies and molds, andmanufacture many of the parts that are the vital components ofevery manufactured product from furniture to autos andplanes. As industry leader Matthew Coffey describes the presentsituation, “You may be doing millions of dollars of business witha particular customer, and all of a sudden you are told ‘Move toMexico to do this work or we’re moving it to Mexico.’”Coffey, president of the National Tooling & MachiningAssociation (NTMA), says that such news “creates heartburndilemma” among his members. Coffey says that some of themost respected names in American business today are usingtheir “economic muscle” to ignore what “we came to think ofas a system based on standards of conduct, trust and loyalty.”173 |

CHAPTER SEVEN BUSINESS 2010Adding further pressure is the tendency, widely observedsince the end of 1999, for large manufacturers to ask for yearendrebates from their U.S. suppliers for work they had alreadycompleted and sometimes had even paid for. Quoting comedianW.C. Fields, Coffey describes the situation faced by his membersas “an insurmountable opportunity.”The correct response to the challenges faced by smallbusiness, Coffey insists, is to use the Internet to go global, diversifyingcustomers even as the multinationals are diversifyingsuppliers. “No matter whether you are a one-person, ahundred-person, a five-hundred person company, you nowhave access to the entire world,” Coffey says. By promoting yourbusiness globally via the Internet, you empower yourselfto reach new markets, “because not all the products in the worldare made by big global companies.” There are plenty of medium-sizecompanies all over the world looking for suppliers.The Internet also offers small businesses new opportunitiesto lower costs by forming online buying groups for theirbasic raw materials and supplies. The NTMA is currentlyinvestigating establishing such a buying group among itsmembers for commonly used materials. 23For larger companies, however, expansion into the globalmarketplace creates other new organizational challenges, as thenext section discusses.Organizational Issue #5: Moving Towarda Global PerspectiveTerms like global and globalization are sometimes used interchangeablywith words such as international, transnational andmultinational. When passengers fly from Boston to Toronto, theyuse an “international transportation service.” A retail chain operatingin both Britain and Ireland can claim to be a “transnationalbusiness.” A bank with offices in several Asian countries canclaim to be “multinational.” None of these services, however,make the retail chain or the bank a global company.A global company is one that does business in both theEastern and Western hemispheres, but also in the Northern|174

Toward “Uncentralized” Organizationsand Southern ones. Beyond this geographic difference, theglobal company is increasingly distinguished by how it isorganized.The still-powerful multinational corporation, which maywell be remembered as the predecessor to the global company,was the dominant model for international business for most ofthe 20th century. The multinational corporation is organizedaround separate subsidiaries, each generally operating withina distinct national market.CORPORATE COLONIALISM. The organization of the multinationalcorporation usually consists of a parent company, most commonlylocated in the developed world, and several subsidiaries,normally one for each national market where the parent wantsto operate. “Though freed of coercion, this organization modelresembled a new form of colonialism, corporate colonialism,”says Panos Mourdoukoutas, professor of economics at LongIsland University, New York. 24In his book The Global Corporation: The Decolonization ofInternational Business, Mourdoukoutas argues that the resemblanceto colonialism arises from how the multinational organizesand distributes power. Because of its equity control, theparent company has the power to appoint top management ofthe subsidiaries. It makes—or exercises veto power over—strategic decisions regarding pricing, marketing, distribution,product development, business alliances and expansion intonew markets.“And as was the case with traditional colonialism,”Mourdoukoutas adds, subsidiaries were usually limited to producingand selling within their local market and with the parentcompany. 25COLLABORATION AMONG SUBSIDIARIES. In the global corporation,the traditional parent-subsidiary, one-to-one relationship isevolving into a networking model. Direct collaboration amongregional subsidiaries of the same company is more commonthan previously, when subsidiaries were connected to eachother mostly through parent headquarters. In going after businessin China, Asian subsidiaries of global companies now often175 |

CHAPTER SEVEN BUSINESS 2010collaborate without involvement by the parent. Also, in theglobal model, subsidiaries have more freedom to participate inlocal or regional alliances with other firms.One strength of the global company is a heightened abilityto assemble talent pools from throughout the network of subsidiaries.GM relies on the expertise of its global workforce.Engineers from Mexico are assigned to Asia. Teams from Braziland Germany participated in designing GM’s new plants.We’ve already come a long way from the days when the heavythinking was reserved for Detroit and the implementation wasleft for the subsidiaries.DIMINISHING STRENGTHS. In the post–World War II era, multinationalsenjoyed a competitive advantage because of their adaptableorganization structure. They were designed to supportboth a central unity of purpose and local flexibility. Althoughthere were many failures, the multinational structure servedwell as an effective instrument for overcoming trade barriers,dealing with local government regulations and marketing forindividual tastes in local markets.Now, external pressures discount the value of thesestrengths. For example, the multinational subsidiary was usefulin getting around tariff barriers. How valuable is that in a worldin which tariffs keep dropping anyway?For awhile longer, however, we will be operating with boththe global and multinational models in place. Until protectionismand regulation are eliminated across all industries andnations, “each of the two models can be applied in its ownworld market environments,” says Mourdoukoutas. 26INDUSTRY-SPECIFIC STRATEGIES. In many cases, industry-specificstrategies will determine whether a company stays with themultinational model or builds a global framework for its operations.Consumer companies, for example, will be slow to giveup the benefits of the multinational model in an industry thatmust cater to strong local preferences in taste. McDonald’sembraces a model it calls “multilocalism” for its 26,000 restaurantsworldwide. That means selling mostly through franchiseescatering to local tastes. In India, Maharaja Mac is a|176

Toward “Uncentralized” Organizationsspecial item at most McDonald’s restaurants, but it includesno beef. Mutton, lettuce, cheese, pepper and coriander serveas substitutes in a nation where the cow is a sacred symbol.The big U.S. automakers illustrate how different organizingstrategies for international operations are evolving at differentpaces even within the same industry. GM is setting up an integratedAsian production system using its vast parts-makingcapabilities. Ford is relying on alliances withlocal partners in select markets like India.DaimlerChrysler wants to manufacture inrelatively few countries. For the moment, itsprimary emphasis is on exporting.“Regardless of the tactics followed byindividual corporations, the waves of corporatealliances and restructuring in theinternational field are pointing in thesame direction—the dismantling of hierarchicalparent/subsidiary coordinatingsystem,” says Panos Mourdoukoutas. 27In many cases,industry-specificstrategies willdetermine whethera company stays withthe multinationalmodel or builds aglobal frameworkfor its operations.The emerging structure clearly has the edge in today’sincreasingly integrated world markets. As commodities andresources flow more freely across national borders and localmarkets, strategies that deal with one country in isolationmake less and less sense for more and more companies.Summary and ConclusionsHumanity’s greatest invention, the organization, continuesto evolve. Globalization creates new models forinternational business. New technologies offer thepotential for liberating and energizing people who haveworked at the periphery of corporate power. New attitudesredefine what should drive a company and how a companyshould organize to respond to societal change.Leaders can no longer take organization for granted untilsomething goes wrong. The old business motto—“If it ain’tbroke, don’t fix it”—was once widely applied to organizational177 |

CHAPTER SEVEN BUSINESS 2010tinkering. Then when something went wrong, managers suddenlytook notice of organization. They cut staff, closed subsidiaries,simplified the organization, “got back to basics.” Itoften worked, but the cost and waste were high.This practice will no longer be good enough. What isrequired is nothing less than a continuous reevaluation of theprinciples and structure of organization.Begin by accepting Peter Drucker’s wiseadvice: There is no perfect organization,no universal model that fits everyone.Organizations must be redesigned tomeet the needs of the customers theyserve, and thereby to maximize profitability.The key isn’t either/or, big vs.small, mergers or alliances, but whatmakes sense. Consider every option.There is no magic formula for success.In anticipating how organizations will evolve, forget mostThe key to organizationisn’t either/or,big vs. small, mergersor alliances, butwhat makes sense.Consider every option.There is no magicformula for success.of the end-of-century hype. True, there were some appealing,if half-baked, ideas, such as these: The organization of businessas we have learned to know it in the past 150 years will ceaseto exist. Big companies will become little more than downsizedbrand names, temporary homes for scores of freelancers whowill form virtual teams on wireless networks. Best of all, therewill be no meetings—e-mail will make them obsolete.Anyone who works in a big company or even a mediumsizeone knows that these visions of business life are still quitedistant on the horizon, if they ever come to pass at all. In lookingat Business 2010, assume the continuing presence andpower of the corporation as the primary organizing form forwork, because the corporation—not just a legal form, but anenduring concept holding together a network of structuresand systems—is currently our most tested and effectiveinstrument to convert human energy into performance inbusiness.Although business organizations will continue to be with usfor some time, they are now evolving rapidly in at least threeimportant ways in response to pressure from society, customers,competition and the public.|178

Toward “Uncentralized” OrganizationsFirst, the expanding global market calls for a redesign of the waycompanies manage across borders. The multinational corporatemodel that has dominated international business in thepast century is giving way to global organizations.Second, since the Industrial Revolution, the organization of most businesseshas been based on the premise of delineated markets,industries and technologies. Today, all three are converging,requiring a rethinking of corporate structure and organization.Third, increasingly, the most valued assets today are knowledge andinformation rather than land, buildings, machinery andequipment. Skill in managing assets, no matter what theircomposition, remains a true test of organizational strength.However, a fundamental shift in how assets are valued isfostering a parallel shift from decentralized to uncentralizedorganizations more attuned to managing mental assets.This shift means that as organizational power evolves fromfew centers to many, companies governed by numbers, hierarchy,and proprietary systems must learn to rely more on standards,values and open systems.179 |

CHAPTER EIGHT BUSINESS 2010Capital:An End to Limits?KEY CHAPTER THEMES■ Business development depends on three majormaterial resources:1. Physical assets such as plant, equipmentand raw materials,2. The knowledge and information necessaryto create products and serve markets, and3. Money to fund operations, finance expansionand ensure continuity.■ Access to all three has shifted from a climateof shortage to one of far greater availability.■ The key to this shift is not the material resourcesthemselves but a nonmaterial resource—human ingenuity.

CHAPTER EIGHT BUSINESS 2010“If two percent of the population can grow allthe food we eat, what if another two percent canmanufacture all the refrigerators and other thingswe need?” —GEORGE BENNETT, CHAIRMAN, SYMMETRIX, INC.“Everybody wants a play in the venture business.”—GEOFFREY Y. YANG, PARTNER, INSTITUTIONAL VENTURE PARTNERSTO EXIST AND GROW, A BUSINESS MUST HAVE A MARket,and it must provide that market with productsand services that meet the needs and desiresof customers. Leaders of the business must organizeand continually upgrade the structures,systems and coordinating mechanisms that help manage thebusiness internally and link it externally with customers, suppliersand business allies. Dramatic changes in these componentshave been the focus of the previous three chapters.The fourth vital component in business can be summarizedunder the heading “capital”—all the nonhuman resources thatcompanies use to maintain and grow their businesses. Hereagain, basic changes are radically shifting direction and priorities.To grow in alignment with its market, any business musthave three, key nonhuman resources:1. Access to the physical plant, machinery, equipment and raw materialsnecessary to make its product or produce its service.2. The right information—a resource with the rare capacity to keepgaining value each time it is used.3. Capital to fund operations, finance expansion and ensurecontinuity.183 |

CHAPTER EIGHT BUSINESS 2010Human resources, which are so important a componentthat they are the key to all the others, are discussed on theirown in the next chapter.In considering the evolution of nonhuman resources,we immediately encounter the same kind of transformation wefound in market, products and services, and organization.What used to seem so tangible is now far more ephemeral.Major companies like Cisco produce huge wealth withoutcommensurate investment in plant and equipment. In thisnewer model, one company provides the ideas, marketing, andaccess to capital and leaves the investment in physical assets toits suppliers. IBM goes into steep decline while loaded withphysical assets only to be reborn on intangible services. The costof opening a retail bank branch has really shrunk; you’ll nowfind one inside the door of the supermarket, next to the softdrinkmachine.To realize the significance of the shrinking importance ofmaterial resources, it is important to understand first that thisphenomenon is in no way new. Since humanity’s earliest days,the relevance and productivity of material resources havedepended on the quantity and availability of nonmaterialresources. It was the nonmaterial thinking power of earlyhumans that turned the material resources of trees into canoesand bows. Throughout history, progress has always dependedon the capacity of nonmaterial resources like scientific discoveriesand technological innovations to turn basic minerals andmaterials into benefits for humanity.Technology: Organized ThoughtOne of the most effective of our nonmaterial resourcesis organization. When Thomas Edison organized oneof the world’s first truly effective research laboratories,he accelerated our ability to find new capacities in the materialsall around us. The same is true for Henry Ford’s assemblyline, the financing structures of J.P. Morgan and even the franchisinggenius of McDonald’s Ray Kroc. Each brought a newenergy and organization to an older process of converting|184

Capital: An End to Limitscommodities and raw materials to human use.This human ability to visualize and think in an organizedfashion has always been at the core of our capacity to increasethe productivity of any basic resource—land, water, mineralsor fuel, for example. Before we invented the mortgage system,farmers had to amass and invest the total cost of theirfarms. With mortgages, farmers canfirst borrow and then use the asset toraise funds for more advanced technology.The productivity of the landasset is enhanced by human ingenuity.Technology is organized and replicablethinking. That’s what enabled us toconvert sand—the humblest of rawmaterials—first into bricks and glass,and then into fiber-optic cables andEdison, Ford, Morgan,Kroc: Each broughta new energy andorganization to an olderprocess of convertingcommodities and rawmaterials to human use.intelligent microprocessors. We took petroleum and convertedit into lamp oil and then gasoline. Then we learned how to usethe same material to make plastics, clothing and lifesaving pharmaceuticals.India’s “Green Revolution” worked with the sameland that farmers had tilled in the same way for thousands ofyears. The new technology increased grain production by 50%within five years, by 100% in 10 years and by 400% in 25 years.Technology now permits us to implant some capacityto replicate human thinking into physical objects. A Swissaluminum executive suggests the power of this marriage in amemorable short aphorism, “The smarter the metal, the lessit weighs.” 1For example, a hand-held personal assistant can “remember”your appointments and key phone numbers. Properlynetworked, computers can work out availabilities and conflictsand distribute a schedule for a meeting involving dozens ofexecutives. In a more recent breakthrough, researchers atBrandeis University in Waltham, Mass., instructed a softwareprogram to come up with the best design for robots with simple,mobile parts. After days of “brainstorming,” the computerprogram evaluated the viability of each potential designwith a virtual “fitness test” and selected the most promisingmodels for review by humans. 2185 |

CHAPTER EIGHT BUSINESS 2010There are at least three significant implications for businessof the shift toward greater importance of nonmaterialresources like organization and thought, compared with physicalassets like land, metals and materials:1. The idea that there were finite “limits of growth” due to lack ofresources, a popular concept a quarter-century, ago, seemsmore dated every year. The term, says Harlan Cleveland,“applies only to limits of physical development.” Not so longago economists held that the pace of development for a nationor region depended heavily on the ratio of population to physicalresources such as land, oil or minerals. Too much populationin relation to too few resources spelled either poverty or a“limit” to growth. Yet in an economic world increasingly dominatedby a resource called information, says Cleveland, “theonly limits, the really alarming limits, are the limits to imaginationand creativity...” 32. Exploiting the explosive potential of nonmaterial resources will requirea higher level of organization than using basic material resources.The technology involved in cultivating hybrid wheat, travelingin space or engaging in electronic commerce requires far morestringent procedures and organization than growing regularwheat, driving a car or using regular mail service.The Internet, for example, is a valuable nonmaterialresource that requires rigorous standards and discipline fromusers—in short, a higher level or organization. E-tailing, forexample, must be supported by a national system of credit;complex technology for ordering, receiving and processingorders; and a linked system of delivery from remote sites.These systems, all relatively new in human experience, mustwork together seamlessly. Compare that level of complexitywith the level of organization required for a family in a developingcountry to purchase supplies from a small rural shop lessthan a mile away.3. Efficiency of operations—a constant war on wasted time, effort andcash—remains a vital element in conserving or multiplyingresources, whether material or nonmaterial. Companies|186

Capital: An End to Limitstoday are consciously expanding their use of outsourcing, notjust in emergencies but as an ongoing strategy to concentratetheir resources on higher-level and more profitable work. Asimilar motive encourages what some experts call corporatecannibalization—the systematic abandonment of a still-viableproduct or service in favor of a later innovation before a competitorcan introduce that innovation. Companies todayemploy both strategies in an attempt to upgrade the returnthey get from their material and nonmaterial resources alike.Nothing in this change means that material resources aresomehow no longer important, only that their importance haslessened in relation to nonmaterial resources. The rest of thischapter looks at how the creative power of human thought has:■ Changed the availability of key commodities,■ Redefined the value of information as a source of growth andinnovation, and■ Opened the way for new definitions and potentials in how wecreate and use money.Material Resources: From Heavy toLight, From Shortage to SurplusThe transition from manufacturing to services reducesthe need for material assets. There are costs associatedwith producing those intangibles so prized today, butthe costs are different from the heavy, before-the-fact costs ofan earlier era. No one has to invest in a factory to elevate andpersonalize customer service.The Internet has accelerated this trend, but it is along-term phenomenon. Federal Reserve Chairman AlanGreenspan once noted that through the second half of the 20thcentury, the U.S. tripled the real value of its output with noincrease in the weight of the materials produced. Knowledgebasedtechnology was the root cause of this shift. For example,we replaced basic metals with plastics and coal with diesel fuel.187 |

CHAPTER EIGHT BUSINESS 2010The speed with which material assets lose value today isanother indication of their lessening importance. Our currentdepreciation system is outdated, the U.S. Treasury concededin a recent study. Internal Revenue Service tables listing usefullives of business assets have been in place for years and don’treflect the speed with which technology makes assets obsolete.Commercial real estate illustrates the problem. TheTreasury study suggests that a write-off over 20 to 30 yearswould more closely approximate today’s useful life for a commercialbuilding. That would be more realistic than the current39-year depreciation schedule.Computers are another common example. Today, mostbusiness computers are replaced faster than their official IRSuseful life of five years.Another candidate for reform: used assets, which the IRStreats as having useful lives that are the same as those for assetsthat are purchased new. 4Manufacturing’s Revolution in a BoxAccelerating technology will drive this trend from heavy tolight, from expensive to cheap, even faster in the years ahead.Time magazine called one such new technology “the revolutionin a box.” The process, called virtual engineered composite, orVEC, permits producers to scatter small manufacturing cellsaround the world to make products close to where they couldbe used. The expertise to run the system would reside at a centralcontrol center linked to the cells by the Internet. If thisprocess proves to be effective, says Time, it could make largecentralized factories obsolete.To be sure, many hurdles remain in proving the technology’seffectiveness in widespread applications and then convincingthe bigger segments of the manufacturing industry, whichare generally conservative. As The New York Times notes,“Computer-based technology generally seeps, rather thanbursts into manufacturing.” The segments most likely to beinterested initially are manufacturers of boats and other marineproducts, like jet skis, as well as bathtubs and paneling forbuildings, trucks, rail cars or specialty vehicles. 5|188

Capital: An End to LimitsThe Law of Increasing ReturnsEvery Economics 101 student learned about the power ofdiminishing returns: Increased supply begets lower value.Until recently, the principle was so obvious it went unchallenged.Now economist W. Brian Arthur has popularized theconcept of “increasing returns.” Products used in networks—faxes, e-mail or cell phone services, for example—increase invalue as the supply grows. That explains the seemingly insanestrategy of giving away your basic product for nothing. Cellphone service took off when the phone companies practicallygave the phones away, relying on customers’ growing use ofairtime to produce profit.All this change doesn’t repeal the ancient law of diminishingreturns, but it does make it relevant only to a shrinkingportion of our economic life. “Consider the magnitude of allthis,” says The Wall Street Journal, “Instead of causing prices torise, economic growth is actually propelling them lower.” 6Long-Term Pressure on Commodity PricesBusiness still depends heavily on commodity materials like oil,lumber and plastic resins. Although prices periodically spike inmany raw materials, the underlying cause is often short-termpolitics rather than long-term economics. In fact, long-termeconomics tends to promote the use of less expensive substitutesfor commodities in short supply.In manufacturing, new technologies make it possible toproduce more products with fewer and newer resources. Thegrowing global marketplace contributes to the steady downwardpressure on the prices of manufactured products. We areapproaching a time when a single major country could providethe entire world’s demand for many specific products. Thetrend has resulted in global surpluses in categories such assteel, basic chemicals and computer memory chips.Also, the rapid expansion of information technology makeseveryone seem smarter and work faster. In a transparent marketplace,everyone quickly knows the price of critically importantitems, which pushes out intermediary costs and intensifiesthe downward pressure. As was discussed in earlier chapters,189 |

CHAPTER EIGHT BUSINESS 2010this change keeps pressure to reduce prices on almost everyonewho works as an intermediary between buyers and sellers.Prices convey information about scarcity; the informationthat long-term pricing trends convey is that primary commoditiesand commodity business products are more availablethan ever before. Despite sometimes fierce, temporaryreverses in that pattern, this trend will probably continue inthe years ahead.Cheap Energy: Can It Last?The marketplace presents one stubborn exception to this projecteddownward trend in commodity prices. As I write thischapter, there is great concern about dramatic increases in theprice of one key commodity, oil, which recently reached a 10-year high in the price per barrel. A decade of rapid worldwidegrowth, fueled in part by energy-hungry electronic devices,raises the specter of ever-rising prices, perhaps even theprospect that rising energy costs could actually halt global economicexpansion. How real is this threat?Easily overlooked amid the present concerns are longertermeconomic and intellectual initiatives that will likelyimprove the future outlook for energy supply and demand. Forone thing, temporary shortages always spur investment andinnovation. Rising prices encourage investment by petroleumproducers. Investment, in turn, brightens the outlook fordrilling companies and sends ripples of economic benefits—more jobs, rising wages and expanding tax bases—from WestVirginia to California.EXPANSION OF OIL PRODUCTION. Capital spending in the oil andgas exploration and production industry was projected to riseby about 15% in 2000 and probably by a similar amount in2001. Even an expected softening in oil and gas prices in 2001will not be enough to slow this rate of investment.Meanwhile, new technology is helping the oil industry tapreserves at depths that were unheard of just 25 years ago. Inthat era, offshore drilling rarely penetrated more than 300 feetbelow the ocean floor. Now, offshore drilling of exploratory|190

Capital: An End to Limitswells has reached more than 7,500 feet. On land, wells of30,000 feet are possible. 7Three-dimensional seismic analysis is another importanttechnological tool for the oil and gas industry. Using this tool,scientists can more accurately determine a particular site’s feasibilityfor drilling oil or gas. Historically, in some areas, onlyone in 10 wells drilled actually resulted in the discovery of oiland gas reserves. Seismic analysis technologyhas increased the success rate to 50%.Energy price increases have alsoaccelerated the search for new oil and gasfields by our northern neighbor. Canadaalready is the top exporter of natural gasto the U.S., second only to Saudi Arabiaas our major supplier of oil. AtlanticCanada, the region from Nova Scotia toLabrador, could prove to be “the nextgenerationNorth Sea or Prudhoe Bay,”according to The New York Times. 8Exxon Mobil now estimates the potential of EasternCanada’s conventional offshore reserves at 40 billion barrels, inaddition to the estimated 34 billion barrels in Western Canada.“When you see an iceberg, you only see 10 percent,” says BrianTobin, premier of Newfoundland and Labrador. “Well, our oiland gas industry is an iceberg waiting to reveal itself.” 9To be sure, environmental activists and their governmentallies remain worried by the potential environmental impact ofthe search for new oil and gas sources. However, the industryargues that new exploration and production techniques aremore environmentally sensitive than ever. The AmericanPetroleum Institute, for example, says that drilling sites onAlaska’s North Slope are almost 90% smaller than they were inthe 1970s when drilling began there. 10Easily overlookedamid the presentconcerns are longertermeconomic andintellectual initiativesthat will probablyimprove the futureoutlook for energysupply and demand.THE ELECTRIC REVOLUTION. Electric power is another energysource set for a period of tumultuous price upheavals, whichThe Economist predicts will be “as dramatic as the revolutionthat hit the world’s telecommunications industry in the 1980s.”Driving this change is a cleaner, more localized technology,191 |

CHAPTER EIGHT BUSINESS 2010popularly called micropower, which generates electricity bysmall-scale fuel cells and gas turbines.Micropower offers substantial advantages over oldfashioned,centralized power stations in terms of efficiency,reliability, environmental friendliness and, increasingly, price,adds The Economist. Micropower lets decentralized local usersdeclare independence from large electric grids. That’s anappealing feature for many poor countries that foresee theopportunity to develop their energy production and distributionwithout having to build giant and costly power stations.Another advantage is that micropower users can sell their surplusenergy back to the grid.Despite the benefits, micropower must compete in an environmentof policies and regulations that were put in place tosupport the centralized model. As a result, the revolution muststill overcome three substantial barriers:1. Discriminatory taxation, which favors other energy sources;2. Lack of uniform technical standards, such as procedures for usersto hook into grids; and3. Regulatory confusion over, for example, interstate trading ofelectricity.In short, micropower must reach a higher level of organizationbefore it can live up to the potential envisioned by itsenthusiasts. If these barriers can be overcome, says TheEconomist, in a few decades “the notion of a micropower unit inevery home and office may even have come to fruition.” 11THE OLD WORKHORSES. In the meantime, traditional sources ofpower haven’t yet gone the way of the dinosaur, despite someappearances to the contrary. For example, no major, new generatingplants have been built in California since the 1980s. A1996 law even forced power companies to obtain regulatorapproval before performing major repairs or “refits” on existingplants. But as trouble loomed in 2000, the California statelegislature passed fast-track measures to reduce regulatory barriersto building new plants.Nuclear power remains another possible source of energyrelief. Here again, the barriers are high, but the potential pay-|192

Capital: An End to Limitsoff is high, too. The basic energy fact is that the splitting of thenucleus of an atom of uranium produces 10 million times theenergy produced by the combustion of an atom of carbonfrom coal. Still, public concerns about safety remain a formidablebarrier.“The expansion of nuclear power depends substantiallyon politics, and this politics has come out differently in differentcountries,” says John McCarthy, aStanford University computer scienceprofessor who writes about the sustainabilityof human progress. “Very likely,”McCarthy continues, “after some timethe countries whose policies turn outbadly will copy the countries whose policiesturn out well.” 12A Worldwatch Institutepaper reports thatwind power hasbecome a $2 billionglobal business and isgrowing at 25% a year.ALTERNATIVE POWER SOLUTIONS. The search for innovative energysolutions goes well beyond traditional sources and methods,and in countries where energy prices are generally higher thanthey are in the U.S., there is more incentive to develop newsolutions. A Worldwatch Institute paper reports that windpower has become a $2 billion global business and is growingat 25% a year. India, China and a dozen European countrieshave installed thousands of wind turbines that generate electricityat a cost comparable to new, coal-fired power plants. Inthe 1990s Germany alone created 10,000 new jobs in its windpower industry.Solar power, adds Worldwatch, is the second-fastestgrowingenergy source today. Some 400,000 homes, many inremote areas not reached by power lines, were already usingsolar power by 1997. 13Even after decades of talking about alternative powersources, however, relatively little progress has been made. Asauthor and Manhattan Institute fellow Peter Huber writes:“Wind, solar and other ‘alternative’ energies sound great intheory, but they rarely make much economic or environmentalsense in practice. They require a lot of expensive, unreliablehardware. And they generally use more land to deliverless energy.”193 |

CHAPTER EIGHT BUSINESS 2010Although the success of any specific new source of powerremains problematical, the momentum behind the search willcertainly accelerate, even in the U.S., in the years ahead. Huberand fellow energy consultant Mark P. Mills estimate that the useof home and office computers, phone lines, printers, faxmachines and other peripheral devices accounted for 13% ofAmerica’s energy use in 1999. Further, they project thatInternet-related energy usage will likely rise to 35% or more ofa rising energy usage by the end of the decade. 14All alternatives to our present power system are now in variousstages of readiness. All of them face substantial barriers.However, it seems safe to expect that despite periodic pricespikes and setbacks, the long-term, technology-driven trendfrom shortage and high prices to greater abundance and lowerprices will continue even in energy.Water, Water Everywhere,but a Higher Cost per DrinkIronically, a vital commodity that seems certain to rise inprice in the short term is one we take so much for grantedthat we don’t consider it a commodity at all. The nextdecade will see prices for water used by business and residentscreep up by about 6% a year. That’s enough to bring aboutmajor transformation in how Americans use, price and regulatewater.Water is already a big global enterprise. According toAzurix Corp., a spin-off of energy giant Enron, annual revenuesfrom the business of water total about $300 billion a year.That includes the costs for collecting, treating, sorting and supplyingdrinking water, and for collecting, treating and disposingof wastewater and by-products. 15Conservation actually reduced U.S. water use by 10%between 1980 and 1995. However, if nothing changes by 2020,projected daily water use will be up by 9 billion gallons a day,a 2.5% increase over the figure for 2000. Reasons include populationshifts from colder climes to Sunbelt states and from|194

Capital: An End to Limitscities to suburbs. In both cases, the move means extra waterfor pampered lawns and gardens. There will also be growingdemand for increased irrigation of crops. Expansion of waterintensiveindustries such as pulp and paper, chemicals andpharmaceuticals, food processing and semiconductors alsowill raise demand for water.More than rising demand, however, shrinking water supplieswill change the economics of water.Environmental concerns are slowing constructionof new dams, and some olddams are being demolished to restore thenatural flow of streams and rivers. Eitherway, we are diminishing a traditionalroute to increasing water supplies.Aging water infrastructure also willtake a toll. U.S. water authorities need tocome up with $325 billion between 2000and 2020 to update and replace waterpipes, storage systems, purification andwastewater treatment plants, according toThe staggering costof updating agingwater infrastructureis sure to encouragemore privatization ofwater, especially whencommunities add inthe cost of meetingtougher governmentregulations.the American Water Works Association. That staggering figureis sure to encourage more privatization of water, especiallywhen communities add in the cost of meeting tougher governmentregulations like the Clean Water Act and the SafeDrinking Water Act.Privatization, an organization structure that is generallymore efficient that public ownership, is already having animpact. Asset sales and total privatization of water utilities arealready common in smaller towns, many of which simply wantto get out of the business. American Water Works Co., based inVoorhees, N.J., says it acquired one municipal water companyfor just one dollar.Cities still resist sale of assets, turning instead to anotherorganizational innovation—long-term operating contracts.Federal tax legislation passed in 1997 now permits public waterutilities to enter into 20-year operating contracts withoutaffecting the tax-exempt status of their water bonds. The previouslaw limited such deals to five years.Consumers and businesses will benefit from privatization.195 |

CHAPTER EIGHT BUSINESS 2010Costs will likely rise, but they will probably rise less and moreslowly under private companies, which are able to employlarger economies of scale. Whether publicly or privatelyWastewater fromsome industrial orhousehold activities—so-called gray water—has tremendouspotential as anew source ofnonpotable water.owned, water companies are sure to applynew technical solutions to conservation andnew purification and filtration systems.For example, the recycling of water willgrow. Local governments will encourage—and in some cases require—the reuse ofwastewater from some industrial or householdactivities. This so-called gray water hastremendous potential as a new source ofnonpotable water. Desalination is anothertechnology offering great potential. Alreadyabout 100 Florida cities use desalination to reclaim groundwater that has become too salty for use, or to desalinate seawater.Also, municipal water authorities are starting to use carbon,long used for home water filters, to improve purification.From today’s perspective, a major water shortage certainlylies ahead. However, as water issues rise more to the forefront ofpublic consciousness, look for additional technical and organizationalinnovations. There are plenty of efficiencies to pursue.Information: A ResourceThat Keeps GrowingThe word scarcity can hardly appear in the same sentencewith the resource called information. The cost of informationdeclines every day, as its availability increases.The incredible growth of data bases and analysis on the Internethas changed the resource rules of the game irrevocably.“As far as we can see in the future, information will be playingthe lead role in world history that physical labor, stone,bronze, land, minerals, metal and energy once played,” saysHarlan Cleveland. That change means that people who grewup appreciating the importance of certain limited resourcesmust now think in new ways.|196

Capital: An End to LimitsProfound and exciting differences exist between informationand the dominant resources that preceded it. The biggestchange of all, says Cleveland, is that information consists ofsymbols, not things, making it far more accessible than any ofthe world’s dominant resources before. Cleveland defines atleast six implications for the future as information rises to aleading position among the world’s resources. Each of thesechanges distinguishes information from all other physicalresources:■ “Information is not necessarily depletive: it expands as it’s used.■ It is easily transportable, at close to the speed of light.■ Information leaks so easily that it is much harder to hide and tohoard than tangible resources.■ The spread of knowledge empowers the many, simply by erodingthe influence that once empowered the few who were ‘inthe know.’■ Information cannot be owned (though its delivery service can), sothe phrase ‘intellectual property’ is an oxymoron.■ And giving or selling information is not an exchange transaction, it’s asharing transaction.” 16Accurate gauges to the dollars-and-cents impact of thischange are hard to come by. However, in one illuminatinganalysis, Credit Suisse First Boston calculated reductions inworking capital, property, plant and equipment as a proxy forthe substitution of knowledge for physical assets. The studycovered only a small subset of the economy—industrial membersof the Standard & Poor’s 500-Stock Index. Yet the studyestimated that those companies alone created $245 billion inwealth in the 1990s just by converting “atoms to bits.” 17Another example of converting physical resources intomore profitable knowledge-based assets comes from one of ourmost mature industries—the railroad. Florida East CoastRailroad entered the information age business by collectingrent from giant telecommunications companies that wanted tobury cable beside its tracks. Then, in 1998, the company decidedto jump into the market directly by selling transmissioncapacities to telephone companies, wireless services andInternet service providers. The company’s fiber-optic cables197 |

CHAPTER EIGHT BUSINESS 2010now run alongside train cars piled high with crushed stone,building materials and vehicles. 18An Expanding Universe of InformationEnthusiasts earlier described the resource of World Wide Webas a giant brain, linking companies and individuals thoughavailable information. That analogy now may be too conservative.It may be more appropriate to compare the Web not toone brain but to a rapidly expanding universe, more unfathomablethan we at first imagined.BrightPlanet, a Sioux Falls, S.D. start-up, published a paperin late 2000 estimating that the Web was already 500 times largerthan the maps of it provided by popular search engines.Using its new software, BrightPlanet estimated that 550 billiondocuments were stored on the Web. Combined, Internet searchengines now index only about 1 billion pages, mostly home sitesthat house huge data bases. Many of the additional documentsidentified by BrightPlanet are in those databases. Even the 1 billionindexed pages represents a quantum leap from the figureestimated as recently as 1994, when Lycos, one the first Websearch engines, had an index of only 54,000 pages. 19New Ways to Count in the Information AgeThe shift from physical to nonmaterial resources requires newways of measuring productivity as well as business risk.Increasingly, this requirement exposes the inadequacy of our500-year-old system of accounting.Many businesses have already responded by shifting fromtraditional cost accounting to activity-based costing. Firstadopted in manufacturing, the new system is now spreading toservice firms and even some nonprofits like universities.Traditional cost accounting, popularized 70 years ago byGeneral Motors, was based on the premise that you could figureout the actual cost of a product by adding the costs of all theindividual operations required to produce it. Activity-basedcosting starts with a different and more comprehensiveassumption: that every business is one integrated process,|198

Capital: An End to Limitsbeginning when materials and supplies arrive and continuingeven after the product or service is delivered.Activity-based costing shows why traditional cost accountinghasn’t worked for service companies, says Peter F. Drucker.“Service companies cannot start with the cost of individualoperations ....They must start with the assumption that thereis only one cost: that of the total system. And it is a fixed costover any given time period.” For example, banks using thenew system must ask, Which activity is at the center of costsand results? There is really only one answer: The customer.That means, says Drucker, that the yield per customer—boththe volume of services a customer uses and the mix of thoseservices—determines costs and profitability, and thereforecompetitiveness.Over the next decade, the dominance of knowledgebasedservice companies—and the service component oftraditional companies—will continue to increase in our economy.That will keep the pressure on for better and bettertechniques to measure service productivity, and will createwhat Drucker calls real “result control.” He predicts that “formost knowledge-based and service work, we should, withinten years, have developed reliable tools to measure and managecosts and to relate those costs to results.” 20A Macro-Level Accounting ChallengeThe task of accurately measuring the true value of economiccosts in the age of information becomes a challenge at thenational level as well. “As sources of wealth migrate from naturalresources and capital toward information and skilled people,traditional economic yardsticks look as old-fashioned as aslide rule,” says Fortune.Take an everyday example—the cost of lighting. Yale professorWilliam Nordhaus compared the price of lumins (a standardunit of measurement of light) over time. In 1750 B.C.,Nordhaus estimates, the average Babylonian, relying on oillamps fueled by sesame oil, would have had to work 350,000hours to buy as many lumens as the average American couldbuy with one hour’s work in 1992.199 |

CHAPTER EIGHT BUSINESS 2010Nordhaus’s analysis takes into account improvements inquality and efficiency by focusing on the price of the servicedelivered to the customer. For example, that new computeryou just bought delivers to you a far higher quality of speedand convenience than the one you bought 5 or 10 years ago,probably for more money. Nordhaus makes the point that officialstatistics can’t possibly adjust quickly enough to the newand better to accurately reflect the impact of major innovations.Why is getting a better handle on accurate measuresimportant? Fortune cites several reasons. Alan Greenspan andthe Federal Reserve make key decisions based on these figures,which may be inaccurate. So do investors. “If the information isnot good, decisions will be flawed,” adds Fortune. And any flawin the system could be getting worse because of the accelerationin product and service innovation and the shift to knowledgebasedvalue. 21Risk Management in the Information AgeAnother new way of counting focuses on calculating risk. Weknow how to evaluate and manage risk in a world dominatedby physical assets. You figure out the cost of replacing thebuilding, equipment or foreign exchange and insure it againstreasonable risk of whole or partial loss. For those kinds of riskwe have in place simple, well-organized and proven systems.Now turn to a world dominated by intellectual assets andhuman capital. Whatever systems now exist are hardly simpleor well organized, and certainly not yet proven. The emergingproblem centers on a host of new risks that don’t take an objectiveform at all, says risk management expert Donald Lessard,deputy dean of the Sloan School at MIT.“Think of the difference between the e-world and the physicalworld,” Lessard says. “Today if you were to value a shoppingcenter, you’d go out and count the visitors. Before, you’dlook at the buildings.” Today’s intangible risks include hard-toanticipatethreats like a sudden attack on your reputation,brand or business model; loss of key skilled people; or theft ofthe process you use to create new products. 22|200

Capital: An End to LimitsExpanding options is one key to managing new kinds ofrisk today. For example, to protect your cash flow from theloss of a people-based asset, consider expanding use of teamsto diversify the ownership of vital knowledge. Or to lower therisk of a big capital expenditure to enter a new market, considerthe organizational options such as creating alliances,even with a competitor.Developing options has been one key to Microsoft’s successin a highly volatile market, according to Eric D. Beinhocker, aprincipal in the Washington, D.C., office of the large consultingfirm McKinsey & Co. Beinhocker remembers wandering thefloor of Comdex, the computer industry’s big trade show, inthe pivotal year of 1988. Writing in the Sloan ManagementReview, Beinhocker recalls the scene and the reactions on theComdex floor:Amid the uncertainty, there was something very curiousabout the Microsoft booth. . . .While most boothsconcentrated on a single blockbuster technology,Microsoft’s resembled a Middle Eastern bazaar. In onecorner, the company was previewing the second versionof its much-criticized Windows system, which hadas yet gained little market share. In another, it toutedits latest release of DOS. Elsewhere, it was displayingOS/2, which it had developed with IBM. In addition,Microsoft was demonstrating major new releases ofWord, Excel and other applications that ran on Apple’sMacintosh; indeed, they were the most popular programsfor it. Finally, in a distant corner, Microsoft displayedSCO Unix, a PC-compatible version of theoperating system, developed by a firm that had a marketingagreement with Microsoft.Microsoft’s strategy—or apparent lack of it—was criticizedat the show and in the press. With 20-20 hindsight, we knowthe outcome of this story, but it was in no way obvious then thatthe Windows operating system would win. That being in thecase, Microsoft “followed the only robust strategy: betting onevery horse,” Beinhocker says. 23201 |

CHAPTER EIGHT BUSINESS 2010Managing risk by exploring and developing a variety ofoptions has always been an attractive strategy for imaginativebusinesspeople. Look in the next decade for this intuitiveapproach to become a far more formalized technique, with itsown methodology and applications. Risk will never disappearin a competitive economy, but it is sure to be managed far moreanalytically and with far greater rigor in a world where pilingup physical assets not longer ensures survival.Money: New Ways to Spread It AroundThere are many ways to look at money, but most practicalpeople focus on utility rather than mystique. “Money islike manure,” said the Elizabethan philosopherstatesmanFrancis Bacon, “of very little use except it be spread.”Jerry Weaver, a highly successful entrepreneur in Gadsden, Ala.,makes the same point more elegantly: “Money is just anothercommodity.” Weaver should know—over four decades he parlayedthe capital represented by a couple of small metal-workingmachines into a businesses with annual revenues of more $250million employing about 1,800 people.Money is primarily a social system and convention. Forlegitimacy, it relies on trust—confidence in government, laws,political and economic institutions, and law and order. Weoften feel dominated and limited by the instrument we havecreated for our own use and satisfaction. Jerry Weaver’s definitionis far closer to the truth. Accelerating technology andinnovation in organizational efficiency can enhance the productivityof any asset. In this, money is no different from anyother commodity.Creative Vehicles to Spread It AroundNever before have we had so many creative business vehiclesand techniques to spread money around so quickly. At thesame time, the growth and volatility of the international financialmarkets and the growing impact of new forms of moneyhave raised new risks, propelling us into unknown territory.|202

Capital: An End to LimitsAlthough the risks at any time are specific—to a country, acommodity, a currency, or a defined investment vehicle—theoverall outlook is for continued long-term expansion ofsources of money.The expanded availability of moneyarises in part because our definition ofstored value has changed. Over the centuries,many physical objects substitutedfor money—pigs, beads, and shells, forexample. By the 19th century, everyonein the then-developed world had settledon a definition of what money was—itwas gold. More precisely, it was nationalcurrencies like dollars and poundsbacked by one near-universal standard—the price of gold.The dollar’s supremacyarises not from itsrecord as a store ofvalue but from therole of the U.S. as theworld’s largest economy,home base of theleading capital markets.Now there are dozens of national currencies, none ofthem backed by gold or any other specific valuable. Thispotentially chaotic situation works reasonably well in practicebecause of an informal hierarchy of currencies, with the U.S.dollar still number one. The dollar’s supremacy arises notfrom its record as a store of value but from the role of theU.S. as the world’s largest economy, home base of the leadingcapital markets.Expectations Determine ValueThe dollar’s supremacy illustrates another key aspect of money.The real determinants of money’s value at any time are humanexpectations, attitudes and values. When these expand—asthey have in the U.S.—the value of money linked to thoseexpectations, attitudes and values will rise as well. When forany reason they decline, the value of money decreases.Like any form of organization, the money system canbecome better organized and more productive. Early purchasersof vehicles had to pay cash, substituting one asset foranother. Then credit made it possible to purchase that commercialvehicle on the prospect of future earnings. Now businessescan lease a truck, gaining the economic value of theasset without ever owning it. Each of these simple develop-203 |

CHAPTER EIGHT BUSINESS 2010ments made the cash used to pay for the economic value of thevehicle more productive.Many of the trends discussed in this book are fuelingchanges in our worldwide money system today. Technology ina global marketplace vastly enhances oursystem for money transactions, bothimproving the coordination of financialactivities and increasing the speed oftransactions.As units of currency fly throughcyberspace, each becomes infinitely moreproductive than the system when goldcoins passed from hand to hand. Usinginformation technology, manufacturersor retailers can conduct more transactionsper day using the same capital base,thereby increasing the productivity of their money. Suchchanges have the equivalent effect of creating new money byexpanding the money supply, because money is less likely to betied up in fewer, slower and less productive transactions.Bringing more stable and reliable structures to internationalcurrency is a key challenge for the next decade. Businessneeds a vibrant and stable equity culture to keep growing,because investors need a dependable structure on which to calculatefuture risks. Investors are searching for opportunitythrough equity shares as never before. In 1999, the AustralianStock Exchange announced that 54% of the country’s adultpopulation owned stock in companies; the figure in Canadawas 52%. In the U.S., in 1999, just under half of all adultsowned stock, directly or through vehicles such as mutual funds.Whereas predictingshort-term fluctuationsin stock prices is aproven folly, it is clearthat the long-termglobal expansionof sources of capitalhas barely begun togather momentum.A Momentous MilestoneGlobal capital markets passed a momentous milestone at theend of 1999. Morgan Stanley Capital International, whichpublishes a variety of indices for clients in the investmentmanagement community, estimated that at that time the marketvalue of stocks traded on the world’s largest 48 markets hit$31.7 trillion, for the first time surpassing the value of the|204

Capital: An End to Limitsworld’s total output of goods and services ($30.1 trillion in1999, according to the International Monetary Fund).Whereas predicting short-term fluctuations in stock pricesis a proven folly, it is clear that the long-term global expansionof sources of capital has barely begun to gather momentum.This change illustrates still another key aspect of money: itscapacity to mobilize and increase the productive use of underutilizedresources. Debt or credit enables people who haveamassed surplus wealth to lend it to others through a variety ofinvestment and borrowing vehicles.In the 19th century, the U.S. financed construction of itstranscontinental railways system through foreign debt. Inmore recent times, China borrowed $130 billion of surplus savings,much of it from Western nations. The Chinese used thosesavings to generate millions of jobs, thereby harnessing underutilizedhuman resources. The people in those jobs createdinfrastructure, products and services that exist today becausethe surplus savings were invested.Two decades ago former Citibank chairman WalterWriston summarized this process in the phrase, “Debt is adeveloper.” With the benefit of hindsight, we know that not allthe foreign debt amassed 20 years ago produced effectivedevelopment. Yet the essential truth remains, with perhaps onecaveat added: “Wisely invested, debt is a developer.”New Forms of MoneyBeyond the issues raised by the global markets, the growingvariety of new forms of money raises new challenges andopportunities for business.Digital currency still remains a long shot to replace cashanytime soon, even though many merchants would welcome it.Credit cards, today’s primary medium of exchange on theInternet, take a healthy bite from the merchant’s profits.When it comes to money, people are conservative and slowto change. We have been hearing about the coming “cashlesssociety” since credit cards gained wide popularity in the 1970s.We still aren’t anywhere near there, perhaps because of cash’sone great advantage over checks, credit cards and most current205 |

CHAPTER EIGHT BUSINESS 2010forms of e-cash—the old-fashioned stuff is still anonymous.It’s a safe bet that governments would be distressed by thecreation of any truly anonymous form of e-cash because of thenew forms of money laundering and tax evasion that wouldprobably emerge in the wake of such a change.COMPANY CURRENCIES. Some of the best-known U.S. brandnames are, in effect, creating their own currency. FrequentFlyer Services, a consulting firm, estimates there are now morethan 3 trillion unused air miles in frequent flyer programs.Because airlines sell miles for between one and three cents, thatasset is worth between $30 billion and $90 billion to individualconsumers and companies.The 38 million members of American Airlines frequentflyer program can now acquire and spend their miles throughpurchases on AOL, the world’s largest online service. Other airlineswill probably follow this initiative, unlocking buyingpower in the billions. 24A SECOND ROUND FOR E-CASH. For e-commerce to keep exploding,we must eventually develop workable alternatives to just usingcredit cards. Aside from the desire for anonymity, many potentialbuyers—particularly those outside the U.S.—don’t haveaccess to plastic money. Also, there is a growing need for a newcurrency to facilitate online trading between individuals.Despite these needs, most experts believe credit cards willremain the most popular medium of exchange in e-commercefor some time. 25Innovation: The Newest King of ResourcesFor most of human history, land was the undisputed king ofresources. From the fiefdoms of the Middle Ages to the plantationsof early America, land was the source of wealth andpower, rigorously defended and passed from generation togeneration. As we moved into the industrial era, capital slowlyemerged as rival for the crown. Instead of landowners who producedwealth from the soil, the new wealth creators were capi-|206

Capital: An End to Limitstalists, an elite group of individuals who could materialize thisrare commodity and apply it profitably. Their skill was partdazzling art form, part financial wizardry, and perhaps aboveall, a commitment to hard work and risk.No more. Today, most of us are at least part-time capitalists,even those of us whose risk and hard work consist mostlyof reading our mutual fund statements each quarter. Therapidly growing equity funds and global markets take oursavings and invest them in companies of which we have nevereven heard.In the late 1990s, entrepreneurs with agood idea did not have to go on bent kneesto a banker, but instead waited for the venturecapitalists to call them. Good ideas nolonger chase capital; the reverse was true.To be sure, things slowed down considerablyafter the decline of dot-com shareprices in late 2001. It was no longerenough to add “.com” to the name of a traditional businessconcept while creating a sketchy plan for big success.Investors, once burned, were twice shy. Still, sources of venturecapital remained for good ideas, including ideas backedby sports stars, Hollywood directors, wealthy executives andcorporations.Other corporate “angels” are retiring baby boomers orowners of successful dot.coms. They are usually interested ininvesting at least $50,000 but not more than $3 million. Thereare plenty of companies that will, for a fee, match angels andentrepreneurs, including ACE-Net, Seedstage.com andOffRoad Capital. 26What changed after the shakeout in technology stocks wasthe direction rather than the flow of capital—away from hote-tailing start-ups toward computer software and infrastructurecompanies that produce things to make the Internetfaster and easier to use. Venture capital firms keep bringing inthe cash, and the entrepreneurial energy in the economy isnot likely to let up soon.The dollar volume of venture capital investments in 2000was expected to double from the total of $58.4 billion in 1999.What changedafter the shakeoutin technology stockswas the directionrather than theflow of capital.207 |

CHAPTER EIGHT BUSINESS 2010Industry analysts say that dot-com companies’ reversal of fortunehasn’t deterred venture capitalists or kept them awayfrom Internet investments; it has steered them into otherniches of the Internet sector. To the extent that any otherindustry is on the radar screens of venture capitalists, it ishealth care, where investments are increasing. 27Who Wants to Be an Entrepreneur?One venture capital firm provides entrepreneurial hopefulswith a one-minute opportunity to make their case. DraperAtlantic, a Reston, Va., affiliate of Draper, Fisher, Juvetson(which is headquartered in Redwood City, Cal.) conducts itsCapital is now soplentiful that it flowseven to the poorestentrepreneurs in oursociety and elsewherethrough efforts suchas microenterpriseprograms.casting call once a month at sessionsnamed Fastpitch. Draper’s aim is to signup the next big Net winners before theyeven put a plan to paper.Would-be entrepreneurs begin byapplying at the Web site of netpreneur.org,a nonprofit organization with a mission tojump-start entrepreneurs. Netpreneurselects 18 candidates for each monthlysession. In pairs, candidates each make60-second presentations. The other 16candidates select one winner from each pair. Each of the ninewinners gets to make a three-minute presentation at a meetingof Draper executives and guest judges. That group picksone winner, who gets an hour’s consulting time plus the opportunityto make a formal presentation to Draper Atlantic later.Winners represent a wide variety of ideas in areas, including:Internet and intranet applications and services, optoelectronicsand fiber-optics, e-commerce, networking and telephonysoftware applications. 28More Help for Low-Income EntrepreneursThe Small Business Administration (SBA) is expanding its loanprogram for entrepreneurs in low- and moderate-incomeareas—borrowers who often get passed over by banks and|208

Capital: An End to Limitsother lenders. In partnership with the National CommunityReinvestment Coalition, a nonprofit trade association committedto revitalizing distressed communities by ensuring fair andequal access to credit, capital and banking services and productsin these communities, the SBA is taking its CommunityExpress loan program nationwide, with up to 500 lenders in20 locations.Participating banks can make loans to lower-income borrowerswith less risk because the loans are partially guaranteedby the SBA (80% for loans up to $100,000). The banks like theprogram because they know that companies that get goodstart-up support will likely come back for additional bankingservices later on. 29Capital for the ‘Poorest of the Poor’Capital is now so plentiful that it flows even to the poorestentrepreneurs in our society and elsewhere. Microenterpriseprograms run by community development corporations, nonprofitsand government agencies aim to bootstrap people outof poverty through entrepreneurship.In the U.S., that translates into making market-rate loansstarting as low as $500 to people who couldn’t qualify throughthe regular channels. There’s no need to bring in three years’tax returns, and lenders will accept personal property like carsfor collateral. “We evaluate their initiative, their knowledge oftheir business, the desire and capacity to repay,” says TerriLudwig, CEO of Accion New York, part of the nation’s largestmicrolender, Accion International in Boston. 30The effort has has been underway for some time in theinternational development community. In 1999, Trickle Up, a20-year-old, New York–based nonprofit, raised $2.4 million tolift “the poorest of the poor” around the world. Trickle Uphelped launch nearly 9,000 business in 37 countries. Womenled 65% of the businesses; refugees or other displaced peoplerebuilding their lives accounted for 22%. Trickle Up worksthrough local partners and makes outright grants of $100 towould-be entrepreneurs internationally and grants of $700 tothose in the U.S. 31209 |

CHAPTER EIGHT BUSINESS 2010Summary and ConclusionsThe instruments of our remarkable economicgrowth—science and technology, capital and globalinfrastructure—are so compelling that they are oftenmistaken for the source of the growth. In assessing thepotential for future growth, we have in the past tended tofocus on the availability of a few key material resources—rawmaterials, production capacity and money. Although theseare obviously important, they are less important in a world inwhich information and human ingenuity have become thedominant resources.The importance of these two resources is not new. What isnew is our greater awareness of them and the acceleration ofour capacity to employ them. The netimpact of this change is to convert whatonce were scarce resources into readilyavailable tools for human development.What is still too scarce today is ouracceptance of this change. Those whocame to maturity in a climate dominatedby economic scarcity have trouble emotionally accepting thechange. Young people, in the jargon of the day, “get it,” whiletheir elders keep waiting for the “inevitable” economic collapse.There is a parallel in one of the great feats of the 20thcentury—placing a man on the moon in 1969. We have had along hiatus in enthusiasm for space travel in the decades since.Scientists speculate that that people born in the decades before1960s actually had difficulty emotionally accepting that such anaccomplishment was really possible. As we move further into the21st century, human mentality will tip to a new balance. Once amajority of the population have always lived with the possibilityof space travel, the excitement and potential will return.Intellectual acceptance alone is not usually enough to sparka true revision in global thought patterns. It took nearly a centuryafter the discovery of America before a later generation ofEuropeans began serious colonization efforts to exploit the newopportunity. And, of course, nearly 400 years after Copernicuspublished On the Revolutions of the Heavenly Spheres, we still talkconfidently about how the sun rises in the East.Over the next decades,we will be gettingused to the idea ofabundance where oncewe focused on scarcity.|210

Capital: An End to LimitsOver the next decades, we will be getting used to the ideaof abundance where once we focused on scarcity. To be sure,the distribution of resources is far from balanced, or even equitable,and periodic global shortages will undoubtedly occur.However, both these phenomena are less a case of true shortagesthan temporary capacity failures rooted in political conflictand inadequate structures and systems for managingdiverse interests and priorities.In the 1990s, the International Commission on Peace andFood prepared a report for the United Nations on the availabilityof resources for human development. The reportacknowledged the many problems of poverty, hunger and diseasefacing the world. However, the 25 commissioners, from 15countries, concluded that the central issue was not scarcity ofmaterial resources but a scarcity of imagination.For millennia, we have tended to overlook or, at best,grossly underestimate the greatest of all resourcesand the true source of all discoveries, inventions,creativity and productive power found in nature—the resource that has made minerals into ships thatsail the skies, fashioned grains of sand into tinyelectronic brains, released the energy of the sun fromthe atom, modified the genetic code of plants toincrease their vigour and productivity—the ultimateresource, the human being. 32The next chapter in this section discusses how changes inthat ultimate resource will affect businesses in the next decade.211 |

CHAPTER NINE BUSINESS 2010People: No Truce inthe War for TalentKEY CHAPTER THEMES■ Human assets: The determinant of economic value■ From a surplus to a shortage of people■ Recruitment of the best—but the best for what?■ Four key recruiting strategies■ New rules for retaining your best employees■ Checklist for creating a great place to work

CHAPTER NINE BUSINESS 2010“The relationship we have with our people,and the culture of our company are ourmost sustainable competitive advantages.”—HAROLD SCHULTZ, CHAIRMAN OF STARBUCKS CORP.“Companies are about to engage in a warfor executive talent that will remain a definingcharacteristic of their competitive landscapefor decades to come. Yet most are ill prepared,and even the best are vulnerable.”—MCKINSEY CO. REPORT 2000UNTIL RECENTLY CORPORATE ASSETS WERE MEASUREDby adding up the value of land, buildings, equipment,cash, brand recognition and goodwill.Today, the most valuable assets of a business—the energy, creativity and mental agility of itspeople—outweigh the value of all its other assets combined.The five components of a business (market, products andservices, organization, capital and people) have been aroundfor as long as there have been business organizations. Keepingthem in reasonable balance has always been a priority. In everyera, however, one component commands the greatest respectand attention.In the 20 years after World War II, production was theprime driver. So much market demand had built up through 15years of depression and war that the motto for the new eracould well have been, “If you make it, they will come.”Engineering and production managers were in great demand.215 |

CHAPTER NINE BUSINESS 2010The late 1960s and early 1970s initiated the era of marketdrivenrather than product-driven organizations. Rising efficienciesin production had created product surpluses.Competition increased at home and abroad, boosting the premiumon those companies that knew how best to appeal tocustomers’ changing demands. Recruiting fever focused onpeople who knew how to define and woo a market.In the late 1970s and 1980s, finance—and the financeexecutive—stepped to the fore. To be sure, the other componentscontinued to evolve. In production, the emphasis shiftedto better quality and lower cost. Marketing introduced ahost of sophisticated analytical techniques to better identifymarkets and buying patterns. In organization, the focus shiftedtoward decentralization and moving decision-making closeto the customer. Overall, however, the greatest emphasis wason finance. Tougher times put a premium on the ability to cutcosts, downsize, consolidate or eliminate losing operations andmanage the balance sheet.Since the mid 1990s we have been in a new era. The focus inthis era is—and will remain—on people. How to attract, retainand motivate skilled people now represents the critical competitiveedge. This new focus coincides with unexpected shortages oftalented people. As a result, the people component—and thehuman resources executive—has risen to a leading position inalmost every company.This situation is a major and still not fully appreciated shift.Until recently, managers viewed human resources as a cost, notan asset. Traditionally, you rose in the business ranks by beingskilled at “making it, selling it or counting it.” Although thoseare still well-tested paths, we have now added one more trail tothe top—by being accomplished at recruiting and retainingskilled people to make it, sell it or count it. That expanded definitioncertainly includes full-time human resources executives,but it also refers to everyone in business with a responsibility forthe performance of others.This change in emphasis arises from the conjunction of threestrong business currents, each of which is rising in intensity:1. The shortage of skilled people,2. The shift from physical to mental work, and|216

People: No Truce in the War for Talent3. An accelerating transition in the location and exercise ofdecision-making power.From a Surplus to a Shortage of PeopleRemember back to the early 1990s, when economic punditspredicted rising levels of unemployment and even“the end of work”? Their logic seemed impeccable. Therise of industrial automation and the decline in post–Cold Wardefense spending meant that we were heading for a period ofsustained job loss.In retrospect, the economists should have taken moreaccount of the burst of self-confidence that was likely to followthe unexpected end of the Cold War. They should also havelooked at the long-term impact of technology on jobs. Finally,they should have considered the rate at which knowledge wasbecoming the prime business asset. True, we had less need forphysical labor, but our need for mental work was increasingexponentially.Longer-term trends also refuted short-term logic. Considerthese two examples:In the 1890s economic doomsayers also misread the signs. Theypredicted that technology would replace people and result infar fewer jobs. But during the century that ensued—one ofrapid technological advancement in the most technologicallyadvanced nation in the world—the number of peopleemployed in the U.S. rose 400%, from 29 million to more than134 million workers, and the proportion of the populationemployed reached an all-time high.After World War II, many businesspeople expected a downtownlike the sharp, nasty recessions that had followed previous conflicts,as the economy retooled for peacetime expansion.Moreover, many business leaders of the mid and late 1940swere survivors of the Great Depression, barely more than adecade in the past. One of that group, Montgomery Ward’spresident, Sewell Avery, had shrewdly steered his company217 |

CHAPTER NINE BUSINESS 2010through the depressed 1930s by keeping a tight rein on cashflow. Expecting a postwar depression that never came, Averysat on a mound of cash in the ’40s and early 1950s. Meanwhile,his competitor, Sears CEO General Robert Wood, read the newdemographics right and rapidly expanded his company intonew suburban markets. Montgomery Ward, which closed itsdoors in early 2001, never regained its lost momentum.Labor Bureau forecasts indicate that the country will addanother 13 million jobs by 2005 and that the employment ratewill rise even higher. By now, we all know what the implicationsare. Human resources professionals, already struggling withthe tightest market for talent in 40 years, foresee no end to theshortage of gifted people.A Threat to the Economy?Have we reached the point at which a lack of workers couldactually stall U.S. economic progress in the years ahead? That’snot a serious threat so long as labor shortages show up in areasand specialties in which lower-skilled workers can get trainingfor more skilled jobs. When that happens, it is healthy for theeconomy as a whole.Alan Krueger, an economist at Princeton University, identifiesthe opportunity like this: “There is still a sufficiently largepool of lower-skilled workers who are available to join thelabor force. And as the demand for these workers picks up,you will see more occupational upgrading—more people whogo from McDonald’s to higher-paying jobs, and companiesprovide the training.” 1Women and immigrants represent two other large and stillunderutilized sources of workers. Nearly half of the womenworking in the U.S. today do so only part-time. Opportunitiesavailable in the U.S. economy have already prompted nearly amillion women a year since 1994 to switch from part-time tofull-time work.“The immigrants in question are not so much the uncountedpeople already here illegally, but [people] who move acrossthe border when jobs become available,” says New York Times|218

People: No Truce in the War for Talentreporter Louis Uchitelle. The flow of people across the borderhas kept supply and demand in balance at the lower end.Skilled women expanding their hours of work have led to lesspressure in the middle. 2Roots of the Talent WarsTo understand today’s talent wars, look first at demographicand economic statistics. In the last three decades of the 20thcentury, the nation’s economy doubled, while the birthrate fellby 24%. In April 2000, the U.S. unemployment rate dippedbelow 4% for the first time in 30 years.Meanwhile, the graying of America is creating the hourglassshapedworkforce discussed in Chapter Two. Assuming thatcompanies stop pushing graybeards out the door (as is alreadyhappening), working Americans aged 55 to 64 will increase by56% between 2000 and 2010 and will represent nearly 14% ofthe workforce by 2008, up from 9.6% in 1998. A second assumptionis that the kind of proactive policies described later in thischapter succeed in keeping millions of older, more experiencedworkers in place (still an open question).Meanwhile, for the first time in 25 years, the youth laborforce—of 16- to 24-year-olds—will grow faster than the overalllabor force.These two ends of the hourglass squarely focus attentionon the biggest shortage today, and tomorrow: the shortage ofhighly skilled, technology-savvy people in the middle.Creation of a Cyber CorpsTo see what’s happening, look at the U.S. federal government,a megaenterprise that keeps detailed personnel data. Between2000 and 2005, some 30% of the government’s 1.6 million fulltimeemployees will be eligible to retire. An additional 20%could seek early retirement. Of the Air Force’s civilian staff of165,000 employees, for example, 45% will be eligible for retirementor an “early out” by 2005. 3Like industry, the government is exploring a range ofrecruiting initiatives, from two-year internships aimed at219 |

CHAPTER NINE BUSINESS 2010attracting talented youngsters to signing bonuses for jobsrequiring in-demand skills. The U.S. Army had to nearly doubleits signing bonus to $20,000 for certain recruits to try tomeet its 2000 recruiting target of 80,000 people. PresidentClinton, at a speech at the National Academy of Sciences, proposeda $25-million program to bolster the government’s ranksof computer experts in the years ahead. The program, similarto the military’s Reserve Officers Training Corps, would paythe costs for two years of college or graduate school for 300 studentsa year. In return, the students would agree to work forthe government on computer security for one to two years. 4Expansion of the Knowledge-based WorkforceUnderstanding the root causes of today’s shortage of key peoplerequires more than counting heads in demographiccohorts. It is also important to assess the knowledge and skillinside those heads. Jobs in our economy have been steadilyshifting from physical to mental work. Moreover, the emphasison products and services that add intangible benefitsrequires a still higher proportion of mental work, and informationtechnology keeps raising the value of knowledge as acompetitive resource.All these trends combine to make people who know how togather, analyze and use information an especially valued competitiveasset. That cadre of professionals whom Peter Drucker40 years ago identified as “knowledge workers” are most indemand—and will remain so. The Information TechnologyAssociation of America expected that half of 1.6 million newjobs in 2000–01 involving computer, Internet and telecommunicationsexpertise would go unfilled. 5The greatest competition of all—even greater than thatfor skilled technologists in the middle ranks—focuses onsenior executive talent. Already, stock prices rise and fall withthe addition or loss of key executives. For example, afterCitigroup’s James Dimon resigned in late 1998, the company’sstock price fell almost three points in two days, and it was subsequentlydowngraded by analysts in two Wall Street investmentfirms. 6|220

People: No Truce in the War for TalentCompetition for senior talent has gotten so fierce thatwhen the CEO of Relativity Technologies, a start-up in Cary,N.C., approached two leading executive search firms to find apresident, he received an extraordinary answer. To find theright candidate, both firms wanted a sizable equity position inaddition to a six-figure cash fee. 7Power to the PeripheryAdding still further to the shortage, changes in organizationdesign raise the premium on people with greater knowledgeand skill at every level of a company. The driving force behind thisevolution is society’s changing attitude toward where and howdecisions should be made.The same trend appears not only in business but in everyaspect of organized life. Decision-making is migrating from thenational to state and local governments, from one political ornational center to many, as well as from corporate headquartersto operating divisions and local branch offices. Parentshave a greater say about education. Patients demand partnershipwith doctors on health care issues. Worshipers want moresay in church decisions. The pace varies from sector to sector,but the pattern is always recognizable—away from centers ofauthority to the periphery in organizations of every size, configurationand type.Underlying these contemporary trends is a longer-termshift in society’s expectations for who should make decisionsand how. To project the effect of this trend on people in yourorganization and your industry, first take a look at the longertermevolution of organizational decision-making.Organizations evolved as mechanisms for individuals andgroups to accomplish work. Early in human development, survivaland defense absorbed most of society’s energy. The powerto act centered on the personal authority of a strong leader—themonarch, the general, the feudal lord or the largest landowner.Over generations, human activities increased in scopeand complexity. Leaders learned to extend their authority innew ways. Administrative systems, still highly centralized,employed a more impersonal authority—based on edicts,221 |

CHAPTER NINE BUSINESS 2010rules and procedures—to handle the widening scope of theleader’s influence.More efficient administrative and operating systemsenabled human activity to expand into commerce, explorationand manufacturing. Physical distance between the leader andthose being governed stretched longer. Leaders needed stillNewer, more openorganizational modelsrequire people whoare capable ofthinking and decidingfor themselves.more efficient methods to handle a widerspectrum of activities. Personal authority,even when channeled through administrativesystems, lost effectiveness as distanceand complexity increased.New power-sharing models evolved.Leaders discovered that delegating specificactivities to representative interests commandedgreater energy and resources, producing more favorableresults. The monarch shared responsibility for nationaldefense with feudal lords. Merchants took charge of acquiringor producing goods and luxuries. Bankers operating in strategiclocations assembled the resources to finance wars and majorprojects. The leader still ruled, but power flowed to other, morerepresentative centers of influence as well.Over centuries, the evolution toward decentralizationgathered momentum. The shift from personal leader to a systemgoverned by representative interests is still far from completed.However, as was discussed in more detail in ChapterSeven, many areas of life and business are already evolvinginto a still later stage, toward “uncentralization”: a systemwhereby decision-making authority rests not so much withrepresentative groups as with competent individuals at manylevels. Excitement about the “empowering” potential of theInternet reflects the latest expansion of this long trend.Newer, more open organizational models require peoplewho are capable of thinking and deciding for themselves, notjust faithfully executing the will of one leader or exclusivelyrepresenting the interests of a group. Even the best peoplerequire guidance—a situation that puts a greater premium onimpersonal power, that is, the values and standards that can serveas a framework for decisions at the periphery.Widespread requirements for educated, proactive people|222

People: No Truce in the War for Talentat every level of the organization drive many of the changesreshaping corporate human resources today. The questions inhuman resources have not changed: How do we recruit,retain, motivate and develop the people we need now and inthe future? But accelerating decentralization of authority, aswell the shift from personal to impersonal authority, creates anew context to those questions.Expanded political and social freedom gives individualworkers a greater desire and capacity to think, decide and acton their own. Higher levels of education elevate the capabilitiesof people to solve problems and exercise authority. Availabilityand access to information enhance the decision-making potentialof people everywhere, not just at the center.The expansion of consumer-driven markets places fargreater pressure on organizations for fast, flexible responses tocustomer demands. Increasingly, those responses must comefrom front-line people with the authority to act. Public concernfor health and environmental safety has forced authority andresponsibility down to the level of those workers actually capableof monitoring and controlling local activities.All these pressures push organizations toward greaterdecentralization of authority. Innovative approaches havedemonstrated again and again that delegating more authorityto properly trained and motivated workers can dramaticallyenhance product quality. Access of workers to financial informationand their involvement in financial decisions havedemonstrated equally dramatic enhancements in profitability.Streamlining organizations by elimination of layers and stepshas steadily cut time and cost in decision-making.Formal organizations have learned that success comes fromevolving into less formal social institutions that are increasinglydriven by voluntary acceptance. Authority grows out of sharedvalues, knowledge and skills rather than by force of externalauthority. The “dressing down” fad at work is a trivial butimmediately visual representation of these important changes.All these changes are reshaping the two most basic humanresources issues: recruitment and retention of the right people.The rest of this chapter deals with changing responses tothese issues.Wmpevomrehto223 |

CHAPTER NINE BUSINESS 2010Recruiting the Best People—But Best for What?As noted earlier, the current shortage of people is not justa temporary phenomenon. Technology puts a premiumon a whole new level of technical skills. The rapidexpansion of knowledge work accelerates the shift from physicalto mental work in both the growing service sector and inmost segments of manufacturing. Demographic upheavals produceshortages of critically important cohort groups in thecoming “hourglass” employee market. These changes requirecompanies to think anew about how they recruit, retain anddevelop their people.Ask senior executives what kind of people they’re lookingfor and the answer will invariably be, “We want ‘A’ people—only the best.” Too few companies think about the underlyingissue—the best at what?The first step is to think through the kind of culture forwhich you are recruiting. In their book Finding & Keeping GreatEmployees, consultants Jim Harris and Joan Brannick identifyfour primary types of core cultures:1. Customer service. The focus is on customer solutions(examples: Nordstrom, Home Depot, Northwestern MutualInsurance).2. Innovation. The aim is to be first in new markets and with newproducts, not always with flawless execution. At CiscoSystems, they like to say, “Being first is not elegant.”3. Operational excellence. The imperative here is minimizing costswhile maximizing productivity and efficiency. GeneralElectric’s Workout and Six Sigma efforts are major tools inachieving these corporate goals.4. A culture of spirit. These companies pay a lot of attention tounleashing people’s energy, creativity and enthusiasm.ServiceMaster Corp. focuses on the spiritual side of peopledoing even the lowest-level task. 8Most successful companies combine elements of all thesecultures, but the first issue in recruitment is to identify what|224

People: No Truce in the War for Talenttype of culture dominates in your company. Then you mustrecruit talented employees able to align themselves with yourparticular priorities. 9 Once your priorities are clear, you canselect appropriate recruiting strategies and techniques.Four Key Recruiting StrategiesWith today’s severe shortage of talented people, companiesare turning to a mix of the following four,broad recruiting strategies: (1) going deeper intonontraditional labor pools, (2) diversifying and upgradingrecruiting techniques, (3) tapping into the growing pool of talentedtemporary workers and (4) shifting work to where theworkers are.1. Going Deeper Into Nontraditional Labor PoolsUntil recently, women employed in manufacturing were typicallyrelegated to lower-level machine work or assembly jobs.Between 1990 and 1999, however, the proportion of executiveadministrative jobs held by women in the manufacturing sectorrose from 26% to 33%.The future looks even brighter, manufacturing consultantPatricia E. Moody told Fortune. That’s because of the continuingtrend in manufacturing away from physical labor, requiringless education, toward jobs putting a greater premium oneducation, such as computer scientists, engineers and designprofessionals. The substantial expansion of the number ofwomen in colleges suggests a growing pool of nontraditionaltalent for manufacturers.“A woman with the right credentials can make incredibleinroads,” Moody says. 10 The flip side is that less-educated, traditionalblue-collar workers will continue to be squeezed out.Many will end up working at the lower-paying end of the servicesector, in fast-food restaurants, for example.In the service sector, many companies with a long historyof hiring women are now redoubling efforts to promotewomen. Marriott International, Inc., has hired women almost225 |

CHAPTER NINE BUSINESS 2010from its beginning as a small restaurant chain in Washington,D.C., in 1927. “We have had small ‘d’ diversity for some time,”says Brendan M. Keegan, Marriott’s executive vice president ofhuman resources.Since the late 1990s, Marriott has emphasized promotingwomen to more senior positions. At the prompting of its board,Marriott initiated the effort to double the number of womenmanagers within three years. The effort began with a two-dayconference attended by its top 100 women. The event has sinceevolved into an annual Worldwide LeadershipConference. Before the first meeting, Marriottsurveyed women throughout the company todetermine the major issues. “Opportunity wasthe issue,” says Keegan.Marriott has long been a company knownfor its effective systems. As a Marriott executiveonce told me: “We are the most systems-oriented companyin the universe.” The feeling among the senior women wasthat the promotion system lacked fairness. “The idea was thesystem favored whom you knew,” said Keegan, and women didnot do as well in that climate, because they were not previouslywell represented in the top ranks of Marriott executives.After the meeting, Marriott set out not only to reform thesystem but also to give women more opportunities to come tothe attention of senior managers. The company formed aWomen’s Council to focus on opportunity issues. The Councilhighlighted for senior managers problems that women identifiedas blocking their advancement.As a result, the company added more flexibility to its scheduling,acknowledging that, as the primary caregivers in mostfamilies, women had special challenges dealing with thedemands of a round-the-clock, year-round business. The companyadded rigor to its assessment and compensation systems,paying more attention to managers’ management of diversityin their units, which it identified as a key, core competency forits managers. It began posting more job openings, up to thelevel of those that reported directly to the chairman. It introduceda two-day program on executive development techniquesfor women. It retained a consulting group to provideMarriott identifiedmanagement ofdiversity as one ofthe company’s keycompetencies.|226

People: No Truce in the War for Talentindividualized coaching for its top 100 women executives.Perhaps most important of all, Marriott identified managementof diversity as one of the company’s key competencies.Keegan calls this “the single greatest incentive,” because goodperformance on all key competencies is a major criterion forpromotion.These changes required a whole new mindset. “It’s like amarketing project,” says Keegan. “You have to segment thelabor force by psychographics—who likes to work morningsand who in the evenings?”Without this kind of flexibility, says Keegan, “our industrydoes not get a crack at the best and brightest people.” So far, theeffort has been credited with the appointment of four women togeneral manager and two senior women to vice president.Keegan says the company now plans to use this model to speedmanagerial development of minorities—African Americans,Asians, Hispanics.The impetus behind all of Marriott’s diversity efforts isunquestionably the great shortage of talented people, Keegansays. “It’s not because it’s a nice thing to do. It’s not because ofthe government. It’s because of the labor market we have todayand the customer markets we have today. We have no choiceexcept to seek talent where it is today.”Looking ahead, Keegan says, companies “will be dealingmore and more with the big ‘D’—the real diversity, diversity ofthought.” The next frontier, he believes, is mastering “how tomanage people who want to work in a diverse environment,want to contribute, want to be rewarded for that.” This kind ofdiversity of thought promotes creativity and has “huge implications”for business. “It means we have to develop leaderswho are comfortable in that environment, who know how toexploit it, leverage it, and not be threatened by it.”FRANCHISING OPPORTUNITY. Minorities may well represent thefuture of franchising. Retail franchises have saturated suburbanlocations. Also, the pool of 1980s and 1990s downsizedmanagers-turned-franchiseeshas dried up in the heat of astrong economy. Minority entrepreneurs not only represent anuntapped source of talent; they also serve as entrées to urban227 |

CHAPTER NINE BUSINESS 2010minority neighborhoods now targeted by retailers.“From fast-food restaurants, hotel chains to tax preparers,janitorial companies and vitamin hawkers, franchisers increasinglyare marketing their businesses through minority publicationsand trade fairs,” says the Los Angeles Times. Coming upwith the equity to purchase a franchise is a problem for manywould-be minority franchise owners. Some franchisers havecreated special programs to enable more minority recruits tocome up with the necessary equity, while others are workingwith community development organizations to start stores inurban zones that offer state and federal tax breaks. 11EXPANDING OPPORTUNITIES FOR PEOPLE WITH DISABILITIES. Peoplewith disabilities are increasingly a mainstream source of workersfor industry. Goodwill Industries International is one ofthe world’s largest nonprofit providers of employment andtraining services for people with disabilities including developmentdisorders, physical disabilities, psychiatric illness andother disadvantaging conditions, including welfare dependency,illiteracy, criminal history and homelessness. In 1999,Goodwill placed 66,136 people in competitive employment insuch fields as customer-service call centers, banking and healthcare. The 1999 total represented a 13.5% increase over the58,265 people placed by the organization in 1998.EXPLORING A MATURING TALENT POOL. The demographic squeezehas prompted companies to take another look at older job candidates.DAK Associates of Conshohocken, Pa., a recruitingfirm that specializes in recruiting managers for financial servicescompanies, reports that companies are going deeper intothe over-50 pool of talent. Daniel A. Kreuter, president andfounder of DAK, says that the proportion of people in the 50+age group that his firm places has soared from just 5% a decadeago to 20% today. 12Monsanto Company brings back retirees as temps or parttimersto fill gaps and save money. In one year, the company’sRetiree Resource Corp. saved Monsanto some $600,000, primarilyin overhead from agency fees. 13 This trend will acceleratein the years ahead. In a 1999 survey of 586 large employers,|228

People: No Truce in the War for TalentWatson, Wyatt Worldwide, a New York consulting firm specializingin human resources and risk management, found that16% now offer “phased retirement,” while 28% say that theymay set up such programs within the next three years. 14GIVING EX-CONVICTS A SECOND CHANCE. “A tight labor market isaccomplishing what years of pleas and programs from penalexperts and social sciences have failed to do,” The Wall StreetJournal reports. “It is persuading America’s employers to hireex-convicts.” The pool of ex-convicts is growing substantiallybecause of the record number of felony convictions in the late1980s. About 2.5 million felons were on probation or parole in1998, up from 1.5 million a decade ago. 15Accelerating this trend, the Federal Bureau of Prisons(FBP) sponsors programs that are designed to find jobs for formerinmates. Some 3,000 inmates and more than a thousandemployers have participated in 70 FBP job fairs since 1997. 16As these examples illustrate, employers are willing to adaptto—or even embrace—the necessity of going after talent innew places. As one talent pool after another is tapped, the challengewill require even greater creativity.2. Diversifying and Upgrading Recruiting PracticesWinning the talent wars requires changes in specific recruitingtools and techniques as well as in broad search strategies.Robert Barner, vice president of organizational developmentand learning for Choice Hotels International, says that new orrevised techniques are redefining the field of finding andselecting executives. For example:WEB-BASED CONNECTION. The success of new Internet careersites, such as Monster.com, has brought more traditionalsearch firms looking for executives as six-figure salary levelsinto online recruiting. As the online job market has expanded,more companies have found it convenient to widen theirsearches by placing their help wanted ads on the Web, wheremore job seekers or even mildly interested browserswill see them.229 |

CHAPTER NINE BUSINESS 2010CONTINUAL HIRING. The McKinsey Company study “The War forTalent” reported that 31% of human resources directors atleading companies recruit continuously rather than simply fillopenings.CULTURAL COMPATIBILITY. Employers today are more aware of theimportance of cultural fit in executive selection. This focus hasencouraged the use of diagnostic tools to assess a candidate’sleadership style in relation to the company culture.WHOLESALE ACQUISITION OF TALENT. From 1994 to 1997, Cisco purchased19 new companies, primarily to acquire expertise. AsCisco CEO John Chambers says, in high-tech acquisitions youare really only acquiring people. “That’s why so many [acquisitions]fail.” 17TALENT WARS ON CAMPUS. There’s a seventh strategy that complementsBarner’s six: People shortages combined with the risingexpectations of a new generation puts a premium on spottingand recruiting the best talent early at colleges and universities.“Goldman Sachs, McKinsey and others have gotten used tothe assumption that they can simply pick from the cream ofAmerican business school graduates every year,” says TheEconomist. “Now these firms are having to pull out all the stopsto persuade any MBAs to choose them.”Of the Harvard Business School Class of 1999, only 39%went to investment banks or consulting firms, compared withmore than half in 1994. The intensity of this competition favorsfast action. According to Dean Paul Danos of the Tuck Schoolof Business (Dartmouth), a record 85% of the Class of 2000 hadalready accepted a job offer by January, “and the rest wereholding out for something better.” Their average starting salaryexceeded $130,000. 18Some leading companies have widened their search toschools where they never recruited before. “The top firms arecoming up empty more often at the top schools,” says Stuart I.Greenbaum, dean of the Olin School at Washington Universityin St. Louis. “It’s opened a whole new tier of opportunities forour students.”|230

People: No Truce in the War for TalentThe number of on-campus recruiters increased by 15% inone year at the Kelley School of Business at Indiana University.A.T. Kearney, a global management consulting firm, nowrecruits at the Cox School of Business at Southern MethodistUniversity. Anderson Consulting, Goldman Sachs, and MorganStanley Dean Witter have also expanded the pool of collegesfrom which they recruit. 19In addition to MBAs, liberal arts graduates with computerskills are in demand. A coalition of Virginia colleges createdTek.xam, which tests liberal arts grads on their knowledge ofcomputers, word processing, and spreadsheet and presentationsoftware applications. The five-hour exam also tests students’ability to find and evaluate information on the Internet andtheir awareness of legal and ethical problems in informationtechnology. The exam spread quickly toother states. Educators said that althoughthe test may encourage liberal arts collegesto add more computer courses, many studentswho have acquired computer skillsthrough regular high school and collegework would do well on the exam. 20The need for early action to recruit thebest has even cascaded to the undergraduatelevel. Companies are finding that theymust become more involved with collegePeople shortagescombined with therising expectationsof a new generationputs a premium onspotting andrecruiting the besttalent early.freshmen and sophomores. Today, when you go after seniorsin college, “you’ve waited way too long, because seniors alreadyhave job offers” says Judith Mancuso of Pittsburgh’s CarnegieMellon University. 21Going after students even earlier, Marriott Internationalsponsors the Marriott Hospitality Public Charter High School indowntown Washington, D.C. The capital’s new convention center,expected to open in 2003, will create 10,000 new hospitalityjobs. Marriott and other supporters say the aim of the school isto give students sufficient academic and on-the-job training to goto college or directly into the industry after college. 22Private career colleges, another recruiting source, are gettingmore attention. More than 3,600 accredited privatecareer schools in the U.S. have a total of 1.1 million full-time231 |

CHAPTER NINE BUSINESS 2010students, of whom 36% are minorities and more than 70% areself-supporting. Most such schools have only a single location,but many are part of a chain of campuses. ITT TechnicalInstitute, for example, has more than 60 locations in 27 statesand offers degree programs to more than 27,000 students. 233. Taking Advantage of the Temp BoomAnother source of help comes from outsourcing whole projectsor from delegating individual pieces of work to the growinggroup of available freelancers. New York Times reporter AbbyEllin calls this group “Generation 1099,” because their incomeis reported to the IRS via Form 1099rather than a W-2. 24About 1 in 10 American workers, or12.5 million people, are now employedas independent contractors or on somesort of temporary contract. The fastestgrowingpart of California’s economy is the temp business. Ithas added as many jobs as the software and electronic equipmentindustries combined. 25Helping to fuel this boom, companies like Freeagent.comand Aquent offer independent contractors the group buyingpower for such benefits as health and retirement plans. Thistrend is popular because it supports both an expanded aspirationfor individual freedom and a potential for corporate competitiveadvantage through cost flexibility. For these reasons, itwill only accelerate in the future.Particularly noteworthy is the growing number of temporaryworkers in or near the executive suite. In 1996, JohnTatum, a CPA and attorney, formed Tatum CFO Partners inAtlanta with seven other “downsized” CFOs. “I realized that wehad supercharged CFOs and all this intellectual capital that wecould transfer to other companies,” says Tatum. 26 The firm hasnow grown to 258 partners in 22 cities, working in all kinds ofcompanies, from venture-backed start-ups to multinationalcompanies. In all, America’s 5.6 million executive temps makeup 7% of the U.S. temporary workforce, and their wagestotaled $2.8 billion in 1998, up 800% since 1991. 27Particularly noteworthy isthe growing number oftemporary workers in ornear the executive suite.|232

People: No Truce in the War for Talent4. Taking the Jobs to the PeopleWhen you can’t get people where you are, go to where theyare. Gateway founder Ted Waitt reluctantly decided that if hewanted to attract the world’s best executives, he couldn’t keephis headquarters near his boyhood home in North Sioux City,S.D. He moved the personal computer maker’s headquartersto talent-friendly San Diego. 28Tax breaks and cheap labor used to be top attractions forluring new businesses to new locations, but no more. “Nothingelse…not location, incentives or costs…comes close to the needfor qualified workers,” says Rob DeRocker of DevelopmentCounsellors International, an economic development marketingfirm. Finding skilled workers is a special problem for hightechindustries—the industries most coveted by communities.Just about every state now is expanding facilities for workertraining geared just to meet the demands of business.Georgia’s Quick Start program provides training services formore than 2,600 businesses. The Maricopa CommunityCollege system in Phoenix prepares semiconductor industryworkers and auto repair people. In St. Louis, the InternationalInstitute places immigrants, primarily from eastern Europe,with manufacturing companies in the area. 29Regions with low unemployment now must offer amenitiesand benefits to keep high-profile workers from moving on.The Research Triangle Park in Raleigh-Durham providesworkers with onsite day care, counseling, family days and“bring your child to work” days. Although companies elsewhereoffer similar benefits, they don’t usually do so on a communitywidescale. 30The intensity of the search for people sometimes encouragescompanies in people-short areas to cooperate rather thanraid others for talent. “If someone stays in town, you may gethim back,” says John C. Haller, one of the founders of MapInfo,a software company in Troy, N.Y. “If he goes to California, he’sgone forever.” Haller himself illustrates an example of how thisunusual cooperation works. When Haller was feeling restlessafter 10 years with MapInfo, chairman Michael D. Marvinarranged for him to teach classes at the nearby RensselaerPolytechnic Institute and to consult with a small local start-up233 |

CHAPTER NINE BUSINESS 2010dot-com. Six months later, Haller returned to MapInfo as chieftechnology officer. Three years later, Haller and SteveLombardi, another MapInfo employee, started anotherInternet company with MapInfo’s money. “I had just gotten agreat job offer in California,” says Lombardi, “and they knew itwould take an Internet project to keep me here.” 31Importing TalentStill another popular solution involves importing talent fromother countries. Demand for “H1b” visas reached the annual115,000 limit in just the first six months of 2000. These visaswere established in 1990 to permit foreigners with collegedegrees or higher to work for a renewable, three-year term forU.S. employers who petitioned on their behalf. 32One of the fastest-growing visa categories is the “NAFTATN” visa, which offers an unlimited number of temporary visasfor professional workers from Canada and Mexico. JanetPelletier, Canadian regional sales manager for Brass Ring, Inc.,reports a “dramatic increase” in the number of U.S. high-techcompanies attending job fairs in Ottawa. 33Moving Call Centers to IndiaOf course, in a global economy, opportunities for moving workto other countries continue to expand. Ireland is one of theworld’s fastest-growing economies, partly because of the 20,000jobs created by companies establishing telemarketing operationsthere.The call-center business is taking off in India. Leased-lineprices have fallen dramatically. The Indian government hasremoved government restrictions, replacing them in manycases with incentives for non-Indian firms to establish call centersand other information technology–enabled businesses.The technological infrastructure needed for a 21st-century,global telecommunications business is being put in place.Salaries for English-speaking college graduates are about onetenthof the salaries of similar workers in the developed world.Large Western companies, such as airlines and insurance|234

People: No Truce in the War for Talentcompanies, also are candidates for establishing “back-office”centers in India to handle paperwork. The time-zone differencemeans that work sent via the Internet when the Westerncompanies close business at the end of the day can be completedand returned to the sender by the time they open thenext morning.Medical transcription is another service business taking offin India. The industry is relatively easy to set up, because it isnot so dependent on excellent telecom links as are, for example,back-office centers.To Retain Your Most Valuable Assets,Build a Great Place to WorkSavvy employers learned one important lesson from therecruiting scramble just described: The most cost-effectiveway to have good employees is to build an environmentthat keeps the good ones you already have.Wal-Mart recently revamped its human resources philosophyfrom “getting, keeping, and growing employees” to “keeping,growing, and getting” them. The shift isn’t just semantics,says Coleman Peterson, senior vice president of Wal-Mart’sPeople Division. It indicates an increased emphasis on retainingand developing the talent Wal-Mart already has, ratherthan the “hire, hire, hire” strategy Peterson says categorizedthe company in the past.Revised Wal-Mart priorities include assigning a mentor tonew employees during their first 90 days and assessing theirprogress at 30-, 60-, and 90-day intervals. Efforts like this havehelped Wal-Mart reduce attrition rates by 25%. 34Such focus pays off in dollars and cents. Experiencedhuman resources executives estimate that the cost to replace anemployee can be as much as 150% of the departing person’ssalary. That’s likely to reflect just the direct costs. The indirectloss—the intellectual wealth inside a valued employee’s head—can be many times that.235 |

CHAPTER NINE BUSINESS 2010“If a $2,000 desktop computer disappears from anemployee’s desk, I guarantee there’ll be an investigation, awhole to-do,” says Maury Hanigan, founder of HaniganConsulting Group, in New York City. “But if a $100,000 executivewith all kinds of client relationships gets poached by acompetitor, there’s no investigation.” 35The Shredded Social ContractThe old social contract between employers and employees haslong since been shredded. Bosses who are still upset by its passingshould remember that, a decade ago, it wasn’t employeeswho started the tough talk about the need to compete by being“lean and mean.”Even when it wasn’t explicitly spelled out, employees gotthe message. “You are responsible for your own career. Youhave a job with us as long as it is mutually profitable. In themeantime, manage your career by developing yourself.” Inmany cases, the job-hopping youngsters of today are the sonsand daughters of people who, in the 1980s, anticipated a goldwatch and got a pink slip instead.Motivators and ‘Demotivators’The key elements in any retention program have been knownfor decades. More than a generation ago, management expertFrederick Hertzberg categorized them as “hygiene” factors and“motivators.”The hygiene factors are the basic elements in a job package:pay, benefits, security and physical work conditions. Hertzberg’spoint was that when employers didn’t get these issues right,employees were demotivated, but getting them right didn’tactually motivate anybody to better performance. Doubt that?How long were you motivated by your last pay increase afteryou received it?The true motivators, Hertzberg contended, kicked in oncethe basics were satisfactory. These included higher values likeinvolvement and participation in decision-making, opportunitiesto grow through training and development, and individu-|236

People: No Truce in the War for Talentalized attention from a caring supervisor.Today, the key elements of a basic employment package—security, pay, benefits and adequate working conditions—arestill in place. However, employers were caught off guard whenthe expectations for each element changed dramatically—usually in a way that favors employees.Once Downsized, Twice WaryEven in a booming economy, job security is still an issue.Employers today feel, with some justification, that all the insecurityis now on their side. Yet, in the midst of one of the mostrobust job markets in history, many American workers andmanagers still worry about their jobsecurity—and with reason. True, wehave been creating more than a hundredthousand new jobs a month. Yet,as The Economist notes, “it is also truethat in 1998 and 1999 some 300,000people have been filing first claims forunemployment each week, indicatingthat many must endure the stressfulexperience of losing their job beforefinding another one.” 36Even for those bright, young dot-com employees, the securityrepresented by a salary and a brand-name company, ratherthan the allure of options, quickly became an important issue—once they had been downsized. Recruiters and executivesreport that employees who fell victim to the dot-com shake-outin the summer of 2000 began looking for two things fromprospective employers—a stable salary and good prospects forcorporate longevity. 37No one in the private sector today expects a guarantee ofa job for life. However, any revised definition of security nowmeans a clear understanding of the rules of engagement, andthat suggests a need for far more openness about the company’sstrategies, prospects and competitive position. Given thetechnological evolution discussed earlier, the necessary communicationvehicles are readily put in place.Employees who fell victimto the dot-com shake-outin the summer of 2000began looking for twothings from prospectiveemployers—a stable salaryand good prospects forcorporate longevity.237 |

CHAPTER NINE BUSINESS 2010Companies shouldconsider creating special“hot skills” premiums foremployees whoseexpertise is crucialand in short supply.No More One-Size-Fits-All Pay PlansIn pay, perhaps the biggest change is the move away from“one size fits all” pay plans to more targeted efforts aimedspecifically at high-impact employees.Peter Cappelli, a Wharton School professor of management,says the focus from here on will shift “from broad retentionprograms to highly targeted efforts aimed at particularemployees or groups of employees.” Writing in the HarvardBusiness Review, Cappelli says that once you have establishedtargeted retention programs, you can use a number of mechanismsto encourage the right people to stay. However, paybasedincentives will no longer protect your most sought afterpeople, Cappelli insists. Recruiters routinelybuy out golden handcuffs withsigning bonuses that Cappelli calls“golden hellos.”Instead, Cappelli suggests that companiesshould consider creating special“hot skills” premiums for employeeswhose expertise is crucial and in shortsupply. The premiums can cease whenthe skills become readily available or an employer decides thatthe skills are no longer so important to its business.Another technique involves distributing any signing bonusover time. For senior executives, this can be a matter of years,but the principle can also apply to retaining lower-levelemployees. Burger King, Cappelli notes, offers workers a signingbonus, but withholds payment until they’ve been on the jobfor three months. “Three months may not seem like a longtime, but in the fast-food industry, where annual turnover averages300%, it’s an eternity.” 38Rainmakers—those rare people who can find and sell newhigh-volume customers, rather than coax more business fromexisting customers—present management with difficult paydecisions. “Let’s get something straight from the outset,” saysconsultant and author Allan Weiss. “People who acquire businessare much more valuable than people who deliver business,simply because the skills of the former are in far scarcer supplythan the latter.”|238

People: No Truce in the War for TalentCompanies eagerto hold on to theirtop producers are farless likely today toworry about creatingdisparities amongworkers with thesame title.“It’s tough to make rain, Weiss adds, “it’s easy to buyumbrellas.” The best kind of pay plan for a rainmaker, Weisssays, is a competitive base accompanied by an uncappedincentive connected to the volume of new business, notrepeat business. 39Weiss’s focus on special treatment for rainmakers mayseem to contradict some of the emphasis earlier in this bookand elsewhere on the importance of outstanding customerservice. Aren’t the people who keep customers happy as valuableas the people who bring them in?The most superficial analysis will uncoverthat every business absolutely needs customeracquisition, no matter how effectiveits customer service. Achieving lifetimecustomers is an excellent philosophy forany business, but it cannot be an absolutestandard. Every business, no matter howexcellent its service, loses a fair number ofcustomers every year. Customers die.They retire. They get acquired by competitorswho are committed to a different supplier. One wayor another, they disappear. Without new customers to replacethem, the business declines. No matter how a companychooses to approach this challenge, Weiss is correct:Rainmakers are tougher to get, “grow” and keep than arepeople who deliver the product or service, and the compensationpackage should reflect that fact.Companies eager to hold on to their top producers are farless likely today to worry about creating disparities amongworkers with the same title. “We’re making sure a larger percentageof our pay goes to the very best performers,” says RickMartino, IBM’s vice president for talent. 40Jim Howard, managing partner of Smith and Howard, anAtlanta CPA firm, came up with a novel approach to personalizingcompensation. He asks each of the 40 professionals in hiscompany to write him a one-page letter each year describingthe comp plan that would most motivate them to help the firmreach its goals. Individual plans may include a bonus, extravacation time or even upgraded equipment like a new person-239 |

CHAPTER NINE BUSINESS 2010al computer. “My experience shows me that people know whatwill motivate them and more often than not, they come up witha fair salary.” 41Discrepancies in Pay Between the Old andthe New EconomiesWhatever the plan, executive compensation at the mostsenior levels continues to spiral upward in response to the talentshortage. The leaders of new technology companiesearned an average of $27 million in 1999, including salaryand the estimated value of their stock options, according toThe New York Times. 42Even after the subsequent shake-out in technology stocksand the steady merging of the old and new economies are considered,something fundamental has changed. And even aftera decade of huge pay increases, the average compensation forchief executives shot up an additional 23% to $11.9 million in1999. “Valuing stock options in the most widely used way,” saysNew York Times reporter David Leonhardt, “a chief executivenow makes more in a single day than the typical Americanworker does in a year.” 43The Old-New Economy split is apparent throughout theeconomy, not just at the top. Dismal Sciences, an economic consultingfirm in West Chester, Pa., tracked the wage progress of129 common occupations between 1991 and 1999. Of these, 24,including teachers, salespeople and aircraft pilots, saw theirwages decline after adjusting for inflation. “The new economyand old economy are written all over these numbers,” saysMark Zandi, chief economist at Dismal Sciences. “The neweconomy is driving strong wage increases, and for the folks inthe old economy, their wages are being constrained.” 44To be sure, demographics patterns will likely change theearnings outlook for some of these professions in the yearsahead. As the first wave of baby boomers, born between 1946and 1964, leaves the workforce, many sectors will have to workhard to find replacements, undoubtedly improving salaries in,for example, education. Many education employees—teachers,|240

People: No Truce in the War for Talentschool administrators, janitors—work for state and local educationsystems that have defined-benefit pension plans, whichprovide the most benefits to those workers who retire as soonas they are eligible, often after 30 years.Continuing to expand discrepancies is hardly healthy forthe long-term development of either companies or society. Inthe short term, however, the situation suggests a continuingpressure from employees, especially from talented senior andmiddle-level managers, for a bigger piece of the pie. At thelower levels, managers can expect pressure from unions andpoliticians to lift the minimum wage, which is now so low inrelation to the marketplace that at the start of 2000 it set payfor less than 10% of the U.S., workforce.The Benefits BoomNowhere are the rules changing faster than in employee benefits.People who have benefits in one job are reluctant to wait toget them in the next. To stay competitive, employers are reducingor eliminating probationary periods for benefits like savingsplans, vacation time, profit sharing and sometimes even medicalinsurance. Although hard figures are scarce, the trend appearsto be spreading fastest in 401(k) retirement plans. 45The benefits frontier now includes perks and ideasundreamed of just a few years ago:LONG-TERM CARE INSURANCE. This is a benefit that more companieshope to use in their retention efforts. According to a surveyconducted by RewardsPlus of America Corp., an optionalbenefits company in Baltimore, Md., about 70% of the 86 privateand publicly held companies polled said that they wouldbe interested in finding a way to offer their employees this typeof insurance as an optional benefit. Again, the key factor is thegraying of the American workforce. 46 “Companies have alwaysbeen motivated by economic self-interest,” says RewardsPlusCEO Ken Barksdale. “Today, it so happens that recruitmentand retention are enormous corporate priorities. Companieshave realized some of the short-sightedness of the age of downsizingand are trying to strike a better balance.”241 |

CHAPTER NINE BUSINESS 2010WORK-FAMILY PROGRAMS. Once, only the salary elite at officetowers and the suburban campuses of big cities enjoyed thisbenefit. Now, reports The Wall Street Journal, you find theseprograms in the most unexpected places. For example, atHarley-Davidson’s York, Pa., plant, 75% of the workers aremen; yet these men pushed for, and are the heaviest users of,the nearby child care center, where Harley offers discountedslots. Adds The Journal, “Up next at Harley: a private room fornursing mothers.” 47HEALTH CARE PLANS. The Internet is sparking a new look at waysto improve one of business’s most costly benefits, health careplans. As outlined in a Booz-Allen & Hamilton report, undersuch a plan, employers would allocate funds to each employeeon a risk-adjusted basis. The employee would then purchasehealth insurance from a wide set of health care options that hadbeen preapproved by the employer. Once again, the planemphasizes managing the employer’s costs while giving workersmore individual choice, rather than one-size-fits-all solutions. 48CUSTOMIZATION OF BENEFITS. Harvard professor Peter Cappellibelieves that such employee choice will accelerate into evengreater customization of both existing and new benefits. “Eachemployee would be able to allocate a set amount of money to‘purchase’ options in such areas as career development and balanceof work and personal life. The amount available woulddepend on the importance of the employee to the company.” 49NICE-TO-HAVE PERKS. “Free lunch (though not to the employer)is one of the many perks that more and more employers arestarting to offer their staff,” The Economist reports. “TexasInstruments’ concierge team will repair an employee’s pick-uptruck. Sun Microsystems provides an in-house laundry. . .Netscape has its own dentist; Intuit offers in-chair massage.” 50CHILD CARE AND ELDER CARE. Projecting the demographics ahead,companies can expect rising demand for expansion of childcare and elder care benefits. By 2020, there will be 27.7 personsage 65 or older for every 100 working-age adults, a 28.5%|242

People: No Truce in the War for Talentincrease in just over two decades. And as Generation Xers starttheir families, the birthrate from 2000 to 2012 could reach 4.3million annually, equaling the number of births in 1957, thepeak year of baby boom births. 51The New Mantra: FlexibilityNew definitions for satisfactory working conditions are evolvingrapidly, once again to accommodate valuable employees.In the past, work design meant laying out processes strictly toimprove productivity and profitability. Now, work-designprocesses often emphasize customizing work flows to matchthe needs of scarce workers. The new mantra is flexibility,flexibility, flexibility.At IBM, the company that once prohibited blue shirts andfloral ties, managers can work part-time—and from home—so that they can better juggle the demands of their childrenand their jobs. 52When people in the payroll department at Merck & Co.’sWhitehouse Station, N.J., headquarters complained abouthabitual overtime, the company realized that it had to computerizemore of the work. It was also clear that the 9-to-5workday didn’t match the cyclical pile-up of work. Automationand new schedules helped shrink departmental overtime by50% and permitted a doubling of the number of people withflexible work arrangements.“At the end of the workday,” Business Week reports, “workerscare more about having control over when, where, and howthey work than anything else. Flex time, telecommuting andpart-time work arrangements are employee favorites.” 53In a survey by consultants Challenger, Gray & Christmas,43% of human resources executives said that an increasinglymobile, telecommuting workforce would be the biggest workplacetrend in the 21st century. Some companies are alreadyreporting that productivity rates for telecommuters are 20% to25% higher than for employees who work solely in the office.Longer, more productive working hours appear to be the key.At AT&T, for example, where 29% of managers telecommuteat least once a week (up from 8% in 1994), the company found243 |

CHAPTER NINE BUSINESS 2010that, on average, telecommuters put in five more hours a weekwhen working at home rather than at the office. 54With the number of people working 60 or more hours aweek hitting its highest point in two decades, more companiesare permitting—even encouraging—executives to “take abreak.” At Intel, all full-time employees get eight weeks off, paid,every seven years. “Microsoft Achievement Awards” provideeight weeks of paid vacation to consistently high performerswith at least seven years’ tenure. 55Higher Workplace ValuesEven upgrading the basics of the old work contract—security,pay, benefits and work conditions—will no longer be enough toensure long-term loyalty of top performers. Once the basics arecovered, high performers look to satisfy other needs, mostimportant, opportunities to keep up with change and to growon the job.CORPORATE UNIVERSITIES. Companies now spend about $56 billiona year on formal training, according to the AmericanSociety for Training and Development in Alexandria, Va. 56Companies increasingly are offering learning opportunitiesthrough their corporate universities. Such education facilitiesgive companies a clear competitive advantage in recruiting andretaining the best and brightest employees, says Jeanne C.Meister, president of the New York consulting firm CorporateUniversity Xchange, Inc.Another advantage in a world where knowledge expandsexponentially, Meister says, is that “corporate universities providelearning on demand—they ‘happen’ or take place anywhere,thanks to distance-learning technology and the use ofsatellite campuses.” 57This learning-on-demand capacity of the Internet will revolutionizetraining over the next decade. As high-speed, dedicatedInternet connections spread throughout industry, theslow nature of today’s Internet training will speed up. Theprice per student will drop, while expanded accessibility willopen training possibilities that are only glimpsed now.|244

People: No Truce in the War for TalentAs a harbinger of the next phase, Peter Drucker, America’sleading management philosopher, has already developed 30hours of Internet-based, interactive educational material withentrepreneur Alexander Brigham. In the program, Druckerexpounds his principles, followed by multiple-choice questions.After viewers click on their answers, Drucker responds inhis Viennese accent with comments like “Excellent” or “Verygood” or “Sorry, you are wrong.” E-mails periodically remindusers of the goals they set for themselves during the course. 58COACHING. In alignment with the trend toward individualizationof benefits, more companies are now offering personal coachingfor senior employees. Forbes reports that General Electric, Sony,and Johnson & Johnson use coaches. In 2000, Ernst & Youngwill have spent $2 million on them. At Hewlett-Packard, a fewpeople in human resources spend a lot of time finding coachesfor hundreds of employees. “So many companies have mushroomedfrom start-ups to huge overnight successes,” one coachtold Forbes. “You’ve got all these 30-year-old vice presidents withno management experience.”Coaches use a variety of techniques. Typically, they start byoffering clients a confidential evaluation based on personalitytests. They also use “360-degree” feedback instruments thatallow bosses, peers and “direct reports” to anonymously assessthe individual’s performance. Coaches may follow their clientsaround for the day, observing their behavior in a variety ofmanagement situations. After assessing clients, coaches advisethem on how to improve their performance. The cost can behigh, in some cases, as much as $10,000 for one person.However, the demand is likely to continue, given the evenhigher cost of losing a promising executive who needs onlysome fine-tuning to move to the next level of performance. 59RETRAINING. The task of educating employees and boostingtheir performance goes far beyond executives, however. “Awhopping 75% of today’s workforce needs retraining just tokeep pace,” The Kiplinger Letter reports. Fortunately, moretraining assets are available every day. Revamped federal programspermit states to mold training to match the needs of245 |

CHAPTER NINE BUSINESS 2010BOX 9-1Is Yours a Great Place to Work?Yours is a great place to workwhen your employees answer yesto these 12 Gallup questions.*1. Do I know what is expected ofme at work?2. Do I have the equipment andmaterial I need to do my workright?3. At work, do I have the opportunityto do what I do best everyday?4. In the last 7 days, have Ireceived recognition or praisefor good work?5. Does my supervisor or someoneat work seem to care about meas a person?6. Is there someone at work whoencourages my development?7. At work, do my opinions seemto count?8. Does the mission/purpose ofmy company make me feel mywork is important?9. Are my co-workers committedto doing quality work?10. Do I have a best friend atwork?11. In the last 6 months, have Italked to someone about myprogress?12. This last year, have I hadopportunities at work to learnand grow?*Copyright 1993-2001 by The GallupOrganization. The Q12 items are ownedby The Gallup Organization and cannotbe used without Gallup’s written consent.local businesses. Area workforce-investment boards, staffed bybusiness owners, give business more say in how such fundsare spent.Many community colleges have formed a partnership withACT, an education services firm, to open centers for testing andtraining in more than 100 communities. 60 The first centeropened in Cedar Rapids, Iowa, in July 2000. Training at thecenters will include state-of-the-art courseware in such topics asadult literacy, computer basics, information technology andEnglish as a second language. Since most of the courses will beWeb-based, people will be able to take courses via computer,either at work or at home. This kind of grass-roots effort willaccelerate a boom in training. 61Individualized Services for Key EmployeesEvery level of the retention effort reflects the movementtoward treating key employees like customers who require|246

People: No Truce in the War for Talentindividualized services, resulting in personalized pay and benefitspackages, working conditions matched to individualneeds, and specially tailored training, development andcoaching. Even with expansive company-sponsored efforts,however, retention rates can falter whenever one other keystep is missing: clear evidence of personal attention to individualemployee concerns.In today’s world, everyone—up tothe CEO—needs that kind of personalizedcommunication. Cisco CEO JohnChambers lists his birthday breakfasts asprobably “the most valuable sessions I dowith employees. Once a month anybodywho has a birthday in that month cancome and participate in a quiz sessionwith Chambers for about an hour and ahalf, and anything is fair game.” Chambers deliberatelyexcludes directors and vice presidents from the breakfasts sothat people who usually don’t get a chance to communicatewith him get one. “And every single time, I learn two or threethings that either I need to do differently, or things that Ithought were working one way and weren’t.” 62Even closer to the front lines, immediate supervisors createthe climate that can ultimately make or break any corporateretention effort. Validating this idea is a Gallup Organizationstudy that shows most workers rate having a caring boss evenhigher than money or fringe benefits. In a study covering 700companies with 2 million employees, Gallup found that thelength of time employees stay at a company and the extent towhich they are productive are determined by their relationshipwith their immediate supervisors. “People join companies andleave managers,” says Marcus Buckingham, a senior managingconsultant at Gallup and the primary analyst for the study. 63That raises another question: What are the characteristicsof a good supervisor? For 20 years, The Gallup Organizationhas been gathering data on what makes a great place to work,in the opinion of employees. After extensive study, Gallup hasisolated the 12 characteristics of a strong workplace as seenthrough the eyes of the most successful and productiveEven closer to thefront lines, immediatesupervisors createthe climate that canultimately make orbreak any corporateretention effort.247 |

CHAPTER NINE BUSINESS 2010employees. (See the box on page 246.)If your employees can answer yes to each of the 12 Gallupquestions in the box, you have a strong workplace, a workplacewhere the best people are far more likely to want to work andstay. A yes to virtually every question depends on the actions ofimmediate supervisors, supported by a competitive andfocused effort to retain valuable employees.Summary and ConclusionsPeople are now the critical resource for every manager inevery company. For the next decade at least, the shortageof skills will only intensify, putting a premium on recruiting,retaining and developing the kind of people who can buildcompetitive advantage. That’s the new priority in a worldwhere knowledge and skills are more valuable that hard assets.While the intensity of this effort raises the profile of humanresources professionals, all managers will be judged from nowon by their capacity to energize and deploy the human assetsfor which they are accountable.How resourceful is the manager in spotting, recruiting andkeeping talent? How creative is the manager in designing workflows that simultaneously increase productivity while releasingthe employee energy through attention to individual needs?Who will emerge most successfully from the management challengesposed by increased telecommuting, flexible pay plansand individualized benefits? Who will be most successful infinding and developing talent in nontraditional pools?The 1980s were a decade when skilled managers advancedby reducing waste and maximizing the use of their availablephysical assets. The competition since the mid 1990s has focusedon reducing wasted human energy and maximizing employeebrain-power at every level of the company.|248

PART THREE BUSINESS 2010Priorities for SuccessPART ONE IDENTIFIED FIVE FORCES RESHAPING OURworld. Part Two described how those forces influencethe five components of your business: market,technology (products and services), organization,capital and people.Part Three summarizes the major implications arisingfrom the issues raised in Parts One and Two, and outlinesspecific strategies that companies use to profit from thechanges around us.As business follows society into the next phase of development,there will be a heightened emphasis on values—thosevital, sometimes elusive, operational qualities such as customerservice, development of people and speed of response.As societal values change, so companies must choose whichvalues to introduce or elevate in response. This part identifiesspecific values that can help any company stay in tune withsocietal change.Part Three concludes with five priorities for any companyto deal with the issues raised in this book. With each priority,I have included a list of specific questions to help focus yourmanagement team on the overriding question, What shouldwe do first?Companies that address the issues in this chapter in athoughtful and proactive way will be the best prepared for thechallenges and opportunities of Business 2010.

CHAPTER TEN BUSINESS 2010Riding the River ofOpportunity: AligningYour Company WithAccelerating ChangeKEY CHAPTER THEMES■ Establishing a framework for decisions■ Understanding evolving societal values■ Considering the implications for business■ Tracking the values evolution in government■ Positioning your company for Business 2010

CHAPTER TEN BUSINESS 2010“For most CEOs, the three things to worry aboutare (1) Do they really understand all the shifts?(2) Are their strategies sufficiently creative andinnovative to respond to those shifts? (3) Arethey going to succeed, given the high risk they’retaking? Every one of those things is a big deal.”—GRADY MEANS, GLOBAL LEADER OF PRICEWATERHOUSECOOPER’SSTRATEGY CONSULTING PRACTICE“This historical change is not just technologicallydriven. Culture, religion, family structure, socialinstitutions, values—all are in the process ofchanging each other through complex feedbackwith one another.” —ALVIN TOFFLER, AUTHOR OF FUTURESHOCK AND CREATING A NEW CIVILIZATIONNO ONE, NO MATTER HOW SMART, CAN, WITHcomplete assurance, predict the future for 10minutes, let alone 10 years. What we canunderstand, however, is that we are on a journeyto the future—a journey with historicalprecedents and a sense of direction.Freedom, for example, has been a rising force in theworld for centuries. That force has been constrained or sometimeseven reversed for decades. However, any objectivereading of our past suggests that we are heading toward evenmore expansive definitions of human liberty. Combine thepower of that force with supporting forces like the growth ofmass education, globalization and an explosion in communicationtechnology, and a bet on expanding freedom seemseven more of a sure thing.253 |

CHAPTER TEN BUSINESS 2010The exciting potential of the business world of 2010 arisesfrom the acceleration of all the currents that promote humanaspiration and choice. Our headlong rush into the future won’tbe without problems, nor will all companies, industries andindividuals prosper. Some, indeed, will fail.A Continuum Between Yesterday and TomorrowThe best opportunity for any business to succeed consists of firstcarefully observing the world and then aligning the organizationwith the evolving direction. One premise of this book is thatthere is a continuum between yesterday and tomorrow. Noteveryone agrees. There are thoughtful people who believe thatwe have crossed some invisible breaking point in history, afterwhich the future will be radically different from the past.The idea here is that, yes, the future will be radically differentbecause significant forces long in motion are accelerating to anew level. The jet engine and the space shuttle were not createdindependent of the airplane; they accelerated the technology offlying through the air to new levels of achievement. We haveaccelerated the process of human development, adding wholenew dimensions, but we have not invented it anew.For sustained business success, bet on accelerated evolution.Align your business with the direction of long-unfoldingtrends and count on rapid acceleration. That’s the one sure betin this climate of extraordinary opportunity and turbulence.Abandon ‘Either/Or’After careful observation, the second step in aligning your organizationor yourself correctly is to abandon "either/or" thinking.Take freedom as it applies to companies, for example. Theissue is never freedom or discipline. Just as all companiesrequire freedom to prosper and grow, so do they require asolid base of discipline. That is as true today as it was 100 yearsago. What has changed is our definition of discipline.As many start-ups have discovered, the freedom torespond to customers when and how each employee choosesleads to chaos and increased costs. At the same time, tightly|254

Riding the River of Opportunitystrapping employees into inflexible procedures runs counterto their potential, as well as to every requirement of businesstoday. Front-line people are better educated. With effectivetraining, most workers are capable of making appropriatedecisions independently. Customers want quicker responses.Technology can instantly transfer information to decisionmakersanywhere in the company. Human resources consistsless and less of “hands” and more and more of brains.Substitute ‘Above’ or ‘Below’ the LineHow is a company to get the right balance between disciplineand freedom? Instead of either/or thinking, try substitutinganother equation—one that places any values conflict, such asfreedom vs. discipline, “above the line” or “below the line.”Think of discipline as a below-the-line requirement. Hereeverything must be clear—responsibilities, quality standards,accounting rules, adherence to external regulations, policies,procedures, and all the mechanics of creating and deliveringeffective products and services to a market. Above the line,everything should be governed by freedom. Here lies theopportunity for individual contribution and imagination inserving customers.Of course, the proportion of freedom above the line willvary with the industry and the company’s position in the industry.I once carried out a consulting assignment at a nuclearpower company. Everyone involved, definitely including me,favored rigid and extensive below-the-line controls. That said,most mature companies err on the side of relying too heavilyon below-the-line structure and controls. Equally, in their urgeto break the mold of past practices, many exuberant start-upstoo long postpone the hard work of establishing the right structures,systems and procedures to move the company to thenext level of performance.Think of companies with enviable reputations for exceptionalcustomer service—Marriott, Northwestern Mutual,Disney and Ritz-Carlton, for example. They all display a finelynuanced mix of above-the-line freedom and below-the-linediscipline.255 |

CHAPTER TEN BUSINESS 2010In 1928, Bill Marriott Sr. opened the first of his small HotShoppes in Washington, D.C. By the early 1930s, when therewere five restaurants, Bill and his wife were essentially the wholeorganization, as he ran from site to site to ensure quality and consistency.When he made plans to open a sixth restaurant, he wentto an experienced business lawyer to close the deal. The lawyeradvised him against expanding, because he believed it wasimpossible for one man to control the business. “You can’t controlthe rootbeer in 8 or 10 different shops,” the lawyer told the youngentrepreneur. “You can’t control all these people who make yoursandwiches and be sure they are all up to your standards. Thebigger you get, the less control you have.” 1Marriott did not accept the lawyer’s verdict. Instead, heencouraged his company’s growth by simultaneously combiningrigorous centralization of authority, to ensure quality, withdecentralization of authority, to encourage entrepreneurshipand individual initiative. To keep the business growing,Marriott had to introduce structure and systems. He establisheda central commissary to purchase food and to preparestandard items for distribution to his small Hot Shoppe chain.Bill Marriott Jr. carried the same systemization to a far higherlevel as the company entered the hotel business.Now, as was described in the previous chapter, Marriott isadapting below-the-line discipline and systemization to promotegreater freedom of opportunity among its womenemployees. In modifying work-rule discipline, the companyacknowledged employees’ need for greater freedom, representedby flexibility of schedules even in a field requiring strictattendance discipline.At Ritz-Carlton Hotels, employees are first trained in the“gold standards,” which set out the company’s service credoand its basic discipline for premium service. Then, in the wordsof one senior executive, employees are empowered “to moveheaven and earth” to satisfy customers.Disney World displays a similar mix of discipline andexacting—and well-enforced—standards for safety, which arenot open to individual choice. Yet beyond such nonnegotiable,below-the-line discipline standards, Disney encourages its “castmembers” to do whatever is necessary to make guests happy.|256

Riding the River of OpportunityNorthwestern Mutual’s standards for issuing an insurancepolicy are among the most rigorous in the industry. Once youhave a policy, however, employees treat you differentially, asthe company strives to live up to its 100-plus-year commitmentto be “the policyowner’s company.”Thinking above and below the line, rather than either/or,changes perspective in healthy ways. Either/or is finite.Above/below is endlessly expansive. In either/or, to add anounce of discipline, you subtract an ounce of freedom. This isthe thought pattern of many leaders of troubled organizations,and nations. However, no organization or nation has a finiteamount of either discipline or freedom. Both can be endlesslyexpanded in the interest of growth and development.Business leaders who are aligned with societal change consciouslyor unconsciously seek to expand freedom of choice—among customers, employees and other stakeholders—at thesame time that they seek to strengthen discipline by creatingstandards and values and diminishing the role of personalauthority.As was discussed in Chapter Eight, the evolution toward“uncentralized” organizations creates new pressures—andopportunities—to redefine the relationship between freedomand discipline in companies. The key to what Harlan Clevelandsometimes calls “the nobody-in-charge society” is a set of mutuallyagreed on values and standards, coupled with far greaterfreedom for people at the periphery to make rapid, individualdecisions in alignment with those standards and values.A Continuing Evolution of Societaland Business ValuesReasonable people can argue about the degree, directionand desirability of the changes we see today, but virtuallyeveryone agrees that the changes are profound andthat their pace is accelerating.The turmoil about education curricula is one reflection ofthe pace of change. Not so long ago, a person graduated from257 |

CHAPTER TEN BUSINESS 2010high school or college with most of the skills required for a lifetimeof work. Now, that educational edge is gone in five toseven years. With that backdrop, it’s understandable that weare arguing about what constitutes a basic education today.A Fundamental Shift in ValuesShaping all this change is a fundamental shift in human values.Although we commonly apply the word values to ethical and culturalprinciples, there are many kinds of values. They may bephysical (cleanliness, punctuality), organizational (communication,coordination), psychological (courage, generosity), mental(objectivity, sincerity), or spiritual (harmony, love, self-giving).Whether linked to body, mind or spirit, values are centralorganizing principles or ideas that govern and determinehuman behavior. In a very real sense, values are our invisibleorganizers. Business values like customer service, quality, andrespect for people give direction to our thought processes,sentiments, emotional energies, preferences and actions. Inbusiness and in life, we express values in everything we do orsay. The conscious or subconscious values of any society ororganization crucially determine how that society or businesssees its strengths and envisions future possibilities. 2In a company, family or nation, values are the essence ofknowledge gained from past experience. We extract a basicwisdom of life by distilling knowledge from its local circumstancesand specific context. We then form that basic wisdominto conscious or unconscious values that shape our thoughts,decision-making, and actions from then on.In some companies, values are communicated by a credoor values statement. In other companies, values are so strongthat the employees internalize them.The oldest conscious business value I have encountered inNorth America is that of safety at the DuPont Co. (formallyknown as E.I. du Pont de Nemours & Co., Inc.). The formalname, like the value, can be traced to company founderEleutherè I. du Pont. The young émigré from revolutionaryFrance came to America in 1790 after abandoning his propertyand privileges of aristocratic birth. However, he brought|258

Riding the River of Opportunitywith him two valuable assets—technology and a new idea. Thetechnology enabled him to produce the best gunpowder in theNew World.His idea, briefly, is the company’s long-standing philosophyto produce only products that can be made, used, handled anddisposed of safely. That’s a lofty idea today in the age of environmentalism.It was an incredible idea 200 years ago, when aplentiful supply of laborers could behired for a few cents a day to work ingunpowder plants that then had thetendency to blow up in what was considereda normal business risk. At theDuPont gunpowder plant on theBrandywine River outside Wilmington,Del., specially constructed shelters protectedworkers during dangerous stepsin the gunpowder process.In some companies,values are communicatedby a credo or valuesstatement. In othercompanies, values are sostrong that the employeesinternalize them.Like all effective values, DuPont’s safety effort has steadilyexpanded in alignment with society’s changing expectationsand with the company’s changing goals. Today, DuPont is evolvinginto a “science company focused on sustainable growth.”During this transition, the company continues to work hard onits traditional safety efforts, although its performance is alreadythe best in the chemical industry and ahead by a factor of eightor nine when compared with the all-industry average. Beyondthis effort, however, DuPont has vastly expanded its definitionof environmental safety to include “injuries and illnesses to ouremployees and contractors; incidents such as fires, explosions,accidental releases to the environment, and transportation accidents;global waste and emissions; and the use of depletable rawmaterial and energy.”By 2010, for example, the company wants to get 10% of itstotal energy needs from renewable energy sources such as windpower, and to realize 25% of its revenues from nondepletableresources such as agricultural feedstock, up from 8% in 1999.Chairman and CEO Charles O. Holliday, like otherDuPont leaders before him, carries another title as well: “ChiefSafety, Health and Environmental Officer.” In his annual letterto shareholders, he reports first on the company’s safety259 |

CHAPTER TEN BUSINESS 2010and environmental progress and challenges, and then on thefinancial results.Values such as safety, hard work, responsibility, integrity,tolerance, and respect for one another are more than nobleideals. They are pragmatic principles, proven useful enough tobe transmitted over generations as tools for future advancement.Our willingness to struggle in every generation to live upto them, and redefine them when necessary, demonstrates ourinherent belief in their utility.We tend to overlook the central role of values in the developmentof both societies and organizations, partly becausethey are intangible and partly because they become moreinternalized—and hence more invisible—over time.A values shift underpins many of the changes we are livingthrough. Businesses seeking to align themselves with thesevalue changes must view them as a continuum. The rest of thissection focuses on five specific societal value shifts of particularrelevance to U.S. business.1. From War Toward PeaceWatch the evening news and you will think we have movedscarcely an inch in the direction of peace. Stretch the timeframe, and the picture changes for the better.“Contrary to public perception, we’re seeing a decliningnumber of conflicts,” David Malone, president of theInternational Peace Academy told The Wall Street Journal, inMarch, 2000. 3 The IPA is an independent, nonpartisan, internationalorganization that advises the UN and others onpeacekeeping and conflict resolution. “Wars between stateshave declined sharply,” Malone added, “any many civil warshave been addressed very effectively.”To be sure, eras of peace have been declared before, only toend in massive bloodshed. In 1968, near the end of writingtheir massive 11-volume history of civilization, historians Willand Ariel Durant noted that in the previous 3,421 years ofrecorded history, they could find only 268 years without a significantwar. 4 Any historian considering the years since wouldproduce hardly any improvement in this ratio.|260

Riding the River of OpportunityYet today there is definitely a higher commitment—andbetter tools—to avoid at least macro-level conflict. Part of thischange stems from an understanding of the power of nuclearweapons to destroy life and accumulated wealth. Part of stemsfrom a wider global perspective. Recently, more attention hasbeen focused on local and tribal conflict.A growing number of countries,including Canada and the nations ofthe European Union, now place a newdiscipline known as “conflict prevention”at the core of their diplomatic andforeign aid efforts.Sweden’s Uppsala University peacedepartment keeps a widely cited list ofregional conflicts. From 1992 to 1998,the university reports, conflicts declinedA values shift underpinsmany of the changeswe are living through.The rest of this sectionfocuses on five specificsocietal value shifts ofparticular relevanceto U.S. business.in all five of the world’s major regions from a total of 55 to 36.Preliminary figures from 1999 show a slight rise from 1998, butthe numbers are still way down from the early 1990s. 5Since the end of the Cold War in 1989, world expenditureson armaments have declined from an all-time high of$1.3 trillion to the current level of about $850 billion, a dropof more than 40%. Some countries, notably China, India andJapan, are expected to increase overall military expendituresover the next 10 years. In 2000, both U.S. presidentialcandidates promised an increase in military spending, reflectingnational support for a stronger military. However, inan absence of a major war, spending levels are unlikely toincrease to anywhere near the levels of the early 1990s.IMPLICATIONS FOR BUSINESS. Military spending boosts sales forspecific companies and industries. However, the overall declinein military expenditure has been a boon to the commercialeconomy, especially in the U.S. Investment capital flowed outof government debt into public markets. This infusion of capitalhelped upgrade infrastructure, modernize plants andmachinery, finance private research and development, restructureindustries, and create new companies and technologies.This massive shift in resources provided a significant part261 |

CHAPTER TEN BUSINESS 2010of the capital to increase the productivity and living standardsin the U.S. and around the world. One related result was thelongest sustained economic expansion in the U.S. history and adramatic transition from government deficits to surpluses. Aworld that turns increasingly to peaceful solutions offersexpanding possibilities for business development, especially inthe global market.2. From Industrial to Technological CivilizationIn less than 10 years, advances in telecommunications, computerizationand new software developments have changed theway people communicate and conduct trade.For the first time, says futurist Alvin Toffler, “we are creatinga technological civilization that is not industrial . . . .What we areliving through is the rapid emergence and spread of a wholenew way of life, and a totally new way of creating wealth.” 6The Internet is the single greatest accelerator—andsymbol—of the change. Like-minded individuals are formingtheir own networks in this new social climate around commoninterests in business, consumer and environmental issues; politics;sports; hobbies; and even sexual variations.In an older model, knowledge, information, power anddecision-making were located at the top of society and its organizations.Information flowed up from the bottom, but decisionscame down from the top. Now the rapidly emergingmodel permits organizations or informal networks to collect,share and use information across multiple locations. Faith intechnological innovation has become a value of society.A longer-term shift from tangible products to intangibleservices also shapes the character of this new “technologicalcivilization.” Rising affluence shifts buying priorities fromhard goods to services like education, securities, health careand tourism.Services offer a wide field of opportunity for technologybasedinnovation. However, as was discussed earlier, such nonmaterialresources as organization and technology are liftingeven manufacturing and agriculture to new levels of productivityand performance.|262

Riding the River of OpportunityIMPLICATIONS FOR BUSINESS. Private-sector companies are leadingthe way into the networked society. They are the first toexploit new technological resources for marketing, sharinginformation, and managing new business opportunities, projects,procurement, supply chains and customer service.The automobile sector illustrates the potential of the newtechnologies to reduce costs and lift revenues for a traditionalindustry. Revenues from direct sales to consumers will rise,squeezing independent dealers. By 2010, traditional dealerswill make only an estimated 55% of sales, down from 95% now.Another technological innovation—one that will integrateadvanced electronics into cars and trucks—is expected to be a$12-billion business by 2010, with 20% growth a year. Hightechdevices embedded in rearview mirrors and other parts ofcars will use satellite communications to turn on lights at home,send voice mail and faxes, provide traffic information and paytolls automatically.Electronic buying exchanges are expanding operating efficienciesfor the industry. Covisint, an Internet purchasingexchange, brings together hundreds of suppliers competingfor work from Ford, DaimlerChrysler and GM. Similar formsof joint e-purchasing will help auto companies reduce costs bypooling purchases of electricity and office supplies, amongother items. 7Each corporate innovation helps define and redefine howthe expanded resources can and should be used. Businesses willbear the brunt of the emerging arguments about the role of privacyin a networked society. As businesses test the frontiers, theywill ignite the sparks in society that eventually will result in definitionof the issue through legislation, court decisions and regulationsthat, in turn, will define business’s freedom of action.3. From a National Toward a Global PerspectiveAs recently as 50 years ago, Americans were widely derided ineducated European circles for having a hopelessly provincialmentality. America refused to join the League of Nations afterWorld War I. The isolationism of the 1930s, politicallyexpressed as “America First,” was a major force before the263 |

CHAPTER TEN BUSINESS 2010U.S. entered World War II. Faith in a “Fortress America,” separatedby two oceans from foreign contamination, was longstandingand widespread.Cultivated Americans looked to Europe for art, literatureand style, as they had for at least two centuries. “GoodAmericans, when they die, go to Paris,” said the 19th-centuryauthor and physician Oliver Wendell Holmes (Sr.).Suspicion of foreign motives and foreigners was deeplyingrained in the American character—an ironic trait, inasmuchas most Americans had either been immigrants themselves orcould identify near ancestors who came from other nations.Early in our history, President Monroe announced that theU.S. would oppose any foreign intervention in the WesternHemisphere (the Monroe Doctrine). In the first decade of the20th century, Theodore Roosevelt was the first president topublicly advocate the idea of America as a world power.Franklin Roosevelt, Harry Truman and Dwight Eisenhower,three later American presidents who helped translate TeddyRoosevelt’s vision into reality, were all born in the 19th century,when Europe was the center of the world in every aspect of life.THE WORLD VIEWED IN A DIFFERENT LIGHT. When John Kennedy, thefirst president born in the 20th century, took office in 1961, heand most of the young men around him had been junior officersin World War II. They took it for granted that the U.S. wasa superpower, a global—if not the global—trendsetter withauthority and responsibilities to match. Their ascension topower ratified a shift in American perspective that had beenbuilding for decades.Those “New Frontiersmen” saw the world in a differentlight. They looked beyond Europe, exuding confidence in thedestiny of America to lead not only the West but the world.They pictured the third world, not Europe, as the maintheater of combat with Communism. Whereas previous generationsof young Americans traveled overseas to learn, thenew administration created the Peace Corps so that youngAmericans could go abroad to teach. The same leadersembroiled the U.S. in a disastrous struggle with Communistnationalism in Southeast Asia.|264

Riding the River of OpportunityForty years later and forty years wiser, we still debate thenature of America’s role in the world, but we no longer debatethat we have one. And, whether we’re hooked on high-endwines, stereo equipment and luxury automobiles, or low-endapparel, kitchen appliances and ethnic foods, American consumersrelish being part of a global market in products andideas. No group seems more open to the lure of globalizationthan America’s youngsters. Japan’s “Pokémon: The FirstMovie” took in more than $32 million at the box office duringits first weekend. In September 2000, the Harry Potter booksfrom Britain held the four top spots on The New York Times listof best-selling children’s books.AN APPETITE FOR FOREIGN GOODS AND SERVICES. This appetite forforeign goods and services each year helps run up our tradedeficit to levels that at one time were considered stratospheric.U.S. imports of goods and services exceeded exports by $271.3billion in 1999, up more than $100 billion over the 1998 total.The deficit was the biggest since the Commerce Departmentbegan compiling numbers in 1992. Moreover, oil prices sentmonthly deficits climbing to new highs in the summer of 2000.Many economists remain sanguine, however, insisting thatas long as the U.S. remains the world’s strongest economy,American consumers will inevitably outspend their globalcounterparts. Many also argue that the large trade deficit helpskeep U.S. inflation in check by providing U.S. consumers withan array of inexpensive imports.America’s “well-to-do are buying luxury goods fromFrance, Italy and Belgium; the less flush are buying bargainbasementgoods from China and the Far East,” notes BillCheney, chief economist with John Hancock Financial ServicesInc., in Boston. “Either way that’s bad for the trade balances,but you won’t hear any consumer complaints.” 8At a time when we import more than any other nation, wealso lead the world in export sales. We sell everything from soybeansto soda pop, from metal presses to Madonna releases.We lead the world in sales of computers, software, pharmaceuticals,aircraft, scientific instruments, medical devices, compactdiscs, agricultural products and much more. Like American265 |

CHAPTER TEN BUSINESS 2010consumers, businesses are reaching for new opportunities inthe global market.Even so, we still export a smaller share of our output thanother developed nations—about 12% of our gross domesticproduct (GDP), compared with roughly 25% for Germany andCanada. The domestic market is so big that for decades manycompanies did not bother to look beyond U.S. borders for customers.In fact, 20 years ago, exports accounted for a mere7.5% of GDP. That situation is now rapidly changing, as the significanceof world markets becomes more apparent. Over thenext decade the export share of our GDP will climb to 15%,representing a doubling of the percentage in 20 years.A GROWING GLOBAL INFRASTRUCTURE. As the global perspective hasgrown in the U.S., we have helped sponsor a variety of political,economic, educational and other types of international organizations.Over the past half century we helped create and fundthe United Nations, the International Monetary Fund (IMF),the World Bank, the Inter-American Development Bank,NATO (North Atlantic Treaty Organization), UNESCO (UnitedNations Educational, Scientific, and Cultural Organization),International Labor Organization (ILO), World HealthOrganization (WHO), and many others. The development ofregional trade alliances like the North American Free TradeAgreement (NAFTA) is another sign that we are committed tostrengthening an infrastructure for even greater global andregional cooperation and trade flows.Support in the business community for these new organizationsis far from universal. Many of the old complaintsremain, some of them certainly reasonable, about the attitudesof foreigners in dealing with us and about the way internationalorganizations spend U.S. taxpayers’ money. However,the significant development is that these international organizationsexist at all—and that they enjoy a measure of U.S.support that would have seemed incredible to most Americansas late as 1939. This shift in values seems likely only to gainmomentum in the next decade.IMPLICATIONS FOR BUSINESS. Start with globalization as a gener-|266

Riding the River of Opportunityator of U.S. economic activity. Each $1 billion in exportstranslates into 13,000 new jobs. About 12 million U.S. jobs,close to 10% of our overall employment, directly supportexports today, a total that’s sure to grow in the next decade.That figure counts only direct jobs. Each dollar of exportsgenerates related economic activity in sales and purchases inrelated industries, such as processing and transportation.Conversely, imports can mean job losses, as in the 1980s,when imports penetrated industries suchas textiles, footwear, steel and autos.Some economists estimate that, in theearly 1980s alone, the U.S. lost more than2 million manufacturing jobs to foreigncompetition.While gains and losses within industriesare uneven, expanding internationaltrade increases the total number of jobs ina country as a whole. Freedom of competitionforces each country to exploit its competitive advantages,putting resources to their most efficient use. In 1997–99, forexample, the U.S. added an estimated 1.7 million jobs thanksto reduction of trade barriers in North America (throughNAFTA), and other parts of the world (through WTO andbilateral pacts with Pacific nations). 9While gains and losseswithin industries areuneven, expandinginternational tradeincreases the totalnumber of jobs in acountry as a whole.Global opportunities. Beyond its impact in the U.S., globalizationaccelerates the growth of countries elsewhere, particularlydeveloping countries, creating still more opportunities for saleof U.S. goods and services. The area of fastest growth will beAsia. The populations of three countries in the region—China, India and Indonesia—represent more than 60% of theworld’s people.One statistic illustrates the changing patterns of worldtrade. In 1975, developing countries accounted for less than7% of global trade in manufactured items. Today, that percentagehas nearly tripled—and the growth will continue as thesecountries realign their economies toward more manufacturingand higher value-added services. Rising domestic marketdemand plus expansion of individual and economic freedom267 |

CHAPTER TEN BUSINESS 2010will likely spur higher rates of economic growth in these countries,where significant middle-class populations have alreadybegun to emerge.According to recent projections, Asia will account for 40%of all airliner sales in 10 to 15 years. Over the next decade, 50%of the world’s investment in power generation will go to Asia.Even assuming that some Asian countries manage to leapfrogin technology to the new micropower systems discussed inChapter Seven, the investment willAchievement of whatnations or societies aspireto begets aspiration forstill more. Expandingeducation and freedomwill reinforce a climateof rising expectations.still be huge. By 2010, total auto salesin Asia are expected to exceed sales inthe U.S., with a significant potentialremaining because the starting base isrelatively low. An expansion of thisscope is sure to increase concernsabout pollution. However, as noted inChapter Three, the World Bank hasfound that developing countries arefacing up to the need to reduce environmental hazards, includingpollution, at a much earlier stage of their development thanwas the case in the Western, developed countries.Aspiration begets aspiration. Achievement of what nations or societiesaspire to begets aspiration for still more. As education andfreedom expand throughout the developing world, they willreinforce a climate of rising expectations. By bringing theworld to isolated villages, technology will speed the process.Threatened industries, individuals and governments theworld over will resist the tide, making it flow unevenly at bestand reversing it in specific situations at worst, The outlook forGlobal Business 2010, however, is positive. Agile companieswill find more innovative ways to search for opportunities inunfamiliar markets, develop niches protected from fierceglobal competitors, form alliances to add strength, produceworld-class products even in domestic markets, and, perhapsmost important of all, create environments that attract andretain talented people.As Dave Rasmussen, the CEO of two Grand Rapids, Mich.,companies that make tools, dies and molds for a variety of|268

Riding the River of Opportunitymajor corporations, told me: “In the 1980s, we complainedabout foreign competition. In the 1990s, we got excited aboutglobal opportunities. Now we understand we were always talkingabout the same thing.”4. From Centralized Authority Toward FreedomIn the 20th century, the U.S. became the leading modernsociety—“the first 20th-century country,” in the words ofBoston University historian David Fromkin. We achieved thisstatus, Fromkin says, “in part by becoming the leader of theindustrial revolution that began in England, and in part bybecoming the leader of the political revolution that alsobegan in Britain” with the Magna Carta. This “GreatCharter,” issued and reissued between 1215 and 1225, limitedthe rights of the English king. 10The American rebels of 1776 and the framers of the U.S.Constitution were clearly acting within the tradition of limitingthe power of a central authority—king or government.However, it was not until Andrew Jackson became president in1829 that the idea of truly popular democracy effectivelyentered the mainstream of our politics.Jackson, says historian Paul Johnson, “was the first majorfigure in American politics to believe passionately and wholly inthe popular will….” As governor of Florida, Jackson ruled thatmere residence was enough to give an adult white male thevote. In 1822, he proposed that every free man in a nation orstate should have the vote, arguing that the more people whocould vote the better, since, if Washington was rotten, that gavethem the remedy. 11While uneven in its speed of progress, this line of politicalthought is easily traceable for the next 180 years of ourhistory—from the emancipation of slaves in the 1860s to theextension of voting rights to women and the direct election ofCongress in the early 1900s; to Woodrow Wilson’s proposalfor nations’ “self-determination” in international relations;to Franklin Roosevelt’s campaigns to mobilize the power ofgovernment for the “forgotten man,” who also happened tovote; to the Civil Rights movement of the 1960s; and to the269 |

CHAPTER TEN BUSINESS 2010efforts in our own time to limit the political clout of elitesthrough campaign finance reform.REFLECTIONS THROUGHOUT AMERICAN LIFE. This democratization ofour politics is mirrored in every aspect of American life. Whatwas once closed, except to the elite, continues to open wider forall. As this value has expanded, we have created or expandedinstitutions to support it.Mutual funds make us all Wall Street capitalists. We producemore millionaires in a year than we used to in decades.College degrees, once a trademark of the elite, are a widelyavailable passport to higher levels of society. Social Security,pensions and 401(k)s guarantee a basic retirement from workfor millions. What was once “insider knowledge” is readilyavailable on TV or the Internet. Mortgages make owning property,once an entitlement of the gentry, open to the masses.Budget holiday packages create travel and get-awayopportunities for workers. Talk radio and Internet sites givethe people on the street the type of sounding board onceenjoyed only by media moguls. Next time you sit in a wallto-wallauto traffic jam, remember that until early in the 20thcentury a carriage was a luxury of the rich. True, gentlemenand farmers owned horses, but farm horses were seldom availablefor nonessential work.The social impacts of these changes are easy to see allaround us. Immigrants used to be pressured to conformsocially to American (i.e., Anglo) norms. Today they are free toenjoy the benefits of American citizenship while retaining theirown cultural identity. Television, radio and CDs bring “high”culture to anyone who wants it. Skillful mass production techniquesmake it more difficult to distinguish expensive clothesand accessories from cheaper knockoffs. Almost anyone whoreally cares to can be neatly dressed. Many don’t care to—expressing their individuality by dressing down.Not all of these expansions of freedom lead to desirableresults for society or for individuals. But all of them representirrefutable and accelerating trends that business mustrecognize and incorporate into its internal operations andexternal outlook.|270

Riding the River of OpportunityIMPLICATIONS FOR BUSINESS. Bosses over age 40 have alreadynoticed that probably no one under 30—and almost no oneunder 40—calls them sir or ma’am anymore. That wouldhave been the norm not very long ago. If you are under 40yourself, you won’t care, and you might not even have noticedthe change. You can still gain respect for your knowledge,expertise, age (in some organizations) and character, but deferenceto your role as boss is a rapidly diminishing asset.A more serious implication is the continuing requirementfor organizational restructuring. Every institution of society—business, government, education, labor—will evolve differentlyfrom here on as it tries to align itself with changed societalexpectations and values.Within businesses, restructuringtranslates into redistributing power andauthority to where decisions are made.Power at the center will continue to be dispersednationally and globally. Physicalsymbols often represent the magnitude ofthis psychological change.Wilmington, Del., once epitomizedthe company town—headquarters of themighty DuPont Co. The country’s largestchemical company shook residentsWithin businesses,restructuring translatesinto redistributingpower and authorityto where decisionsare made. Power atthe center will continueto be dispersednationally and globally.recently when it announced that it was selling three of its fourheadquarters buildings—about 10% of the city’s office space.As discussed earlier, DuPont is evolving from a chemicalcompany to “a science company focused on sustainablegrowth.” While keeping—and expanding—its traditionalvalues, the company is now increasing its focus on productsand services that promote the exploration of space, theimprovement of agricultural productivity, the protection oflives, the saving of energy, and the comfort and appearance ofclothing. Also, the company increasingly looks for growth inthe global market. In keeping with trends in globalization and“uncentralization” discussed earlier, DuPont’s building salesignals that the company no longer considers heavy centralizedreal estate investments, like large headquarters staffs, to be thebest use of its corporate assets.271 |

CHAPTER TEN BUSINESS 2010The move also illustrates how the shift from manufacturingto services has affected one city’s workforce. DuPont’s big buildingsale climaxed a decade during which the company sold offreal estate and cut its Wilmington workforce. In the same era,MBNA, a giant credit card company, put up five buildings andhired thousands of workers in the Wilmington area.A successful transformation into a new business era is notthe first for the city. In 1904, when three du Pont cousinsdecided to build a large headquarters in Wilmington ratherthan relocate to New York or Philadelphia, the city was adjustingto the waning of two of its earlier mainstay industries—shipbuilding and the manufacture of railroad cars. 125. From Conquering to Sustaining the EnvironmentFor two centuries we focused on uncovering and applyingnature’s secrets to improve human health, comfort and enjoyment.Although this is still our quest, we have more recentlyadded an expansive, new dimension. In barely four decades,we have revised centuries-old thought patterns about theimportance of protecting and sustaining the natural environmentaround us.In 1962, when Rachael Carson published the landmarkenvironmentalist book The Silent Spring, she brought to publicattention concerns that until then had been confined to specialists.In just a few years, a conservation movement that hadfocused almost exclusively on keeping the wilderness wildevolved into a global environmental cause.Imagine predicting in the mid 1960s that millions ofAmericans by century’s end would be regularly recycling theirgarbage. Or that major companies would have full-time environmentalsafety officers. Or that some consumers would basebuying decisions on a company’s environmental record. Orthat environmental safety would dictate expensive aspects ofthe production, packaging and delivery of hundreds of products.“No way,” would have been the likely reply.It was only 30 years ago that some of our major rivers wereon fire from industrial waste. Schools in Los Angeles were cancelinggym classes because it was unsafe for children to play out-|272

Riding the River of Opportunityside. The change is dramatic. Our air and water are both vastlyimproved. One evidence of our altered perspective is how oftenenvironmental hazards or events lead the evening televisionnews shows. Thirty years ago, the same story would have meritedtwo inches on page 26 of the evening paper, if that.Environmental issues now regularly unite generations orrival political parties. When the leaders of the 1994 RepublicanWhile some environmentalcauses remain far fromthe mainstream, theconsensus today iswide and deep. And,increasingly, theenvironmental movementis crossing borders.congressional “Revolution” talked ofmodestly rolling back some existingenvironmental legislation, they weresurprised to find opposition amongnewly elected Republican “YoungTurks.” The leaders quickly curtailedthe effort.In part, this shift in values is aproduct of our greater affluence.Hungry people don’t worry muchabout pollution. Rising living standardsgive us the luxury to be concerned. The change is alsoattributable to education—in the classroom and by the media.Listen to a group of tenth- or eleventh-graders talk about technology.In their analysis of benefits and risks, they sound likethe radical environmentalists of the 1970s. Any reputable highschool science course will include modules on preserving theenvironment.The openness and freedom of expression of our societyalso accelerated the pace and depth of the values shift towardenvironmentalism. In contrast, when the Iron Curtain lifted inthe 1990s, it quickly became clear that a closed society withunaccountable leaders had felt little responsibility for the cleanlinessof its soil, air or water.While some environmental causes remain far from themainstream, the consensus today is wide and deep. And,increasingly, the environmental movement is crossing borders,propelled by the same globalization, technological innovationand expanding education that has energized global business.Until recently, environmental issues were isolated nationalconcerns. Pollution stirred unease in one country, acid rain inanother, and the loss of nonrenewable resources in a third.273 |

CHAPTER TEN BUSINESS 2010Now the stage is widening. Better measuring tools are giving usmore exact readings of environmental changes around theworld. Every year that we do this, we add more information toour baseline measuring progress or deterioration.“The stage appears to be set for a transformation in outlooksimilar to that which took place in economics in the 1930s,” sayshistorian David Fromkin. According to the dominant economictheory before the Great Depression, full employment wouldcome about automatically in a completely free economy. Theconsensus, built up over generations, was that the governmentshould not attempt to manage the economy. In fact, major economicdisruptions, called panics prior to the 1930s, wereviewed as uncontrollable by human intervention—in effect aforce of nature.Then with millions out of work in the Great Depression,people lost patience with that “invisible hand” explanation,however valid the theory. In time, governments took up fullemployment as a national goal. Similarly, adds Fromkin, ahealthy overall global environment “may have to be a consciouslyset goal requiring, at some point in the future, somekind of overall governing body.” Whatever the mechanism—the free market or government regulation—the key turningpoint will occur when human society as a whole assumesresponsibility for the health of the planet. 13IMPLICATIONS FOR BUSINESS. In the early years of environmentalism,business adapted slowly and reluctantly to mandatedchanges. There were dire predictions of loss of efficiency andproductivity because mounting environmental costs in the U.S.were not borne by foreign competitors.Yet, so far at least, anecdotal evidence points in the oppositedirection. In an era when companies have been steadilyadopting better and more comprehensive environmental safeguards,the productivity and competitiveness of American companiessoared to new heights. Meanwhile, other Westernnations enacted legislation that was as tough as U.S. law, if nottougher. Although cause and effect are difficult to link scientifically,it’s hard to argue that cleaning up our environment hasdamaged our economy.|274

Riding the River of OpportunityNow, business will feel the impact of a new generation thataccepts environmental safety and cleanliness as a given. Theyoung people now entering business learned their sciencefrom the first wave of teachers fully influenced by the environmentalmovement. Every year from here on will bringmore of such young adults into business.When business leaders try toexplain the cost-benefit ratios of environmentalsafety, they can expect looksthat say, “You just don’t get it.”Many companies and industriesalready do get it, of course. In the autoindustry, for example, companies areplanning 100% recyclable cars and nonpollutingengines. Other companieshave learned the power of advertisingtheir environmental safety efforts. And,Even as companieshave steadily adoptedbetter and morecomprehensiveenvironmental safeguards,the productivity andcompetitiveness ofAmerican companiessoared to new heights.everyone by now has learned the importance of avoiding thekind of environmental catastrophes that lead the evening news.Meanwhile, the Environmental Protection Agency (EPA)is taking a fresh look at ways to resolve environmental problems.The emphasis now is on greater cooperative partnerships,and on simpler and more flexible processes for makingrules. For example, EPA has been pilot-testing a newapproach to broaden public participation in decisions aboutthe use of older agricultural pesticides. The aim of the programis to make decisions more transparent to the agriculturalcommunity, whose members are most directly affectedby EPA findings. The EPA is also concentrating on what itcalls “equal environmental protection”—an effort to ensurethat no group of people or geographic location bears adisproportionate exposure to pollutants.6. A Values Shift for GovernmentIt’s not only big businesses like DuPont that must reinvent themselves.That urgent task confronts government as well. Businesshas a huge stake in this these values shifts, which mirror theforces that are propelling changes in companies and industries.275 |

CHAPTER TEN BUSINESS 2010Business often views government as an uneasy ally at best oran adversary at worst. Yet how well and how quickly governmentcan adapt to global and technological forces of change willhave a major impact on business for decades. Government as areactionary force has an unfortunate potential to slow businessprogress and retard its competitiveness.Even before thecollapse of the SovietUnion, the consensussupporting BigGovernment wasbeginning to shred.A responsive government, however, canhelp provide a predictable and stable infrastructurefor greater corporate efficiencyand international competitiveness.To do that, government, like business,requires a 21st-century vision. Our currentmodel of an activist and highly centralizedfederal government came of age underPresident Woodrow Wilson in the years before and duringWorld War I. The young Democrats who served as Wilson’sdeputies, including Franklin Roosevelt who served as Wilson’ssecretary of the Navy, came back to Washington in 1933 duringthe worst economic crisis in our history. To combat the crisis,they created a host of “New Deal” programs modeled onWilsonian ideals, requiring a stronger federal government forimplementation.In the late 1930s and early 1940s, as the New Deal evolvedinto a wartime economy, the need for a strong federal governmentbecame more widely accepted. The 50-year Cold Warwith its threat of nuclear annihilation further reinforced centralizedfederal authority. However, even before the collapse ofthe Soviet Union, the consensus supporting Big Governmentwas beginning to shred. In the years since, many of government’sstrongest advocates have acknowledged the need formajor reform.RISING PRESSURES FOR REDESIGN. The next decade is likelyto see changes in government roughly comparable to the revolutionthat has shaken business since the 1980s. So far, mostof the improvements achieved under the banner ofReinventing Government are the type of operational efficienciescarried out in business in the late 1980s and early 1990s.Although there has been considerable downsizing, much of it|276

Riding the River of Opportunityin the military, there has been too little of what industry calls“rightsizing”—the reduction of a workforce to an optimumsize on the basis of a reevaluation of the basic purpose andfunctions of the organization.To be sure, there is a far greater focus on “the customer” inmost government agencies. Missions, however, are still largelyintact. Of course, government agencies have broad missions toserve large societal needs, but critics of large governmentcharge, with justification, that, over time, agencies tend todevelop what the nonprofit sector calls “mission creep.” Thereis always one more worthy need to be served by an agency, atleast in the mind of an ambitious agency chief.The coming retirements among government employeesdiscussed in Chapters Two and Eight will also create morepressure for more comprehensive redesigns of work flows. Ascitizens enjoy the speed, flexibility and personalization ofresponses from private-sector networks, expectations for governmentresponsiveness are sure to rise, creating still morepressure for change.Government, because of the scope of its activities, will nevermatch the efficiency and speed of the private sector. Unlikebusiness, government cannot choose its customers. Moreover,in social services particularly, government has to serve peoplewho are least likely to welcome innovation in how their servicesare packaged, paid for or delivered—the poor, uneducated,elderly or infirm.Also, government inherits by default many assignmentsthat are simply not susceptible to cost-benefit analysis andshort-term results. It was, after all, government-fundedresearch that produced the Internet.E-GOVERNMENT: COMING NEXT. Even within these limitations,however, there is vast scope for improving and speeding governmentservices. Within the next five years, says TheEconomist, the Internet “will transform not only the way inwhich most public services are delivered, but also the fundamentalrelationship between government and citizen. Aftere-commerce and e-business, the next Internet revolution ise-government.” 14277 |

CHAPTER TEN BUSINESS 2010Some American companies are already saving about 20% ayear by putting their purchasing on the Web. If governmentcould achieve just half that rate, it would save U.S. taxpayers$55 billion a year.Then there is the potential for more direct access to informationand services, a welcome alternative to standing in longlines at government offices. In Arizona, for example, most driverscan now go online and renew their licenses 24 hours aday, seven days a week. Transactions average two minuteseach. Setting up the site, which is free to users, did not cost thestate a cent. It was built and is maintained and hosted by IBM,which is paid about $4 for each vehicle registration, currentlysaving the state about $1.7 million a year. 15Government will certainly multiply this kind of operatingand service efficiency by the thousands in the next decade,adding value and convenience for both businesses and individualcitizens. Yet, reducing costs and adding services are only thebeginning of the real challenge of “reinventing government.”Like business, government must now reexamine its centralpurpose in an age of globalization, increasing individual freedomand instant communication.A CONTRACT WITH AMERICA.COM. Former House Speaker NewtGingrich was one of the more tech-friendly lawmakers in hisdays in power. He was a driving force behind putting congressionalinformation online, and was a leader in blockinglegislation restricting the emerging Internet industry. In theyears since resigning as Speaker in 1998, Gingrich has spentconsiderable time in California, visiting and learning fromstart-ups and venture capitalists.Government, he now believes, “has got to find a way tobehave with the agility of tech companies.” Without a rapidoverhaul, the government risks irrelevance, because “the languageof politics and government is increasingly isolated fromthe language of everyday life.”Some of the visionary ideas Gingrich now advocates are: afree computer for every four-year-old, an open Internet biddingprocess for weapons systems, online voting using athumb print or eye identification, free online access for every-|278

Riding the River of Opportunityone and a medical smart card for everyone. 16Smart cards, which sandwich a microchip between slicesof plastic, have been used in Europe for a variety of functionssince mid 1970s. In the emerging Medicard model, local doctors,hospitals, ambulance companies, and pharmacies recordcustomers’ medical information on an individual’s card.Embedded in the patient’s card would be information aboutevery diagnosis, operation and prescription, as well as insurancedata, allergy information and emergency contacts. Theaim would be to improve integrated care without buildinga centralized patient-tracking system.GOVERNMENT AS REGULATOR. Other even more basic governmentroles await resolution, starting with the government’s role asa regulator. Early in the 20th century, a series of landmarkdecisions shaped the relationship between the emergingindustrialized economy and the government. One big issuewas whether the government should ensure universal accessto two new marvels—the telephone and electricity. Decisionsthen led to government-regulated, electric-utility monopoliesand to development of the giant Ma Bell, a private telephonecompany that guaranteed access to service like a public utilityuntil its breakup in 1984.In 1911, the Supreme Court dissolved the Standard OilTrust, clearly establishing the government’s role in regulatingmonopoly power. Fear of economic size was something thathad been building in America for more than 20 years. By 1882,Standard already controlled 80% of the nation’s refining business,rising to more than 90% by 1900.The Sherman Anti-Trust Act passed in 1890 at first didlittle to slow the concentration of economic power not only inoil but also in industries like tobacco and steel. Then, in alandmark decision two decades later, the court ordered thebreakup of Standard Oil into 34 companies, among themcompanies that became Exxon, Amoco, Mobile and Chevron.With that decision, the Sherman act—as well as government’srole as a “monopoly buster”—came of age. Three yearslater—in 1914—Congress passed legislation creating theFederal Trade Commission (FTC) to enforce a variety of279 |

CHAPTER TEN BUSINESS 2010antitrust and consumer protection laws.Mirroring today’s arguments about the Microsoft case,economists still argue whether Standard Oil’s buying out ofcompetitors and price cutting actually helped or hindered thegrowth of the industry and availability of cheap fuel. Even asthe decision came down, Standard was being challenged bynew sources of oil from Texas and theThe huge and violentantiglobalization demonstrationsat the WorldTrade Organization2000 meeting in Seattlesignal what is to comein the next decade.Mideast. Ironically, the biggest winnerfrom the case was John D. Rockefeller,who had put together the Standard OilTrust in 1882. As an original shareholderin the companies that formed StandardOil, he found himself after the court’sdecision with a diversified portfolio ofcompanies. Many of these newly liberatedfirms later successfully went to publicmarkets seeking investment funds for future growth andenriching their original shareholders in the process.Today’s era of technological innovation has created awhole new set of related issues. With the Microsoft case, thegovernment signaled that it will resist any perceived strangleholdon the basic resource of the Information AgeEconomy—digitized information. Taxing Internet commerceis still a contentious issue, dividing state and national governments.So far, the U.S. government has taken a hands-offstance on taxing Internet transactions to help promote thenew technology. The name Congress gave the 1998 InternetTax Freedom Act betrays what state and local tax collectorsare up against. Despite what many consumers believe, onlineretail sales are not, in fact, free of local and state taxes.However, in two decisions the Supreme Court has ruled thate-tailers have no legal obligation to collect taxes due on purchasesordered from another state.The revolution in biology creates still other key issues.With the announcement of the world’s first cloned animal in1997, President Clinton almost immediately banned researchinto cloning humans and convened an ethics panel to studythe issue.The new technologies have spawned a whole range of|280

Riding the River of Opportunityemerging privacy issues. How will government respond asthe Internet makes your employment, insurance and financialrecords, among other records, ever more accessible toothers? The Clinton White House in its first executive orderof the year 2000 prohibited federal agencies from usinggenetic information in hiring or promotion decisions.Extending that limitation to the private sector is sure to stircontroversy. 17 Insurance companies, for example, now have aright to demand physical exams for potential policyholders.Will that right be extended to genetic information that couldindicate a disease risk that is not now apparent?IMPLICATIONS FOR BUSINESS. As globalization accelerates, manynew issues are beyond the power of national governments.Few global structures yet exist to deal with such issues as theinternational digital divide between rich and poor nations, alack of international securities regulation and ground rules forconcentration of corporate power.Business may prefer that governments respond withbenign neglect to such issues, but that is unlikely. The hugeand violent antiglobalization demonstrations at the WorldTrade Organization 2000 meeting in Seattle signal what is tocome in the next decade. The demonstrators, mostly in their20s and 30s, are just as aware as business leaders are thatmany key decisions are no longer in the hands of nationalgovernments.American business sees the migration of power fromnational governments as a huge unleashing of opportunity.To the mostly youthful dissenters, who are far more sophisticatedand pragmatic than their Marxist predecessors, theimpotence of national governments accelerates globalinequities. In addition to demonstrating, they participate inhundreds of organizations that lobby for legislation like taxeson international capital flows and restraints on corporategiants whose activities result in job losses.For now, equality remains a largely discredited notionin the U.S. Communism, humanity’s brutal attempt at equality,degenerated into state totalitarianism. Socialism led toanother dead-end. Yet equality lingers as an ideal even in the281 |

CHAPTER TEN BUSINESS 2010capitalistic West. Since the New Deal in the 1930s, the U.S. hasemphasized meeting the minimum needs of all its citizens.The support for state intervention to assist the disadvantagedis even stronger in Europe and Japan, and it is growingworldwide. At heart, opponents of globalization argue thatglobalization bestows its benefits unequally on rich and poor.The coming debates on equality will be hampered by lackof commonly accepted measurements. Whereas many criticsfocus on numbers showing a spreadingThe coming debateson equality will behampered by lack ofcommonly acceptedmeasurements.gap between high and low in our societyand globally, others direct attention to howrapidly the floor has risen for everyone. Ina new book, University of Chicago economichistorian Robert W. Fogel says thatincreasing inequality is mostly a myth.Fogel, a Nobel Prize winner in 1993, arguesin The Fourth Great Awakening and the Future of Egalitarianismthat poorer people have actually been the biggest winners inthe economic expansion in the West in the past century.What differentiates Fogel’s analysis from other analysis ishis focus on the relationship between hours worked in the pastand today to buy the basics of life. In 1880, Fogel says, coveringa typical household’s annual food bills cost 1,405 hours of labor,about half a year’s wages, not counting unpaid time in thekitchen. The comparable figure today is 260 hours, and thatprice buys a much greater variety of food and convenience,including lots of restaurant meals. As a result, all Americanswork many fewer hours to sustain a lifestyle that would haveamazed our ancestors. 18The debate is important to business because if the ideal ofequality gains a stronger philosophical base, it may fill a voidcreated by the collapse of Communism. As The Economist put iton the tenth anniversary of the breaching of the Berlin Wall,“Among the new converts to democracy and market economics,as among the long-term believers, there is a marked absence ofideas and idealism.” 19The magazine’s point is well taken. Unless advocates of freemarkets develop and express a compelling, widely acceptedphilosophy to support the power of democratic capitalism to|282

Riding the River of Opportunityimprove the lives of the poor, they will eventually end updefending materialism against the next, more dynamic visionof equality.The free-market–capitalistic system at this moment standsalmost universally acclaimed as the greatest wealth producer inhuman history, but its success in distributing wealth is controversial.Equality has not disappeared as a human aspiration;the issue is how equality will be defined in the years ahead.Consistent with its values of expanding opportunities,business should energetically support efforts to widen equalityof opportunity—greater access to health care, education and thebasic infrastructure for development, for example. The alternativeis that those hostile to the free-market system will turnthe debate toward efforts to create equality of outcome, a conceptfrequently discredited by history, and just as frequentlyrevived by those dissatisfied by the status quo.Positioning Your Company:Five PrioritiesThis book offers a broad look at the forces and relatedtrends most likely to influence the future of business—what strategic planners sometimes call an “environmentalscan.” For individual company executives, the nextchallenge is to identify which forces and trends are likely tohave the greatest impact on their operations in the yearsahead. Then the task is to align or realign the company withthe direction in which society is moving.The rest of this section focuses on five priorities for strategicdirection in any company. All these priorities, deeply influencedby the five forces discussed at the start of the book, areimportant for all businesses. However, each planning teamneeds to rank these priorities as its situation demands. Thediscussion of each priority includes a few sample questionsthat will assist any team in addressing the question, Whatshould we do first?Pursuing any of these priorities involves far more than just283 |

CHAPTER TEN BUSINESS 2010“setting an objective” and “creating an action plan”—the usualsteps in strategic planning. If that were all there were to it,thousands of companies would have long since achieved theirambitious change programs.Rather, pursuing any of these priorities requires morethan setting a target and following it with a by-the-numbersapproach. Implementing the priorities will touch the veryheart of any company—its values and the balance among itsfive, basic components—and will require the company toexpand the capacity of one or more of the components insignificant ways.Lifting performance in any component requires implementingthe values most immediately linked to that component.Discussion of each of the priorities will identify valueslikely to have the fastest impact.To ensure success, think more widely about the priorityitself. Ask, What components must we strengthen? What new orexisting values can we elevate in accordance with our priorities?Priority #1: Anticipate Market NeedsThe purpose of business is to serve a societal need. Society’sevolution is therefore a critical determinant in who wins andloses the business battle. In any review of historical businesssuccesses, there are always stories of companies that intuitivelyor consciously caught the next evolutionary wave:■ Henry Ford saw that the rising affluence of working Americanswould open a stunning business opportunity to sell cars tothe masses.■ Charles E. Merrill understood early that products for the elitecould be sold profitably to the rising middle class. In his case,that meant making Merrill Lynch the world’s largest retailerof securities by “taking Wall Street to Main Street.”■ Fifty years ago, hardly any retailer asked “cash or credit card?”Then Diner’s Club, building on the one-store credit systemspopularized by retailers for preferred customers, created acard that could be used at many stores and restaurants.■ Closer to our own time, pioneers like Steve Jobs and Bill Gatessaw the potential of selling information technology that|284

Riding the River of Opportunitycould realize the rallying cry of 1960s activists—“power tothe people.”The opportunities today are greater than ever. The massmarket grows steadily in the U.S. and exponentially in theother parts of the world. Beyond the rising desire for moreand better products, the demand for intangibles—betterservice, information, speed and convenience—is rapidlyexpanding.Anticipating evolution always pays the biggest returns.However, this strategy carries the biggest risk. Those who wishto exploit the power of this priority with lessrisk can ensure that their company staysclosely aligned with—but not necessarilyahead of—evolving change.Being better to getbigger is a commonenough strategy,but being better asa primary goal isn’ta normal businessidea at all.ASK “HOW CAN WE SERVE?” NorthwesternMutual has a longstanding history of closealignment with its chosen market. ToNorthwestern, providing high-quality serviceto customers has always been more importantthan becoming a big company. The company has grownsteadily and profitably by using its credo, drafted in 1888, as aguide to strategic direction. The credo, carved in stone in thelobby of the company’s Milwaukee, Wis., headquarters, specificallydirects Northwestern to avoid aiming to be the biggest butto be first “the policyowner’s company.”Being better to get bigger is a common enough strategy,but being better as a primary goal isn’t a normal business ideaat all. It actually transforms normal business practice into thehighest levels of a value called service. This is the key to longtimealignment with any market—don’t begin by asking, Whatcan we sell? Ask first, How can we serve?With little fanfare, Northwestern Mutual is expanding itsservices in line with the changing needs of its policyowners.Demographic change has shifted traditional insurance patternsaway from 25- to 40-years olds, toward the 45-to-60 agebracket, possibly because people today are less concernedabout premature death. The older age cohort is interested—285 |

CHAPTER TEN BUSINESS 2010and can afford—a wider array of financial services ratherthan just insurance.Although insurance will remain Northwestern’s core product,local offices are expanding their specialties in a variety ofplanning and other financial services. Part of the strategyincludes alliances with companies that share Northwestern’s“customer first” value. For example, Northwestern haslaunched a trust services pilot, sharing expertise with NorthernTrust Corp. of Chicago, a leading deliverer of trust, investmentand banking services.What Northwestern calls “the Agency of the Future” will bebuilt as much on intangibles, such as information and service,as on product reputation. Says CEO James D. Ericson, “Peoplewho are going to survive and thrive are those who can take thisvast amount of information and present it in a way that is comprehensiblefor the customer.”Northwestern’s managing director in Minneapolis, GeneStorms, thinks of the change in what he must provide the customerin terms of a pyramid. He visualizes a base called rawdata at the bottom of the pyramid. At the next level there isinformation. From there, the higher but still narrower levels ofthe pyramid are called, first, knowledge and then, at the highestlevel, wisdom. Now, the data and information “that I used toprovide people as a real service are available free on the Web,”Storms says. “You don’t even have to purchase a newspaper.”To stay aligned with its market, Northwestern Mutual mustmove more of its service in the direction of providing knowledgeand wisdom.That, of course, means upgrading technology. ExecutiveVice President William H. Beckley says the company is investingmore than $125 million in information technology toconnect its agents to clients, to one another and to the headoffice. One aim of the effort is to have information available topolicyowners 24–7.VALUES THAT ENERGIZE: To anticipate—or even stay alignedwith—market change, look to the value of service, which canenergize all components, particularly market and technology(products and services). Every company can profitably elevate|286

Riding the River of Opportunitythis value. Even the language of values in the marketplace suggestsa hierarchy—from customer service, to customer satisfaction,to customer delight, to customer for life. Companieseverywhere are struggling to climb one more step up that ladder.The rewards are worth the effort. As was noted in ChapterFive, nothing in business is a greater guarantor of sustainedsuccess than elevating values that promote customer loyalty.QUESTIONS TO ASK:■ Who are our customers? Today? Tomorrow?■ How well do we understand what our customers want today? Will probablywant tomorrow?■ What societal trends will most likely affect our customers?■ How responsive are we to customers’ requests? How could we respondfaster? More comprehensively?Priority #2: Accelerate Response TimeWe live in fast times that are getting faster. The question is notwhether we will increase our time of response, but whether wewill use human or systemic energy to do so. Rushing from taskto task uses—and depletes—human energy. Systemic energyspeeds transactions with far less expenditure of human energy.Take the most basic system imaginable—a supermarketshopping list. Watch two people in thesupermarket—one with a detailed andorganized list and one relying solelyon memory. Both push the same kindof shopping carts, both buy the sameitems. They both may actually completethe task in approximately thesame time. But look closer. To achievethe same time, the person without theThe question is notwhether we will increaseour time of response,but whether we willuse human or systemicenergy to do so.list will probably have to rush, cutting back and forth betweenshopping aisles to collect initially forgotten items. And, guesswhich one is more likely to forget a key item, spending stillmore energy on a return trip to the market?Carry the same principle into a business transaction involvinga half-dozen people, and the potential for saving energy and287 |

CHAPTER TEN BUSINESS 2010speeding results starts multiplying. Compare setting a meetingagenda with six people through one e-mail message with theeffort it takes to call each one individually on the phone.To be sure, the personal touch is often preferable to amechanical system. Who has not hung on a phone, hoping forthe sound of a live human voice when connected to a corporatevoice mail message? Yet, even this hope can be a matterof expectation. Who has not listened to the sound of an endlesslyringing phone and thought, “Why don’t they have voicemail?” The issue is not a choice between personal or systemicenergy. In business today, the systemic is increasingly moreappropriate for routine transactions, saving valuable humanenergy for the exceptional opportunity or crisis requiring ahigher level of knowledge.Most companies today are near the end of their employees’physical capacity to rush faster. However, every company stillhas vast untapped potential to accelerate systemic responsetime by improving processes and upgrading technology andtraining. The work that companies have already done to speedsuch activities as product development and delivery shows thepotential. Integrated technological systems linking customersand suppliers are spreading rapidly, for example.Companies today think of speeding response time as atechnology challenge, but structure and skills are often as biga barrier to faster response as a lack of the latest technology.The evolving revolution in business-to-business e-auctionsrepresents as much a structural as a technological innovation.And, an order taker’s language skills or the computer skills ofa data entry clerk sometimes have more to do with responsetime than the actual capacity of the technology system theemployees are using.VALUES THAT ENERGIZE: Speed, an all-purpose value, energizeswhole companies or specific components. With speed as a value,companies focus on every component: answering customersfaster, developing products in record time, organizing with fewerlayers, training people to work in cross-functional project teamsand publishing same-day financial information. Companies canalso uncover opportunities by adopting the related value of sim-|288

Riding the River of Opportunityplicity, which can be particularly useful to companies with welldevelopedor obsolete systems and structures.QUESTIONS TO ASK:■ What were the last 5 to 10 transactions that were late?■ In each case, what were the reasons? Inadequate systems? A lackof skills? Structural impediments? Obsolete technology? Anattitude of complacency?■ How can we overcome these impediments? If you face complacency,take heart: Years of working with companies trying tospeed their work convinces me that even the most basicreview and corrective action can yield significant results,because the root causes of lack of punctuality run in similarpatterns in different places throughout any company.Priority #3: Develop All Your People All the TimeIn scanning the environment, we regularly encounter thepower of knowledge to change the destiny of nations, companiesand individuals. Because knowledge increasinglydetermines competitive advantage, every company to staycompetitive must invest in upgrading the knowledge base ofits people.The history of Motorola University (MU), which serves the$38-billion manufacturer of wireless communications technologies,semiconductors and advanced electronic systems,conveys a strong sense of the evolution of corporate educationand training.■ 1981: Motorola opens training center with a mission to builda culture of quality through skill-based training and problemsolving.■ 1985–95: Emphasis shifts to training plus education, with agreater focus on understanding the world in which the companyoperates and where it is headed.■ 1995–present: Greater focus on building and managingknowledge and on developing skills to gather and distributewhat is known within the organization.Motorola requires all of its 130,000 associates to to engage289 |

CHAPTER TEN BUSINESS 2010in 40 hours a year of job-relevant training and education. MU’sflagship Gavin Center in Schaumburg, Ill., is open 15 hours aday, 6 days a week.MU operates seven state-of-the-art learning facilities aroundthe world. In addition, some of its courses are available either inperson or through technology at some 90 sites in 23 countries.All young people hiredtoday by Motorola or amidsize company wantanswers to three basicquestions: Is the workinteresting? How will youdevelop your employees?How will you pay andreward them?In China alone, MU has trained 10,000Motorola employees and partners.MU’s Colleges of Technology,Leadership and Transcultural Studies,and Emerging Markets serve five geographicregions (the U.S.; North Asia;South Asia; Europe, the Middle Eastand Africa; and Latin America) withcourseware, consulting and partnerships.In addition to serving employees,MU designs and develops courses forMotorola suppliers and strategic partners.Its consulting arm uses experienced Motorola executivesto transfer critical skills to Motorola suppliers and customers.MU has established partnerships with educational institutionsaround the globe. Its Just-in-Time Lecture series is packaged ona CD, a film version of talks by experts, plus presentation slidesand a running list of frequently asked questions. The CDs aresent overnight to members of project teams who may be in locationsas scattered as Brazil, Scotland and China.MU’s president, William Wiggenhorn, says that large companiesmust now provide up-to-date education “on a globalbasis, in local languages, and all the time.” MU used to designcourses in one-to-four-hour blocks of time. Now modules aredown to 15 minutes. “We have to figure out what people needto know, when they need to know it,” he says. What Motorolarequires are a technology that works, a faculty that speaks thelocal language, an understanding of local context and a supportsystem to help people share knowledge.Where does that situation leave the small to midsize companywithout Motorola’s resources? With the same challengebut different solutions, says Wiggenhorn. With the exception ofyoung people who are joining start-ups, all young people hired|290

Riding the River of Opportunitytoday by Motorola or a midsize company want answers to threebasic questions: Is the work interesting? How will you developyour employees? How will you pay and reward them? Anycompany, any size must have good answers to attract peoplewith high potential.Wiggenhorn is a strong advocate of community colleges,which he calls “one of the beauties of operating in the U.S.”Also, as was discussed in the previous chapter, more and moretraining software is available at low cost and online. Whenexpensive training is needed, Wiggenhorn recommends thatsmaller firms form an alliance or consortium to share licensingexpenses or the cost of having a community college designand deliver the training.VALUES THAT ENERGIZE: Focusing on your people leads you tosuch values as respect for the individual, which can add powerto corporate efforts to expand diversity. Development of peopleis another major energizer because it focuses attention onelevating everyone’s knowledge and skills. Taken at its mostexpansive, as with Motorola, the value leads to efforts toextend training and development opportunities to other membersof your supply chain.QUESTIONS TO ASK:■ What major knowledge and skills will we need to add, given ourassessment of our business environment?■ How well do we communicate our values to new employees? Reinforcethem with longer-serving employees? (Motorola, for example, hasa home-grown learning package, “Motorola: Yesterday,Today and Tomorrow”—a 52-unit review of the company’sculture, history and values. All new employees are givenaccess to the program as part of their orientation. Each unittakes 10 minutes to complete and contains a quiz, withanswers.)■ To what extent does our personnel turnover reflect a lack of developmentopportunities for everyone? For women and minoritiesspecifically?■ How long has it been since we upgraded our employee orientation program?Our other standard training programs?291 |

CHAPTER TEN BUSINESS 2010■ What percentage of our revenues do we believe that we must invest intraining and development in order to stay competitive?Priority #4: Organize for TomorrowOur longest-enduring concept of organization was based on theprinciple that repetition of systems, rules, policies and procedurescould be effective as long as one strong fixed center ofauthority directed the parts.A corollary principle was that structure follows strategy.The fixed center of authority manufactured the master form ofthose systems, rules, policies and procedures consistent withwhat it wanted to accomplish and then relayed them for duplicationto its subcenters. If the fixed center was powerfulenough and consistent enough, it could duplicate itself acrossthe earth.This design, efficient and well-understood in the past,once worked well and it still works. We shouldn’t dismiss themodel out of hand, because over generations it has facilitatedorder, efficiency and prosperity. However, the design losesstrength every day, with every newly educated person, withevery new Internet subscriber, with every institution shiftingfrom dependence on physical assets to dependence on knowledge,with every nation or organization that edges towardgreater freedom.The draining away of strength from the traditional modelis irreversible, and it is picking up speed. Huge mergers ofuncompetitive companies attempt to reclaim the productivitythat once lay at the heart of centralized authority, but theirlimited success demonstrates only the declining power of theprinciple. Rigid enforcement of lockstep routines that wouldhave been praised for their humanistic efficiency only 50years ago now set off a disastrous exodus of an organization’sprime intellectual assets.RISK MEASUREMENT. Jumping too quickly from command andcontrol toward more “uncentralized” models entails risk. Thenewer models depend on widely dispersed pools of knowledge,effective communication and the authority of mutually agreed|292

Riding the River of Opportunityupon values and standards. Lacking these, individuality prospersbut productivity does not necessarily do the same. To seethis principle work in miniature, talk privately with any CEOwho jumped too quickly into a dressing-down policy withoutpreviously agreed upon standards.Clinging to the past is equally foolhardy. Start-ups with ablank organization chart and an intuitive sense of the futurecan afford to be bold. Older companies are wiser to chancepurposeful, sustained evolution rather than revolution.Organizing for tomorrow must be conscious, swift and consistent,always exploiting or, better yet, creating new opportunitiesto shift authority from the center toward the periphery.VALUES THAT ENERGIZE: For businesses seeking the most expansivestrategy, freedom is the ultimate value. Communicationand coordination help widen channels to disperse authority.Speed helps clear away structural and systemic barriers.Strengthening the value of teamwork is a powerful motivator,encouraging the creation of useful standards and the eliminationof obsolete ones. Any of these values lifts performance inall components, especially in organization and people.QUESTIONS TO ASK:■ To what extent do we handle our routine operations, projects andpaperwork on time?■ To what extent do we make and execute decisions promptly?■ How can we get more decisions made at the lowest level of authoritypossible?■ How effective are our systems to stay in touch with customers? Howcurrent are the systems? How smoothly do we introducefeedback from customers into our operations? How can weupdate our systems for communicating with customers?■ What inhibits a higher level of teamwork here?■ How clear are the responsibilities and accountabilities in our company?Priority #5: Elevate Operational ExcellenceThe values in any company are revealed in how it handles itsroutine operations. Successful companies express their highest293 |

CHAPTER TEN BUSINESS 2010values in the smallest physical acts. For example, in an erawhen talent is scarce, Northwestern Mutual has strengthenedrather than relaxed its recruitment procedures.In Minneapolis, Northwestern Mutual’s managing director,Gene Storms, has the daunting task of hiring new agentsfor commission-only jobs in a climate “where a sharp studentwill have jobs offers with a signing bonus six months beforegraduation.” The natural temptation would be to fill yourquota by settling for the best hires you can manage and hopethat a certain percentage would manageAs knowledge becomesthe primary asset forbusiness success,human beings at lastfully emerge as theultimate and, in areal sense, the onelimitless resource.to succeed. That would certainly be thestrategy of other, more numbers-drivencompanies.To the contrary, in 2000, Storms andhis recruiters talked with 1,200 peoplebefore meeting their goal of hiring 24salespeople. They tested applicants fortheir entrepreneurial bent and for theirability to finance the early stage of acommission-based career. The companyanalyzed the applicants’ handwriting, and applicants participatedin a trial run, completing market surveys in person with15 prospective customers. Storms spoke with each candidate’sparents or spouse to make sure that each could provide supportat home for a career that will probably take a few years toproduce sustained financial success.Northwestern Mutual displays the same kind of care in hiringat its Milwaukee headquarters. It emphasizes assessment ofits candidates’ ability to work in teams, as well as their technicalcompetence. The orientation program for new hires devotesconsiderable time to the company’s values, says Susan Lueger,vice president for human resources.All this attention to hiring practices pays off in ways thataffect both the culture and the cost structure of NorthwesternMutual. Of the 65 agents Gene Storms has hired over the pastfive years, during one of the most volatile job markets inhistory, 31 are still in place. And, at headquarters in 1999,the turnover rate of employees, excluding retirement, wasonly 3.7%!|294

Riding the River of OpportunityVALUES THAT ENERGIZE: Any routine operational task can be energizedthrough values. Values such as systematic functioning,quality, or optimum use of resources are especially potent inidentifying and overcoming issues that inhibit a company’sdevelopment in the capital and organization components.QUESTIONS TO ASK:■ Which of our costs run the most—or the most frequently—over budget,and why?■ What would it take to lift our quality to Six Sigma level? (See the discussionof this quality strategy in Chapter Six.)■ How accurately and fully do we measure the productivity of our capitaland our people?■ What activities could we outsource, thus freeing resources that wecould apply profitably elsewhere?■ How well do we maintain the machinery, equipment and space criticalto our operations?Summary and ConclusionsThe development of business organizations always coincideswith the development of society. Because theprogress of business mirrors the evolution of society,this progress can be traced through a series of more complexand productive relationships with counterparts in otheraspects of life.In resources, business is moving from an emphasis on concretematerials to a reliance on technology and information.From an economic society based on land, the U.S. evolved intoone based on money and other human-created assets.Americans are only now beginning to understand that knowledgehas become our most valuable economic asset.For most of human history, a leadership elite used forceto motivate humans to produce. All the great wonders ofthe ancient world were built by sentient beings who laboredas little more than human animals. An industrial societyrequired a higher and more generalized intelligence forachievement. Rudimentary education was required. Pay295 |

CHAPTER TEN BUSINESS 2010rather than force became the principal motivator. Authoritystill flowed from the top, from the leader’s capacity to extendor withhold compensation.As knowledge becomes the primary asset for businesssuccess, human beings at last fully emerge as the ultimateand, in a real sense, the one limitless resource. Systems ofauthority, always slow to adapt, are now beginning to adjust tothe enormous size of this change. Increasingly, pay isno longer enough by itself. Leaders are learning how better toextend their authority in meaningful ways to others, to providenew development opportunities. The team or network isreplacing the pyramid as the most effective design to transmitideas and expand creativity.Just as this awareness gains momentum, an apparentlysudden shortage of talented, knowledgeable people hascaught most of the business world by surprise. In less than adecade we have gone from “lean and mean downsizing” to afrantic search for talent. We search for explanations in ournation’s demographics, education system, government policiesand societal attitudes. All provide important but partial clues.The underlying explanation is now apparent. A technologicalcivilization can only run on the primary energy sourceknown as human brainpower. For that civilization to keepgrowing and expanding opportunities at the rate we are nowmoving, it must have access to more and better human brainpowerevery year. The search for better ways to find andunleash that energy source will from here on be a constantpreoccupation of business.A Creative Field of EndeavorBusiness is a highly creative field of endeavor. It successfullyconverts individual ambition into communal achievement atthe least cost to society. It identifies generalized desires andturns them into specific products and services that make ourlives more productive, comfortable and enjoyable. Perhapsmost important of all, business is an arena for personal growthand development for millions of people. The issue now is howbest to harness that capacity to serve society consciously.|296

Riding the River of OpportunityHumanity is now more aware of its potential not just toadvance from one level to the next, but to skip three or fourlevels at a time. That is the real opportunity in the convergenceof globalization, information technology and mass education.Innovations that used to take decades or even centuries cancircle the globe in a few years or even months.The best single force to accelerate this progress is an awareand energized business community. No other resource canbring to bear so much human creativity within an organizedand flexible structure. No other institution can shift resourcesto productive avenues as quickly. No other arm of society hasthe capacity to turn theory into practical intelligence with suchspeed or efficiency. No other arena of human activity offers somany opportunities for growth and development of individualsand groups.How well business employs these tremendous capacities willbe a major determinant of human progress in the decade ahead.297 |

ENDNOTES BUSINESS 2010CHAPTER ONE: A Moment of Opportunity1 Figures cited come from “Work in Progress, SpecialReport,” The Economist, July 24, 1999, www.economist.com/editorial/justforyou/19990724/sa7348.html.2 Figures cited come from “On the Yellow Brick Road,” TheEconomist, September 11, 1999, www.economist.com/editorial/justforyou/19990911/su3796.html.3 Park, quoted in Louis Kraar, “What Pacific Century?”Fortune, November 22, 1999, p. 198.4 Figures cited come from The American Marketplace:Demographics and Spending Patterns, 4th Edition (NewStrategist Publications, Inc., 1999), and from Digest ofEducation Statistics.5 David S. Landes, The Wealth and Poverty of Nations (W. W.Norton & Co., Inc. 1998), pp. 282–85.6 James Traub, “Online U., How Entrepreneurs andAcademic Radicals Are Breaking Down the Walls of theUniversity,” New York Times Magazine, November 2000,p. 92.7 Beth O’Leary, “More Firms to Set Up Own Universities,”Kiplinger Business Forecasts, December 7, 1999, p. 1.,http://www.kiplingerforecasts.com.8 Ibid.9 Peter F. Drucker, Management Challenges for the 21st Century(Harper Business, 1999), pp. 149–51.CHAPTER TWO: 21st-Century Demographics1 Quoted in Barbara Crossette, “Europe Stares at a FutureBuilt by Immigrants,” New York Times, January 2, 2000,Section 4, p. 1.2 Unless otherwise cited, figures cited in this section arefrom Elizabeth Kelleher and Pamela M. Prah, “Changing299 |

BUSINESS 2010Labor Demographics Pose Challenges for Employers,”Kiplinger Business Forecasts, December 10, 1999,http://www.kiplingerforecasts.com/special/weekly/1999/dec10/laborforce.html, and from “The Graying of the BabyBoom,” Kiplinger Business Forecasts, http://www.kiplingerforecasts.com/special/population/age/babyboom.html, and“A Look at Population,” The Kiplinger Washington Letter,December 23, 1998, including supplementary KBF reportsof the same date.3 William L. Hamilton, “You’re Not Getting Older. ProductsAre Getting Better.” New York Times, June 27, 1999, Section 4,p. 1.4 Geoffrey Coffin, “The 50 Best Companies For Asians, Blacksand Hispanics: Companies That Pursue DiversityOutperform the S&P 500. Coincidence?” Fortune, July 19,1999, p. 53.5 Cited in Diane E. Lewis, “As Women Dominate CollegeCampuses, Some Wonder Whether Workplace Is Next,”Boston Globe, June 6, 1999, p. F1.6 Cited in Ellen Joan Pollock, “In Today’s Workplace, WomenFeel Freer To Be, Well, Women,” Wall Street Journal,February 7, 2000, p. 1.7 Cited in Patrice Hill, “In Jobs, Mothers Count on Flexibility:Family-Friendly Schedules Give Employers a CompetitiveEdge,” Washington Times, September 19, 1999, p. C1.8 Ibid., p. C9.9 Cited in Paulette Thomas, “Closing the Gender Gap,” WallStreet Journal, May 24, 1999, p. R12.10 Peter F. Drucker, Management Challenges for the 21st Century(Harper Business, 1999), p. 46.CHAPTER THREE: The Global Frontier1 “What Is Globalization?” Part 1 of a 4 part series onAssessing Globalization, published by The World BankEconomic Policy Group and Development Research Group,Spring 2000, available on the Web at http://www/html/extdr/pb/globalization/ or from The World Bank 1818H St., NW, Washington DC 20433, p. 12 Ibid.|300

Endnotes3 Jennifer Ordonez, “Olive Garden Bets on Cachet ofCooking School in Italy,” Wall Street Journal, October 19,1999, p. B2.4 Calvin Sims, “Japan Beckons, and East Asia’s Youth Fall inLove,” New York Times, December 5, 1999.5 Harlan Cleveland, Garry Jacobs, Robert Macfarlane, Robertvan Harten, N. Asokan, “Human Choice: The Genetic Codefor Social Development,” working paper presented at the1998 Vancouver Assembly of the World Academy of Art andScience, p. 33. Available from www.mirainternational.com.6 Wall Street Journal, October 12, 1999, p. A26.7 Brandon Mitchener, “Border Crossings—The InternetMakes It So Much Easier to Go Global. And So Much Easierto Violate Local Laws,” Wall Street Journal, November 22,1999, p. R-41.8 Rob Norton, “The Luck of the Irish,” Fortune, October 25,1999, p. 195.9 Information in section on economic growth and povertyreduction from “Does More International Trade OpennessIncrease World Poverty?” Part 2 of a 4-part series AssessingGlobalization, pp. 1–3; see note 1 above.10 Information in section on international trade and inequalityfrom “Does More International Trade Openness WorsenInequality?” Part 3 of a 4-part series Assessing Globalization,pp. 2–3; see note 1 above.11 Information in section on globalization and the environmentfrom “Is Globalization Causing a ‘Race to the Bottom’in Environmental Standards?” Part 4 of a 4-part seriesAssessing Globalization, p. 3; see note 1 above.12 “The World’s View of Multinationals,” The Economist,January 29, 2000, p. 21.13 Arnaud De Borchgrave, “Warm Up for the Long Haul,”Washington Times, December 6, 1999..CHAPTER FOUR: Business Evolution1 Steve Lohr, “Welcome to the Internet, the First GlobalColony,” New York Times Week in Review, January 9, 2000,p. 1.2 Cited in Harold Livesay, American Made: Men Who Shaped the301 |

BUSINESS 2010American Economy (Little Brown & Co., 1979), p. 141.3 “To Pause and Be Refreshed,” Fortune, July 1931, p. 108.4 “Old and New Economy Companies: A Perfect Fit,” TrendLetter, October 30, 2000, p. 6.5 Cited in James Gleick, Faster: The Acceleration of Just AboutEverything (Pantheon Books, 1999), p. 86.CHAPTER FIVE: The Market Rules1 Clay Chandler, “Starbucks Going for All the Coffee inChina,” Washington Post, May 24, 2000, p. E21.2 Seller Beware, The Economist, March 4, 2000, p. 63..3 Penelope Patsuris, “Coke, Kraft, P&G, Sara Lee LaunchNew Marketplace,” Forbes, June 14, 2000, http://www.forbes.com/tool/html/00/jun/0614/MU7.htm.4 David P. Hamilton, “Inflection Point—Intel ChairmanAndrew Grove Talks About How E-Commerce WillTransform Just About Everything,” Wall Street Journal, April17, 2000, p. R50.5 Quoted in Jonathan Kaufman, “The OmnipresentPersuaders: Marketing in the Future Will Be Everywhere—Including Your Head,” Wall Street Journal, January 1, 2000,p. R26.6 Ibid.7 Ibid.8 Robert B. Reich, “Brand-Name Knowledge,” Wall StreetJournal, October 13, 1997, op-ed p.9 Quoted in Jim Billington, “Customer-Driven Innovation,”Harvard Business Review, July 1998.10 “Dot-coms: What Have We Learned?” Fortune, October 30,2000, pp. 96–98.11 Frederick F. Reichheld’s ideas and quotes here andbelow are excerpted from his book The Loyalty Effect:The Hidden Force Behind Growth, Profits and LastingValue (Harvard Business School Press, 1996), and a NewYork Times interview with Fred Andrews (December29, 1999), “A Man of Words Remains Partial to OneLoyalty and E-Loyalty: Your Secret Weapon on theWeb,” with Phil Schefter, Harvard Business Review, July-August 2000.|302

Endnotes12 Keki R. Bhote, “Beyond Customer Satisfaction to CustomerLoyalty,” AMA Management Briefing, 1996, p. 31.13 Ibid, p. 35.14 Oren Harari, “The Power of Complaints,” ManagementReview, American Management Assn., July-August, 1999.15 Daniel Lyons, “Make the Little Guys Feel Big,” Forbes coverstory, April 17, 2000.16 Daniel Lyons, “Michael Dell’s Second Act,” Forbes coverstory, April 17, 2000.17 Geoffrey Colvin, “America’s Most Admired Companies:How Frequently and Creatively Do They Use the Internet?”Fortune, February 21, 2000, p. 110.18 Quoted in Robert Slater, The New GE: How Jack WelchRevived an American Institution (Richard Irwin, 1993), p. 260.19 “Cisco@speed, Survey Business and the Internet,” TheEconomist, June 26, 1999, http://www.economist.com/editorial/justforyou/19990626/su7156.html.20 Brian Dumaine, “How Managers Can Succeed ThroughSpeed,” Fortune, February 11, 1989, p. 54.21 Scott Kirsner, “Faster Company,” Fast Company, May 2000,p. 162.22 Ibid.23 Matthew Rose, “Mr. Ryder Rewrites the Musty Old Book atReader’s Digest,” Wall Street Journal, April 18, 2000, p. 1.24 Kevin Maney, “Does Internet Time March On or Has ItsClock Been Cleaned?” USA Today, November 29, 2000, p. 3B.25 http://www.demc.com/html/sponsor.html.26 Quoted in Thomas A. Stewart, “Three Rules for Managingin the Real-Time Economy,” Fortune, May 1, 2000, p. 332.27 Cited in Jennifer Oridonez, “An Efficiency Drive: Fast FoodLanes Are Getting Even Faster,” Wall Street Journal, May 18,2000, p. 1.28 Cited in Thomas A. Stewart, “How Cisco and Alcoa MakeReal Time Work,” Fortune, May 29, 2000, p. 284.29 Constance L. Hays, “A Role Model’s New Clothes,” New YorkTimes, April 1, 2000.30 Cora Daniels, “A Fund Group Redefines EmergingMarkets,” Fortune, June 7, 1999, p. 234.31 Ibid.303 |

BUSINESS 201032 Lowell L. Bryan and Jane N. Fraser, “Getting to Global,” TheMcKinsey Quarterly, 1999, No. 4, p. 28.33 Figures on U.S. international business from MurrayWeidenbaum, “All the World’s a Stage,” Management Review,the American Management Assn., October 1999, pp.42–48.34 Figures on U.S. international business from the Center forthe Study of American Business, American ManagementAssn., October, 1999, pp. 42–48.35 Cited in Beth O’Leary, “More Small Firms Will Go Global,”Kiplinger Business Forecasts, June 14, 2000, http://www.kiplingerforecasts.com.CHAPTER SIX: The Vast Profit Potential of Expanding Knowledge1 The New American Boom: Exciting Changes in American Lifeand Business Between Now and the Year 2000, by the staff ofthe Kiplinger Washington Letter (Washington, D.C.:Kiplinger Books, 1986), and Austin H. Kiplinger andKnight A. Kiplinger, with the staff of The KiplingerWashington Letter, America in the Global ’90s: The Shape of theFuture—How You Can Profit From It (Washington, D.C:Kiplinger Books, 1989).2 California and Seattle electricity figures from Paul Johnson,A History of the American People (HarperCollins, 1997),p. 689–690.3 Figures cited are from Philip Evans and Thomas S. Wurster,Blown to Bits: How the New Economics of Information TransformsStrategy (Harvard Business School Press, 2000), p. 13.4 “Forecasts of Emerging Technologies,” interview withWilliam E. Halal, Future Times, World Future Society,Summer 2000, p. 1.5 Ann Grimes, “To Keep the Teachers in Town, RichCommunities Offer Housing Help,” Wall Street Journal,June 7, 2000, p. B1.6 Michael Dell, “Building a Competitive Advantage in anInternet Economy,” speech before the Detroit EconomicClub, November 1, 1999.7 For details about Medtronic history, see Frederick G.Harmon, Playing for Keeps (John Wiley & Sons, 1996), pp.|304

Endnotes124–25. For Bill George’s views of the next evolutionarysteps in health care and at Medtronic, see George’sspeeches “The Future of 21st Century Health: Getting theRight Care,” Harvard Business School Consumer-DrivenHealth Care Conference, November 18, 1999, and“Medtronic Vision 2010,” Medtronic Global StrategicDirection Employee Meeting, January 11, 2000. ForMedtronic’s venture with Microsoft and IBM, see ThomasM. Burton, “Medtronic to Join Microsoft, IBM in Patient-Monitoring Venture,” Wall Street Journal, January 24,2000, p. B12.8 Stan Davis and Christopher Meyer, Blur, the Speed of Changein the Connected Economy (Warner Books, 1999), p. 11.9 Ibid.10 Figures reported in 1999 IBM Annual Report.11 Reuters, “I.B.M. Signs Wireless Deal With InternetConsulting Companies.” Article appeared in New York Times,June 2, 2000.12 “You’ll Never Walk Alone: Survey Business and theInternet,” The Economist, June 26, 1999.13 GE, 1999 Annual Report, Letter to Shareholders.14 Quoted in Rona Kobell, “Maid Service Reaching for NewMarkets,” Baltimore Sun, July 5, 2000, p. 9c.15 Cited in Eric Berggren and Thomas Nacher, “Why GoodIdeas Go Bust,” Management Review, February, 2000, p. 35.16 Jonathan Rosenoer, Douglas Armstrong, and J. RussellGates, The Clickable Corporation: Successful Strategies forCapturing the Internet Advantage, Arthur Anderson LLP, 1999.17 For more information see http://www.bn.com.18 Martha M. Hamilton, “All Day, All Night, All Week: FromCopy Shops to Car Service Centers, Retailers Extend Hoursto Boost Sales,” Washington Post, July 1, 2000, p. A1.19 Elizabeth Kelleher, “Stores Turning Away from EnclosedMalls,” Kiplinger Business Forecasts, May 18, 2000,http://www.kiplingerforecasts.com.20 Martha M. Hamilton, “The Latest Malling of America: MillsCorp. Draws Crowds to Unusual Shopping Environments,”Washington Post, July 22, 2000, p. E1.21 Mikel Harry and Richard Schroeder, Six Sigma: The305 |

BUSINESS 2010Breakthrough Management Strategy Revolutionizing the World’sTop Corporations (Doubleday, 2000), p. xi.22 Ibid., pp. 13–14.23 Claudia H. Deutsch, “GE’s Management Methods Are Putto Work on the Web,” New York Times, June 12, 2000, http://www.nytimes.com/library/tech/00/06/biztech/articles/12web.html.24 Harry and Schroeder, Six Sigma, p. 43.25 Quoted in Sri Ramakrishnan, “Six Sigma Energizes GE:Manufacturing Method Used to Improve Services,”Washington Post, November 26, 1999, p. E4.26 Harry and Schroeder, Six Sigma, p. 3.27 Eryn Brown, “9 Ways to Win on the Web,” Fortune, May 24,1999, p. 112.28 Elizabeth Corcoran, “The E-Gang,” Forbes, http://www.forbes.com/forbes/00/0724/6517145a4.htm.29 Ibid.30 Eryn Brown, “9 Ways to Win on the Web,” p. 121.31 http://www.bearstearns.com/evolve, April 20, 2000.32 Joseph P. Manzi, “PDAs Offer Many Choices: Will Continueto Evolve,” Kiplinger Business Forecasts, October 8, 1999,http://www.kiplingerforecasts.com.33 James Pelz, “After Shift, Maytag Cleans Up on Profits,”Boston Globe, June 6, 1999.34 International Federation of Robotics, www.ifr.org.35 “Robots Come of Age,” The Trend Letter, September 16, 1999,pp. 6–7.36 Knight Kiplinger, World Boom Ahead: Why Business andConsumers Will Prosper (Washington, D.C.: Kiplinger Books,1998).CHAPTER SEVEN: Toward “Uncentralized” Organizations1 Julia Angwin, “Anatomy of Net Bookseller’s Rapid Rise andFall,” Wall Street Journal, March 2, 2000, p. B1.2 Thomas A. Stewart, “How Teradyne Solved the Innovator’sDilemma,” Fortune, January 10, 2000, p. 188.3 Account of origin of radio advertising from Daniel Grossand the editors of Forbes magazine, Forbes Greatest BusinessStories of All Time (John Wiley & sons, Inc., 1996), p. 112.|306

Endnotes4 Hal Varian, “5 Habits of Highly Effective Revolution,” ForbesASAP, http://www.forbes.com/asap/00/0221/073.htm.5 Ibid.6 Peter F. Drucker, Management Challenges for the 21st Century(Harper Business, 1999), p. 9.7 Peter F. Drucker, The Frontiers of Management (Truman TalleyBooks, E.P. Dutton, 1986), p. 206.8 See Michelle Kessler, “Position of ‘Privacy Officer’ ComingInto the Public Eye,” USA Today, November 30, 2000, p. 1B.9 Bernard Wysocki Jr., “Self-Organization: The Next BigThing?” Wall Street Journal, July 10, 2000, p. 1.10 Harlan Cleveland, The Future Executive (Harper & Row,1972), p. 13.11 Ibid., Chapter 3, “The Future Is Horizontal,” pp. 30–47.12 Harlan Cleveland, “Coming Soon: The Nobody-in-ChargeSociety,” Perspectives on Business and Global Change, WorldBusiness Academy, December 2000.13 Ibid.14 Rich Miller, “Greenspan Says Dealing Fairly in BusinessPays Dividends,” USA Today, August 16, 1999.15 OECD figures and analysis as reported by David Wessel,“Cross-Border Mergers Soared Last Year,” Wall StreetJournal, July 19, 2000, p. A 18.16 “KPMG Identifies Six Key Factors for Successful Mergers andAcquisition,” http://www.kpmg.com/about/press.asp?cid=271.17 “How Mergers Go Wrong,” The Economist, January 22,2000, p. 19.18 Jerome Idaszak and Michael Doan, “Mergers andAcquisitions Keep Rolling,” Kiplinger Business Forecasts,askkip@kiplinger.com, September 17, 1999.19 Quoted in “Spotlight on Rosabeth Moss Kanter,” Strategyand Leadership, October/November/December 1999, p. 59.20 See “The Science of Alliance,” The Economist, April 4, 1998,http://www.economist.com/tfs/aarchive_tframeset.html.21 Lewis Uchitelle, “Business-to-Business: It’s Just theBeginning,” New York Times, June 7, 2000, http://www.nytimes.com/library/tech/00/06/biztech/technology/07unchi.html22 Ibid.23 Matthew Coffey’s comments are from his speech at the307 |

BUSINESS 2010National Tooling & Machining Assn. General MembershipAssembly, Orlando, Fla., February 20, 2000.24 Panos Mourdoukoutas, The Global Corporation: TheDecolonization of International Business (Quorum Books, 1999),p.4.25 Ibid.26 Ibid., p. 2.27 Ibid.CHAPTER EIGHT: Capital—An End to Limits1 Examples of the elevation of physical resources by organization,adapted from Harlan Cleveland, Garry Jacobs, RobertMacfarlane, Robert van Harten and N. Asokan, “HumanChoice: The Genetic Code for Social Development,” paperpresented at the Vancouver Assembly of the World Academyof Art and Science, 1998, p. 9.2 “Radical Robot Design Launches a Revolution,” Trend Letter,October 30, 2000, p. 1.3 Cleveland, et al., “Human Choice,” p. 47.4 Todd L. Treadway and Peter L. Blank, “TreasuryDepartment Supports Modernizing DepreciationSchedules,” Kiplinger Business Forecasts, August 18, 2000,http://www.kiplingerforecasts.com.5 Barnaby J. Feder, “Deal Maker Takes on Manufacturingand Technology,” New York Times, August 21, 2000,http://www.nytimes.com/library/tech/00/08/biztech/articles/21neco.html.6 Thomas Petzinger Jr., “So Long Supply and Demand,” WallStreet Journal, January 1, 2000, p. R31.7 Martyn Chase, “More on New Oil Technology,”Kiplinger Business Forecasts, December 18, 1998,askkip@kiplinger.com.8 James Brooke, “Feeding the ‘Energy Eater,’” New York Times,September 7, 2000, p. C1.9 Quoted in, Ibid.10 Chase, “More on New Oil Technology.”11 “The Electric Revolution,” The Economist, August 15, 2000,pp. 19–20.12 John McCarthy, “Frequently Asked Questions About|308

EndnotesNuclear Energy,” http://www-formal.stanford.edu/jmc/progress/nuclear-faq.html.13 Christopher Flavin and Seth Dunn, “Rising Sun, GatheringWinds: Policies to Stabilize the Climate and StrengthenEconomics,” http://www.worldwatch.org, reported by DanJohnson, “Alternative Energy Sources Gain Worldwide,” TheFuturist, August-September, 1998, p. 15.14 See Michelle Malkin, “Generators of the Electricity Mess,”Washington Times, December 14, 2000, p. A22.15 Facts and figures about the business of water are based onfive articles published by Kiplinger Business Forecasts(August 20, 1999), under the title “Higher Costs, NewConcerns in the Business of Water.” Authors are AlanKovski, Elizabeth Kelleher, Vandana Mathur and MichaelDoan. Material available at askkip@kiplinger.com.16 Quote is from Harlan Cleveland, “The MillenniumLecture: The Informatization of Development,” M.S.Swaminathan Research Foundation, Chennai India,September 28, 1999. For a fuller discussion of this theme,see Harlan Cleveland, The Knowledge Executive, Leadershipin an Information Society, Truman Talley Books (E.P. Dutton,1985), pp. 19–35.17 Thomas Petzinger Jr., Ibid.18 Jane Tanner, “New Life for Old Railroads: What BetterPlace to Lay Miles of Fiber Optic Cable,” New York Times,May 6, 2000.19 “Study: Net Bigger Than We Think,” New York Times, July26, 2000.20 Peter F. Drucker, Management Challenges for the 21st Century(HarperCollins, 1999), pp. 111–13.21 “The Numbers Game,” Fortune, November 22, 1999,http://library.northernlight.com/PN19991109040000416.html?cb=13&sc=0.22 Thomas a. Stewart, “Managing Risk in the 21st Century,”Fortune, February 7, 2000, p. 206.23 Eric D. Beinhocker, “Robust Adaptive Strategies,” SloanManagement Review, Spring 1999, pp. 95–106.24 “E-cash 2.0,” The Economist, February 19, 2000, p. 67.25 Ibid., p. 68.309 |

BUSINESS 201026 Joan Pryde, “For Entrepreneurs: Plentiful Capital, VariousSources,” Kiplinger Small Business Monitor, August 21,2000, KiplingerForecasts.com.27 Joan Pryce, “No Letup for Venture Capital Deals,”Kiplinger Business Forecasts, August 9, 2000, http://www.kiplingerforecasts.com.28 http://www.businessweek.com/smallbiz/0003/vc000308.htm?scriptFramed.29 Beth O’Leary, “More Help for Low-Income Entrepreneurs,”Kiplinger Business Forecasts, August 9, 2000, http://www.kiplingerforecasts.com.30 “A Lending Hand,” Business Week, March 15, 2000,http://www.businessweek.com/smallbiz/fi/0003/fi3670061.htm?scriptFramed.31 Figures from Trickle Up Program, 1999 Annual Report,www.trickleup.org.32 “Uncommon Opportunities: An Agenda for Peace andEquitable Development,” The Report of the InternationalCommission on Peace and Food (Zed Books Ltd., 7 Cynthia St.,London N1 9JF, UK and 165 First Avenue, AtlanticHighlands, NJ 07716), page 158.CHAPTER NINE: People—No Truce in the War for Talent1 Carlos Tejada, “U.S. Economic Boom Spurs Despair OverScarcity of Qualified Workers,” Wall Street Journal, January28, 2000.2 Louis Uchitelle, “As Labor Pool Shrinks, a New Supply IsTapped,” New York Times, December 20, 1999, http://www.nytimes.com/library/financial/122099outlook-demo.html.3 Stephen Barr, “Retirement Wave Creates Vacuum,”Washington Post, May 7, 2000, p. 1.4 John Schwartz, “To Find and Keep Techies, a Corps of anIdea,” Washington Post, May 10, 2000, p. A27.5 Devin Leonard, “They’re Coming to Take You Away,”Fortune, May 29, 2000, p. 91.6 Robert Barner, “Talent Wars in the Executive Suite, SixTrends Shaping Recruitment,” The Futurist, May-June, 2000,p. 35.7 Reed Able, “Recruiters Ask for Equity and Get It,” New York|310

EndnotesTimes, August 3, 2000, http://www.nytimes.com/library/financial/080300recruiters-mktplace.html.8 Jim Harris and Joan Brannick, “Finding & Keeping GreatEmployees,” (AMACOM, 1999), pp. 13–15.9 Ibid. p. 15.10 Gene Bylinsky, “Women Move Up in Manufacturing,”Fortune, May 11, 2000, http://www.fortune.com/fortune/imt/2000/05/15/int.html.11 Lee Romney, “Franchisers Pin Hopes on MinorityEntrepreneurs,” Los Angeles Times, February 23, 2000, http://www.latimes.com/cgi-binprint.cgi.12 Geoffrey Brewer, “Older Workers are Thriving in a TightJob Market,” New York Times, June 21, 2000, http://www.nytimes.com/library/financial/062/manage-seniors.html.13 “Brain Drain: Older Executives Are Set to Leave theWorkplace in Droves. Keeping These Senior Stars on theJob Will Require More Flexible Management,” BusinessWeek, September 20, 1999, p. 124.14 “Work Week,” Wall Street Journal, October 5, 1999, p. A1.15 Mark Tatge, “With Unemployment Low, a New Group Is inDemand: Ex Cons,” Wall Street Journal, April 24, 2000, p. A1.16 Pamela M. Prah, “Tapping the Ex-Offender Labor Pool,”Kiplinger Business Forecasts, May 17, 2000;http://www.kiplingerforecasts.com.17 Barner, “Talent Wars in the Executive Suite,” pp. 35–41.18 “The Real Meaning of Empowerment,” The Economist,March 5, 2000, pp. 75–76.19 David Leonhardt, “Joy for Second-String M.B.A.s as FirmsRecruit,” New York Times, February 23, 2000, http://www.nytimes.com/library/financial/022300manage-recruit.html.20 Jay Matthews, “Exam to Help Make Liberal Arts StudentsEmployable,” The Washington Post, September 15, 1999, p. B4.21 “Employers Recruit Early—Very Early—in the Hunt forCollege Grads,” Wall Street Journal, October 19, 1999, p. A1.22 Dana Hedgpeth, “If You Can’t Hire ‘Em, Train ‘Em,”Washington Post, June 6, 1999, p. E.1.23 Gerry Moore, “Recruiting at Private Career Colleges,”Kiplinger Business Forecasts, August 20, 1999, http://www.kiplingerforecasts.com.311 |

BUSINESS 201024 Abby Ellin, “A Generation of Freelancers,” New York Times,August 15, 1999, p. BU 13.25 “Career Evolution,” The Economist, January 29, 2000, p. 90.26 Marlene Piturro, “The Temporary Executive,” Journal ofAccountancy, October 1999, p. 22.27 Ibid., p. 21.28 See Geoffrey Colvin, “The Truth Can Hurt—Get Used toIt,” Fortune, February 7, 2000, p. 52.29 Michael Doan, “More On Job Training as an EconomicDevelopment Tool,” Kiplinger Business Forecasts, February12, 1999, mailto:www.askkip@kiplinger.com.30 Ibid.31 Quoted in Claudia H. Deutsch, “Instead of Poaching,Dot-Coms Cooperate to Keep Talent in Town,” New YorkTimes, December 19, 1999, p. BU 4.32 Alan B. Krueger, “Rethinking the Economics ofImmigration,” New York Times, May 25, 2000, http://www.nytimes.com/library/financial/columns/052500econ-scene.html.33 Pamela M. Prah, “More Employers Will Use ForeignWorker Visa Programs,” Kiplinger Business Forecasts,February 18, 2000, http://www.kiplingerforecasts.com.34 Jeremy Kahn, “The World’s Most Admired Companies,”Fortune, October 11, 1999, p. 275.35 Shelly Branch, “You Hired ‘Em. But Can You Keep ‘Em?”Fortune, November 9, 1998, pp. 247–48.36 “Career Evolution,” Ibid., pp. 89–90.37 Bob Tedeschi, “Prospective Dot-Com Employees GrowMore Selective,” New York Times, July 31, 2000, http://ww.nytimes.com/library/tech/00/07/cyber.commerce/31ecommerce.html.38 Peter Cappelli, “A Market-Driven Approach to RetainingTalent,” Harvard Business Review, January/ February 2000,p. 106.39 Allan Weiss, “The Rainmaker, Part One,” Consultants News,March, 1999.40 David Leonhardt, “Order of Compensation UniverseReflects Pull of New Economy,” New York Times, April 2,2000, http://www.nytimes.com/library/financial/Sunday/|312

Endnotes040200biz-execs-options.html.41 Quoted in Allan S. Boress, “Stopping Brain Drain,” Journalof Accountancy, September 1999, page 69.42 Leonhardt, “Order of Compensation Universe Reflects Pullof New Economy.”43 Ibid.44 Patrick Barta, “Rises in Many Salaries Barely Keep PaceWith Inflation,” Wall Street Journal, February 1, 2000, p. A2.45 Sana Siwolop, “At More Companies, Benefits Without theWait,” New York Times, August 27, 2000, p. bu9.46 See “A New Retention Tool,” Management Review, September1999, p. 8.47 Sue Shellenbarger, “From Harley Factories to Desert GoldMines, More Bosses Get It,” Wall Street Journal, July 21, 1999,p. B1.48 Fred Barbash, “Where Web Will Benefit Businesses,”Washington Post, July 16, 2000, p. H1.49 Cappelli, Ibid., p. 107.50 “The Real Meaning of Empowerment,” The Economist,March 25, 2000, p. 75.51 John A. Challenger, “24 Trends Reshaping the Workplace,”The Futurist, September-October 2000, pp. 37–38.52 Michelle Conlin, “9 to 5 Isn’t Working Anymore,” BusinessWeek, September 20, 1999, p. 94.53 Ibid.54 Challenger, “24 Trends.”55 Wendy Bonds, “Give Me a Break!,” Wall Street Journal,May 5, 2000, p. W3.56 “Training Drain,” Management Review, January 2000, p. 7.57 “Corporate Universities: The New Pioneers of ManagementEducation: An Interview with Jeanne Meister,” HarvardBusiness Review, October 1998.58 James W. Michaels, “Drucker’s Disciple,” Forbes, May 15,2000, http://www.forbes.com/forbes/00/0515/6511084sl.htm59 Mary Beth Grover, “Preshrunk,” Forbes, March 3, 2000,http://www.forbes.com/forbes/00/0306/6506082a.htm.60 The Kiplinger Letter, April 28, 2000, p. 1.61 “Nation’s First Act Center opens for Business: WorkforceTesting/Training Network to Follow,” http://www.act.org/313 |

BUSINESS 2010news/release/2000/07-31-00.html.62 “Driving Cisco Systems Express Train,” Interview with JohnChambers, Wall Street Journal, June 1, 2000, p. B4.63 Amy Zipkin, “In a Tight Labor Market, Thoughtfulness IsWisdom,” New York Times, May 31, 2000.CHAPTER TEN: Riding the River of Opportunity: Aligning Your CompanyWith Accelerating Change1 Robert O’Brien, Marriott: The J. Willard Marriott Story(Deseret Book Co., 1977), p. 166.2 For a fuller discussion of the role of values in developmentof societies, see Garry Jacobs and Harlan Cleveland, “SocialDevelopment Theory,” International Center on Peace andDevelopment, http://www.ICPD.com.3 Quoted in G. Pascal Zachary, “Doves Marching: Obscuredby the Roar of the World’s Battles, Peace is Advancing,” WallStreet Journal, March 27, 2000, p. 1.4 Will and Ariel Durant, The Lessons of History (MJF Books),p. 81.5 See Zachary, “Doves Marching.”6 “Riding the Third Wave, A Conversation with Alvin Toffler,”Tom Johnson, and Laurence Bennigson, Strategy &Leadership, July/August/September 1999, p. 4.7 The Kiplinger Letter, September 15, 2000, p. 1.8 Quoted in Helene Cooper, “Trade Deficit Widened in July,Moving into Record Territory,” Wall Street Journal,September 21, 2000, p. 2.9 For details of impact of foreign trade on US economy, seeMartyn Chase, “Exports’ Star Role in the U.S. Economy:Background Briefing,” August 24, 2000, http://www.kiplingerforecasts.com.10 David Fromkin, The Way of the World, From the Dawn ofCivilization to the Eve of the Twenty-first Century (Alfred A.Knopf, 1999), pp. 146, 150.11 Paul Johnson, A History of the American People (HarperCollins, 1997), p. 329.12 Maureen Milford, “DuPont Divests, Wilmington Adjusts,”New York Times, Real Estate section, September 24, 2000,p. NE 43.|314

Endnotes13 Fromkin, The Way of the World, p. 200-01.14 “Government and the Internet, The Next Revolution,”The Economist, June 24, 2000, p. 63.15 Ibid.16 See Kara Swisher, “A Contract With America.Com: Ex-Speaker Gingrich Wants the Government to Act More Likea Tech Firm,” Wall Street Journal, June 19, 2000, p. B1.17 For more detailed information about emerging challengesfor government, see Bob Davis and Gerald F. Seib,“Technology Will Test a Washington Culture Born inIndustrial Age,” Wall Street Journal, May 1, 2000, from whichthis discussion of issues is adapted.18 Quoted in Virginia Postrel, “Rich May Get Richer, But PoorAre Also Doing Better,” New York Times, August 10, 2000,http://www.nytimes.com/library/financial/columns/081000econ-scene.html.19 “Ten Years On,” The Economist, November 6, 1999, p 16.315 |

INDEX BUSINESS 2010AAccounting, 198–200ACE-Net, 207Activity-based accounting, 198–199Advertisingbrand expectations, 88–89consumer resistance to, 87conversations versusmonologues, 89intrusiveness of, 86–87manipulativeness of, 88African Americanseducational advancements, 34growth in spending power,103–104as a minority population, 34purchasing power, 35Agriculturemortgage availability, 185new jobs in, 120precision farming, 116productivity and, 120Alcoa, 100Aligning your companyaccelerating response time,287–289anticipating market needs,284–287business as a creative field ofendeavor, 296–297continuum between yesterdayand tomorrow, 254decentralization of authority,269–272developing all your people allthe time, 289–291either/or thinking and, 254–255elevating operational excellence,293–294environmental issues, 272–275federal government and,275–283freedom and discipline and,255–257globalization, 263–269organizing for tomorrow, 292–293risk measurement, 292–293shift from industrial totechnological civilization,262–263shift from war to peace, 260–262shift in human values and,257–260Amazon.com, 13, 88, 139American Airlines, 206American Express, 104, 161American Petroleum Institute, 191American Statistical Society, 81American Water Works Association, 195American Water Works Co., 195Aquent, 232Arundel Mills, 133Asian Americanseducational advancements, 34immigration and, 33317 |

BUSINESS 2010marketing for, 104Asian model of freedom, 12AT&T, 70Australia, stock market investments,204Automobile industry, potential ofnew technologies and, 263Avon Products, 106Azurix Corp., 194BBaby boomers, 31–33Bain & Co., 91–93Bangladesh, ratio of physicians topopulation, 122Barner, Robert, 229–230Barnes & Noble, 131Bear Stearns, 139Becker, Gary, 18Beinhocker, Eric D., 201Bell, Daniel, 113Biotech revolutiondescription, 9–10explosive issues, 10–11genetically altered organisms, 117Birthrate deceleration, 27–30Booz, Allen & Hamilton, 171Bowlin, Lyle, 157–158Brannick, Dr. Joan, 224BrightPlanet, 198Burud & Associates, 37Business evolutioncompany’s aspirations andsociety’s aspirations, 62–63, 75corporate energy channels, 68–75creating higher levels oforganization, 66–67cross-selling, 72economic projections, 60–61education effects, 72–73expanding freedom effects,73–74franchising, 66–67growth and developmentdistinction, 63–65information technology effects,70–73projecting technologicalinnovation, 61–62surplus energy for growth ordevelopment, 65–66, 75teamwork training, 72Business-to-business Internetexchanges, 84–85, 139CCanadaNAFTA and, 168stock market investments, 204as supplier of oil and naturalgas, 191Candler, Asa, 67Capitalelectricity, 191–192four key resources, 183–184implications for business of theimportance of nonmaterialresources, 186–187importance of information andhuman ingenuity, 210increasing returns concept, 189information, 196–202long-term pressure oncommodity prices, 189–190measuring the true value ofeconomic costs, 199–200money, 202moving to a reliance on technologyand information, 295nuclear power, 192–193|318

Indexoil, 190–191reduction in need for materialassets, 187–188“revolution in a box,” 188risk management, 200–202solar power, 193technology as organized thinking,184–187virtual engineered compositeprocess, 188water, 194–196wind power, 193Capital resources channel for corporateenergy, 70, 71–72, 73, 74Carrefour, 84–85Catalyst, 38Center for the Study of AmericanBusiness, 106Challenger, Gray & Christmas,243–244Chapman, Nathan, Jr., 104Charles Schwab & Co., 104Childcare, 37, 242–243Chinaeconomic reforms, 45exports to, 107growth of acquisitions, 169military expenditures, 261money borrowing, 205pollution in, 51–52wind power use, 193Cirque du Soleil, 103Cisco Systems, 89, 106, 138, 194, 230Citicorp, 106Civil Rights Act of 1964, 35Clean Water Act, 195Cleveland, Harlan, 164–167, 196–197Coaching, 245Coca-Cola Co., 66–67, 85, 103, 106Colgate-Palmolive, 106Colleges and universitiescorporate universities, 18–19,244–245, 289–290recruiting at, 230–232Computational chemistry, 142Computer Industry Almanac, 96ComputersIRS table of useful life, 188mass customization of, 116optical computers, 118Conference Board and BusinessLeaders, 54Corporate colonialism, 175Corporate energy conversion, 152Corporate energy dispersion, 153Cost accounting, 198–199Credit Suisse First Boston, 197Cross-selling, 72Customer loyaltycustomer retention and profitrelationship, 92–93profits and, 91value of good customer service,91–92Customization, 116DDaimlerChrysler, 85, 116, 177Davis, Stan, 127–128Dayton Hudson, 37Decentralization of authorityaligning your company and,269–272human resources and, 221–223organization and, 164Dell Computer, 13, 18 93–94, 96,116, 124–125Demographicsbaby boomers, 31–33birthrate decline, 29–30description, 5–6, 28early retirement trend, 31319 |

BUSINESS 2010future prediction variables, 28gender gap closing, 36–38global issues, 104–106hourglass-shaped workforce,32–33, 38, 219immigration, 33–37influence on globalization, 46market and, 82, 102–106qualitative advances, 7–8qualitative policies, 30quantitative approach, 30quantitative growth in thedeveloping world, 7-8women-owned businesses, 38Developing countriesenvironmental issues, 51–52, 268global trade, 267–268middle class growth, 48opening of new markets in, 49,54population growth, 29, 48rise in living standards, 28Development definition, 63Digital currency, 205–206Dismal Sciences, 240Disney, Walt, 65Disney Co., 49Disney World, 256Distance learning, 17–18, 73,244–245DNA structure research, 10Draper Atlantic, 208DuPont Co., 258–260, 271–272EE-cash, 205–206E-government, 277–278Economic convergencecollaboration between largecompanies and suppliers,172–174Internet and, 173long-term relationships and,173–174mergers and acquisitions and,168–170strategic alliances, 170–171Edison, Thomas A., 62, 66, 160, 184Educationachievements of educationsystem, 15–16business evolution effects, 72–73business’s concern about, 22contributions to business, 14–15corporate universities, 18–19,244–245, 289–290demand for quality in, 121description, 6diffusion of scientific information,16–17educating technologists, 19–20employment in, 121influence on globalization, 46innovation in, 22–23Internet-only universities, 17–18lower birthrates and, 27market opportunities and, 82minorities, 34–35as priority for societaldevelopment, 66support for freedom, 15–16teamwork training, 72Eldercare, 37–38, 242–243Electricityintroduction of, 114–115micropower, 192Electronic snooping, 9Employee Benefit Research Institute, 31Energyalternate energy sources, 117corporate energy channels,68–75|320

IndexThe Enlightenment, 113Entrepreneurslow-income entrepreneurs,208–209programs for, 208–209Environics International Ltd., 54Environmental issuesaligning your company and,272–275in developing countries, 51–52,268implications for business,274–275oil and, 191EthnicGrocer.com, 103EuropeEuro introduction, 169immigration and, 29, 38–39ratio of physicians to population,122wind power use, 193Ex-convicts, hiring of, 229Exxon Mobil, 191FFederal Express, 13, 66, 89, 97Federal governmentbusiness implications of shift invalues, 281–283e-government, 277–278equality of opportunity and, 283focus on the customer, 276–277Internet use, 277–278privacy issues, 280–281recruiting initiatives, 219–220as regulator, 279–281values shift for, 275–283Federal Trade Commission, 279Firefly Network, 94Flex time, 243–244Florida East Coast Railroad, 197–198Fogel, Robert W., 282Ford, Henry, 13, 91, 184, 284Ford Motor Co., 85, 104, 116, 177Forrester Research, 85Franchising, 66–67, 227–228Freeagent.com, 232Freedomabove-the-line freedom andbelow-the-line discipline,255–257Asian model, 12business evolution effects, 73–74competition and choice, 13–14description, 6education’s support for, 15–16erosion of top-down power, 14evolution of technology and,21–22influence on globalization, 46lower birthrates and, 27–28market opportunities and, 82mergers and, 13as the ultimate value, 293Freelancers, 232FreeMarkets.com, 84Frequent flyer programs, 206Fuel-cell technology, 116GGates, Bill, 96, 284General Agreements on Tariffs andTrade (GATT), 45General Electric Co., 84, 95, 106, 130,136–137, 149, 194Six Sigma management strategy,134–137, 149, 224General Motors, 85, 176, 177, 198Genetics. See Biotech revolutionGeorge Washington University Forecast321 |

BUSINESS 2010of Technology and Strategy,115–118G.I. Bill, 15Gillette, 106Globalizationaligning your company and,263–269benefits of, 54–55collaboration among companysubsidiaries, 175–176corporate colonialism, 175cross-border economic activities,43–44cross-border mergers andacquisitions, 168–170description, 7, 43economic growth and povertyreduction, 50–51environment and, 51–52environmental issues and,273–274ethos of, 167evolution of, 44–45, 54–55as a generator of the U.S.economy, 265–266global company definition, 175global shopping, 46international trade andinequality, 50–51market demographics, 104–106market opportunities and, 82–83middle class growth, 48multinational corporations, 52–53prediction of populationexplosion and, 47–48seizing of new opportunities, 49technology, education,freedom and demographicsinfluence, 46worldwide life expectancy, 47Goodwill Industries International, 228Government. See Federal governmentGreen Revolution, 113, 185Greenspan, Alan, 167, 187, 200Grocer.com, 131Growth definition, 63HHalal, William E., 115–118Harris, Dr. Jim, 224Harry, Dr. Mikel, 134–136, 137Healthcarecomputerization of, 117as employee benefit, 242growth in, 122Hearst, William Randolph, 65Hewlett-Packard, 37, 106, 138Hiring. See RecruitingHispanicseducational advancements, 34immigration and, 33–34purchasing power, 35Hitachi, 141Home Depot, 72, 129, 132Honda, 141Honeywell, 134, 172Hong Kong, 169Hourglass-shaped workforce, 32–33,38, 219Human resourcesas channel for corporate energy,69, 71, 72–73, 74decentralization of power,221–223developing all your people allthe time, 289–291expansion of the knowledgebasedworkforce, 220–221, 296recruiting workers, 224–235retaining employees, 235–247shortage of, 217–223trends in, 217–218|322

IndexIIBM, 96–97, 128–129, 194ImmigrantsAfrican Americans, 34Asians, 33cultural identity, 270Hispanics, 33–34promoting diversity, 35religious issues, 35as underutilized source ofworkers, 218–219U.S. openness to, 38–39ImmigrationEurope and Japan and, 29falling birthrates and, 29–30Increasing returns concept, 189Indiacall centers, 234–235Green Revolution, 185McDonald’s restaurant offerings,177medical transcription service, 235military expenditures, 261opening of the economy, 54–55ratio of physicians to population,122software engineers, 105wind power use, 193Indonesia, pollution in, 51The Industrial Revolution, 113, 147Information as a resourceconverting physical resourcesinto knowledge-based assets,197–198cost of information, 196expansion of, 198shift from cost accounting toactivity-based costing, 198–199Information technologybusiness evolution effects, 70–73description, 8–9expansion of, 20–21growth of, 189Intel Corp., 49, 71–72, 86, 160, 244Internal Revenue Service, useful lifetables, 188International Commission on Peaceand Food, 211International Data Corp., 99International Federation of Robotics,141Internetbusiness-to-business exchanges,84–85, 139convenience services, 130–131demographics and, 103economic convergence and, 173economics and culture of, 61emerging market changes,105–106energy use projection, 194evolution stages, 139–140as example of uncentralizedorganization, 165federal government use of,277–278global business promotion, 174growth of, 17, 61–62, 115, 198“Internet Time” concept, 99online buying risks, 85–86organization and, 173personal digital assistants,139–140products and services marketing,138–139products and servicesproduction, 70–71as recruiting tool, 229–230reduction in need for materialassets and, 187–188as reflection of American society,61–62search engines, 83–84slow acceptance of in Franceand Germany, 62323 |

BUSINESS 2010small business buying groups,174university courses on, 18value as nonmaterial resource,186wireless Internet, 84Internet Tax Freedom Act, 280Irelandeconomic growth of, 49multinational corporation role,52–53telemarketing operations, 234ISO, 134, 165–166IT. See Information technologyKPMG, 169–170Kroc, Ray, 65, 67, 184LLands’ End, 48Lang Group, Chartered, 37Lear Corp., 32Levi’s, 49Life expectancy, 47, 122Long-term care insurance, 241JJacobs, Garry, xvii, 59, 150–153Japanevolving economy, 60–61as global market, 46growth of acquisitions, 168–169immigration and, 29, 38–39increased use of robots, 141“Kaisan” system for qualitycontrol, 134military expenditures, 261opposition to foreign takeovers,168–169Jobs, Steve, 284Jones International University, 17K“Kaisan” quality control system, 134Kinko’s, 132Kiplinger, Knight, 142Klingel, John, 98Kodak, 131MMacfarlane, Robert, xvii, 59, 150–153Macroeconomics Advisers, 71Maid Brigade, Inc., 130–131Maids International, 130Manpower, 106Manufacturing businessesnew jobs in, 120productivity and, 120–121MapInfo, 233–234Marketadvertising strategy, 86–89analysis of customers by segment,102–103availability of information and, 81balance of power betweenproducers and customers and,83–86business-to-business Internetexchanges, 84–85consumer resistance toadvertising, 87customer loyalty, 90–93definition, 82demographics, 102–106|324

Indexevolution, 81–82heavy manufacturers, 95“Internet Time” concept, 99movement in unexpecteddirections, 81online buying risks, 85–86opportunities in, 82–83real time and, 95–101targeted information strategy,93–95Marketinganticipating market needs,284–287baby boomers, 31as channel for corporate energy,69, 70, 72, 73developing easier-to-useproducts, 32diversity and, 36global market expansion, 48growth and, 156Marriott, Bill, Sr., 256Marriott International, Inc., 226–227,231Mattel, Inc., 103Maytag, 140–141McDonald’s Corp., 49, 103, 106, 177MCI, 13McKinsey & Co., 90, 96–97, 105, 230Medicard model, 279Medtronic, Inc., 125–127Merck & Co., 138, 160Merck-Medco, 138Mergers and acquisitionsgrowth of, 168industry-specific forces, 169shareholder value and, 169–170values conflict, 170Merrill, Charles E., 284Merrill Lynch, 161Merry Maids, 130Mexico, 168Meyer, Christopher, 127–128Microsoft, 9, 13, 94, 156, 163, 201Military expenditures, 261–262Millenium Poll on Corporate SocialResponsibility, 54Mills Corp., 133Minorities. See also specific groupsby nameeducation of, 34–35franchising opportunities,227–228influence in the workplace, 34Mitsubishi, 141Mobil Oil Corp., 106Molecular nanotechnology, 142Molly Maid, 130Moneydescription, 202digital currency, 205–206e-cash, 205–206entrepreneurs, 208–209expansion of sources of, 202–203expectations determine value,203–204frequent flyer programs, 206growth of equity funds andglobal markets, 207international currency stabilityand reliability, 204land as source of wealth, 206market value of stocks, 204–205microenterprise programs,209–210milestone for global capitalmarkets, 204–205venture capital, 207–208Monsanto Co., 228–229Morgan, J.P., 184Morgan Stanley Capital International,204Mother’s Service Society, xviiMotorola, 18, 134Motorola University, 289–290Mourdoukoutas, Panos, 175–177325 |

BUSINESS 2010Multinational corporationsdiminishing strengths, 176growth of, 52–53industry-specific strategies,176–177NNAFTA. See North American FreeTrade AgreementNational Community ReinvestmentCoalition, 209National Foundation for WomenBusiness Owners, 38National Tooling and MachiningAssociation, 173–174National Transportation Exchange, Inc.,71NetAid.org, 89Netpreneur.org, 208Nike, Inc., 74Nordhaus, William, 199–200North American Free Trade Agreement,168, 266Northwestern Mutual, 90–91, 160,257, 285–286, 293–294Nuclear power, 192–193OOffRoad Capital, 207Oilenvironmental issues, 191expansion of production, 190increase in price of, 190seismic analysis, 191Olive Garden, 461-800-Flowers, 131Online education. See DistancelearningOptical computers, 118Oracle, 71OracleMobile.com, 84Organizationadaptability and growth, 156–157adapting to new technology,159–161asset valuation and, 179as channel for corporateenergy, 69, 71, 72, 74clues to human energy level, 160collaboration between largecompanies and suppliers,172–174competitiveness and, 148converting corporate energyto profitability, growth andquality, 150–151converting human energy intoperformance, 148–149, 178corporate energy conversion, 152corporate energy dispersion, 153corporate style and, 154creativity and, 149, 154, 154cross-border mergers andacquisitions and, 168–170decentralization and, 164designing for uncentralizedthinking, 161–167economic convergence and,167–174economies of scale and, 155effective organizationquestions, 148–149evolution of, 215–217global perspective, 174–177growth and, 147–148hierarchical pyramids and,164–165Internet as example ofuncentralized organization, 165keeping pace with growth,155–159|326

IndexPleadership, 157–158, 178orchestra example, 162personnel downsizing, 161price of growth, 155–156privacy issues, 162–163seeking new business concepts,160–161self-discipline and, 162–163self-organizing system, 163–164shift from personal authority tostandards and values, 166–167Panasonic, 141Part-time work arrangements, 243PDAs. See Personal digital assistantsPeapod, Inc., 131People. See Human resourcesPeople with disabilities, jobopportunities for, 228Pepsi Cola, 32Personal digital assistants, 139–140Philippineseconomic growth, 49pollution in, 51ratio of physicians to population,122PlanetRx.com, 138Polaroid, 134Portable information devices, 116Positively-You.com, 157–158Potomac Mills, 132–133Poverty reduction, 50–51Powered.com, 131Privacy issuesfederal government and, 280–281organization and, 162–163Procter & Gamble, 85, 106Products and servicesaccelerating rate of expandingknowledge and, 112–113Racceleration of service jobs,118–120adding intangibles, 127–132,143, 262as channels for corporateenergy, 70, 72, 73–74convenience as a selling point,130–133Green Revolution and, 113imitating the 24-hour,seven-days-a-weekInternet, 132mechanization of productionand, 113new materials, 141–142productivity growth and,120–121quality control, 133–137scaling up from physical tomental technologies, 138–139shift from physical to mentaltechnology, 123–124Six Sigma managementstrategy, 134–137, 143–144technology pioneers and,114–115technology revolution growth,115–118value definition, 124–127value rethinking, 125–127Real-time concept, 95–101Recruitingon campus, 230–232diversifying and upgradingpractices, 229–235hiring ex-convicts, 229importing workers, 234minorities, 227–228327 |

BUSINESS 2010nontraditional labor pools,225–229older workers, 228–229people with disabilities, 228relocating the business, 233–234temps and freelancers, 232types of core cultures, 224Resources. See Capital.Retaining employeesemployee benefits, 241–243flexible schedules, 243–244is yours a great place to work?(box), 246job security, 237motivators and “demotivators,”236–237one-size-fits-all pay plans,238–240pay discrepancies, 240–241personal coaching, 245retraining, 245–246social contracts, 236supervisors’ role, 247–248treating employees asindividuals, 246–247“Revolution in a box,” 188Ringling Brothers, 103Risk management, 200–202, 292–293Ritz-Carlton Hotels, 256Roboticsincreased use of, 141smart, mobile robots, 117software program for, 185Rosenfield, Andrew, 18Ross, J.D., 114–115Ryder, Thomas O., 98SSafe Drinking Water Act, 195Sara Lee, 85Sarnoff, David, 160Sasser, Earl, 92–93SBA. See Small BusinessAdministrationScattergood, Ezra F., 114Schroeder, Richard, 134–136, 137Sears, Roebuck & Co., 84–85Seedstage.com, 207Service jobs, 118–120ServiceMaster Corp., 224Services. See Products and servicesSherman Antitrust Act, 279Singapore, 169Singh, Parry, 103Six Sigma management strategy,134–137, 143–144, 149Small- and medium-sized businessesInternet buying groups, 174overseas markets, 106Six Sigma managementstrategy, 137Small Business AdministrationCommunity Express load program,208–209Smart cards, 279Smartees line of dolls, 103Smith, Fred, 66Societyquestions to ask aboutchanges in, xviiispeed of change in, xiistages of development, xviiSolar power, 193Sony Corp., 103, 106South Korea, 60–61Southwest Airlines, 74, 133Standard Oil Trust, 279–280Starbucks Coffee, 83Strategic alliancesbenefits of, 170-171interpersonal skills for, 171Sun & Ski Sports, 133Sun Agent online matchmakerservice, 138–139|328

IndexSun Microsystems, 138–139Super KMart, 132TTeachers, 121Technologyadaptability of organizationsto, 159–161benefits of, 21biotech revolution, 9–11as channel for corporate energy,69, 70–71creative destruction, 9derivation of power of, 8description, 6electronic snooping, 9evolution of freedom and, 21–22influence on globalization, 46information technology, 8–9,20–21, 70–73lower birthrates and, 27market opportunities and, 82–83molecular nanotechnology, 142money transactions and, 204as organized thinking, 184–187scaling up from physical tomental technologies, 138–139shift from physical to mentaltechnology, 123–124technology revolution growth,115–118top ten emerging technologies,116–117Tek.xam, 231Telecommuting, 243–244Teleliving, 116Telstar satellites, 70Temps, 232Teradyne Corporation, 158–159Texas Instruments, 1063M, 1063P robot, 141Toyota, 116Trickle Up program, 209–210UUNext.com, 18“Uncommon Opportunities: An Agendafor Peace and EquitableDevelopment,” xviiUnilever, 85United Statesdollar supremacy, 203economy evolution, 111–112, 295evolution of economy, xvglobalization as a generatorof the economy, 265–266growth of acquisitions, 168imports and exports, 265–266microenterprise programs,209–210NAFTA and, 168railway system constructionfinancing, 205role in the world, 264–265space travel, 210as sponsor of internationalorganizations, 266stock market investments, 204U.S. Treasury, depreciation study, 188VVEC. See Virtual engineeredcomposite processVenture capital, 207–208Virtual assistants, 116329 |

BUSINESS 2010Virtual engineered compositeprocess, 188Visa, 165–166WWal-Mart, 13, 71, 74, 4, 95, 102–103,235Walton, Sam, 95Ward, Steve, 97Wateraging of water infrastructure, 195desalination, 196environmental issues, 195increase in price, 194recycling of, 196Welch, Jack, 130, 136White Castle, 67Wind power, 193Womenbaby boomers, 31childcare and, 37, 73college enrollment andgraduation, 36eldercare and, 37–38, 242–243flexible schedules and, 37in managerial and professionaljobs, 36–37, 225reinventing of businessfashions for, 73–74as underutilized source ofworkers, 218–219women-owned businesses, 38Work-family programs, 242–243Working Woman Barbie, 103World Bank, 43–44World Trade Organization, 53, 281formation of, 45World Wide Web. See InternetWorld Wide Web ConsortiumPlatform for PrivacyPreferences, 94Worldwatch Institute, 193XXerox, 92, 106YYahoo.com, 139Yardsales.com, 89|330

About the AuthorFREDERICK G. HARMON DOESN’T NEED A CRYSTALball. Thirty years of working in and reportingabout business, including a stint as a staff writerfor the Wall Street Journal, have equippedHarmon to lead his readers and his clients in identifyingand answering the critical questions that will helpthem accelerate their progress at work through strategicplanning. Harmon has acquired a sense of how organizationsrespond to opportunities and challenges and the ability topresent his perspective in a style that is lively and accessible tointelligent businesspeople.Harmon’s clients range from individuals to divisions oflarge companies, and are a mix of for-profit and nonprofitorganizations. He has worked with senior managementgroups in such organizations as: Merrill Lynch Trust Co.,Prudential Insurance, the National Tooling and MachiningAssociation, Mid-South Industries, Lebenthal & Co., FleetPrivate Clients Group, the Columbia University GraduateSchool of Journalism, the Alliance for Children and Families,the National Aquarium in Baltimore, the Denver Museum ofNature and Science, the International Center of Photography,and Audrey Cohen College.Prior to going independent, Harmon served as presidentof AMA/International, the division of the AmericanManagement Association that manages its overseas subsidiaries,and president of the Presidents Association, AMA’schief executive officers’ division. While heading the latterdivision, Harmon was also responsible for AMA’s Center forPlanning and Implementation, which helped more than1,000 organizations—private, public and nonprofit—to preparestrategic plans.331 |

BUSINESS 2010Earlier in his career, Harmon served as a line officer in theU.S. Navy, a staff writer for the Wall Street Journal, businesseditor of The San Juan Star (Puerto Rico) and editor-in-chief ofMcGraw-Hill’s International Management magazine, publishedin the United Kingdom.Harmon is the author of three other books: The VitalDifference: Unleashing the Power of Sustained corporate Success(AMACOM, 1986), The Executive Odyssey: Secrets for a CareerWithout Limits (John Wiley & Sons, 1989), and Playing for Keeps:How the World’s Most Aggressive and Admired Companies Use CoreValues to Manage, Energize, and Organize Their People, andPromote, Advance, and Achieve Their Corporate Missions (JohnWiley & Sons, 1996).Harmon holds a B.A. in history from George WashingtonUniversity and an M.S. in journalism from ColumbiaUniversity.FOR MORE INFORMATION. Readers who wish to contact FredHarmon with questions or comments about this book or tolearn more about his strategic-planning consulting servicesmay reach him as follows:■ Mail: 7873 Heritage Drive, Suite 532, Annandale, VA 22003■ Telephone: 703-658-3513■ Fax: 703-658-4552■ E-mail: fredharmon@msn.com|332