Five Mega-Trends for Business

In this Musing I take a long view to identify Five Mega-Trends that will shape business going forward. I then suggest why business leaders going forward will need a broader set of competencies to succeed.

Preface:  Over the course of our time on the planet, humans have focused on “non-zero sum” activities. Sure, clans, tribes, and nations have fought each other to take wealth from others, but the only way for humanity to become better off has been to add value. Robert Wright (Non-Zero: The Logic of Human Destiny (2000)) explains how humans have developed increasingly complex organizations to realize gains and then derives many important implications.

My perspective is broadly consistent with Wright’s.  In my nearly three decades of work at leading business schools, I’ve seen an extraordinary period of development of the global economy.  While some people in developed countries would cite recent poor growth and difficult times, it is important to take a broader view.

Roughly 3 billion of the world’s population in Central Europe, China, India, the former Soviet Union who have joined market-oriented economic activities in recent decades. In the context of the unrelenting criticisms of business and markets, we miss that so many of these people are so much better off because of these economic transitions.

On the other hand, one would have to be a dolt to miss why the view that “market economies are best” is subject to substantial criticism and why many in the body politic believe that government needs to “do more” to counteract business.  What underlies the concerns about markets? Among several important reasons, I’d highlight two:

i.    Political support for economic policies depends on the distribution of outcomes for individuals, for interest groups, and countries. When, as is the case, the income distribution becomes skewed toward higher incomes, support may depend more on the median income than on average income.

ii.    Market activities, per Wright’s long view Non-Zero, involve increasingly complex, often global, and more technologically advanced structures. Governments, by contrast, are slow to keep up.

The overall sense from many people whom I talk to is a strange mix of excitement about the huge business opportunities that remain and unease about the political horizon.  My Five Mega-Trends help in understanding what underlies this mix.  They are premised on a belief that governments and societies are not going to return to planned economies – that’s a done deal.   Yet the steps forward on the market-oriented path are trickier than anyone would have anticipated three decades ago.

Five Mega-Trends:

  1. Market-oriented economies have won out over socialist, planned, and communist models. It is hard to remember that the issue was in so much doubt back in the 1970s when there was serious debate about how well the Soviet Union was doing. If we want current evidence, look at North Korea or Cuba.
  2. Governments within the context of market-oriented economies have become more important and will continue to exert yet greater influence on businesses. This trend has been manifest for over a century as reflected in the share of GDP going to the public sector, but is also reflected in the scope of far-ranging regulations, global antitrust enforcement activities, and the role of governments in trade policies.
  3. Globalization is far from over. Where are we on a scale of 1 to 10 where 1 means “just getting started” and 10 means “done with globalization”? My number is less than 5. So many barriers are down and economic integration across boundaries is, in many ways, just beginning. Opportunities will remain until factor prices – adjusted for quality, transportation costs, and coordination costs – are equalized across boundaries.
  4. Technology and information integration will bring the world yet closer together.
  5. As we globalize and become yet closer, salient differences across nations will become yet more apparent and meaningful. Yes, the world has moved toward a global, market-oriented economy, but governments are more important and so are differences in laws, regulations, religion, cultures, and ideology.

From these Five Mega-Trends, the meaning a global enterprise will change.  Both the opportunities and the challenges will be huge. The leaders of the likes of Google, Shenzhen Beike Biotechnology, and Mahindra & Mahindra all will encounter a high-powered mix of potential market gains and, for lack of a better term, political enterprise risks.

What are the implications for those leaders? While they may wish for a simple world where they could focus narrowly on their competitors and their organizations, the world in which they actually will operate is fundamentally different. Do leaders sacrifice market fundamentals and principles? Not at all, but breadth of vision, awareness of differences, and intellectual curiosity take on greater weight in being able to shift the balance in favor of realizing market gains and political minimizing risks.

The Yale School of Management – very much a part of an eminent university with a sense of purpose – is perfectly positioned to develop leaders for the balance of this century.

July 5, 2011

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