Table Of ContentWOR L D
O U T OF
B AL A NCE
NAVIGATING GLOBAL RISKS TO
SEIZE COMPETITIVE ADVANTAGE
P AAU L A . L AR U DLI C I N A
L E X A N D R A E E D A J O U X
H . P N
With a foreword byE JüTrEgeRn HamEbrSecVhOt, LChDairman, BASF
COMPLIMENTS OF A.T. KEARNEY
As the saying goes, “If you do not like change, you will like irrelevance
even less.” From computer viruses and epidemics to terrorism and political
unrest, change and uncertainty have come to define the world in which we
live and do business. Rather than resisting and being paralyzed by this pre-
carious state, executives should seize the opportunities it presents.
In World Out of Balance, Paul Laudicina, managing director of
A.T. Kearney’s Global Business Policy Council, calls on the corporate
community to “understand the external world in order to engage it.”
Although anticipating and preparing for every eventuality is impossible,
executives can lead more confidently if they know which corners to look
around and what they may find.
In this light, the book offers a practical framework for building
scenarios that make future possibilities clearer. Five key drivers likely to
shape tomorrow’s global business environment—globalization, demo-
graphic developments, changes in consumer attitudes and tastes, natural
resource trends, and growing regulation and activism—form the founda-
tion. This is not a crystal-ball approach to strategic planning, but a set of
practical tools that can help executives separate false signals from mean-
ingful developments.
The following excerpt is the introductory chapter from World Out of
Balance: Navigating Global Risks to Seize Competitive Advantage(McGraw-
Hill, 2005). For more information, please visit www.atkearney.com.
WOR L D
OUT OF
BAL A NCE
NAVIGATING GLOBAL RISKS TO
SEIZE COMPETITIVE ADVANTAGE
PA U L A . L A U DIC I N A
McGraw-Hill
New York Chicago San Francisco Lisbon
London Madrid Mexico City Milan
New Delhi San Juan Seoul
Singapore Sydney Toronto
PRAISE FOR WORLD OUT OF BALANCE
Timely and provocative, World Out of Balanceis a helpful companion
to CEOs and other decision-makers facing growing uncertainty and
complexity in global markets. Author Paul Laudicina draws on years of
experience in laying out a compelling battle plan for leaders determined
to reach their goals despite a bewildering array of obstacles.
THOMASD’AQUINO
President and Chief Executive
Canadian Council of Chief Executives
World Out of Balanceis a wake-up call to today’s chief executives, who
must work hard to seize the opportunities—and manage the risks—that
an increasingly complex global environment offers.
JOHNQUELCH
Senior Associate Dean for International Development and Lincoln Filene
Professor of Business Administration, Harvard Business School
In World Out of Balance, Paul Laudicina provides a uniquely valuable
insight into the driving forces of the new global environment for business.
This is the thinking executive’s road map to the markets and customers—
and the dangers and challenges—of tomorrow. Don’t head into the
future without it.
MARTINWALKER
Chief Executive Officer and Editor-in-Chief
United Press International
TABLE OF CONTENTS
Foreword
Preface
Acknowledgments
Introduction: A Call to Action
The Masters of Destiny
Taking on a World of Risk
Plotting a New Course
The Gas Pedal: Technology
The First Driver: Globalization
The Second Driver: Demographics
The Third Driver: The New Consumer
The Fourth Driver: Natural Resources and the Environment
The Fifth Driver: Regulation and Activism
Scenarios and Wild Cards
Managing Risks in an Interdependent World
Chapter 1 - Globalization: Two Steps Forward, One Step Back
A (Very) Brief History
Industrialization unleashed
Modern globalization
It’s a Small World—and Getting Smaller
Political globalization
The role of the individual
Living in a Globalized World
Looking deeper
Offshoring revisited
Economic nationalism and picking favorites
The Invisible Hand
Devastating effects
Chapter 1 - Globalization: Two Steps Forward, One Step Back (cont’d)…
Contagion at the speed of light
Hacker heaven
Globalization: Three Possible Scenarios
The rise of localization
Bilateral half-measures
Homo economicus
Chapter 2 - Demographics: An Age of Extremes
A World Gone Gray
The baby bust
Brave Old World: The Impact of Global Aging
Social insecurity
Business takes a hit
Paying the Bill and Passing the Buck
No good options
Rewriting the Social Contract
The new import: purchasing power
Planning early, retiring late
The Youth Bulge: A Ticking Time Bomb?
Assessing the Implications
Searching more shores
Demographics: Three Possible Scenarios
Restless masses
Immigration queue
Global talent flow
Another paradox
Chapter 3 - The New Consumer: Forging Bonds in a Fragmented World
Consumer Power Shift: The Rise of Emerging Markets
The Myth of the “Global Consumer”
Rich Consumer, Poor Consumer
One size fits one
Cracking the Cultural Code
Chapter 3 - The New Consumer: Forging Bonds in a Fragmented World
(cont’d)…
Advertising Without Ads: Marketing Revisited
The Downside: The Backlash
The New Consumer: Three Possible Scenarios
Rice and beans
World bazaar
Hey, big spenders
Chapter 4 - Natural Resources and the Environment: Stretching the Limits
Water Scarcity: A Lesson in Trickle-Down Economics
Not a Drop to Drink: The Evolution of Water Scarcity
Tensions Boiling Over: A Future of Water Wars?
Finding common ground
One Drop at a Time: Managing Water Scarcity
The benefits of going green
Finding opportunity in scarcity
Hungry for Power: The New Energy Crisis
Filling Up the Tank: Potential Sources of Energy
Coal: a return to “black gold”
Roadblocks remain
The Heat is On: The Rising Costs of Climate Change
Cooler Heads Prevail: Managing Climate Change
Natural Resource and the Environment: Three Possible Scenarios
Constrained energy
Necessary invention
Fuel for growth
Chapter 5 - Regulation and Activism: A New Breed of Challenges
We’re from the Government, and We’re Here to Help
A free hand or a strong arm?
A Tangled World Wide Web
Barriers at the Frontiers of Science
Tinkering with the human genome
Chapter 5 - Regulation and Activism: A New Breed of Challenges (cont’d)…
Governments Stretched Too Thin?
Dirty, Rotten Scoundrels: The Corporate Image Under Siege
Adam Smith takes a hit
The Regulators Strike Back
A long paper trail
Shoot the Messenger: Activists Target Corporations
Skip the Molotov cocktail; bring your Blackberry
Targeting a new “mass class”
Social Responsibility: Sincerity or Spin?
Winning hearts and minds—worldwide
Regulation and Activism: Three Possible Scenarios
Big brother is watching
Partial restraint
Chicago boys II
Chapter 6 - Scenarios: Visions of the Future
Scenario One: Patchwork World
Scenario Two: Castles and Moats
Scenario Three: Open Borders, Lingering Fears
Parsing out the Implications
Things that Go Bump in the Night: The Wild Cards
Global epidemic
Major wars
Country disintegration
Terrorist resurgence
Hacker hell
Quantum leap
The Wild Card Impact?
Chapter 7 - Navigating Risks in Turbulent Times
Hope for the Best; Expect the Worst
Mapping Your Risk Profile
Riding the Whirlwind
WWoorrlldd OOuutt ooff BBaallaannccee
F
OREWORD
If you’re reacting to change, you’re too late. You must anticipate
change. You must understand change as an opportunity and make it
happen. Clearly, the future is full of variables, and the realm of pos-
sibility is impossibly wide, but leaders in business, government and
other spheres cannot wait patiently to see how world events will
play out.
I wish it were otherwise, but the business environment does
not offer the prospect of a leisurely stroll under a sunny economic sky.
Economic and political developments are becoming increasingly diffi-
cult to predict. Incalculable events, from the SARS crisis to the war in
Iraq to terrorist attacks and the volatility of crude oil markets, can have
a massive impact on today’s closely networked global economy. As
a consequence of these factors, organizations need to increase their
resilience, reaction speed and flexibility.
So much change, turbulence and information flow can lead
even highly competent executives to the point of reflex action, or
even paralysis. Successful companies encourage people to reach for
the future and shape it actively and responsibly. Successful companies
are bold companies that invest in the markets of the future. And
above all, successful companies do not dwell on anxieties; rather, they
seize opportunities.
At BASF, we’re strongly attuned to the urgency of preparing
for tomorrow’s realities. We have asked ourselves: How can we—
how must we—position ourselves so that we will still be the world’s
leading chemical company in 2015?
My colleagues and I looked hard at where we want to be in
the future and made a detailed review of our strategy to date. This meant
undertaking an intensive effort of precisely the kind that Paul Laudicina
describes and urges in World Out of Balance. We modeled, tested and
digested the key drivers of the future business environment and their
implications at both macro and micro levels. We knew we needed to
understand better how our markets, our customers and our own
company were likely to be transformed by these powerful drivers
of change.
1
Foreword
As we looked to the more distant future, we began working to
prepare ourselves for the increasingly challenging conditions that lie
ahead. Our markets are changing because the biggest growth in the
numbers of new consumers is in the emerging economies, in particular
in China. There, improvements in the standard of living mean that the
number of consumers is expected to rise nearly tenfold by 2015. By
understanding the implications of this trend, we can position ourselves
to make the most of it.
Fortunately, we retained our strategic planning capabilities
over the decade, through both prosperous and lean times. There is no
doubt we have benefited from better foresight as a result. And
although we remain faithful to our core strategies, we will continue to
build on them and adapt or extend them as circumstances require.
Commitment to sustainable development in a volatile world is a must.
Whether you are in a corporate, government or nonprofit
environment, this book will help guide your endeavors. As you work
to shape your future, you will need to explore how major trends could
combine and converge to change our world. Globalization, demo-
graphics, emerging consumer preferences, scarce resources, the rise of
activism and a reinvigorated regulatory environment will play key roles
in determining tomorrow’s challenges and opportunities. World Out
of Balance explores each of these important drivers that shape the
global economic environment, as well as their implications.
An organization that pursues the right strategy and acts deci-
sively can succeed—even in a difficult business environment. The pre-
requisite is being prepared for a wide range of possible outcomes, from
the disastrous to the wildly positive.
I am pleased to commend this book to those who are anxious
to seize the opportunities and manage the risks on the horizon. World
Out of Balance delivers an important message: Now is the time to act.
Take stock today, and you will be able to face tomorrow successfully
with focus, confidence, determination and, perhaps, serenity.
DR. JÜRGENHAMBRECHT
Chairman, Board of Executive Directors
BASF Aktiengesellschaft
14 June 2004
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