Postcard from Davos: The World Turned Upside Down By Bill George
Published on January 23, 2017
The world upside down this past week.
The first Chinese president ever to attend the World Economic Forum at Davos, Xi Jinping, opened the annual gathering last Monday morning with a full-throated endorsement of globalization, free trade, and cooperation between nations. “It is true that economic globalization created new problems,” he said, “but this is no justification to write off economic globalization altogether. Rather we should adapt to and guide economic globalization, cushion its negative impacts and deliver its benefits for all countries. Blaming economic globalization for the world’s problems is inconsistent with reality, and it will not help solve the problems.”
Xi warned that populist approaches can lead to war and poverty. “No one would emerge as a winner in a global trade war,” he said. “Pursuing protectionism is just like locking one’s self in a dark room. Wind and rain might be kept outside but so are light and air.”
Meanwhile, President Donald Trump took precisely the opposite tack in his inaugural address on Friday. “From this day forward, it’s going to be only America first, America first. Every decision on trade, taxes, immigration, and foreign affairs will be made to benefit American workers and American families,” he announced. “We will bring back our jobs by following two simple rules: we will buy American and hire American.”
In just a week, the United States and China reversed the posture they each held for the past 70 years. While other nations have long looked to America for global leadership, the new President has made clear he will pursue a level of isolationism not seen since Col. Charles Lindberg and the America First Committee of 1940-1941.
As America withdraws from its global leadership role, China is stepping up as the new leader of world economic order, albeit one where it writes the rules to its own benefit. One of President Trump’s first orders was to formally withdraw from the Trans-Pacific Partnership, which in turn will force Asian nations to negotiate bi-lateral agreements with China.
The consequences of these sudden changes could be profound and far-reaching with uncertain outcomes. Meanwhile, business leaders are scrambling to adapt to these sudden changes in the global order. At Davos, I had the opportunity to meet with many CEOs from the U.S., Europe and Asia to discuss how they plan to operate in this new environment.
The classic managerial techniques of strategic planning, accounting and control, management systems, and decision-making rely upon a predictable environment. While these disciplines will continue to be important, they are insufficient in this new world.
The U.S. Military Academy predicted much of this turmoil in a 2000 study. Its scenario for 21st century military leaders presaged a world that is “volatile, uncertain, complex and ambiguous” – VUCA, for short. These four words seem to describe perfectly what is happening in the global business world today.
In this VUCA world, I propose a different acronym for how leaders respond:
- Visionary – See through the chaos to envision where trends will lead. Stay focused on your organization’s strategy, its purpose and values. Do not let external events pull you off course, or cause you to neglect or abandon your mission. Communicate the importance of your mission and values as your organization’s guiding light.
- Understanding – Comprehend how to take advantage of rapidly changing circumstances by playing to your company’s strengths while minimizing its weaknesses. Don’t limit your information sources to views that reinforce your own, as this carries great risks of missing alternate points of view. Tap into myriad sources for relevant information that covers the full spectrum of viewpoints.
- Clarity – Integrate the disparate data of complex situations to see what lies ahead. Build mental models of the reality you face, and take advantages of opportunities to succeed in spite of the chaos.
- Adaptable – Prepare to adapt your tactics to changing external circumstances, without altering your strategic course. Develop contingency plans and preserve balance sheet strength in order to cope with unforeseen events.
Of all these qualities, the last is most important. No longer can leaders adopt a fixed strategy and hold to it. Instead, they need openness to amending their tactics while pursuing their original vision. Leaders must become world-class learners by engaging directly with their employees and their customers, listening closely to them to ensure they are attuned to changes in their markets.
Many companies face trouble today because their leaders were late in understanding the reality of the changing environment. Former Wells Fargo CEO John Stumpf failed to engage with employees to understand the extreme impact of company sales incentives. After years of missing reality, legal action and media attention forced Stumpf to step down. Stumpf himself missed what others could see clearly: his employees were systematically opening false bank accounts to satisfy management goals.
Spending time in the marketplace, retail stores, factories, innovation centers, and research labs, or just wandering around offices talking to people spontaneously is a far better use of time than going to conferences or spending long hours with politicians, thinking you can change the course of events – except in specific cases where you can influence specific new laws or provisions that are vital to your company’s future.
With uncertainty the prevalent characteristic these days, business leaders that stay focused on their mission and values, and strategies that build on their strengths will emerge even stronger. Those that abandon core values or lock themselves into fixed positions and fail to adapt will wind up the losers.
Bill George is Senior Fellow at Harvard Business School, former Chair & CEO of Medtronic, and author of Discover Your True North.