leadership in a new era (by mckinsey)
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Conducted by Dominic Barton (McKinsey CEO)TRANSCRIPT
“Leadership in a New Era”:
a course at Tsinghua SEM
by McKinsey
2015 Fall Semester
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
McKinsey & Company | 1
Today’s discussion
Course overview 1
Winning in changing industry environments 2
Questions? 3
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
McKinsey & Company | 2
The objective of the course is to develop future business leaders among
top students at Tsinghua through McKinsey’s unique approach
2
› Provide an overview of key functions with leading practical ideas
› Topics include strategy, operations, organization, marketing, and
investment management
› Discuss topics on a global level rather than China-only specifics
› Providing global context for the next the 10-20 years
Cutting-edge functional thinking
Global perspectives
› To enable students to interact with distinguished business
leaders and build their leadership capabilities
› Emphasis on helping students to understand broad yet concrete
leadership concepts
Leadership development Soft skills
Hard skills
McKinsey & Company | 3
2015 Fall - The syllabus: lecturers and topics (1/2)
Dominic Barton McKinsey Global Managing Director
Class 1: Kickoff: Course Overview – Core Themes of Leadership Sept. 15th (Tues)
Class 2: Organization [October - Date to be confirmed]
Kevin Sneader McKinsey Director from Hong Kong office, leader of McKinsey Asia
Nicholas Leung McKinsey Director from Beijing office, leader of McKinsey Greater China
Class 3: Corporate Finance [Oct./Nov - Date to be confirmed]
Jeff Hsu Chief Innovation Officer FarEastern Group
Brad Brown McKinsey Director from New York office, leader of America Business Technology Office
Suja Chandrasekaran Chief Digital Officer of Walmart
Class 4: Technological Disruption Nov. 12th (Thurs)
To be confirmed
McKinsey & Company | 4
2015 Fall - The syllabus: lecturers and topics (2/2)
Dominic Barton McKinsey Global Managing Director
Wesley Walden McKinsey Director from Melbourne office, leader of McKinsey Asia RTS practice
Tan Sri Azman CEO of Khazanah
Mark Wiseman CEO of CPPIB
Conor Kehoe McKinsey Director from London office, leader of McKinsey Private Equity practice
Class 5: Corporate transformation / Restructuring [Nov/Dec - Date to be confirmed]
Class 7: Investor’s Perspective Dec. 17th (Thurs)
Class 8: Closing Jan. 14th (Thurs)
Class 6: Operations Nov. 26th (Thurs)
Karel Eloot McKinsey Director from Shanghai office, leader of McKinsey Asia Operations practice
Fredrick Spalcke EVP and CPO of Phillips Electronics
To be confirmed
McKinsey & Company | 5 5
2015 Fall - The course outlines
SOURCE: McKinsey and Tsinghua SEM
› 35% on individual learning journal (per class) : every student to hand in
learning journal (<500 Chinese characters) after each lecture on his/her key
learning
› 15% on interactions and exercises
› 50% on group project: assignment: teams of 5- 6 students should be formed;
each lecturer to leave an open question/topic to the class; every team
choose a question/topic to write an essay (3000-5000 Chinese characters)
and hand in by the end of semester
Grading
2 credit units Credits
We will create more exclusiveness hence more commitment and effectiveness
› Focused on 4 Masters programs, including MBA students
› Large size, ~150-200 students
› Pre-screen/interview process to select students outside of the 4 programs
with stronger commitment and capacity for the course
Class size and composition
2 hours per class with a 15-min break
› 1 hour lecture and 1 hour Q&A
› Pre-assigned student teams for each class to formalize interaction between
Adjunct Lecturers and students
› Offer “flipped classroom” for students who have conflict: combine online
video and in-class discussion
Format
8 classes in fall semester 2015 Schedule
McKinsey & Company | 6 6
The course will be run by the Lecture Review Board, consisting of
committed people from both McKinsey and Tsinghua SEM
McKinsey Team Tsinghua SEM Team
Responsibilities Responsibilities
› Structure the course by
business functions
› Set the themes with
individual lectures and
maintain the global
perspectives of the
course
› Invite and coordinate
schedule with lecturers
from both McKinsey
and other
organizations
› Facilitate in-class
interaction between
lecturers and students
› Approve course outline
and content
› Market the course on
campus
› Select suitable top
students for the course
› Handle academic
curriculum compliance
with the university
› Provide venue and
facilities for each class
› Facilitate class-related
activities
› Collect student and
faculty feedback
The Lecture Review Board
Joint responsibilities › Refine the scope and content to maximize students’ learning, focus on balancing
between practice and academic
› Review and grade students’ group assignments and class participation
› Improve the quality and impact of the course, constantly incorporating meaningful
student feedback
Dominic Barton, Global Managing Director
(Taking full accountability)
Prof. Yingyi Qian, Dean
Mei Ye, External Advisor
David Pan, Director
Arthur Wang, Partner
Prof. June Qian, Associate Dean
Qinzheng Tian Engagement Manager
Prof. Zhirong Duan Faculty Coordinator
McKinsey & Company | 7
Today’s discussion
Course overview 1
2
Questions? 3
Winning in changing industry environments
› Global forces › Implications for business
› Implications for leaders
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
McKinsey & Company | 8
We are living in historic times
~600
~1100 ~1500 ~1750-1850
The Great Transition
2000-40
› Columbus to
Americas
› Reformation
splits Europe
› Renaissance
and
innovation
(Gutenberg
printing
press, first
bank)
› India connects
trading between
Middle East and
China
› Division of Europe
and shift in focus
to land from sea
culture
› Islam – influence
to Persia, North
Africa, Spain
› “Medieval warm
period” improves
agriculture and
spurs massive
migration
› Crusades
expose Europe
to Far East
› Genghis Khan
and Mongol
Conquests close
northern trade
routes
› Transformation
from agrarian to
manufacturing
economy
› 2x growth in
GDP per capita,
U.S. and Europe
› Massive
population
growth and
urbanization
~200BC
› Qin Dynasty
begins –first
imperial
dynasty in
China
› Silk road
trade routes
begin during
Han dynasty
McKinsey & Company | 9
The rise of emerging markets 1
The power of disruptive
technologies 2
The aging of the global
population 3
The integrating world –
beyond trade and finance 4
The return of (geo)politics 5
Five forces are changing the world at an unprecedented pace and scale
McKinsey & Company | 10
The world’s economic centre of gravity is shifting back to Asia Locations weighted in 3D space by GDP
2000
1950
2010
2025
1940
1500
0
1. THE RISE OF EMERGING MARKETS
McKinsey & Company | 11
The number of Asian companies in the Fortune Global
500 has more than doubled in 5 years
24
94
29
36
130
+145%
2014 2007
53
Rest of Asia (excluding Japan)
China
McKinsey & Company | 12
There will be 2.2 billion new middle class consumers by 2030 Global middle class1
Billions of people
5.0
2.1
1.1
2025 2013
4.2
2.8
2030
2.8
McKinsey & Company | SOURCE: United Nations World Population Prospects; McKinsey Global Institute CityScope 2.55 (updated November,
2014)
1 Annual personal income between $3,600 and over
1. THE RISE OF EMERGING MARKETS
2.2 billion
US & Canada
Asia-Pacific
Europe
Latin America
Sub Saharan Africa
Middle East & North Africa
McKinsey & Company | 13
Urbanisation is driving rapid increases in individual wealth
Urban population (%)
30,000
10,000
3,000
1,000
300
0 10 20 30 40 50 60 70 80 90
1860
United Kingdom
2010
United States
2010
1820
Italy
2010
1950
1950
Germany
2010
1891
Japan
2010
1950
South Korea
2010
1930
Brazil
2010
1920
China
2010
1950
India
2010
Per capita GDP by urban density 1990 Purchasing Power Parity (log scale), Percent
SOURCE: McKinsey Global Institute
1. THE RISE OF EMERGING MARKETS
McKinsey & Company | 14
Shanghai in 1990 1. THE RISE OF EMERGING MARKETS
McKinsey & Company | 15
Shanghai in 2004 1. THE RISE OF EMERGING MARKETS
McKinsey & Company | 16
Shanghai in 2014 1. THE RISE OF EMERGING MARKETS
McKinsey & Company | 17
What will these cities look like in 10 years? 1. THE RISE OF EMERGING MARKETS
Anshun, Guizhou, China
Puducherry, India (Pondicherry)
Bogor, West Java, Indonesia
McKinsey & Company | 18
Africa is also a continent to be reckoned with
Significant global resources
69% of platinum group reserves
82% of phosphates
8% of oil reserves
60% of unused arable land
21% of the world's landmass
$2.4 trillion in GDP
~1.1 billion people
SOURCE: BP statistics; Metals economics Group; CIA world fact book; Global insights: World Market Monitor
1. THE RISE OF EMERGING MARKETS
Argentina
United States of America India
Western Europe
China
~$1 trillion Household consumption
64 cities with more than 1M people
McKinsey & Company | 19
Growth in population and the rise of the middle class will place significant
strain on global resources
SOURCE: The 2030 Water Resources Group, "Charting Our Waters Future," 2009; FAO, “World Agriculture towards
2030/2050”, 2012; Energy Insights
1. THE RISE OF EMERGING MARKETS
Natural gas production
will need to rise 50%
by 2030 to meet
expected demand
Global agricultural
production will have
to increase 38% by
2030 and 60% by 2050
Global demand for
water could rise as
much as 50% by 2030
Fo
od
E
nerg
y
Wate
r
McKinsey & Company | 20
Without action, this path will be unsustainable for the planet
1.5 planets
2.0 planets
2.9 planets
2007
2030
2050
1. THE RISE OF EMERGING MARKETS
In 2007, it took 1.5
years to fully
replenish our
annual resource
use
With current
consumption, it will
take 3 years to
replenish our
annual use in 2050
– we would need 3 earths to live sustainably
McKinsey & Company | 21
12 disruptive technologies will have enormous
economic impact by 2025 Range of sized potential
economic impact
Low High
X–Y
3.7–10.8
0.2–0.3 Renewable energy
0.2–0.6
1.7–6.2
0.1–0.5
0.2–0.5 Advanced materials
0.1–0.6
Autonomous and near-autonomous vehicles 0.2–1.9
Cloud technology
1.7–4.5
2.7–6.2
0.7–1.6 Next-generations genomics
Advanced oil and gas exploration and recovery
Energy storage
Advanced robotics
Automation of knowledge work
Internet of Things
3D printing
5.2–6.7
Mobile Internet
Economic impact of the 12 most significant disruptive technologies $ Trillions, annual
1
2
3
4
5
6
7
8
9
10
11
12
SOURCE: McKinsey Global Institute
2. THE POWER OF DISRUPTIVE TECHNOLOGIES
McKinsey & Company | 22
Technological innovation have already driven immense
productivity improvements
SOURCE: Gartner; International Federation of Robotics; a16z
2. THE POWER OF DISRUPTIVE TECHNOLOGIES
A modern washing machine has more computing power than
Apollo 11 did in 1969
Worldwide mobile phone sales totaled near 1 billion units in 2013,
with more than half of sales coming from smartphones
By 2020, 80% of the adults on the planet will own a smartphone
In 2013, industrial robot sales totaled ~180,000 units – a 300%
increase from 1995
In the 1950s, nearly all goods were shipped ‘loose’; today, nearly
100% of sea freight is packed in standardized shipping containers
McKinsey & Company | 23
The impact is affecting all industries
Healthcare
Worldwide healthcare
data will increase 50x by
2020
Retail
Half of US retail sales
are made online or
influenced by
the Web Manufacturing
Over a million industrial
robots are operating in
factories around
the world
Transportation
Proposed ‘hyperloop’ train
could travel 2x as fast as
high-speed rail, and near
the speed of sound Agriculture
Acreage with genetically-
modified crops has
increased 100x in
past 15 years
Energy
Over half of new
electricity generation
capacity added each year
is now renewable Banking
The number of people
using mobile banking will
double in the next two
years
Social sector
The One Fund Boston
launched online 7 hours
after the marathon
bombings, raising $20
million in one week
B
2. THE POWER OF DISRUPTIVE TECHNOLOGIES
McKinsey & Company | 24
Digitization enlarges the risk of missing trends – and the upside from
predicting correctly
“Industrial companies are in the information business whether they want to be or not”
– Jeff Immelt
› Anticipated shift from hardware
to services, investing billions
from 2010 on to add sensors and
become a services company
› Incremental income from
digital-enabled services
(e.g., fuel efficiency
monitoring) >$1B p.a.
2. THE POWER OF DISRUPTIVE TECHNOLOGIES
McKinsey & Company | 25
Digitization and analytics are driving massive improvements in efficiency
2322
Typical Digital-
enabled
1
Locomotive velocity
Average miles per hour per day › Data analytics – optimized scheduling and predictive maintenance reduce
downtime,
increasing
velocity
› 1 mile per hour increase
worth $250M in
annual profit
2. THE POWER OF DISRUPTIVE TECHNOLOGIES
McKinsey & Company | 26
In healthcare, smartphones are enabling low-cost medical diagnostic tools
Benefits over conventional technology
SOURCE: EyeNetra.com; expert interviews; http://web.media.mit.edu/~pamplona/NETRA/; McKinsey Global Institute
analysis
› As accurate as $45,000 autorefractor
Accuracy
› Patient has results in less than 3 minutes
› No need for training
Ease of use
› Plastic lens attachment that costs about $2
Affordability
› Works wherever people have a smartphone
Anywhere
› Analytics software picks up patterns in
eyesight and suggests specific solutions
Analysis
› World’s first smartphone diagnostic
tool for the human eye – from MIT
› Can measure farsightedness,
nearsightedness, misshaped eye,
age-related blurriness, and pupillary
distance
› Almost 20,000 tests conducted
worldwide; commercial launch
expected
Netra example
2. THE POWER OF DISRUPTIVE TECHNOLOGIES
McKinsey & Company | 27
The global population is aging: by 2050 … 3. THE AGING OF THE GLOBAL POPULATION
In Italy, Japan and Spain, one in three people is expected to be 65 or older
80 percent of people 65 or older will live in
low or middle-income countries
For the first time in history, there will be more
people over the age of 65 than under the age of 14
The number of people worldwide aged 80 or older will quadruple to 400 million
The proportion of world’s population over age 65 will double
McKinsey & Company | 28
This is taking place in both developed and developing markets
2010 14%
2030 22%
40% of expected retirees will be in
advanced economies and China
Globally... …and in the emerging world
will increase to 31%
Share of older workers in China
of the workforce in 2030
For the first time in history, there will be more people over the age of 65
than under the age of 14
Share of workers over the age of 55
3. THE AGING OF THE GLOBAL POPULATION
McKinsey & Company | 29
200%
260%
100%
Net government debt Percent of GDP
2050
216%
2010 2025
59%
71%
Without policy changes, age-related spending could increase median net government debt in advanced economies from 59% in 2010 to 216% in 2050
Aging will place massive strains on governments
SOURCE: Standard and Poor’s
3. THE AGING OF THE GLOBAL POPULATION
Global government
debt will be larger than
world GDP ~2030
McKinsey & Company | 30
6% $4.0T 10% $4.4T
The world will is more interconnected than ever and the intensity of flows
has increased greatly in the last decade
Goods Services Financial
2% 194M people
People1
Data and communication2
Value (2012) and growth of cross-border flows, 2000-2012
SOURCE: Comtrade; IHS Economics & Country Risk; World Bank; Bank for International Settlements; IMF Balance of Payments; Telegeography; Web of Science, Thomson Innovation; Global flows in a digital age: How trade, finance, people, and data connect the world economy, McKinsey Global Institute, April 2014
1 Measured by cross-border migrants; values from 2000 and 2010.
2 Measured by cross-border Internet stock traffic; values from 2005 and 2013.
2012 value
Compound annual growth rate,
2002–12
11% $17.5T
21.2M megabits/second
52%
4. THE INTEGRATING WORLD
McKinsey & Company | 31
+$250-$450B Annual increase in world GDP from flows –
about 15% - 25% of world’s total GDP growth
These various flows help generate global GDP growth
SOURCE: McKinsey Global Institute analysis; DHL Globalization Index
+40% Difference in impact of flows on GDP growth for countries at
the center of the network compared with ones at the periphery
McKinsey & Company | 32
A growing share of all economic activity is cross-border
32
51%
+29%
+40%
25%
Financial Data & Comms
42%
35%
3%
0%
3%
7%
Services
+114%
15%
+88%
People
3%
Goods
44%
35%
19%
5%
11%
7% 0%
+26%
+61%
+20%
+240%
Share of total flows that cross international borders Percent (%)
* Note: Future growth rate modeled on historical trend; in practice, it might well diverge from this trend
1995 2010 2025*
X%
X%
Change 2010-2025
Change 1995-2010
McKinsey & Company | 33
Goods trade among emerging markets (“South-South”) has quadrupled its
share of goods trade since 1990
SOURCE: The Direction of Trade, IMF; McKinsey Global Institute analysis
Goods trade among countries %; $ trillion
33
3438
42 44 46 46
6056 48 41
32 31
6 610
1522 23 24
45
31
2011
17.4
1995
4.9
1990
3.3
2010
6.5
2005 2000
10.4 14.7
Between developed markets
(North-North)
North-South
100% =
Between emerging markets
(South-South)
2012
17.5
McKinsey & Company | 34
Total value of flows Trillion USD
8.5 R&D intensive manufacturing
All other flows
Foreign direct investment
25.9
2.1
1.8
Biz., financial and Legal services
13.5 5.5%
10.9%
7.9%
7.0%
Growth rate 2002-12, %
SOURCE: Comtrade; World Development Indicators, World Bank; International Monetary Fund Balance of Payments;
Telegography; McKinsey Global Institute analysis
Knowledge-intensive flows are half of total flows, and are
growing faster than other types
34
Knowledge-
intensive
McKinsey & Company | 35
The number of global refugees is at its highest level since World War II
Refugees, internally displaced people, and asylum
seekers worldwide
Millions
60
51
43
36353436
343232
201916
201920
01 2000 02 2015 11 10 09 14 13 12 08 06 05 07 04 03
ISIS emerges
as an
autonomous
entity
Intensification of
sectarian violence in
Iraq (Iraqi ‘Civil War’)
Number of
migrants
surpasses
WWII level
McKinsey & Company | 36
Growth in the number of Internet users and per capita Internet use has led
to a surge in cross-border traffic
SOURCE: Telegeography; McKinsey Global Institute analysis
45
40
35
30
25
20
15
10
5
0
2012 2005
2.5
2.0
1.5
1.0
0.5
0
2012 2005
20
15
10
5
0
2012 2005
Growth of Internet population Billion Internet users
Average cross-border Internet usage Kilobits per second per person
+144%
+1,769%
+665%
Growth of cross-border Internet traffic Million megabits per second
36
McKinsey & Company | 37 SOURCE: iResearch, Telegeography, OCED, Bureau of Economic Analysis
Digital is enabling flows that were previously entirely ‘analog’ – and
helping pass more surplus to consumers
51.0
3.0
3.0
63.0
39.0
12.1
Services
(Digitally-enabled share of
total services trade)
Goods
(E-commerce share of
total goods trade)
Calls
(Skype share of international calls)
Flow
Category (digital component)
Services
Goods
Data and communication
2005
2013 Share of selected cross-border flows that are digital %
37
Skype has massively
increased consumer
surplus by offering
free service
McKinsey & Company | 38
Micro-services
Micro-work
Micro-finance
Micro-goods
Almost a third of Coursera visitors are from BRICs
% share of site visitors by country
Digitization allows SMEs to become global players, a space previously
dominated by large multinationals and governments
SOURCE: McKinsey Global Institute analysis
1
2
6
1
32
1
1
1
2
3
3
3
4
4
15
22
Nigeria
Portugal
Other
Greece
Chile
Ukraine
Colombia
Canada
United Kingdom
Mexico
Spain
China
Russia
Brazil
India
United States
More than $500 million in
loans from 190 countries
More than $30 million
of contracts per month
300,000 registered solvers
in nearly 200 countries
30 million buyers
and sellers
600+ courses offered free
online in 12 languages
Micro-education
38
McKinsey & Company | 39
Geopolitical uncertainty is again at the center of daily life 5. THE RETURN OF (GEO)POLITICS
McKinsey & Company | 40
1 Out of 12 risks that were presented as answer choices in the question
22
20
39
34
7460
9
31
10
22
New asset bubbles
One or more defaults on sovereign debt
Increased economic volatility
Increased economic volatility
Geopolitical instability
SOURCE: McKinsey Global Survey, Economic Conditions Snapshot (September 2014)
And executives now say geopolitical instability is the
single biggest risk to global economic growth
Sep. 2014, n = 1,367
Jul. 2015, n = 1,202
Top 5 potential risks to global economic growth,1 next 12 months % of respondents
5. THE RETURN OF (GEO)POLITICS
McKinsey & Company | 41
Variety in the regulatory and political framework is as diverse as consumer
tastes
5. THE RETURN OF (GEO)POLITICS
In November 2013, Mexico taxed ‘junk foods’ (e.g., food high in saturated fat, sugars, and salts) by 8% – with an additional tax on sodas
– The Guardian, November 2013
In May 2014, France enacted legislation requiring the Minister of Economy’s approval for foreign investment in the energy, transport, water, public health and telecommunications sectors
– Latham and Watkins (top US Law Firm), May 2014
Argentina now requires that car importers have to match their imports with exports of equal value. To comply, BMW’s Argentinian subsidiary has resorted to exporting rice, and Porsche has exported olives and Malbec wine
– Bloomberg, November 2012
McKinsey & Company | 42
In an increasingly volatile world businesses must ask if they are ready for
the shocks
What if….
An Icelandic volcano shuts
down air traffic over large parts
of Europe for several years
A natural disaster debilitates a
major global economic focal
point
Terrorists (state-controlled or
insurgents) release a WMD with
global impact
Geopolitics cuts off cross border
energy flows
An epidemic goes global (SARs,
MERs, Ebola)
A popular uprising over-throws
a major state government
A major currency collapses (the
Euro tried, is the Yen next?)
The Internet breaks down (can
business run without it for an
hour?)
5. THE RETURN OF (GEO)POLITICS
McKinsey & Company | 43 43
Today’s discussion
Course overview 1
2
Questions? 3
Winning in changing industry environments
› Global forces
› Implications for business › Implications for leaders
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
McKinsey & Company | 44 44
These global forces are creating a ‘new normal’ for the business world –
and result in several imperatives for businesses
New state of the business world Implications for businesses
› Workforces will be smaller due to automation and aging
› New technical skills – with a shorter ‘shelf life’ – are required
Invest in talent and Human Resources
› Constant innovation is paramount to success
› Industry distinctions will be less firm
Design a flexible organisation
› Geopolitical risk is revived
› Cyber presents a new type of risk
Know the risks and test your resilience
Digitise – and learn to innovate
› Every industry will be digitised – those companies that don’t
will be left behind
› Consumers in emerging markets – especially cities – are
the primary drivers of global growth
Think about demand in granular terms
› Competition is intensified
› Companies are operating in more markets than ever before Foster agility
McKinsey & Company | 45 45
Implications for business
Invest in talent and Human Resources 2
Design a flexible organisation 3
Foster agility 4
Know the risks and text your resilience 5
Digitise 6
Think about growth in granular terms 1
McKinsey & Company | 46
424 cities in emerging markets will fuel nearly half of the growth in
global GDP through 2025
28
25
631
Latin America Developed
countries
Global growth
0
China
region
Eastern
Europe &
Central Asia
4
Middle East
& Africa
Other
emerging
regions
100
4
GRANULAR GROWTH
SOURCE: McKinsey Global Institute Cityscope 2.55 (updated November, 2014) ; note: does not sum due to rounding
Percent contribution to global GDP growth, 2012–2025
100% = $42.5 trillion
In China, 15 MM people move to a city each year – equal to adding New York City proper twice
315 cities
in Asia
= 424 largest emerging market cities
45% of global growth
McKinsey & Company | 47
Emerging market cities, especially in China, will become the largest
consumer markets in many categories
SOURCE: McKinsey Global Growth Compass
Other emerging regions Developed regions China
2025 Sales Rank Sports & Energy Drinks Facial Moisturizers Spirits
Tokyo 2 Beijing Shanghai
3 Beijing Moscow Beijing
4 New York Guangzhou Chongqing
5 Shanghai Tianjin Osaka
6 Haerbin Chongqing Tianjin
7 Tianjin Shenzhen Guangzhou
8 Wuhan Tokyo Shenzhen
9 Nanjing London Wuhan
10 Bangkok Wuhan Chengdu
11 Xian Rhein-Ruhr Dongguan
12 Chengdu Foshan Nanjing
13 Los Angeles Hangzhou Hong Kong
14 Shenyang Chengdu Foshan
15 London Nanjing Seoul
1 Chongqing Shanghai Tokyo
GRANULAR GROWTH
McKinsey & Company | 48 48
Implications for business
Invest in talent and Human Resources 2
Design a flexible organisation 3
Foster agility 4
Know the risks and text your resilience 5
Digitise 6
Think about growth in granular terms 1
McKinsey & Company | 49
A radically evolved future will mean that workforces are smaller and
more technical – requiring new skills
Talent is the
next great competitive
‘battlefield’ for organisations
TALENT AND HR
McKinsey & Company | 50
A radically evolved future will mean that workforces are smaller and more
technical – requiring new skills
38% Of global employers
can not find the talent they need
SOURCE: Manpower survey; McKinsey Global Institute
Competition for talent will intensify
Digital tools like LinkedIn give employees more mobility and options – and competitors a tool for ‘poaching’
Aging population means fewer available workers
Concerns over inequality are putting upward pressure on wages
INVESTING IN TALENT AND HR
38m – 40m Shortage of workers
with higher education degrees by 2020
#1 Concern among CEOs in 2015 survey was human capital
McKinsey & Company | 51
AT&T is reinvigorating its talent management by partnering with a
university to provide low-cost worker training
Telecom being
disrupted – 2.6B will
use smartphones by 2018
AT&T’s challenge: 230,000 employees, with
skills becoming obsolete
83% faster than just a
few years ago
AT&T’s response: partnering to provide online
MSc in Computer Science to
2,200 employees at
$200/month
TALENT AND HR
McKinsey & Company | 52
Advanced data analytics is opening up new ways
of predicting successful hires
Reduced attrition to 4% per annum, and was able to
decrease hiring timeline to
under 2 months
Uses an online test and sorts
applicants using an algorithm
identifying traits associated with retention, giving
candidates a 0-100 score
Realized substantial savings
from 68% decrease in worker’s compensation claims
Supplements selection process
with screening for traits correlated with abusing worker’s compensation (e.g.,
driving record)
Saw 20% reduction in call center attrition, significantly
reducing training costs and
improving quality
Screens applicants based on
data points associated with retention (e.g., having a
short commute)
TALENT AND HR
McKinsey & Company | 53
The ‘new HR’ is one of the hottest topics for managers today TALENT AND HR
McKinsey & Company | 54
Applying the rigor of Finance practices to HR can significantly
improve talent management
Predicting outcomes
Diagnosing problems
Prescribing actions
› Anticipating whether candidates will be a fit
› Identifying the strategic skills that will be most in
demand 2-3 years forward – which 2% of jobs will
drive 98% of your impact?
› Discovering the people problems that are below the
surface of business failures
› Monitor and maintain the ‘social engine’ of
organisations – ensure that communication lines are
open and robust
› Approach the reallocation of human capital between
projects with the same rigor as investment
› Recognize ‘value creators’ both inside and outside
the organisation – and find ways to bring them into
high-impact roles
TALENT AND HR
Advanced people analytics will support each of these goals
Integrating digital HR tools can increase productivity 9%
SOURCE: McKinsey Global Institute
McKinsey & Company | 55 55
Implications for business
Invest in talent and Human Resources 2
Design a flexible organisation 3
Foster agility 4
Know the risks and text your resilience 5
Digitise 6
Think about growth in granular terms 1
McKinsey & Company | 56
FLEXIBLE ORGANISATION
The organisation of the future has:
› Fewer layers
› Decentralised
decision-making
› More
partnerships
› Powerful data
and digital tools
› Extreme fluidity
› Collaborative
external
partnerships
The organisation of the future is a flatter, more decentralised model
Traditional hierarchy Organisation of the future
McKinsey & Company | 57
Apple exemplifies a modernising organisational structure
Tim Cook, CEO
to Tim Cook
17 direct reports
VPs in charge of
critical pieces of work
will temporarily
report to CEO
FLEXIBLE ORGANISATION
McKinsey & Company | 58
Haier is restructuring to become an ‘organization of the future’
Most valuable brand in China for the past 13 years
Market cap tripled from 2011-2014
Reorganized 80,000-person workforce into 2,000 independent units
Each unit manages its own P&L
Employees paid on performance
FLEXIBLE ORGANISATION
McKinsey & Company | 59
New entrants are using flatter structures to increase
transparency, speed, and innovation
› Highly decentralized model –offices in each
city have only a few dozen employees at most
› Drivers interact directly with customers, using
the Uber app
› Follows a “self-organisation” model, without
traditional managers
› Employees organized by cluster, not
traditional linear hierarchy
› Employees are their own managers
› Allows fluid movement between
individual and group contribution roles
Online shoe retailer
Gaming company
FLEXIBLE ORGANISATION
McKinsey & Company | 60 60
Implications for business
Invest in talent and Human Resources 2
Design a flexible organisation 3
Foster agility 4
Know the risks and text your resilience 5
Digitise 6
Think about growth in granular terms 1
McKinsey & Company | 61
1 Each year’s proportion of company CapEx in each business unit was correlated to previous year’s figure
SOURCE: McKinsey Corporate Strategy Service Line; Compustat
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1992 1998 2004 1996 2002 1994 2008 2000 2010 2006
Year
This year’s allocation is highly correlated with last year’s allocation of CapEx
In the private sector, resource allocation is generally inherently
conservative
AGILITY
1 Each year’s proportion of company CapEx in each business unit was correlated to previous year’s figure
SOURCE: McKinsey Corporate Strategy Service Line; Compustat
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1992 1998 2004 1996 2002 1994 2008 2000 2010 2006
Year
1 Each year’s proportion of company CapEx in each business unit was correlated to previous year’s figure 1 Each year’s proportion of company CapEx in each business unit was correlated to previous year’s figure
SOURCE: McKinsey Corporate Strategy Service Line; Compustat
Relative business unit year-to-year CapEx correlations1
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1992 1998 2004 1996 2002 1994 2008 2000 2010 2006
Year
Correlation index over years 1990-2010
McKinsey & Company | 62
Median TRS CAGR of companies by degree of reallocation
Degree of reallocation
A company growing at 10.0% CAGR vs. 6.1% would be worth twice as much in 20 years
Percent, 1,508 companies, 1990-2010
10.0
8.5
6.1
Dynamic (>49%)
Drowsy (31-49%)
Dormant (0-30%)
SOURCE: McKinsey corporate strategy research program
But top performing companies tend to be those that reallocate resources
most frequently
AGILITY
McKinsey & Company | 63
Several companies have moved agility levers to the top of their agenda in
order to make sure they can adapt quickly to external conditions
Example lever Description Agile capabilities
Preparation
Detection
Fast response
Forecast demand › Updates forecasts real time with
product performance, external
factors, and live stock levels
› Uses market prediction approach
for forecasting
Develop playbooks for critical processes
› Used pre-planned disaster strategy
during 2011 tsunami
− Moved production to other sites
− Returned damaged sites to
production within 1 month
Develop modularization approach
› Increased modularity in design and
production
Back-up sites › Redundant sourcing of supplies
› Flexible plants to take volume from
others
AGILITY
McKinsey & Company | 64 64 SOURCE: Volkswagen strategy 2018 publication
VW standardized several components of its cars – 65-70% of parts can be shared among models – while still allowing individual brands to control the ‘face’ of the vehicles
This modularization effort is expected to reduce:
Unit cost by 20%
One-off expenses by
20%
Engineering hours per
vehicle by 20%
Weight and emissions
Volkswagen’s modular ‘toolkit’ between its brands reduces
engineering time, product development speed and cost
AGILITY
McKinsey & Company | 65
Toyota has introduced ‘factories-in-a-box’ that create greater
operational flexibility
Smaller, simpler factories give Toyota agility to move production to emerging markets
The factories are small format – producing only 250 units per day vs. up to 2,500 at some
Factories can be built quickly and ‘stacked,’ allowing supply to be built up rapidly, anywhere
Up-front investment is up to 40% less than traditional plants
Capital can be saved and used to quickly take advantage of future opportunities
The factories can function with low automation
Allows for opex-capex adjustment and reduces need for technical expertise in young markets
AGILITY
McKinsey & Company | 66
Nutella global value chain
250,000 tons of
product are
produced in 9
global factories
Packaging and
some ingredients
(e.g., skim milk)
sourced locally;
others e.g., sugar,
cocoa, vanillin, palm
oil, hazelnut)
sourced globally
Headquarters
Main international suppliers
Factories
Nutella’s global sourcing and production means that it can withstand
shocks such as local supply shortages or currency fluctuations
Agile supply chain
AGILITY
McKinsey & Company | 67
Leveraging assets – rather than owning them – converts capex into
opex and has allowed companies like Airbnb to rapidly scale
Airbnb leverages public assets – people’s private homes – to build a
hotel business
Number of Guests
15M
10M
5M
17M
2010 2011 2012 2013 2014 2015
Despite owning -0- properties and having only 1,600 employees, Airbnb has grown 353x in five years
AGILITY
McKinsey & Company | 68 68
Implications for business
Invest in talent and Human Resources 2
Design a flexible organisation 3
Know the risks and text your resilience 5
Digitise 6
Think about growth in granular terms 1
Foster agility 4
McKinsey & Company | 69
As global growth has diverged, volatility has become the norm –
everything is a variable
Range of outcomes
RISK AND RESILIENCE
Probability of outcomes
Range of outcomes
Probability of outcomes
From a relatively narrow set of possibilities … to ‘edge cases’ becoming normal
This volatility manifests across the global economic system:
Oil prices
Equity markets
Commodity prices
Exchange rates
1990s & 2000s 2010s - ?
McKinsey & Company | 70
Encourages complete transparency
on potential risks and delays, even if
they would be costly to address
Encourages “out of order”
communication – between anyone,
at any time, outside of the normal
“chain of command”
“Communication needs to be
between anybody at any time”
– President Ed Catmull
Other companies are encouraging transparency
to surface risks before crises
Ford Edge team admitted pre-launch
issues, delaying launch, and was
praised by former CEO Alan Mullaly
Transparency and freedom of communication are key to ensuring that risks are raised early and can be managed
proactively
RISK AND RESILIENCE
McKinsey & Company | 71
Digital also creates new risks
“This was an unparalleled and well-planned crime,
carried out by an
organized group, for
which neither Sony
nor other companies
could have been fully
prepared”
– Investigations Team
Cybersecurity incidents have increased 1,100% over the last 5 years
2010
2015 11x
RISK AND RESILIENCE
McKinsey & Company | 72
Cyber threats require fundamentally new defense systems
SOURCE: McKinsey Global Institute
Poor cybersecurity could cost $3T in lost economic value in 2020
Need to…
Prioritize business risks and information assets – align with
top ~50 executives on most important data to protect
Enlist front-line users – create a “Top 100+” program for staff
dealing with most sensitive information (e.g., deal data)
Build cybersecurity into business processes – create a
“secure path” to handle most sensitive data
Test ability to respond to breaches – create a team tasked
with trying to penetrate critical systems
Use active defense – create a counterterrorism-style “fusion
center” combining intelligence, analytics, and operations
4
1
3
5
2
RISK AND RESILIENCE
McKinsey & Company | 73 73
Implications for business
Invest in talent and Human Resources 2
Design a flexible organisation 3
Know the risks and text your resilience 5
Digitise 6
Think about growth in granular terms 1
Foster agility 4
McKinsey & Company | 74
Digitisation is upending the “fundamental truths” of business
Disrupting companies What we used to believe
DIGITISATION
1 Need to own assets to leverage their value
2 Marginal costs > 0
3 Core services need to be delivered by own employees
4 Competitors take years to emerge and scale
v. 5 Disruption comes from within your industry
McKinsey & Company | 75
Disruptors are attacking all aspects of traditional businesses
(banking ex.)
SOURCE: CB Insights
Software is
cheap and easily
scalable,
providing
incentive to try
to disrupt all
aspects of
business
Not all of these
start-ups will
survive, but the
bank will have to
respond to these
disruptions
Financial technology example – the unbundling of Wells Fargo
DIGITISATION
McKinsey & Company | 76 SOURCE: Digital Enterprise modeling
Digital sales
from out-
performance
Digitize
Production
and
Servicing
Reshape
distribution
model
Reduce
material
cost
Total
impact
20%
3% 56%
13%
14%
6%
Majority of
impact from
digital is cost
(36% cost vs.
20% revenue)
Cost
Streamline
overhead
functions
To capture the digital opportunity, companies will need to understand
the value at stake in their particular businesses
P&L impact of digital % of total
DIGITISATION
McKinsey & Company | 77
Companies will also need to assess their “Digital Quotient” –
does digital run through everything they do?
DIGITISATION
Connectivity
Automation
Data-driven decision-making
Content and digital marketing
Customer Experience
IT architecture
Capabilities
Risk appetite
Test and learn
Speed / Agility
Internal collaboration
External orientation
Culture
Linked to business strategy
Bold, long-term orientation
Centered around customer needs
Strategy
TM
Organization
Roles and responsibilities
Talent and leadership
Digital investment
Governance / KPIs
Scored out of 90 Based on 1,000s of benchmarks
McKinsey & Company | 78
Companies that are directly facing disruption will need to respond
swiftly and decisively
Reaction Description Examples
Fund and/or acquire potential disruptors
› Google Ventures funds companies that could
disrupt its businesses, and provides design,
marketing, recruiting, and engineering teams 4
Improve current business using digital tools
› Dominoes Pizza shifted their entire pizza order
process from the phone to its apps and website 1
Shift into adjacent digital business
› Nike launched the ‘Nike+’ line of wearable
technology (e.g., shoes that track your
distance) and build social apps to share results 3
Disown traditional business, engage in digitally aligned one
› Starbucks is introducing a mobile ordering
service where customers can ‘order ahead’ and
pick up or even have coffee delivered 5
2 Build a complementary digital channel
› Topman, a UK men’s clothes retailer, launched a
service where customers can videoconference
with a ‘personal shopper’
DIGITISATION
McKinsey & Company | 79 SOURCE: Gartner, CDO Club Network
1,000
500
2,000
2015 (est.) 2014 2013
Number of companies with CDOs Examples
Appointing a Chief Data (or Digital) Officer is a way
for companies to make digitisation a priority
CDOs are increasingly a part of the top team at major multinationals
DIGITISATION
McKinsey & Company | 80 80
Today’s discussion
Course overview 1
2
Questions? 3
Winning in changing industry environments
› Global forces
› Implications for business
› Implications for leaders
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
McKinsey & Company | 81
Leadership in a new era
How
leaders
interact
What
leaders do
Who
leaders
are
Telescope
and a
microscope
Ready for “trend
breaks”
Tri-sector
athlete
Receptor and
connector
Strong sense
of purpose
Calm in the eye of
the hurricane
Influence
without
authority
Unlocking
drive
Perception
and judgment
Network
Marathon
and a sprint
Set ambition
McKinsey & Company | 82
Ready for trend breaks
“Modern leaders must live in 2-3 realities
simultaneously” (e.g., oil $35/barrel or
$200/barrel)
› Value insight over experience - force
your team to challenge and plan for “tail
scenarios”
› Ready to connect and scale innovation
from everywhere
› Willing to shift resources massively year
to year (winner takes all)
› Personally champion the next
opportunity – or else the organization will
naturally kill it
› Nurture cross industry connections –
personally and as a model for others
› Connect to understand “growth pockets”
– even if very distant
McKinsey & Company | 83
Ready for trend breaks
Jeff Immelt
“Industrial companies are in the information business whether they want to be or not … we want to treat analytics like it’s as core to the company the next 20 years as material science has been over the last 50 years”
Has overseen major investments into the
industrial internet and analytics spaces –
hiring thousands of new people with new
skills, launching new products and services,
experimenting with business and innovation
models
Made an fundamental, bold decision in 2010
to ‘make’ rather than ‘buy’ digital capabilities
within GE, entirely from scratch
McKinsey & Company | 84
Receptor and connector
“Chief reality tester: continuously calibrating the organization with the external world to ensure relevance”
› Provide purpose and meaning that
helps workers thrive and make
decisions
› Find a few profoundly simple
messages that provide clarity globally
› Run a boundary-less organizations:
suppliers, customers, front line,
public are all your stakeholders
› Find ways to spend time with front
line to receive and connect ideas
(e.g., retail CEO – 1 day a week in
stores; bank CEO – top 20 required
to listen to call center complaints
each month
McKinsey & Company | 85
Lead with a telescope and a microscope
“You are much more
exposed to major
unforeseen shifts in
trends – often more
negative surprises
than positive”
…but next 5-7 years bring huge volatility and risk (telescope not enough)
› Prices
› Capital flows
› Trade
› Geopolitics
› New markets
› New consumers
› New business
models
Time of significant opportunity to build for future…
How some manage
› Use calendar,
e.g., 3 days a
quarter only
on long-term
strategy
› Stress test
the
organization
– and team
(scenarios)
McKinsey & Company | 86
Randall Stephenson AT&T
Lead with a telescope and a microscope
“We need to be ahead of the curve…if we see ourselves falling behind global trends, we know we are in trouble”
Anticipated the industry trend of mobile
media consumption and completed
merger with television provider DirecTV
Recognized that shifts will be required
at individual employee level and
developed plan to reskill 90,000
employees through higher education
partnerships and ‘gamification’ of HR
development system
McKinsey & Company | 87
Public sector
Social sector A 'tri-sector athlete'
Private sector
Networks and contextual understanding: Tri-sector
leaders are adept at
building and maintaining
networks outside of their
fields and understanding
the relationships between
sectors
Balanced motivation: “A
hybrid engine of self-
interest and concern for
others serves a much
wider circle of people
than can be reached by
self-interest or caring
alone”
Transferrable skills: leveraged public sector
experience with the
Foreign Service, the
Senate and USAID to
help Coca-Cola reduce its
water usage per liter of
Coke from 3 liters to 2
Bill Gates Jeff Seabright Unilever Michael Bloomberg
McKinsey & Company | 88
Strong sense of purpose
“Character is a muscle a leader
must constantly improve and build”
› Invest time in developing your
personal purpose and values framework
› Purpose and core beliefs are
needed to guide “right versus right” decisions
› Exert self-control in decision-making to avoid decision fatigue
and exhausting finite willpower
› Keep trusted advisors and seek
multiple viewpoints
› Connect to your “roots” (e.g.,
people or places to ground you)
McKinsey & Company | 89
Strong sense of purpose – the importance of perseverance
After Dashrath Manjhi’s wife died due to lack of medical treatment (the nearest town
with a doctor was 70 km away), he spent the next 22 years working day and night to
build a road through the mountains – reducing the distance between towns to 15 km
McKinsey & Company | 90
Calm in the eye of the hurricane
“Never share your doubts, but be looking for reasons you are wrong”
Intensely focused/outwardly calm
› Shrinking interval between
major shocks, national
crises become global
› Leader must dampen
volatility and panic
› Importance of
compartmentalization
› Test the team – avoid
panic-prone individuals
McKinsey & Company | 91
Pole vaulting
› Set ambition
independent of others
› Celebrate success, but
always aim higher
› A single failure does not mean the bar is too high
Renaud Lavillenie broke
the world pole vault record
that had stood for over 20
years in February 2014 –
then immediately
attempted to break it again
McKinsey & Company | 92
Pole Vaulting
Larry Page
“Over time companies tend to get comfortable doing the same thing, just making incremental changes. But in the technology industry, where revolutionary ideas drive the next big growth areas, you need to be a bit uncomfortable to stay relevant”
Decided to undertake a complete
restructuring of the 2nd largest company in
the world in order to stay innovative
Gave up his role as CEO of Google to
cultivate more ambitious and – in his own
words – ‘crazy’ ventures outside of the core
business
McKinsey & Company | 93
Marathon and a sprint
“My biggest challenge is now managing energy, not time”
Know yourself and manage personal energy › Your schedule and
travel – no more “rest
days”– so how do you
rest?
› Best times of day
(decision making)
Have the personal disciplines of an athlete (nutrition, health)
Be authentic – exhausting not to be
McKinsey & Company | 94
Influencing without authority
› Invest time to
understand others’
motivations and pain
points
› Be deliberate in use of
language and choice of
communication (e.g.,
email vs. phone vs. in-
person)
› Honesty breeds trust
McKinsey & Company | 95
Unlocking drive
Move away from basic “carrot
and stick” models of motivation
(e.g., compensation, promotions)
and unlock drive through:
▪ Autonomy – e.g., Google 20%
time generates half of its
innovations
▪ Mastery – tap into desire for
self-improvement and calibrate
responsibilities to motivate (not
bore or discourage)
▪ Purpose – e.g., stonemasons
working, one says “I am
hammering a rock,” one says “I
am shaping a block,” one says
“I am building a cathedral”
“Control leads to compliance, autonomy leads to engagement”
Daniel Pink, Drive (2009)
Move away from basic “carrot and
stick” models of motivation (e.g.,
compensation, promotions) and unlock drive through:
› Autonomy – e.g., Google 20%
time generates half of its
innovations
› Mastery – tap into desire for self-
improvement and calibrate
responsibilities to motivate (not
bore or discourage)
› Purpose – e.g., stonemasons
working, one says “I am
hammering a rock,” one says “I am shaping a block,” one says “I am building a cathedral”
McKinsey & Company | 96
Perception and judgment
“When the temperature goes to 1,400 degrees, some people crack like glass”
› Difficult to assess people’s leadership
potential, strengths and
weaknesses without
getting to know them
very well
› Invest time finding the
people who can make
the right decisions, not
in making more
decisions
› Challenge people to
reach their full potential
› Move quickly and
decisively on people
McKinsey & Company | 97
Network
Build networks inside
your organization, within
your industry, across
industries and across
sectors in order to:
› Broaden horizons and
extend influence
› Understand and
anticipate potential
disruptions from
different directions
McKinsey & Company | 98
Shimon Peres State of Israel
Networking
“Leaders have lost their way … Leadership is about being a servant, not a ruler”
3 time Prime Minster and recent
President of Israel, Nobel Peace
prize recipient
Is working to bring together
businesses with the public sector to
solve the world’s most pressing
issues – especially human
development and early childhood
well-being
McKinsey & Company | 99
Always on
“As a CEO, 10 years ago no one
would recognize me, now they do
– at home, in China, in Russia”
› 24/7 visibility – living in
a reality TV show
through Twitter,
Youtube
› CEOs as face and
name of the company
Must create a mental refuge from the spotlight
› Radical transparency
and open data
McKinsey & Company | 100 100
Today’s discussion
Course overview 1
Winning in changing industry environments 2
Questions? 3
CONFIDENTIAL AND PROPRIETARY
Any use of this material without specific permission of McKinsey & Company is strictly prohibited
McKinsey & Company | 101
Questions
Topic for group assignment Questions for classroom
Which of the 6 implications for business
is most important to China and why? Do
you see other implications other than
the six mentioned?
1
2 In your view, what are the business
challenges and opportunities facing
Chinese companies? Which Chinese
companies do you think are best
positioned to address those challenges
and opportunities? Why?
3 What steps can you take to adopt the
characteristics of successful leaders in
the new era?
Please write an essay (3000-5000
Chinese characters or 2000-3000 English
words) on one of the below questions:
What are the business opportunities
and challenges for Chinese companies
in light of key global forces and their
implications?
1
Imagine you are a CEO of a leading
Chinese company in a chosen industry
(you can choose any sector). How
would you lead your organization to
address opportunities and challenges
in the next 10 years? Please use
concrete data, case examples and
logical inference to support your
argument.
2