Interest is the emergence of three issues that form the need for a strategic management perspective by construction organizations - knowledge workers, new markets, and information technology. Unformatted text preview: GLOBAL ISSUES ON STRATEGIC MANAGEMENT 1 STRATEGIC MANAGEMENT What is Strategic Management?Strategic management is the process of developing and executing a series of competitive moves to enhance the success of the organization both in the present and in the future.

For the better part of a decade, strategy has been a business buzzword. Top executives ponder strategic objectives and missions. Managers down the line rough out product/market strategies. Functional chiefs lay out “strategies” for everything from R&D to raw-materials sourcing and distributor relations. Mere planning has lost its glamor; the planners have all turned into strategists.

All this may have blurred the concept of strategy, but it has also helped to shift the attention of managers from the technicalities of the planning process to substantive issues affecting the long-term well-being of their enterprises. Signs that a real change has been taking place in business’s planning focus have been visible for some time in the performance of some large, complex multinational corporations—General Electric, Northern Telecom, Mitsubishi Heavy Industries, and Siemens A.G., to name four.

Instead of behaving like large unwieldy bureaucracies, they have been nimbly leap-frogging smaller competitors with technical or market innovations, in true entrepreneurial style. They have been executing what appear to be well thought-out business strategies coherently, consistently, and often with surprising speed. Repeatedly, they have been winning market shares away from more traditionally managed competitors.

What is the source of these giant companies’ remarkable entrepreneurial vigor? Is it the result of their substantial investments in strategic planning, which appear to have produced something like a quantum jump in the sophistication of their strategic planning processes? If so, what lessons can be drawn from the steps they have taken and the experience they have gained?

To explore these questions, we embarked on a systematic examination of the relation between formal planning and strategic performance across a broad spectrum of companies (see the sidebar). We looked for common patterns in the development of planning systems over time. In particular, we examined their evolution in those giant companies where formal planning and strategic decision making appeared to be most closely and effectively interwoven.

Our findings indicate that formal strategic planning does indeed evolve along similar lines in different companies, albeit at varying rates of progress. This progression can be segmented into four sequential phases, each marked by clear advances over its predecessor in terms of explicit formulation of issues and alternatives, quality of preparatory staff work, readiness of top management to participate in and guide the strategic decision process, and effectiveness of implementation (see the Exhibit).

Exhibit Four Phases in the Evolution of Formal Strategic Planning

The four-phase model evolution we shall be describing has already proved useful in evaluating corporate planning systems and processes and for indicating ways of improving their effectiveness.

In this article, we describe each of the four phases, with special emphasis on Phase IV, the stage we have chosen to call strategic management. In order to highlight the differences between the four stages, each will be sketched in somewhat bold strokes. Obviously, not all the companies in our sample fit the pattern precisely, but the generalizations are broadly applicable to all.

Phase I: Basic Financial Planning

Most companies trace the origins of a formal planning system to the annual budgeting process where everything is reduced to a financial problem. Procedures develop to forecast revenue, costs, and capital needs and to identify limits for expense budgets on an annual basis. Information systems report on functional performance as compared with budgetary targets.

Companies in Phase I often display powerful business strategies, but they are rarely formalized. Instead, they exist. The only concrete indication that a business strategy exists may be a projected earnings growth rate, occasionally qualified by certain debt/equity targets or other explicit financial objectives.

The quality of Phase I strategy depends largely on the CEO and the top team. Do they really know their company’s products and markets and have a good sense of what major competitors will do next? Based on their knowledge of their own cost structure, can they estimate what the impact of a product or marketing change will be on their plants, their distribution system, or their sales force? If so, and if they do not plan for the business to grow beyond traditional limits, they may not need to set up an expensive planning apparatus.

Phase II: Forecast-based Planning

The complexities of most large enterprises, however, demand more explicit documentation of the implicitly understood strategies of Phase I. The number of products and markets served, the degree of technological sophistication required, and the complex economic systems involved far exceed the intellectual grasp of any one manager.

The shoe usually pinches first in financial planning. As treasurers struggle to estimate capital needs and trade off alternative financing plans, they and their staffs extrapolate past trends and try to foresee the future impact of political, economic, and social forces. Thus begins a second phase, forecast-based planning. Most long-range or strategic planning today is a Phase II system.

At first, this planning differs from annual budgeting only in the length of its time frame. Very soon, however, the real world frustrates planners by perversely varying from their forecasts.

In response, planners typically reach for more advanced forecasting tools, including trend analysis and regression models and, eventually, computer simulation models. They achieve some improvement, but not enough. Sooner or later plans based on predictive models fail to signal major environmental shifts that not only appear obvious after the fact, but also have a great and usually negative impact on corporate fortunes.

Nevertheless, Phase II improves the effectiveness of strategic decision making. It forces management to confront the long-term implications of decisions and to give thought to the potential business impact of discernible current trends, well before the effects are visible in current income statements. The issues that forecast-based plans address—e.g., the impact of inflation on future capital needs or the inroads foreign manufacturers may make in domestic markets—often lead to timely business decisions that strengthen the company’s long-term competitive position.

One of the most fruitful by-products of Phase II is effective resource allocation. Under the pressure of long-term resource constraints, planners learn how to set up a circulatory flow of capital and other resources among business units. A principal tool is portfolio analysis, a device for graphically arranging a diversified company’s businesses along two dimensions: competitive strength and market attractiveness.

As practiced by Phase II companies, however, portfolio analysis tends to be static and focused on current capabilities, rather than on the search for options. Moreover, it is deterministic—i.e., the position of a business on the matrix is used to determine the appropriate strategy, according to a generalized formula. And Phase II companies typically regard portfolio positioning as the end product of strategic planning, rather than as a starting point.

Phase II systems also do a good job of analyzing long-term trends and setting objectives (for example, productivity improvement or better capital utilization). But instead of bringing key business issues to the surface, they often bury them under masses of data. Moreover, Phase II systems can motivate managers in the wrong direction; both the incentive compensation program and informal rewards and values are usually focused on short- or medium-term operating performance at the expense of long-term goals. In sum, Phase II planning all too easily becomes a mechanical routine, as managers simply copy last year’s plan, make some performance shortfall adjustments, and extend trend lines another 12 months into the future.

Phase III: Externally Oriented Planning

In an environment of rapid change, events can render market forecasts obsolete almost overnight. Having repeatedly experienced such frustrations, planners begin to lose their faith in forecasting and instead try to understand the basic marketplace phenomena driving change. The result is often a new grasp of the key determinants of business success and a new level of planning effectiveness, Phase III.

In this phase, resource allocation is both dynamic and creative. The Phase III planners now look for opportunities to “shift the dot” of a business on a portfolio matrix into a more attractive sector, either by developing new business capabilities or by redefining the market to better fit their companies’ strengths. A Japanese conglomerate with an underutilized steel-fabricating capacity in its shipyard and a faltering high-rise concrete smokestack business combined them into a successful pollution control venture.

In the search for new ways to define and satisfy customer needs, Phase III strategists try to look at their companies’ product offerings and those of their competitors from the viewpoint of an objective outsider. For example, one heavy equipment manufacturer assigned a strategy team to reverse-engineer the competitor’s product, reconstruct its manufacturing facilities on paper, and estimate the manufacturing cost for the competitor’s product in the competitor’s plant. The team members discovered that design improvements had given the competitor such a commanding advantage in production cost that there was no point in trying to compete on price. But they also found that their own product’s lower maintenance and fuel costs offered customers clear savings on a life-cycle cost basis. Accordingly, the sales force was trained to sell life-cycle cost advantages. Over the next three years, the company increased its market share by 30% and doubled its net profit.

Another strategy, derived from an external perspective, was devised by a U.S. industrial commodity manufacturer. When sales in one of its major product lines declined swiftly following the introduction of a new, cheaper competitive product, it decided to find out the reason. Through field interviewing with customers, it discovered that the sales slide was nearly over, something competitors had not realized. Since sales of the product had dropped off to a few core markets where no cost-effective alternative was available, it decided to put more support behind this product line, just as the competition was closing its plants.

The manufacturer trained the sales force to service those distributors who continued to carry the line and revised prices to pick up competitive distribution through master distributor arrangements. It even resisted the move of the trade association to reduce government-mandated safety requirements for handling the newer products. By the time its strategy was obvious to competitors, the manufacturer had firmly established a distribution lead in a small but attractive product/market segment.

The SBU Concept

A distinguishing characteristic of Phase III planning in diversified companies is the formal grouping of related businesses into strategic business units (SBUs) or organizational entities large and homogeneous enough to exercise effective control over most factors affecting their businesses. The SBU concept recognizes two distinct strategic levels: corporate decisions that affect the shape and direction of the enterprise as a whole, and business-unit decisions that affect only the individual SBU operating in its own environment. Strategic planning is thus packaged in pieces relevant to individual decision makers, and strategy development is linked to strategy implementation as the explicit responsibility of operating management.

There are limitations to the SBU concept. Many enterprises, such as vertically integrated companies in process-oriented industries, cannot be neatly sorted out into discrete business units because their businesses share important corporate resources—sales, manufacturing, and/or R&D. In other situations, strategy may dictate a concerted thrust by several business units to meet the needs of a shared customer group, such as selling to the automotive industry or building a corporate position in Brazil. In still other cases, the combined purchasing power of several SBUs or the freedom to transfer technologies from one business to another can be more valuable than the opportunity to make profit-oriented decisions in discrete business units. For example:

• A major chemical company found that several of its competitors, who had grown large enough to integrate backward into feedstock production, were beginning to gnaw at its historic competitive edge as a fully integrated producer. Part of the reason was that by licensing certain technology to the competition, the company had given away a raw-material cost advantage that it could not match with its own, older plants. The basic problem, however, was that its product managers were preoccupied with competitive threats in only a handful of the many product/market segments they served. Decisions that seemed to make sense at the individual business-unit level were adding up to deep trouble for the company as a whole.

• A major supplier of industrial equipment divided its electric utility business into two SBUs, a power generation business and a power transmission business. Much too late, top management discovered that neither SBU had considered pollution control equipment to be part of its legitimate charter. As a result, the company found itself unable to bid on that business—which accounted for a full quarter of electric utility capital spending.

The most significant way in which Phase III differs from Phase II is that corporate planners are expected to offer a number of alternatives to top management. Each choice is usually characterized by a different risk/reward profile or gives priority to a different objective (for example, greater employment security at some cost to ROI). This change is quite pervasive; in fact, one simple way of determining whether a company has advanced to Phase III is to ask managers whether their boss would regard presenting strategy alternatives as a sign of indecisiveness.

The “alternate strategies” approach becomes both the strength and the weakness of Phase III planning, for it begins to impose a heavy—sometimes unacceptable—burden on top management. As the organizational capability for detailed product/market and business-unit planning spreads through the organization, the number of issues raised, alternatives surfaced, and opportunities developed expands alarmingly. Top managers soon recognize that explicit choices are being made by planners and managers deep down in the organization without top-level participation—and that these decisions could significantly affect their company’s long-term competitive strength and well-being. This knowledge unsettles top management and pushes it to a heavier involvement in the planning process, Phase IV.

Phase IV: Strategic Management

Phase IV joins strategic planning and management in a single process. Only a few companies that we studied are clearly managed strategically, and all of them are multinational, diversified manufacturing corporations. The challenge of planning for the needs of hundreds of different and rapidly evolving businesses, serving thousands of product/markets in dozens of distinct national environments, has pushed them to generate sophisticated, uniquely effective planning techniques. However, it is not so much planning technique that sets these organizations apart, but rather the thoroughness with which management links strategic planning to operational decision making. This is largely accomplished by three mechanisms:

1. A planning framework that cuts across organizational boundaries and facilitates strategic decision making about customer groups and resources.

2. A planning process that stimulates entrepreneurial thinking.

3. A corporate value system that reinforces managers’ commitment to the company’s strategy.

Planning Framework

As noted previously, many Phase III companies rely on the SBU concept to provide a planning framework—often with disappointing results. However, there are frequently more levels at which strategically important decisions must be made than the two implicit in SBU theory. Moreover, today’s organization structure may not be the ideal framework in which to plan for tomorrow’s business, and a strategically managed company may arrange its planning process on as many as five distinct planning levels:

1. Product/market planning—The lowest level at which strategic planning takes place is the product/market unit, where typically product, price, sales, and service are planned, and competitors identified. Product/market planners often have no control over different sets of manufacturing facilities and so must accept a predetermined set of business economics.

2. Business-unit planning—The bulk of the planning effort in most diversified make-and-sell companies is done at a level where largely self-contained businesses control their own market position and cost structure. These individual business-unit plans become the building blocks of the corporate strategic plan.

3. Shared resource planning—To achieve economies of scale or to avoid the problem of sub-critical mass (e.g., in R&D facilities), resources are shared. In some cases, the assignment of resource priorities to different business units or the development of a plan to manage a corporate resource as a whole is strategically important. In resource-based or process-oriented industries, strategies for shared resource units often determine or constrain business-unit strategy.

4. Shared concern planning—In some large companies, a distinct level of planning responsibility is required to devise strategies that meet the unique needs of certain industry or geographic customer groups or to plan for technologies (e.g., microprocessors, fiber optics) used by a number of business units.

5. Corporate-level planning—Identifying worldwide technical and market trends not picked up by business-unit planners, setting corporate objectives, and marshaling the financial and human resources to meet those objectives are finally the responsibility of corporate headquarters.

For corporations involved in only a few, closely related product/markets, a two- or three-level planning framework may be entirely adequate. Even when additional planning levels are required, these companies need not insert another level of organizational hierarchy in order to plan shared resources or customer sector problems. Experience suggests, however, that it is important to recognize such issues where they exist and to assign explicit planning responsibility to an appropriate individual or group in the organization.

Otherwise, critical business decisions can slip between the cracks, and the corporation as a whole may find itself unable to capitalize on its strategic opportunities. Because the selection of a framework for planning will tend to influence the range of alternatives proposed, few strategic planning choices are more important. The definition of a strategic planning framework is, therefore, a pivotal responsibility of top management, supported by the corporate planning staff.

Planning Process

While planning as comprehensively and thoroughly as possible, Phase IV companies also try to keep their planning process flexible and creative.

A principal weakness of Phase II and III strategic planning processes is their inescapable entanglement in the formal corporate calendar. Strategic planning easily degenerates into a mind-numbing bureaucratic exercise, punctuated by ritualistic formal planning meetings that neither inform top management nor help business managers to get their jobs done. Division managers have been known to attempt to escape from the burden of “useless” annual planning by proposing that they fold their businesses into other SBUs, at least for planning purposes.

To avoid such problems, one European conglomerate has ordained that each of its SBUs initially study its business thoroughly, lay out a detailed strategy, and then replan as necessary. It has found that well-managed businesses in relatively stable industries can often exist quite comfortably with routine monitoring against strategic goals every quarter and an intensive strategic review every three to five years. The time saved from detailed annual planning sessions for every business is devoted to businesses in fast-changing environments or those not performing according to the corporate blueprint.

Because it is hard to institutionalize a process that can reliably produce creative plans, strategically managed companies challenge and stimulate their managers’ thinking by:

• Stressing competitiveness—The requirement for thorough understanding of competitors’ strategies recently has been the planning keynote of a U.S. electrical products company well known for its commitment to planning. Top management comes to the planning meetings prepared by its staff to bore in on a few key issues or events. “If, as you say, our competitors are only three years away from introducing microprocessors in their control units, why are they already talking about it in their annual reports?” the president might ask. “What cost savings could our customers achieve with microprocessor-controlled equipment?” or “Who are our competitors’ leading engineers?” It takes only one such grilling session to make division managers aware of gaps in their competitive information.

• Focusing on a theme—Several major companies periodically reinvigorate their planning processes by asking their managers to key annual plans to a specified theme. International business, new manufacturing process technology, the value of our products to customers, and alternative channels of distribution have all been used successfully. This approach has obvious limitations: it doesn’t work with business units in trouble, and it should be avoided until the value of formal planning is well established.

• Negotiating objectives—Several companies are trying to negotiate strategically consistent objectives between corporate headquarters and business-unit general management. “We want two years and $35 million in additional investment to prove to you we can make this into a 35% gross margin business,” said the new general manager of a division in trouble. “During that time we will make zero profit, but we’ll strengthen our market share by three points and reduce material waste at our Atlanta plant from 10% to 3%. Alternatively, you can have $4 million per year at the bottom line next year and $6 million the year after that. No investment, and only minimal share loss. But be prepared to sell out the whole division, because after that it’s all downhill.” Faced with clear options, corporate management could suggest ideas and concessions that would promise them most of their share growth and some profitability for much less cash commitment up front.

• Demanding strategic insights—Avoiding competition by an indirect approach is the essence of creative and innovative strategy: a reformulation of a product’s function, the development of new manufacturing methods or distribution channels, or the discovery of dimensions of competition to which traditional competitors are blind. One way to generate this kind of thinking is to ask each business manager to describe the specific business advantage he or she intends to achieve. Top management reviews each business plan skeptically. As one CEO tells division heads: “If you can’t tell me something about your business I don’t already know, you probably aren’t going to surprise our competitors either.” This technique relies heavily on the corporate planning staff, who are charged with demonstrating to uncreative business-unit planners that there are new ways of looking at old businesses.

Corporate Value System

The value system shared by the company’s top and middle managers provides a third, less visible linkage between planning and action. Although the leadership styles and organizational climates of companies that can be called strategically managed vary considerably, and in even one company a great deal of diversity can be found, four common themes emerge from interviews with personnel at all levels in strategically managed companies:

1. The value of teamwork, which leads to task-oriented organizational flexibility.

2. Entrepreneurial drive, or the commitment to making things happen.

3. Open communication, rather than the preservation of confidentiality.

4. A shared belief that the enterprise can largely create its own future, rather than be buffeted into a predetermined corner by the winds of environmental change.

Teamwork on task force projects is the rule rather than the exception in strategically managed companies. Instead of fearing these uniquely dangerous expeditions beyond the security of the organizational thrust, managers learn to live with the ambiguity that teams create in return for the excitement and variety of new challenges.

The resulting continual reorganization can appear bizarre from outside the organization. For example:

• Observers trying to make sense of top management personnel changes in one highly successful telecommunications company were left scratching their heads, as first the chairman stepped down to become president and then he was further demoted to become CEO of a major subsidiary. Who was running the company, observers asked. Which individual was responsible for their brilliantly executed strategy? No one. The whole team at the top was so strong that no single manager deserved sole credit. The changes in title visible to the public were more an indication of the successful execution of phases of the company’s strategy than they were signals of the rise or fall of a single individual’s career.

Entrepreneurial drive among managers and technical personnel at all levels is a valued form of behavior in strategically managed companies. One organization’s top management was eager to get in on the ground floor of a synthetic fuel equipment business. Six levels down from top management, an applications engineer in the specialty metals division was faced with a notice of a substantial cost overrun on an expensive piece of test equipment.

Instead of cancelling the order to source the equipment from a less costly supplier and thereby incur a six-month delay, the engineer went to the boss, and eventually to the boss’s boss, to find out whether the delay to execution of the company’s strategy was worth the cost savings. As a result, the engineer did overrun the project budget, but the test equipment was available when needed.

Confidentiality about the company’s strategy is one of the hardest things for top management to give up. And yet it is impossible for a company to be strategically managed without the involvement of wide niches of relatively junior people in many aspects of the company’s strategic plans. It is not necessary for top managers to divulge everything, but as a minimum, junior managers should know the strategic purposes their actions serve.

In retrospect, one chairman confided that he had overestimated the value of confidentiality. “We had a good idea for a strategy for our specialty business. But we couldn’t implement it without letting everyone in the company know about it. We took the chance; now I suspect everyone in the industry knows what we’re doing. But they can’t get their act together to overtake us. We’re moving too fast.”

A shared commitment to creating their own future is the underlying ethic of strategically managed companies. Instead of marginal improvements—a few more shares of market or a few percentage points of cost reduction—managers set for themselves ambitious goals that if accomplished will lead to a sustainable competitive advantage for their company. For example:

• A Japanese television manufacturer, faced with rising material and labor costs, ordered its engineers to reduce the number of component parts in its color TV sets by 30%. Innovative design approaches have since enabled the manufacturer to increase volume substantially while halving the number of workers in its assembly plant.

• A machine tool manufacturer has undertaken to change the way a whole industry buys its machinery. Into a sales environment where close personal relations on the plant floor and with the process engineers was formerly the key to success, it is systematically injecting a top-management-oriented, technically and financially argued sales approach.

At the same time, it is radically upgrading its research and development capabilities, adding computer-aided engineering, software development, and systems engineering support. “Very little of our product advantage has patent protection,” concedes the CEO. “But if we can persuade the industry to buy on productivity rather than on cost and delivery, the premium we can charge for engineering value will fund enough research to keep us three to four years ahead.” Using this approach the manufacturer has already built one of the five largest machine tool companies in the world.

As the economic system becomes more complex and the integration of single business units into multinational, diverse organizations continues, ways must be found to restore the entrepreneurial vigor of a simpler, more individually oriented company structure. Strategic management, linking the rigor of formal planning to vigorous operational execution, may prove to be the answer.

he globalization of business has become so rapid that a new field called 'Global Strategic Management' has now emerged. This new field is a blend of strategic management and international business that develops worldwide strategies for global corporations. Whereas most studies in this field focus on ordinary business conditions, the revolutionary events of the past few years make it clear that the present is not ordinary. Such epoch-shattering events as the collapse of communism, the unification of Europe, the information revolution, the arrival of an environmental ethic, and other remarkable new developments signal that a new era is emerging in global affairs. This article describes a broader approach to global strategic management that encompasses these revolutionary changes.

The viewpoint presented here was developed in a project sponsored by the World Future Society called 'WORLD 2000.' WORLD 2000 focuses on conducting a global strategic management process among business, government, education, and other sectors of society to define the emerging global system and help institutions adapt to changes. It represents a fresh examination of the forces that are integrating the earth into a coherent global order as well as those that are creating the disorder that tends to characterize our time: the unification of markets and communications, as well as the vast differences in cultures, local problems, and values erupting around the globe. By gaining new insights into the emerging world system, social institutions may better understand how they can adapt to these changes.

This seems to be an opportune time for such an examination. The transition to a new global system is likely to be made during the next decade; the year 2000 offers a highly symbolic turning point at which the emerging global order can be shaped and molded.

Following is a global strategic plan, developed by synthesizing the literature and then reviewing the plan with groups of executives. It follows the logic of a typical strategic plan but carried to a global level. First, we summarize nine supertrends that describe a long-term trajectory toward an advanced stage of 'global maturity.' Second, we note five principal obstacles that must be overcome to clear the way ahead. Third, we argue that these issues can be resolved by a newly emerging perspective that recognizes the essential unity of a global community.

THE TRAJECTORY TO GLOBAL MATURITY

The following trends represent the principal driving forces that are now moving the world in new directions. They could be called 'supertrends.' Little attempt is made to offer justifications, and many other trends that capture finer details are not covered. This summarizes the major features that characterize the emerging shape of the globe as it moves along a long-term trajectory toward a new stage of global maturity.

Trend 1: A Stable Population of 10-14 Billion

The earth, which already is teeming with 5.5 billion people, is expected to double its population to reach a stable level somewhere between 10-14 billion humans by the mid-21st century. About 95 percent of this growth will occur in the less developed countries (LDCs).

Trend 2: Industrial Output Will Increase by a Factor of 5-10

The aggregate level of material consumption, or industrial output, should increase by a factor of 5-10 over the next few decades as most remaining parts of the world industrialize to reach the equivalent standard of living enjoyed by Americans, Europeans, and Japanese. Industrial throughout, however, is likely to grow less as more efficient means are found to insure a sustainable form of development.

Trend 3: The Wiring of the Globe

Information technology (IT) is a revolutionary force that will continue to overthrow governments, restructure corporations, and unify the world. This revolution will wire the earth into a single communication network, a central nervous system for a planetary society. However, the gap between information haves and have-nots is apt to persist.

Trend 4: The High-Tech Revolution

The IT revolution is accelerating technical advances to create breakthroughs in all fields: the mapping of DNA, genetic therapy, robotics, materials research, sustainable 'green technology,' automated transportation, and even a 'technology of consciousness.'

Trend 5: Global Integration

The globe is becoming integrated into a single community connected by a common communication system, a global economy, and a shared international culture. In time, this process may unify today's growing economic blocs and political federations into a universal system of open trade, a global banking system and common currency, and some form of world governance.

Trend 6: Diversity and Complexity

It is a great paradox that global integration will be accompanied by disintegration into a highly diverse system. Ethnic enclaves, such as those in the former republics of the USSR, will continue to seek autonomy; various groups within nations will form pockets of self-governing subcultures; and modern societies generally will splinter into a far more complex, differentiated social order.

rend 7: A Universal Standard of Freedom

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Freedom and the recognition of human rights should continue spreading around the globe, though this movement may ebb and flow at times. A majority of nations now have political democracy and free market systems, and the number should grow to the extent that freedom becomes the accepted norm, with authoritarian systems being the exception.

Trend 8: Continued Crime, Terrorism, and War

Traumatic upheaval is likely to produce disgruntled individuals, groups, and nations resorting to a variety of crimes, terrorism, and limited wars. However, global wars and the old fear of nuclear holocaust now seem unlikely.

Trend 9: Transcendent Values

As this transformation unfolds, most people in advanced nations should strive for quality of life, community, self-fulfillment, art, spirituality, and other higher-order values that transcend material needs. Many are cynical about such claims, but as the philosopher Andre Malraux predicted, the twenty-first century will be the century of religion.

CRITICAL ISSUES BLOCKING THE PASSAGE AHEAD

Although this evolutionary trajectory is likely to stabilize into a mature, coherent global order in the mid-twenty-first century, business and government must resolve the following five issues, which pose barriers to this forward movement. Once again, this represents a quick survey--not a detailed summary--to highlight key issues that now present major obstacles to progress.

Issue 1: Making the Leap to a Global Order

Most of the problems the world struggles with result from the fragmented economic and political systems that continue unchanged from the industrial past. Trade barriers, fluctuating currency exchange rates, and difficulties in communicating are 'old' problems that should not exist in a 'new' global order managed as a coherent system; they do not exist in the United States, Germany, China, or other societies governed as coherent systems. The transition to some type of world order is monumental because it requires sophisticated global systems that integrate the world into a single whole, permitting a quantum leap to a global level of governance heretofore unknown.

Issue 2: Reconciling Economic Interests

Communism may have yielded to markets, but markets do not exist only in capitalism. The strength of Japan, for instance, hinges on a market system that is based on collaborative working relations: a 'Human Enterprise System' (Ozaki 1991). In contrast, the capitalism practiced in Western nations, such as the United States, is in trouble because it exacerbates conflicts between labor and management, rich and poor, business and government, domestic and foreign trade, private and public sectors, and other basic incompatibilities. A sound global economy for the future, therefore, awaits the creation of a new economic paradigm based on some form of free enterprise that can reconcile these diverse interests into a productive and harmonious community.

Issue 3: Achieving Sustainable Development

The present conflict between economic growth and environmental protection will be resolved either rationally or through some form of decline. The anticipated five- or ten-fold increase in industrial output is incompatible with any reasonable forecast under existing conditions. Many solutions are being proposed to achieve sustainable development, but the task of implementation remains formidable. Ecological systems are suffering unsustainable stress even under today's far more modest load. Developed countries (DCs) show little inclination to alter their profligate lifestyles, and LDCs seem to be striving for Western affluence.

Issue 4: Managing Complexity

One of the most striking trends of the emerging future is the explosion of complexity that is almost impossible to contain within today's cumbersome institutions. Much of what passes for unsolvable disorder reflects an inability to respond effectively to the diversity of individual and community challenges. This problem, which toppled communism, is becoming severe in the West. Top-down corporations are struggling to diversify so they can serve myriad market niches; governments have not yet begun to grapple with the intricacies of education, poverty, crime, and other chronic social problems. Dramatically different institutions are needed to manage this complex new world, which may require an upheaval similar to the one now plaguing the former communist bloc.

Issue 5: Alleviating the North-South Gap

The enormous disparity between the wealth of LDCs in the South and the DCs of the North shows little sign of improvement, fanning an explosive antagonism between these two halves of the globe. Average income in the South is now about six percent of that in the North; little progress is being made in alleviating the misery of these people, who make up three-quarters of all humanity. Unless serious efforts are made to close this gap by bringing LDCs into the modem world, the Southern hemisphere will seethe with the same potential for violent confrontation that was released in the Los Angeles riots of 1992.

These five dilemmas are exacerbated by one of the most pervasive problems of our time: a collapse of faith in the familiar old ideology that guided humans through the past epoch with good success. It could be thought of as a 'meta-issue.' With the USSR now defunct and the United States in crisis, the lack of superpower leadership has left a vacuum of power. ideas, and moral guidelines at a time when the world is facing Herculean new challenges. The result is political gridlock, economic stagnation, destructive personal stress, social disorders, and many other symptoms of breakdown. From all this apparent chaos, a new paradigm, model, or belief system must somehow be formed that allows people to make sense of today's different global realities.

A STRATEGY BASED ON A NEW GLOBAL PERSPECTIVE

An enormous variety of policies and remedial programs are being proposed to resolve all these problems, but their sheer number and diversity scatter attention into confusing, uncoordinated, and ineffectual directions. This section synthesizes these proposals into a 'master strategy' based on a different perspective now gaining increasing attention, one that recognizes the essential unity of the emerging global system.

The key to understanding the emerging world view is to see that unprecedented new imperatives have arisen--especially the revolutionary force of IT--that are unleashing powerful new forces to integrate the globe. As communication systems encircle the earth to form a central nervous system for the planet, the fragmented parts of today's failing global order are being joined together into an interconnected, coherent system. The most recent report of the Club of Rome (King and Schneider 1991) notes that current dramatic changes represent the first global revolution because the entire earth is experiencing these events together at the same time. This shift to a new global perspective is summed up in the Table. This perspective then leads to the following elements of a master strategy required to overcome the issues defined before:

Strategy 1: Disseminate Advanced Technology to Unify the Globe

Although many people fear its effects, the relentless advance of modern technology--especially information technology--is the primary force driving the globe through its present transition. It was the ubiquitous presence of television, radio, facsimile, and video, for instance, that armed citizens of the former USSR and the Eastern Bloc with the knowledge required to overthrow their governments.

Information technologies should be diffused, therefore, by corporations selling sophisticated products abroad, governments fostering joint research and development projects, individuals sharing technical knowledge, and any other reasonable methods. There is a particular need to find ways of introducing these technologies into LDCs to advance their modernization and unite them with the world. All technology can be misused, so care is needed to ensure that it is applied appropriately. The emerging global order is being constructed on a technological foundation; the sooner that foundation is in place, the sooner this system can behave as a coherent global community.

Strategy 2: Integrate Economics and Society

The conflict between economic life and social life is being reconciled, as evidenced by breakthroughs that would have been unthinkable a few years ago. Japan has shown the world that a union of economic and social interests is more productive, spurring others to emulate this 'human-centered' form of enterprise. Even General Motors, long regarded as the antithesis of this idea, has formed GM-Saturn as a prototype of socially responsive business, managed by a coalition of workers, customers, suppliers, distributors, and local citizens. Saturn production lines cannot keep up with demand because Saturn cars are now the best in their class, proving that social goals are compatible with economic goals.

Intense global competition should, in time, drive most economies in this direction because it is efficient. Decisions ranging from the shop floor to national macroeconomic policy may then be made collectively by all affected parties, including workers, labor, consumer advocates, governments, and citizens. If this can be done, the leaders of business and other social institutions may then act as stewards rather than managers, creating the badly needed trust, quality, mutual service, and collaborative economic relationships that can instill the essential sense of community that vitalizes society.

Strategy 3: Create a Symbiotic Society-Environment Interface

A harmonious economic-societal relationship will mean little if it is not supported by a viable ecosystem. Civilization must be carefully redesigned to form a symbiotic society-environment interface. Business firms are now competing to prove their environmental consciousness because of public pressure. Stephen Schmidheiny, Chairman of the Business Council for Sustainable Development, described the advantages (1992): 'Progress toward sustainable development makes good business sense because it can create competitive advantage and new opportunities.'

A wide range of difficult adjustments are under way to integrate ecological realities into economic and social life. Sustainable technologies and practices are being developed to increase economic efficiency, advance more modest but wholesome lifestyles, develop renewable energy, reforest denuded lands, convert to organic agriculture, recycle waste, and improve pollution controls. To evaluate this complex situation realistically, social indicators must be incorporated into such financial measures as GNP; social costs, such as pollution, should be internalized in the form of taxes and credits to guide balanced economic choices.

Strategy 4: Decentralize Institutions to Empower Individuals

Almost all analysts agree that social institutions need to be restructured for a knowledge-based global order, but confusion reigns over what is needed. The most useful guide can be found in a dominant imperative now sweeping through modern nations: institutions are being decentralized into networks of small, autonomous units to master complexity. This imperative is the entrepreneurial half of the new role emerging for institutions; the move toward collaborative, democratic policymaking described in Strategy 3 constitutes the other half that unifies this diversity into a harmonious whole.

For instance, large corporations are being disaggregated into small 'internal enterprises' that form the equivalent of market economies inside organizations--'internal markets' (Halal et al. 1993). Under the pressure of limited budgets and public demands, governments are also allowing the public to choose among competing agencies. A good example is the way U.S. education is introducing market competition among schools, which are also governed democratically by teachers, parents, local citizens, and administrators.

The result of all these changes is to restructure authority relationships. Markets and democracies share the common feature of placing control in the hands of ordinary people to harness the growing diversity of thought and values into creative forces of change, with institutions providing the overarching systems that support and guide change. The decentralization of authority, then, empowers people to care for themselves more effectively, which provides a self-organizing system for managing a complex world.

Strategy 5: Foster Collaborative International Alliances

A knowledge-based society fosters pockets of collaborative problem solving in which all partners benefit, while competition drives collaborating parties together. This is why business managers and politicians are creating a flurry of strategic alliances with their competitors. Cooperation has now become the most powerful force in world affairs.

This new ethic of strategic collaboration is also being extended to forge productive alliances between business and government, economists and ecologists, and competing nations, knitting together a global community of diverse groups. Note that an ethic of cooperation implies not altruism but a reciprocity of interests that benefits all partners. It is enlightened self-interest.

The conflict between North and South, for example, could yield cooperative ventures, such as the North American Free Trade Agreement, between DCs and LDCs based on mutual advantages for both parties. LDCs gaining capital, jobs, and know-how, while DCs gain access to markets and less costly labor.

Obviously there is no assurance that the world will pursue a path of this type. And it is certainly true that difficult choices at dangerous junctures could deflect the trajectory toward maturity into other directions. However, historic breakthroughs have occurred in the past few years--the collapse of communism, a greatly reduced threat of nuclear holocaust, and worldwide concern over the environmental crisis--largely through the natural evolution of the global order. Barring unforeseen disasters, it seems reasonable to expect that the other remaining obstacles noted above could also be resolved from this same natural process, though we cannot now anticipate how or when.

This does not mean that individuals and institutions are passive observers of an immutable process of natural development: change is the sum of countless small human actions that collectively produce social transformation. A coherent new world order will emerge only if global corporations, national governments, and educational institutions are able to adopt major strategies such as those outlined above. Developing and disseminating advanced technologies, especially information technology, will be essential in forming the foundation for a mature global society. A collective model of enterprise must be defined that reconciles the interests of capital with mounting social concerns, particularly environmental sustainability. Large firms must be decentralized to empower individuals if we hope to manage a complex and diverse world. Strategic alliances must be encouraged on a global scale to avoid the conflicts that now divide the world.

Accomplishing these ambitious tasks will test us all because our individual perspectives will have to yield to a broader perspective. In our work conducting the WORLD 2000 global strategic management process for corporations, government agencies, and other management groups, we find a common theme running through all these changes: the emerging global order can be integrated into a workable whole only by accepting the legitimacy of other views, even those we feel are antithetical to our own.

The primary skill required to survive this critical transformation, therefore, is an attentive ability to reconcile the conflicting, endlessly changing, overwhelming complexity posed by today's diverse world. A crucial paradox lies at the heart of this challenge. What is involved, fundamentally, is cultivating a more transcendent mode of thought that can permit all of us to regain command over our affairs by relinquishing the illusion of self-control in favor of shared control.

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