Strategy in an Uncertain World

Rev. Dr. John Niles, Victoria Park United Church and Director, The Empire Club of Canada; Heather Ferguson, Director, Development and Alumni Relations, Faculty of Nursing, University of Toronto and Director, The Empire Club of Canada; Fiona Blondin, Director of Public Relations, 0.1. Employee Leasing and Director, The Empire Club of Canada; John Armstrong; Partner, Financial Services, Accenture; Jack Mintz, President and CEO, CD Howe Institute; Dennis Melnbardis, Partner, Communications and High-Tech, Accenture; Eugene Roman, Chief Information Officer, Bell Canada; Marty Lippert, Vice-Chairman and Chief Information Officer, RBC Financial Group; Gaylen A. Duncan, President and CEO, ITAC; and The Hon. Donald MacDonald, PC, CC, Senior Advisor, UBS Bunting Warburg Inc. and Former High Commissioner to Britain.

Introduction by Ann Curran

Accenture is the world's leading management and technology services organization. Through its network of businesses approach, Accenture delivers innovations that help clients across all industries quickly realize their visions.

Accenture traces its roots back to 1953 with the installation of the first computer for business application at General Electric. In 2001 it undertook a global re-branding initiative and changed its name to Accenture.

Vernon Ellis is Accenture's International Chairman, with responsibility for the leadership of the firm's external relations. Mr. Ellis takes a leading role in representing the firm in public forums, developing and communicating distinctive viewpoints on global business issues as well as building relationships with governments and key clients throughout the world.

He joined the firm in 1969 after graduating from Magdalen College, Oxford, with a degree in Philosophy, Politics and Economics. He became a Partner in 1979 and Managing Partner for the United Kingdom in 1986.

In 1989 he became Managing Partner for Europe, Middle East, Africa and India. He played an instrumental part in setting the firm's strategy as part of the worldwide management team, in particular focusing on enabling Accenture to transform itself to work effectively across borders. He became the firm's first International Chairman in 1999.

These are troubling times for global business. The terrorist attacks of September 11 have conspired with global economic slowdown and the rise of the anti-globalization movement to provoke new levels of uncertainty and shatter our sense of confidence in the future.

In his address, Vernon Ellis will set out how global business can succeed in these highly uncertain times. He will describe some of the different ways in which the global economy and society could evolve over the next 10 years, and highlight the impact of these different scenarios on business. In his remarks, Mr. Ellis will draw on his own experiences as International Chairman at Accenture and as private-sector Chairman of the Digital Opportunities Task Force--a multi-sectoral initiative launched by the G-8 meeting in July 2000 in order to find ways to marshal the power of information and communication technologies to create sustainable development in the world's poorer countries. Mr. Ellis will underline why such co-operation of this kind is crucial to the future not only of developing countries but of the industrialized world as well.

Vernon Ellis

It is both a great honour and pleasure to address the Empire Club today. For almost 100 years, many distinguished speakers from all walks of life have addressed the Empire Club on the key concerns and issues of their times. Their speeches constitute a fascinating chronicle of the past century--a unique insight into the forces that have shaped our world, and its major periods of dislocation and change.

Certainties becoming Uncertainties

Today we face another era of great uncertainty. In this environment all the basic tasks of running a business--strategy formulation, investment decisions and operational management--have become complex challenges.

Not that running a business was ever simple. But at least until recently one could safely assume that the broad economic environment was relatively predictable.

During the '90s we began to believe in a model of an increasingly globalized world and a world in which we had cracked the major economic problems and eliminated the economic cycle.

During that period, I sat in many discussions at the annual Davos meeting of the World Economic Forum, where the shared starting assumption was that globalization was inexorably a result of three powerful factors:

• A standard economic orthodoxy based on sound

money, balanced budgets, open borders, free competition and shareholder value.

Information and communications technology. This is creating extraordinary reach for global companies. The pace of change continues to be driven by Moore's Law, which dictates that everything gets cheaper/faster at a rate of 100 per cent every 18 months.

• The search for global scale and markets by multi-national companies, itself facilitated by ICT which enables global sourcing, global supply chains, global customer relationships, etc.

One example of the result of these factors driving globalization is that over the decade of the 1990s, global foreign direct investment increased 500 per cent.

Globalization formed the backdrop for the new certainty--a new economic world order, which was extended fancifully into the term "new economy." We also began to believe that the only role of government was to keep out of the way. Even the East Asian crisis of 1997 did not have the long-lasting impact that people dreaded at the time.

Now it has to be said that these drivers of globalization were indeed strong and remain strong today. There is also no doubt that globalization has, on the whole, improved the lot of most people in the world. Studies by, for example, the United Nations Development Programme show there has been a real improvement in the living standards, health, education and prosperity of the mass of people in the world.

However, over the last year, three developments have combined together to result in a much more uncertain and challenging global environment. These developments are:

• Impact of the anti-globalization movement;

• The global economic slowdown; and

• September 11 and the subsequent war against terrorism.

Impact of the Anti-Globalization Movement

Yes, this movement is sometimes violent and anti-social. Certainly it is messy--a pot pourri of protest movements, some very well meaning, others more anarchic.

And yet they have tapped into deep-rooted public concerns about widening divides in the world. It has become

increasingly clear in particular that Africa is actually slipping backwards; this is not just a question of the divides widening because the rich have got richer, but in many poor countries the poor have got poorer, even though it is dubious as to whether this is caused by globalization, as opposed to governments in many countries conducting their affairs in such a way as to prevent globalization from bringing benefits.

Many people worry about the fragility of the world, given these huge and growing divides.

Another worry is the perceived power of multi-nationals, which are seen as remote and unaccountable, and the role of institutions such as the World Trade Organization. This is attacked by labour in the developed world because of the worry about losing jobs (which of course completely misses the point of creating new jobs because of the benefit of free trade). It is also attacked by developing countries with sometimes more justification for what they see as inequities in developed countries preaching free trade but still maintaining barriers in areas such as agriculture and textiles.

The Global Economic Slowdown

This is of course partly just the normal economic cycle. No, it hasn't gone away and it has been good to be reminded of it.

But this was made worse by the collapse of the dot-com bubble. This too was good as it has removed a lot of froth that was created by momentum pricing and has spelt the end to the new economy.

It may have punctured too the infinite growth assumptions of the technology sectors. Less helpfully this has introduced huge uncertainties about the benefits of technology, which has delayed reinvestment. Longer term, I am confident that Moore's Law will continue to drive technology change which will in turn drive a revival in this sector.

Meanwhile, it is a question of psychology; if people feel uncertain, they will be slow to invest in capital and jobs. Uncertainty leads to more uncertainty and hence this oft-used, if rather irritating, phrase "lack of visibility."

September 11 and the Subsequent War against Terrorism

This of course gave a strong additional twist to economic uncertainty. This has led to two interesting developments:

• A resurgence of government. This is clearly the case regarding security, but also in the critical role of fiscal stimulus applied, usually successfully, in many Western and Asian economies. It has become apparent again that there is a role for government more than to "keep out of the way." It is interesting to note the approval in opinion polls in the U.K. of the U.K. budget that increased taxation to pay for improvements in the National Health Service (even though the government now actually has to prove that they can deliver which may be more challenging).

• A new awareness of geography. The tragic events of September 11 have reminded the world that we are not completely homogeneous. There is still a huge diversity of culture and opinion.

I think we are a bit more aware than we were of the massive global issues that overhang us all. Out of a world population of around six billion people, four billion are poor and three billion of these are very poor. Another relevant macro-statistic is that two-thirds of the world's population lives in Asia and most are poor. Eight hundred million live in Africa and most are very poor. There is a greater awareness too that these divides will have consequences. Just look at the issues around immigration from North Africa into Southern France and the growth and support for Le Pen. It is the interaction of these developments that have left business leaders--indeed, all leaders in society--struggling to make sense of a world that now seems full of opposing and contradictory forces.

Some forces are pushing us towards greater integration, for example the successful launch of the new trade round at Doha last year. Another powerful impetus will be China's accession to the World Trade Organization. I have been to China three times in the last six months and it is clear that there will be huge social issues caused by accession but it is also clear that the government is absolutely determined to solve them and gain advantage from WTO accession.

On the other hand, there are renewed protectionist sentiments in Europe, the U.S. and some of the developing world.

Scenarios for 2012

Last year we drew together a group of Accenture partners and external experts from the fields of politics and economics to identify what all of this might mean for our world over the next decade, and developed a set of scenarios showing different ways in which the world might change. We recently published the results in our study "Business in a Fragile World." The scenarios indicated that globalization could well continue, but in different forms from what we know today; alternatively, we could even see a retreat from globalization into a much more isolated world.

We drew out the forces at work into four extreme directions in order to illustrate four very different scenarios for the world in 2012.

In one scenario--we called it Common Ground--economic integration continues but with much greater collaboration within countries and across society than exists today. The outcome is a much more stable and integrated world, albeit one with higher short-run costs for business.

By contrast, a second scenario--Survival of the Fittest--is one where the U.S. is the major dominant power in a world of free markets, intense competition and little social safety net. Economic growth is high in the short term, but there is quite a lot of tension and friction beneath the surface between those who have done well under this model and those who have fallen by the way-side.

Another of the scenarios--Tempestuous Times--shows what might happen if economic integration continues but we fail to get the necessary degree of co-operation between governments and across society to control its adverse effects. The result is a world full of instability, tension and conflict both within and between countries.

Our fourth, and perhaps least attractive, scenario from a business perspective was called Worlds Apart. This scenario highlights the possibility of an actual reversal of economic integration where barriers to trade, capital and people go up and countries retreat into a much more isolated, independent existence.

We developed these scenarios not because we believe we can foretell the future, but rather to help businesses test their current strategies and capabilities against a range of very different, but plausible, future worlds--in other words to help develop strategies in an uncertain world. Business simply cannot afford to "wait and see," deferring decisions until the future outlook becomes clearer.

However, great uncertainty often produces precisely this effect. It increases the temptation for all of us to put off major decisions and instead focus on the markets and capabilities with which we feel comfortable. In such circumstances, a focus on the short term--survival--may seem perfectly natural. Yet these are the instincts that we must all seek to fight against. History suggests that uncertainty and dislocation can actually provide a real impetus

to greater innovation for those companies willing to act decisively. Rather than "batten down the hatches," we need to "seize tomorrow's opportunities." Indeed, all the evidence we have seen indicates that the companies that succeed are those that are willing to seize growth opportunities in difficult times.

Strategies and Leadership in an Uncertain World

So, what kind of strategies, capabilities and, above all, leadership do we need in such an uncertain world?

As we thought about it some key thoughts that kept coming up were flexibility, resilience and consistency of purpose plus the ability to understand and connect to the outside world.

Above all, leadership.

We need an approach to strategy which is fast and flexible and one which is constantly evolving and collaborative.

We need an organization, which is very flexible. It needs to be simultaneously local and global (a very difficult combination to achieve which can be facilitated by technology and mobility, but above all by alignment and direction). It needs to encourage an entrepreneurial working style by removing bureaucracy and rewarding enterprise. (As an aside, in our recent study on Entrepreneurship we found that many business leaders thought that they themselves were entrepreneurial but criticized their staff for not being entrepreneurial. At the same time, they felt that their staff could be too entrepreneurial! In other words, they are afraid of staff doing the wrong things. This is a question of trust. The answer lies in creating the right directional space in which empowered and competent people can apply their creativity and entrepreneurship.) It needs to use extensive networks of suppliers, customers and alliance partners.

But the organization also needs resilience. In the big storms in the U.K. in 1987, we lost millions of trees. Many more were blown down in the South than in the North despite the fact that the hurricane blew with equal ferocity in the North. The fact was that the trees in the North had learned how to cope with high winds through much more experience. They were both more flexible and deep-rooted. The resilient organization is a learning organization. It makes extensive use of knowledge, internal and external, to feed shared views within the organization. It has both deep roots and high flexibility.

Making all this happen is a big task for leadership. Leadership which is both bold and decisive, but also able to deal with a lot of uncertainty and ambiguity.

Leadership has to set the direction within which there is flexibility and freedom to innovate at speed. "Direction" is not about detailed plans and is not about micro management but it is about leadership which manages constantly to "challenge the status quo" whilst at the same time building deep roots by constantly deepening a shared vision, a shared common purpose and shared values. And instilling these in successive new generations of leaders. This sets the defined space within which flexibility and freedom can be let free without undermining the company.

In Accenture, we have faced extraordinary changes in our markets and constant challenges of new competitors. Holding on to core values and purpose whilst constantly adapting to the rapidly evolving marketplace has been critical. But in many ways too, we have had to create our future, to make the market and not just fight over existing markets. This sense of shaping the future will be ever more important.

I used to think that the future was out there already and if anybody could see it through the mists that obscure it, we would be much better placed to set our strategies. I actually think now that this is the wrong metaphor. The future is more like a ball of clay; it is up to us to shape it.

To do that requires a much deeper understanding of the world around us, of how business interacts with wider society. It requires a willingness to develop extensive and deep connections with a wide range of shareholders.

Business in a Wider World

I believe profoundly that it is in the interest of business and its shareholders to build a better world. If people are better educated and more healthy, if countries have good legal frameworks, sound policies to encourage enterprise and competition and combat corruption, then, long term, business will benefit through more productive employees, more stable civil society, higher economic growth and the creation of new markets, new consumers, new savers, new investors and new entrepreneurs.

By channeling the wealth of expertise in areas such as technology, training and management skills to local entrepreneurs, global business can simultaneously lay the foundations for new markets and help create more positive cycles of sustainable development.

This is not philanthropy; this is simply good business.

I have just come from a meeting of the Digital Opportunities Task (DOT) Force in Calgary hosted by the Canadian government. It offers a great example of what can be achieved when business, governments and civil-society decide to work together, rather than in opposition.

It was set up by the G-8 Heads of State in July 2000 to examine ways in which information and communications technologies can promote sustainable development in the world's poorer countries.

Uniquely, this brought together governments of G-8 and developing countries, the international private sector, civil-society organizations, and the multilateral development agencies. We have witnessed a remarkable transformation in attitudes, from one of initial suspicion to a determination to work together to achieve real change.

Underlying the DOT Force approach was the recognition that ICT can make a contribution to:

• Education: for example the extraordinary impact of remote learning.

• Health: for example real advances have been made in the early identification and treatment of meningitis in central Africa through diagnosis and treatment support over the Internet.

• Enterprise: for example enabling Peruvian farmers to connect to exotic vegetable markets in New York. Another favourite example is combined community centre Internet access with mobile phones to allow fishermen on the Indian Ocean to be aware of approaching wave heights and thus optimize their fishing activities.

But technology alone is not enough. All the other fundamentals have to be right. These include getting. the policy framework right, developing more educated and aware human capital and developing local languages and adapting to local culture.

Entrepreneurship is also particularly crucial; it is the engine of economic growth and generates the revenues needed to support wider social goals. Under the DOT Force remit, we have been working with HP and Telesystem on new initiatives to move from aid to partnership in order to improve local wealth creation.

My main message to the DOT Force, which I repeat regularly, is that we do not need any more reports, we do not need any more conferences, what we need is action. Never has the Accenture byline "innovation delivered" been more relevant here.

Conclusion

In conclusion, I want to underline three things to think about as we think about setting strategies in an uncertain world.

1. Even more so in these uncertain times we need to remember that business is a part of society, not separate from it. Not only do wider events affect business, but business itself has a huge impact on the world around it. Therefore we need to learn to listen as well as act.

2. Of course, business has to have the ability to adapt to new and possibly unforeseen circumstances. But it should not underestimate its ability to help shape the future. However, it can't do this on its own. It requires a willingness among all stakeholders to work collaboratively on areas of mutual benefit.

3. All of this is a huge task for leaders--setting the direction, purpose and values to give the right entrepreneurial space and creating a future in which both business and society grasp the opportunities which are out there, even in these very uncertain times. It is in all of our interests to get this right.

The appreciation of the meeting was expressed by Heather Ferguson, Director, Development and Alumni Relations, Faculty of Nursing, University of Toronto and Director, The Empire Club of Canada.