Former U.S. Labor Secretary Robert Reich said companies that continue to measure success in terms of business cycles -- the next week, the next month, the next quarter -- will be unable to compete in an increasingly global economy, and he urged IT professionals to rise up and help their companies adapt.
"Many of you in the IT field are change agents. If you are not change agents you are not actually doing your job, because IT is all about change and the management of change," said Reich, a headliner at last week's IDC conference in Boston, now a professor of public policy at the University of California, Berkeley.
Relational capital in the global economy
Organizations that will thrive in the global economy will be driven not by the short-term expectations of Wall Street, Reich suggested, but by his so-called change insurgents. These educator-executives can persuade managers to develop strategies that comprehend the structural economic change brought about by globalization, technology and the graying of the baby boomers.
In his view, globalization is in large part about supply chains in which companies "are getting everything from everywhere and selling everything to everywhere."
Companies should be looking at China, India, Brazil and Russia not only as manufacturing platforms or places for cheap labor, but also as "huge and growing" markets. "You have to be there, making relationships with local providers, retailers, distributors," he said.
Successful companies have the dexterity to tap the expertise wherever it happens to be and to move their people to where demand is growing. Building the alliances with suppliers, distributors and retailers all over the world, however, is not easy because this "relational capital" doesn't show up on the balance sheet.
"My beautiful hips"
"If you are going to be a change insurgent you are looking behind the balance sheet to where the relational capital is," Reich said.
Globalization is also not just about low wages. "It's about getting cost down and also getting value up," Reich said.
He used the example of his double hip replacement. "They are beautiful. I wanted to know where they were made. I found that my beautiful new hips were actually fabricated in Germany, not a low-cost area to do work, but they are fabricated in Germany because that is where the expertise was," he said. The hips were designed in France. "I have French designer hips."
In the new order, the standard of living depends less on the companies that are headquartered in a city or state and more on the value the people in that locale add to an increasingly integrated global economy, Reich said, "regardless of who they work for."
"If they add a lot of value, they will make a lot of money. The money they make will go into the local economy and provide a lot of jobs for a lot of retail and restaurant and hotel and hospital people," Reich said. If they don't add much value to the global economy, they will not pull money into that locale and the standard of living will drop.
Innovation: the new bottleneck
Even if there were no globalization, the world would see enormous changes in every economy because of technological change, Reich said. The biggest effect of IT is in manufacturing. "Even China is losing manufacturing jobs. How can that be? Because Chinese factories are becoming more efficient," he said.
Competitive advantage from the 1950s through the 1970s meant mass production -- the ability to produce high volume and lower the cost per unit. Three or four major players came to dominate an industry, standardizing processes and coordinating prices. "It was an efficient system but did not generate much innovation," Reich said.
Technology is fueling a different means of production, allowing companies to tailor production to particular end users. High volume is no longer the entry barrier, because any niche now is fair game. (In purchasing, high volume still confers a competitive advantage, he conceded, alluding to Wal-Mart.)
In an economy where competitors have the same access to finance and information, the ability to innovate is an important competitive edge.
Business lacks the tools to measure the value of human capital. Change insurgents must proselytize the view that people are company assets, not costs to be cut, Reich said.
"The only way to develop sustainable competitive advantage is by careful recruitment, training and retention. If people are viewed as costs to be cut, your organization is moving in the wrong direction," Reich said.
Pig through the python
Access to talented people will be severely constrained by the third major trend in the new economy, Reich said -- demographic change. The 76 million baby boomers approaching traditional retirement age will present a problem on both the supply and demand side, he predicts.
On the supply side, the dearth of talent will force companies to compete intensely for workers.
The companies at greatest risk for failure in the new economy are ones that have been successful in the past. "How can you change if the dominant image in people's mind is past success?" The organizations that are changing are those that have had past traumas, he said.
Let us know what you think about the story; e-mail: Linda Tucci, Senior News Writer