By Sean Carter,2014-09-18 00:27
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Mr. Carl Stern, Mr. David Michael, Mr. Wu, Prof. Hu, Prof. Wang, Students, Teachers, Ladies and Gentlemen, Tonight we are having a very good opportunity to invite Mr. Stern, President and CEO of the Boston Consulting Group, BCG to come here to give us a talk on the Global Trends in Competitive Business Strategy. As everybody knows, BCG is ..

Mr. Carl Stern, Mr. David Michael, Mr. Wu, Prof. Hu, Prof. Wang, Students, Teachers,

    Ladies and Gentlemen,

    Tonight we are having a very good opportunity to invite Mr. Stern, President and

    CEO of the Boston Consulting Group, BCG to come here to give us a talk on the

    Global Trends in Competitive Business Strategy.

    As everybody knows, BCG is a leading global strategy and general management

    consulting company whose mission is to help leading corporations in the U.S. and

    other countries create and sustain competitive advantage. As a truly international firm,

    her strong global presence offers clients and employees a wealth of cross-cultural


    Carl Stern joined the Boston Consulting Group in 1974 and led the Chicago

    office fro ividing his time between management responsibilities and advising a small

    number of long-term clients. m 1981 to 1991. He was elected President and CEO in

    1997 and assumed these roles in January 1998. Previously, he served as co-chair of

    BCG‟s Americas Region, d

    Tonight Mr. Stern will be focusing his lecture on the Global Trends in

    Competitive Business Strategy. Among all issues he will discuss, many are related to

    change. Thats likely a very important subject of matter not only for the consulting company but also for every one of us sitting here tonight. So let us give Mr. Stern a

    warm welcome for an excellent lecture.


    Thank you very much, Prof. Yang. Thank all of you for coming. Its really quite

    an honor for us at BCG to have this opportunity to build our relationship with you. We

    have the highest respect for Peking University. We hope this is a step in building a

    closer relationship over time.

    In thinking about what to speak with you about tonight, it occurred to me that you

    probably heard quite a lot about the WTO and whats needed for China to step up to

    the caliber of competition youre going to be facing in the future. In fact such an

    obvious topic that I suspect youre really sick of hearing about it, and certainly sick of

    hearing westerners lecture you about it. So Im not going to do that, Im going to

    basically start from the premise that you have already in China----a foundation of

    various good companies and a few great ones. But as you globalize as you will,

    youre going to face a different kind of challenge. At time that you are ready to be out

    there and leading these companies, the challenges will be quite different, will be of

    much higher order. The kind of challenges that are facing the CEOs of the leading

    global companies today are basically those kinds of challenges that I want to talk to

    you about tonight.

    I want to start with competitive strategy for a variety of reasons, partly, of course,

    because the BCG is good at it. BCG was a pioneer in competitive business strategy,

    which I think, you all know. Both competitive strategy implies individual businesses

    and the whole notion of large companies portfolios of those businesses. The strategy is all about competitive advantage. Competitive advantage, I think, has suffered a bit

    of bad name in the last few years particularly during the Internet boom when people

    started to realize that the pace of change was getting so fast that competitive

    advantage was becoming more and more difficult to attain and harder still to defend.

    And so I think it was a fair thing to say that it was harder and harder for companies to

    gain and defend competitive advantage, but what the Internet era also proved beyond

    doubt is that it may be true but without competitive advantage, youll get nothing,

    nothing at all. And so we saw that during the Internet period those companies that

    failed to either gain or maintain competitive advantage business model simply


    Strategy is in fact about competitive advantage. That means its about winners

    and losers. To dramatize that point, let me just give you some data, some data I look at

    recently though I found quite astonishing although I suppose at back of my mind I

    knew it. But they are something about seeing the numbers that really brings at home. I

    had an occasion to look a few weeks ago at the original Fortune 500 list now. As you

    may know, Fortune is a magazine in the U.S. and for it turns out almost 50 years has

    published a list of the top 500. It started as the top 500 industrial companies, and

    nowadays of course, includes non-industrials as well. I took just the top 100 of those

    for simplicity. How many companies of the original Fortune 100 do you reckon are

    still on that list today? 50 years ago, 1955, almost 50 years ago. The answer turns out

    to be 17. Only 17 of the first Fortune 100 remain Fortune 100 companies today. 33 of

    them are still in existence but didnt keep pace so they are either on the Fortune 500 list or below it, but they are still in existence as companies. Fully half, 50 exactly

    dont exist any more. 6 of them went bankrupt, and 44 of them were acquired by

    somebody else. So I think this is an illustration of what Joseph Schumpeter, a

    well-known western economist termed creative destruction.

    And the case I want to make to you tonight is that creative destruction has never

    been more vicious than it is today. Things are moving faster, new competitors are

    emerging faster, and therefore for existing company, the challenge of continuingly

    adapting, continuingly renewing yourself is absolutely critical. I think that we all are

    pretty familiar with the need to adapt. The business environment is faster, is more

    efficient, more complex, its global. Value chains are continuingly being torn apart,

    redesigned and rebuilt. Competitive advantages therefore are harder to gain, harder to

    sustain. But in an environment like that, its even more critical than it was before. You can think about it as a constant battle. When I joined BCG, I thought the objective of

    strategy was to play for a favorable end game. Today I know that idea was wrong.

    There is no end game in business. Its just after you won a sub-game if you will, there is just the next struggle. And its like that. So I think as leaders we can forget about notions of stuenship and of having a nice time at the end of ones career guiding the

    company for a while before passing that on to one successor. Every generation of

    management will have a challenge that threatens the very existence of the company.

     Now if the need for change is greater than ever, I think that its safe to say that

    the difficulty of affecting change is higher than ever. Basically methods are evolving

    as fast as markets. There is more complexity to be coped with, there is less

    compliance on the part of our organizations these days. And there is a hike of a lot

    more creativity out there in our employees. I dont know whether youve gone

    through these transitions in China or not as yet. But it is a very obvious trend in the

    West and if you havent, you will go through this. Basically social forces are changing

    peoples receptivity to just following orders. People these days in my company and in

    my clients companies are looking for more out of life, and looking for a lot more out

    of their companies. They are what one writer has called a new emerging creative class. These are people who rebel against control, rebel against bureaucracy, and

    rebel against structure. Employees used to be loyal to a company. Today in the West

    there isnt so much company loyalty any more, there is loyalty to a profession or

    loyalty to a place. Mobility is very high. People are willing to take risks, willing to

    move in order to build their capabilities, in order to build their personal brands. So I

    think we are looking at a work force in the West that needs to be motivated very

    differently than my generation was motivated. So we are in a situation where the need

    to change is greater than ever, and the difficulty of changing is higher than ever. And

    all I can tell you is as the business world continues to grow faster and more complex,

    the challenges that threaten the very existence of our companies will come at you fast

    and furious. And survival of even the strongest company is no longer assured.

    Now thinking back to those 50 companies, those 50 out of 100 that didnt make it.

    I think its worth contemplating why. Just think for a minute why companies of that

    stature might have failed cause after all they had enormous amount going for them,

    didnt they, the advantage of competency, the advantage of skill, the advantage of

    brand. All of these things, and yet they didnt make it. Obviously one explanation might be that the companies simply didnt prove equal to the challenge. I think that actually is fairly rare in terms of overall capability for after all, if you are one of the

    largest companies in the world, how can you possibly lack the resources, how can you

    possibly lack the capabilities? I think actually its something else probably. It could be that companies in this situation misperceived the threat, either they didnt see it

    coming or they saw it wrong. An interesting example and I suspect that many of you

    have known something about this. Is anybody in the audience that works for Motorola?

    Because I know there are a number of people in your school from Motorola. Think

    about Motorola, and think about how this might happen. Motorola is a truly great

    company, a company that has adapted itself to change over and over again right from

    its founding. In fact it was founded by a guy that had a product that was guaranteed to

    have a life cycle of only 12 months. So the whole idea of needing to reinvent the

    company was part of the DNA of Motorola from Day One. And yet Motorola, the

    leader in cellular telephones, missed the shift from analogue to digital. Think for a moment about that. How could that happen? Clearly I dare say it wasnt an

    intellectual matter, it wasnt a technological matter. Clearly they had the technology,

the capability and the engineers. So it must be behavioral. It must have something to

    do with either the wrong people not seen or incapability to mobilize the resources

    going in different directions than the traditional success of the company.

    Threats are particularly difficult for big companies to perceive because many

    threats start on the periphery of the organization, far from the center. Especially in

    todays complex global world, its very difficult sometimes to see whats coming. As

    one of my clients said about one of his businesses, the trouble with this business is

    that you never see the bullet that kills you. And I think that is true more and more the larger organizations get, the more complex they get and more geographically far

    from they get. So I think one of the reasons that companies fall by the way side is

    simply that they misperceive a threat that possibly starts on the periphery. I think the

    second reason is, and perhaps this applies to Motorola as well is even more overtly

    behavioral. Thats the organization simply succeeds in avoiding confronting the

    challenge. Engages in avoiding behaviors of one kind or another either deny the

    reality of the threat or finding convenient excuses not to respond today.

    I think that its inevitable that over the next five to ten years, all of Chinas great

    companies will face what I call the adaptive challenge. I want to spend just a second

    on defining my terms. I think there are two kinds of challenges. There is adaptive one

    and theres routine. Routine challenges are real challenges, are challenges where the

    organization possesses the records of knowledge to act on and basically has processes

    to diagnose any issue that comes up and establishes procedures and rules for dealing

    with those issues. Dealing with issues like that probably represents 99.9% of the work

    of the 99.9% of the people in the company. Its what you do every day. And its not

    unchallenging and it can be very difficult work. But its work where essentially the

    perimeters of the issue are known, and the procedures for dealing with the issues are

    known. Adaptive challenges are different. Adaptive challenges are basically

    challenges that require collective organizational learning if you cannot meet the

    challenge. Generally they arise because there is a gap between reality and beliefs

    about how the world works or occasionally conflicting beliefs in dealing with the

    particular issue. And for those kinds of challenges, its not just a matter of efficiently executing a procedure that the organization knows how to do, and the part of people

    that are designed to deal with them. But rather it requires organizations to change

    their beliefs and to change their behaviors in the fundamental way. What I want to

    reassert to you and I want to challenge you with is that for the CEOs of the future, I

    believe getting your organizations to confront the one or two adaptive challenges that

    really are key to the organizations renewal in your period of five to ten years at the hub of the company like that. That is the job of the CEO. Now there are other jobs the

    CEOs might have, but I just want to tell you that they are not very important. If I

    think about how I spent my time, I have to tell you that probably 80% percent of the

    management activity just isnt very important. Im probably lucky in that I probably spend, because of the kind of company Im fortunate enough to be able to lead. I probably spend about 20% of my time thinking about and talking about and getting

    the organization to act on adaptive challenges. I think thats probably ten times the amount of time that most CEOs get to spend on it. Yet that is the only thing that