In light of the Global HR Forum 2014, which will take place in Seoul from November 4 to 6, 2014, The Korea Economic Daily had e-mail interviews with several distinguished speakers on various subjects. Below, we highlight one of our forum speakers,
Dr. Phil Rosenzweig, Professor of Strategy and International Business at IMD, Switzerland. He works with executives from leading companies on questions of strategy and organization....Ed.
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1. You analyze many global companies such as Microsoftand IBM in your book. What do you think is the most competitive company today? What is the reason for that?
The companies I have mentioned in my book are illustrations of decision making, not necessarily exemplars of competitiveness. I have not studied companies in terms of their competitiveness.
2. 2. In the book ‘Halo Effect’, you mentioned the errors many businessmen often made. It’s been 7years since the book was published. Is there any error you newly find out recently?
The common theme of The Halo Effect was the way that managers misunderstand the reasons for company performance, often inferring reasons based on outcomes, rather than finding the true underlying reasons. That basic misconception is still pervasive. In the 2014 update, I discussed the recent financial crisis as well as examples such as Toyota’s problems with quality and BP’s environmental catastrophe, but the basic errors are the same – a tendency to make inferences based on outcomes.
3. You say entrepreneurs need to hold a high level of confidence in order to succeed. Do you think that is the most important thing forentrepreneurs? Please explain more specifically.
Confidence and a willingness to attempt what has not been done before is important, but needs to be matched by flexibility, keeping costs down, and making losses affordable. Most new business ideas will not succeed, and a high level of confidence by itself is not sufficient, either for the individual business or for society.
4. (If you have ever researched about Korean companies) What do you think about the competitiveness of Korean companies such as Samsung and Hyundai? What are their weak areas?
I have not studied Korean companies with any level of depth.
5. IMD is very famous for its annual World Competitiveness Yearbook. What are standards for measuring competitiveness?(of countries, companies and universities)
The IMD World Competitiveness Yearbook analyzes and ranks the ability of nations to create and maintain an environment that sustains the competitiveness of enterprises. Competitiveness helps us to understand the factors that facilitate prosperity. Prosperity goes beyond the economic performance of a country to encompass a variety of economic and non-economic dimensions. Therefore the IMD World Competitiveness Yearbook uses a holistic approach –over 300 criteria divided between four main factors:economic performance, government efficiency, business efficiency and infrastructure.
6. South Korea‘s global competitiveness ranking fell by four notches this year at IMD report as government and business efficiency received lower points than the previous year. It is the first time in four years that Korea’s ranking fell. What do you think about Korea’s competitiveness?
In many areasSouth Korea continues to go from strength to strength. For example Real GDP per capita grew by 2.5% the 13th highest in the world and an extraordinary feat for a developed nation; andLong-term Unemployment is virtually non-existent (#1). The emphasis on science and math in schools is impressive (#4), as is total expenditure on research (#1). However a lack of innovation (#28) entrepreneurship (#47) stifles the efficiency of SMEs (#55) – the drivers of economic growth. This is partly a cultural phenomenon but is also a result of government policy.
7. Are there standards that became more or less important than before when measuringcompetitiveness? What is the reason for that?
Every country is unique and must tread its own path towards prosperity. Countries must also be flexible and change policy and priorities due to external and internal influences. However, while there is not one definite formula to achieve competitiveness, our 2014 results highlight the fundamental role of strong institutions in encouraging innovation and entrepreneurship.
8. Korean government will introduce a new set of tax rules that levy a tax on those holding excessive cash reserves. The government expects that it will encourage companies to increase dividend payouts, spend on their workers and invest in production facilities. However many experts also worry that it could deteriorate corporate competitiveness. What do you think about it?
I think a tax on cash is a great idea, and we at IMD have suggested it in several occasions. It is somehow inefficient, but also unfair, that companies retain excessive amounts of cash instead of either investing it or distribution to shareholders. In the current economic environment with governments bearing the burden of excessive debt, it must be the responsibility of firms to provide liquidity to the productive system. The South Korean initiative should be a model for many other countries, and I am curious to know what its impact is going to be. But it will certainly improve, rather than hinder, corporate competitiveness, because it will be a device for firms to attract investors.
9. With the government’s support, Chinese companies are rapidly growing. What do you think Chinese companies’ own competitiveness? Do you think the emergence of Chinese companies can threaten the growth of Korean and global companies?
Potentially, yes. Chinese companies are efficient but a stage behind South Korea. South Korea has global brands, cultural influence and is transitioning to a knowledge economy. South Korea’s companies greatest challenges are themselves – if they cannot transition then China will eventually erode their manufacturing bases.
10. How can Korean government, companies and universities improve its competitiveness? Please give some advice on improving their ranking.
In the longer term the government must facilitate the knowledge transfer between universities and business (#29). The government should also foster a culture of entrepreneurship (#47), facilitate the creation of firms (#48) and facilitate financing such as venture capital (#34)
The management of companies is also an issue. Companies are un-adaptive (#56), Corporate Boards are ineffective (#58). This is a current problem, but the solution is long-term – management education. (#47)
11. How can companies improve their employee’s creativity? (or students' creativity in universities)
Let’s begin with the assumption that employees have a similar inherent potential for creativity. Companies need to create conditions where individuals are encouraged to take risks, and are rewarded for ingenuity and innovation rather than merely for following established patterns. When we punish for failure, we ensure that people will not take chances – and it is crucial to take chances in order to be creative.
12. What do you think is the most important for young people who are seeking to launch their own start-ups. Please give them some advice.
Young people cannot simply be told to launch start-ups. There is an entire ecosystem needed for business start-ups. It begins with social expectations, it is reinforced by education, and it is supported by a business environment that provides capital and rewards success without punishing failure. It is crucial to distinguish between business failure and personal failure: a start-up may not succeed, but that does not mean the individual has failed.
13. Do you think ‘Trust and Integration’ is important in business areas and any other area? If so, please explain specifically.
(‘Trust and Integration’is the theme of Global HR Forum2014)
Trust is important within organizations – so that members work together effectively – but perhaps even more important among organizations and people in the broader society. Such trust is based, ultimately, on trust in our institutions and rule of law. As for integration, if companies are to prosper, we need cohesion and integration among members; and similarly if societies are to thrive we need social cohesion and integration, which again stems from the strength of our institutions: legal, educational, political, as well as economic.
14. What do you think are the biggest problems facing the Korean economy?
The long-term challenges of entrepreneurship and management– the two things needed to thrive in a knowledge economy.
15. Is it your first time to visit Global HR Forumhosted by The Korea Economic Daily? Could you explain what you want to highlight in this Forum?
Yes, my first time. I would like to draw on the very good work about decision making, and apply it more closely to management and strategic business decisions.
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