October 30, 2012
In his recent contribution to the EFMD business magazine Global Focus, Sir Richard Lambert, Chancellor of Warwick University, suggests four key issues that businesses will require of their future leaders: Ability to manage diversity; Capacity to deal with uncertainty; A proper understanding of the role and workings of government; A developed understanding of the role, responsibilities and purposes of business itself.
EFMD would like to share this article with its blogactiv readers as another reflection from the community of Business Schools on the future of business education and to ask if it responds to recent socio-economic transformations. It can also be seen as a reference to the current policy evolution and discussions in relation to the roles and impact of higher education institutions.
What does business want from business schools? The answer is: “exactly what it has always wanted” – great graduates and relevant ideas. But the qualities required of those graduates and the nature of the ideas that are of most interest to business are both changing radically. The world is undergoing a profound transformation in economic, political and social terms – on a scale and at a pace never seen before. As a result, tomorrow’s business leaders are going to need a new set of skills to handle these challenges. And the question that readers of Global Focus have to answer is: are business schools as they are currently structured, teaching programmes as they are currently designed best equipped to deliver them? Of course, there is no single answer to the question. But my guess is that quite a lot of schools still have much to do to keep up with the game in this fast-changing world. This article concentrates on just four of the qualities that businesses will require of their future leaders in this time of transformation. (There are, of course, many more.)
The first, and in some ways the most important, is the ability to manage diversity. Consider this. During the 1990s, just 12 countries in the world generated growth in incomes per head at a pace that was twice the OECD average. In the first decade of this century, that number jumped to 83. Nearly half of the two billion people now getting by on between $10 and $100 a day – the global middle class – live in what the OECD calls “converging economies”. (That is, economies that are catching up with the living standards of the West from a low base via turbo-charged growth.) This has profound implications for global business. So do the massive demographic changes that are already under way around the world. By 2050, other things being equal, there will be almost as many people in Nigeria as in America; Ethiopia will have twice as many people as Britain or Germany. But the working population of Japan and Russia could fall by roughly one-third over the same period. The opportunities that all this throws up for business will not be evenly dispersed. Successful leaders of the future will need judgment, imagination and the capacity to work in unfamiliar surroundings if they are to make the most of these extraordinary shifts in global power balances.
In addition, our understanding of globalisation is becoming much more subtle and nuanced than was the case in an America-centric world. We are moving away from the simplistic notion that the world is flat towards a much more complex reality.
That is what today’s business graduates need to understand. And to do that they will have to learn to live with and welcome diversity in all its forms. It is going to take a different kind of mindset, and a different type of education, to survive and prosper in such a diverse and cosmopolitan environment.
Dealing with uncertainty
The second great quality required of tomorrow’s business leaders is the capacity to deal with uncertainty. This did not seem so necessary in the 15 years leading up to the latest financial crash – the period economists describe as “the great moderation”, when inflation stayed low, asset prices rose and economies grew steadily just about everywhere. The Cold War was over, the Washington consensus shaped the world economy and the business outlook often appeared as assured as it was predictable.
Nor was uncertainty high on the agenda of most business schools. They were busy promoting the notion of rational economic man and the certainty of modern finance theory and economic modeling. Then things changed. The great moderation is now well and truly over. The probability is that we will see much more jagged economic cycles in the next two decades than we saw in the last. And today’s economic uncertainties are on a scale not seen since the Second World War. Consider the euro crisis. The chances of a disorderly breakdown are small but not negligible. But the consequences of such an event would be catastrophic. The euro and the dollar together are the essential lubricants of global trade and finance, accounting for nearly two-thirds of trading in foreign exchange markets worldwide. That is one reason why the result of a euro collapse would be all but unimaginable.
The other is the potential impact on the global banking system at a time when the balance sheets of the world’s big banks are so closely intertwined. To take one example, Britain’s banks are not directly very vulnerable to the banking problems of Greece. But they are heavily exposed to those in France and Germany, which are. All this uncertainty helps to explain why companies in the developed world are building up vast cash mountains rather than investing their money in new products and services.
Since the credit crunch started in 2007, American non-financial companies have increased the share of their assets held in cash by 50% to around $1.7 trillion. Apple alone has almost $100 billion in the bank – enough to buy Dell three times over. Understandable, perhaps, but is it wise? Would bolder visionaries see today’s uncertainty as an opportunity, rather than a risk? Think of the great businesses that have been created at the bottom of past economic cycles. Can business schools help business to think through this challenge?
To read more views on the role of government and the purpose of business, please download this article from the EFMD website.
EFMD is a leading international network of business schools, companies and consultancies (770 members across 82 countries) at the forefront or raising the standards of management education and development globally. EFMD runs the EQUIS & EPAS, accreditation systems and is one of the key reference points for management education worldwide. www.efmd.org
Author : Jocelyne Wang