By Dev Ahuja, Senior Vice President and CFO, Novelis Inc.
We are living in a world marked by ever-accelerating pace of change and disruption driven by rapid innovation enabled by technology and communications. The Fortune 500 list of most valuable companies and Forbes most valuable brands is now dominated by names which were either insignificant or did not even exist one to two decades earlier. Knowledge companies are unseating those who had dominated the space for many decades. All the top names in the list have disrupted entire industries and forever redefined the rules of doing business.
On the political and economic side in the last two decades, global events of seismic proportions have come together to reshape the world we are living in. From the Cold war and the creation of a single Euro currency, to 9/11 and the 2008 financial crisis, the world is a decidedly different place and will continue to change as global events impact more and more people.
Continuous innovation, change and learning agility are differentiating the companies, countries and people who are leading versus those who are lagging. Not being at the forefront of change and innovation, both at an organizational and an individual level, is a sure shot recipe for losing relevance in the emerging world order.
How we got here
First, let’s take a moment to set the stage. As technology and communications have revolutionized business and trade, what other changes have driven the seismic shift in the global order?
The decades between 1990 and 2010 were marked by dramatic and far-reaching changes. From the creation of a single North American trade zone under NAFTA to the launch of the Euro currency, the theme of interconnectedness has run through much of this period. The emergence of the Internet as an unprecedented information resource and communications tool for mass public and commercial audiences only served to underscore and hasten moves to erase old physical and technological boundaries.
The new global level of interconnectedness became apparent in the shockwaves from the 2008 U.S. financial crisis. Its origins were in a very domestic issue, U.S. housing prices. But the impact on commercial lending, credit, financial markets and Main Street businesses quickly led to recessionary trends across the globe.
Value shifts from brick and mortar to knowledge and innovation
Retail has also been a showcase for the power of connectivity. New digital enterprises recognized the Internet’s inherent power of scale and were able to jump ahead of traditional brick and mortar retailers in the price, variety and speed of their offerings. We have seen the resulting decline in relevance for once-iconic brands like Sears and Macy’s. Even some winners of the 1990s – the “category killer” big-box stores – have ultimately fallen victim to the success of e-commerce. Think of Borders or Radio Shack.
The technology revolution is clear when you look at the Fortune 500. In 1980, the Top 10 companies were almost all in oil and gas or manufacturing. By 2016, the Top 10 was a much more diverse group that included Apple and AT&T. From another perspective, the American Enterprise Institute compared the composition of the entire Fortune 500 in 1995 and 2016 and found only 38 percent of companies on both lists. In other words, 62% of companies fell out of the Fortune 500 in that period, a turnover rate of 14 companies per year on average.
Changing world, changing populations
But it’s not just businesses that have changed. The makeup of countries has changed in this period as native-born populations in the West have aged while immigration ramped up.
We now have populations that are more diverse in most major developed economies. For example, in the United States, the Caucasian population dropped from 80 percent in 1990 to just over 60 percent in the 2010 census, with people of Hispanic and Asian origin making up most of the newcomers. That trend is only expected to continue and already the majority of children under age 5 in the U.S. are non-white.
Another factor is that lower GDP growth around the world complicates business shifts and demographic evolution further. Investments and decision-making are easier in an environment of growth and prosperity, but fraught with complexity and compromise in the face of weak growth. The pressure to make the right strategic decisions and investments is heightened when growth is the exception, and not the norm.
What globalization means for skills development
The war for talent is intense. Organizations at the leading edge of innovation and change are those who also have leading edge talent. Top talent is gravitating to change and innovation agile organizations where narrowly defined specialized skills, long experience or raw intelligence are no longer enough. In today’s world, leadership and success are more associated with soft skills such as change management, learning agility, collaboration and innovation.
Winning in a globalized world
Talent therefore is a critical element businesses need to maintain and grow their competitive edge in the era of globalization. To properly leverage talent, businesses must also develop other attributes to stay ahead in a globalized marketplace.
The first is embracing disruption and committing to innovation. The fate of many brick-and-mortar brands shows that protecting traditional models is no longer possible. Look at the impact Uber and Lyft have on taxi companies and car manufacturers. Constantly preparing for disruption and seeking to drive it through innovation will determine the companies that thrive and those that barely survive.
Capital allocation is more critical than ever. Resources are limited and risk management is critical to ensure that risks are addressed and investments are clearly targeted, while allowing enough space for failure. Experimenting and learning needs to become part of an organization’s DNA. Rewarding failures is as important as rewarding success in order to build a leading edge business.
Globalization through the lens of Novelis
As a company that operates in 10 countries on four continents, Novelis embraces the forces of globalization with the backing of the Aditya Birla Group (ABG), India’s largest multi-national conglomerate spanning 36 countries and 120,000 employees. Because of that support, Novelis has the strategic flexibility to tap into ABG’s upstream assets and capabilities, immense financial strength and diversity of employees allowing us embrace safety, innovation and collaboration to shape a more sustainable future every day, in all of our operations.
We are also leveraging our global capabilities and intellectual diversity. Our business is rooted in innovation as the world’s leading producer of automotive aluminum sheet for the fast-growing sector of fuel efficient, hybrid and electric vehicles. We see ourselves as a partner-of-choice playing an integral role with leading-edge technology companies like Tesla, NIO and others.
We achieve this innovation, in part, through close collaboration with our customers. As we better understand the disruptions and forces they face, we partner to create the solutions that lead to commercial success as well as a more sustainable environment. For example, in efforts to reduce costs while increasing sustainability, we created a closed-loop recycling program with key customers, Ford Motor Company and Jaguar Land Rover, in which scrap metal is collected and reused in the production of automobiles.
As we commit ourselves to innovation and sustainability, we never lose sight of safety. Safety is the foundation of all we do, as our employees are our most important asset. From the CEO down, everyone’s job is safety-focused. Investment in trainings, assessments and communications all help ensure that we are able to realize our business objectives in a safe manner.
The path ahead
Globalization is not going away. In fact, if we have learned anything from the 21st century, it is that we should expect even more rapid and volatile changes. Populations will continue to grow more diverse and interwoven across old national boundaries, connecting cultures and countries. Technology will continue to break down silos and heighten expectations of communications. Businesses will continue to be called upon to address commercial and social needs and opportunities. Knowledge will continue to drive market capitalization.
The factors that created globalization – digitization, rapid pace of change, lower GDP growth and changing demographics – are only growing in impact. Which is why Novelis is embracing a new paradigm to succeed in a globalized world. We have renewed our purpose to shape a sustainable future by leading in the fields of lightweighting, recycling and innovative partnerships. That combined with our social purpose and investments in our people have resulted in sustained financial performance and position us for continued growth and prosperity. And while challenges vary across industry, other companies that create a paradigm to best fits their needs will also be able to successfully compete in a globalized world.