daily dispatches from the management vanguard
The Most Important Question in Business Today
We have all been witness to the tremendous contributions that business and markets have made in creating wealth over the last few decades, raising the standard of living for millions. This can be seen in the development of medicines, enhanced food production techniques, broad proliferation of communication technologies, and a host of other life-affirming advances. Yet, in the face of these accomplishments and a dramatic economic downturn, we are also keenly aware of inequities and promises that remain unmet.
In the wake of the financial crisis we are now confronted with evidence that confidence in business and markets has been profoundly shaken. This is seen in the tremendous destruction of wealth, a surge in government and regulatory activities, and heightened social and environmental challenges that are now in stark relief from Columbus to Copenhagen. Add to these developments those trends have been gaining momentum well before crisis—a growing talent shortage, the rise of Asia, climate change, demographic shifts, and others that I and my colleagues at the McKinsey Global Institute have been studying and you have the makings of a perfect storm.
This storm is the coming together of many events, and portends powerful changes that are capturing the attention of many of the executives with whom I speak. To prepare for these changes in the roles of business, governments, and the social sector, what's required is the “smart evolution” of business thinking and strategy. Simply stated, it means creating wealth in ways that are more considerate and aligned with the natural systems upon which all life depends.
This begs the question: What is the proper role for business and its leaders in society, and in the communities in which they live and operate? Getting the answer right is one of the single most important components for building a successful business of the future. I submit that companies that do so will win. Those that do not will disappear. In fact, these issues matter so much that they must occupy a place at the heart of corporate strategy -- not in some sideline or administrative function. The value at stake is too great to not be treated in that way. Many, though not all leaders, are coming to agree.
Admittedly it's still more the norm that institutions and the people that animate them become caught up in internal matters and day-to-day concerns, losing sight of the wider world outside. This gives rise to a second critical question: How can business properly fulfill its role and responsibilities in society given current incentive structures? Our collective response to this will determine not just business success, but whether society succeeds or fails; whether communities prosper or suffer; whether we enjoy sustained economic growth or stagnation.
The answers are not always easy to square with the demands of the market. And yet, the very success of the market, of societies, and of the corporations that operate within them are determined by their effectiveness in getting this right. Our shared prospects for success are determined by the skills that come from our education systems, the quality of our water and air, the effectiveness of our governments, and other building block elements that all now require our most serious attention.
External shocks the likes of which we have just experienced only sometimes arise with limited warning. However, most threats to business arrive after considerable indication of a coming storm. Leaders whose strategies embed and build the capability to sense, shape and prepare for long-term horizon risks and opportunities are better positioned for the trends that will punish their competitors. This is undoubtedly the shape of winning business strategies for the future, and we have an urgency to embed this type of thinking more deeply in strategy than ever before.
Three question for management innovators:
1. What are effective ways to elevate and place business-society issues on the leadership agenda?
2. What are innovative ways and examples of how these issues are becoming more entrenched in corporate strategy?
3. What does it mean to get wealth creation right?
Throw your ideas into the MIX here in the comments and/or contribute a Hack or a Story in response to these questions. I look forward to engaging with you on this vitally important topic.