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13 January 2008
U.S. Economy Due for Sideways Year—Special Effects by Presidential Election—Uncomfortable Long-term Questions Waiting in Wings
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 The Executives’ Club of Chicago assembled an all-star panel to give Midwest business leaders their guidance for various aspects of the U.S. economy in 2008. Diane Swonk, Chief Economist of Mesirow Financial and Robert “Bob” Froehlich, Chairman of the Investment Strategy Committee, Deutsche Asset Management returned, and the mystery panelist was Jack Ablin, Chief Investment Officer, Harris Private Bank. They broke out their respective crystal balls for 2008, along with comedic effects. The session was brilliantly moderated by Terry Savage, Financial Columnist of the Chicago Sun-Times who didn’t miss a beat and extracted specific predictions from panelists.
Panelists agreed that the U.S. economy would struggle in 2008, but it would move mostly sideways, probably eking out a 1-2% gain for the year after an unsatisfying first half. All panelists predicted that the Dow would touch 14,000 sometime during the year. Froehlich again emphasized the importance of looking beyond the U.S. for investments. Swonk and Ablin were less outspoken but had high non-U.S. allocations in their recommended investments for 2008.
After reportage on the panelists conversation, I will add my analysis and points to ponder, about the economy, opportunities and the election.
Continue reading Economic Outlook for 2008—Executives’ Club of Chicago
3 January 2008
Editor’s Choice of the Global Human Capital Journal
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 As I reflect on 2007 and create strategy for 2008, several macro-trends come into sharp relief, and I believe that some of them might be helpful to you as you conduct your own planning. As always, I focus on emerging phenomena because they are areas in which disruption and discontinuous change are acting on markets, thereby elevating threats and opportunities. Helping leaders to create strategy to manage the risk of unusual market developments is the focus of my consulting practice.
In 2007 it became clear to me that we were entering a profound social transformation that would produce an unimaginable degree of change. Unlike the technology-precipitated change that I’ve been helping people with since the 1990s, technology is shifting to the background now, and pervasive social change is taking the stage. Look for disruption in all areas affected by how people connect, communicate, purchase and collaborate: business, politics, community and leisure. Moreover, these changes are completely global with all the variations that engenders.
I can’t tell you how many acts this opera has, but 2007′s themes can provide you enough clarity, at a minimum, to notice that the water is getting warmer. I have also included among the links some prescriptive market advisories I wrote this year. They give explicit advice and action steps to maneuver your organization so that you can become stronger as these changes unfold.
 Thank you for your readership and support, and best regards as the curtain rises on the first act!
31 December 2007 “Emerging” Market Companies Rapidly Becoming Global Players—New Owners for Jaguar and Land Rover
 Emerging countries have long been regarded by globalizers as targets for exploitation, but 21st century market forces are turning legacy thinking on its head, which produces disruption and its sibling, opportunity.
The conventional thinking goes that emerging countries like Brazil, Russia, India and China (BRIC) have talented knowledge/human capital resources that can be tapped in outsourcing and offshoring arrangements. Moreover, these workers’ employment in high value knowledge jobs creates a new consumer class among large populations. Emerging countries’ rapidly growing consumer markets stand in sharp contrast to developed countries’, which are flat or shrinking. China and India have been relaxing restrictions on foreign ownership, which has increased FDI, especially in China, enabling foreign companies to invest in and buy BRIC companies.
However, the big story in 2007 was the opposite:
Continue reading Globalization’s 21st Century Makeover
30 December 2007  The automobile is a personal manifestation of the ultimate promise of the Industrial Economy—that physical power is essentially free—because it enables people to move quickly and easily. People just love cars because it is immensely satisfying to glide effortlessly (traffic notwithstanding ,^) from one place to another with a high degree of individual freedom.
However, as 2007 draws to a close, autos’ current reliance on fossil fuels makes it increasingly obvious that we need to change the rules. First, new wealth in emerging markets is dramatically increasing auto ownership and its concomitant demand for oil. Increased demand and uncertain supply will undoubtedly prove unsustainable in the medium term. Second, and even more daunting, is the carbon/climate change problem, which is far more life-changing in the long term. Petroleum and coal are the largest contributors to man-made carbon emissions.
Continue reading Noodle II: Tackling the Intractable Delight of the Automobile
4 December 2007 Noodles represent a new kind of writing for the Global Human Capital Journal. Noodles are bits of thought that are unstructured and relatively brief. Most won’t even be split into “extended” articles. They are partially inspired by twittering.
Yesterday I heard David Weinberger (one of the Cluetrain authors; his new book is Everything is Miscellaneous) talk at Big Frontier, and the big insight I took away doesn’t sound like much but, peel the onion, and it’s quite profound. Knowledge is inherently social. We vet our thoughts by sharing them with other people. Interaction helps us to refine thoughts and coalesce them into knowledge by knocking off the rough edges, and we co-design knowledge by collaborating.
Continue reading Noodle I: Mashing up Edison and Weinberger
28 October 2007
Examining the Environmental Fallout of the Chinese Economic Supernova—Sibling Rivalry Rears Its Ugly Head
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 In 2007, nary an RSS feed or the page of a newspaper (for those still inclined ,^) does not mention China’s exploding impact on the global stage: China is truly an economic supernova, and it is breaking almost any record for development that is laid before it. However, China’s breakneck development is accompanied by grave environmental fallout: for example, as the host of the Beijing 2008 Olympic Games, the city is designing extreme measures to ensure that the air is clean enough for the athletes to breathe. The chief culprit is coal, a key source for China’s insatiable need for electric power, and a resource that the country has in abundance. For key facts on China, I suggest The Economist’s Country Briefing or Global Human Capital’s China category (in depth) or China tag (mentions).
The Economist and WBEZ 91.5 FM presented an Oxford-style debate on the effect that China’s rise would have on the environment at Millennium Park’s Harris Theater on 24 October 2007. National Public Radio’s Worldview host, Jerome McDonnell, moderated the session in which two debate teams argued their cases in front of the audience, which then voted on the debate winner. As a baseline, McDonnell polled the several hundred member audience prior to the debate, and we were evenly split and “too close to call.”
31 May 2007
IBM’s CEO Articulates Prescient Vision for the Enterprise—Adapting to the Knowledge Economy
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 Samuel J. Palmisano, Chairman, President and Chief Executive Officer of IBM Corporation, outlined a new version of the enterprise at a lunch honoring him with the Executives’ Club of Chicago’s Thirteenth Annual International Executive of the Year Award April 12, 2007 at the Chicago Hilton. Entitled “Leadership, Trust and the Globally Integrated Enterprise,” his speech emphasized key points from his Summer 2006 article of the same name in Foreign Affairs. He was especially interesting to hear due to his experience with leading one of the world’s foremost global enterprises as well as his insight from serving global enterprises in every industry.
Yesterday’s model for the global enterprise, the multinational corporation (MNC), looks increasingly outdated due to widespread adoption of standards-based technology, increasingly standardized work processes and a liberalizing regulatory environment. Today, knowledge-based resources are available globally, and the enterprise’s means to create value is choosing how and where to tap the resources to best execute business processes. Moreover, the shift to the globally integrated enterprise means a profound culture shift and outlook, which we will address here.
Continue reading Leadership, Trust and the Globally Integrated Enterprise
2 April 2007
Visions for Technology Leadership
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 After Gary Forsee’s luncheon address, a diverse panel of executives took the stage to discuss global technology leadership. Hardik Bhatt, CIO of the City of Chicago, Steve Goldman, Director of Architecture, the Chicago Mercantile Exchange, Raymond Spencer, CEO of Kanbay International, and David Weick, Global CIO of McDonald’s, shared their visions for Chicago’s global role in the world. Janet Kennedy, Midwest General Manager of Microsoft, gracefully moderated the panel discussion. The Executives’ Club of Chicago’s quarterly Technology Conference took place March 8 at the Chicago Hilton.
“Getting global” can mean many things, and panelists hit the issue from many directions. I’ll venture that, more than anything, it means changing one’s mindset, focus and approach, all of which are difficult to measure. All panelists represented organizations that had had international operations for decades, so how is global different?
28 January 2007 We Must Rethink Learning in the Knowledge Economy
 Academicians everywhere are struggling to improve their students’ competitive standings in the global Knowledge Economy, which levels the playing field in many respects. It is far easier to build a world-class competitor in the Knowledge Economy than it was in the Industrial Economy. A strong educational system is a must, along with a highly motivated population, decent infrastructure and incentives for foreign investment. In former times, being a world competitor necessitated gaining control of vast natural resources to produce a strong industrial base from which world-class armies and navies would be built. India currently exemplifies the Knowledge Economy model very well*, and countries worldwide have taken note.
However, the Knowledge Economy is drastically changing what people need to learn to succeed, and educators haven’t caught up yet. They are teaching according to Industrial Economy rules, which compromises the performance of their students.
Educators have a special opportunity to create competitive advantage by realizing that the learning proposition is far different today—due to the Knowledge Economy and the role of information in adding value. The speed of change in all parts of the world is far greater today than at any previous time, and this is largely due to increased communication—information flow among people. More information exchange leads to greater dynamism and iterations (changes and adjustments based on communication). This has a huge impact on education: for most of humankind’s existence, the young would “learn” a trade or profession, enter the trade and learn refinements on the job. Hence schooling. Today, however, the knowledge base of all trades and professions changes so quickly that the shift is to continuous learning. This is fairly well recognized.
Less obvious and even more important is the necessity of rebalancing what we learn. Since our origin as a species, information has been rare, so a large part of learning has been acquiring information and committing it to memory. Having information in memory was important because information-retaining devices were few. Prior to the printing press, information was passed from one generation to the next orally, through poems and stories. Today, information on demand can increasingly be assumed, and people add the most value by learning how to select, assimilate, analyze and apply information. Therefore, the emphasis must be on analytical skills and empathy for customers, who form the “application context” of much of the Knowledge Economy.
However, many educators are still encumbered by the assumption that “more is better” will produce stronger performance. The degree of information, and even knowledge, that is available will only increase exponentially. Whether students, artists or business executives, people will add the most value by creating and applying knowledge to obtain a differentiating result. In other words, they will live in an abstracted world in which they are aware of what information means, how it resonates or creates dissidence with other information and how to apply it to please a customer. This requires the ability to think, reflect and collaborate.
A recent article, Schools Turn Down Heat on Homework, (The Wall Street Journal, 19 January 2007; also see Stanford reprint), discusses how several elite schools in the U.S. are curtailing the amount of homework their teachers assign due to several recent studies that question the effectiveness of homework. Research cited shows that homework above a certain level actually is counterproductive to math and science scores. One of the highest scoring nations, Japan, actually has little homework; in fact, many of Japan’s elite schools banned homework in the 1990s.
As I’ve written extensively, innovation will be the engine of value creation in the Knowledge Economy, and innovation requires jumps in thinking, collaboration and creativity. Wrote thinking is counterproductive because people get stuck. Less homework will not help many students unless it is accompanied by more analysis and reflection, unless it guides students in being aware of what they are learning. This will prove to be extremely challenging because reflection requires attention, which is very scarce and getting more so. Many students are also short-changing themselves by focusing on an immediate result (passing O-levels, exams) and not pausing to think.
In this, humankind is its own worst enemy. Reflection and attention can be thought of as focus. With so much information and knowledge available, how to focus? The current generations are under enormous stress because they/we haven’t yet learned how to deal with the amount of information that it increasingly available. Our brains, attitudes and habits are still wired with the “information is scarce” assumption, so we are overloaded, and our attention suffers. It will take some time to rewire our brains and habits.
Analysis and Conclusions
- It is difficult to appreciate the profound impact of information on demand and how it changes how we must learn. Abstract thinkers will excel the most, all else equal, because they have several levels of awareness of the subject under consideration. In the U.S., education is seriously compromised by the lack of emphasis on abstract thinking and philosophy.
- Abstract thought is critical in several ways:
- It aids in the connection with unfamiliar patterns of thought and can therefore help to discover opportunity and drive innovation
- It is quintessential to meta-knowledge, to “knowing what we know”
- It helps to “mash up” people or things that haven’t been combined before
- It aids the imagination in a structured way to develop awareness of what factors are in a set and how a changed context might alter the effectiveness of one or more of the factors
- In business and government, leaders create differentiated value. “Differentiated” refers to thinking, acting and producing distinctly from how others have done before.
- Increasingly, we live in a networked world, and a safe assumption is that collaboration with people with different “knowledge bases” will drive the ability to innovate. Therefore, having collaborative learning environments will be a critical success factor.
- Sensitivity and empathy for other people and ideas are also critical, and all cultures could improve in this area.
- *China’s success as an economy eclipses India’s in many respects, but India currently reflects the purely knowledge-driven economic model best. China is developing a strong industrial economy first, which will become more knowledge-oriented over time.
26 January 2007  Two recent articles show that even the most intractable problems can be overcome when organizations find ways to align their goals. Sometimes collaboration makes for strange bedfellows—like the military and environmentalists—but opportunity is often highest when when “mashing up” groups that are not used to working together. Innovation can produce surprising value when leaders open their minds, challenge conventional wisdom and make unthinkable changes—like paying a hospital more for treating patients less.
These stories are as inspiring as they are instructive because the people involved questioned assumptions, and I hope you enjoy them.
Healthcare Costs Hit in Solar Plexus
Virginia Mason Medical Center is Seattle’s third largest health care provider, and it began innovating in several areas after receiving a wake-up call from Aetna, one of the area’s largest insurers. In 2004, Aetna shared the results of a study that compared treatment costs of Seattle area hospitals. Several of Virginia Mason’s specialty practices were significantly more costly than alternatives, and Aetna was considering excluding those areas from coverage. In the ensuing two years, Virginia Mason innovated by using new workflow strategies in targeted treatment areas. For example:
- In the spine clinic, they reversed the position of physical therapy from a relative afterthought to the front of the treatment process for back pain, which reduced the percentage of patients receiving MRI tests by one third, while significantly reducing patient waiting times. This was a hot button for Starbucks .
- For migraine headache treatment, the hospital offered special training on when to offer MRIs, which reduced MRIs from 50% to 5% of migraine cases.
However beneficial these changes were, they wreaked havoc in the hospital’s economics because MRIs are very profitable (a $850 cost that produced $450 in profit). Even though treatment processes were more streamlined and area employers like Costco, Starbucks and Nordstrom saved six figures the first year, the hospital began losing money because insurers pay generously for high-tech treatments, and physicians, trained not to consider cost, order the tests as a matter of habit:
“The payment system is so toxic,” says Francois de Brantes, a former health-care program director at General Electric Co. “Unless you tackle it, any health-care reform doesn’t have much chance.”
Here’s where the employers went to bat for Virginia Mason. As Aetna’s customers, they encouraged the insurer to increase its payments to the hospital for the lower tech treatments, which Aetna is doing. Notably, the area’s other two large insurers, Regence Blue Shield and Premera Blue Cross, have not made adjustments to reward the efficiencies.
For more, please read “A Novel Plan Helps Hospital Wean Itself Off Pricey Tests,” The Wall Street Journal, 12 January 2007 (subscription or access to Proquest required).
Unusual Duo Expands Nature Habitats across U.S.
The U.S. military currently has about 30 million acres of training bases across the country, and they increasingly come into conflict with urban sprawl. Of course, most bases were very remote when they were built, but the bases’ new neighbors don’t appreciate the sounds of military training. Enter the Readiness and Environmental Protection Initiative,” which enables the military to work with environmental groups to buy land around the bases for conservation purposes. The land serves as a buffer zone between the military and urban development, which displaces animals.
It is a rather unorthodox arrangement, but it benefits both parties, at the bases reduce contact with homeowners, and environmentalists can help more animals and plants:
“The last people I ever thought I’d be working with were guys in black berets and camouflage uniforms,” says Joshua Stanbro, a manager of the Trust for Public Land, of San Francisco, who worked on the Hawaii project. “Now, I count them as friends.”
Others are not so sanguine, pointing to toxic residues and ammunition dropped in forests. However, the military is becoming more responsive to environmental concerns, and environmentalists have been able to create thousands of acres of habitats for endangered species. To overcome environmentalists’ reticence, the Pentagon began exhibiting at environmental trade shows, which raised eyebrows at first.
For more, read “Another Shade of Green: Military Aids Nature Lovers” (subscription or access to Proquest required).
Analysis and Conclusions
If we define innovation as discontinuous change that is brought to market, it makes sense that unusual partnerships have great potential to collaborate and innovation. The main barrier is “us and them” thinking.
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