BW Communities

"Uncertainty Is The New Certainty"

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[The creativity on display here is quite awesome. You can see why I'm both honored and full of trepidation to have the task of wrapping up three days of fresh thinking. Especially because you've already covered the big issues of the day: the incredible pace of digitization, the emergence of Asia as an economic powerhouse, the shift from brand awareness by consumers to brand engagement. I'm not sure I can really add much to what you have heard. Instead, I want to take you back to the start. I want to sit back and ask, as a CEO, how do we navigate an enterprise through a time when uncertainty is the only certainty? Especially when we have not experienced the kind of volatility we have today in decades. Eighty years ago next fall, a German physicist called Werner Heisenberg won the Nobel Prize for Physics with a simple observation. The more we know about where a particle is now, the less we know about how fast it is going and what direction it's travelling. His insight is known as the Uncertainty Principle.  It kicked off some intense debates between Nils Bohr, the father of atomic theory, and Albert Einstein, the father of relativity. At the end of one of their long arguments, Bohr said there was at least one thing they could agree on: "Prediction is very difficult—especially if it's about the future." Wherever you work - in business, in government or in the not-for-profit sector - the world we behold is uncertain. "What's new?" you might say. Hasn't the future always been unknowable? Aren't human beings denied the gift of foresight? Well, yes and no. Yes, it's true that human beings have never known what lurks around the corner. But, no, I do believe there is something new and unsettling about the level of uncertainty we face today. Let's think back just a few years. Imagine I had come to speak to you five years ago. I am sure my main point would have been the wonderful ways in which the world had changed for the better. I would have congratulated us all for living through the most prosperous era in the history of the world. From 1990 to 2007, the global economy more than doubled from $23 trillion to $53 trillion. I would have looked back in delight at the agricultural revolutions in the East and the great gains from trade liberalization. I would have noted the wondrous truth that millions of people are alive today who could not have survived in previous eras. Here in India, 159 in every thousand children died in the year I was born. Now the rate is just one third of that. I would have been excited about data travelling the world in the blink of an eye, as the slowness of the old world became a distant memory. I would have remarked upon the spread of the rule of law. And I would have pointed out that, in the last 50 years alone, 65 more countries gave women the vote. I would, in other words, have been full of optimism. I would have described uncertainty as the source of creativity and the motor force of progress. Today, however, I think we have to face reality. There is a new, more negative, kind of uncertainty out there today. The financial meltdown brought the easy assumptions of the old world crashing down. Housing markets collapsed, unemployment levels soared, retirement accounts vaporized. Institutions, from banking to automotives, peered over the brink. Famous household brands just disappeared altogether. Creativity gave way to fear and risk triumphed over ingenuity. As a result, I think we are now living in the midst of three inter-locking crises. The first is a crisis of leadership. At the top of some famous companies, responsibility went missing. One of the great tasks of leadership is to prepare for events, to be ready for when the storm comes. On any measure, leadership failed that test. This crisis of leadership was compounded by a simultaneous crisis of governance. Accountability and oversight went missing too. Nobody said stop when bad practice was developing. Governance failed and it failed badly. The result of poor leadership and even worse governance is that we are now experiencing a severe crisis of expectations. Businesses, regulators and governments are now unsure what success looks like. This complex world feels out of control. We used to see lists of "fastest growing brands". In the past few years I have started reading "10 brands that may disappear this year". Governments are struggling to constrain issues within their national boundaries. Financial, political or social instability in one region spills over into another. Exotic financial instruments introduced complexity into markets which got way ahead of the understanding of regulators. Consumer demand changes in a heartbeat. Trust in established brands and institutions has diminished. Businesses are left struggling to keep up. This is the era of negative uncertainty. But we should be careful not to fall into pessimism. This is also a world abundant in opportunity, if we know how to navigate it.  The global economy, which is $62 trillion today, is likely to be $300 trillion or more by 2030 and most of that growth will be powered in places like this. The middle class is going global. The huge increase in prosperity in the East means billions more people in the world will have better schools, running water, better sanitation and better homes. I am delighted too that so much of this growth is being powered by women who are emerging as great 21st Century leaders. Across the globe, women are the biggest emerging market in the history of the planet—more than twice the size of India and China combined. There is plenty to give us cause for optimism. But we need to know how to unlock the potential. Net, net: we now live in a world in which the only certainty we have is that the world is uncertain. The question is therefore: What can we do about it?  How can we survive and how can we thrive in this new world? Let me put the solution first in a single word: adaptation.  We have to adapt. One hundred and fifty years ago now, Charles Darwin published his classic On The Origin Of Species. Darwin's most brilliant insight, which has stood the test of time, was that it is not the strongest that survive but the fittest. Those who thrived were those who could adapt to the changing environment. I became CEO of Pepsico in late 2006. I have to say it is amazing how rapidly the world has changed since then. The boom of the first half of the decade quickly gave way to the troubled times in the second half. I've seen the importance of devising new rules as you go along. I certainly don't have all the answers – I only wish I did – but I do have five thoughts from what I have learned. I hope they will be useful to you. The first point is that we all have to explicitly recognize that we are in a new reality. From the top to the bottom of the company we have to accept that we are in a new era of uncertainty. We used to plan from a base of relative security. Uncertainty was always a scenario in our planning but we thought of it as something that upset our plans every now and then. Most companies did a one-year operating plan and a three or five-year strategic plan.  Each assumed a linear process and, with a few adjustments, you tended to stick pretty close to the original plans. We can't plan like that any longer. These days, volatility is not just the way that our normal lives are disrupted. It is our normal lives. Economic progress is uncertain. Currencies are volatile, many times decoupled from macroeoconomic behavior.  Commodity prices are unpredictable and they move quickly. The old fixed calendars of the business year have to be rethought. We have to speed up. We need to start the next plan while the ink is still drying on the old one.  We need to be sure that we have uncertainty built into our plans, from top to bottom. We have to think in a wholly different way. Responding to change is not the same as being fickle. We need to learn a wholly new skill. The skill of adaptability. The second point is that we have to lead for today and tomorrow at the same time. More than ever before, we are steering a course through rough seas. We are tossed on the tide and the journey can be difficult. The only way to manage is to fix our sights on the horizon and steer towards a distant point in the future. But, at the same time, we need to attend to where we are right now. Uncertain times require us to have a long term horizon. It is the companies with a clear long term mission that will thrive. But at the same time, investors are understandably more nervous than ever before. They need great performance, here and now. So we have to work on two time scales at once. A good return today and a long-term future; leading for both today and tomorrow at the same time. Not an easy task in a volatile environment. And so I think the companies that thrive in the new era will be those which define a compelling vision of the role they play in society. A good company is more than just an engine for the generation of profit. People want corporations and brands to stand for something. At PepsiCo, we have tried to capture that insight in the phrase "Performance with Purpose". Performance with Purpose is a marriage of the short term with the long term. We don't make the mistake of neglecting our investors. It is their capital that feeds investment for the long-term. It is their capital that enables us to grow. But those short-term results must be sustainable in the long-term. Speed and agility have become our best allies. The only way to function is to be lean and low cost. We need the maximum efficiency today so that we can deliver great performance and invest for tomorrow. That's the task. To lead for today and tomorrow at the same time. My third point is that, in these volatile times, we need to be ambitious. We must make big changes to big things. Great ideas have no borders. We need to be open to new thinking, from new places. The days of incremental thinking are over. The days when the future was built on the solid foundations of the past are gone. Cost structures are being shaken to the core by high commodity costs. Top lines are being threatened by weak economies. Growth is elusive. Competition is more severe than ever. There could be a business model around the corner that renders ours obsolete. So, this is not a time for small changes. We need to make big changes to big things. Innovation is not just about refreshing what you have. It's about rethinking and reframing your whole product offering, your complete service. It's about encouraging borderless innovation, where the clever practices of low cost countries are brought to places where costs are higher. Disruption is now our friend, not our enemy. So my advice is to disrupt yourselves deliberately. If you don't, the competition will. I don't have to tell you about disruption. You've seen it for yourselves. Think of the way that the internet is slowly closing down newspapers. The way that wireless telephony has replaced the landline. The way that new apps are replacing standard services. The way that mass communication has turned into mass customization. This presents a great opportunity to anyone who is prepared to rewrite the rules and learn new skills. We all need to establish internal disruption groups in our companies. Question every practice. Look in unusual places for ideas. The clock speed in this new world is extremely rapid. We need to adapt constantly. Only the fittest survive. What I've said so far is that volatility is here to stay. We have to manage for today and tomorrow at the same time and that we have to make big changes to big things. And, as the CEO, you have to do all this with your leadership team. You have to make sure they are capable of going on this journey with you. This is my fourth point. Attracting and developing the right talent is now perhaps the most important leadership task. Leaders in the new era will need courage, confidence, perseverance, accountability, openness to new ideas and the ability to manage rapid change. It's quite some person we're looking for. I know I have some fabulous leaders at PepsiCo and I am sure you all do too at your companies. You may even be one! Their experience is invaluable but we are constantly thinking how we retrain people in this age of change, so we allow experience to adapt. For example, a lot of our leadership talent grew up in the West, with Western models.  We now need to expose them to the East and bring back its unique ideas. And we are looking for ways to export our Eastern talent to the West. We are also looking for ways to give our young leaders experience across business geographies. And we look to augment that great experience with new blood. Because new people come armed with their new thinking. And we know that we need to be open to new ideas. We need a team that is diverse. A team that spans the whole range of ages, of nationalities, of ethnicities. We need to tap into their talent and recognize that because ideas recognize no boundaries, neither should we. And we need to develop and evaluate these leaders differently. We realize we need to recognize and reward the ones willing to go outside the usual conventions. The whole process of leadership development needs to be rethought. In the time of volatility and uncertainty, the way we buy, broaden and bond our talent will be the key to whether we atrophy, just survive or thrive. My fifth and final thought for the time of uncertainty is that it is vital to be super-visible as a leader.  We need to communicate all the time. Every organization has to understand the vision. Every organization needs to know what the realities are. And everyone needs to know how they are moving forward. If the leader doesn't tell them, someone else will. There will be press speculation. Rumors will circulate in the workplace. Uncertainty breeds anxiety. It's natural for people to be concerned. The best way to deal with this is not to deny that it's true. It's to open the door and let people in. Talk to people and listen to them. It's always been good advice for leaders but now it's imperative. Leadership is not just a rational thing. It needs an emotional connection. Leaders need to remember that many of our colleagues have family members who may have lost their jobs lately or who are recent graduates with few prospects. Many of our colleagues thought they were on a straight career path. Now they find that they have to learn new skills, adapt to new circumstances. External stakeholders have to feel that they are part of the family too. And we have to make sure that Boards of Directors understand how companies are marrying the short and the long term. No leader can promise to make change disappear. But they can help to guide people through it. It is the only way to take people with you. I am conscious that I have spoken as a CEO and my main message has been that the answer to uncertainty is creative adaptability. That creative thinkers need to be liberated.  And I want to say a word about the most creative among us—namely, all of you, the marketing and ad gurus. I would not dream of telling you how to do your job so I want to leave you with a few questions. I know this is the end of the conference, not the beginning, but it is always good to leave a conference with some important questions ringing in your ears. In an uncertain world, brands provide continuity and stability. But do the old methods of connecting them to consumers still work? I am constantly surprised that the tried and tested TV commercial is still the dominant ad mechanism even among all the new social media. Do big advertising ideas really still have the same impact that they did? Are they cutting through the noise on the airwaves? Are they working effectively in the digital space? In a world where mass communication has gone to mass customization, has marketing, as a function, adapted?  Have advertising agencies disrupted themselves for their clients and their future? Your world too has turned upside down. And you have traditionally been the creative leaders. Ask yourselves too: have you changed enough? Have you really rewritten the rules yet? Outside, there is a lot of fear and trepidation around. But I do believe that we can generate opportunity from uncertainty. I retain great faith in the power of human ingenuity to overcome the problems that human beings have set themselves. This is your rallying call. This is your opportunity. Your chance to shine. The future has never been made by predictors or skeptics.  It has always been made by dreamers and doers and innovators who embrace uncertainty, those who seize the day to shape the future and show us the way forward. Those businesses are the ones who are able to say they knew what they were for and they followed that mission, everywhere and at all times. I leave you with the words of the psychologist Erich Fromm: "The quest for certainty blocks the search for meaning. Uncertainty is the very condition to impel man to unfold his powers."