Successful Business Leadership

Despite the drumbeat of negative things the politicians and media have to say, society today is and has been good. It is likely to get better, but only if we work to achieve a better life and have a positive attitude. Honestly, I’m tired of all the negativity, fighting and blaming. It is true that the world we live in, past and present is not perfect, but it never will be here on earth. The reality is that there are a lot of positive things happening also, but they never seem to make the news. Are the challenges we face in society due to someone or something failing? Or are significant structural changes in the world occurring? Many would have us believe that failure is rampant throughout society. While there are legitimate problems of concern and failures, I believe the world is actually changing to a better society slowly each and every day. With such changes are disruptions and difficult challenges. But the positive benefits of change take time, are difficult to accomplish, and can be confusing. In the face of change, we can have a positive response to the opportunities or a negative response of fear and blaming. Increasingly, our society seems to be choosing the negative response. Here then, is some information and perspectives for a positive view of some of the changes occurring in our society. Feel free to discuss and debate them.

Oil Price Increases, Globalization, and Global Warming

5 years ago, a barrel of oil was $26, today it closed at $132. What happened during the last 5 years? It is the consequence of 30 years of demand growth that exceeded supply growth. In the last 10 years, China and India have added 350+ million people to their middle class, driving more cars and buying new homes. At the same time, the rest of the developed world’s population has continued to grow. The supply of oil, however, has simply not kept up. Oil producing countries seek to preserve the long term value of their resources, the North Sea and other major producing fields have significantly declined in production, and the US is restricting where exploration can be conducted for appropriate environmental concerns. Everyone is screaming “Why don’t we have alternative energies?” in our desire to lower oil prices and reduce climate change threats. They won’t get implemented into society until the economics are favorable, and that is now happening. Nissan has announced plans for an all-electric battery powered car in the US by 2010 and for all major auto markets by 2012. Hybrid car sales are up 16% compared to last year at this time. According to Eric Martinot (2/2008) of the Renewable Energy Policy Network, “Today, there is unprecedented policy leadership at national, state/provincial, and local levels in many places around the world. That policy leadership, coupled with high levels of investment and industry growth, means that renewables are more central to our global energy future than ever before. While researching and writing the Renewables Global Status Report, I continue to be amazed at the trends and staggering developments that now appear virtually daily. (And it is impossible to capture all of them!).” But here are a few examples of renewable and improving energy efficiency:

• The energy use per unit of GDP throughout the world has been in decline since 1995 from 9500 BTUs/$ of GDP to 8000 BTUs/$. The US has decreased from 11000 BTUs/$ to 7000 BTUs/$. China, however, is now increasing its energy usage becoming less efficient.

• Since 1978, the size of refrigerators has increased by one-third, while their energy usage has decreased by two-thirds.

• In Germany, renewable energy now accounts for 6.7% of consumption (up from 3.5% just 5 years ago).

• Free-standing underwater electric turbines (in rivers and the ocean) will soon be generating electricity reducing the need for more hydroelectric dams.

• Energy technology management companies, like Genea Energy, are reducing energy consumption by up to 60% in existing buildings – “Building automation services streamline energy utilization for building owners, property owners and tenants. Systems and programs are designed to eliminate unnecessary or excess expenditures for utilities through the efficient control and management of energy costs. We accomplish this through accurate optimization and maintenance of all building automation, mechanical and electrical systems.”

Recession 2008 and the Housing Credit Crisis

Bank write-down of bad housing loans since the credit market bubble burst in August 2007 now equal $335 billion. 1.5 million households went into foreclosure in 2007 (+50%) and 9 million households now owe more in their mortgage than the house is worth. Certainly this is not good for these people or the economy. But the subprime market lending was not good finance practice to begin with and the market is now correcting. Hundreds of unregulated lenders are now gone. No longer do we assume that housing prices cannot go down (a bad assumption as any asset price can and does go down dependent on supply/demand conditions). Banks have increased liquidity and are reducing the amount of leverage in-place. The stock markets appear to be stabilizing. Corporate credit spreads have declined significantly indicating the market is pricing interest rates with a view of reduced risk levels. The Bank of England’s Financial Stability Report expressed a cautious optimism and the US Federal Reserve has stopped lowering interest rates believing the worst may be in the past. While no one can know for certain where things stand today in the economy, the question now appears to be how long, not how deep a recession or economic slowdown we will have. The US GDP was a +0.5% in 1Q2008 and the world GDP was +3.7% in 1Q2008. While these are not good rates, we are still experiencing economic growth with positive signals such as booming emerging economies (Brazil, Russia, India and China), excluding oil the US trade deficit is shrinking significantly, and we have a booming microfinance industry in the world providing capital to the poor to start new businesses. This is not to say things are great, but that we may have weathered the storm and there are bright spots. Instead of a broad-based recession, we are experiencing segments that are in deep recession; perhaps government economic regulators have adequately responded and prevented a larger problem. While the US is having economic challenges, it is important to note that world GDP per person (a better measure of economic activity) has grown at 4.5% per year since 2002 – the fastest in more than 3 decades. The world is changing. Is now the time to implement pro-growth US economic policies?

Competition Continues to be Fierce, Always Will Be

Globalization has made the business world much more competitive, contributing to economic and job anxiety as well. But competition is a good thing for consumers and requires businesses to continually change and improve. Some examples of emerging competitive changes include:

• China has launched the Commercial Aircraft Corporation of China (CACC) to design and manufacture airplanes. They will compete with Boeing and Airbus. While one can debate the wisdom of this strategy, the forecast is that China alone will require 2,800 new passenger and freight aircraft in the next 20 years. Boeing projects a worldwide market for new aircraft during this time of 28,600 aircraft.

• The Boston Consulting Group has identified 50 “local dynamos” that are prospering and competing effectively against multi-national businesses. According to BCG, they are “representative of a broader phenomenon: the rise of successful local companies in rapidly developing economies around the world”, such as:

1. Gol – a Brazilian budget airline who understand consumers’ trade-off of convenience for price, thus flying at non-traditional hours.
2. Titan Industries – an Indian wristwatch company that understands people with low incomes do not want to sacrifice quality and style, so they have figured out how to do both at low prices.
3. Focus Media – in China provides “out of home” flat panel advertising using workers on bikes to replace content with discs and flash cards instead of an expensive electronic network
4. MegaFon – is the first all Russian mobile phone network providers. They have a pretty cool YouTube video.
5. Ford Motor is making the Fiesta car as the first in its strategy to “create vehicles that with small adjustments can be sold in Europe, Asia and the US.”

Internet and Technology Continue Long March Upward

Remember that it is only since 1994 that the Internet and web browsers first came into existence for mass market usage. Google is only a nine-year old company. Today there are 3.3 billion mobile phone users and 1.3 billion internet users who conducted 113 billion searches last year (with a world population of 6.7 billion people). Web 2.0, of course, is about the ability for people to create, share information, and collaborate directly between internet users. We see this routinely now (and developed rapidly) in businesses like the social network sites (Facebook and MySpace) and in Wikipedia (9 million articles and 250 languages). Emerging next is the concept of mini-social networks such as Ning, a startup headed by Marc Andreesen, for people to establish their own social network. Who knows what Web 3.0 will be, but people talk about it as “applications pieced together”, or full video with 10 megabit bandwidth for all, more artificial intelligence software, and the web as a truer database structure. With the emergence of the web and its future, we are seeing the newspaper industry shrink. The 530 biggest newspapers have experienced a 3.6% further reduction in subscriptions since December 2007 and are losing advertising revenue. They simply need to find new ways to be relevant. The Economist points out that with the development of faster cellular networks, more wi-fi, and more mobile devices to communicate with, we as a society are becoming more “nomadic”. We can work from anywhere and will be able to connect with local information real time as the phones will know where we are, at what time, and where we are going next. Imagine the services that can be created. For example, INRIX compiles traffic pattern data using satellite navigation systems, vehicles that relay real time traffic data, installed road sensors, and tracking mobile phone connections. They then report on a real time basis the traffic patterns to phones, web and auto navigation systems to help us avoid traffic jams (which cost businesses billions of dollars annually in lost productivity and consumers wasted fuel usage).

Leadership and Jobs

Who is leading the positive changes in society? People and businesses are leading change. In his book “The Powers to Lead”, Joseph Nye concludes that leaders need to practice both hard and soft power, or what he calls smart power. As circumstances change, different leadership styles and skills are needed. Knowledge workers will not respond to hierarchies and strict instruction. Persuasion, participation, creativity, and influence are becoming more important in leadership. According to SCORE, the nature of jobs is that they are becoming more flexible, independent and have a greater diversity of responsibility. Small businesses continue to grow and develop (<20 people) with over 40 million Small Office, Home Office US companies, and more than a million people joining their ranks annually.

There are lots of positive things happening in society that will lead us to an improved life. We have to recognize and grasp the opportunities. But they will take time to develop; in the meantime, we want lower oil prices now.