Globalization, in its path of ascendency, created more disruptions to the global economy than all the changes in the past several decades. It created a plethora of challenges for people, cultures, economies, politics, and life in general but it ushered in irreversible events that got the better of many a weakness that plagued the world. Overall there are reasons to believe that the world is much better off today than yesterday when countries were like islands and goods and services moved with enormous amount of restrictions that increased costs to the consumer and businesses were more national or regional in character. The upside of these changes saw almost a billion people moving out of poverty, while on the downside we have seen enormous amount of income disparity that has led to asymmetric wealth distribution in many of the developed countries and even some developing nations as well.
But today there is less discontent with globalization; it is widely regarded as a welcome change as the benefits far outstripped the losses it brought in and the associated costs.
Demographics of the world also underwent a silent change as the developed nations grew older and the developing nations, particularly India saw almost half a billion people in the age group of 18-30 suddenly arriving on the scene who on one hand could be gainfully employed and on the other could be potential sources of market participation as consumers. This would further make some nations less competitive than now as we approach 2030, especially for Japan and Western Europe. There is also a related impact on savings potential which gets enfeebled by the ageing population as for each young person there are two to three old persons that the society has to take the responsibility of. The excess savings that we see today and the distribution of savings across of globe would change as demographics change in the future course of the years.
GDP growth is the next striking change as some of the countries who were not even in the reckoning before the globalization started have now become the leaders. To give some examples, in the book ‘Competitive Advantage of Nations’(published in 1994), Michael Porter, the Guru on Strategy, missed the name of China to appear as a word in his entire 800 page dissertation and mentioned about India in just a passing remark. What happened after that is history, as China grew at an alarming pace and India joined as well and the two at purchasing power parity are the second and third largest economies of the world.
Competitive advantage of nations has undergone a sea change with the advent of globalization and the two nations that took the most of the benefits have been China and India; they were also lucky to have the demographics on their side while the same was at a relative disadvantage to the others. Perhaps two things were missed out by Porter, one that demography is vital in a globalized world where capital and labor is mobile, and secondly when old institutions of License Raj in India was getting abolished it was transforming India and the corporate world. China is a different story and the scale of their imagination and courage to dream big makes many an endeavor of the erstwhile American corporations appear pale. State institutions also attained maturity to deal with creation of infrastructure; planning of new cities, transportation and education system, and many other state endeavors propelled the country to a different trajectory. At the same time one would need to understand what constitutes true competitive advantage in today’s world and what role institutions play in bringing the competitive advantage; this is the very reason why Switzerland continues to top the list which has created the right institutions that make them one of the top innovators of the world, while balancing the needs of the community and the greater habitat on a sustainable basis.
The world looks different today with capital controls removed and cross border movement of labor and capital is a rather simple matter. But it leaves some nations at a relative disadvantage and those who have not followed the vital signs have issues on their table, like Western Europe. One needs to be careful that this is not game of winners, gains and losses are mutually exclusive where the win-win solutions are not applicable.
India underwent another major change with the advent of IT sector and the expansion of the service sector. Starting with the Y2K, India developed certain competitive advantage that helped them to grab market share in the B2B and B2C space and become the obvious destination for all multinational corporations from IBM, GE, etc. India became the outsourcing hub of service sector jobs for many of them. This created a disruptive growth in the jobs in India, the reason why the last decade saw such a pace of urbanization in India. India’s service sector is the largest sector with 54% of the GDP coming from that, making Industry pale in comparison. This is a noteworthy change.
In the people front there has been wide-spread impact as far as corporations are concerned. To take the case of India, first of all we went through a process of liberalization and reforms that opened the doors and many of state imposed restrictions were removed. Some of the corporations in India were much better prepared for this, like the Aditya Birla Group, who were disenchanted with the License Raj that they were already a multinational before the liberalization started. Their journey in the next fifteen years has been phenomenal.
Some of the major impacts that we saw in the people area are the following:
- Movement of People from one region to the other, to different cultures
- Increase of wages in the growth areas
- Sharp disparity and skewedness in wage
- Mismatch in skills availability and perennial shortage of right skills
- Large pool of resources moving to the service sector as services expanded at an alarming pace
The world in 2030 would be quite different and it is not easy to predict and I do not want to do the same mistake as Michael Porter did in 1994. I would first like to examine the current topics that plague the world and how we see some of this taking shape going forward.
I see that fundamentally four things would shape the future:
1. Business Cycles and linkage to sovereign debt conditions, the changing world of global finance
We have seen two recessions in the last decade, the last one was particularly menacing and the after effects are still visible on a global scale. The only two nations who did not get impacted have been India and China and it is particularly noteworthy that in both these nations the domestic sector continues to be buoyant, which insulates them from the vagaries of upturns and downturns that plague the developed nations. The labor intensive imports and capital intensive exports have left many of the developed nations grappling for job creation when a large output gap got created as an effect of the housing price crash in the Western World.
The sovereign debts of a number of developed nations are assuming alarming proportions starting with the European nations, and United States also follows suit. In the Global Competitiveness Report it has been argued that those nations who have moved to this high debt category have not fared well as public funds are channelized to those areas that do not foster innovation and lot less is being done anyway in the area of research and development.
India needs to be careful that its fiscal situation should not lead to such a denouement.
The world of finance has changed dramatically with a lot of talent moving into this sector spurring deep seated changes through innovation. The new products of innovation today allows higher risk taking and at the same time it allows to mitigate risks through a phenomenon called ‘pool risk’. Leveraged buy-out, many insurance products and mortgage financing has led to much higher growth in the global finance. At the same time it runs the risk of higher disruptions due to low probability events called ‘black swans’ to be encountered.
2. A Zero Sum Game: Winners and Losers are mutually exclusive as resource constraints start to make deep impacts. Ability to understand the game well ahead of the others would shape the future.
The zero sum game has become a reality, which leaves winners and losers. This is likely to aggravate as resource constraints leave less and less while the number of constituencies who compete for these resources are multiplying. Coupled to this we have seen winner take all syndromes, where risk and rewards leave a wide gap between the victor and the vanquished. The stakes are high as the world of finance allows such risks to be taken, but it has its unintended consequences as well.
Some of the key resource inputs like water, land, minerals and skilled people would be in perennial short supply in the decades to come. This would get further aggravated by the rising demands of the environment and the Stockholm Planetary boundaries would pose deep challenges for the habitat. The conflicts for space in each of these areas would have to focus on conservation that is sustainable, while the needs of the business could act at cross purpose. The ability to increase the pie size would be enfeebled by this constraints and conflicts.
This would need enormous amount of innovation and innovation would be the harbinger of success.
3. A Clash of Values: A range of constituencies starting from share holders, governments, community and employees interact for their portion of the pie, which may or may not be expanding. The concept of shared value would extend in many walks of business.
With rising number of stakeholders in this high stakes game, the values are most likely to clash. The definition of shared value must be revisited as there are more dilemmas that are likely to surface than solutions to those dilemmas. What could appear to be right at this point of time, could be quite different a decade from now, as many sweeping changes can be sighted that are already in place in the last decade. Values are changing as well, with people becoming more mobile; people who cherished their home albums now proudly display them for the world to see and even most conservative societies have accepted this as a norm.
Conflict between stakeholders is a natural off shoot and our values need to capture what is the right side to be on in these conflicts.
4. The Rising Voice of the dissenters: Those who get impacted would assume much greater power and the balance of power would shift as there would be far greater access to regulatory agencies and law enforcement on a global scale.
This is without any doubt that there would be more dissenters than approvers in times to come as voices of people would be louder with more information being available to people and with more interactions possible. The voice of dissent could well be inside the organization and this would call for a different organizational setting where freedom of expression forms a part of the minimum requirement. Knowledge would be free as information asymmetries would be far less as internet would be the only medium through which knowledge would be disseminated in a free and fair manner.
When these happen on a global scale we need to factor in what needs to be the future role of HR in such a global setting.
I see that HR needs to reorient itself as one looks at the year 2030 as the near horizon. That will be a time when India would still remain young, while the rest of the world would be old; India therefore is destined to lead. The five areas I would like to point out are the following:
- Creating an organization wide leadership that understands the needs of today with needs of tomorrow and that can understand the nuances of sustainability
- Creating the new shared value system that can combine organizational goals with that of all the stakeholders. The openness and the freedom to express should play a pivotal role in the creation of the new values as innovation would be the key driver of performance
- Balancing expertise of today with the needs of tomorrow, taking stock of the inventory in the pipeline and creating the right buffers that can withstand shocks at all times
- The incentive structure for performance management cannot be the only driver of performance, the other drivers need to be found, which could be different for different businesses and cultures. Innovation cannot be incentivized in the same manner as with today’s structure of incentives.
- To create a journey for aspirants and in the journey plant the seeds of reward
Fundamentally innovation would be the corner stone of business success. To make innovation work, every people process has to be redefined. Any process that stops innovation should be looked at with a critical mind and any skill set that impedes on innovation should be checked. This movement of skill sets towards more innovation would need more relaxation of controls and a culture that allows people to take risks and fail more times than succeed. Here I must introduce the topic of vertical controls and how vertical controls impede this process.
The old world of yesterday was based on vertical control; our forefathers controlled the family in a similar manner. Today’s world of successful business is based on horizontal controls. The future needs an intertwined linkage of objectives and actions with less and less formal control to spur performance. In fact lesser the supervision the better it is with performance, something that led to striking results in the world’s most admired companies.
There is a change of guard on the cards as the leaders of today must make way for the leaders of tomorrow. The days of vertical control are nearing its end and even less horizontal control with more empowerment is on the cards. The leaders have to be more agile to the needs of the community and the greater habitat than now and they have to be deliver value not only in the very short term as now, but also for the very long term. They have to understand the definition of value creation which would have a different connotation as value would be much more multi-dimensional than now.
The individual is more likely to be replaced by teams and shared responsibility would be the new norms of tomorrow as more voices have to turn to analysis of events and their impacts on the business. Hierarchies would be quite different as teams instead of individuals take the lead role in decision making.
With rising chances of conflicts, the managers of tomorrow have to understand the nuances of International Relations, as more trade agreements would leave less satisfactory denouements for all sides of the business. Conflicts between entities, which are large enough, could lead to conflict between nations, as more would be at stake. In any case times would be more challenging for all people.
World is getting less predictable as events are overtaking us every moment and any amount of theorizing leaves lot less solutions that are effective. We need to move into probabilistic frame of mind and HR must be able to move to this framework as we move towards 2030. To put it bluntly we could have a situation where everybody talks of ‘chance events’, ‘expectation’, ‘testing of hypothesis’ and ‘regression to the mean’ than terms that we are familiar with, which are more firm and fixed.
We have to create conditions where people could be trusted with their work to be done at faraway places without formal offices or supervision in place. That is one challenge that we are more likely to face in the near term as more people have been moving from one place to the other. Policies and HR practices have to take cognizance of this fact.
I would like to end my paper with a stunning account of a company headed by a man named Ricardo Simmler, who had created a unique experience for his people. His company that spans continents is based on the principle of empowerment that has taken out the need of an HR department. His company does not have an HR department as the people themselves manage their own salaries, who needs to be promoted, who needs to be fired and who should be chosen the leader of the team are decided by the people themselves. Our future may not be this dramatic but once the ethics code is internalized within the organization and the recruitment is based on a rigorous principle of the best choice of the candidate not the remuneration, wonders actually could be done with a freeway like organization as with Simmler’s. Here freedom is a virtue and controls would be like a vice, impeding on the progress where people are willing to take risks, once they stake themselves into the future of the company.
The real challenge of HR would remain to be simple, get the act of bringing people together for a journey that they would cherish.
Journey is the reward.
Procyon Mukherjee (Head Hirakud Complex, Hindalco)
18th April 2012, Hirakud
All the ideas in this speech are based on author’s personal view of the world and its principles, it has no connection with the views of the organization where he works.