Dominic Barton: Five Trends Reshaping the Global Economy


[MUSIC]>>So, it’s a great honor to introduce
Dominic Barton as part of our Global Speaker
Series today. Dominic is the Global Managing Director of
McKinsey. Where is has worked for over 25 years serving clients across a range of
industries and geographies. Prior to this position as Global Managing
Director Dominic was head of the McKinsey Asia region and head of
the Korea office. In addition to his client work, Dominic has authored numerous articles and, and
publications. On topics of global relevance to business
leaders and policy makers. In addition to that, Dominic is also a trustee of the Brookings Institute, of the
Rhode’s trust. And honorary fellow at Brasenose college
at Oxford University. Please join me in welcoming Dominic to the
stage. [SOUND].>>Thanks.>>Thank you. Well thank you very much, and, and thanks so much for for coming out, this
afternoon. As, as was mentioned what I’m hoping to do
if it’s okay is just talk for 20 or 25 minutes until or until
you throw things at me. And then I would be most interested in any
questions. On, in, on anything at all. As it relates to McKensey or anything else, any advice, criticism, whatever you
like. So please I’m looking forward to the, the
questions as we go through it. What, what I wanted to do over the next 20
to 25 minutes was just give a overview of some of the big trends
that we’re seeing in the world. And basically it, it’s my belief, and I
think many people who are running organizations around the
world would have this view. That we are living in truly historic
times. And by historic times, I don’t mean in the
last 20 or 30 years. I mean over a 200 to 300 year time frame. And sometimes I wonder if maybe that’s
what everyone thinks when they’re leading, they happen to be leading
in that time that’s unusual. I, I, have, I really do believe this, and
none of you are gonna be around in 300 years, I
think. So you won’t know whether what I’m saying
is right or not. But, what I would say is that the amount
of time change that we’re seeing now is just I think unprecedented on, on many different
levels. And this page here, the simple page, I’m
gonna spend a bit of time going through what we think some
of the forces are. And why I think they’re historic. In sort of scale and, and speed with which
they’re happening. Many of which your in the center of here
in the world. I think here, but, but also your not in
the center of many of the other ones and I think you need to be connected
to where those changes are, are occurring. And, so after talking a bit about that I
wanna talk about what the implications are for being
a leader in these times. Because I think the definition of what
leadership is and what’s being required over the last 20
years will not be as relevant as what’s gonna be
required over the next 20 to 30 years as we go ahead. So that’s just a bit of the overview. I’m gonna start with one of the biggest
forces it’s out there. And again I think in many ways we all know
it, but I just wanna dimension it a bit. And we call it the great rebalancing. And to our friends from Shinhwa you know,
where, you know, China is very much a part of
that. This is the emerging market, it’s China,
Indonesia, Indonesia and Africa. Where we are gonna see a billion new middle class consumers within the next ten
years. And one of the ways I, I try and
illustrate it is just through photos. I’ll show you some facts, but this is a
photo I actually took in Shanghai in 1997, and it’s a photo
of, of Pudong. Or as many of my New York colleagues in
McKinsey call it poo jersey. As you sort of look across the, the water. And if you look at what that looks like
in, in 1997 it was a a field. I mean there was a, there was actually
onions that were being grown. I don’t know if any of the, our colleagues
here from Shinhwa were from Shanghai, but that’s
what it looked like in 1997. In 2004, that’s what it looked like, sort
of again seven years later that’s the kind of the,
the transformation. And that’s happening in 200 cities in
China right now, and it’s relentless. It’s urbanization, and you know, what? That urbanization is happening no matter
what happens to the Euro zone, whether those countries get
coordinated or not. What happens in Washington with the fiscal
cliff, it doesn’t matter. There’s always gonna be 1.2 million people
a week, in the world going from rural areas to
cities. It’s like gravity. It’s, it’s a gravitational force. And that’s something that I think is gonna
generate a huge amount of opportunity. Business opportunities, but also a huge
amount of challenge for us in terms of resources. But that’s, so this is the big shift is this rural to urban shift, 1.2 million
people a week. We’re gonna have a billion new middle
class consumers settle about seven years. We’ll have 3 billion new middle class
consumers by 2030. That is unprecedented in human history. We’ve never seen anything of that, of that
scale. And, just to put it in, and again, rank
order, if you will. If we think about the industrial
revolution. The industrial revolution had about a
tenth of the people and took about 100 times as long to be able to have
a transformation. So the industrial revolution, which is
seen as if you think about it in our human history as a major discontinuity is a
speed bump, compared to what we are seeing here. So again, it’s just to give you a sense of the scale of, of what’s actually
happening. And this is where those 3 billion new middle class consumers are gonna come
from. We know about China. We know about India. We should not forget about Africa. And just to give you a factoid, in Nigeria
this year there will be more babies born than all of
Europe combined. All right? So, we’ve, we have images, right, of
Nigeria? Some corrupt, terrible infrastructure,
backward place. It is actually one of the youngest
populations in the world. A dynamic place. A lot of amazing businesses are being born
right now as we, we go through it. If you talk to the CEO of Proctor and Gamble or Glaxosmithkline Beecham and
so forth. They will say their future CEO is now
working somewhere in Africa, right? It used to be that was the case in Asia,
Africa’s the place, and, I could go, Brazil, as well, is also
a, a big shift. But, there, this again, is something
that’s there. All I would say on that is, I’ll get to this in a minute, as leaders no matter
what you do, whether you’re gonna invent a, a, a new
technology, or a new business or, whether you’re gonna work
with an existing business. That’s the world you’re gonna be leading
in. And so, when you think about your networks, and the business people that you
connect with, it’s gonna be vitally important that
you know people in China and Brazil and
Nigeria. It’s very important. One of the things I’m trying to encourage
very much in McKinsey is within your first two years
in McKinsey. I want every single consultant to have met
a Chinese executive, a Russian executive, a Brazilian executive,
an Indian executive and an Nigerian
executive. And I could, you could, you could pick
different people, but I want them to meet these
executives. Every executive’s different. I’m not gonna say representative. But there are differences in terms of how
people think, in terms of timeframe, how they think
about their community. And so it’s vitally important to build
these global relationships. Because that’s the world that you’re,
you’re gonna be living in. We think it’s gonna be cities more than
countries that matter. You know, we, we, talking about China, I
think, it’s too big of a country to talk about as a
country. It’s really cities. And the way we look at it is there are
about 440 cities that are gonna account for 60% of
the world’s GDP growth. Many of these cities to be very honest
with you, I’ve never even heard of, right? With their names, you don’t know. And this is our, we have a city database
that we’ve built of these 440 cities and we use it
with clients. So, for example, if you are, if you are in
the, if you are in the diaper business for
example, or in laundry care. The top 20 cities over the next ten years
of the following, that’s where you wanna make sure you’re gonna be based,
right as you go through it. If you think about again, the young 18 to
22 year old consumer group, those are the key cities
that you’re gonna be looking at. Again, places like Kampala and Uganda pop
up. That isn’t sort of a traditional city that
would show up on someone’s strategic map. But I think its very important to
understand where these cities are. By the way, in McKinsey, we, we aren’t
very good at taking our own medicine. So we’ve actually applied this to
ourselves as well, and its been quite revealing to us
about where we’re not and where we should be in, in different parts different parts of
the world. I’m gonna just skip, skip ahead here just
in terms of the second force. So that’s the rebalancing is this billion
to 3 billion new middle class consumers. We’ve never seen anything of that scale
ever in our history, right? So that’s the first fours. The second one is an aging population. This is just looking at at Asia in
particular. But we’re gonna have gone from having ten
workers for a retiree in the year 2000 to basically having three
working adults per, per retiree. If you are a government, in that looking
at those numbers you are gonna be terrified about
what, what that means. Cuz it, it’s how are you gonna support an
aged population like that. And this is a big issue for China. It’s obviously already an issue for Japan
and Korea. But we do have an aging population even
though there are places like Nigeria and India
that are young. And so how do we deal with a much older
population. It’s gonna be a very big shift. Not in terms of just the products and
services. But also how we do work. I personally think that one of the new areas of opportunity is in lifetime
education. The idea that you know, we go to
university you do, you know, undergraduate and then
graduate and you’re done. It’s just, I think we’ll be laughing about
that in 15 years in going I can’t believe how those
guys did that. It’s gonna, I think we’re gonna see
universities for people who are at 50. And then who are at 75 because they’re,
they think about the next wave of what they’re gonna do in
terms of where they move. And so this notion of lifetime education
and retooling is gonna be important. Because an older part of the population is
gonna have to work. And we’re gonna have to rethink how we do
a lot of our social services and so forth as we, as
we go through it. I, I feel a bit nervous talking about
technology with this group. I, I actually come here to learn, so I’m
not gonna spend a lot of time on it. But a third force that’s out there which I think is one of the most profound is
technology change. What, I, I have a rule in, in my role in
McKinsey, I’ve been doing this rule for about four years and I
didn’t join McKinsey to do internal work. I didn’t wanna, I didn’t join McKinsey to
manage McKinsey, if you will. I like doing external work. So I have a rule which is, I see two CEO’s
a day, no matter what, every day. Which I’ve been doing and what I will do
in, in, in, many of those instances is ask people what are the, what
are the three top issues on your mind. What keeps you up at night, what excites
you? Always one of the top two is technology. And it’s usually, I’m paranoid and
excited. I’m paranoid and excited because it, it is moving at five times faster than
management. It’s how do I keep up. And so if you’re Mike Duke at Wal-Mart who
has built a very successful business based on, a footprint, a physical footprint, that’s
out there. And you see, the dramatic shift in how consumers are buying, online and you know
all that. You have to think about, reinventing your
business. And that’s hard when you’re a very, very
large organization. But we see that in every single sector. There is not a single sector on the planet
that is immune to the technology shift. And I would actually argue that some of
the most profound changes are going to occur
in healthcare. Which is a, forgive my language on this, is a completely technology retarded
industry. I’ve never seen anything as pathetic,
except perhaps for education, which I think is also, in that league,
just way back. Agriculture and food, I’m gonna come to
this in a second, is gonna be a very, very vital industry
for all of us. The opportunity for technology, improvement, applying technology to
agriculture. I think is gonna be a massive, opportunity
as, as we go ahead. So technology is, is, is key, everyone’s
struggling to deal with it. We were talking before the session. We have a lot of clients that we are now are keen to actually spend time here,
just understanding. It’s like, my view of Silicon Valley is
like a different country. It’s not coming to the U.S., it’s coming
to a different country. And understanding some of the dynamics and
where things are going. And you’re gonna see mining companies,
we’re gonna see oil and gas companies, ag food companies coming
here to figure that out. One of the, the, the shifts I did, it
really wanted to focus a bit on is the big data
opportunity. That we’ve created more data as humans in
the last two years than we have in our entire
existence, before two years before. And that’s the amount we’re generating. The problem is 95% of that data is
useless, 5% of it is phenomenally useful. And so what are the skills you have to
have to be able to mine that data, to be able to make
things work? And there are some pretty phenomenal
things that are going on on that front. By the way, I think that the leading edge
in data is, is not in the Silicon Valley. I actually think the leading thinking in
data right now, is in Shenzhen, in China. It’s not here. And the reason for that is because the
largest e-commerce market in the world is China,
right now. And if you, if you look at what Taobao and
others are doing with the, the data, and what they’re
moving, there’s a lot that’s happening. But I think it’s gonna be vital for all businesses to learn how to leverage
big data. What are the skills that are required. How can we apply it, so forth. So the technology shift. I’m not even talking about how
telecommunications and mobile, what that’s doing to various
business like healthcare. Where you’re seeing dramatically different
healthcare services, especially in emerging markets because of the
application of technology. You know, we I’ll give one example. There’s a company in India that has 100
doctors in a call center. Has 5,000 nurse practitioners that they
basically have eight months education you know in diagnosing
the basic of diseases. That are serving 2 million people at a
quality of health that is better than what you get in
New York. Right? That’s a different model. I don’t think that would be approved in
the United States. To have a bunch of call center Doctors and
eight month Nurse Practitioners. But in many of these countries we get,
we’re seeing changes that way. And some other shifts. So there’s a lot of innovation on that
side. Am I going at an okay pace? Guys, seriously if I go, tell me to go
faster you just tell me. I’m gonna skip a head a bit on the, on the
data side. I just say that again opportunity for
every single sector out there is huge. And I, and again, I said McKinsey, we need to take our own medicine on that we’re
not. We’re actually shifting some of our hiring
if you will. We’ve hired about 500 data analysts in the
last year just to be able to try and keep up with
it. The the fourth force I wanted to talk
about. I’ve talked about the rebalancing, I’ve
talked about the big data issue, the aging population in
the world. The fourth one is really around resources
and what this chart basically just tries to show is that over the last
100 years commodity prices. So this is oil and gas, basic minerals and
so forth have been in a 70 year decline. They’ve been, they’ve been dropping. As we’ve been applying technology have
been much better at, at finding the places where we can look
for these resources. Over the last ten years they’ve gone up
about 150%. Right? Now there are bubbles in that, sometimes
it spikes higher, sometimes it’s lower. But the long term trend is up, rising commodity price is and that’s, it’s, it’s
very simple. It’s because of the billion new middle
class consumers and then the 3 billion wanting to buy cell phones and
refrigerators and cars and so forth. That takes the resources. And that’s gonna be a very big issue that
we’re all gonna have to be able to deal with
over time. One small story I’ll say is when Xi Jinping was the party secretary in
Shanghai. I was in the Shanghai office. I had no idea he was gonna be moving up. I, we have no clue, we were politically
naive in McKinsey. We had a request from, from the mayors
office to see him. And, and believe it or not, no one was
everyone was to busy. No one wanted to go. So I went with the business analyst. And the question we were asked was. Can you give us our top 100 articles on
sustainability, it was like 100 articles. I said I can’t even think of 20, I mean a
100. He said I want 100. And so we wrote a list. I couldn’t get 100, we ended up with like
63 or 67,and sent it to him. And about two weeks later we got a note back saying if anyone ever asks you for
this again. This is what I recommend you send. Don’t send the 63 or 67. Send 17 and this is my rank order so
obviously he read them all which I hadn’t no one of us
had. So you got a sense of here’s this guy
reading this stuff and then about a, a month and a half later he went up to, to
Beijing and I think it’s. That’s, I think it’s quite interesting
that the leader of China is that interested and focused on
sustainability. And I don’t think that’s a gimic, I, I you
know, I think you are either interested in it or you’re not,
you’re not gonna read that stuff. And I think the reason you have to be interested, because if you want the, the,
that, those people. That are moving from the rural areas to
the urban areas to have the same quality as life as to what we all
up, up, aspire to. And not melt the planet or have what’s
happened in Beijing in the last couple of weeks
happen. Where it’s, you know, the pollution levels
are 75 times higher than what a basic safety
level is. You, we have to deal with that. So there’s sustainability issue and
there’s actually then just an absolute amount of food requirement;
base of, you know? I’m, I’m from Canada originally. And what we’ve noticed is that there’s a
lot of interest from countries around the world, in buying
land in Canada, agricultural land. right. For, for security reasons. How am I gonna get secured supply for soy
beans? How am I gonna get, secured supply for
grains? You see this in the Ukraine. You see Ethiopia is gonna be one of the
largest bread baskets in the world. Its got the most, [UNKNOWN] viable arable land, 80 million hectares, water and so
forth. And you see again many countries around
the world looking at how to secure resources as we go
through it. So again, the challenges are significant
on that front, the one I just wanna point to is water. We, we did some analysis to look at the
water demand and supply, looking at every single water
basin on the planet. We did this with the IFC, with Standard Charter Bank, with Syngenta, with
Coca Cola. It was basically just a model to look at
where the water is, what we think reasonably would
be the demand and supply. And the worrying thing is that if you go
to 2030 and we use water the way we’re using
it today. We will have a 40% excess demand versus
supply of water. And, and the problem with water right, it
doesn’t follow political boundaries. Water doesn’t really care who’s the
government, it just kinda flows where it wants to. And if you’re in places in Asia, and if
you’re for example Vietnam and the main [UNKNOWN]
source comes from China. And China wants to do some damming of the
river. Or, if you’re in Iraq, and Turkey decides
they want to dam some of the rivers there. This, this gets into political tensions. And, that’s why I think the Himalayas are
a very strategic spot in the world. That’s the source of six of the, or seven,
of the largest river systems in the world. I don’t think it’s so much about Tibet and
other things. Those are issues there. I think it’s actually about water. And I think this is gonna be a very vital
resource for all, for all of us. The final one is just on government. I, I think that the fifth force I’d say is that government, especially Western
governments are under huge pressure. To be able to deal with all this
dislocation and issues. I would argue that the model of western
democracy needs a transformation. I think, we all realize that. I was just in Davos, in the last four
days. And, it was interesting in whatever the
topic that was discussed, the issue always came back to
governance, and, saying,. How can we possible change how government
works, to be able to deal with these long term issues and how, and
how we deal with things. And I think especially for western democracy, nuts, we need democracy,
democratic systems. But the model by which is works, doesn’t
seem to be fit for some of the challenges that we
have. And the problem is the dislocation issues
are gonna get worse. One of the things I worry most about is
incoming equality which is rising basically in
every single country on Earth. Except interestingly Columbia and Brazil,
and when you have rising incoming equality you get instability and
you get a crisis. So I this us as capitalists and McKensey,
we were sorta the running dog capitalists, if you want
to call it that. If we don’t think more broadly about inequality and jobs and 75 million youth
unemployed. If we don’t think about that, the, the
system is gonna get changed and it won’t get changed in the way we’d
like it to work. And so, the idea of business playing a
broader role in society is an extremely important part
of what we do. And I’d argue that all business leaders
have to take care of the society in which they
operate. I won’t, won’t go off piece on this, but
if you actually look at what Adam Smith wrote in his first book,
which was the Theory of Moral Sentiments. He said it’s the duty of the entrepreneur
to take care of the society in which they
operate. You, you could argue that’s a fairly left
wing thing to say. It’s very different than what our
capitalist system is really pushing right now, which is a more narrow,
short-term model. And so that, there’s gonna have to be some changes, too, in terms of how that, that
works. This is again just to show you, some of
the changes over time, and at McKinsey, what we did was forecast
a demand and supply for jobs. Looking out to 2020, and what you see is
there’s gonna be a big, excess demand versus
supply for skilled jobs. And there’s gonna be an excess supply of
unskilled workers. And that’s, that gap causes tremendous,
tension. And, if you’re in China, that, that can
cause more severe issues. That’s why in the, if you look at the 12
five year plan, as you guys well know. What it, the very first objective is
create 43 million jobs. It’s not GDP growth, it’s not. It’s create 43 million jobs a year because
if we don’t, you get you get challenges. The infrastructure requirements are gonna
be huge volatility with when you have these five forces going
up. The volatility in the world is gonna be
higher. The thing that’s also we, we should
realize. The number of natural disasters that we’ve
had, and natural challenges that the world’s faced, has actually
increased at a significantly higher rate. There has actually been a change. So the world has gotten more volatile
because you, I think you have these five forces coming
together. And then we have the natural world has
become more volatile. So dealing with a, with, is you prolly
heard that boring phrase VUCA. The, you know, volatile, uncertain,
complex, ambiguous, that’s, that’s the new normal for everyone as they look
ahead. And this is the last page I’m gonna, I’m,
I’ll shut up. Up here it’s I, I hope I’ve given you a
bit of a sense of the world. This is a time of, tremendous change of
these big five forces, each one of which I think is, significant enough to
make this a time of, historic change. You put all five together, and the
volatility you’ve got, you’ve got a lot of shifts to do, going
on. It’s my view and I say this, I’m actually
jealous, of you. I’m very jealous of you, because you guys are going to lead, in this incredible
time. You, I think there’s, I think I’m an
optimist. I think there’ll be massive opportunities. Just to get in, in the consumer goods area, given that billion new middle class
consumers. There’s a need for 76 Proctor and Gambles
to be created over the next seven years. Just to, just to even satisfy. So the, that’s a small smidgen of what,
the business opportunities are massive. and, and, and all over the world and in
every sector. But the final page, I, I think I wanted to
talk about is, leadership requirements are gonna be
different to be able to deal in that world. We’ve had a model which I think is being focused on CEO sorta riding on a white
horse. A kinda Jack Welsh be-all, know-all, kinda
set the direction for five years. And I’m, I’m not, I’m not disparaging of
Jack Welsh, he’s been a great leader. But I think that model of the, of what
we’ve had in our, in the books, and the many things
that have been written about,. The single person with a clear view five
years out of where they’re going is completely irrelevant to
what’s gonna happen as we go ahead. And the way we’re, we’re looking at this
and we, we’ve been spending a lot time talking with
leaders who are leading now. In terms of, of what they’re doing especially since the financial crisis and
so forth, is we actually think you have to
look at leadership in two parts. There’s what leaders do, the role and then
there, I think is more importantly who the leader
is, your character. And I think we focus too much in places like McKensey and in business schools on
what leaders do. What, how you spend your time, what you should focus on, what decisions you should
make. And we don’t spend enough time on who you
are, the character. And we would argue that the character is a
muscle. It, it actually something that can be
built. You’re not born with it, you learn these
skills as you go through it. And I just wanna focus on a couple of
them. On the maybe the what to do it might be
different. I maybe I’ll just I’ll pick on two. One is the telescope and microscope. And I’ve heard this from many leaders
today that say basically in this world, that’s very volatile, yet
there’s these big secular trends going on. And I, I learned this actually from, the
Minister of Finance, in Canada, Jim Flaherty, during
the, the, the financial crisis. And he said, I need to, be use to have a
telescope in one eye, and a microscope in the other
without getting a headache. And it, I don’t know if anyone’s tried
that. You put a microscope in one eye. It’s not a very pleasant experience. You can’t focus. But the point is you need to because you
have to have a short term microscopic view because
there’s so many volatile things happening. You could be out of business. You could, you, because of risks. Because of a new competitor or whatever
that you want to say, that you have to manage for the very
short term. The reputational issues, there is so many
issues going on. But at the same time you have to think
long term about where you want to be. And so if I translate that just to
McKensey. We are finding out in the work we do we
are doing a lot more literally, 30 day
scenario plans for companies. Like what are we gonna be able to do to
make sure we’re agile as a company. Cause you, if you’re a big institution
like a Wal-Mart, or a Procter and Gamble, or a
GlaxoSmithKline Beecham. You have to, you have to be able to run
like hell as an elephant. You can’t sort of trundle. You have, how do you move very quickly. Because you literally can be out of
business in a six month period if you’re not careful enough.I can
register the stories you know well. Look at Best Buy, which I think is, is
doing well now, but look at the challenge. And they were the darling of the industry
only two years ago. You look at, you look at the you look at what’s happening with Nokia, Apple,
Samsung and so forth. And the paranoia that’s in there about how
quickly. So the short term is important, but we’re
also doing not those 30 day views, we’re also doing
2020 views. Which is, that may be the case, but where
do we want to be in 2020? What should our footprint look like? What should our talent look like? If you believe that billion new middle
class consumers in three billion, what, how many of those people
should be on my board? You know, how many Chinese, Nigerians,
Brazilians, do I have on my board as a multinational
company? How, what percent of my top 100 comes from
that area? What proportion of my investments are
being done in that area? So you need the short term and the long
term at the same time. The other one I’d say is tri sector
athlete. I think again if I could do my career over
in McKinsey, I wished I had more experience working in
the public sector and the social sector. If you want to be a private sector, hard
core, capitalist, business, shareholder value
driven person, that’s all you wanna do. You will not be successful in my view
unless you’ve had experience with the public sector and the social sector
and if you wanna be a very successful public sector leader, I think
you have to have experience in the private sector and the social sector, and
the same goes for the social sector. If you want to be a great social sector
leader you need that, and that’s this tri-sector athlete notion
which Joe and I has has come up with, before. And that’s something that we’ve actually 3
McKenzie people have left the firm to set up a tri-sector athlete, forum,
that they’re running out of Washington. And, the notion here is just to get experiences working in these different
places because you have to understand the
mindset, of the challenges that are going on. I would and, I could go on, on and on and on that, but, I think, thinking of
those experiences. So in McKinsey, for example, our public sector practice and social sector practice
are absolutely critical in my view for our leadership development, right, for people to have
that experience. And we’re very encouraging of people
leaving to go do that for a couple of years, and then come
back. If, you know, we’d like them to come
sometimes and they stay and go to, we need much more, circulation if
you will that’s that’s gong on. So those are just two comments I’d make on
the, on the, on what is it that people do and the
capabilities they have. And the other part I would just say is on
personal attributes. This is the character and the strong sense
of purpose, the calm in the, in the eye of the hurricane just
maybe two stories on that. On sense of purpose, what one thing we’ve
discovered, is a lot of CEOs saying, we notice there’s more
right vs right decisions. Right, at, these are the decisions where
It, it’s if you, both decisions are good outcomes the problem is
one is negatively effects the other. So how do you, it’s easy to make a
decision when you go I can make more money by doing this
versus that. What happens if their situations which
they are about your culture, or your values and I’ll give you an
example, Howard Shultz. You know, he was thinking about what he
was doing at Starbucks and he had the view we need to have the next
generation of leadership. It’s very important that we go down a
generation, get young people to be able to drive to the place and move it forward, I
feel very strongly about how that moves. And what happens when this current young
CEO’s not performing very well and he reinserts
him self? That’s a right versus right, cause he’s
breaking the cultural norm he wanted to set, but for the business he
thinks it’s critical. And I’m not, it’s probably not a very good
example, but I’m just trying to, there are example, where
there are more moral examples. I’ll give you another example Fonterra
which is the dairy is one of the largest dairy producers in
the world. What if your researchers come to you and
say, our, our cows can produce more milk if we abort fetuses on a regular basis,
and you could say well they’re animals. I mean, so what? We just sort of move that, we, we just,
that’s a good way, it’s a way to get more milk production
that’s a good thing to do. And, actually, there is, actually a little
bit of that’s not a decision that you just jump
into. And if you talk to the CEO of Fonterra, he’ll say, I’ll get one of those a week,
right? They’re slightly, they’re not just
decisions where you move, they’re right versus right
decisions. More moral decisions that one has to think
about, and what you’re doing. And so it’s very important to think in your organization about what you stand
for, and how you base yourself and where you’re
moving, or you could find yourself moving, off
course. The, last wanna just say calm in the eye of the hurricane, because of all these
volatility. This is the last story I’ll end up with
this. When I meet many CEOs, and there’s one fellow running a very large global
insurance company. I remember meeting him and I said, I said,
I always ask them what do you wish you’d
learned at the beginning of your career that you know
now, after sort of ten years being a CEO, what do you wish
you learned? What this guy said was I wish I’d learned
about compartmentalization. And I said what does that mean? And he said well, if I’d met you in my first few days as being CEO, I would have
kicked you out of my office within 5 minutes and, I
said does it, why did I offend, is it something
about me? And he goes no, cuz in my first few days
on the job I, my general console had come in
literally when I was meeting I was actually someone from Goldman Sachs
and they said we’ve been sued for six and a half billion dollars, and we’re
probably gonna lose it, the lawsuit. And he said that, I couldn’t concentrate
any more after that, like I, oh, I said, it was, my god, how are we gonna deal with
this, and so I became obsessed. He goes, when I’m talking to you right
now, I have six of those types of things that are like
plates spinning behind my head. They’re big issues, but, I’m focused on
you, I’m not, I’m not distracted by those 6
things. And, that takes that takes some agility in
your brain, to be able to stay focused and, then handle some
weird things that are going on. That’s kind of the, the way it is. I asked, I asked him, how do you learn
that? I said, is that, how could you learn to
be, compartmentalized and resilient, and he
said I, I don’t know. He said, but I’ll tell you something where
I have learned about it is at West Point. And I said really? The military, and he goes yeah, he goes
what they do with the plead class, or at least it was one
session that he went to, is they would say, we’re gonna give
you an engineering problem, which is how to build a bridge that’s been
destroyed, you’ve got 30 minutes. It’s more a mathematics problem but at the
same time you do that you’re gonna be crawling under
barbed wire with what the cadets think is live machine
gun fire, so you don’t kind of want to raise your
head. So while you are solving the math problem,
you got to crawl under the barb wire. And I was thinking I’d probably put that
into a McKenzie training program so we get
people going. But these notions of, again, of character
that sort of what’s your, your purpose. Again, I would urge, we were talking about
this before. Read Clayton Christianson stuff. Not about innovation, but about how one
measures one’s life. It’s a very worthwhile, his HBR article or
the actual book that he’s just written, just on, if you wanna learn
more about that just on purpose. But there’s a lot around character,
resilience. And, the last thing I’ll say, and I
promise I’ll shut up, is, one thing we’ve learned in
the McKinsey. And we look at people in McKinsey, who
have more successful careers that’s by the way, outside McKinsey, not just inside McKinsey, versus their
cohorts. What we found is, the more successful
group has had more bad luck, than the less
successful group. And, that seems a bit counter-intuitive,
right, how could that be the case, the more successful
people have more bad luck than less successful and the
reason is as you know they’ve taken more swings at
the bat. They’ve taken more risks and they failed. They’ve actually failed more but they get
up off their ass and they keep moving, they don’t stop, they,
they keep they keep moving. And one of the things I think that’s very
important on the character side is how can we give
people many chances to try things, recognizing
that they’re gonna fail and then allow them to, to keep, to keep
moving forward. We found that in other industries and, and
professions as well. So, a time of historic change a time for new type of leadership and, in what you’re
doing. Cuz as I said again, I’m jealous for you
guys because you’re gonna be leading in this, in these historic times, I’ll shut up right
there and why don’t we go to questions. [NOISE] There’s one here, I think.>>Dominic, thanks for coming today. My name is Federico, I’m a second year MBA
here, and I’m from Italy. So in all these big changes that are
happening and will continue in the future, where do you see a lot of
the growth coming? Will it just be big companies getting
bigger or will it also be entrepreneurship and how does that impact the model of a
consulting firm helping those clients. So what are the big challenges and
opportunities for a firm like McKinsey in the future.>>Sure, well I, I think there’s gonna be
a huge number of new companies growing. If you, if you look at the, the, the, in the 1930s the average
lifetime of a SNP 500 company was about 90 years, right,
that’s how long they would last. Today it’s about 17 years, right? So if it sounds negative, the death rate
of companies is actually quite high. By the way, I worry about that in McKinsey
too, right? We’re not immune, you have to keep
changing. If you don’t, if your clock speed isn’t at
where the market is, which is going faster and
faster, you will be gone. There is no way, but, and I think, in that
vain, we’re going to see, just because of that, more new
companies that are being created. But if I looked at those sectors, that
are, are going on, if I, again, if I looked at Agfood, I think is going to be one of the single largest, business
opportunities in the world. there’s, it is a very fragmented, unsophisticated value chain, it’s like
mining was 30 years ago, I think we’re going to see a
huge amount of innovation. Companies that we don’t even know about
that are going to be very significant companies over time,
that’s going to be a very big area. I think in as I said on the whole
information services related businesses that we’re going to see form,
they’re gonna be mammoth. It’s a new service sector if you will If
you just think about, even you know, even the businesses that provide information on
used car sales, right, it seems like a pretty boring
benign business. I think that’s gonna become one of the
most significant businesses that, that’s out there because of, of, of just
how people use technology. That’s one, in China, for example, which
is a, a huge, a huge opportunity. I think the, also the form of business
will change. I, I just, I think retail will be, will be
online. It already basically has become that way
in China, much more so than us. In fact, we’ve got entrepreneurs that
we’re working with in China that are now focused on
buying land where they think warehouses will be
build to supply their online, that’s sort of their
business model. They’re trying to, because of just the
scale of where that’s going. I think education is gonna be a massive business because of this lifetime
a learning. I think the transformation about how
education is done, especially at the junior levels. We were talking about German Gref from
Sberbank, if you get a chance to hear him. His view is that the bulk of our
educational money should be focused on preschool, cuz he
thinks that, he, he believes in a lot of the science that is
the, you know, your brain is basically formed by
the time you’re six. So that’s where we should be putting 80%
of our money. And, and he’s actually building businesses
on, on this side of it. I don’t know whether the science is
exactly right or not but I’m just saying that that’s a
change. Healthcare, which I said again is a
backward business from a consumer side. I, I could, I could list off 50 different
businesses. If I get fired from McKinsey, I just,
there’s so many opportunities just on the health care side
of what could be done. So I think it’s a time of huge
entrepreneurial opportunity. And for McKinsey I think the issue is we need to make sure that were working not
with the existing large players and by the way
they’re important because they’re changing they’re not
dying, they’re trying to move. Bu it’s very important that we work with
small players. So when I was in Davos for example I made
it a point this time, I’d basically met with organizations that had
a market capital of less than $200 million dollars
right? And if I look at some of them in Africa
for example, I met a bank CEO, this was a little larger, they
put a billion dollar market cap. They remind me of Indian banks in the mid
1990s. So what we’re ready to do is work with smaller institutions that are more
faster paced. We also have to be able to work with large
organizations to help them basically build their attackers
right, in terms of how they’re operating. And the way we work with clients I don’t,
our clients don’t just want a project teams of people to just come in and serve them, sometimes they just want data,
right? So we’re doing a lot of work in healthcare
right now. Where the hospital group wants our
benchmark data which is proprietary proprietary that
we built and then have some people look and help, advise them on how to use that
information. So we’re now, we probable acquired I guess
four data, proprietary data companies in the last year as we
build that out. And I, l don’t think we’re moving fast
enough on, on that side. So I, I think there’s, I think there’s a
time of huge opportunity and change in terms of
the businesses to be build. yeah. Go here and then.>>Thanks for the interesting talk. How do you see the government structure
changing in organizations? Do you still see Hierarchy in 2050 or any thoughts on that and then also the income
gap. So today the CEO is 300 x of the average
worker in the US in terms of do you see that shifting or
will remain the same?>>Yeah I, I think we’re definitely gonna see flatter organizations, or
multileader organizations. One of the last books that Marvin Bower’s
really the founder of McKinsey, was called the
Leadership Organization. His view was that a partnership model because in McKinsey, I’m not really the
leader. I’d like to say I was no one, none of the
partners would really believe that. Everyone is a partner is out there doing
what they wanna do. In fact, the reason I joined McKinsey is I
didn’t want to be told what to do, and if someone did tell
me what to do, it’s kinda like the hair on the back of
your neck goes up because I wanna have the freedom to build
whatever practice I wanna do. And I think in, as I mentioned in these
organizations where there was this model of the one CEO that has all
the views. With that complexity one person can’t,
there’s no way you can handle that. So I think we’re gonna see much broader
leadership groups where you have more ownership together in,
in the organization. And we’re seeing that happening in
organizations where you have more leaders that they may have an area of specialization but they have a common ownership of, of what they need to
do. So I think we’re going to see flatter,
broader leadership structures, in terms of, of companies and
where they are. And related to that, too, I do think the
income gap is gonna shift. I think that if there are some, vital
parts of organizations that may be six levels down,
in the organization. And again, I don’t want to speak for
Apple, but if you’re the person who, is building
the curves, on the tablets, and so forth,
that’s a pretty critical, they’re doing the
technology on that side, that. That may be creating a huge amount of the value that’s actually occurring in the
organization. I think people are gonna recognize
specialty and capability more, so that you’re gonna see
more variation. In, in many views it’s kinda like, well I think investment banking is going
through a major transformation, it, it’s, it, the
banking industry as whole, as a whole is going through it. One of the things that was always
interesting in, investment banking, and you could argue that,
compensation has been out-of-whack and so forth, that the top person in the
investment bank very rarely was the most highly paid
person, right. I mean you had, you just had wide
variation. So I think you’ll see a broader view about
that. My own personal view and this is more a political view is I, I actually think
we’re gonna see I, I think the excess’s are gonna have to come be, be, be taken back either by
redu. I think it’s very difficult to say you
can’t have more than 300 times, I don’t believe in forcing it but I, I’m
actually a believer in tax. I, I actually think we should pay more
tax, may seem like a non, but I, I think you, someone has to pay for that dislocation of job, government can’t
do it. And, and so someone’s gonna have to pay
for it, and so i think either way that the net if you will, is gonna, is gonna come closer together for it to be more vibrant
system. You know, that’s a, that’s a personal
view. Yeah.>>How do you see the the, kind of the,
overcoming the scarcity mentality around the resource issues that
you pointed out with water and other things? How do you see that evolving? I mean, hopefully it doesn’t come to
warfare but, how can we get ahead of that? You know as nations or communities to
where, you know, both land, arable land being brought up and water resources,
how do you see that playing out, is there a good scenario that this could
turn out to be a happy ending rather than some of the
negative paths that it could go down?>>Yeah I’m, I’m hope, I’m hopeful and
hoping that we’re gonna actually add another dimension to
our metrics which is natural capital. We, we don’t actually measure that if you,
if you will. I mean, it’s an externality. So this is a, and, and what I mean by that is our, you know, the carbon that we’re
putting into the air or how efficiently we’re using water,
how much water we have, I think there’s a notion of natural
capital, that isn’t there. And what I think is very interesting in
Davos, I was in a working session with some people
from Standard and Poor and the United Nations, a guy
named Hawken Steiner, who’s doing a lot of work on, on
natural capital. And how can we put that into bond ratings,
right? So we, we look at a country let’s say,
like Canada where I’m from and we would actually look
at the supply and demand of water or resources that are,
that are critical and that actually gets factored into the
bond rating, if you will. I’m, I’m, I’m not giving the details
enough and it’s not worked out but there’s a sense of pricing
that into things. Right, on the natural capital side and I
think. I think we’re gonna have to go that way. The other one, the other piece of work
that I’m very excited about is work done by Ellen
MacArthur, you know the woman who sailed around the world in the
Vendee Globe, she’s got this foundation and they’re calling it
the circular economy, right. Which is basically requiring businesses,
especially manufacturers. To think more deliberately about what proportion of that material will be
recycled. So if you, if you’re making a cell phone,
you actually have a standard that says that
those parts are made such that when you finish using the
cell phone, you return it to the people you bought it
from. And it’s those parts are, 85% of those
parts are used again even if it’s in some new
technology. And today I’m, I’m giving you a very
gutball view because it depends by metal and by
natural resource. We’re, we’re, we’re recycling about 5% of
what we do, so there’s a huge upside and I think, that’s again where some
regulation may come in, so there’s pricing and there’s
regulation. And I think we’ll have to get there, because if we don’t, the con, consequences
aren’t good. My, again from a very personal point of
view, I think a lot World War II, and you look at what was
happening with Japan. And they, they were going through their
own version of urbanization and a growth in the middle class that had
to be fed. They had resource problems in Asia, and
there were tensions around where to find that rubber and oil
and so forth. And I’m not saying that’s the reason why
we had that, that conflict but it certainly
played the part. And I think if, if you are leading a
country and you’ve got 500,000 people coming into
Shanghai every year and those people need to be fed, and you don’t have enough
food to be able to feed them, you want to find
security of supply. And so I think it’s a, I don’t think we’ll get to that outcome but that if we don’t
that’s the unintended consequence, I think we’ll get
a lot of tension because there just wont be enough
resources to, to do it. Oh sorry, why don’t we go up there and
then to you, is that, yeah.>>Name is Colin Supco, thank you very
much for being here. So I wanted to talk to you and ask a question about the personal attribute side
of your circle here. As a world class consulting company, what
are you doing to address the personal attribute situation other than
talking to executives about, hey, this is, this is the type of new leaders
you need to bringing up in order to survive in this
boot cat environment? And have you seen any models that have
been successful in in making that happen?>>Great question and I, I think, what
what, what we are definitely, we’re and I wouldn’t
say we’re there yet. But we’ve just done a complete review of
our people development side of things. I just say one thing we, in McKinsey I
think, McKinsey alum, there are 192 CEOs of billion dollar plus
companies that come from Mckinsey. And I, and, I, that’s a very important metric for me, that if we actually
generate CEO’s. I’d like people to stay in Mckinsey, but
the fact of the matter is that 90% of the people
leave. Probably the good people, actually, they
go. I’m not that good, so I stay, but, and
they go on and they build. So I’m very keen, what, what is it that
we’re going to do to ensure we’re producing more CEOs and other
leaders if you will as we go through it. What we’ve done is we revamped our people process we done a number of different
things. When I mentioned this tri-sector athlete
piece, what we’re doing is we’ve, that’s why it’s vital for us in having a social sector practice and a public sector
practice. There, there’s important work to be done
there but frankly the reason, the big reason why we
have that is cuz we want people to have
experience and working with those institutions, with
leaders in their place. It’s part of I could think of many other
sectors we could focus even more on but it’s very important in my view
that those are, each of those sectors is at least ten to 15%, each
of them themselves of what we do to ensure that everyone has a chance
to, to work in it. The second thing we’ve done is we’ve
opened up our model on [UNKNOWN] It used to be the case we weren’t allowed
to do so on [UNKNOWN]. When I was in Asia cause I was far away
from everyone I had the view I asked for forgiveness not permission, so I did them without
permission. I got in trouble a few times, but so
having people go and work at an NGO, right, for a year and
then come back. I have people go and work in the
government at many different levels. Sometimes it’s in a delivery unit or
working with a prime minister or, or actually even going
into a cabinet. So we wanna ensure people, have those
opportunities for the [UNKNOWN] and we talk about them. In terms of of what we’re doing and where
we are. And the third thing is what we’re calling take time, which is more the personal
side. And that’s something I’d wished I had when
I joined, which is that, besides your vacation period, we
let, anyone up to a partner level, can spend four weeks or
eight weeks beyond that and do whatever they want outside of McKinsey,
except start a new business. We’re not that keen on, I mean, we like people doing, but not, probably, we’re not
an incubator, so. We, but, what we do is and some people the way just wanna spend time with their
family. Or they wanna do music, or they wanna
climb the Mount Everest. I mean, there’s people who’ve done, but
others are actually, I couldn’t believe we’ve got
a, we’ve got a group of nine associates that have
got together from around the world that are
actually helping. They’re basically running a Telecom
company in Afghanistan. And they’re doing it on four week and
eight week efforts as they go through. It’s their own thing. They decided they wanted to do it. The only thing I worry about is risk
management that, that we, you know, they don’t get, they don’t get kidnapped
or whatever and how we deal with that. But they’ve just decided they wanna do
that and so giving people more freedom, if you will, in terms
of what they do. Cuz, the thing I worry about, in, in
McKinsey and other places, we work hard, I’m not, I
don’t wanna, people work very hard, and there’s a
danger that all you do is work, and then you become a
boring idiot. If all you do is work, and you don’t have
hobbies, or you don’t have, you, you’re not gonna be a
very effective leader. And so that’s another, I’m just saying an element that, that, that that we’ve put
in. The other thing that we’re doing is we
have an effort going on with four of our clients, where we’re
exploring what we think new leadership is. And we’re taking, we took a combined group
of people to Normandy. This may seem like a strange thing to do
and say. What, what would you have done if you were
going onto Normandy Beach. And you don’t have, there isn’t actually a
battle plan for some. And how do you, how did those guys think
about what they’re actually gonna do. We took the group to the Fukushima, you
know if you think about the earthquake that’s
gone on there. Or to Ochaya and said you guys are now leading the response to actually
what’s happened. What would you actually do? And then we’ve created scenarios where
there’s disasters that we, you know, that we, we, we made up. What if someone, what if there’s a
terrorist attack on the Visa data center? And if you think about what the credit
card information, and what that, that would create a disaster from an
economic point of view. Well, so, what is it, you guys have two
days to be able to figure it out. And then we have them actually make a presentation, to, you know, the head of
that organization, to the National Security Council, just to
some different people, so we’re trying, we’re learning if
you will. And what are some of the skills that would
make you better at that and, and how you do it? And so this is, I’d say that’s the
exploration side, and then the commitment is we got to then rewire
what it is we do. What are we training people to do? How many different experiences do we give
people? I’m in the mode now with, we have to, I,
I’m in the mode of we should be dropping people in more pools,
even if we don’t think they can swim, right. So I’ll give one, one specific example. I met with president of Azure, Bajan. Who’s a very interesting guy, wants to turn this country into all sorts of
things. Our normal process of opening up an office there, we’d take a senior person from
Mckinsey. We’d have them be flying in and talking to
people and so forth. What we’re gonna do is take a three year Mackenzie person who’s there and said, you
know what? You’re moving to Baku. Sorry, that’s, you’re, gonna be your home
for the next couple of years. And your job is to build a practice, build
a network. You can bring the people in you wanna do. You do it. You’re going for two years. Go for it. Right and get, we’re, we’re doing this
actually in, in Ghana. I mean there’s, and, again, I’m not trying
to show, well, for the emerging countries we don’t
care so we’ll. It’s more about, these are the greatest
growth opportunities to be able to do it. And so I think we gotta, if you will, if I
could call it, fling people into the pool more with, and
then discover if they can swim. We, we’ll obviously try to help them if
they can’t, but I, that’s the.>>[LAUGH]
>>Yeah. Probably, one more question. I think it was, yeah, here.>>So we talked about China quite a bit and, and, you know, also resource
conflict. You know, when you look at the current
conflict with, with Japan in the East China Sea, you know, maybe not purely rationally explained by
resource conflict. How do you, like, how do you see that
through the lens of all the time that you’ve spent
there? Why should I look here and I should defer
to my colleagues but I’ll tell, I, I am, that’s a conflict that I actually really worry about on the
geopolitical side. I mean there’s lots of thing, you could
worry about Iran, we could, we could worry about you know,
North Africa and what’s going on. I actually do worry about the, that, that
conflict, and I think it is, to your point, it’s more
than just the natural resources that are around
those islands and I, I think what we can’t forget is some of
the history. And this is probably going to be very politically correct, and I’ve got my
colleagues here, can throw something at me, or say it’s
wrong, and I’ll just give you one story. I’ve, I’ve had a, which is, I think the
emotional side that’s there. And I think that the, the need to be able
to kinda build more bridges at all sorts of different levels especially between China and Japan is very
important. Because of the history that’s going on. And the story, I’ll just tell you this
quickly and then I, it’s probably not a very good
story. We had a summer associate conference in Singapore. And we had, there were two Chinese summer students, students from there, from
Harvard, actually. There were two from Taiwan and two from
Japan. We were having dinner together, and I
looked at the Chinese friends and I said, what would you do if Taiwan seceded, said
we’re not gonna be part of China? What was probably politically incorrect,
but what the hell, well so, what, what if, what would you do if
Taiwan seceded? And there’s one, Chinese woman who was
working with us, said, we go to war. I mean they’re part of the motherland, I
said come on you, you would go to, she goes,
absolutely, that’s, they’re part of the, they are part
of China and, that, she goes, I like these
two guys. They’re my friends. They’re from Taiwan. I like them, but that’s the situation. I went oh okay, that, that’s interesting. And I said what about Japan? And this one particular woman said I, I
hate the Japanese. And I went holy god, I said now hate is probably too harsh of a, that’s an
English word. You don’t, that’s not really a word. She goes, now I know exactly what that
word means. Now, I like those two guys, they’re great. But I don’t like what’s being done before
and where it is. And that, that to me, this is not a very
good example. It’s too anecdotal, but I’m just saying,
there, I think there’s a lot of emotion and, and I think it’s
going to be very important that there be multiple
connection points between, you know its high, the high school level, the
business level, the social level. So people can really get to know each
other. And we don’t get the nationalism on all
sides. And again ch, maybe you guys could give me
a thumbs down or whether.>>[LAUGH]
>>You think I’m right on how you feel. But I think there’s, I don’t think we should underestimate the emotional
issues that are there and that they have to be dealt with
as we, as we go through it. And I, it’s interesting because I lived in
Korea for six years. I would say that there’s less tensions
between Korea and Japan, I think there’s actually quite a good relationship over time and how that’s
worked. I don’t think it’s as developed between
China and Japan. So I think we have to be careful about
these conflicts. And the, what I would, what’s interesting,
right. And I don’t mean to sound, this sounds
like, I don’t want to end on a down note but if you, we’re coming up to
the anniversary of world war one. And I don’t know how many historians are
here. But if you think about how that war
started, the, there were accidents, a series of accidents in
some ways that occurred. And what I worry about in geopolitical
side is what if a US naval boat runs over, runs, you know, runs over six North Korean
fishing boats somewhere near those islands when, you
know what I mean? You just can, and that’s why I think
communications is gonna be key. And that’s why I think it’s wonderful when
we have at the university level and high school
level, much more interaction. So there’s a deep social linkage. So people can say, I understand that isn’t
how those people are. And you know, probably, I didn’t wanna end on a emotional thing like that, on the
conflict. But I do think we have to realize that
with a world that’s more volatile, and there will
be scarcities and so forth. And also in equality, there are very very rich people and there are very very poor
people. And the very, very poor people with technology now know how the very, very
rich people live, and some of them aren’t
exactly happy to see how that, that works. And so I think as business leaders we need to play a broader role in working with
that. That’s not up to the government to fix. I think we should, we should play a role
in it. Anyhow, I’ll stop at that point.>>[SOUND].>>[NOISE] Thanks, thank you. [SOUND]

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