Wednesday, April 3, 2013

What can companies do to promote their global competitiveness?

In “Going from global trends to corporate strategy,” Wendy Becker and Vanessa Freeman point out that many business executives do not consider the sub-trends of a global trend.[1] They do not always see the impact that global trends will have on their business. Their findings on this topic are in Exhibit 1. Becker and Freeman also asked business executive what they consider to be the most contributing factor accelerating the pace of change in the global business environment. Their findings on this topic are in Exhibit 2. In the following post, I will describe their findings related to innovation and my findings related to innovation. I will then propose a few ways in which companies may be able to increase their internal pace of innovation to serve new markets and changing consumer tastes.

Becker and Freeman found that 87% of business executives consider the “Growing number of consumers in emerging economies/changing consumer tastes” very important or important in its impact on global business. However, only 63% of the executives believe that it will be very important or important for the profitability of their company. Perhaps these business executives do not consider how the sub-trends of this will impact their business. Moreover, they may not have ideas about how to take advantage of this trend.

Exhibit 1

With emerging economies come differences in consumer tastes and unique difficulties in selling product. They may have to sell a somewhat different product or service or model their business differently in the new market. This idea is supported by Becker and Freeman’s finding that business executive see “Innovation in products, services, and business models” as the single most contributing factor to the accelerating pace of change in the global business environment today.

Exhibit 2

So how can companies lead the “accelerating pace of change?” Well, put simply, they must innovate internally. Their best and most cost-effective tool is policies that create a structure supportive of innovation. The findings published in Entrepreneurs’ Innovation Promoted by Their Education and Training and by National Policy and Culture: A Global Study show that policies enacted by a governing body have the highest direct impact on the level of innovation among entrepreneurs within a society.[2] An illustrative diagram of our findings on how certain characteristics of the entrepreneur and of society impact innovation can be found in Exhibit 3. In our case, the governing body is the global company and the “entrepreneurs,” while not starting or running the company, are entrepreneurial minded employees. This mindset may already be found in a few companies. John Young, a former CEO of Hewlett-Packard is quoted as saying, “Having small divisions is not the only way to organize a company, but having organizations that people can run like a small business is highly motivational…. Keeping that spirit of entrepreneurship is very important to us.”[3]

Exhibit 3

One method of promoting an entrepreneurial culture to accelerate a companies’ internal pace of innovation is to organize by decentralizing responsibilities. While many companies will be resistant to this, those that effectively organize in this fashion will enhance their ability to compete globally. This will become more important as companies become more flexible to react faster to unforeseen opportunities.

Right now, this trend may be seen as most applicable to the telecom and IT industries. How can other industries such as heavy industry or business services benefit from a decentralized organization? Are there industries, such as banking & finance that should be forced to decentralize for the betterment of society? How would such an organizational trend impact national levels of entrepreneurship?

[1] Becker, Wendy and Freeman, Vanessa. Going from global trends to corporate strategy. McKinsey Quarterly, 2006 Number 3.
[2] Schøtt, Thomas, Hovne, Adam and Hovne, Ben. Entrepreneurs’ Innovation Promoted by Their Education and Training and by National Policy and Culture: A Global Study. In Entrepreneurial Strategies and Policies for Economic Growth, by Moreno Muffatto and Paolo Giacon, 2012.
[3] Gardner, John. On Leadership. The Free Press, New York. 1990.

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