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Unstoppable trends that CEOs must watch in new world order

Global economy is being reshaped by rise of the South: management guru

[SINGAPORE] Today's CEOs must watch the unstoppable trends shaping the global economy, pay more attention to people and talent issues, and re-evaluate the imperatives of leadership.

That is the advice of management guru Ram Charan, a former Harvard Business School professor who now advises CEOs and boards in companies around the world.

Mr Charan - whose clients have included the US conglomerate GE, Bank of America, Dupont and the Dutch airline KLM - was speaking at a function last week organised by the Australian High Commission and sponsored by Westpac Banking, which has launched a series of talks featuring "global influencers".

One of the overarching trends that CEOs need to track and ride is the rise of the so-called South: the emerging economies of Asia, Africa and Latin America. This is where the big growth will come from in the future, said Mr Charan, driven by demographics and investment flows.

He noted that the South is reshaping entire industries. For example, China today is the largest producer of cars - bigger than the US, Japan or Europe.

The appliance industry will also be reshaped by China. India is likely to continue to be a leader in the software industry.

The South also has some impressive companies with global reach, including the Tata Group of India, Embraer and 3G Capital of Brazil (which owns Burger King, Anheuser Busch and Heinz, among various large brands), and China's appliance maker Haier.

The rise of the South also impacts the way companies are organised, he pointed out. GE realised the shifting centre of gravity and moved some of its most senior executives to Hong Kong, including its vice- chairman John Rice.

In future, companies will need to source more senior local talent from the developing world, adjust their pay scales in these countries to match global pay scales and also job titles. Companies will also need to make shifts in resource allocation, Southwards.

Technological trends also bear close watching, according to Mr Charan - in particular, digitisation. He noted that the cost of telecommunications and data processing is cheap and falling, the mobile revolution is well advanced and moving further - with the imminence of 5G and the use of algorithms, cloud computing and sensors are becoming ubiquitous in industry after industry.

"If your company is not leveraging on digitisation, take a closer look at it," he said. Companies that resisted or delayed digitisation or tried to act defensively have lost out, including Barnes and Noble and Borders in books, Target in clothing, Kodak in photography and many others.

Digitisation is affecting entire industries, he said. "CEOs need to stop looking at just their own companies and also look at their industry." They need to ask themselves how it is going to change, and whether it is in danger of being disintermediated or swallowed.

They must also bear in mind that their companies can be challenged by players from outside their industry. When it comes to planning, they must be prepared to plan flexibly. "Change can come from anywhere at any time. The market isn't going to wait for your planning cycle," he said.

When it comes to leadership, much is said about the need to be visionary, decisive and strategic. But there are some qualities that are not emphasised enough, according to Mr Charan.

One is dealing with uncertainty; the best leaders figure out how to do this and even use uncertainty as a wave to ride on, he said.

Another underappreciated quality is having a deep understanding of how governments work. Governments can be important to companies, not only as regulators and policymakers but also as partners. Ideally, a CEO should have spent at least three years in areas where he or she had to deal with governments.

Focusing on people is also underrated, according to Mr Charan. "Remember, it's people who create value and people who compete, not companies," he said.

CEOs should pay serious attention to recruitment. "Never say 'he has no degrees' or 'he can't speak English properly'. A lot of skills can be acquired. Look at the quality of the raw material."

He added that companies also need to build a "people pipeline" which will help them create opportunities. "Before you make any major investment, have the people in place to lead and manage it," he said.

When assessing a CEO, Mr Charan pointed out that there are three questions he always asks himself. "One is: how does this person deal with complexity? Another is: who are the people he or she has selected, and what is their batting average? And third: has this person 'arrived' or will he or she continue to learn?"

Mr Charan also advised companies on how to deal with longer-gestation investments. Many great companies have large investments in areas that will not generate revenues in the short term.

For example, e-commerce giant Amazon is investing heavily in new distribution centres which will not earn returns immediately. Its profits have not been impressive, but its stock price has nevertheless performed strongly. Other companies such as GE and United Technology also have substantial investments in areas which will not yield short-term returns.

Mr Charan said these "growth investments" should be separated from investments that yield current returns and be organised as individual projects. "Review them separately and put your best people people to lead them," he said. "And then communicate your growth investments to your investors; show them that there is something at the end of the rainbow."