The phoenix encounter me.., p.20
The Phoenix Encounter Method, page 20
That’s important for leaders to keep in mind, and so is another important dynamic of these emerging markets: the fastest growing cities of today are not going to be the fastest growing cities of tomorrow—someone else will wear that crown. Economist Danny Quah’s work illustrates this nicely. Quah has studied populations and production in different parts of the world and used that data to pinpoint the world’s economic center of gravity (WECG).5
FIGURE 11.2 World’s Economic Center of Gravity over Time
Quah’s map of the world in Figure 11.2 shows the shift in the distribution of economic activity over the past decades. In 1980, for example, the WECG was in the middle of the Atlantic Ocean. By 2010, it had moved to a point just west of Minsk, capital of Belarus. Extrapolating growth projections of population and output, Danny predicts that by 2050, it will lie between India and China. In another measure of the influence of the emerging markets, a 2017 UBS/PwC report found that Asian billionaires outnumbered their US counterparts for the first time in modern history.6 All of this means that leaders must know more than where their business centers will be. They must know what capabilities will be needed in that location to ensure relevance and competitiveness.
THE GAME CHANGER FOR THESE MARKETS
Perhaps the greatest change in emerging markets since the early 2000s is the diffusion of telecommunication and digital technologies—in particular, the rapid spread of feature phones and quasi-smartphones. While the iPhone and Samsung remain largely unaffordable in these markets, consumers do have access to phones that provide most of the important functionalities at a fraction of the price of an iPhone. A consumer in Bangladesh, for example, can buy a smartphone for $123—about one-fifth of what a consumer in Germany would pay—and a smart-feature phone for around $40.7
These technologies have enabled consumers to leapfrog infrastructure deficits and enjoy better livelihoods, lifting large sections of society out of poverty. Hannah Ritchie and Max Roser track the diffusion of technologies such as fixed landline and mobile telephone subscriptions across different countries—for example, comparing the developed economy of the United Kingdom and the developing economy of Gambia.8 They show that fixed landline subscriptions in the UK peaked at 60 subscriptions per 100 people in 2000, before mobile subscriptions raced past it. In fact, it took mobile about 20 years in the UK to surpass 100 subscriptions per100 people. The contrast with Gambia is striking. Fixed landline subscriptions there hadn’t crossed single digits in 2015, but mobile subscriptions raced past about 140 subscriptions per 100 people, giving Gambia a higher tele-density than many developed economies.
Firms across the board have seized the opportunities provided by the diffusion of telecommunication in these markets. Gojek, an Indonesian unicorn (the name is a pun on ojek, the local name for a motorcycle taxi), is a classic illustration of this. The company, which has more than two million drivers on its platform, allows Indonesians to access everything from rides to food to massages and hairdressers without negotiating the traffic snarls that choke the world’s largest island country.9 It’s worth noting that the infrastructure deficits that helped create these new breeds of entrepreneurs are invisible to most observers in developed markets because they never had to deal with such constraints.10
What3words is another example of these technologies’ impressive ability to overcome infrastructural bottlenecks. By dividing the world into 57 trillion squares, What3words uses a three-word address to identify any location in the world. In a country like Mongolia with a vibrant nomadic community and largely nonexistent street addresses, What3words has become the official addressing system used by banks, post offices, taxis, Airbnb owners, and food delivery outfits.11
This new breed of emerging economy firestorm disruptors think and act very differently from those in developed countries. Their success has not come from aping innovative ideas from the developed markets and hoping the first mover advantage will take care of everything else. It has come from a determination to take on whatever obstacles might stand in their way and create a radically different business model: Phoenix fueled by technology.
The fire is accelerating. In the first quarter of 2020, India was hit not only by the COVID-19 pandemic but also the failure of three big banks. Yet despite the anxiety that usually accompanies such ordeals, the demand for cash has been subdued, largely because of the popularity of Unified Payment Interface (UPI), an app-enabled real-time electronic payments network. Until recently, cash was king in India, but the efficiencies of UPI, and the fact that it charges no fees for person-to-person transactions, have encouraged more than a billion transactions in every month of first-quarter 2020. Outside India, similar payments are handled by private firms (e.g., Visa, Mastercard, American Express, and now Alipay and Tencents), which own the network and charge heavily for its use. In India, however, UPI is forbidden by law to charge merchant fees.
Unsurprisingly, in November 2019, Google wrote to the Federal Reserve urging it to endorse a similar system for the United States. The Bank for International Settlements (a financial institution owned by central banks) concluded in December 2019 that India’s digital financial infrastructure was so well designed that it had the potential to transform emerging markets as well as advanced economies. We have seen this phenomenon before. As we’ve pointed out, some of the most innovative developments in digitalization and technologies are happening in emerging markets. Leaders who pay attention to such innovation will be the first to unlock opportunities that would otherwise go unrecognized.12
EMERGING MARKETS BREED FIRESTORM COMPETITORS
The implication is obvious: do not underestimate local firms’ potential in emerging markets. Gone are the days when companies entering these markets could safely assume that their competition would come only from other multinationals. The fiercest competitors in these markets are the local firms, and they have several advantages. For starters, most operate at much lower costs. They have been raised to run a lean ship, and that practice works to their great advantage.
More important, many have invested heavily in research and development (R&D) and in local distribution capabilities, making them more agile and entrepreneurial than most newcomers from developed markets. For them, the rest of the world is the next stage. We see this in traditional industries, in companies like the Chinese phone maker Transsion and the South African insurer Discovery. We also see it in the startup space. The world’s largest Internet restaurant company is India’s Rebel Foods, which pioneered the cloud kitchen concept in 2015 and is now being imitated by the likes of Deliveroo and CloudKitchens.13
One telling fact about these local firms is that their industries are more competitive and contested in their economies than are the same industries in the advanced economies.14 A few statistics from the McKinsey Global Institute’s analysis of corporate performance across sectors and regions help quantify this observation: the best performing emerging market companies derived 56 percent of their revenues from new products and services. In advanced economies, that number is 48 percent. Emerging market companies also invest twice as much (measured as ratio of CapEx to depreciation), make investment decisions faster, and are bolder in prioritizing geographic expansion outside their home markets.
The following quote comes from a CEO, James Klarger, at one of the leading specialist mining companies in West Africa: “While we are very successful in developing markets across Africa, the Phoenix Encounter made us realize that we have an opportunity given our business model and elements of it that work very well in our environment to be a disruptor in markets such as Canada or New Zealand, where our type of approach has not been used in the past.”
One final observation on emerging markets is relevant to scanning these for Extreme Attack and Horizon Defense ideas. Over the past decades, many Western multinationals have established captive outfits in these countries to outsource basic activities and benefit from cost arbitrage. That mindset needs to change. Leaders of these organizations need to realize that going forward, these hubs can be a powerful source of innovation that can elevate their organizations in ways that were previously inconceivable. When you are devising Encounter attack and defense options, what can you foresee from the emerging market world that would either “eat your lunch” or give you a “leapfrog advantage”?
New Firepower Born in Emerging Markets
DCF Investments, one of the world’s largest asset managers, created a Global In-house Centre (GIC) in India in the early 2000s to support its global business. Like many other Western multinationals operating offshore support operations in emerging markets, DCF (USA) determined what work would be done by DCF (India). Chandra, one of our program participants, had worked at DCF India for more than a decade and happened to attend a major IT convention where one of the speakers (a senior VP at the GIC of another multinational) showcased its “Bi-modal IT” initiative. In essence, this meant that 95 percent of the GIC staff worked on the operational issues of the day while 5 percent thought up new ideas for the future. Energized, Chandra went back to work and pitched the DFC (US) CIO, Shelley Torello, the idea of a 0.5 percent team working on ideas for DCF global five years out. The pilot was to run for a year, and a decision would be taken at that point on what to do going forward. The CIO was intrigued and approved the pilot.
Chandra spent a month crafting a diverse team of five members, including two IT engineers, a business analyst, an MBA with a finance specialization, and a person who had spent most of the past five years helping run media campaigns for politicians. The Phoenix-like team started their journey with extensive business research with the goal of radical business ideation leading to prototypes, not full-fledged products. The team came up with three breakthrough ideas in their first year, impressing the CIO enough for her to pledge support for another three years.
As the team matured, their dreams became bigger. One of their scans revealed that DCF had a big generational gap in its retail client portfolio. The vast majority of its clients were more than 40 years old. When it came to the millennials, DCF’s market share was miniscule, in contrast to disrupter startup players like “Friendly-Robbers” that had grown to several million in three years. The reasons for this became obvious as the team pressed ahead with its ideation and research. Friendly-Robbers (and its peers like “Be-Mazed”) ran very simple apps that were mobile-based, could be used on the go, and offered only basic financial products (stocks and mutual funds) with the simplest trading functionalities (e.g., only buy and sell). The result was customers could apply and get activated on Friendly-Robbers in a matter of minutes. The existing DCF app in comparison was complex and the website even more so. The average consumer had to spend up to two hours to fill in eight to nine forms at DCF for account opening. It could take an additional seven days for the account to be activated and two to three more days to move money.
The idea of coming up with a new app for DCF was a no-brainer, but the breakthrough moment for the team was the realization that all that was needed to fulfil the know-your-customer norms in the United States was sitting in US government–issued identity cards. Building an app that scanned this card and using an API connected to the credit scoring companies’ databases meant the team now had the ability to open and activate accounts in a matter of minutes.
Chandra, along with a couple of team members, flew to the United States. The CIO arranged a meeting with a group of senior DCF management and asked them to bring their adult millennial children as well. The senior leaders and their family members were given the apps and asked to play with them. The younger generation loved the new app; it was everything the DCF app was not. The result was a $25 million budget and a rollout expected to go live across North America in the next year. It will be the first retail product for DCF (USA) conceptualized by DCF (India). The realization among senior leaders in DCF (USA) is that DCF (India) is no longer just a place to park the grunt work. It could be a key contributor to DCF’s Phoenix Breakthrough, taking ideation and agility from emerging markets into the core.
This was not an easy journey. Along the road there were moments where senior US leaders would challenge the team members: Who gave you the license to think? Why are you thinking beyond your mandate?
The moral of the story is clear. Unlocking the Phoenix Breakthrough requires leaders with the Phoenix Attitude, like Shelley and Chandra. It calls for teams of Dreamers and Doers: people with the habit of Proactive Scanning and radical startegic debate, people who are willing to attack and defend, as well as break any counterproductive orthodoxy—of gender, race, culture, and generation.
GLOBAL TALENT AND ORGANIZATIONAL RENEWAL
Having the right talent in place has always been an imperative for a successful enterprise. In the past 20 years, the “global war for talent” has only intensified. With people more mobile and connected more than ever in the global marketplace, the contemporary firepower of developing highly effective “talents solutions” should be part of every attack and defense option set.15
In 2009, INSEAD professors Schon Beechler and Ian together published “The Global ‘War for Talent.’ ”16 This research article described the need for modern organizations to take account of the sharply shifting demographics (intergenerational, cultural, and gender diversity, together with global mobility and connectivity) of the future workforce. In the decade since, the debate about the kinds of talents and capabilities required in the digital world has become increasingly urgent. It’s clear today that many of the talents and capabilities that were emphasized in the past are no longer as valuable. Leaders must think about talent as what will be needed, not what legacy models have required.
For example, most leaders who venture into emerging markets do so with the understanding that they will need talent, but many don’t realize how much that talent will cost. In Asia, especially, talent doesn’t come cheap. Figure 11.3 is from a 2016 IMF report.17
FIGURE 11.3 Wage Premiums: Asia vs. Rest of the World
The figure shows the difference in wages that an employee with a credential (e.g., high school certificate, undergraduate, etc.) commands, relative to an employee without that credential, and compares that difference across Asia and other countries excluding Asia. The implication is clear: getting good talent in emerging markets is going to be difficult and costly. But big changes to the talent landscape are everywhere.
FAST-EVOLVING WORKFORCES
The nature of the workforce is changing fast, and it is connected to the world’s most potent change agent: technology such as AI and robotics. While the discussion in popular media around this topic focuses mostly on job displacement, we believe that in the short to medium terms, only a minority of jobs will be completely automated. Most of the jobs, however, will be transformed, with technology-enabled automation taking over structured and predictable tasks. Human workers will take on higher-value tasks that the machines cannot perform. New technologies will also create jobs that require new skills and involve new tasks. A study by consulting firm PwC estimates that 30 percent of jobs across all countries and industries are likely to be automated by the mid-2030s.18
For those reasons and others, the workforce of tomorrow will be very different from that of yesterday. It will be connected, mobile, and intensely diverse—intergenerational, cross-cultural, and of mixed gender. Historically, when there have been profound advances in technology, such as the invention of the steam engine, the electric light bulb, or conveyor belt production, those advances influenced the workforce for roughly the next 30 years. After World War II, technological development took off, and that acceleration, plus widespread social change, reduced the span of generational clusters to closer to 15 years.
In 2019, we see for the first time that four relatively different generational groups (baby boomers, Generation X, and Gen Y or millennials, as well as older traditionalists) are operating across workplaces together.19 Another generation, Gen Z, which has had Internet connectivity since birth, will join the workplace during the coming decade.20
Though these groups have much in common, their differences can be significant. Diversity perspectives are essential in the Completely Opposite Viewpoints Debates of the Encounter. We see some trouble ahead with leadership teams that are not actively scanning for or addressing talent and diversity options in their strategic agendas. One problem will emerge as baby boomers, compelled to remain in the workforce by inadequate retirement funds, good health, and greater life expectancy, try to hang on to senior roles that younger workers covet. After all, it’s not that unusual these days for 23-year-old CEOs to run startups. Nor is it unusual for those young digital natives to do their jobs very well. Many also do their jobs differently than workers did a generation ago. Instead of following a designated career track that might lead to a corner office, they collaborate and iterate. Accustomed to 24/7 connectedness and aided by applications like Slack and Zoom, they work in teams aimed more at advancing a product or idea than individual careers.21
Academic research identifies six areas where intergenerational differences are likely to influence the future workplace: communication and technology; work motivators or preferred job characteristics; work values; work attitudes; workplace/career behaviors; and leadership preferences or behaviors. Other research notes intergenerational differences in personal values, psychological/personality traits, turnover intentions, and organizational commitment.22
Going forward, greater flexibility will be the key to the successful workplace, and we see changes that will require such flexibility coming faster than ever. Those changes will affect how talent is attracted and acquired; how it is developed, motivated, and rewarded; and how it is retained.
Even changes to the modality of working are increasing. Those include the growing use of telecommuting (the proportion of people in the United States regularly telecommuting grew 115 percent in the decade to 2017, and that excludes the self-employed). During the COVID-19 lockdown periods, the proportion of remote work increased dramatically, with the Gallup organization reporting around 70 percent of US employees working remotely in May 2020. Another modality change is the increasing movement of people between profit and social enterprises (global recruiter Michael Page found that its Gen Y candidates were more likely to take a job with lower pay if they believed it was meaningful); and the popularity of new kinds of coworking office spaces, such as IWG.23
