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“Leadership in a New Era”

a course at Tsinghua SEM
by McKinsey
2015 Fall Semester

Any use of this material without specific permission of McKinsey & Company is strictly prohibited

Today’s discussion


Course overview


Winning in changing industry environments



Any use of this material without specific permission of McKinsey & Company is strictly prohibited

McKinsey & Company | 1

The objective of the course is to develop future business leaders among
top students at Tsinghua through McKinsey’s unique approach


Leadership development


To enable students to interact with distinguished business
leaders and build their leadership capabilities
Emphasis on helping students to understand broad yet concrete
leadership concepts

Global perspectives

Discuss topics on a global level rather than China-only specifics
Providing global context for the next the 10-20 years

Cutting-edge functional thinking

Provide an overview of key functions with leading practical ideas
Topics include strategy, operations, organization, marketing, and
investment management

McKinsey & Company | 2

2015 Fall - The syllabus: lecturers and topics (1/2)
Class 1: Kickoff: Course Overview – Core Themes of Leadership

Sept. 15th (Tues)

Dominic Barton
McKinsey Global Managing Director

Class 2: Organization
Jeff Hsu
Chief Innovation Officer
FarEastern Group

[October - Date to be confirmed]

Kevin Sneader
McKinsey Director from Hong Kong office,
leader of McKinsey Asia

Class 3: Corporate Finance
To be confirmed

[Oct./Nov - Date to be confirmed]

Nicholas Leung
McKinsey Director from Beijing office,
leader of McKinsey Greater China

Class 4: Technological Disruption

Nov. 12th (Thurs)

Suja Chandrasekaran

Brad Brown

Chief Digital Officer of Walmart

McKinsey Director from New York office,
leader of America Business Technology Office

McKinsey & Company | 3

2015 Fall - The syllabus: lecturers and topics (2/2)
Class 5: Corporate transformation / Restructuring
To be confirmed

[Nov/Dec - Date to be confirmed]

Wesley Walden
McKinsey Director from Melbourne office,
leader of McKinsey Asia RTS practice

Class 6: Operations

Nov. 26th (Thurs)

Fredrick Spalcke

Karel Eloot

EVP and CPO of Phillips Electronics

McKinsey Director from Shanghai office,
leader of McKinsey Asia Operations practice

Class 7: Investor’s Perspective

Dec. 17th (Thurs)

Mark Wiseman

Conor Kehoe


McKinsey Director from London office,
leader of McKinsey Private Equity practice

Class 8: Closing

Jan. 14th (Thurs)

Tan Sri Azman

Dominic Barton

CEO of Khazanah

McKinsey Global Managing Director

McKinsey & Company | 4

2015 Fall - The course outlines

8 classes in fall semester 2015


2 hours per class with a 15-min break
› 1 hour lecture and 1 hour Q&A
› Pre-assigned student teams for each class to formalize interaction between
Adjunct Lecturers and students
› Offer “flipped classroom” for students who have conflict: combine online
video and in-class discussion

Class size and

We will create more exclusiveness hence more commitment and effectiveness
› Focused on 4 Masters programs, including MBA students
› Large size, ~150-200 students
› Pre-screen/interview process to select students outside of the 4 programs
with stronger commitment and capacity for the course



SOURCE: McKinsey and Tsinghua SEM

35% on individual learning journal (per class) : every student to hand in
learning journal (<500 Chinese characters) after each lecture on his/her key
15% on interactions and exercises
50% on group project: assignment: teams of 5- 6 students should be formed;
each lecturer to leave an open question/topic to the class; every team
choose a question/topic to write an essay (3000-5000 Chinese characters)
and hand in by the end of semester

2 credit units

McKinsey & Company | 5

Partner Associate Dean Mei Ye. June Qian. Yingyi Qian. Prof. consisting of committed people from both McKinsey and Tsinghua SEM McKinsey Team Tsinghua SEM Team Responsibilities Responsibilities › Structure the course by › › › business functions Set the themes with individual lectures and maintain the global perspectives of the course Invite and coordinate schedule with lecturers from both McKinsey and other organizations Facilitate in-class interaction between lecturers and students Dominic Barton. David Pan. External Advisor Director › Approve course outline › › › › Qinzheng Tian Prof.The course will be run by the Lecture Review Board. Zhirong Duan Engagement Manager Faculty Coordinator › › The Lecture Review Board and content Market the course on campus Select suitable top students for the course Handle academic curriculum compliance with the university Provide venue and facilities for each class Facilitate class-related activities Collect student and faculty feedback Joint responsibilities › Refine the scope and content to maximize students’ learning. focus on balancing between practice and academic › Review and grade students’ group assignments and class participation › Improve the quality and impact of the course. Prof. Global Managing Director (Taking full accountability) Dean Arthur Wang. constantly incorporating meaningful student feedback McKinsey & Company | 6 .

Today’s discussion 1 Course overview 2 Winning in changing industry environments › Global forces › Implications for business › Implications for leaders 3 Questions? CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited McKinsey & Company | 7 .

We are living in historic times The Great Transition ~200BC › Qin Dynasty begins –first imperial dynasty in China › Silk road trade routes begin during Han dynasty ~600 ~1100 ~1500 › India connects › “Medieval warm › Columbus to period” improves agriculture and spurs massive › Division of Europe migration and shift in focus › Crusades to land from sea expose Europe culture to Far East trading between Middle East and China › Islam – influence › Genghis Khan to Persia.S. and Europe › Massive population growth and urbanization McKinsey & Company | 8 . first bank) ~1750-1850 2000-40 › Transformation from agrarian to manufacturing economy › 2x growth in GDP per capita. Spain and Mongol Conquests close northern trade routes Americas › Reformation splits Europe › Renaissance and innovation (Gutenberg printing press. U. North Africa.

Five forces are changing the world at an unprecedented pace and scale 1 The rise of emerging markets 2 The power of disruptive technologies 3 The aging of the global population 4 The integrating world – beyond trade and finance 5 The return of (geo)politics McKinsey & Company | 9 .

1. THE RISE OF EMERGING MARKETS The world’s economic centre of gravity is shifting back to Asia Locations weighted in 3D space by GDP 2000 2010 1950 1940 2025 1500 0 McKinsey & Company | 10 .

The number of Asian companies in the Fortune Global 500 has more than doubled in 5 years Rest of Asia (excluding Japan) China 130 36 +145% 53 94 29 24 2007 2014 McKinsey & Company | 11 .

McKinsey Global Institute CityScope 2.8 Latin America 2.1 Europe Asia-Pacific 1.0 4.2 billion new middle class consumers by 2030 Global middle class1 Billions of people 5.2 billion 2. THE RISE OF EMERGING MARKETS There will be 2.1 2013 2025 2030 1 Annual personal income between $3. 2014) McKinsey & Company | 12 .600 and over SOURCE: United Nations World Population Prospects.55 (updated November.8 Sub Saharan Africa Middle East & North Africa US & Canada 2.1.2 2.

000 1950 1860 1820 1. THE RISE OF EMERGING MARKETS Urbanisation is driving rapid increases in individual wealth Per capita GDP by urban density 1990 Purchasing Power Parity (log scale).000 China 2010 10. Percent United States 2010 Japan Germany 2010 2010 United Kingdom 2010 Italy South Korea 2010 2010 30.000 Brazil 2010 India 2010 1950 3.1.000 1891 1930 1950 1920 1950 300 0 10 20 SOURCE: McKinsey Global Institute 30 40 50 60 70 80 90 Urban population (%) McKinsey & Company | 13 .

THE RISE OF EMERGING MARKETS Shanghai in 1990 McKinsey & Company | 14 .1.

THE RISE OF EMERGING MARKETS Shanghai in 2004 McKinsey & Company | 15 .1.

1. THE RISE OF EMERGING MARKETS Shanghai in 2014 McKinsey & Company | 16 .

West Java. China McKinsey & Company | 17 . THE RISE OF EMERGING MARKETS What will these cities look like in 10 years? Bogor. Indonesia Puducherry.1. Guizhou. India (Pondicherry) Anshun.

1 billion people ~$1 trillion Household consumption 64 United States of America India Argentina cities with more than 1M people Western Europe Significant global resources 69% of platinum group reserves 82% of phosphates China 8% of oil reserves 60% of unused arable land SOURCE: BP statistics. CIA world fact book. Global insights: World Market Monitor McKinsey & Company | 18 . THE RISE OF EMERGING MARKETS Africa is also a continent to be reckoned with 21% of the world's landmass $2. Metals economics Group.1.4 trillion in GDP ~1.

“World Agriculture towards 2030/2050”. THE RISE OF EMERGING MARKETS Water Global demand for water could rise as much as 50% by 2030 Energy Natural gas production will need to rise 50% by 2030 to meet expected demand Food Growth in population and the rise of the middle class will place significant strain on global resources Global agricultural production will have to increase 38% by 2030 and 60% by 2050 SOURCE: The 2030 Water Resources Group. FAO." 2009.1. 2012. "Charting Our Waters Future. Energy Insights McKinsey & Company | 19 .

9 planets With current consumption. it will take 3 years to replenish our annual use in 2050 – we would need 3 earths to live sustainably McKinsey & Company | 20 .1.5 years to fully replenish our annual resource use 1.5 planets 2.0 planets 2. THE RISE OF EMERGING MARKETS 2050 2030 2007 Without action. it took 1. this path will be unsustainable for the planet In 2007.

7–6.5 Advanced oil and gas exploration and recovery 0.2 Advanced robotics 1.8 Automation of knowledge work 5.2–0. annual 1 2 3 4 5 6 7 8 9 10 11 12 Mobile Internet 3.7–1.2 Cloud technology 1.1–0.7–4.6 Energy storage 0. THE POWER OF DISRUPTIVE TECHNOLOGIES Low 12 disruptive technologies will have enormous economic impact by 2025 Range of sized potential economic impact High X–Y Economic impact of the 12 most significant disruptive technologies $ Trillions.7–6.3 McKinsey & Company | 21 .2–0.5 Autonomous and near-autonomous vehicles Next-generations genomics 0.6 3D printing 0.7–10.5 Renewable energy SOURCE: McKinsey Global Institute 0.2–1.2.9 0.1–0.6 Advanced materials 0.7 Internet of Things 2.2–0.2–6.

nearly 100% of sea freight is packed in standardized shipping containers SOURCE: Gartner. 80% of the adults on the planet will own a smartphone In 2013.000 units – a 300% increase from 1995 In the 1950s. nearly all goods were shipped ‘loose’. a16z McKinsey & Company | 22 . International Federation of Robotics. industrial robot sales totaled ~180. with more than half of sales coming from smartphones By 2020. today.2. THE POWER OF DISRUPTIVE TECHNOLOGIES Technological innovation have already driven immense productivity improvements A modern washing machine has more computing power than Apollo 11 did in 1969 Worldwide mobile phone sales totaled near 1 billion units in 2013.

THE POWER OF DISRUPTIVE TECHNOLOGIES The impact is affecting all industries Healthcare Retail Worldwide healthcare data will increase 50x by 2020 Half of US retail sales are made online or influenced by the Web Manufacturing Transportation Over a million industrial robots are operating in factories around the world Proposed ‘hyperloop’ train could travel 2x as fast as high-speed rail. and near the speed of sound B Banking The number of people using mobile banking will double in the next two years Agriculture Acreage with geneticallymodified crops has increased 100x in past 15 years Social sector Energy Over half of new electricity generation capacity added each year is now renewable The One Fund Boston launched online 7 hours after the marathon bombings. raising $20 million in one week McKinsey & Company | 23 .2.

g.2.a.. McKinsey & Company | 24 . THE POWER OF DISRUPTIVE TECHNOLOGIES Digitization enlarges the risk of missing trends – and the upside from predicting correctly “Industrial companies are in the information business whether they want to be or not” – Jeff Immelt › Anticipated shift from hardware to services. fuel efficiency monitoring) >$1B p. investing billions from 2010 on to add sensors and become a services company › Incremental income from digital-enabled services (e.

increasing velocity › 1 mile per hour increase worth $250M in annual profit 23 1 Digitalenabled McKinsey & Company | 25 . THE POWER OF DISRUPTIVE TECHNOLOGIES Digitization and analytics are driving massive improvements in efficiency Locomotive velocity Average miles per hour per day 22 Typical › Data analytics – optimized scheduling and predictive maintenance reduce downtime.2.

000 autorefractor › Almost nearsightedness. misshaped eye. McKinsey Global Institute analysis McKinsey & Company | 26 . commercial launch expected Ease of use › Patient has results in less than 3 minutes › No need for training Anywhere › Works wherever people have a smartphone Analysis › Analytics software picks up patterns in eyesight and suggests specific solutions SOURCE: EyeNetra.2. THE POWER OF DISRUPTIVE TECHNOLOGIES In healthcare. and pupillary distance Accuracy › As accurate as $45. expert interviews. smartphones are enabling low-cost medical diagnostic tools Netra example › World’s first smartphone diagnostic tool for the human eye – from MIT Benefits over conventional technology Affordability › Plastic lens attachment that costs about $2 › Can measure farsightedness. age-related blurriness.000 tests conducted

there will be more people over the age of 65 than under the age of 14 In Italy. Japan and Spain. THE AGING OF THE GLOBAL POPULATION The global population is aging: by 2050 … The proportion of world’s population over age 65 will double The number of people worldwide aged 80 or older will quadruple to 400 million 80 percent of people 65 or older will live in low or middle-income countries For the first time in history. one in three people is expected to be 65 or older McKinsey & Company | 27 .3.

.. …and in the emerging world For the first time in history. THE AGING OF THE GLOBAL POPULATION This is taking place in both developed and developing markets Globally. there will be more people over the age of 65 than under the age of 14 Share of workers over the age of 55 40% of expected retirees will be in advanced economies and China Share of older workers in China will increase to 31% 2010 14% 2030 of the workforce in 2030 22% McKinsey & Company | 28 .3.

3. THE AGING OF THE GLOBAL POPULATION Aging will place massive strains on governments Without policy changes. age-related spending could increase median net government debt in advanced economies from 59% in 2010 to 216% in 2050 Net government debt Percent of GDP 260% 216% 200% Global government debt will be larger than world GDP ~2030 71% 100% 59% 2010 SOURCE: Standard and Poor’s 2025 2050 McKinsey & Company | 29 .

2M megabits/second 52% 1 Measured by cross-border migrants.0T 6% People1 194M people 2% 21. IHS Economics & Country Risk. 2002–12 Financial $4. McKinsey Global Institute. 2000-2012 Goods Services $17. Global flows in a digital age: How trade. Web of Science. IMF Balance of Payments.4. THE INTEGRATING WORLD The world will is more interconnected than ever and the intensity of flows has increased greatly in the last decade Value (2012) and growth of cross-border flows. Telegeography. values from 2000 and 2010. Bank for International Settlements. April 2014 McKinsey & Company | 30 . finance. and data connect the world economy. people. Thomson Innovation.4T 10% 2012 value Compound annual growth rate. 2 Measured by cross-border Internet stock traffic. values from 2005 and 2013.5T 11% Data and communication2 $4. World Bank. SOURCE: Comtrade.

These various flows help generate global GDP growth +$250-$450B Annual increase in world GDP from flows – about 15% .25% of world’s total GDP growth +40% Difference in impact of flows on GDP growth for countries at the center of the network compared with ones at the periphery SOURCE: McKinsey Global Institute analysis. DHL Globalization Index McKinsey & Company | 31 .

it might well diverge from this trend Data & Comms McKinsey & Company | 32 32 .A growing share of all economic activity is cross-border Share of total flows that cross international borders Percent (%) 1995 2010 2025* X% Change 2010-2025 X% Change 1995-2010 +240% 51% +26% 44% +40% 35% +20% 42% +88% 35% 25% 19% +114% 15% +61% 11% 0% 3% 0% 3% People +29% 7% 5% 7% 3% Services Goods Financial * Note: Future growth rate modeled on historical trend. in practice.

IMF.4 15 41 14.5 22 23 24 Between emerging markets (South-South) 32 31 31 Between developed markets (North-North) North-South 44 46 46 45 34 38 42 1990 1995 2000 2005 2010 2011 2012 SOURCE: The Direction of Trade.5 10 48 10.4 17.3 6 60 4.9 6 56 6.7 17. McKinsey Global Institute analysis 33 McKinsey & Company | 33 . $ trillion 100% = 3.Goods trade among emerging markets (“South-South”) has quadrupled its share of goods trade since 1990 Goods trade among countries %.

.8 10.9 All other flows 13.9% R&D intensive manufacturing 8.5 5. McKinsey Global Institute analysis 7.9% 7. International Monetary Fund Balance of Payments.0% 34 McKinsey & Company | 34 .5 Biz. and are growing faster than other types Total value of flows Trillion USD Growth rate 2002-12. World Development Indicators. World Bank. Telegography.Knowledge-intensive flows are half of total flows.5% Foreign direct investment 1. % 25.1 SOURCE: Comtrade. financial and Legal services Knowledgeintensive 2.

internally displaced people.The number of global refugees is at its highest level since World War II Refugees. and asylum seekers worldwide Millions 60 51 43 36 34 35 36 32 32 34 20 19 20 16 19 20 2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 2015 Intensification of sectarian violence in Iraq (Iraqi ‘Civil War’) ISIS emerges as an autonomous entity Number of migrants surpasses WWII level McKinsey & Company | 35 .

5 +144% 1.5 Growth of cross-border Internet traffic Million megabits per second 45 2. McKinsey Global Institute analysis 2012 36 McKinsey & Company | 36 .769% 15 15 10 10 +665% 5 5 0 2005 0 2005 2012 SOURCE: Telegeography.5 30 0 2005 2012 Average cross-border Internet usage Kilobits per second per person 20 25 20 +1.0 40 35 0.Growth in the number of Internet users and per capita Internet use has led to a surge in cross-border traffic Growth of Internet population Billion Internet users 2.0 1.

Telegeography.0 51.0 12. OCED.Digital is enabling flows that were previously entirely ‘analog’ – and helping pass more surplus to consumers 2005 Share of selected cross-border flows that are digital Category % Flow Goods Data and communication Services 2013 (digital component) Goods (E-commerce share of total goods trade) Calls (Skype share of international calls) Services (Digitally-enabled share of total services trade) SOURCE: iResearch.0 37 McKinsey & Company | 37 .0 63.0 39.1 Skype has massively increased consumer surplus by offering free service 3. Bureau of Economic Analysis 3.

000 registered solvers in nearly 200 countries Micro-work More than $30 million of contracts per month Micro-finance More than $500 million in loans from 190 countries Russia 4 China 4 Spain 3 Mexico 3 United Kingdom 3 Canada 2 Nigeria 2 Colombia 1 Ukraine 1 Chile 1 Portugal 1 Greece 1 Other SOURCE: McKinsey Global Institute analysis 32 38 McKinsey & Company | 38 . a space previously dominated by large multinationals and governments Micro-education Almost a third of Coursera visitors are from BRICs % share of site visitors by country 600+ courses offered free online in 12 languages 22 United States 15 India Micro-goods 6 Brazil 30 million buyers and sellers Micro-services 300.Digitization allows SMEs to become global players.

5. THE RETURN OF (GEO)POLITICS Geopolitical uncertainty is again at the center of daily life McKinsey & Company | 39 .

2015. 1 next 12 months % of respondents Sep.5. n = 1. THE RETURN OF (GEO)POLITICS And executives now say geopolitical instability is the single biggest risk to global economic growth Top 5 potential risks to global economic growth. Economic Conditions Snapshot (September 2014) McKinsey & Company | 40 .367 Geopolitical instability 60 Increased economic volatility 74 22 Increased economic volatility 10 One or more defaults on sovereign debt 9 New asset bubbles Jul. n = 1.202 34 22 39 31 20 1 Out of 12 risks that were presented as answer choices in the question SOURCE: McKinsey Global Survey. 2014.

BMW’s Argentinian subsidiary has resorted to exporting rice. and Porsche has exported olives and Malbec wine – Bloomberg. THE RETURN OF (GEO)POLITICS Variety in the regulatory and political framework is as diverse as consumer tastes Argentina now requires that car importers have to match their imports with exports of equal value. Mexico taxed ‘junk foods’ (e. water. public health and telecommunications sectors – Latham and Watkins (top US Law Firm). and salts) by 8% – with an additional tax on sodas – The Guardian. sugars.g. food high in saturated fat. May 2014 McKinsey & Company | 41 . To comply.. November 2012 In November 2013. transport.5. November 2013 In May 2014. France enacted legislation requiring the Minister of Economy’s approval for foreign investment in the energy.

is the Yen next?) Geopolitics cuts off cross border energy flows Terrorists (state-controlled or insurgents) release a WMD with global impact A natural disaster debilitates a major global economic focal point An Icelandic volcano shuts down air traffic over large parts of Europe for several years McKinsey & Company | 42 . THE RETURN OF (GEO)POLITICS In an increasingly volatile world businesses must ask if they are ready for the shocks What if…. Ebola) A popular uprising over-throws a major state government The Internet breaks down (can business run without it for an hour?) A major currency collapses (the Euro tried.5. MERs. An epidemic goes global (SARs.

Today’s discussion 1 Course overview 2 Winning in changing industry environments › Global forces › Implications for business › Implications for leaders 3 Questions? CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited McKinsey & Company | 43 .

These global forces are creating a ‘new normal’ for the business world – and result in several imperatives for businesses New state of the business world Implications for businesses › Consumers in emerging markets – especially cities – are the primary drivers of global growth Think about demand in granular terms › Workforces will be smaller due to automation and aging Invest in talent and Human Resources › New technical skills – with a shorter ‘shelf life’ – are required › Constant innovation is paramount to success › Industry distinctions will be less firm › Competition is intensified › Companies are operating in more markets than ever before › Geopolitical risk is revived Design a flexible organisation Foster agility › Cyber presents a new type of risk Know the risks and test your resilience › Every industry will be digitised – those companies that don’t will be left behind Digitise – and learn to innovate McKinsey & Company | 44 .

Implications for business 1 Think about growth in granular terms 2 Invest in talent and Human Resources 3 Design a flexible organisation 4 Foster agility 5 Know the risks and text your resilience 6 Digitise McKinsey & Company | 45 .

GRANULAR GROWTH 424 cities in emerging markets will fuel nearly half of the growth in global GDP through 2025 Percent contribution to global GDP growth. 15 MM people move to a city each year – equal to adding New York City proper twice SOURCE: McKinsey Global Institute Cityscope 2.5 trillion 100 424 largest = emerging market cities 45% 28 of global growth 25 315 cities in Asia 31 6 4 4 0 China region Latin America Middle East & Africa Eastern Europe & Central Asia Other emerging regions Developed countries Global growth In China. 2014) .55 (updated November. 2012–2025 100% = $42. note: does not sum due to rounding McKinsey & Company | 46 .

GRANULAR GROWTH Emerging market cities. especially in China. will become the largest consumer markets in many categories China 2025 Sales Rank Other emerging regions Sports & Energy Drinks Facial Moisturizers Spirits 1 Chongqing Tokyo Shanghai 2 Tokyo Shanghai Beijing 3 Beijing Beijing Moscow 4 New York Chongqing Guangzhou 5 Shanghai Osaka Tianjin 6 Haerbin Tianjin Chongqing 7 Tianjin Guangzhou Shenzhen 8 Wuhan Shenzhen Tokyo 9 Nanjing Wuhan London 10 Bangkok Chengdu Wuhan 11 Xian Dongguan Rhein-Ruhr 12 Chengdu Nanjing Foshan 13 Los Angeles Hong Kong Hangzhou 14 Shenyang Foshan Chengdu 15 London Seoul Nanjing SOURCE: McKinsey Global Growth Compass Developed regions McKinsey & Company | 47 .

Implications for business 1 Think about growth in granular terms 2 Invest in talent and Human Resources 3 Design a flexible organisation 4 Foster agility 5 Know the risks and text your resilience 6 Digitise McKinsey & Company | 48 .

TALENT AND HR A radically evolved future will mean that workforces are smaller and more technical – requiring new skills Talent is the next great competitive ‘battlefield’ for organisations McKinsey & Company | 49 .

McKinsey Global Institute Competition for talent will intensify Digital tools like LinkedIn give employees more mobility and options – and competitors a tool for ‘poaching’ Aging population means fewer available workers Concerns over inequality are putting upward pressure on wages McKinsey & Company | 50 .INVESTING IN TALENT AND HR A radically evolved future will mean that workforces are smaller and more technical – requiring new skills 38% Of global employers can not find the talent they need 38m – 40m Shortage of workers with higher education degrees by 2020 #1 Concern among CEOs in 2015 survey was human capital SOURCE: Manpower survey.

with use smartphones by 2018 skills becoming partnering to provide online MSc in Computer Science to obsolete 83% faster than just a few years ago 2.6B will AT&T’s challenge: AT&T’s response: 230.TALENT AND HR AT&T is reinvigorating its talent management by partnering with a university to provide low-cost worker training Telecom being disrupted – 2.000 employees.200 employees at $200/month McKinsey & Company | 51 .

significantly reducing training costs and improving quality Supplements selection process with screening for traits correlated with abusing worker’s compensation (e.g. and was able to decrease hiring timeline to under 2 months Screens applicants based on data points associated with retention (e..g..TALENT AND HR Advanced data analytics is opening up new ways of predicting successful hires Uses an online test and sorts applicants using an algorithm identifying traits associated with retention. giving candidates a 0-100 score Reduced attrition to 4% per annum. driving record) Realized substantial savings from 68% decrease in worker’s compensation claims McKinsey & Company | 52 . having a short commute) Saw 20% reduction in call center attrition.

TALENT AND HR The ‘new HR’ is one of the hottest topics for managers today McKinsey & Company | 53 .

TALENT AND HR Applying the rigor of Finance practices to HR can significantly improve talent management › Anticipating whether candidates will be a fit Predicting outcomes › Identifying the strategic skills that will be most in demand 2-3 years forward – which 2% of jobs will drive 98% of your impact? › Discovering the people problems that are below the surface of business failures Diagnosing › Monitor and maintain the ‘social engine’ of problems organisations – ensure that communication lines are open and robust › Approach the reallocation of human capital between projects with the same rigor as investment Prescribing actions › Recognize ‘value creators’ both inside and outside the organisation – and find ways to bring them into high-impact roles SOURCE: McKinsey Global Institute Advanced people analytics will support each of these goals Integrating digital HR tools can increase productivity 9% McKinsey & Company | 54 .

Implications for business 1 Think about growth in granular terms 2 Invest in talent and Human Resources 3 Design a flexible organisation 4 Foster agility 5 Know the risks and text your resilience 6 Digitise McKinsey & Company | 55 .

FLEXIBLE ORGANISATION The organisation of the future is a flatter. more decentralised model The organisation of the future has: › Fewer layers › Decentralised decision-making › More partnerships › Powerful data and digital tools › Extreme fluidity › Collaborative Traditional hierarchy Organisation of the future external partnerships McKinsey & Company | 56 .

CEO VPs in charge of critical pieces of work will temporarily report to CEO McKinsey & Company | 57 .FLEXIBLE ORGANISATION Apple exemplifies a modernising organisational structure 17 direct reports to Tim Cook Tim Cook.

FLEXIBLE ORGANISATION Haier is restructuring to become an ‘organization of the future’ Reorganized 80.000-person workforce into 2.000 independent units Each unit manages its own P&L Employees paid on performance Most valuable brand in China for the past 13 years Market cap tripled from 2011-2014 McKinsey & Company | 58 .

not traditional linear hierarchy › › Employees are their own managers Allows fluid movement between individual and group contribution roles McKinsey & Company | 59 . without traditional managers › Employees organized by cluster. and innovation Online shoe retailer Gaming company › Highly decentralized model –offices in each city have only a few dozen employees at most › Drivers interact directly with customers. using the Uber app › Follows a “self-organisation” model. speed.FLEXIBLE ORGANISATION New entrants are using flatter structures to increase transparency.

Implications for business 1 Think about growth in granular terms 2 Invest in talent and Human Resources 3 Design a flexible organisation 4 Foster agility 5 Know the risks and text your resilience 6 Digitise McKinsey & Company | 60 .

2 0. resource allocation is generally inherently conservative Relative business unit year-to-year CapEx correlations1 Correlation index over years 1990-2010 1.6 0.3 0.1 0 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 Year 1 Each year’s proportion of company CapEx in each business unit was correlated to previous year’s figure SOURCE: McKinsey Corporate Strategy Service Line.0 0.8 This year’s allocation is highly correlated with last year’s allocation of CapEx 0.AGILITY In the private sector. Compustat McKinsey & Company | 61 .5 0.7 0.4 0.9 0.

1990-2010 10.5 6.508 companies. 6.0% CAGR vs.0 A company growing at 10.1 Dormant (0-30%) Drowsy (31-49%) Dynamic (>49%) Degree of reallocation SOURCE: McKinsey corporate strategy research program McKinsey & Company | 62 .1% would be worth twice as much in 20 years 8. 1.AGILITY But top performing companies tend to be those that reallocate resources most frequently Median TRS CAGR of companies by degree of reallocation Percent.

external factors. and live stock levels › Uses market prediction approach for forecasting › Used pre-planned disaster strategy during 2011 tsunami Forecast demand Develop playbooks for critical processes − Moved production to other sites − Returned damaged sites to production within 1 month McKinsey & Company | 63 .AGILITY Several companies have moved agility levers to the top of their agenda in order to make sure they can adapt quickly to external conditions Agile capabilities Preparation Detection Fast response Example lever Description Develop modularization approach › Increased modularity in design and production Back-up sites › Redundant sourcing of supplies › Flexible plants to take volume from others › Updates forecasts real time with product performance.

product development speed and cost VW standardized several components of its cars – 65-70% of parts can be shared among models – while still allowing individual brands to control the ‘face’ of the vehicles This modularization effort is expected to reduce: Unit cost by 20% One-off expenses by 20% Engineering hours per vehicle by 20% Weight and emissions SOURCE: Volkswagen strategy 2018 publication McKinsey & Company | 64 .AGILITY Volkswagen’s modular ‘toolkit’ between its brands reduces engineering time.

simpler factories give Toyota agility to move production to emerging markets The factories are small format – producing only 250 units per day vs.’ allowing supply to be built up rapidly.AGILITY Toyota has introduced ‘factories-in-a-box’ that create greater operational flexibility Smaller.500 at some Factories can be built quickly and ‘stacked. up to 2. anywhere The factories can function with low automation Allows for opex-capex adjustment and reduces need for technical expertise in young markets Up-front investment is up to 40% less than traditional plants Capital can be saved and used to quickly take advantage of future opportunities McKinsey & Company | 65 .

others e.g. cocoa.000 tons of product are produced in 9 global factories Packaging and some ingredients (e. hazelnut) sourced globally McKinsey & Company | 66 .. palm oil.g. skim milk) sourced locally. vanillin.AGILITY Nutella’s global sourcing and production means that it can withstand shocks such as local supply shortages or currency fluctuations Nutella global value chain Agile supply chain Headquarters Main international suppliers Factories 250. sugar..

Airbnb has grown 353x in five years Number of Guests 17M 15M 10M 5M 2010 2011 2012 2013 2014 2015 McKinsey & Company | 67 .600 and having only 1.AGILITY Leveraging assets – rather than owning them – converts capex into opex and has allowed companies like Airbnb to rapidly scale Airbnb leverages public assets – people’s private homes – to build a hotel business Despite owning -0.

Implications for business 1 Think about growth in granular terms 2 Invest in talent and Human Resources 3 Design a flexible organisation 4 Foster agility 5 Know the risks and text your resilience 6 Digitise McKinsey & Company | 68 .

volatility has become the norm – everything is a variable From a relatively narrow set of possibilities … to ‘edge cases’ becoming normal 1990s & 2000s Probability of outcomes 2010s .? Probability of outcomes Range of outcomes Range of outcomes This volatility manifests across the global economic system: Oil prices Commodity prices Equity markets Exchange rates McKinsey & Company | 69 .RISK AND RESILIENCE As global growth has diverged.

even if they would be costly to address Encourages “out of order” communication – between anyone.RISK AND RESILIENCE Other companies are encouraging transparency to surface risks before crises Encourages complete transparency on potential risks and delays. delaying launch. outside of the normal “chain of command” Ford Edge team admitted pre-launch issues. at any time. and was praised by former CEO Alan Mullaly “Communication needs to be between anybody at any time” – President Ed Catmull Transparency and freedom of communication are key to ensuring that risks are raised early and can be managed proactively McKinsey & Company | 70 .

for which neither Sony nor other companies could have been fully prepared” 2015 11x – Investigations Team 2010 McKinsey & Company | 71 .100% over the last 5 years “This was an unparalleled and well-planned crime. carried out by an organized group.RISK AND RESILIENCE Digital also creates new risks Cybersecurity incidents have increased 1.

deal data) Build cybersecurity into business processes – create a 3 “secure path” to handle most sensitive data Test ability to respond to breaches – create a team tasked 4 with trying to penetrate critical systems Use active defense – create a counterterrorism-style “fusion 5 center” combining intelligence. analytics.RISK AND RESILIENCE Cyber threats require fundamentally new defense systems Poor cybersecurity could cost $3T in lost economic value in 2020 Need to… Prioritize business risks and information assets – align with 1 top ~50 executives on most important data to protect Enlist front-line users – create a “Top 100+” program for staff 2 dealing with most sensitive information (e.g. and operations SOURCE: McKinsey Global Institute McKinsey & Company | 72 ..

Implications for business 1 Think about growth in granular terms 2 Invest in talent and Human Resources 3 Design a flexible organisation 4 Foster agility 5 Know the risks and text your resilience 6 Digitise McKinsey & Company | 73 .

DIGITISATION Digitisation is upending the “fundamental truths” of business What we used to believe 1 Need to own assets to leverage their value 2 Marginal costs > 0 3 Core services need to be delivered by own employees 4 Competitors take years to emerge and scale 5 Disruption comes from within your industry Disrupting companies v. McKinsey & Company | 74 .

) Financial technology example – the unbundling of Wells Fargo Software is cheap and easily scalable.DIGITISATION Disruptors are attacking all aspects of traditional businesses (banking ex. but the bank will have to respond to these disruptions SOURCE: CB Insights McKinsey & Company | 75 . providing incentive to try to disrupt all aspects of business Not all of these start-ups will survive.

companies will need to understand the value at stake in their particular businesses P&L impact of digital % of total 6% 3% 56% Majority of impact from digital is cost (36% cost vs.DIGITISATION To capture the digital opportunity. 20% revenue) 13% 14% 20% Digital sales from outperformance Digitize Production and Servicing Reshape distribution model Reduce material cost Streamline overhead functions Total impact Cost SOURCE: Digital Enterprise modeling McKinsey & Company | 76 .

long-term orientation Linked to business strategy Centered around customer needs Scored out of 90 Based on 1.DIGITISATION Companies will also need to assess their “Digital Quotient” – does digital run through everything they do? TM Strategy Bold.000s of benchmarks Culture Organization Capabilities Risk appetite Roles and responsibilities Connectivity Speed / Agility Test and learn Internal collaboration External orientation Content and digital marketing Talent and leadership Customer Experience Governance / KPIs Data-driven decision-making Automation Digital investment IT architecture McKinsey & Company | 77 .

recruiting. engage in digitally aligned one Description Examples › Dominoes Pizza shifted their entire pizza order process from the phone to its apps and website › Topman. shoes that track your distance) and build social apps to share results › Google Ventures funds companies that could disrupt its businesses. and provides design. and engineering teams › Starbucks is introducing a mobile ordering service where customers can ‘order ahead’ and pick up or even have coffee delivered McKinsey & Company | 78 . marketing. a UK men’s clothes retailer.DIGITISATION Companies that are directly facing disruption will need to respond swiftly and decisively Reaction 1 Improve current business using digital tools 2 Build a complementary digital channel 3 Shift into adjacent digital business 4 Fund and/or acquire potential disruptors 5 Disown traditional business.g.. launched a service where customers can videoconference with a ‘personal shopper’ › Nike launched the ‘Nike+’ line of wearable technology (e.

000 500 2013 SOURCE: Gartner.000 1. CDO Club Network 2014 2015 (est.DIGITISATION Appointing a Chief Data (or Digital) Officer is a way for companies to make digitisation a priority CDOs are increasingly a part of the top team at major multinationals Number of companies with CDOs Examples 2.) McKinsey & Company | 79 .

Today’s discussion 1 Course overview 2 Winning in changing industry environments › Global forces › Implications for business › Implications for leaders 3 Questions? CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited McKinsey & Company | 80 .

Leadership in a new era
Ready for “trend


Receptor and

and a

and judgment

leaders do






Strong sense
of purpose

Calm in the eye of
the hurricane

and a sprint

Set ambition
McKinsey & Company | 81

Ready for trend breaks
› Value insight over experience - force
your team to challenge and plan for “tail
› Ready to connect and scale innovation
from everywhere

“Modern leaders must
live in 2-3 realities
(e.g., oil $35/barrel or

› Willing to shift resources massively year
to year (winner takes all)

› Personally champion the next
opportunity – or else the organization will
naturally kill it
› Nurture cross industry connections –
personally and as a model for others
› Connect to understand “growth pockets”
– even if very distant

McKinsey & Company | 82

Ready for trend breaks

Jeff Immelt
“Industrial companies are in the information
business whether they want to be or not … we
want to treat analytics like it’s as core to the
company the next 20 years as material science
has been over the last 50 years”
Made an fundamental, bold decision in 2010
to ‘make’ rather than ‘buy’ digital capabilities
within GE, entirely from scratch
Has overseen major investments into the
industrial internet and analytics spaces –
hiring thousands of new people with new
skills, launching new products and services,
experimenting with business and innovation

McKinsey & Company | 83

front line. customers. bank CEO – top 20 required to listen to call center complaints each month McKinsey & Company | 84 . retail CEO – 1 day a week in stores. public are all your stakeholders › Find ways to spend time with front line to receive and connect ideas (e.Receptor and connector › Provide purpose and meaning that helps workers thrive and make decisions › Find a few profoundly simple “Chief reality tester: continuously calibrating the organization with the external world to ensure relevance” messages that provide clarity globally › Run a boundary-less organizations: suppliers.g..

e. 3 days a quarter only on long-term strategy › Stress test the organization – and team (scenarios) McKinsey & Company | 85 .Lead with a telescope and a microscope Time of significant opportunity to build for future… › New markets › New consumers › New business models …but next 5-7 years bring huge volatility and risk (telescope not enough) › Prices › Capital flows › Trade › Geopolitics “You are much more exposed to major unforeseen shifts in trends – often more negative surprises than positive” How some manage › Use calendar.g..

000 employees through higher education partnerships and ‘gamification’ of HR development system McKinsey & Company | 86 . we know we are in trouble” Anticipated the industry trend of mobile media consumption and completed merger with television provider DirecTV Recognized that shifts will be required at individual employee level and developed plan to reskill 90.Lead with a telescope and a microscope Randall Stephenson AT&T “We need to be ahead of the curve…if we see ourselves falling behind global trends.

A 'tri-sector athlete' Social sector Private sector Bill Gates Balanced motivation: “A hybrid engine of selfinterest and concern for others serves a much wider circle of people than can be reached by self-interest or caring alone” Jeff Seabright Unilever Transferrable skills: leveraged public sector experience with the Foreign Service. the Senate and USAID to help Coca-Cola reduce its water usage per liter of Coke from 3 liters to 2 Michael Bloomberg Networks and contextual understanding: Tri-sector leaders are adept at building and maintaining networks outside of their fields and understanding the relationships between sectors Public sector McKinsey & Company | 87 .

people or places to ground you) McKinsey & Company | 88 .g..Strong sense of purpose › Invest time in developing your personal purpose and values framework › Purpose and core beliefs are needed to guide “right versus right” decisions › Exert self-control in decision- making to avoid decision fatigue and exhausting finite willpower “Character is a muscle a leader must constantly improve and build” › Keep trusted advisors and seek multiple viewpoints › Connect to your “roots” (e.

Strong sense of purpose – the importance of perseverance After Dashrath Manjhi’s wife died due to lack of medical treatment (the nearest town with a doctor was 70 km away). he spent the next 22 years working day and night to build a road through the mountains – reducing the distance between towns to 15 km McKinsey & Company | 89 .

Calm in the eye of the hurricane Intensely focused/outwardly calm › Shrinking interval between major shocks. but be looking for reasons you are wrong” McKinsey & Company | 90 . national crises become global › Leader must dampen volatility and panic › Importance of compartmentalization › Test the team – avoid panic-prone individuals “Never share your doubts.

Pole vaulting Renaud Lavillenie broke the world pole vault record that had stood for over 20 years in February 2014 – then immediately attempted to break it again › Set ambition independent of others › Celebrate success. but always aim higher › A single failure does not mean the bar is too high McKinsey & Company | 91 .

Pole Vaulting Larry Page “Over time companies tend to get comfortable doing the same thing. you need to be a bit uncomfortable to stay relevant” Decided to undertake a complete restructuring of the 2nd largest company in the world in order to stay innovative Gave up his role as CEO of Google to cultivate more ambitious and – in his own words – ‘crazy’ ventures outside of the core business McKinsey & Company | 92 . But in the technology industry. just making incremental changes. where revolutionary ideas drive the next big growth areas.

health) Be authentic – exhausting not to be McKinsey & Company | 93 . not time” Have the personal disciplines of an athlete (nutrition.Marathon and a sprint Know yourself and manage personal energy › Your schedule and travel – no more “rest days”– so how do you rest? › Best times of day (decision making) “My biggest challenge is now managing energy.

Influencing without authority › Invest time to understand others’ motivations and pain points › Be deliberate in use of language and choice of communication (e.. email vs.g. phone vs. inperson) › Honesty breeds trust McKinsey & Company | 94 .

. autonomy leads tobasic engagement” Move away from “carrot and stick” models of motivation Daniel Pink.g. Google 20% time generates half of its innovations › Mastery – tap into desire for selfimprovement and calibrate responsibilities to motivate (not bore or discourage) › Purpose – e... promotions) and unlock drive through: ▪ Autonomy – e.. promotions) and unlock drive through: › Autonomy – e. Drive (2009) (e.. stonemasons working.Unlocking drive “Control leads to compliance.g.g.” one says “I am building a cathedral” Move away from basic “carrot and stick” models of motivation (e. Google 20% time generates half of its innovations ▪ Mastery – tap into desire for self-improvement and calibrate responsibilities to motivate (not bore or discourage) ▪ Purpose – e.g.” one says “I am shaping a block.g.g. compensation.” one says “I am building a cathedral” McKinsey & Company | 95 . stonemasons working. compensation.” one says “I am shaping a block. one says “I am hammering a rock. one says “I am hammering a rock..

strengths and weaknesses without getting to know them very well › Invest time finding the people who can make the right decisions.Perception and judgment “When the temperature goes to 1. not in making more decisions › Challenge people to reach their full potential › Move quickly and decisively on people McKinsey & Company | 96 . some people crack like glass” › Difficult to assess people’s leadership potential.400 degrees.

across industries and across sectors in order to: › Broaden horizons and extend influence › Understand and anticipate potential disruptions from different directions McKinsey & Company | 97 . within your industry.Network Build networks inside your organization.

Networking Shimon Peres State of Israel “Leaders have lost their way … Leadership is about being a servant. not a ruler” 3 time Prime Minster and recent President of Israel. Nobel Peace prize recipient Is working to bring together businesses with the public sector to solve the world’s most pressing issues – especially human development and early childhood well-being McKinsey & Company | 98 .

10 years ago no one would recognize me. now they do – at home.Always on “As a CEO. in China. in Russia” › 24/7 visibility – living in a reality TV show through Twitter. Youtube › CEOs as face and name of the company › Radical transparency and open data Must create a mental refuge from the spotlight McKinsey & Company | 99 .

Today’s discussion 1 Course overview 2 Winning in changing industry environments 3 Questions? CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited McKinsey & Company | 100 .

case examples and logical inference to support your argument. McKinsey & Company | 101 .Questions Questions for classroom Topic for group assignment 1 Please write an essay (3000-5000 Chinese characters or 2000-3000 English words) on one of the below questions: 2 3 Which of the 6 implications for business is most important to China and why? Do you see other implications other than the six mentioned? In your view. How would you lead your organization to address opportunities and challenges in the next 10 years? Please use concrete data. what are the business challenges and opportunities facing Chinese companies? Which Chinese companies do you think are best positioned to address those challenges and opportunities? Why? What steps can you take to adopt the characteristics of successful leaders in the new era? 1 What are the business opportunities and challenges for Chinese companies in light of key global forces and their implications? 2 Imagine you are a CEO of a leading Chinese company in a chosen industry (you can choose any sector).