This extremely well written and researched book convinced me of its central thesis against my instincts. Having read several books which predict how the rise of India and China will change the way we do business, I wasn’t going to be an easy convert.
Yes, the emerging economies are vibrant, but does that mean that within a few decades capitalism will “happen elsewhere”, and from that does it necessarily follow that “taking root in different soil, capitalism will grow into something new.”
The book gets its title from having a new viewpoint which shifts our perception of the world. The shift away from the West therefore implies more than just a focus on new economies. Put broadly the authors believe that “A powerful system that formerly pursued financial returns relentlessly but narrowly will change to one that just as relentlessly pursues value measured more broadly.”
We’ve heard similar arguments in the past – how capitalism is broke and the ways we should mend it, though admittedly more often expressed as a wish rather than a prediction. And the authors nearly lost me at this point (page 9) as they filled a page with Twitter hashtags by which I could post notes following #externality, #fourthsector and #PseudoComp.
Still, after the obligatory statistics about how the BRIC countries, plus many others are new emerging economies (or emerged) and will dwarf many of the economies in the West, we hear about how “capitalism will end up optimized for a new world not because of policy or revolution but because of adaptation.” In other words, if it grows there, it will grow differently. Why this should be and how it will differ is what the rest of the book focuses on.
The chapters which follow cover everything from the DuPont equation and the slavish fixation with Return on Equity (ROE), outsize corporate pay, and how we have to embrace externalities (in the economic sense of costs paid for by society as a result of production – pollution, for instance).
For what it’s worth, I think they are right in saying that companies will need to embrace more of these “value” issues rather than simple ROE, and so in the end be forced to consider what they term the triple bottom line (“People, planet and profits”). As they say,
“In terms of corporate reputation... the worst of all worlds is to be made responsible but still not be considered responsible.”
The quest for sustainable advantage, monopolistic drivers, pseudo-competitors, the growth imperative, the ideas come thick and fast, and I was particularly persuaded by their argument that “by organizing around profit as the only source of value, business has put itself in the position to destroy other kinds.”
By giving financial metrics such as ROE so much power, "the economy no longer allocates resources to their highest or best use” and “... the emerging economies, where economic priorities favour real growth over financial wealth creation, will be the first to adopt this [new] point of view and those measurement systems.”
The final predictions are interesting, if less persuasive, but how you view them will depend partly on the industry you are in. They believe that in response to a changed environment – changed in terms of geography, demography and techno logy, capitalists everywhere will learn to see in colour (broader value), internalize externalities and move beyond pseudo-competition – the oligopolies competing in marketing but little else. In their place we will see companies produce value through what they call “invisible handshakes” – collaboration, in a nutshell, and also go to market as Fourth-Sector enterprises.
The final page is superb.
“In 2009, Chris spoke to an executive of a credit card company about his company was enduring the downturn.”Well,” he responded, “you have to remember that most of our business is getting people to spend money they don’t have on crap they don’t need.”
The executive goes on to say it; what his company pays him to do. “And indeed, the company had written the rules that way.”
The authors not only disagree with this (obviously); they also say it won’t last. I hope they are right.
Tom Otley
http://hbr.org/product/standing-on-the-sun-how-the-explosion-of-capitalis/an/14729-HBK-ENG
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