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Harvard Business Review Notes by Frank Olsson

9 October 2015

Harvard Business Review Notes by Frank Olsson

The October 2015 HBR issue comes with the cover message: The new rules for competition; be paranoid, disrupt yourself; go to war for talent. The third point could be changed to ‘finding, recruiting and retaining the best talent’ – or ‘intensify the quest for talent.’ (I think we should avoid war and war analogies - the war on terrorism, the war on drugs and the war on poverty have not been successful. Business is not about war – it is about service and competition – competition originating from Latin competere – to seek together). Please find below a few notes from this issue.

Refining the job of the CHRO – comment by Richard S Melrose. Effective talent management must reach well beyond the top tiers of the organization. In a six-tier hierarchical organization, 96% of all employees and 80% of all leaders, managers and supervisors reside in tiers five and six. If the company’s frontline work groups fail to create value and consolidate productivity gains, the remaining 4% cannot possibly fix the mess, no matter how talented they may be. A recent Gallup report highlighted the pervasive weakness of front line managers, revealing that only 18% have the capability to manage people well. 
 
Talent Quitting Time – in 2011 54% of quitting was employee driven and 46% was employer driven. In 2015 90% was employee driven and 10% employer driven. Ten times as many people leave after one year as after five years. The best time to recruit new people or to shore up existing employees – is a few months before anniversaries. The longer people have stayed, the less likely they are to leave.
 
The Future and how to survive it by Richard Dobbs, Tim Koller, and Sree Ramaswamy. Corporate profits are beginning a long slide. Prepare for leaner times. From 1980 to 2013 global after-tax operating profits grew 30% faster than global GDP; today they stand at about 9.8% of global GDP, up from 7.6% in 1980. Corporate net income grew more than 50% faster than global GDP, from 4.4% of global GDP in 1980 to 7.6% in 2013. The economic environment is becoming less favourable. The global economy expanded by an average of 3.5% annually since 1980. The century prior to WWII saw 2% average annual growth. Absent a step change in productivity growth, GDP annual growth will fall to 2.1% globally and 1.9% in developed countries for the next 50 years. Borrowing costs simply cannot fall much further and might even be starting to rise. The big tax rate decline of the past three decades seems to have come to an end. Tax inversion schemes, offshoring, and the use of transfer pricing are drawing political flak in several deficit ridden countries.  In 1990, 5% of Fortune 500 came from emerging markets. In 2013 26% did. By 2025 more than 45% will. The world’s three largest makers of domestic appliances as measured by profits are Chinese with combined revenues of $60 billion and profits of $4.5 billion. Chinese companies have grown 4-5 times as fast as Western firms. The total revenue of the tech sector has grown from $600 billion to more than $6 trillion over the past three decades. Firms that were able to reallocate capital in response to changing conditions had substantially higher growth rates and returns to shareholders. To break the inertia, some companies have a “harvesting” rule that involves putting a percentage of assets up for sale every year unless a compelling reason can be made for keeping them. Others have established internal disruption teams and charge them with developing plans to attack the core. 
 
How Smart Connected Products are Transforming Companies by Michael Porter and James Heppelmann. Smart, connected products are forcing companies to redefine their industries and rethink nearly everything they do, beginning with their strategies. The unprecedented data and capabilities that smart, connected products provide are changing the way firms interact with their customers. Those relationships are becoming continuous and open ended. A revolution is underway in manufacturing and service industries.
 
Notes by frank@olsson.co.nz 24 September, 2015

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