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Global Crisis/Innovation Blog

Capitalism for the Long Term: The View from McKinsey

By Shlomo Maital

  

 

 

 Dominic Barton, McKinsey

Writing in the March issue of Harvard Business Review, McKinsey global managing director Dominic Barton addresses “Capitalism for the Long Term”.   Few people are better equipped to write about how capitalism should be reformed than the peripatetic consultants of McKinsey.  Barton’s main point:  Business leaders — rewire the way you govern, manage, and lead corporations to restore the public’s trust in a capitalist system jeopardized by the financial crisis and ongoing social anxiety.  If you don’t, the political system will reinvent capitalism, and you will not like the result at all.

   Barton says the business leaders of capitalism must implement three major reforms in the way they think and act.  

   First, “business must jettison its short-term orientation in favor of a  longer-term focus.”  The short-term focus that led to financial collapse did major harm to almost everyone, including those who committed the ‘crimes’.  “

   Second,  “executives must also infuse organizations with the perspective that serving all major stakeholders is not at odds with maximizing corporate value.“    In an earlier blog, published on Aug. 6, 2010 (timnovate.wordpress.com),  I noted the credo of Scott Paper magnate Tom McCabe, who insisted his managers seek the wellbeing of customers, workers, the community, thee nation, and finally, the shareholders – an old-fashioned credo that seems to be making a comeback.

   Finally, companies must bolster the power of boards to cure the ills stemming from dispersed and disengaged ownership.  The purpose of the Board of Directors is to give the CEO and top management a hard time, track everything they do and say, and challenge their decisions, making them provide hard data and clear rationales.  Failure of many boards to do this led to the fatal crashes of Fannie Mae, Lehman Bros., Citigroup, GM, and many other companies.   

   Investor – check your portfolio of stocks. Do the companies whose shares you hold understand these three ‘new capitalist’ principles? If not, perhaps it is well to find companies who do.

  http://e.mckinseyquarterly.com/10742fd80layfousubktwfcyaaaaaa2bdqgjshi2w4ayaaaaa

 

 

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Innovation Blog

Innovations That Don’t Create Jobs:  A Global Social Dilemma

By Shlomo Maital

 

 

Tyler Cowen: The Great Stagnation

Innovations have been declining!

 

Here is the list of the world’s top 20 innovating organizations, from the magazine Fast Company, for the year 2010.  (See below).                   

Company         Rank*   Revenue   Profit   ($ billion)    *rank in Global Fortune 1000,  2010

1. Facebook                –                                             

2. Amazon      #340   $24.5    $0.901                       

3. Apple           #197   $36.5      $5.7                         

4. Google        #355   $23.7    $ 6.5                          

5. Huawei       #397   $21.8     $2.7                           

6. First Solar               –                                              

7. PG&E                       –                                              

8. Novartis     #160    $45.1       $8.4                         

9. Walmart         #1   $408         $14.3                                             

10. HP             #26   $115         $ 7.7                         

11. Hulu                      –                                              

12. Netflix                   –                                              

13. Nike     #453    $19.2        $ 1.5                           

14. Intel    #209     $35        $ 4.4                           

15. Spotify                  –                                              

16. BYD                       –                                              

17. Cisco   #200   $36.1          $ 6.1                           

18. IBM   #48       $96             $13.4                          

19. GE     #13      $157             $11.0                          

20. Disney #199  $36.1           $ 3.3   

    Several interesting conclusions emerge. 

* First, very few of the great innovators are big, in global size (ranked by revenues, from the Global Fortune 1000, 2010).   Walmart is an exception (#1).  So is GE (#13) and HP (#26). 

* Second, the hottest of the new innovators are pure Internet companies (Facebook, Hulu, Netflix, Spotify) that create massive amounts of wealth but very few  jobs, because when your product is bits and bytes, you do not need assembly-line workers. 

* Third, the list of Top 20 innovators from 2005 (Bloomberg/Business Week) is very different. A great many innovators have fallen off the list,

  In his best-selling new eBook, The Great Stagnation, Tyler Cowen notes that the automobile industry generated millions of good-paying jobs, but Facebook employs 2,000, Twitter 300 and eBay about 17,000.  Only 14,000 people make and sell iPods, but iPods eliminate other jobs (CD manufacturing, etc.) and anyway most of those iPod-based jobs are outside the U.S.  Cowen notes that this current era’s technological breakthroughs generate great gains for society but very little added economic activity.

   Can we imagine a futuristic economy, in which a majority of the population does  not work at all, and in which the privilege of working goes to only an elite handful with high-level skills? A society in which innovation benefits humanity, takes brains, but requires no hands to generate those benefits?

    Recall that Henry Ford complained he got an (un-needed)  brain every time he hired a pair of hands. Perhaps in future, his innovative industrial descendants will complain that they get (un-needed)  hands along with the brain.  Perhaps that future is already here.

Blog entries written by Prof. Shlomo Maital

Shlomo Maital
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