Paradox, complexity characterize businesses

Paradox, complexity characterize businesses

New Delhi: Colleagues of Paul A. Laudicina, managing officer and chairman of consultant AT Kearney Inc., describe him as a futurist. On a recent visit to India, Laudicina spoke in an interview about the dominant trends and their likely impact. Edited excerpts:

After years of ‘great moderation’, the last few years have been volatile. If you juxtapose volatility with the speed at which things are changing, how do you see the world of business evolving?

First, volatility is a steady state. Two phenomena: globalization, on one hand, creating integration and the rapid movement of people, goods, capital and ideas, and technology, on the other, making that movement almost costless, was going to drive the speed, velocity and amplitude of change as far as the eye can see. So, this is progressing geometrically and our ability to understand it chugs behind linearly. Business in that context is breathlessly trying to catch up with a world that seems continuously out of balance. Therefore, what I see happening is businesses trying to understand how they must change their planning protocols and risk management capabilities to be able to identify opportunities, denominate risks and manage them appropriately so that they can grow.

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The other issue is complexity. One hears business leaders say if you look back around 25 years, leaders understood the process involved, how something is made. Now, increasingly. there is a disconnect between what happens and the decision taken at the top.

There is nothing that diminishes value more than complexity. Complexity essentially makes it very difficult for business decision-making and effective execution. Leaders of all stripe need to strip away some of the complexity that has developed over time and understand the basics of what constitutes success. Among other things, we see a trend of all businesses now engaged in the process of trying to reduce complexity in their organization to make their organization substantially more manageable. Complexity reduction becomes imperative in an era of increasing volumes of information and rapidly moving trends, which are characterized not just by complexity, but also paradox. The same things that seem to bring the world together and create integration also create a sense of push back and centripetal force at work. Paradox and complexity are two very important words that characterize current business and, therefore, the clarity with which one can powerfully imagine and rigorously assess the forces shaping the future will determine who successfully is able to manage the present.

Move this to the political process. Post 2008, there’s been a need to coordinate economic policy actions. Yet, countries have domestic compulsions. How does the need to reduce complexity square off?

You have put your finger on the Achilles tendon of global economic performance. Governments must create an enabling environment for business in order for business to succeed. Businesses must be able to generate robust, sustainable growth to create (the) tax revenue government needs in order to be able to deliver on the needs of its constituents. So there is a clear connect between the quality of government policy and quality of business performance that has been ruptured over the course of the last few years with the dislocation of global economics and, more importantly, with the disruption of the bonds of trust between the public and private sector, between lender and borrower, between employer and employee, and that trust needs to be recreated.

The fundamental problem government and business have is what I would like to call the asymmetry of time and space. Governments and business, in order to make the right policies, need to make decisions that are longer term and, often, they are constrained by politics or demands of the market to be thinking in terms of shorter-term dynamics. Secondly, all of the processes, which create opportunity also generate risk, are by definition cross-border. They must be thinking, acting and behaving in coordination cross-border, but the constraints again of both—how governments and businesses operate—often keep one bound within geographic boundaries. That asymmetry of time and space fundamentally challenges the ability of both institutions to be able to do the right thing, and, ultimately, to be able to reinforce their mutual advantage and the need for them to reinforce the ability of each other to succeed.

One of the issues they have to deal with is inequality. Inequality not just in absolute terms between different parts of the world, but inequality within societies in terms of the ability of people to make use of opportunities. What kind of role will inequality play in shaping policy in future?

It will play a tremendous role. Especially in a world where we have communications technology to keep us connected so that one part of the world knows instantly what is happening in other parts of the world. Dramatic disparities in income are not sustainable. It will ultimately erode the very basis on which economic growth and advancement must proceed. So the challenge will be, Dani Rodrick, the Turkish economist at Harvard, talks about globalization and the immobile majority versus the mobile minority. So there is a small segment of world’s population that has benefited immeasurably from globalization. And there is a large segment of the world that has benefited incrementally. That has created more disparity. The challenge for government and industry will be to try and bridge that gap and address the basic issues. Our ability to address that will be a function of the fact whether we succeed together or fail together.

The wealthier part of the world probably needs to allow a lot more migration because of its ageing population. There is going to be a lot more diversity. With that, don’t you think a new social compact will be hard to come by?

Clearly, it is going to be hard to come by. Diversity and inclusion have always been difficult to manage. But at the heart of economic growth is innovation. Innovation is based upon having as many diverse inputs, geographic, cultural disciplinary inputs as possible. We know no company is big enough or smart enough to innovate quickly on their own. These interlocking collaborative relationships come from weaving together lots of different inputs. Therefore, I think this intersection between doing good and doing well is the new theory of business that needs to underlie how we operate and behave going forward. That’s a major change from where we were even 10 years ago. This realization is increasingly dawning on business leaders and boardrooms around the world. And government hasn’t yet understood it, and understood as well how to tap into it. When they do, when there is that moment of epiphany, then we will be able to advance this proposition to everyone’s advantage.

How does AT Kearney deal with these changes?

I think it is an extraordinarily exciting time to be a consultant. If a consultant discharges his or her responsibility appropriately, it is to help inform government about what they need to do to provide an enabling environment for business, and to help business to perform better so that they have economic wherewithal to create this rising tide, which, ultimately, all people will benefit from. So getting back to this notion of essential rightness is a critical part of what I believe, certainly what AT Kearney is focused on, and what I think management consulting profession has to be focused on to try and cross-fertilize this divide between the right public sector and private sector policies, which ultimately will deliver on the common good.