A Future Perfect: The Challenge and Promise of Globalization

by John Micklethwait

  But this is only the beginning of the story. From Britain to Thailand, Toyota has acted as a schoolmaster to the world’s car industry. It is hard to think of a big manufacturer anywhere in the world that has not studied the Japanese carmaker in depth, as have scores of service companies and public-sector organizations. And the standards are always getting higher. Toyota itself has recently turned to Ford to learn how to improve relations between its engineers and its shop-floor workers, and to Chrysler to learn about “value engineering,” a new method of speeding up production by using interchangeable components in different models.

  Nor is it just a matter of Japan and America: Arguably the most advanced car manufacturing country in the world is Brazil. At first sight, GM’s factory in São Caetano do Sul on the outskirts of São Paulo, looks quaint rather than revolutionary. The factory is an old one, with an attractive main office. But as its proud managers point out, it is one of the most efficient in the world, for which they credit the fact that most of the local bosses come from NUMMI. Everything is done to NUMMI standards, indicated by small yellow triangles with which the workers label their products and record their progress. Charts around the factory display a seemingly endless array of lines sloping upward from the time the plant began to introduce Japanese methods. It used to take 103 minutes to prepare a new set of dies in the stamping plant; now it takes just four—a standard other GM plants use as a p. 66 benchmark. Workers can win six thousand reals for suggesting useful improvements. And so on.

  The Brazilians are not just running the NUMMI system better than their peers, they are changing it. In Brazil, GM’s outside suppliers now assemble many more of the parts before delivering them to the assembly plants, hugely reducing the number of people it needs to employ to produce each vehicle. The firm is even changing the shape of its factories, replacing the typical American squares with L or T shapes, so that there are more loading docks from which external suppliers can deliver parts directly onto the production line. GM found that it could introduce new midsize cars in just two months in Brazil, compared with seven months in Kansas.[2] GM is also at work on a new plant, called the Blue Macaw project, that will reportedly require even more of the car to be assembled by outside suppliers.

  These innovations have had an effect in Detroit and throughout the industry. GM is now run by Richard Wagoner, an American who made his name in Brazil. (However, his attempts to Brazilianize GM were one reason why American workers went on strike in the summer of 1998; see chapter 13.)

  The Third Force

  The ideas and people that make up this busy trade in management are the third force behind globalization, linking the world together just as surely as the international trade in capital and information does. To be sure, management ideas are arguably just another form of technological know-how, and much of the pressure on companies to adopt them has come from the capital markets. But the internationalization of business practices now has its own momentum, and it is also accelerating. Ideas that were hit upon only in the 1990s, such as reengineering and “economic-value added” methods for analyzing corporate performance, are already practiced worldwide by organizations as diverse as the British Treasury, Universal Studios, Thai Farmers Bank, and Siemens.

  This is in part on account of deregulation: Privatization and the elimination of protective rules has forced once-cosseted companies to modernize. At the beginning of the 1990s, there were still some big companies in Continental Europe that disdained “American” fads. Now there are not. Far from being insulted by being labeled “Neutron Jürgen,” on account of his ruthless methods, Jürgen Schrempp at DaimlerChrysler has generally taken it as a compliment to be compared to “Neutron Jack” Welch of General Electric. p. 67 When Paolo Fresco was plucked out of General Electric to be Fiat’s chairman, the Italian company’s chief executive, Paolo Cantarella, was asked what his new boss’s main contribution would be. He replied, “Fresco’s experience from General Electric.” If anything, small European companies are even more taken with Yankee capitalism.

  Most institutions—both private sector and public—are now fairly ecumenical about the sources of their management ideas: They do not care if a business method was invented by a Canadian management guru such as Henry Mintzberg (who spends half the year teaching at Insead, a European business school) or a Taiwanese computer maker such as Acer. All that matters is that it works. While this could imply that companies are becoming homogeneous, a distinctive culture can be an important source of strength. Nevertheless, an increasing number of routine business operations follow the same patterns just about everywhere, and an increasing number of managers speak the same hideous if efficient language of BPR, TQM, and JIT.

  One example of this convergence that is not to everybody’s taste concerns executive pay. Notwithstanding the howls of protest in Germany when Chrysler’s managers picked up close to one billion dollars when their firm was bought by Daimler-Benz, European and Japanese companies are in general adopting American pay schemes, with hefty share-option packages. This may just be corporate greed, but it reflects the fact that in many industries there is now a global market for talent. In Japan, 160 big companies now have option plans. In Britain, salaries for run-of-the-mill chief executives in large companies now often reach the equivalent of five million dollars, with options and bonuses (still only a quarter of what their American peers might make but an unimaginable figure only a decade ago). Perhaps inevitably, compensation consultants refer to American-style packages as “global pay deals.” An alternative view is expressed by Graef Crystal, America’s best-known pay expert: “The virus is now spreading around the world.”[3]

  The Four Horsemen

  There are four main disseminators of Crystal’s management virus: multinational companies, management consultancies, business schools, and management thinkers.

  We have already seen a good example of the first in Toyota and GM. In a knowledge economy, multinational companies are essentially machines for p. 68 transferring ideas across borders. The United Nations estimates that 70 percent of all international royalties involve payments between parent companies and their subsidiaries. The same is probably true for management ideas. It is common for critics of globalization to argue that multinationals are driven, above all, by the pursuit of cheap hands. Yet even companies that pursue such a crude strategy usually export at least some management know-how. And the most successful multinationals (which are increasingly concentrated in highly skilled areas such as pharmaceuticals and computers) are more interested in access to the world’s brains than its hands. The subsidiaries of Japanese firms in the United States typically outspend their American rivals on training.

  This sounds a little, well, frivolous, but it is becoming the raison d’être of multinational firms (see chapter 7). Nowadays, they cannot rely on sheer size alone. The arrival of freer capital markets and powerful desktop computers has made it easier for small companies to compete with their bigger rivals, and the march of free trade means that start-ups can break into markets without setting up expensive offices or cultivating cozy relationships with local politicians. But multinationals have at least one advantage over their smaller rivals: They can easily mix and match ideas from around the world. Indeed, the best multinationals are arguably turning themselves into knowledge brokers, skilled at bringing together people who might not otherwise meet: Italian designers and Japanese computer nerds, for example, or Taiwanese advertisers and German chemists.

  One of the main ways in which management ideas whip around the globe is through training. European companies such as Nestlé have exported their apprenticeship system to Latin America. A particular favorite model is the in-house “university.” Motorola’s university has several campuses, including one in Beijing. Nestlé’s training center, Rive-Reine, in La Tour de Peilz, trains people from sixty different countries.

  Perhaps the most famous of the 1,600 corporate universities in America sits in a pretty stone building by a lake in Oak Brook, Illinois. Lau
gh, cry, faint: It is hard to imagine how the average cash-starved headmaster or university dean would respond to Hamburger University, with its gleaming lecture halls, new computers, and faculty-sized team of interpreters, ready to translate the lessons into twenty-six languages. The university, which has trained sixty-five thousand “bachelors of hamburgerology,” now boasts twenty-five professors and teaches seven thousand students a year. It also sits at the heart of a huge network that includes five overseas campuses and more than one hundred training centers and arguably reaches down into p. 69 every restaurant. The moment anyone joins McDonald’s, he or she is trained in something. By the time they reach Oak Brook, restaurant managers, whether they are from Sri Lanka or Southampton, should have had at least two thousand hours’ training.

  A lot of the teaching at Hamburger University is of the slightly mundane “And don’t forget the fries and Coke” sort. Historically, HU has also focused largely on instructing rather than learning—with all the commands coming from the United States. However, HU’s current dean, Rafik Mankarious, an Egyptian turned Australian who is the first non-American to hold the post, is under orders to change that. McDonald’s now realizes that its future relies on its foreign restaurants coming up with ideas rather than just being well-disciplined burger-distribution points. Mankarious encourages his students to air their complaints and to swap ideas. McDonald’s boss, Jack Greenberg, talks enthusiastically about the time he spends answering questions at each HU course as the “best way of getting information from the field” on everything from the firm’s new ten-second toasters to his recent restructuring.

  Much of the globalizing drive and energy of multinationals is provided by the management industry: the business schools, consultancies, and gurus. The job of management consultants is to give their clients access to the best business thinking that is currently available worldwide. The past decade has seen consultancies turn themselves into thoroughly global organizations. This transformation is exemplified most clearly by the fact that two of the most venerable American consultancies now have non-American bosses: McKinsey is run by an Indian, Bain by an Israeli. When Rajat Gupta joined McKinsey a quarter of a century ago, the firm he now heads had fifty consultants; now it has four thousand, and its fastest-growing office is in his native India. Bigger still, Accenture (as Andersen Consulting is now called) employs forty thousand people, and has 152 offices in 47 countries. Accenture’s training center in Saint Charles, Illinois, which mass produces the famous “Andersen androids” who consult all around the world, is the largest customer of Chicago’s O’Hare Airport.

  As this implies, consultancies are doing more than just leading thinking on globalization. They are producing a cadre of people who live the global lifestyle more thoroughly than any other modern businesspeople. Consultancies have access to a good proportion of the brightest people that universities are producing. Inevitably, they hire an enormous number of business-school graduates—around a third of the total. But consultancies are so avaricious that they are also scouring Ph.D. programs, medical p. 70 schools, and even art courses. They then encourage their recruits to become somewhat harassed citizens of the world, or cosmocrats (see chapter 12). Young consultants relocate their families (if they have had time to acquire them) at the bidding of their employers and spend an unenviable portion of their lives on airplanes. But the rewards for this peripatetic lifestyle can be enormous.

  Like consultancies, business schools are essentially American inventions. But there is a growing number of good European ones, including Insead, IMD, and the London Business School. And the American schools have tried desperately to internationalize themselves, recruiting more foreign students, forming alliances with foreign universities, and even setting up outposts abroad: The Harvard Business School has numerous tentacles around the world; the University of Chicago Graduate School of Business has a campus in Spain; and MIT’s Sloan School has close links with Hong Kong University.

  The third engine of the management industry is the gurus themselves—the rock stars of globalization. They provide consultancies and business schools with their best thinking and travel the world peddling their ideas and seeking new ones. The guru with the longest global track record is Peter Drucker, an Austrian-born polymath who internationalized himself early in his career by moving to the United States. Drucker’s first management book, Concept of the Corporation, a study of General Motors that argued for many of the reforms that were later implemented at NUMMI, turned him into a sage in Japan. Drucker cleverly used his access to Japanese business to popularize Japanese business methods in the United States.

  Drucker has since found many imitators (if no peers), an increasing number of whom come from outside America. There are now Japanese business gurus such as Kenichi Ohmae (who explains Japanese business methods to foreigners and foreign business methods to the Japanese) and English business gurus such as Charles Handy (who preaches a gentle style of socially responsible capitalism). Even black South Africans have got in on the global boom with “ubuntu management,” which blends Western ideas with African traditions such as tribal loyalty.

  Worth the Wait

  Much as with the capital markets, management theorists will continue to increase in power because, basically, they work. Making this case, however, is controversial. Many leading businesspeople still like to think that most sucp. 71cessful management strategies are all their own work. In 1998, Bill Gates reflected that most management books “that try to tell people about the future are really pretty bad.” He then cited one of the better management books of the past decade, Competing for the Future, which was published in 1994. “The authors are two smart guys. They’re probably as good as there is in the field. So what examples did they pick? General Magic. Yeah, they understand the future. Apple Computer? Every example they gave, with the exception of Hewlett Packard, was a total joke.”[4] Rupert Murdoch puts it slightly differently: “Guru? You find a gem here or there. But most of it’s fairly obvious, you know. You go to [a bookshop’s] business section and you see all these wonderful titles and you spend $300 and then you throw them all away.”[5]

  Such complaints are common. Many of the fads that companies try are misguided; virtually all of them are oversold by the management industry. On the other hand, there are plainly nuggets within management theory that either give real competitive advantage or have become an essential part of remaining in business. Successful management ideas are not just bits of local knowledge, fixed by culture and circumstances; they can travel and, suitably modified, can be used to reproduce that success in other countries and industries; perhaps they can even be melded into a discipline of management that holds lessons for all organizations. The methods that Toyota introduced at NUMMI clearly made a difference, and they are now regarded as the bare operational minimum for an international car factory.

  This suggests that the problem with management theory is not that it has turned into a giant industry—with all the attendant problems of overblown fads—but that it has not spread far enough. Nowhere is the danger of building a modern economy without sufficient management science clearer than in developing Asia.

  The region has a voracious thirst for management ideas. (Where else can you find earnest young men on a bus, avidly reading magazines with titles such as Supply Chain Management Review?) But there is still a dramatic shortage of trained managers. Even before the crisis of 1997-1998, there was talk of Asia needing a million more managers if it was to stay competitive. Now that looks like an underestimate. There are undoubtedly examples of excellence in developing Asia, such as in hotels and airlines. Yet many of the mistakes Asian businesses made, such as borrowing too much short-term money or ignoring currency risks, are the sort of thing that business schools caution against in their first few months.

  This reflects a deeper problem: The region’s two dominant business models look out of date. The weaknesses of the chaebol are well known, though p. 72 China’s leaders have nevertheless tried to introduce a
similar system. The other Asian model, business networks created by the overseas Chinese, is in some ways impressively modern: The free-flowing networks it uses are immaculately virtual. But in general the wealth created has been built largely on connections rather than on new products or better services. It is hard to name an overseas Chinese business that has the organizational capacity to build a modern car.

  This may change, thanks to two developments. The first is a determined attempt to build Asian versions of Wharton and the Harvard Business School. One aspirant to this throne is the China Europe International Business School, which, as its name and sprinkling of European staff implies, has had help from the European Union. The building itself is an unprepossessing place, about an hour from the center of Shanghai and surrounded by Japanese-owned factories. On the other hand, it buzzes with ambition. Some of this aggression comes from the Chinese government, which wants to train two hundred thousand managers every year, but this is more than matched by the drives of the students themselves. There are typically eighty applicants for each place, and admissions interviews are exhibitions in single-mindedness that would make Bill Gates or Larry Ellison shudder.

  Another effort, the Indian School of Business in Hyderabad—or “Cyberbad,” as some would like it to be known—only produced its first year of graduates in 2002. It starts, however, with the advantage of being backed by both Wharton and the Kellogg Graduate School of Management—two of America’s best business schools—a blue-ribbon list of Indian business leaders, and an impressive quorum of international managers, including Jürgen Schrempp of DaimlerChrysler and Martin Sorrell of WPP. The project has been largely the brainchild of a group of successful Indians living in America. Rajat Gupta of McKinsey talks with unexpected passion about the school becoming not only the best in Asia but also a rival of the existing American and European schools. Whether this dream-team approach works remains to be seen: India has a habit of tripping up grandiose schemes. But the signs so far are that the school means business. Its first 126 students received 190 job offers. When Bombay, the original choice for the school, began to demand special favors, such as places reserved for “native sons” (read: “sons of local ministers”), Gupta and his colleagues simply moved the site to Hyderabad. The message could not be clearer: The school will follow international standards, not Indian ones.