Mike Rosenberg

Why I still like the Tesla S

by Mike Rosenberg • Strategy & Sustainability • Leave a Comment

So someone posted a video on Tuedsay this week with a Tesla S on fire after an apparent collision.

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According to Tesla, the car alerted the driver of the problem and he pulled over, got out and called 911. The fire department had to figure out that water will not put out a burning Lithium Ion battery and had to switch to dry chemical fire retardant and reportedly to “punch holes in the battery pack”. No one was hurt and the fire never got into the passenger compartment.

Tesla shares dropped about 10% as a result of the video and my friend sent me the link to the video because he knows that I am in love with the car.

Let me take this opportunity to reiterate my support for the car, its overall strategic positioning and why Tesla is an example of a company that is bringing disruptive technology to market.

A very attractive automobile

UnknownForgetting about its electric power train, the Tesla S is a very nice car. It has sporty, sleek styling, comfortable seats and amazing acceleration! (416 hp, 0 to 60 in 4.2 seconds).

The interior is what you would expect in an expensive sports car and the range is between 230 miles and 300 miles depending on the battery pack you choose to buy. (65KWH or 85 KWH)

In terms of Safety, the Tesla S has a five star safety rating and the battery pack adds to the structural rigidity of the car. The best thing about the Seattle video is that it shows the car burning steadily but not getting out of control and certainly not exploding as it would if it had a tank full of flammable gasoline!

The price tag is, of course high, and the car costs from $ 66,570 to 83,570 depending on the battery pack and if you get the extra performance package.

Sound Strategy

Unknown-1The reason that I believe the Tesla S is a great example, and I use it in my classes on Strategy & Sustainability, is that for its market segment it is a very sensible car.

The car is targeted at commuters who own a second car. Very few people commute more than 100 miles to work so the Tesla can get you back and forth and Tesla’s customers also have a garage or parking place with a plug for re-charging. These people will take their SUV to the mountains.

Disruptive Innovation

Technological change often comes in niche applications and according to Christensen then get better over time until finally displacing another technology. Tesla started with the Roadster, more or less a fun toy for very wealthy people. The S moves them into a larger customer segment but they will still be successful with approximately 20,000 cars per year. As battery life gets longer and Tesla’s on the road re-charging infrastructure gets built up, we will see how far they go!

Leading in a Matrix

by Mike Rosenberg • Global Strategy • Leave a Comment

Faced with an increasingly complex global playing field, companies have come back to Jay Galbraith’s Matrix Organization and embraced it as the answer for dealing with a complex world.

Typically, there are a group of Senior Managers responsible for different geographic units, such as North America, South America, Europe Middle East & Africa, and Asia Pacific. On another axis of the matrix are other Senior Managers who each are responsible for one of the major Strategic Business Units of the firm. Still a third group of Sr. Managers run global functional organizations such as Finance & Control, Purchasing, Information Systems, etc. In those cases when different Business Units sell to the same global customers, there is often a fourth dimension of Sr. Managers who present one face to such customers and are responsible for the overall performance of their firm, in all of its complexity, with that customer.

If you add of these people up, a global organization will end up with 15-25 Sr. Managers  who collectively are responsible for running the company on a global basis. This structure is compelling for a number of reasons.

One is that it allows for individual accountability of those Managers, Vice Presidents or whatever else they are called, who report directly to the Chief Executive. Clear goals and targets can be set for each area and the person at the head of it such that everyone should know what they need to deliver.

Another is that taken all together, it becomes relatively easy to check the logical consistency of the company strategy and tools such as the Balanced Scorecard can be used to ensure that all the regions, business units, and functions are aligned with the strategy and each other.

Finally a global matrix allows the CEO to avoid making very complex trade off as he or she can simply delegate the task of “figuring it all out” to a cohesive group of people.

The problem is the matrix does not work.

In a  workshop done at IESE Business School‘s building in New York City in December, 2011, we brought together a group of line managers and Human Resources executives to explore different ways of making the matrix work. The program will be repeated, incorporating these findings December 3-5, in New York.

The key conclusions from that effort were that the matrix organization requires too many people, extremely complex processes for goal setting and alignment, is inherently slow to respond to changes in the environment, and is normally ignored in moments of tension or crisis.

This last finding was offered by an executive of a large global company which is often used as a benchmark for developing a well oiled matrix structure but even in that case critical managerial issues were resolved along one of the axes of the matrix.

Based on the participants discussions and additional research there are three fundamental issues which seem to derail the matrix in practice. These are the understanding of the source of a company’s revenue and profits, the difficulty people have with systems thinking and complexity, and the role that innovation plays in corporate renewal.

Follow the money

Every company has developed, over time, a business model, which can be deeply embedded in the way its managers think about the business and themselves. One aspect of this business model is how the firm actually makes money.

Automobile manufacturers, for example, design and develop new cars, manage global supply chains, build engines and assemble cars, manage dealer networks and provide after sales service and warranty. Car companies spend significant amounts of money on consumer marketing and brand management and have very sophisticated research and development organizations as well as a normally strong finance and product planning groups.

At these companies, however, there is a general belief that money is made (and lost) in the assembly plants and the basic idea is to keep them at very high capacity utilization. Besides designing great cars and light trucks, this is often done by offereing incentives to dealers to “move the metal” or to consumers to get the latest deal, rebate or giveaway.

The impact of this mindset is well known in the automotive industry and is a major impediment to change. It is also a major difficulty in implementing any kind of compelling matrix structure based around families of cars, customer groups or anything other than the geographic distribution of the assembly plants!

In medical devices, the fundamental paradigm is that the products make the money and thus the Strategic Business Units are often dominant as opposed to a geographic structure based around key account management at hospitals or a clinical orientation based around certain clinical areas for which the products have application.

In a very positive economic environment, one might see the construction of a more comprehensive and perhaps balanced matrix but in moments of stress or crisis, it appears that whoever makes the money (or has the most resources) will end up making the tough decisions.

Systems thinking is too hard

Although Peter Shenge published the fifth Discipline in 1990, systems thinking and complexity theory has still not spread beyond a relatively narrow group of academics and researchers. The problem, it appears, is that it is just too difficult for most people to keep track of too many aspects of a problem or a situation.

People in general, and Managers, in particular like clarity and, as stated above, this is one of the key attractions of the matrix. The problem comes when a leader of one of the parts of the matrix works with their own team and pushes the accountability idea down into the organization. In the field, one eventually gets to two possibilities neither of which is conducive to manage a complex world.

One solution is to simply have enough people at every level of the organization so that the different areas can be represented. This approach, according to one of the participants in the workshop, is simply much too expensive on the one hand and very slow on the other. While the source of the cost is clear, the speed of decision making depends largely on the degree of cohesiveness that the people representing the different areas have with each other as opposed to with their business unit or function.

To some degree the degree of local cohesiveness appears to depend on the distance form head office where the direct lines of authority often have more weight.

Whats new?

The third area which makes the matrix largely inoperable is the need of constant innovation in many sectors of the economy and the added challenges that doing things in a different way poses to such an organization. In the first place approving a new product or process becomes more complex as there are potentially a number of departments which have a stake in the change and to get all of the managers involved and supporting such a change is extremely difficult.

Second, research done by Paddy Miller indicates that people from different cultures actually understand innovation in different ways and that getting a group of people to be more innovative is much more difficult than re-arranging the furniture or having brainstorming sessions. In terms of the matrix organization, it becomes difficult to get the right people in the room as many global organizations have their people spread out around the planet and face time for the team is difficult to achieve.

From Miller’s perspective, a traditional regional or national structure with a functional layer below that is potentially much more conducive to innovation than the more complex matrix structure mainly because it becomes possible to work with the same group of people over time all of whom contribute different points of view but share a common cultural understanding of what it means to be innovative. Innovation in the matrix is much more complex but nevertheless has to be done.

The third way that the matrix gets in the way of innovation is the normally very structured balanced scorecard systems that are often implemented alongside the matrix organization are normally not able to deal with ambiguity in general and innovation in particular.

What to do?

We therefore have a potential problem in that many companies will implement a matrix organization to manage global complexity but that there will be fundamental flaws with that structure. Thus the challenge facing the men and women at the first line who are responsible for one part of the matrix is to somehow get things done in any case. A somewhat different challenge faces people at the second level who find themselves reporting, in one way or another, to two, three or four different Sr. Mangers who are often asking them to do different things.

The answer appears to have five parts:

  1. One aspect is that to manage global complexity, Mangers need to understand it and recognize it. Only by having a clear sense of the nature of the global challenge can Managers hope to be able to overcome those challenges.
  2. The second part of making the matrix work has to do with understanding the goals and behaviors of the different functions, regions, and business groups which make it up. People will only be able to understand one another if they first recognize the differences between them and then spend time and energy on understanding those differences. The overall idea is cross cultural management and this applies to both national differences as well as functional and sectorial differences.
  3. The third part of the puzzle is to find ways to actually get people who are in different places on the planet to work together and this involves both using the communication and information tools currently available but perhaps more importantly adapting the way we manage and communicate to the reality of working across time and space and to the tools themselves.
  4. The fourth and part of making the matrix work has to do with leadership. Our findings is that the leadership challenge facing managers in a complex matrix structure are more demanding than a traditional organization. In fact, people who excel in the complex and ambiguous environment often display a set of leadership qualities which are similar to those found in people who lead people in dangerous, life threatening situations. Col. Tom Kolditz, author of In-Extermis leadership explored what these leadership traits are and found that leading people in extreme sports, emergency services and war has to do with basic ideas such as competence, leading by example, and personal integrity.
  5. The final part of the making the matrix work also ha a parallel in the military and is about making sure that each person in the organization understands the company strategy at both the larger, company level, and in terms of what they have to do. Kolditz refers to this idea as understanding strategic Intent and explains how commanders need to decide what to do in highly ambiguous situations. In a matrix environment, the challenge is to go beyond the narrow interests of one area, function or business line and do the right thing for the company.

Time for a New Approach from the Board

by Mike Rosenberg • Strategy & Sustainability, Uncategorized • Leave a Comment

The Problem

Sustainability, as a topic, can be confusing to business leaders.

The idea that mankind affects its environment and that many of those effects are negative has, I believe, been accepted by many business leaders and members of the Board of Directors of firms, especially in Western Europe and the United States. To get from that general acceptance to a clear idea of what a particular firm ought to do, however, is much more complicated and far from clear. For business, sustainability is usually taken to mean adding the impact a firm has on the physical environment and social reality to the economic impact that is normally the core of its existence. This idea of reporting a “triple bottom line” has become common place.

Firms also pursue a variety of initiatives to reduce consumption of raw materials, water, and energy and to produce less waste from their processes and products as well as reduce carbon emissions but, in my experience, many of these initiatives come from an idea that the firm “ought to do something” to protect the firm’s reputation or brand, rather than a clearly defined strategy over the medium term.

At the same time that corporate activity is increasing, the global effort to stop, or at least slow down, Global Warming or Climate Change, seems to be slowing down due to the economic crisis and political stalemate both at the international level and within many countries. Examples of this inability are the very slow progress on creating carbon trading schemes at the regional or global level and the reduction of subsidies for alternative energy across much of the European Union.

To make the potential for confusion complete, there are a number of contrarian analysts such as Denmark’s Bjørn Lomborg who questions whether we, as a society, are actually focused on the right things. Lomborg’s thesis is that the claims of most special interest groups about the increasingly negative situation simply do not bear up rigorous statistical scrutiny.

The problem, as I see it, is that with politics in many countries being deeply divided, the Board of Directors of a firm is left without a stable and clear reference point from which to base policy with respect to sustainability.

The Solution

Boards appear to take one of three paths to deal with the ambiguity described above. In some boards, there is a major shareholder or group of shareholders who are convinced of the perceived problems facing the planet and ready to put their money where their mouth is. Such a Board then instructs management to go beyond compliance with the idea that the business case will possibly emerge over the goodness of time but that in any event, the direction is the ‘right thing to do’. Since at the end of the day, the majority shareholder is playing with their own money and convictions I find this idea to be “sustainable” from a governance point of view.

A second approach is to obey the law in each of the countries or jurisdictions a firm operates in and perhaps set up a complex, but normally understaffed, compliance function to be able to prove it. Complete assurance that a large multinational and all of its suppliers and partners are perfectly complying with all environmental and social laws, is of course, impossible but it does create a blizzard of paperwork and allows the CEO to say that the firm is doing all it can.

The third approach, which I believe is the most common, falls somewhere in between. In this scenario, the board instructs management to do things like sign the UN Global Compact and to improve performance across a number of metrics as long as shareholder value does not suffer as a result. The challenge with this approach is that there is often little or no empirical evidence to connect specific initiatives with medium term performance or competitive advantage, and studies which show that consumers’ willingness to pay increases with environmental or social performance are tenuous at best.

In my view, Governments will continue to give mixed signals to companies and even shareholders do not know what they want the firms they invest in to do. Boards, and the people who sit on them, will have no choice but to make their own best guess as to the course to set for Management.

For me the way to do this is to think through the long term strategic goals of a firm and think through the implications that some of the key driving forces of the future will have on the firm over 10 or even 20 years. In this kind of time frame, what might appear as trade offs in the short term, can be re-framed to truly align the long term viability of the firm with making significant improvements in the sustainability of its products and services.

Some firms such as Toyota, Unilever and Henkel articulated a vision for the future based on fact based analysis that is able to group their disparate activities in the sustainability area under a clear strategy which adds value to shareholders and the planet over the medium term.

Toyota began their drive towards becoming more sustainable with the publication of the Toyota Earth Charter in 1992 and since then has consistently invested in alternatives to internal combustion engines in order to make their product, cars and light trucks, more sustainable and thus more attractive to an increasingly large group of potential customers around the world. The runaway success of the the Toyotsa Prius and its leadership on the issue in recent times is, in my view, simply the result of this steadfast commitment which is firmly grounded in long term strategic thinking.

Uilever’s Sustainable Living Plan is made up of 60 time bound targets which are firmly grounded in Unilever’s history and also firmly linked to its long term strategic vision. One example, which in my view illustrates this approach, is to promote hand washing across many underdeveloped regions of the world as a way to combat disease and also to sell soap!

Henkel also links performance with sustainability and takes a 20 year view of the challenge (http://sustainabilityreport.henkel.com/strategy.html). Henkel’s idea is to increase by a factor of three the equation of value including impact on people and economic profit over inputs. While the new strategy comes after many years during which sustainability has been a priority at Henkel, what is different is the very clear alignment between improving business and environmental performance.

This kind of thinking, long term and creative, i for me, is the role of the Board of Directors in general and in terms of sustainability, it allows the Board to act regardless of the political and regulatory environment of the moment.

 

What to do and the metaphor of The River

by Mike Rosenberg • Career Management • Leave a Comment

I saw one of our students at lunch a couple of years ago and she clearly needed help in thinking about what to do. She was in the last week of our Global Executive MBA program which targets an older, international group of students and she had been working as a trader in a US bank for the last few years and I would guess she was in her mid thirties.

I asked how she was and she said that although she was terribly confused about what to do with her career she was afraid to come and see me because she knew I would ask her a simple question for which she had no answer.

The question is, of course, what do you want to do? I always ask and am always surprised by the way people react.

Many simply have no clue. Maybe they have been wrestling with the issue and maybe they have actually never thought about it.

Others answer in a way which is genuine but often not terribly useful in terms of job hunting. They might say I want to live in a specific city or find a better work life balance. Other answers have to do with finding the right kind of environment such as a small or large company with a certain kind of culture or style.

Many people have only figured out what they do not want to do which is at least a good start.

  • Time to start paddling?

Listening to people’s stories about their careers I get the sense that many people allow their careers to develop without too much active guidance from themselves.  It is as if they were going down a river in a raft and simply allowed the river to dictate what would happen next. When I say this to people they sometimes get a bit annoyed and start to explain how hard they worked to get where they are

Perhaps a young graduate was recruited to an interesting company after school. Promoted and sent to a specific Department or country. They were then headhunted to another organization based on their early success and had then progressed in that place due to a combination of hard work, opportunities presenting themselves and some good luck along the way.

What often strikes me is that the same person might have never imagined that they would become a Vice president in a logistics company or the managing Director of an Agricultural Chemical company.

The Talking Heads have a song in which a man asks “how did I get here?” and I think this happens to too many of us in the midpoint of our careers. The metaphor of the River is actually very powerful for many people and if you have ever been rafting then the following might strike a chord.

The most important thing about rafting is that you do not choose the direction you go in, the river does. If the river flows South, you go South. If it flows east, then that’s where you will go and if it wanders back and forth across geography then that’s where you will go. In many careers, there is a standard and predictable path that most people will follow simply by going “downstream”.

Sometimes a river will branch off and offer a choice. To make such a choice requires one to paddle and steer the raft towards the desired course and depending on the nature of the current, the rapids and your own strength it is sometimes possible and sometimes not.

Like a river, a professional trajectory might have exciting parts and dull slow parts. At times the rapids can be positively scary and the job so exciting that it requires complete focus in order to avoid capsizing. In my view this is often where we lose track of friends, children or spouses. We get so focused on what we are doing that we simply lose track of other things. Metaphorically there is the danger of things falling out of the boat!

What is clear is that if one finds him or herself on a river which is going in the wrong direction, that river will never take you closer to your goal! The only choice is to literally get off the water, carry your boat across the mountains and put it in a different river which is actually going in the desired direction. Rafters and canoeists call this “portage” and it is very difficult. It’s sometimes even hard just to get off the water and the mountain trails can be dangerous and difficult.

I was recently speaking to a group of students in their late thirties and forties and one woman remarked that the older you get, the more stuff you end up carrying around in the boat (husbands, children, mortgages, etc.) and the harder it is to carry it over the mountains.

When I ask people who have been successful allowing the course of events to guide their progress what they really want to do, they often have no idea. They have been on a particular river for so long that they barely remember why they started on it in the first place and have a hard time imagining anything else.

Sometimes getting fired or having to make an emergency career change for personal reasons can be the greatest thing that can happen to someone because it allows them for perhaps the first time in a long time to think about what they really want to do. In the metaphor it is like capsizing and we often need to have some outside jolt to force us to reexamine our lives.

Unfortunately we often lose things in the process but if this kind of thing happens soon enough it might be a blessing.

Many years ago, I was laid off from my job as an engineer in the offshore drilling industry and am sure today that it was the best thing that could have happened to me. I needed the “kick in the pants” to get on with my ideas of going to business school and pursuing an international career in management.

There are several writers who do a good job in encouraging people to explore their preferences and Mark Albion’s Making a Life and Making a Living played a major part in my own decision to leave consulting and dedicate myself full time to teaching.

My purpose here is not to paraphrase Mark or some other authors but only point out that career change is all about rejecting the “go with the flow” idea and to metaphorically pick a river and choose where you want to go.

  • You have to choose

The most common response to the hardest question is “I am open to many things or even anything”. While this response may be true, my experience is that it often is not and even if it was, it is very difficult to help someone who does not know what they want.

If someone does not know what they are looking for it seems to me that they will probably never find it.

What people who want to make a change and MBA graduates often believe is that by not choosing a course they keep their options open. In my experience most people are reluctant to choose but this reluctance has different causes.

There are a small number of people who are genuinely open to different types of work, different industries and even living in different parts of the world. They are kind of like the people who shop for last minute holidays and literally go the airport not knowing where they will end up. While some might call such people free spirited or adventurous and I like the attitude when applied to a vacation, in dealing with one’s own career, I find it to be somewhat irresponsible.

What is much more common are people who say that they are open to a number of ideas (or any idea idea) but aren’t really. One very large group of people simply need a job which will pay sufficiently well for them to maintain their lifestyle, sense of pride or accomplishment, or maybe pay a mortgage or a student loan. What these people are really saying is that I need a job more than I need to determine what type of career to develop. The essential logic is that by not choosing they will increase their chances of finding gainful employment.

In my experience this idea is mistaken for three reasons.

One reason it does not work is that nobody wants to hire anybody who has little interest in the job, industry or mission of the company or organization in question. My first job after University was in the oil drilling business and I once asked the man who hired me why he picked me over the other undergraduates and graduate students who had applied. His answer was simply that “you wanted the job” and ever since then I have seen this basic truth again and again.

People like to hire people who are motivated, interested, and even passionate about whatever is the essential nature of the position whether it’s developing advanced technology, building market share for a specific product, crunching numbers, or saving the planet.

True interest is hard to fake and the other thing about people who manage large numbers of people or the Human Resources executives who often manage the process and headhunters who are sometimes involved is that all of them develop a fine sense for listening to people and spotting anything that does not ring true. If something sounds false, then your candidacy will be rejected. It’s that simple.

Another reason that keeping one’s options open does not work is that people divide their efforts amongst different directions and rarely manage their search in a particular industry very well. Time, contacts, and degree of commitment are all somewhat finite resources and in my experience it is a bad idea to spread them out too thin.Good homework, for example, on an opportunity is very time consuming and it is not likely that someone who is literally all over the place will do a very good job in researching a specific company, market or sector. Candidates demonstrate their interest by doing their homework and again, it is hard to fake.

While the subject of networking will be further explored in another posting, one can not ask the same person for help in clearly different directions. They will (correctly) think you do not know what you want to do and will be more reluctant to help.

Finally, commitment can be a powerful tool and it only works when it is real. Hernan Cortes burnt his own ships after arriving in what was later called Mexico so that his troops would have no choice but to press on to total victory. “Burning ones ships” is the equivalent of publicly committing oneself to a limited set of choices and then having to do the hard work to make it happen.

A third group of people secretly know what they would love to do but have given up on it as unrealistic. They then shut down what is in their hearts and start looking for “a job”.  As this issue will be deeply discussed in Chapter VII, let me just question the probability of success if one is pursuing a course which goes against his or her personal desires and ambitions. It does not sound like a winning plan to me!

The last group of people truly does not know what they want to do and have trouble choosing between wide varieties of seemingly interesting options. What is usually missing in this mindset is a little reality. I do believe that most of us are capable of doing virtually anything but also feel strongly that we can not do everything at once and that potential employers will be reluctant to give people a chance to something they have never done before and for which they have no significant qualifications or interest.

  • What to do?

To help all the types of people discussed above with the question about what they want to do, I use a simple framework which seems to work well for the people I have a chance to help. The framework is shownin fig. 1 and combines three elements which I have found to be the most critical, the CV, Constraints and Passion. Its purpose is simply to force people to think beyond their normal responses and generate concrete ideas about what to do next.

Essentially the idea is to look deeply into each of the three concepts and use them to choose one or maybe two concrete ideas for specific jobs in specific industries and markets.

The Curriculum is what a person has actually done. Where do they come from? What languages do they speak and with which cultures are they familiar?

Constraints have to do with family commitments, money requirements, and other personal situations which will honestly limit someone’s choices.

Passion is what really makes people excited. It might be a product, a service, a way of interacting with others. It might be a specific sport or type of travel. In my experience everyone is passionate about something and the challenge sometimes is to actually articulate what that really is.

 

The black dot inthe middle of  the diagram represents the step that very few people actually make. What actual job might exist in the world where a potential employer will value my experience; where I will be able to fulfill my commitments to my friends, family, and banker; and where I will actually have a chance to do something for which I can be passionate about. This step is both analytical and creative in that one needs to think through the issues involved and dream up a story which actually makes sense.

Additional posts will develop theseideas further.

 

 

 

 

 

 

Doing Business on the Earth (Part 2) – Geopolitics Matter

by Mike Rosenberg • Globalization and related topics • Leave a Comment

In an earlier comment, I attempted to make the point that history matters and that when doing business in different parts of the world, it would be wise to study the history of a country or territory. A similar argument can be made for studying its politics and the relationship that the country, and its current political leaders have with its neighbors and even the rest of the world.

I am actually writing this note while teaching the Global Executive MBA program in Shanghai and, although I have been to the city before, am once again taken aback by its size and scope. Mao Tse Tung wrote that the Chinese people were like an atom and when their energy is released it “will have really tremendous power” and I must say that while Mao’s revolution appears to have been replaced by very different economic ideas, the power of this re-emergent China is clear to see.

Yesterday, the China Daily ran an article speaking about marine security and the potential of some kind of maritime clash with the United States. It was highly critical of Hillary Clinton making comments of the recent talks concerning the Yellow Sea. At issue is the definition of national boundaries at sea and the contiued freedom of the seas which have been guaranteed for the last 60 years by the United States Navy.

China is presently conducting a crash program to modernize its own navy and while it is far from becoming competitive, I understand that containing the Chinese naval expansion is the number one concern of the American Admiralty at this time.

Why all this is important is because many companies are increasingly incorporating China into their global supply chains and these supply lines rely, of course, on the free flow of shipping in and out of China.

If China were to suprise the world with a bold move in Taiwan or the islands in the Yellow Sea, Naval Blockade would be an option open to the United States and this would of course cut those supply lines as well as depriving China of needed raw materials including, but not limited to oil supplies.

What´s the risk of some temporary flare up leading to such a situation? While I do not know the answer, I do recommend that Senior Managers think through the implications of such geopolitical issues. Other potential trouble spots which come to mind are India’s relations with Pakistan, Russia’s relations to the Ukraine and the Baltics, the Middle East, and many others.

What I do think is important, is that while War might be difficult to contemplate and even not very probable in many cases, tension alone can disrupt trade and have serious implications for people trying to do business on this planet!

Doing Business On The Earth (Part 1) – The importance of History

by Mike Rosenberg • Globalization and related topics • Leave a Comment

World Map – Luigi Diamanti

In thinking about globalization, history as a subject, is often missing and this is, in my view, a serious oversight. History can help in understanding the present, and the future of a country, territory, or region and anyone doing significant amounts of business in a place would do well to study its history.

A relatively superficial look, for example, of the history of Iraq shows how the Ottomoman empire actually had three different provinces Mosul, Baghdad, and Basra and that these divisions correspond well to their present political and ethnic divisions of the country. Eastern Libya, which is presently in open rebellion against the Quadaffi regime was called Cyrenaica or Pentapolis in antiquity and was also an administrative unit under the Ottomomans.

The first reason to study history is to understand the present situation in a country or region and thus become more sensitive to ethnic divisions and national rivalries in dealing with partners, customers, suppliers and local teams. This is not to say that one should necessarily make personnel decisions based on such knowledge but awareness and sensitivity can often make a huge impact on the success of business endeavour. In fact, a minimal understanding of the history of a location is necessary simply to be polite!

The second reason to study history in the context of globalization is that it also gives clues to the future. China, for example, is at the top of many company’s internationalization agenda but in my experience, many of the executives involved in this expansion have only the vaguest idea of Chinese history and all subscribe to, what I believe, is a simplistic view of China’s future. This simplistic view is often expoused by economists and consists essentially of extrapolating China’s economic growth for the next 20, 30 or 50 years and discussing in which year it will surpass which of the Western Economies.

The problem with this view is that it does not take into account the history of China or in fact of other phases of economic growth in the world. Imagine someone looking at the future of Europe in 1910 and looking only at macroeconomic indicators. Looking ahead to 1950, one would talk about a very prosperous Europe and essentially fail to take into account the economic and geopolitical currents which eventually produced two world wars, millions of casualties and tremendous upheaval in all aspects of European life.

After the fall of the Tang dynasty in 907, China actually went into a period of instability where a series of governments rose and fell in Northern China and a series of ten independent states formed mainly in the South. Today China’s coastal areas are experiencing un precedented economic growth but there are regions which are still far behind them. While the central government reportedly acknowledges the problem and is investing in infrastructure in these regions, there are powerful centrifugal forces emerging that could potential put the territorial integrity of China into question.

My point here is not that China will break up into smaller states or that a Chinese civil war is inevitable or even probable but that there is a possibilty of such things happening and they happened before both in China and other places where a central government diverted economic resources from wealthier territories to poorer ones. What does seem likely, at least to me, is that something will happen to upset the economists’ rosy picture of China’s future.

History thus offers insights into the present and future of countires and regions. What to do with that insight, will be the subject of a future posting on this space.