Here is an excerpt from still another outstanding article written by Richard Dobbs, James Manyika, and Charles Roxburgh, featured online by The McKinsey Quarterly (September 2011), published by McKinsey & Company. To read the complete article, obtain information about the firm, access other resources, and sign up for email alerts, please click here.
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Instead of issuing narrow calls for lower taxes, the private sector should take the lead in making the case for driving growth through innovation and investment.
Adversity can be a great motivator. Confronted by oil shocks in the 1970s, governments and businesses together initiated a wave of innovation that boosted the supply and productivity of resources from energy to agriculture. This achievement set the stage for a 30-year decline in resource prices. Something similar is needed today—urgently. With consumers and governments both sidelined by outsized debts, the lever now must be a new wave of private investment. The goal is to reignite a virtuous cycle of value-added growth, productivity, and job creation of the kind the developed world last saw in the ’90s.
The division of labor is clear: if policy makers remove barriers that act as a disincentive to invest, as well as create the conditions in which business can thrive, the private sector can provide the skills and capital to deliver the innovation the world needs. We see five main areas of opportunity.
1. Bring private capital to public works.
In many developed economies, degraded infrastructure—airports, bridges, ports, power generation and transmission plants, railroads, telecommunications facilities—now drags down the global economy’s long-term growth and competitiveness. The American Society of Civil Engineers, for instance, estimates that the United States needs to spend $2.2 trillion over the next five years to bring its existing infrastructure up to what the organization calls a good condition. This is double the amount currently planned. Many European countries face a similar challenge.
Most governments simply don’t have the money. The creative alternative is to tackle the political challenges—heated debates over private ownership and proper rates of return, for example—and spur a new round of privatization. With strong balance sheets, companies and consortia could take over the operation of new facilities and provide the investment to upgrade old ones. Addressing regulatory barriers would also spur new spending on the infrastructure, such as power stations and telecommunications facilities, already in private hands. McKinsey Global Institute’s (MGI) rough analysis suggests that $200 billion of additional infrastructure expenditures a year could create around two million jobs.
2. Strengthen Internet ecosystems.
In mature economies studied by MGI, over the past 15 years the Internet has accounted for 10 percent of GDP growth, which accelerated to 21 percent in the past five years. The benefits were widely shared. One study of 4,800 small and midsize enterprises found that those with a strong Web presence grew more than twice as quickly as those with a minimal or no presence—and created more than twice the number of jobs. [See the full McKinsey Global Institute report Internet matters: The net’s sweeping impact on growth, jobs, and prosperity (May 2011).]
But more must be done to leverage the full power of the Internet ecosystem. While the United States currently has the strongest one, an expansion of broadband access and performance is needed to cope with rising demand and innovation. Meanwhile, Europe critically needs to go beyond the provision of Internet service, by creating more high-impact innovators. To encourage them, policy makers must ensure the Internet’s openness and competitiveness, invest to develop and retain the human capital needed to drive Internet innovation, and ensure the availability of capital so that fledgling innovative businesses can grow. If conditions are right, private-sector innovation and jobs will follow.
[During the remainder of this article, its co-authors discuss three additional "main areas of opportunity. To read the complete article, please click here.]
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With a few notable exceptions, business leaders have been slow to raise these issues. When executives make their voices heard, they too often issue narrow calls for lower taxes rather than advance broader ideas for creating a dynamic pro-growth agenda. It is time for the private sector to take the lead in making the case for driving growth though innovation and investment. That’s not just the social responsibility but also the self-interest of business.
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Richard Dobbs, James Manyika, and Charles Roxburgh are directors of the McKinsey Global Institute and directors of McKinsey & Company. They are based out of the Seoul, San Francisco, and London offices, respectively.
How to locate, penetrate, and dominate in new markets or in new customer segments
Opinions are divided (sometimes sharply divided) about where and how to generate new revenue sources when competing in a global economy such as the current one, and especially when one’s resources are limited. W. Chan Kim and Renee Mauborgne advocate what they characterize as a “blue ocean strategy,” one that will enable business leaders to “break out of the red ocean of bloody competition by creating uncontested market space that makes the competition irrelevant.” In Mark Johnson’s Seizing the White Space: Business Model Innovation for Growth and Renewal, the “white space” referred to in the book’s title “is the range of potential activities not defined or addressed by the company’s current business model, that is, the opportunities outside its core and beyond its adjacencies that require a different business model to exploit.” Advocates of these and other strategies stress the same objective: creating opportunities that others don’t.
That is essentially what Stephen Wunker also has in mind when sharing his own thoughts about how to locate, penetrate, and dominate in new markets or in new customer segments. As indicated in the Preface, he really does explore in detail “how the strategies that companies pursue in established industries often do not apply when markets are nascent. Indeed, many of the best strategies for new markets – targeting nonconsumers, entering narrowly, avoiding sales channels, and other key moves – at first can seem counterintuitive. For established firms, success in new markets may also require acting in unfamiliar and entrepreneurial ways.”
Rather than marinating his reader in theories, hypotheses, “what ifs,” and subjunctive speculation, Wunker concentrates on real-world situations, involving real business leaders of real companies, and suggests what lessons can be learned from them. These exemplar organizations include Apple, Craig’s List, eBay, Facebook, GE, Google, Monster.com, and Phillips. Throughout his lively and eloquent narrative, Wunker addresses maj0r business issues that include these:
o Why new markets matter
o How to find them and evaluate them
o How to assess “what doesn’t [as yet] exist”
o How to attract the first customers (sometimes early adopters)
o How to identify and evaluate various “paths” to market penetration
o When to initiate penetration and how to sustain it
o How to take full advantage of an emerging market’s potentialities
o How to create or strengthen a corporate competency while locating and exploiting a new market
o The nature and extent of government’s “catalytic role”
I especially appreciate Wunker’s makes skillful use of several reader-friendly devices such as a “The chapter covers…” section at the beginning of each chapter that serves as a head’s up; and then a “Summary” at the end of each chapter that will facilitate, indeed expedite frequent review key points later. Readers will also derive substantial benefit from various “Tables” and “Figures” that consolidate valuable information and are strategically located throughout the book. In Chapters 1-3 alone, they include “Economic transformation over five decades” (Page 6), “Most Valuable Companies in the United States and a Few of Their New Markets” (7), “Moving from Product Definition to Problem Definition” (27), “Monitoring New Factors for New Markets” (40), “Platforms beget platforms” (41), “Eight drivers of fast market growth” (61), and “Deconstructing the business model” (71).
This brief commentary can only begin to suggest the scope and depth of what Wunker shares. I know of no other single source that offers more and better advice on how to locate, penetrate, and dominate in new markets or in new customer segments. He concludes thusly: “New platforms, emerging consumers, and proliferating discontinuities are opening up countless new markets even as they threaten more established ones. The pace of change will not slow down. This is the time to act.” Of course, it remains for each reader and her or his associates to determine whether or not that initiative and consequent commitment are appropriate to the given organization. Stephen Wunker can assist with making that decision
Here is the latest post by Joseph A. Maciariello featured in the Joe’s Journal series at the Drucker Exchange (Dx) sponsored by the Drucker Institute. The Dx is a platform for bettering society through effective management and responsible leadership. It is produced by the Drucker Institute, a think tank and action tank based at Claremont Graduate University that was established to advance the ideas and ideals of Peter F. Drucker, the father of modern management. To check out a wealth of resources and subscribe to its online newsletter, please click here.
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“Tyranny substitutes one absolute boss for the pluralism of competing institutions….To make our institutions perform responsibly, autonomously, and on a high level of achievement is thus the only safeguard of freedom and dignity in the pluralist society of institutions. Performing, responsible management is the alternative to tyranny and our only protection against it.” Peter F. Drucker
This quote from Peter Drucker picks right up from my last Joe’s Journal entry, and underscores how Drucker’s lifework was devoted to producing a pluralistic society of competing, functioning organizations to prevent the tyranny of totalitarianism.
If private-sector organizations devote themselves to building institutions that generate wealth, and do so in a socially responsible way; if government evaluates its programs against predetermined objectives and abandons those programs that no longer perform to make room for others that are socially desirable; and if social-sector organizations establish missions that commit the institution to changing lives for the better, we will have something approaching a functioning society of pluralistic organizations that Drucker discusses in this passage.
This, of course, will never be easy to accomplish. There will always be special-interest groups whose motivations will be at odds with public priorities. There will always be private-sector organizations that violate the interests of society. And social sector organizations will always face the temptation to “do good” rather than to achieve results in an effective way.
Drucker seemed most optimistic, however, about the chances of the social sector. And I share that optimism. I am encouraged, in particular, by how many of our young people are devoting their lives to organizations that are seeking to change the lives of others, and to make our society better.
Young people must contend with economic conditions that recent generations of Americans have not had to contend with. The American Dream, as we have known it, may not be so easily reached by our children. But maybe significance is, in part, replacing traditional measures of success and redefining the definition of the American Dream. Let us hope so.
I wish each of you a Happy New Year.
Last Friday at our First Friday Book Synopsis, I presented my synopsis of Steve Jobs by Walter Isaacson for the first time. I repeated it to another audience on Tuesday and, I suspect, will do so a number of more times in the weeks/months to come. I have found that a book synopsis is a great conversation starter, and then, a valuable and useful “let’s think about things” catalyst. Isaacson’s book is terrific for just such a purpose.
So, on Tuesday, a man walked up and wanted to talk about Steve Jobs (the person, the business leader – not just the book). This is a sharp man. He earned a PhD, he started a successful company, and he is involved in an exciting new start-up. He is extremely well-read. (In this conversation, he told me of a book that I have not read, and I immediately downloaded into my iPad). Oh — he is also a long-time Mac user.
He had quite a few observations about the leadership style of Jobs. He asked me if I knew the MobileMe story, when Steve Jobs let the team “have it” for their failures. I did know the story. (I forget where I first read it. You can read about it here). Here’s the key part of the story:
Jobs asked his team what MobileMe was supposed to do. Upon receiving an answer he quickly fired back, “So why the f*** doesn’t it do that?”
This astute observer then said this about Jobs:
“Steve Jobs was the greatest advocate for the customer I have ever seen in a business leader.”
That may be IT! – the insight about what made Steve Jobs great. As a business leader, Steve Jobs cared about, was passionate about!, was demanding for, the customer and the customer’s experience. He cared that his products made the life of the customer better, and easier. And his products do exactly that.
And though he was hard to work with/for, this was his motivation. From the Isaacson book:
Business Week asked him why he treated employees so harshly, Jobs said it made the company better.
In other words, according to the insight of this Tuesday night participant, Jobs wanted to make the company better in order to make the customer experience better. He was hard on his employees in his role as advocate for the customer.
This is the insight of the year!
This brings a real clarity to my understanding of Steve Jobs, and to business success in general. You have to care for the customer. You have to be an advocate for the customer, all the time. Because, without the customer — without a happy, genuinely satisfied customer — your days are truly numbered as a business.
You can purchase my synopsis of Steve Jobs, with audio + handout, at our companion web site, 15minutebusinessbooks.com.