The podcast for enterprise leaders delivering timely insights for today’s global economy—and tomorrow’s competitive advantage.

The GET pulls business and management insights from today’s economic and societal developments to help global enterprise leaders move to the future with greater agility and performance. Offering timely conversation and analysis with renowned business leaders, The GET addresses the most pressing topics confronting global businesses and management.

The host of The GET is Christopher G. Caine, President of the Center for Global Enterprise (CGE). Available on Apple Podcasts, Spotify, or wherever you get your podcasts. Subscribe to The GET and look for new episodes on the second Tuesday of every month.

 

Episode 1: Restructuring Economic Relationships and Business Models Driven by the Ukraine Crisis

Air Date: June 14, 2022
Play 23:41

The Ukraine crisis is driving a restructuring of economic relationships and business models.

With unprecedented economic sanctions against Russia, global business leaders are having to adjust to new rules governing critical economic and business relationships. Is this a permanent reshaping of global economic relationships and financial systems? Samuel J. Palmisano, CGE founder and Chairman, former IBM Chairman, and Michael Spence, Nobel Laureate, and former Dean of the Stanford School of Business, share their views and offer advice for business leaders.



Chris Caine: Welcome to The GET, the podcast for enterprise leaders, delivering timely insights for today's global economy and tomorrow's competitive advantage. I'm your host, Chris Caine, president of the Center for Global Enterprise, and today we will focus on how the Ukraine crisis is restructuring economic relationships and business models across the world. With the unprecedented economic sanctions against Russia, global business leaders are having to adjust to new rules, governing critical economic and business relationships. The Ukraine crisis has sent the oil, commodity, agriculture, and stock markets reeling, and there is the potential for additional sanctions- as well as no end in sight to the conflict. The question business leaders must ask is, “Is this a permanent reshaping of global economic relationships and financial systems?” To share their views and insights for business leaders, we are fortunate to have with us today, Sam Palmisano, founder and chairman of the Center for Global Enterprise and former chairman and CEO of IBM and Michael Spence, Nobel Laureate, and former dean, at the Stanford School of Business to discuss restructuring economic relationships and business models driven by the Ukraine crisis. Sam and Mike, welcome. Mike, perhaps we can begin with you. Are the strict economic sanctions in place today a temporary measure, or are we witnessing the start of a redesign of global economic and financial relationships?


Michael Spence: I would say the best guess is they're temporary. at least in this extreme form. This is an attempt to counter Russian aggression as perceived in the West without engaging in direct military conflict other than by the Ukraine. And we've seen sanctions before and they've been withdrawn. I would be very surprised if these sanctions become a permanent feature of the world. Having said that I don't think anybody should conclude that in the world after the Ukraine war with more and rising geopolitical tensions, is going to revert to the way it was several years ago, that's just not going to happen. And there's an important element of that in potential repeated use of sanctions. At least as long as the United States has as high a level of control over the global financial system and financial flows as it has now.

Chris Caine: So Sam, from your perspective I know as a CEO at IBM, you dealt with sanctions and you had to navigate IBM's business around different constraints and restrictions and post by governments. Do you see these sanctions as temporary, or do you see them as, at the beginning of a restructuring of the environment that business leaders have to operate in?

Sam Palmisano: I’m where Mike is. I think at the end of this, they won't be as severe, but I imagine that in the negotiation, hopefully the war does end at a reasonable timeframe, like soon, but in those negotiations you could imagine there's going to be some easing or adjustment to the sanctions. I can't imagine that the parties are going to accept it as they are. And that will be part of the settlement process. I could be naive about that, but I think that's a reasonable assumption. Now, having made that assumption there's certain things that have occurred that aren't going to, reverse themselves like Europe's dependency with energy. There are structural investments occurring right now in places that you never thought would have occurred To at ports of entry, LNG facilities, billions, and billions of dollars. I've never seen Germany in our experience move so quickly and there's been phenomenal with the pace that they've moved. Once they make those investments and they get alternate sources, whether that's north America or the middle east that's that's not going to be reversed. There's just too much capital investment that's going to occur. Now there are all these complications with that with climate change and all those sorts of things, but they have to, in the short term, solve the energy problem. I also think a significant part of that is as we were looking at this from an IBM perspective as foreign direct.

Sam Palmisano: I mean, there was a lot of foreign direct investment into the Russian Federation and we participated in that benefit. Quite honestly, our business grew nicely there because of foreign investment, more so than the local economy, which was mostly energy driven. So having said all that, I think that companies are going to rethink foreign investment for a very long time. It doesn't mean they won't change, but we always at IBM, we looked at one of the criteria was stability of government. And no one can conclude that the administration now in the Russian Federation is a stable environment where one would like to invest.

Chris Caine: So a number of the largest economies in the world have chosen not to participate or to participate partially in the economic sanctions that the G7 and Europe and the U S and Japan have levied on Russia accordingly. That in and of itself forces CEOs to think about those investment flows in those decisions about where to invest in the constraints that are going to be put on their freedom of operation, because of those decisions that China and India and a couple of other countries have made with large economies in their own. Think about 12 to 15 months out- what advice would you give to CEOs as they grapple with the new operating and financial restrictions and additional fallout from the Ukraine crisis, and adding to that complexity, the economic and political dynamics taking place with China, the world's second largest economy,

Michael Spence: So let me endorse something Sam just said and maybe extend it. I think the trigger for a pattern of diversification that we're going to see over a long period of time is the European energy operation to reduce its dependence on Russian fossil fuels. But I don't think it'll stop there. We are living in a world that's become shocked. Where the shocks are pretty severe. They come from climate change, geopolitical tensions, blockages, and supply chains that are much, much longer than we thought before, et cetera. It's not just in speaking to the leaders of corporations that this'll become probably a strategic priority, but it's going to be back ed up by it becoming a national priority in a lot of countries, and they're not going to sit around and wait for the private sector to decide this. When we look forward, we should anticipate that diversification is going to become an important part of strategy at multiple levels. And then the scenario, we all hope doesn't happen is the one in which the world economy gets divided up into sectors. So what Chris, what you just said is there's a whole bunch of countries that don't want to go down that road, right? China's one of them, China doesn't want to be caught in the spill over of the sanctions from Russia. Nobody sensible in China wants to get cut off from the global economy and global technology and so on. Now that may end up being the outcome

Michael Spence: You know cause they're kind of caught in a hard place vis-a-vis their support of Russia, but they are not violating the sanctions at the moment in a way that would invite the spill over effect. I don't think it's very easy to know there's a very large part of the world that doesn't want to get caught up in some kind of battle between the United States and Europe now on the one hand and China on the other. And I think that resistance will start to have some considerable effect because the individually, they may not be very important to economies, but collectively, as in the Cold War, you can't afford to just ignore them. I guess if I were in the position of trying to make strategy at the corporate level, the first thing I would do is to try to get a sense of which way the wind is blowing with respect to these forces that are dividing the world into sort of two camps and then a bunch of people who don't want to join one of those camps visibly.

Chris Caine: Yeah, we saw the non-aligned movement for many decades during the Cold War. And I guess Mike, I I'd ask you and Sam to think about the concept of an economic cold war. Are we moving into a phase of economic cold war, but before we get to that, Sam, advice for CEOs over the next 12 to 15 months, about how to make strategic investments and decisions?

Sam Palmisano: I think I'm not going to align quite honestly with Mike and I'd come in from a little different perspective. When we were at IBM, when we launched, the world was globally integrating one of the assumptions we made, I used to say this actually publicly in speeches, that as long as the developing world doesn't have a coup or a war and they just engage with the global economy, they're going to grow They did this for decades guys, by the way, and the world became economically interconnected. I don't think anybody wants the world to disconnect completely. It would hurt their own economies. And at the end of the day, I make the assumption that political leaders understand they need economic growth to sustain the standard of living for their people. Now sometimes you hear the rhetoric, and you wonder about that, but I think most of them get it at the end of the day. So therefore they're not going to disconnect. However, and Mike alluded to this, they're going to be areas where they're going to define themselves as areas that are strategically important to their national security. And that's where the tension, in my opinion, is going to occur. And you're going to have now the west, and I can give some examples of this versus really China, because you could argue. India's okay, but they're not China when it comes to investments, some of these future technology areas. So fundamentally that's where the tension I believe is going to occur. So there could be a huge elements of the economies that can stay interconnected. In many ways, China can continue to be the world's factory. In many of those spaces, textiles, materials those kinds of things, consumer products, what have you, but if you get to like quantum computing or artificial intelligence or cyber, those kinds of things or biosynthetics, it's going to be a whole different world. And this is where if you watch semiconductors right now, if you watch what's going on, clearly everybody's reallocating their resources to local supply, redesigning their supply chains. Not only does the U S have a $51 billion act called the innovation act, which was the chips act. There's also a bill in the EU for 40 billion euros to do a similar thing. And there's collaboration going on now between Germany and the U S in ways that they should collaborate in these spaces, because it doesn't make a lot of sense that they were done with investment when it comes to the future of semiconductors. Anyway, you're starting to see this stuff, start to align as my point with our strategic. Semiconductors dependence on Asia, especially Taiwan, et cetera, et cetera. So I don't think it's going to be a huge disconnection. I knew there's a lot of discussion around that. I just think it hurts everybody's economies and therefore their populations if they totally disagree.

Chris Caine: So this concept of an economic cold war, you think we're moving into one- end economic relationships are going to be redesigned to adjudicate a macroeconomic cold war by governments, separating on geopolitical discussions or is that a construct that you don't see materializing?

Sam Palmisano: It depends what industry you're in above. If you were the technology industry, you're going to have to understand these things and the implications to how you align your resources. But if you're in consumer package goods, Yeah, it doesn't matter. If they're going to put a tariff on a t-shirt and a sneaker- I could be naïve, I just don't think so. I do think though, in those other areas are going to protect your intellectual property. They're going to make trillions of dollars of investments and those sorts of things to maintain leadership or get leadership if you're coming from behind. It's not as macro in my opinion, I think it's going to become more micro as you look at this thing over time. Not if I stand back from it and decide how I would play it, if I'm in the technology industry, you're going to have to align your investments to the realities of what's happening here in, in those, four or five segments that I've outlined you can't escape that, right? You can't have the two biggest markets of the world, the two biggest research centers of the world, the technology leaders of the world, deciding not to cooperate and you don't have to adjust, they're going to have to adjust. So the idea of the old days of somebody putting the fabricator, foreign Western company, an IBM or an Intel in mainland China, I think that's over. I don't see that happening

Michael Spence: I agree with Sam. think there are sensitive areas. Some of them are so sensitive and this is not new that for military and defense purposes, they just be cordoned off and controlled. But what's new is this sort of broader tent we have a, kind of a strategic competition underway between China and the United States. And that's not going to go away. That's inevitable. These two countries don't trust each other and their motivations. The goal of China is to catch up and they're doing a pretty good job of it. And the goal of the United States probably should be not to fall behind through under investment. Now there are a couple of ways to play this game. And I'm really just elaborating on what Sam said. There's a relatively benign form of strategic competition in which both countries you know, sort of work at, it's not maybe totally efficient. But if the America competes act the investment in the semiconductors that China made in China 2025 and a whole bunch of other programs, you could get Sputnik like accelerations in the development of beneficial technologies. When it gets ugly is when you try to sort of tie up the legs of the competitor by denying them compete key inputs. And at the moment which way this competition goes, the benign form- or take the American side, for example I think there's a fair number of people in Washington where the international agenda is being driven as far as I can see by national security things way more than in the past, relative to economic considerations. I think there's a subset of people that think you know, we can keep China in the technological rear view mirror for. I don't think that's possible and it's not therefore a reasonable goal. But that doesn't mean we have to help them. I think the best form is as we compete is bottom line is people who have to make significant investment decisions are going to live in a world in which countries are going to put restrictions on them or penalties or change the incentive structure or whatever. You don't get to go in your office and decided on your own anymore and that's just a reality of the way the world works. Chris. you asked the question “ Is there any sort of governance structure of an international kind that's going intervene and steer us in the right direction?” I think the simple answer to that is no. Almost all the international institutions at this point just aren't functioning at a level that would make that possible. Not the G 20, not the UN, not the IMF and World Bank. I think it's unrealistic. So this is going to be decentralized nationalism in a very complex, much more complex global environment than we're used to.

Chris Caine: Yeah, it seems like we have re-entered a period where economic and political alliances are reshaping. And to your point, the multilateral institutions that grew and created international rules for trade and international law have been either atrophying or becoming bypassed by state players, so making the environment for choices by CEOs, even more complicated and to Sam's point, CEOs really have to increase their knowledge of national agendas.

Sam Palmisano: We used to do these global forums with leaders, CEOs, and also state politicians and Government leaders as well annually around the world. But fundamentally the conclusion even back then was the structures as they were weren't working, and dependent upon your view, either they weren't structured correctly and needed to be transformed, or the other view, which was more cynical, was they didn't have the skills. Either way they weren't working, and there was this a yearning for some entity to emerge to do this, what was going to be required in the future. Now this is like 10 years ago-and it's only gotten worse from that point in time. And none of us see that emerging, at least in the business community that I'm involved in, very few people see any entity emerging as we had after World War II.

Michael Spence: One of the things that's going to happen in addition to diversification pressures, I think- which is just self-defense, right- Mario Draghi said here in Italy, we're too dependent on Russian gas. It's just simply true. He described it as imprudent- that was a bit of an understatement. But in addition I think what you're going to see is pressure to bias your relationships, investment, and trade toward what I call reliable trading partners. This is what Janet Yellen calls fringe shoring. And so I think that this does push us a little bit into the direction of the kind of spheres of influence structures that we talked about before.

Chris Caine: Yeah. It comes down to a geopolitical question of do you trust that political relationship you have with another country so that it transfers over to economic assurances and guarantees? So let's talk a little bit about investment flows. You both have talked about certain sectors that are going to be more focused on and restricted than others. Aerospace and defense, new energy sources, artificial intelligence, space, spaces become a huge investment, sector for companies as well a all some to be sector for companies both as well as governments, certainly semiconductors communication technologies all seem to be highly competitive and sensitive sectors yet food and maybe logistics and maybe some of the other more staple sectors, maybe less so. Where do you see investment flows, Sam and Mike, going in these sectors that would be pronounced enough to create new markets and opportunities over the next five years, given the context, we've just been describing?

Sam Palmisano: I'll start with a couple of different perspectives when I know better is technology versus others, there's going to be a massive amount, both in the energy transition, as well as the other areas you've alluded to Chris, and investment and heavily oriented around R and D. There are several proposals, I'm more familiar with the West, well, I knew China spent a trillion dollars in these areas I'm referring to , two years ago alone. That was more than Europe in the United States combined needless to say, so there's going to be a significant amount of investment. The difference today, versus the past, ss that the amount of money that's required to do the research and development for whether it's in say semiconductors or the energy transition, these are significant amounts of money you can't expect the private sector on its own to take that much risk. So therefore there has to be a model created whereby the private sector and the private markets can work with the government, so that there's this comfort level on the risk associated with the investments that are required. You see it every day in the energy transition. Chris, I can get more detailed semiconductors and things, but you see it every day where all the physicists know and the geophysicist know what it takes to makes the transition, the allocation, That capital is a political decision. There could be a rational plan that gets you through this transition so you don't have $6 a gallon for gas, by the way, and same time invest in the long-term technologies that are required, that aren't scalable today to make the transition, but that's just driven by politics. It's not driven by, of the models that exist. So my point is that the way you get around that is you have to create a different model because the current models aren’t working.

Michael Spence: Yeah, I think it's a very important point. This is going to feel different. Maybe we underestimate the importance of the state, even in the United States. In the past, in terms of these upstream investments that produce the human capital in some of the science and technology, then then this extraordinary system we've had turns into things that are useful, product, services and so on and builds on those technologies. So I think that fundamental model isn't going to change, but the magnitude as Sam said, of the government's needed participation, especially if we're in some kind of race with a, with a strategic competitor is going to have to be very large. and you're starting to see it in the numbers in the America Competes Act or whatever, the Senate and the House keeps calling it different things, and it hasn't passed yet. But we're going to get some version of that because that's one of the few areas where we have bipartisan agreement on the energy transition. It is political with an international dimension too. The estimates of the incremental investment that's required to get this done per annum are $3.5 trillion. Now that doesn't overwhelm the global economy, which is approaching a hundred trillion dollars but

Chris Caine: It's a lot of money.

Michael Spence: It's a lot of money. Probably half of it has to come from government, if it's gonna work. Businesses can't deal with the externalities and the risk as Sam said, but we live in a world right now in which productivity trends have been declining. We have significant headwinds coming from a bunch of sources, climate change, China slowing down, supply chain congestion. We have inflation rising, interest rates, in sovereign debt over hangs from the great financial prices and then the pandemic. And you ask yourself the question are we really going to come up with $3.5 trillion a year in that kind of environment and what has to happen? Oh, by the way, I didn't mention aging populations in three quarters of the world's economies measured by GDP. These are pretty big headwinds when you see them together. So I think some of the things corporate leaders have to do is, make a really realistic assessment of the environment that they're going to operate in. Everything I just said. I don't think is a permanent condition, I actually am a bit of an optimist on getting a productivity surge from the digital technologies eventually. But this is going to be a really tough environment for the next half a decade or so.

Chris Caine: Well thank you both very much before we close. We like to use the last minute or so to give our listeners some strategic insights to think about and we call it our emerging critical issues moment. So let me ask you both for one word or one phrase. Please tell us what emerging issue do you see on the horizon that business leaders need to put on their radar?

Michael Spence: So I thought about something Sam said a which is it depends on the industry you're in. And then I asked myself the question what's the one thing that virtually everybody has to deal with? And my answer to that is the energy transition. It's got to be a critical part of it- literally everybody's strategy.

Chris Caine: Sam?

Sam Palmisano: Designed for disruption.

Chris Caine: All right. Very good. Thank you both very much for your time. It was great to be with you and we'll come back to these two topics and our emerging critical issues moment for future shows. Sam, Mike, thank you very much for your time and your insights today. You've been listening to The GET, sponsored by the Center for Global Enterprise, celebrating 10 years of convenient global enterprise leaders around the most important business transformation issues.

Episode 2: Supply Chain Strategies to Manage Turbulent Geopolitical and Societal Developments

Air Date: June 14, 2022
Play 17:37

First, the global pandemic. Now, it’s the crisis in Ukraine and the COVID supply chain developments in China. Supply chains have certainly been getting a lot of attention—and a lot has not been positive. The good news is enterprise leaders understand the critical role of supply chains more than ever, and the public has a new appreciation of how supply chains affect so many facets of daily life. How can we build better, more resilient supply chains that are agile and able to quickly address unforeseen, yet catastrophic events? Samuel J. Palmisano, CGE founder and Chairman, former IBM Chairman and Michael Spence, Nobel Laureate, and former Dean of the Stanford School of Business, join us to discuss strategies for managing supply chain in turbulent times.

To learn more about digital supply chains, go to the Digital Supply Chain Institute (DSCI), dscinstitute.org.



Chris Caine: Welcome to The GET, the podcast for enterprise leaders, delivering timely insights for today's global economy, and tomorrow's competitive advantage. I'm your host, Chris Caine, president of the Center for Global Enterprise. Today, we're going to focus on the topic that most consumers never concern themselves with, and frankly, a lot of business leaders underplayed the strategic bet. Supply chains, specifically strategies for managing critical supply chains in turbulent times. First, it was the global pandemic. Now it's the crisis in Ukraine and the COVID and supply chain developments in China. Supply chains have been catching a lot of attention in the last few years. And a lot of that attention has not been positive. The good news is enterprise leaders understand the critical role of supply chains now more than ever. And the public has a new appreciation for how supply chains affect so many facets of their daily life. The big question of course, is how can we build better, more resilient supply chains that are agile and able to quickly address unforeseen, and in some cases, catastrophic events. To discuss the changing role of supply chains and how business leaders can transform their organizations, we're fortunate to have with us today, Sam Palmisano, founder, and chairman of the Center for Global Enterprise and former chairman and CEO of IBM. And Michael Spence, Nobel Laureate and former dean of the Stanford school of business. Sam and Mike, thanks for joining us today. Sam, how about if we start with you, what do organizations need to do to change their supply chains-to be more flexible and to be able to adjust quickly to these oncoming and very diverse global events?



Sam Palmisano: Well, Chris, thank you. And it's great to be with you today. I’d like to go back quickly on the current design of supply chain. So what drove the current design? It was a cost model and obviously needed a quality in your products, but it was cost driven models. When a cost driven model you're going to drive scale. A larger scale and scale economics should have a lower cost per unit. Therefore you're going to drive your competitive and it was significant. And it all companies drove that and inventory turns and cash management, all those things that are very, very important to a company, or a result that that model drove the design of the supply chains. That worked for decades quite honestly, to get costs out and quality up in the supply chains. What happened is they're not resilient and they're not flexible because you have a scale model. You have a concentration model trying to be in the factory of the world. That's what that results in, in a scale model. So therefore what's going to have to happen is that companies are now designed for resiliency and customer service, which is going to be higher costs, but if they can drive value to their customers, then therefore they could price for that cost because they've created a valued relationship. It could be service levels. I mean, there are models for this today. If you look at retail and everybody loves the fact that you order online and you get stuff the next day, whether it's Amazon or whatever it happens to be, that's great, but that's set the expectation from the consumer of the service levels that are required. So if you could design for agility, which means you have to address the last mile problem, you have to get it from the factory or the distribution center or the port to the house. And that's where the complication is. That's a design. It's not just near shoring, but it's nearshoring for the value you can generate for your customers or your clients, not just near shoring, because you're concerned about resiliency and political risk.

Chris Caine: Mike, you've worked in the supply chain area and its relevance to economic development and economic policy for years. Thoughts on supply chain resilience and the ability for global leaders and company leaders to design more resilient and agile?

Mike Spence: I think we're at the end of this long period in which we used huge amounts of underutilized productive capacity around the world, in the developing countries. and it was cost-driven, and that was deflationary and delivered astonishing, quality products all over the world at relatively modest prices. The relative price of these goods kept declining in a world that saw, rising prices and lots of other areas. Why do I think that's over? Because there isn't another China, because India is not going to go down that road because the African countries, I don't think can, fill in the gap as China, becomes a really a pretty high, middle income country and moves to different things. And finally, we shouldn't forget. then in the course of this very successful development in China and India and Indonesia in a number of countries, we've created tens of millions of new middle-class consumers. So the demand side of the global economy doesn't look anything like what it looked like 25 years ago. It's A) huge and B) it's located in a different place. So I think what's going to happen is first, we're going to have inflation. Second. let me make a prediction just to make this colorful. I think at 10 to 15 years, manufacturing broadly will not be labor intensive and the same will be true of much logistics. If that's true, I expect the movement to be toward the final market, because there are advantages in terms of, knowing your customer and whatnot, that Sam understands way better than I do. So I think that's one of the things that we're going to see.

Chris Caine: We were talking about, the end customer, like you were alluding to that, and Sam, you were talking about the last mile. What's been enabled that we see in many companies that we work with is business model that they've never been able to use before, or never chosen to use before, direct to consumer or direct to customer. And it's almost impossible to have a complete, competitive advantage there if you haven't quite figured out the last mile. And we see that today. So are there innovations in the last mile, Sam and Mike, that you see coming, or. are there barriers that are so strong that a concentrated effort to overcome those barriers would be important for industry to apply itself to,

Sam Palmisano: Well, I think go back to where it was before the cost model, right? And the reason why you did the things that you did, you're trying to optimize the cost, right? So there are four, whether that was logistics or shipping or all elements of that, to get it to wherever it had, whether that was a storage. Or your house, whatever it happened to be. So therefore, as a company, because you were managing your costs, you had partnerships in your supply chains saying you would use distributors or logistics companies or FedEx, UPS, whomever you could outsource to those guys, to do those sorts of things for you. However what's changed? Well, everybody wants to pick on Amazon, but that model has made everybody rethink this, and they've run an end-to-end integrated model. They have the end view of the consumer and the need to the goods that are coming on with, they're not the manufacturer nor case or the aggregator, but nonetheless, you do the same thing with Ali Baba. And then you add the payment system called Ali Pay. You see this end-to-end integration. So my point is that what are the elements of the integration that allowed them to have these service levels, but still maintain competitive costs? Well, in the distributed centers, it's called robotics. I mean, there aren't a lot of people running around in those distribution centers. I know people talk about this as far as unionization. But to me, it was like a semiconductor facility. You gonna utilize 15 people, the 400,000 on IBM. It's all going to be replaced by technology. You get to the efficiency of the trucks and yes, they were large and expensive in the past because you had your scale model, but now you have these prime trucks everywhere. They're going to become EVs and self-driving, back to Mike's point long-term. So there are lots of innovation you can actually get to the manufacturing element of this. So if we were designing, called 3d printing today, which can be done with 3d printing. So you don't have these big manufacturing centers that go to a distribution center that goes to the store or wherever it happens to be, you can print it on the spot and those kinds of things. So Mike's right. They're going to drive huge innovation, lots of productivity, but also disruption. So if you are a traditional company that's not used to operating in this model, it's going to be complicated. It's not an easy transition to get from where they are today. After a hundred years of doing whatever they did to where they need to be like what Mike saying the next 15 or 20. Mike, any thoughts?

Mike Spence: I completely think Sam's got this. Right. And it's important. I would only add that when other code at the world and what's going on in, rejiggering the supply chains. One of the things that strikes me is this global explosion of entrepreneurial activity, around the internet. I mean, we now have an estimated 6.5 billion people on the mobile internet, which we didn't see coming, 15 years ago. And so you've got in a growing number of places around the world, China, India, Latin America, and so on. This is largely digital. Ecosystems that do the financing, that make it possible for people to innovate, in these relatively coordinated data-driven environments and so on. I guess in addition to this integrated model, which is pretty powerful, if I were in the, world of, thinking how we're going to get through to consumers, I'd be trying to think about what's my place, in these growing highly dynamic, digital ecosystems that are blossoming, like weeds, all over the world.

Chris Caine: So you both have talked about the necessity and the power of technology to deliver supply chains that are more agile and more resilient, but where are the gaps in management? Sam, maybe we can talk to you on this first, which is, you know, it's one thing to have the tools. It's another thing to have the management processes and the management aptitude to utilize the tools in the most effective way. Where are the gaps in management of transforming a supply chain? And let's just call it, from my existing model to a direct to customer model, whether I'm a B2B or B2C company.

Sam Palmisano: Well, I think Mike started with it. If you look at these entrepreneurial companies, are you looking at people that have become a very, very successful in this digital data-driven world that's all mobily interfaced with the phone, right? They have a completely different management system than a traditional company, like an IBM or a FedEx, or go through the whole list, General Motors or Ford pick anybody you want. Our management systems are a hundred and something years old, right. And these guys, including the big ones who have scaled, this hyperscalers, whether that's Netflix, Spotify, Amazon, et cetera, they have a completely different management. And their management's designed for speed agility, but heavily skill-based, it's not as vertical. We had silos and those sorts of things. I don't want to go design a management system on the podcast, but having said all that, if you look to the future, if you're a traditional company, you should model the innovators that Mike's alluding to. And don't discount them because they're small. Look at their management system, look at their skills development, look at their processes and controls all those sorts of elements that they have and decide what is right for you. Obviously, you can't just go to that day one, you have a hundred years of history, but you have to make that transition in some way.

Chris Caine: I'd like to, start to close out our conversation about supply chains with government. We've certainly in the last two years, seen governments involved, support intervention and supply chains become very pronounced around the world. Governments are trying to deal with shortages of simple things like toilet paper, all the way to complex things like semiconductors. And they don't want to be in a position of having their citizens and, or their, population, wanting for even the most basic things that we're seeing right now in the United States, like baby formula. So what's needed from government leaders to achieve greater supply chain resilience and efficiency, and maybe what isn't, or shouldn't be needed?

Sam Palmisano: First of all, if you define a supply chain end to end, right? The individual consumer to the actual component, they get to the manufacturer that is the supply chain, and it's global and there's nothing the regional government can do about that fact. It's always been this way. It's not going to change because they give a nice speech or they tweet it doesn’t matter. That's what it is. So if you're going to be able to solve yourself in a crisis, like we've had, you need it and, and view, which means you need collaboration, which means you need information flows, which means you mean data flows. It means you have to be able to deal with some of the privacy implications. All the things that they are doing to regulate their world is impacting their ability to optimize- and the pandemic or in a global disruption, like a war, all those things. So that I'm not saying that they're necessarily not well-intended because as they look at these very narrow elements of this, like information flows and information sharing and data privacy and those kinds of things, there's a need in certain areas, for sure. But at the end of the day, if you are going to optimize your economy, for the world that we're going to live in that requires interconnection and growth for you to sustain your standards of living or to grow your standards of living. You have to have this end-to-end view. Now where I come from, which I know many people have heard me say before, all governments in the world do not have the skills and capability to do these things, whether it's in cyber or information flows or data. It doesn't matter in these current technologies. None of them have the skills or the capability. To have them overseeing things where they don't have the capability or the knowledge is ineffective. And we ought to just understand that. And if we wanted to be constructive about it, we would assemble people who have the backgrounds to work with governments. It's a partnership, but they need to rely on people in the private sector, the academic community, people that have the knowledge, because the things that they design have all these unintended consequences, that when something occurs, it disrupts an element of the supply chain, impact society. And they just don't have the perspective of what's required. You look at some of the things that happened, during the pandemic and all that, it's because the people that were overseeing it had no experience or background. Zero. And you wonder why they can't solve the problem. So you put a bunch of people in the room that don't know how it works, and guess what you get, you get policy, you get stuff. They understand cause they're lawyers, none of it's going to work. Totally. In fact, in many cases it even makes it worse. Michael Spence: The global supply chains are a massive decentralized system. And probably in the past, we never had a way of really understanding all parts of it. But I think now we do, in digital data and I think, Sam's right. the governments don't know how to do this. They don't know what they're looking for. But a coalition of knowledgeable people from global businesses, could come together and agree that this system, is, because of this massive decentralization, is opaque. Right? If you asked yourself in the middle of the pandemic, what would you forecast? How would you forecast the blockages that we've seen, longer duration? Lots of people would have bits and pieces, but they're not assembled. There's no big data system that says this system is starting to get creaky. There’s going to start to be blockages or congestion in the system. I think that's a solvable problem. If it's true. By a kind of global private sector initiative, like the Center for Global Enterprise.

Sam Palmisano: I think you have some research underway.

Chris Caine: I think we do. So before we close, we like to use the last minute or so to give our listeners some strategic thoughts and insights about what they should be considering. We call it our emerging critical issues. So I asked you, Mike and Sam in one word or one phrase, tell us what emerging issues do you see on the horizon that business leaders need to put on their radar.

Sam Palmisano: I would just say, overzealous governments and that means, unfortunately, business leaders have to do something none of us like to do, which is get engaged, in a constructive way. I mean, not a political way. Don't form a PAC and write checks and all those crazy things, don't get in the middle of the West- China relations. That's not your role. You don't understand this stuff anyway. But my point is that in a constructive way, engage or to help these guys try to solve the problem versus trying to just pass some piece of legislation that gets them two points in a poll,

Chris Caine: Mike, one word or one phrase. Michael Spence: I think, what is your digital strategy, really?

Chris Caine: All right. Thank you for those. We'll come back to those in future podcasts. I want to thank you both for your time. You've been listening to The GET sponsored by the Center for Global Enterprise, celebrating 10 years of convenient global enterprise leaders around the most important transformation business issues.

Episode 3: Business Continuity in Turbulent Times

Air Date: June 14, 2022
Play 25:24

The world is experiencing numerous disruptions–geoeconomics, geopolitical, technology, climate change, etc. While turbulence and disruption are constant pressures on business, throw into that mix the fact that the pace of business keeps accelerating and its clear why companies are viewing data as the engine that powers more and more operations, enabling flexibility and agility. Yet, many businesses struggle to identify and protect the critical information they need for operations. Joining us to discuss how CEOs can ensure business continuity in turbulent times are Samuel J. Palmisano, CGE founder and Chairman, former IBM Chairman, and Karen Evans, Managing Director, Cyber Readiness Institute.

To learn more about the non-profit Cyber Readiness Institute and for free resources and guides, go to BeCyberReady.com.



Chris Caine: Welcome to The GET, the podcast for enterprise leaders delivering timely insights for today's global economy--and tomorrow's competitive advantage. I'm Chris Caine, your host, and President of the Center for Global Enterprise. And today we sit down with Sam Palmisano, founder and chairman of the Center for Global Enterprise and former chairman and CEO of IBM, and Karen Evans, Managing Director of the Cyber Readiness Institute and former U.S. Department of Homeland Security, chief information officer, to discuss business continuity in turbulent times. Sam, Karen welcome.

Sam Palmisano: Thank you for having me today. It's a pleasure to be here.

Chris Caine: Right now, the world is experiencing numerous disruptions from a number of different vectors. Geo-economic. Geopolitical. Technology. Cybersecurity. Climate change, et cetera. While maybe not new to business, disruptions or turbulence are constant pressures on business and its ability to operate. Throw into that mix the fact that speed is an expectation that keeps accelerating in our society and in our daily lives and its clear why companies are viewing data as the engine that powers more and more business operations, enabling flexibility and agility. Yet, many businesses struggle to identify and protect the critical information they need to keep their operations running. Let’s focus on how CEOs ensure business continuity in turbulent times. What are the mistaken assumptions about business continuity that enterprise leaders need to correct? Sam, can we begin with you? The first thing I believe, if you look at this thing over time, that business leaders have been challenged by is the associated costs within their operations to actually create a resilient company itself. And they look at the cost and they look at tradeoffs associated with costs.

Sam Palmisano: In some cases, they'll consider insurance. In some cases, they'll say I'll just risk it. ‘This might not happen to me’, et cetera. The other issue is the smaller companies, quite honestly, that just don't have the resources. It's not even a cost question. They don't have the talent to do the things that are necessary to create a resilient enterprise. In the past, people would say, well okay, I'll take the risk. But that was before they entered into this digital journey in this data-driven enterprise model that you've mentioned in your introduction. Now, the implications of a disruption to their operations relative to their brand and the value of their brand are much more significant than they were in the traditional world. Let's call that the analog world versus this connected, digital data-driven world. It's much more significant today than it was in the past.

Chris Caine: So, we're in a transition phase where enterprises have organized themselves for a lot of decades around an analog capability and yet the digital overlay has been fast and furious, allowing some companies to accelerate even more and other companies having the need to catch up. Karen, thoughts on the mistaken assumptions that organizations might have as they strive to create business continuity.

Karen Evans: We could continue to play on the analog version and pulling that out into a digital version. I think some of the mistakes that are made are plans that you had in place with the previous capabilities that CEOs think that those plans are still going to work and if you don't test those plans, or you're relying on your staff to say, ‘yeah, these plans will work.’ You don't want to be in the middle of a crisis to find out that there's a big gap in your plan. The other part is that a lot of small businesses haven't even thought about what should be in a plan or how do I do a plan or maybe somebody else is doing it and I just have to make a phone call. I think the most critical thing is when the crisis happens, who is the first phone call that you make?

Chris Caine: You each have touched on a couple of decisions that every CEO and every business leader has to make, which is how do I invest my resources and into what? The investment question about business continuity is a really interesting one and one that I think, Sam probably based upon your experience, people have had to make tradeoffs traditionally about where to invest and when to invest. What do you think the essential steps are that you would recommend to a CEO or to a business in order to deal with business continuity in today's world, which is consumed by those vectors we talked about at the beginning?

Sam Palmisano: Well, first of all, Chris, the vectors that you've described are much more dramatic than they ever were in my career as a CEO. So, let's kind of level-set there. We have many issues to deal with, but not nearly the ones that our colleagues now are managing through. So, I have great respect for the balls that they're juggling every day. But I think fundamentally it depends on which element of your company. They are different. If you take supply chains, which are fundamentally key, especially as you get to this business to consumer model where you want to meet the service levels that people have accomplished in retail or home delivery and those sorts of things, you need to really look at your supply chain from a perspective of redundancy. Historically, people optimized around scale. So therefore, i.e., China is a manufacturing factory of the world. Forget the geopolitical and mentions associated with what I just said. In today's world, no one would want a centralized response to their key suppliers. You'll want to have some distributed model for multiple reasons. One is obviously resiliency. In case you do get into disruption, which could be climate by the way, it doesn't have to be some geopolitical issue. But in addition to that, you want to be closer to the actual markets that you're serving. Because if you think about the service levels, people are going to be trying to deliver as they make this transition to a data-driven enterprise, you need to deal with the geographic distance, not only in a pandemic, but just a normal operation, almost what we call in Telcom, the last mile. So, when you look at supply chains, it's a combination of those two. When it comes to your IT infrastructure, again, it's different, right? Because you should have always built into your IT infrastructure resiliency and redundancy and backup and recovery. If you were a bank or a large retailer, you were expected never to go down, never to fail. So large enterprises obviously have done that within their IT infrastructure. However, small businesses don't have the resources to do those sorts of things, but they can partner. They have the flexibility to partner with people who do have the resources. In today's environment, let’s talk about cloud. There are large cloud providers, whether it's Amazon, Microsoft, Google, IBM, where a small company could get some level of redundancy and availability that might be hard for them to achieve on the own. I mentioned those two different points because in ways they're different. One is one you would actually optimize your own supply chain with your partners. And the other was, if you don't have the resources and you can't do it yourself, then find a partner and do it with them.

Chris Caine: That's great. Karen, you lead the Cyber Readiness Institute, and maybe you can tell us a little bit about that, but clearly, cyber readiness for small and medium businesses is different than a large enterprise. How would you advise small and medium business owners and CEOs, to take steps to build their resilience and their business continuity either before or after a problem arises?

Karen Evans: Thanks for asking me about, CRI, the Cyber Readiness Institute. I am very excited about the opportunity to work with small and mid-sized businesses, especially as it relates to business continuity because I think the opportunity is there. Sam hit on a couple things that I thought were really critical about the geographical locations of where small businesses are and how their distributors work. I've had an opportunity as I've taken on this role to talk to some small businesses that when COVID hit they didn't even realize that some of their distributors for their products came from overseas. When they were trying to buy from a local, mid-sized person, that person was getting their products from overseas.

Karen Evans: They had to re-engineer the whole piece because they didn't even realize how a lot of this was working. Sam hit on this too, and I started smiling. I'm sure you could see it when he brought up the last mile. Those of us who have been in this forever, know that you can have these great plans, but if you can't hit that last mile in order to be able to deliver the service, if the goods can't get there, if the telecom can't get there, or if the service can’t get there, these plans are for naught. I think a lot of what's happened, and where CRI really plays, is trying to take all these really complicated issues and make it pretty simple for them to be able to say, ‘Hey, what is your key service? And who helps you provide that? Is it a local distributor?’ Everything that you need to make that service work. Do you know where it comes from? And if you don't, then here are some questions you can ask the people who you are buying these things from in order to be able to have what Sam said is more resilience, like backup. How does this work? And how long. Can I actually continue to run my business in an alternate fashion if all these other things stay down because they're beyond my control? And then what am I going to do to re-engineer the business?

Chris Caine: There's so much on the minds of CEOs and small business owners about risk. Clearly everybody is dealing with third parties, whether it's your supply chain partners, your distribution, colleagues, or your customers in some cases. So much risk comes from third-party relationships how can organizations better manage their third-party risk? If there were two things that you would advise a business owner to do tomorrow, relative to managing or beginning the process of managing, what would they be?

Sam Palmisano: Think about it this way. You should view your third parties no longer as vendors. You should think in today's world, of your third parties as an extension of your enterprise. Let's call that a partnership relationship. So, since they are an extension of your enterprise, all your internal processes and procedures that you have for your internal organization relative to resiliency and security, and those sorts of things, you should apply through procurement to your partners. And that's whether it's the go-to-market model, Karen reference distribution, or is the supply model. I talked about supply chains, but regardless of the front end or the back end, if you think about your business, think about this as a partnership. Now, if they're a partner, an extension of your organization, you're going to have in place certification and audit just like you have for your entire enterprise. My point being, is if you deal with them as partners and they're extensions of your brand and what you represent to your customers for services into the marketplace, you'll reorient yourself to how you deal with them versus just having procurement drive costs out of their businesses to give you a better price. You should think about this strategically now versus perhaps how you thought about it in the past. It's no longer just a cost agenda because it drives your brand and your revenue model. If you can fulfill the promise that you're offering through this extension of the ecosystem.

Chris Caine: So, it's no longer a transaction. It's now an ongoing relationship that is, conveying data and, other information critical to your operations.

Sam Palmisano: It's a transformation of procurement. If you think about historically, we've all done this. I mean IBM is an example of that. We all centralized procurement to drive costs out of the business through our extended resources that we worked with every day. And we had thousands of suppliers around the world. Thousands of go-to-market models, partners around the world, but it was a cost driven model. You have to reorienting yourself. Think about it, as we talk about it at CGE, the Frontside Flip. It's now your brand, your customer, and your revenue model. And when you think about your revenue model, you can't afford an outage, or you can't afford some breakdown in those processes. So, if you strategically rethink this, you'll have a completely different orientation and approach.

Chris Caine: Yeah, that's really great. Karen?

Karen Evans: I'm listening to Sam and I'm thinking of applying some of this stuff from government, but then turning around and saying, okay, so how does a small business CEO, actually make this happen? Because they're the partner, they're the extension. They're part of the business enterprise that Sam is talking about. And how do you get a certain level of assurance from that group where a lot of the innovation comes from, right? And they have a lot of trade-offs that small businesses have to look at, and it shouldn't be cost. Cost shouldn’t be a driver. So, when you take a look at, okay, what is the basic levels? It really comes down to every entity, every part of you is using technology. So, technology is embedded in everything we do. I mean, it's just there. It's a given and it's gotten wrapped around cybersecurity, but it's really about how do I use the technology as a partner.

Karen Evans: And that's what we're talking about in this brand piece. And so, CRI offers four core basic capabilities that we think small mid-sized businesses, if they actually implement our program, that there'll be good business partners in this enterprise. That this relationship is going to be really good. For example, we have passwords, and we talk about passwords, and we talk about multi-factor authentication (MFA). If you blow up, and you look at all of the things that could happen to a supply chain or an enterprise, it comes down to somehow somebody got a phishing email, right, which is another area that we look at, and they thought it was real. And some of the internal information from one of your suppliers or partners gets passed onto an adversary. And that adversary now can capitalize off of that and we can have a ransomware attack. And now the whole relationship, that whole ecosystem, ends up being disrupted. Some of the simple things which, in the technology world, they call cyber hygiene, but in the business world, to me, it makes sense on how you set things up. So why wouldn't you want to have good passwords? Why wouldn't you want to train your people? Why don't you want to have this culture of a cyber leader or risk management within a small business from the get-go so that you can end up being a good partner with the larger companies in that supply chain. Cause you could end up being the one with the most innovative, coolest thing that one of our partners needs to have in the supply chain and if you don't have these basic four core pieces down that we call being cyber ready, you could be hacked. You could have a ransomware attack and now you're shut down. You have no revenue and you've affected everybody upstream.

Chris Caine: When I hear you both talk and recommend action steps for business leaders, what I'm thinking about is before we were all connected through digital technology, every business knew what to do. If they had a fire, if the doors that didn't close. They knew what to do in the physical world. What I hear you saying is do the same kind of thought process you did when you were just operating in the physical world and bring it to the digital and connected world and do it as quickly as you can because you have more reach, but you also have more risk. We've seen recently, extreme examples of economic disruption based upon business incontinuity, colonial pipeline and other incidents that have come from the cybersecurity space. The cost to the economy is one thing and the cost to the business itself is another. But it's certainly gotten the attention as appropriately it should from government officials and government regulators who are now turning their attention to what can they do through regulation, to address some of these outages. How should business leaders, be addressing and thinking about that emerging regulatory investment that government is starting to establish in their attempts to mitigate the business disruptions that come from some cyber attacks like the ones I've mentioned.

Sam Palmisano: I mean, first of all, governments have a role to protect society and they're trying to do that extremely well. The problem is the capability that government has in many of these areas. As you know, I was on the cybersecurity command center with NSA. I co-chair the Obama commission on cyber security. So, we've been through all their processes and their capabilities. So, I say this as a knowledgeable person, although I was not a government employee. They don't have the capability on their own to establish pragmatic regulation that the business community or private sector can adopt. So therefore, and we recommended this in all of our recommendations, The only way to do this well is to collaborate with the business community. And you can have some research organizations or academia could also be helpful, but if you don't do this together, they'll come up with regulations written by staff lawyers that cannot be implemented. And they might be great from a legislative perspective or maybe an executive order perspective, but they're not practical in the marketplace. So, you need to have that combined entity. My opinion, having worked with all these organizations on definitions of what is a cyber hack back to the old days of the command center and NSA. So, before you regulated, you need the definition, and you can never agree on the definition between a national security threat and just some road kid who's a hacker. So, I would suggest those interested parties to come up with approaches and regulations, to have that skill set come together. I mean Karen has been part of the government as well.

Chris Caine: Karen, you were on the inside. How effective and how efficient is government at actually partnering with the private sector to get outcomes, not just collaboration?

Karen Evans: I knew you guys were going to ask something along these lines. There's a lot that is happening. You should think of the government as an extension of your enterprise, as well as your partnership. The other complexity to this is where do you sit in society as a business? What is your business actually doing, which adds a level of complexity to this? So, if you're in what is designated critical infrastructure, such as Colonial Pipeline, which they were, how does that work? And then if you're not--and I'll give you a great example, and this is what the government is working on--is if you're a power company and you have a Department of Defense base right within the same neighborhood and then there's a hospital and a power outage, and it's not even from a nation state, a hurricane comes through. How do you determine who gets the lights on first? It's a life and death situation. If we're at war and there's a hospital and there's a DOD base there, like how does that work? And so, this gets back to the overall business continuity that we were talking about in business resilience and where do these businesses that are key around hospitals and defense, how do they all play in order to bring up a government service? We see that things have accelerated so fast in Congress. I worked with Congress a lot. They want to be able to say that they did something to help solve the problem. That's really what everybody's trying to get to, is how do we solve this and how do we make the nation better? And it's a global problem because how do we work with all our international partners to be able to do this as well? To Sam's point, there are a lot of people who want to regulate, put things in place. What you're going to end up driving is a compliance culture versus a risk management culture, a partnership culture. You'll have these unintended consequences and I saw it firsthand when we were doing it within the federal government for federal systems. We would have people who would produce the best reports in the world. Everything would look great across the board. And they were the first ones to get hacked. So, you could pay $350,000 to $500,000 for all these documents and you’d be the first one that was hacked because they’re not reflective of the culture that has to change within the organization. And that’s why I get really excited about CRI because it’s focused on the human behavior. And we can say a lot of things about well, we can put the regulations in, and this is how we’re going to measure it, and here’s the penalties we’re going to put on it. But you want information to be going back and forth The one piece I think that Sam hit on is the national security aspect. Private industry is going to see a lot more than the federal government's ever going to see cause they're a global operation, the way that they run things. But what they need is the context around what they're seeing because they can see a whole bunch of, you know, ‘Hey, I'm knocking on a bunch of doors,’ but the government can put the context around that and say, don't worry about that. You might have 50,000 of these particular incidents, but oh, by the way, you've got 10 over here. And these key strategic companies with these key strategic supply chain partners, these are the ones you have to worry about. And that has to come from what Sam is saying is the partnership and the government and industry looking at them as an extension of each other.

Sam Palmisano: If I can just add to what Karen just ended on. The solution to what she was saying was information sharing between the private sector who sees it first and the appropriate government agencies who have responsibility to secure our society. That leads to a whole set of legal issues. Right? They all start with who can I hold liable? If I share the information, am I now going to be sued because I was hacked. Finally, after gosh, 10 years or so, CISA (the U.S. Cybersecurity and Infrastructure Security Agency) now has come up with a way to share information. But my point is, when you take a simple goal was sharing information, when you put it against this matrix of all these disparate parties, you need someone to establish leadership. Now CISA has done that by the way. I mean, I've been retired 10 years, I was on the task force 15 years ago and they finally have come up with a mechanism because that's just the nature of all this independent interaction from multiple parties of interest, you know, litigation firms, trial lawyers, et cetera. That makes simple things like to share information for the good of society very hard to get done.

Chris Caine: I think if we saw one thing from the pandemic and I know we saw many, is the awareness that the interdependence between government and the private sector is so strong on daily life, even when it's not recognized by the respective parties. So, I think what we've been talking about today is we're all in this together. And we have to create strategies and partnerships to get the outcomes we seek, which is a more secure, more continuous, and a more resilient economy and business. We like to use the last minute of our podcast for a quick thought about how to create strategic insights for our listeners. And we call our last minute, the Emerging Critical Issues moment. In one word or one phrase, could you tell our listeners what emerging issues do you see on the horizon that business leaders need to put on their radar? Sam?

Sam Palmisano: Economic decoupling, a phrase.

Chris Caine: That's good. All right. Karen?

Karen Evans: Resilience. Re-engineering, re-looking at your business processes.

Chris Caine: Great. Well, that's even less than our one minute, but we'll take it. And so, I just want to say thank you both for coming today, sharing your insights and your time with us. We'll take the two one-minute sparklers and we'll come back to those in future podcasts. Thank you very much for listening and for being with us today Sam and Karen. You have been listening to The GET sponsored by the Center for Global Enterprise, celebrating 10 years of convening global enterprise leaders around the most important business transformation issues.

Episode 4: Managing Brand Identity and Strategy When Driven by Geopolitical Events

Air Date: June 14, 2022
Play 23:40

An unprecedented number of companies have supported economic sanctions against Russia in response to its invasion of Ukraine—in several cases going beyond what the sanctions call for. In the past, companies have rarely taken public positions that could hurt profits. That has changed and the public—and employees–now expect global brands to do the right thing. Shelly Lazarus, Chairman Emeritus, Ogilvy, and Jon Iwata, Executive Fellow at Yale School of Management and former IBM Senior Vice President and Chief Brand Officer, help business leaders navigate managing brands and marketing strategies when driven by geopolitical events. 



Chris Caine: Welcome to The GET, the podcast for enterprise leaders, delivering timely insights for today's global economy--and tomorrow's competitive advantage. I'm your host, Chris Caine, President of the Center for Global Enterprise. And today we sit down with Shelly Lazarus, Chairman Emeritus of Ogilvy, and Jon Iwata, Executive Fellow at Yale School of Management, and former IBM Senior Vice President and Chief Brand Officer, to discuss managing brand identity and strategy when driven by global events. It seems we have an unprecedented number of companies that have supported economic sanctions against Russia in response to the invasion of Ukraine--in several cases, companies going beyond what the sanctions actually called for. While companies have been sensitive to environmental, social, and governance issues (or ESG) in the past, they typically have taken positions that have not hurt their profits. That has changed. And do we now have a public that expects global brands to do more than the traditional ESG moves? Are we entering a new era of corporate responsibility? Shelly, can we begin with you and get your thoughts and then Jon.

Shelly Lazarus: I think the simple answer Chris, is yes, we are. I recently came across a statistic that reported that almost 40% of consumers are boycotting at least one product or service based on what they believe the company’s or brand’s point of view is. All CEOs say their companies are market driven. The market is speaking and they're saying the consumers care. I think what happened in Ukraine is interesting in that this was almost an easy one because it was so blatant. It was an unprovoked attack a nation. There is real evidence of war crimes. I think companies came forward and pulled out beyond sanctions. The only question now is does the public think that these companies are doing enough? We're in a new time. I think if for no other reason, the internal audience, the employees of companies are demanding that their companies take a stand. That they express a point of view. And I just think there's no choice anymore. We are in an era where everyone is paying attention to what companies are doing beyond just the profits that they produce.

Chris Caine: It's really a good start with this topic Shelly. Thank you very much. The concept of everybody paying attention to something, we'll come back to in a second, but Jon, your thoughts.

Jon Iwata: I heard somebody say recently with regard to this topic, don't confuse the new with the rare. I think what is new here is what Shelley was mentioning, the expectations. I would broaden it to all stakeholders. I think there has been a generational shift here. So, whether they are putting on the hat of consumer or the hat of institutional investor or potential employee or citizen, they do expect different things. Perhaps more advanced things of the companies they choose to work for and buy from and invest in, and so forth. Companies have to respond to this in order to compete. Compete for talent. Compete for business, et cetera. My perspective, as you mentioned, is with IBM for 35 years, and in our history, I would say this is not new. The idea of a company not only taking positions, but doing something about its business operations, its policies, based on its values, based on its beliefs, is not new.

Jon Iwata: And in that regard, it may be rare today. And a whole new generation of CEOs are beginning to realize that is now part of the job.

Chris Caine: Shelley, you raised the point about everybody's paying attention. Internal workforces have always been paying attention to what their companies have been doing, but they've generally gotten their information from the company itself. I think you both have tremendous insights and experience on how leaders of companies, CEOs, and others, communicated with their workforce, whether that workforce was domestic or global. And yet today's world, everybody's paying attention because they have so many different avenues of information. Could we talk a little bit about the pressure and the changed environment on CEOs and enterprise leaders for knowing that their decisions are transparent in many different ways, from many different sources, and therefore their company's workforce has different ways to determine what their company is doing and how comfortable they feel with that. Jon, to your point about values, maybe being able to interpret values the way they want, being influenced by outside sources of information flows, but any thoughts on both the internal connected workforce and the concept that Shelly has put on the table, which is everybody's paying.

Shelly Lazarus: You mentioned transparency, Chris. I mean everything may seem to be transparent, but everything isn't necessarily accurate. That doesn't stop people from having the conversation. It used to be that the leadership of an organization would communicate to the people, tell them what was going on and it was accepted there would be Q&A and people would go back to work. These days people are in constant communication about what's going on and it's instantaneous. You better participate because it's happening around you, through you, and being sure that people are getting the information that you want them to have is critical. Back to Ukraine and Russia. I think Jon you're at Yale now. I know Jeff Sonnenfeld just contacted people in Russia to actually authenticate whether brands who said they were stopping doing business in Russia were actually still present on the shelves and in the lives of the people in Russia. And that happened like in a three-day period of people going out there and commenting on, ‘I still see this product on shelves.’ ‘This this product is still available.’ And companies are being held to account in ways they probably can't even control because we all know how long it takes to get from the purchase through the supply chain, to the actual shelf. And here we have people who are commenting in real time on promises that have been made by companies. I just think it's the way the world is. And it makes some people crazy. But you can't deny reality. And my feeling is always, you better get into the conversation with everybody because it's going on around you.

Jon Iwata: What I would add to that is it's not just the information that shapes the beliefs and perceptions of the stakeholders we care about. It's their ability to use social media and use the new platforms to their advantage in mobilizing and activating support for their views. Look, the fact that companies have had special interest groups or factions of the workforce who are trying to get management to pay attention to them and do something, it's not new. What is new is the fact that their ability to draw so much more attention to get so many other people to join them, to amplify their voice, to sign on, to do things is new. And in that regard, a lot of CEOs are ill prepared to understand these new forces that command their attention.

Chris Caine: How far does the CEO have to go in order to satisfy the stakeholders who are paying attention to the company and the company's role in societal trends, and in this case geopolitical trends? It used to be that a company could take an action and the action could be measured and the measure would be considered good enough. But it seems today that we have companies who are being asked to take stronger and stronger positions. And I would think from a management perspective, calibrating how much is enough or where do the parameters of the right position start, and stop is an interesting leadership conversation. Strong positions, are they going to be required by external stakeholders in a way that they haven't been required in the past?

Shelly Lazarus: I'm not sure that they haven't been required. The ability for a group of employees to express how they feel has gotten much more sophisticated and powerful. You just have to look at Disney. I don't know what actually went on within the company, but you had this feeling that you had this group of employees that were just pushing and pushing the CEO to come out and make a statement to the point where his judgment, I guess, was that he had to do that or he would lose the trust and belief of his employees, but with enormous consequence. And so, to me in the current world, that is a great example of being pushed to the point where you have to make a decision because the employees, or one of your constituents, feels so strongly about something that if you fail to do, you're going to lose their trust and belief in you.

Chris Caine: And so, what's the impact of that on the brand, right? Shelly, you have worked your entire career around brands and the importance of creating a brand identity and being consistent with that identity that you choose to create. Can your brand identity get away from you when you end up in situations like Disney, which you've just seen.

Shelly Lazarus: I think it can. For sure it has had an impact on the brand. It was in the news. Top of mind. The trick is to be able to walk the line, to be able to come out at a point where people are nodding with you that, of course, this is the right thing to do. But it's really hard. When you have the kinds of issues that are confronting the world today, where CEOs are expected to take a stance. That's one where I would guess it got away from them a bit and their brand is seriously impacted by what they did.

Chris Caine: Jon thoughts?

Jon Iwata: I think part of this is consistency and authenticity. My understanding of the Disney situation very early on was that the new CEO departed from prior practice in deciding explicitly not to speak out, either as a CEO or as a brand, on particular subjects. And because this was not consistent with what stakeholders, let's start with their employees, were used to, this doesn't seem right, and I think that's a factor here. This idea of whatever you stand for as a brand, as a company, are you consistent in talking about it, and what you say most importantly, in what you do. You think about brands like Nike and Colin Kaepernick? You think about brands like Chick-fil-A. These are brands that are not neutral and whether you like them or not, whether you support them or not, do you know what they stand for and do they consistently behave in a way that reflects their values and reflects their point of view. I think where brands really get themselves crosswise is when they don't have a point of view, they don't have values, at least values that they take seriously in their decision-making in their practices and policies.

Chris Caine: So, consistency and authenticity are two guiding principles for sure.

Shelly Lazarus: Just to add to Jon's point, I think the most challenging thing for CEOs now is trying to figure out which topic subjects are appropriate for them to have a point of view. Because you do see these sorts of flatfooted examples of companies that sort of had nothing to do with a particular subject or no connection to it, who all of a sudden pop out and make a statement about Black Lives Matter or some other topic that they haven't been connected to in any way. But I'll give you another example from right at this moment. I'm on the board of Organon, which is a pharmaceutical company that is focused on women's health. And so, when the Supreme Court opinion was leaked, they felt a need because of what they do, and what they stand for. The CEO felt a need to come out and make a statement in support of women's ability to manage their own health and wellness. And I don't think it would have been appropriate for any number of companies to necessarily come out with a statement about Roe v. Wade, but when your whole reason for being is tied to women's health I think it's completely appropriate. And you have to come out with a statement on that topic when that topic is raised.

Jon Iwata: Part of the Yale work I'm doing on the how of stakeholder capitalism I've talked to a lot of CEOs on this very question. And they say they don't have a very good mechanism in place, process, method, framework, or even philosophy. I asked them, how do you decide today? And they said, it's not good either we react because the pressure builds, or the voices get loud, or some member of the executive committee pounds their fist on the table because they personally feel something needs to be done. Or not. Or the CEO decides because of their own worldview and their own values. Ultimately, it's a question of materiality. Materiality by its nature is judgment of relevance and significance. It's not a rule. And what's material to the company? The company's business. The company’s risks. What's material to the stakeholders who matter to the company? David Kenny [CEO of Nielsen] came to Yale last week and was asked this question by the MBA students and David's said on certain issues it's clearly material to Nielsen, his company because they stand for trusted data representative of America. And on the census controversy, on voter access, they clearly feel this is material and they will speak out and take very strong stands and file court briefs and everything else. But on a whole range of other issues, including the Supreme Court leak on abortion, which happened the same week David went to Yale. He said, ‘this is a matter for employees, between Nielsen and employees. And we will likely not say something publicly because it's not material to Nielsen's business model.’ and the MBA students for what it's worth seem to accept that as a very reasonable approach.

Chris Caine: Yeah, I think the scope that a CEO has to make those judgments around, geographically as well as topically, it's just becoming increasingly more complicated, more complex. Let's take, for example, the things we've been talking about with Disney and Florida and Roe v. Wade, clearly impending, emerging issues in the United States. But what is the responsibility of a global company where you're operating across the globe and we have existential challenges, such as climate change and, the protection of the Amazon Rain Forest? How far does one have to go in order to be true to the values, be authentic, be consistent with something that is as relevant to everybody in the world as that, yet as geographically targeted as being maybe outside your corporate headquarters country. The functional expertise that needs to exist to have a management model for those kinds of decisions, Jon, as you've just alluded to in your questions to CEOs, do those corporate models, management models exist today? From your perspective, do companies have a new management model from which to deal with this both expansive global environment of issues, but then also the speed at which, and the calibration of which to know when to engage and when not.

Shelly Lazarus: I'd say not at all. Jon's characterization of how most companies, global or not, are operating these days is completely consistent with my own experience. I think we're in a new time and I think figuring out how we're going to navigate through these issues. I think to another point Jon made before the most important thing is consistency. You may be able to interpret, have some local issues that you have to deal with, but there should be if you're a global company, there needs to be a global set of values and beliefs that everyone buys into and focuses on. I can't think of the number of times that a global company has gotten in trouble because some local person has made a statement, again back to social media where we're all on all the time, and everybody's reading what everybody says, when someone in a particular country, a particular person in a particular country says something that just is inconsistent with what everyone believes the company stands for or takes a position that is uncomfortable for other people in the world. I think the way to deal with it is back to the question you asked Chris, which is, do we have a process in place? Do we have a system? How are we going to handle it? Who's going to decide? And I think these are questions that have yet to be answered in most companies that I know.

Chris Caine: CGE was founded on the principle of trying to help CEOs move to the future and have management best practices for operating in a global economy. Jon, if you had to think about the expertise that would be required to stand up a function inside an enterprise to deal with this accelerating and expanding rubric that a CEO has to deal with regarding societal issues and brand values and, company positions, what would be the skill set that you would go out and find to populate a new function within your company to address that?

Jon Iwata: Well, I've been asking them that. Then the list is a combination of soft skills and hard skills. On the soft skill side, the words empathy, active listening, comes up a lot. On the hard skill side, I hear a lot about creative problem framing, creative problem solving, because they see this as, CEOs like to solve problems, but often the problem comes by stakeholders. So, you have the customer. And then you have employee. You have government and regulators, and so forth and we're well-organized to deal with stakeholders, but when they come together and often conflicting interests, we aren't organized in a way that is helpful here. And we're not used to doing that and across multi-stakeholder world. So, bringing it together, maybe you can't expect one person to possess all of these skills, but you can commission a team. You can assemble a team that doesn't just play defense, meaning look out and what issues can bite us hard, and work out our position statements. They could certainly do that. But the team that also thinks about the differentiation of the company and the brand, the unique capabilities of the company, the competitive advantages, the comparative advantages, its history, its values, and looks for places to lead. I will just give a few examples here. Apple could have been playing defense on privacy and data because they can evade that. They can't de-select that as an issue. They could play defense, let's lobby, let's take positions, let's fight regulation, but whatever motivated them it certainly does appear that they found a space that serves many stakeholders’ interests. And they are doing more than issuing a statement. They are rallying their platform, their brand, their ecosystem, their influence to take a leadership position in an area, data and privacy. And I think a team that understands stakeholder interests, that frames problems differently and solves them creatively, I think a lot of CEOs said, that's what we need.

Chris Caine: I want to thank you both for sharing your insights and your experience with us. At the end of our program, we like to give our listeners some strategic insights to think about. We call it our emerging critical issues last minute. And so, let me ask you both, in one word or one phrase, to tell us what emerging issues do you see on the horizon that a CEO needs to put on their radar?

Jon Iwata: Algorithmic safety. Everyone's used by now to data and privacy and cyber attacks and because of everything we've gone through in the past 25 years with the collection of personal data and what can go wrong with that, also the benefits of it. And then there is AI and people jump right to the future and have these fears about sentients and Skynet and destruction of all jobs. I would say there's something much nearer term here that represents a real opportunity for business and societal value, but also a lot of problems, a lot of threat to trust, a lot of harm, and that is algorithmic safety. So, all of these algorithms that are taking advantage of all that data, they are determining who gets hired, who gets the interview, who gets the credit score, who gets the offer, who gets into the university. All of these things are being determined, not by some futuristic AI. It's being determined by algorithms. And CEOs, if they’re not on top of this, they will be in about 20 minutes.

Chris Caine: Shelly?

Shelly Lazarus: I would say the nature of work, broadly. I think the conversation about where we're going to work, how we're going to work, what we're going to do as we work. We are at the very beginning of that conversation. I think one thing that COVID has certainly done is open everyone's minds to what it actually means to go to work. And I think the divide between older people and gen Z is huge. One thing I'm pretty sure of, they're not going to be a lot of people in the office on Friday anywhere. But where we go from there, I think is going to be a critical conversation. I've heard young people say that they never want to come to the office. And they don't know why they have to. And so, if Facebook's going to give them the opportunity to work remotely all the time, then they're going to go with Facebook. Now, that's an extreme example, but I think dealing with this topic, it's the topic for today. It's the topic for six months from now. And I suspect it will still be the topic for five years from now.

Chris Caine: There you go. Our final minute: algorithmic safety and the nature of work, the collision between the two. Pay attention if you're a business leader. Shelly, John, thank you very much for your time and insights today. You've been listening to The GET, sponsored by the Center for Global Enterprise, celebrating 10 years of convening global enterprise leaders around the most important business transformation issues.

The GET is presented by the Center for Global Enterprise, celebrating 10 years of convening global enterprise leaders around the most important business transformation issues.

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