The landscape of global business has undergone a seismic shift in the past few decades, reshaping the balance of corporate power across continents. Two regions have risen to prominence, eclipsing their European counterparts: the US and China. 

This blog post charts the implications of this worldwide transformation, examining the managerial factors that have led to the current state of play in the corporate world.

The Rise of US and Chinese Corporates

Historically, Europe was a stronghold of global business, boasting several of the world’s largest multinationals. However, recent trends paint a different picture. European firms are now a rarity in the top 20 global companies – a shift that was unimaginable when a young Steve Jobs on a 1985 visit to Europe was asked his opinion of European attitudes to entrepreneurship. His insights foreshadowed the challenges Europe would face in nurturing new corporate giants. 

Take the MSCI index shown in Figure 1, which evaluates regional financial and economic performance in terms of stock-market and investment opportunities.

Figure 1. Cumulative MSCI Index Performance-Gross Returns (USD)

The rise in the MSCI All Country World Index (ACWI) reflects particularly the rapid ascent of China, alongside other Asian-Pacific emerging markets such as South Korea and Taiwan. These countries now rival the economic might of the traditionally dominant US and Europe. However, the expected diversification of the largest firms towards Asia has not proportionately diminished the status of the US corporate giants.

Exploring the Reasons Behind the Shift

In 2000, European companies constituted about 20% of the top 100 global firms by market capitalization. Today, Europe barely holds 8%. 

In contrast, over the same period US firms have not only maintained their dominance but have grown. The reasons behind Europe’s lagging performance are multifaceted. While Europe faces stronger demographic headwinds than the US, it has enjoyed certain economic advantages, such as the adoption of a single currency and the expansion of the EU common market. Nevertheless, these factors have not yet translated into significant growth in corporate market capitalization relative to GDP growth. A critical factor in the US maintaining, and China increasing, their lead, is the latter countries’ predominance in the digital tech domain. 

Many European CEOs acknowledge the reality of this situation, hoping that it was a one-off blip from which the continent will in time recover. But that may be a cop out. The Economist argues that Europe’s failure to develop competitors in this vast new sector is not a mere accident of timing. Its roots lie deeper, in the European managerial style. A more risk-averse culture, reliance on traditional industries, and challenges in creating new industries could explain European firms’ struggle to maintain a presence at the global corporate top table, leaving firms such as Apple, Microsoft, Amazon, Google, Facebook, Alibaba, and Tencent to share the lead. 

The evidence points to a need for a fundamental reassessment of Europe’s approach to fostering corporate giants. The continent must embrace more risk, encourage innovation, and adapt to the rapidly changing global economic landscape. The key lies in learning from the past and boldly stepping into the future¹. 

The Reinvention of Management

The need for a fundamental reassessment of the traditional approach to fostering corporate giants has been known among leading management researchers and practitioners for the last two decades. Yet there are few international, regional or even national forums dedicated to discussing the need to reinvent firm management, or sharing operational practice on how to do it. Only a small fraction of the world’s total research funding is allocated to research on business management and its evolution and importance for global competitiveness. 

Despite this lack of political and leadership focus, the good news is that researchers have been able to identify several pioneering, mainly US and Chinese corporations that have recast themselves to better compete in the global, digital, and now AI world, and have analyzed and codified the practices that enable them to outshine their international counterparts. 

Managerial implications

Based on their findings there are five key lessons for managers in less performing companies. 

Embrace Dynamic, Agile Management Practices: The success of the US and Chinese pioneers can be attributed to their dynamic capabilities, which involve integrating, developing, and reconfiguring competencies to meet rapidly changing environments. Other firms should adopt similar agile management practices, focusing on continuous adaptation and proactive change management

Foster and retain a Culture of Entrepreneurship and Innovation: The entrepreneurial spirit of the pioneers should be contrasted with the more risk-averse culture of European and other more traditional firms. Other companies need to cultivate a culture that encourages entrepreneurship, innovation, and calculated risk-taking. This involves transforming traditional management styles to maximize the firm’s human potential and support creativity, flexibility, and experimentation.

Adopt Customer-Centric and Networked Organizational Structures: The success of the pioneers demonstrates the effectiveness of a customer-centric approach and a networked organizational structure. Firms should aim for ‘zero distance’ to customers and users, ensuring seamless, direct connections to understand and meet their needs effectively. This could involve restructuring organizations into more decentralized, networked models that promote closer customer and user engagement and responsiveness

Empower Employees and Decentralize Decision-Making: The model of the pioneers emphasizes employee empowerment and decentralization. Other firms should consider adopting models that transform employees into intrapreneurs and even entrepreneurs, granting them more autonomy, responsibility, and stake in the success of their projects or microenterprises.

Leverage Digital Transformation and Global Leadership: With the digital revolution being a key factor in the rise of pioneering US and Chinese firms, other firms must intensify their digital transformation efforts. This involves not only adopting new technologies but also developing leadership that is adept at navigating digital landscapes, fostering global cultural integration, and building collaborative, innovative ecosystems. Leaders in other firms need to be adaptive, non-hierarchical, and skilled in managing diverse, global teams.

In summary, non-pioneering firms must fundamentally reassess and revamp their management styles, corporate cultures, and organizational structures, taking cues from the successful practices of US and Chinese pioneering megafirms to remain competitive and relevant in the global market.

About the author:

Dr. Annika Steiber, the author of the 2^nd Edition of the Silicon Valley Model-Management for Entrepreneurship, available on Amazon.

Thinking about resilience as a leadership quality, we can draw on a potent 2,300-year-old remedy from the philosophical medicine chest: Stoicism.

Imagine a powerful leader jotting down his thoughts in his hideout near Vienna, while the world collapses around him: a destructive pandemic is spreading, wars are raging, one natural disaster after another. 

Only our manager is neither CEO of a flashy IT company nor a prime minister. Rather, we’re talking about the Roman philosopher-emperor Marcus Aurelius (not to be confused with today’s eponymous fashion brand), who in 170 AD composed his famous Meditations – a classic of world literature which has aged remarkably well, particularly in terms of its application to everyday life. This helps explain why Silicon Valley and its proponents have embraced Stoicism, the philosophical tradition that Aurelius followed. (Be warned: most of the volumes on the subject flooding the management advice market are hasty assemblages of self-help aphorisms: “fast stoa”, or an intellectual snack rather than a proper meal.)

The importance of discernment

What Nietzsche recommended as a “tonic” is in fact a complex body of thought that adds up to much more than a philosophy. Stoicism – or the Stoa (from the Greek stoa: hall of columns, where the first Stoic, Zeno of Cition, taught) – is at once cosmology, logic and ethics. Thus, the Stoic recognises his or her place in the cosmic order, learns to accept fate through emotional self-control, and calmly strives for wisdom.

What makes you unhappy, says Marcus Aurelius, is not the events that happen to you – these are neutral, indifferent: What makes you unhappy is how you think about them. The error of perception is to confuse the happenings with our interpretation of them – which is what is to be avoided. For while we can’t  control the things themselves, Stoicism says that we can, and should, control our thoughts and interpretations. 

In fact, for Stoics one of the most important “skills” is being able to distinguish things which they can influence from those that they can’t. According to Epictetus (55–135 AD), another prominent Stoic, there is no point in wasting time and thought on the latter.

On the other hand, you don’t just passively accept fate – where influence can be exerted, Stoicism demands action and perseverance. “He who trusts in his own strength is mightier than fate”, wrote Seneca, one of the best known of all Stoics .

Question yourself each morning

In practical terms, what might this mean for managers, for example? Epictetus recommends a daily exercise that crops up later in the reflections of the Jesuits. Every morning we should ask ourselves: What more can I do to be free of negative emotions? What do I need to achieve peace of mind? What am I? (Answer: a rational being). Reflecting on the day’s progress again in the evening is useful in approaching the Stoic ideal – imperturbability (ataraxia) through self-control. The Stoic wants to be the best version of him- or herself, especially on a moral and ethical plane.

This exercise may remind you of the questions Peter Drucker asks in his famous article “Managing Yourself”. What are my strengths? Where and how can I make a meaningful contribution? Where do I belong? What are my values? Drucker suggests the uncompromising mirror test: Who would I like to meet in the mirror in the morning?

Combating frustration

The great Seneca put forward another important piece of advice: “premeditatio malorum” – expect the worst, and you won’t be prey to anger, disappointment and stress when things go wrong. Beware of assuming that a course of action will pay off, he warns: If success or failure is out of your hands, mentally preparing yourself for failure means that you won’t be completely thrown off course emotionally when the worst happens. This strategy also minimizes the anxiety and worry that come with wanting to succeed at all costs. And if things do go well, observe Marcus Aurelius’ tip: If fame and honour come your way, treat these impostors with disdain – they make you vain and dependent on the mind and word of others.

Can Stoic insights like these be integrated into everyday working life? Heiner Müller-Merbach, economist and author of “The Stoic Manager”, has formulated some guiding principles that lead from self-management to management success:   

– Recognise the things that are within your power.

– Accept those that are out of your control.

– Concentrate your energies on things that can be shaped.

– Distinguish between suggestions and attacks.

– Be open to the ideas of others.

– Manage disputes with skill and care.

– Create a climate of trust and openness.

– Use your own judgment.

– Focus on the overall task.

Composed and in control in both thought and action, the Stoic manager can’t be thrown off course, accepting things that are beyond personal control and focusing instead on goals that can be shaped. The Stoic work ethic is based on what is best for the community.

As manager, the Stoic is an action-oriented pragmatist who relies on his or her own judgment and takes full responsibility for those things that can be controlled: the soul, the will, emotions, thoughts and habits, behaviour. That’s the ideal. In any case, an exercise in serenity is a sensible approach in times of upheaval.Incidentally, Marcus Aurelius did not survive the pandemic (probably the Antonine Plague.  He wrote in Meditations: Everything passes and soon becomes a fairy tale and quickly sinks into complete oblivion. Which is definitely not true of his notations.

Marcus Aurelius’ Meditations can be downloaded free of charge as part of “Project Gutenberg”. www.projekt-gutenberg.org

About the author:

Isabella Straub studied philosophy and German studies, she is a copywriter and German editor at Peter Drucker Society of Austria. As a writer, she has received numerous prizes and awards, most recently the Literar Mechana Annual Scholarship and Erfurt City Clerk 2023.

At this year’s Peter Drucker Forum, I was confronted with a pivotal question: Does digital transformation genuinely make organizations flexible? 

My candid response: Nowhere near the mark.

In the rapidly evolving digital landscape of the past decade, executives have grappled with a common dilemma: How do I digitally transform my business? The term ‘digital transformation’ became synonymous with big budgets and high-risk, multi-year programs, primarily focused on implementing new technologies. However, often lacking was sufficient emphasis on delivering the flexibilities necessary to succeed in the ever-changing business world.

Flexibility for an organization can manifest in various ways. It aspires to be swift – quick to launch new products, adaptable in response to customer feedback, and capable of swiftly entering new markets. It seeks a resilient supply chain that can cope with demand fluctuations. It also aims to facilitate seamless collaboration among employees across different locations, breaking down organizational silos. Assessing our flexibility, the pandemic has shown how resilient businesses have been, while decreasing corporate longevity on the S&P 500 Index serves as a testament to their relevance for their customers.

Fast forward to the present, where, with everything changing at the same time, escalating complexity, and a pace of change that can only go up, it is imperative to critically re-assess the design of digital transformations.

Leveraging insights gained from hands-on experience in transformation initiatives, here are six rules to guide the re-design of your digital journey for enhanced flexibility:

1. OUTCOMES DRIVE WHAT GETS PRIORITIZED:
   There’s a common pitfall in transformative journeys: the measure of progress shifts from achieving outcomes to simply executing the plan and delivering outputs. This happens because those devising the strategy and those who execute it aren’t quite on the same page. Simultaneously, the world has become increasingly complex. To navigate this complexity successfully, it’s crucial to continuously steer the transformation based on the insights gained at every stage of execution.

This rule empowers organizations to consistently direct their efforts toward actions that lead to the desired outcome. Stay focused on the goal, but be prepared to adapt on the way.

2. TIME-BOX OUTCOMES:
   Humans are very good at expanding work to fill the time available for its completion. 

This rule introduces an explicit time constraint for achieving outcomes, no matter what. A commitment to demonstrating real value within 120 days not only speeds us up, but also sparks creative thinking to focus on what truly counts. This creates an environment in which organizations can constantly learn and adjust.

3. RE-IMAGINE THE WAY UNCERTAINTY IS MANAGED:
   Strategic decision-making is crucial for the success of any transformation, yet executives steering the process often hesitate in the face of inherent risks.

Imagine a company contemplating a shift in its product line to align with evolving market trends. Executives might well feel queasy – will customers respond positively? Are we addressing their most pressing needs? Will they be willing to stump up to pay for the proposed changes?

This rule dials down their discomfort by breaking down such decisions into micro-components, providing executives with incremental evidence and facts to underpin their choices, and minimize risk before expensive commitments are made. By reducing uncertainty at an early stage, such a structured approach enhances the chances of success.

4. ADOPTION BY DESIGN:
   Meaningful change happens when the solution created by a digital transformation is adopted by target customers. Take-up happens when the solution genuinely adds value from their point of view, meaning it must address problems that truly concern them. We often assume we understand their needs, but much of the time reality is quite different.

Placing people’s needs at the core, this rule enables you to continuously learn what really matters to customers and fosters an ongoing understanding of their evolving needs. The key is to establish a proactive strategy for driving adoption of the solution, recognizing that merely creating the solution isn’t sufficient.

5. INNOVATION-INFUSED TRANSFORMATION:
   Despite substantial investments in digital transformation, many organizations still lack readiness for the future. The issue often arises from treating innovation and transformation as distinct entities, assigning the sole responsibility for innovation to the innovation department rather than integrating it into the overall transformation.

This rule reshapes the approach, emphasizing the integration of innovation at the heart of transformation. It promotes a culture where creativity, adaptability, and forward thinking are inherent at every step of the ongoing change, helping organizations build a powerful competitive advantage.

6. BALANCED PORTFOLIO APPROACH:
   A common pitfall for many organizations is the tendency to lean heavily towards either efficiency or growth while shaping their transformations, even when the underlying landscape that delivers both remains the same. An excessive focus on efficiency may streamline operations but risks losing customers to competition, while an exclusive emphasis on growth might result in unsustainable cost levels.

This rule serves as a strategic compass, urging organizations to avoid the extremes and adopt a balanced portfolio approach. Embracing both offensive strategies for growth and defensive measures for efficiency, tailored to the organization’s risk appetite, ensures a dynamic equilibrium.

These rules, drawn from our practical experience of assisting customers with the TCS Pace^TM – Digital Innovation Factory, aid them in establishing a next-generation setup for digital transformation to deliver enhanced flexibility. This enables them to stay resilient and relevant in these uncertain times, making the transition from merely ‘doing’ digital to ‘being digital’, and transitioning them into a digital business that constantly adapts.

The future is exciting. Get comfortable with being uncomfortable and embrace the future with confidence.

About the author:

Lalit Karwa is Head, TCS PACE, Tata Consultancy Services, Europe, specializing in helping organizations respond to shifting customer needs and gain more value from their innovation and transformation investments.