Richard Dobbs

Tim Koller

Sree Ramaswamy

<article-ideainbrief class="article-ideainbrief">
 <h4 class="ideainbrief-title">Idea in Brief</h4>
 <div class="ideainbrief-contents">
  <h5>The Challenge</h5>
  <p>In the decade ahead global profits will fall back from just under 10% of global GDP to about 7.9%—about the level they were in 1980. Hardest hit will be North American and Western European companies, which currently account for more than half of global profits.</p>
  <h5>The Reason</h5>
  <p>The economic environment is becoming less favorable, and new rivals from emerging economies and the tech sector are putting Western incumbents on notice. The newcomers play by different rules and bring an agility and an aggressiveness that many Western companies struggle to match.</p>
  <h5>The Response</h5>
  <p>To maintain their lead in the coming years, big North American and European companies must:</p>
  <ul>
   <li>Be paranoid</li>
   <li>Seek out patient capital</li>
   <li>Overcome inertia</li>
   <li>Build new intellectual assets</li>
   <li>Go to war for talent</li>
  </ul>
 </div>
</article-ideainbrief><p>We’d call it the opposite of a perfect storm: a set of external circumstances that together create an exceptionally favorable economic environment. The largest North American and European multinational corporations have been sailing through one for the past 30 years. In that time they have enjoyed their longest and strongest run of rising profitability in the postwar era, thanks to an environment that has supported robust revenue growth and cost efficiencies.</p>

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<p>Since 1980 global corporate profits have grown at an unprecedented pace, increasing their share of global GDP by 30%. North American and Western European multinationals have been the biggest beneficiaries, capturing more than half of corporate profits by leveraging their scale and exploiting unprecedented opportunities for reducing costs.</p>
<p>This remarkable era is now coming to an end. Growth is slowing, costs are rising, and new rivals from emerging economies and from the technology sector are changing the rules of the game. The authors forecast that in the decade ahead profits will continue to increase in absolute terms, but they will fall to 7.9% of global GDP&#8212;about what they were when the boom began.</p>
<p>To maintain their lead, executives in Western multinationals must consider the following responses.</p>
<h6>Be paranoid.</h6>
<p>Instead of focusing internally, executives in Western firms need to understand their new rivals.</p>
<h6>Seek out patient capital.</h6>
<p>Emerging-market firms and technology companies often take a long view, building their market share over years at the expense of short-term profits.</p>
<h6>Radically self-disrupt.</h6>
<p>Companies must overcome strategic inertia by reallocating capital as conditions change.</p>
<h6>Build new intellectual assets.</h6>
<p>The most profitable businesses are in idea-intensive industries, so intellectual capital such as data and algorithms is a prime asset.</p>
<h6>Go to war for talent.</h6>
<p>As populations age and talent becomes scarce, now is the time for human capital management to become a strategic priority.</p>
<p class="reprint">HBR Reprint R1510B</p>

The Future and How to Survive It

Since 1980 global corporate profits have grown at an unprecedented pace, increasing their share of global GDP by 30%. North American and Western European multinationals have been the biggest beneficiaries, capturing more than half of corporate profits by leveraging their scale and exploiting unprecedented opportunities for reducing costs. This remarkable era is now coming to an end. Growth is slowing, costs are rising, and new rivals from emerging economies and from the technology sector are changing the rules of the game. The authors forecast that in the decade ahead profits will continue to increase in absolute terms, but they will fall to 7.9% of global GDP—about what they were when the boom began. To maintain their lead, executives in Western multinationals must consider the following responses. Be paranoid. Instead of focusing internally, executives in Western firms need to understand their new rivals. Seek out patient capital. Emerging-market firms and technology companies often take a long view, building their market share over years at the expense of short-term profits. Radically self-disrupt. Companies must overcome strategic inertia by reallocating capital as conditions change. Build new intellectual assets. The most profitable businesses are in idea-intensive industries, so intellectual capital such as data and algorithms is a prime asset. Go to war for talent. As populations age and talent becomes scarce, now is the time for human capital management to become a strategic priority. HBR Reprint R1510B

The Future and How to Survive It

Summary.

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