Executive Insight

Business as Unusual. Chrysler, the UAW Meet Project Runway

The fashion police were in force in Detroit this week when  negotiations started on a new Chrysler/UAW labor contract.

Both sides' bargaining teams filed into the auditorium where the talks will be held at Chrysler's headquarters wearing identical maroon jackets emblazoned with the logos of the company and the union. It was impossible to tell who was from Chrysler and who was from the UAW.

There was none of the adversarial tone that characterized prior negotiation cycles between the parties. It was more like a prelude to a church picnic.

Instead of talking about “strike targets,” for example, the UAW’s president, Bob King, has been more likely, lately, to speak of “creative problem-solving.”

The symbolism was clear: This time, we are all on the same team.

The stakes are high.  What happens at the bargaining table over the next six weeks could determine the long-term viability of both the union and Detroit’s Big Three carmakers. The future of all of them was in question just two years ago when Chrysler and GM were forced into Chapter 11 bankruptcy protection, and the third domestic maker, Ford, avoiding that process only by mortgaging its assets. Although the pain was shared widely among stakeholders, workers were especially hard hit, with their union agreeing to a number of concessions that slashed all-in labor costs from around $76 an hour in 2006 to just over $50 today. The UAW reversed decades of tradition and approved a two-tier wage structure in which new hires start at roughly half the pay and benefits of more senior line workers.

UAW President Bob King said his union and the company understand that they owe it to the American taxpayers — who bailed out the Auburn Hills automaker and saved thousands of union jobs in 2009 — to prove that they have learned from their mistakes.

"We collectively feel we have a huge responsibility to the American public," he said, adding that negotiating a competitive agreement with Chrysler would lead to more job creation.

Chrysler Vice President of Employee Relations Al Iacobelli agreed.

"We have a responsibility to ensure that we do not go back to the old formulas," he said.

Both sides expressed confidence that they would soon hammer out an agreement that rewards workers for their contribution to Chrysler's recent success and protects the competitiveness gains the company has made since the last national contract was negotiated in 2007.

Holding out a carrot, Chrysler says that if the UAW keeps it competitive with the transplants—foreign-owned plants, like the Nissan assembly line in Smyrna, Tennessee, that also pay around $50 an hour—there will be even more work. The maker is looking at more than 300 projects to bring back in house work that it had, over the years, outsourced to suppliers. General Motors will be producing its new Chevrolet Sonic subcompact at a suburban Detroit plant using two-tier workers: the previous Chevy small car had been built in South Korea.

Whereas some American trade unions negotiate cross-industry contracts, the UAW has traditionally had to bargain separately with the domestic carmakers. As always, it hopes that the first agreement it reaches will set a pattern for the rest. However, the Big Three's management seem less likely to go along with that approach this time, reflecting the increasing differences between the companies.

The fragility of Detroit’s Big Three was driven home this week when, on the same day bargaining began,  Chrysler and Ford reported lower second-quarter earnings. The numbers were not dire and reflected a variety of factors such as weak spring car sales and some one-off charges. At Ford, these included the cost of scrapping its ailing Mercury brand. Chrysler, meanwhile, would have been more than $180 million in the black but for its decision to pay off its $7.5 billion in American and Canadian government loans six years early, accruing $551 million in non-recurring charges.

Sources:

The Detroit News: Chrysler, UAW contract talks kick off with show of unity

The Economist: The Bargaining Begins 

What’s That Again? Yeah, Employee Engagement…

Accenture has just released a report on employee engagement. Like many reports that preceded it and no doubt many more to follow, it highlights the factors that create committed employees.

It’s a well written report, full of persuasive statistics and informative content. The pity is that it reaches the same conclusions that we have known for years. It’s not the understanding of engagement factors; it’s doing something about it. The reality is that so few companies strategically design and operate their organizations for engaged performance, and this is why there continues to be a steady stream of consulting reports that surface the commitment gaps that impede performance.

This research identified multiple catalysts for high commitment. It provides important reminders, though is certainly not definitive on the subject. Each are subcomponents of a high performance system; their absence or sub-optimization are organizational waste.  Successful organizations integrate multiple commitment-engendering elements into their organizational strategies, systems and practices. That’s why they achieve and sustain success. It doesn’t occur by happenstance. It happens when intellectual acuity and leadership priorities convene to make it happen.

Read some of our Executive Insight Thought Leaders on organizational strategy.

Read also: What Executives Really Need to Know about Employee Engagement, Accenture, June 2011

Future Work Skill Requirements and Their Implications

In the 1990s, IBM’s Deep Blue beat grandmaster Gary Kasparov in chess; today IBM’s Watson supercomputer is beating contestants on Jeopardy. A decade ago, workers worried about jobs being outsourced overseas; today companies such as ODesk and LiveOps can assemble teams “in the cloud” to do sales, customer support, and many other tasks. Five years ago, it would have taken years for NASA to tag millions of photographs taken by its telescope, but with the power of its collaborative platforms, the task can be accomplished in a few months with the help of thousands of human volunteers.

Global connectivity, smart machines, and new media are just some of the drivers reshaping how we think about work, what constitutes work, and the skills we will need to be productive contributors in the future.

A new report from The Institute for the Future (IFTF) analyzes key drivers that will reshape the landscape of work and identifies key work skills needed in the next 10 years. It does not consider what will be the jobs of the future. Many studies have tried to predict specific job categories and labor requirements.

Consistently over the years, however, it has been shown that such predictions are difficult and many of the past predictions have been proven wrong. Rather than focusing on future jobs, this report looks at future work skills—proficiencies and abilities required across different jobs and work settings.

Six Drivers of Change

Most foresight exercises begin with a consideration of drivers—big disruptive shifts that are likely to reshape the future landscape. Although each driver in itself is important when thinking about the future, it is a confluence of several drivers working together that produces true disruptions. IFTF chose six drivers that emerged from its research as the most important and relevant to future work skills.

1. Extreme longevity: Increasing global lifespans change the nature of careers and learning
2. Rise of smart machines and systems: Workplace automation nudges human workers out of rote, repetitive tasks
3. Computational  world: Massive increases in sensors and processing power make the world a programmable system
4. New media ecology: New communication tools require new media literacies beyond text
5. Superstructured organizations: Social technologies drive new forms of production and value creation
6. Globally connected world: Increased global interconnectivity puts diversity and adaptability at the center of organizational operations

Future Work Skills 2020

What do these six disruptive forces mean for the workers of the next decade? IFTF identifies ten skills that it believes will be critical for success in the workforce:

The report defines and explains these skills and sets them in the context of the world being shaped by the drivers of change.

Implications

To be successful in the next decade, individuals will need to demonstrate foresight in navigating a rapidly shifting landscape of organizational forms and skill requirements. They will increasingly be called upon to continually reassess the skills they need, and quickly put together the right resources to develop and update these. Workers in the future will need to be adaptable lifelong learners.

The results of this research have implications for individuals, educational institutions, business, and government.

Educational institutions at the primary, secondary, and post-secondary levels, are largely the products of technology infrastructure and social circumstances of the past. The landscape has changed and educational institutions should consider how to adapt quickly in response. Some directions of change might include:

• Placing additional emphasis on developing skills such as critical thinking, insight, and analysis capabilities
• Integrating new-media literacy into education programs
• Including experiential learning that gives prominence to soft skills—such as the ability to collaborate, work in groups, read social cues, and respond adaptively
• Broadening the learning constituency beyond teens and young adults through to adulthood
• Integrating interdisciplinary training that allows students to develop skills and knowledge in a range of subjects

Businesses must also be alert to the changing environment and adapt their workforce planning and development strategies to ensure alignment with future skill requirements. Strategic human resource professionals might reconsider traditional methods for identifying critical skills, as well as selecting and developing talent. Considering the disruptions likely to reshape the future will enhance businesses’ ability to ensure organizational talent has and continuously renews the skills necessary for the sustainability of business goals. A workforce strategy for sustaining business goals should be one of the most critical outcomes of human resource professionals and should involve collaborating with universities to address lifelong learning and skill requirements.

Governmental policymakers will need to respond to the changing landscape by taking a leadership role and making education a national priority. If education is not prioritized, we risk compromising our ability to prepare our people for a healthy and sustainable future. For Americans to be prepared and for our businesses to be competitive, policy makers should consider the full range of skills citizens will require, as well as the importance of lifelong learning and constant skill renewal.

Read the Report

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I Am a Digital Cat: A Fresh Look at Japan’s Future

A fresh take on the challenges facing Japanese society in the form of a manga – a traditional Japanese pictorial narrative.

From McKinsey and by Japan-based economist and novelist Peter Tasker and veteran manga artist Toshio Ban.

Download

Manga, pictorial narratives which can range from simple comic strips to elaborately illustrated graphic novels, is arguably modern Japan’s most potent and creative form of literary expression. Manga in its contemporary form emerged during the years of US occupation following Japan’s defeat in World War II. The medium was heavily influenced by American popular culture, including comics, cartoons, television and film. But the antecedents of manga can be traced back centuries to wartime propaganda posters, early woodblock prints and even ancient scroll drawings.

In modern Japan, manga has become a multi-billion dollar industry. Serialized manga, in an array of different genre, attract readers of all ages. Globally, the form has inspired imitators in a kaleidoscope of different languages, and influenced the work of writers, illustrators and film producers from many cultures. In “I am a Digital Cat”, Peter Tasker and Toshio Ban pay homage to the tradition of British satirists and also the great Japanese novelist Natsume Soseki, whose novel “I Am a Cat,” first published in serialized form between 1905-06, found humor in the contradictory mores of Japanese society in the Meiji era.

In deference to manga’s traditional format, “I Am a Digital Cat” reads from right to left. For guidance on how to follow the dialog in the panels, please refer to the diagram on the below.

How to read manga

Manga is read from right to left and top to bottom. Speech bubbles are also read from right to left and top to bottom.

 

News Corp’s Missteps and Lessons Learned from Other Corporate Crises

John Bussey’s Wall Street Journal article today examines the missteps in News Corp’s still unfolding hacking crisis. In parallel, a recent Cass Business School research report – The Roads to Ruin - examines 18 high profile corporate crises. Together they provide solid cause and effect examples that underpin corporate crises.

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No company ever wants a crisis to get to this point, writes Bussey: the chief executive and his lieutenant grilled by skeptical legislators, with errors condemned, reputations impugned and the drama broadcast around the world.

For News Corp. CEO Rupert Murdoch and his son James, the hearings in London on Tuesday on the company's phone-hacking scandal were the climax of a bad couple of weeks. For the company and its shareholders, it may have been confirmation of something more troubling: for years News Corp. insisted its phone-hacking scandal was largely an isolated affair: one reporter and his investigator gone rogue, a small number of voice mails hacked.

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Cass investigated 18 high profile corporate crises of the last decade. Companies involved in these crises include AIG, Arthur Andersen, BP, Cadbury Schweppes, Coca-Cola, EADS Airbus, Enron, Firestone, Maclaren, Northern  Rock, Shell and Société Générale. Their aggregate precrisis value was over $6 trillion.

In seven cases a company involved faced bankruptcy, of which three were ‘rescued’ by Government. In 11 cases the Chairman and/or CEO lost their jobs, and in others senior executives and non-executive directors (NEDs) lost their positions. In 16 cases the companies and/or executives personally suffered financial penalties or fines, and in four cases executives received prison sentences.

Most companies - and their shareholders – suffered severe, uninsurable losses and most reputations suffered severe damage. None of the companies emerged without obvious immediate harm.

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Top managers at News Corp. responsible for managing its crisis may have believed the problem was an isolated incident, and may also have believed they had properly investigated and addressed the problem. But it turns out more rogues were involved, and many more lines were hacked—possibly thousands. Authorities in Britain are also investigating whether News Corp. employees bribed police.

Bussey quotes Andrew Brimmer, a partner at Joele Frank, a crisis-management firm: "Management should have responded more thoroughly to the issues raised by the original hacking. What happens to a crisis deferred? It typically explodes into the open at some point."

The penalty for missteps in the early phase of a corporate crisis—expense, lost reputation, distraction—can be brutally high.

Ask BP, which initially played down last year's oil spill in the Gulf of Mexico. Or Toyota, which at first dithered over public concerns about alleged sudden acceleration in its cars. Or Jack Welch, the former General Electric CEO, who was slow to see how his robust retirement package might become a public embarrassment for GE.

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Cass’ study  identified the key lessons associated with the failure to prevent each crisis and thereafter manage the consequences. The failures that gave rise to each crisis were analysed and seven key issues emerged, described in this report as the underlying risks that caused the crises:

1. Board Skill and NED Control: Risks arising from limitations on board skills and competence and on the ability of NEDs effectively to monitor and, as necessary, control the executive arm of the company
2. Board Risk Blindness: Risks from board failure to recognize and engage with risks inherent in the business, including risks to business model, reputation and ‘license to operate’, to the same degree as they engage with reward and opportunity
3. Inadequate Leadership on Ethos and Culture: Risks from a failure of board leadership and implementation on ethos and culture
4. Defective Internal Communication: Risks from the defective flow of important information within the organization, including up to board level
5. Risks from Organizational Complexity and Change: This includes risks following acquisitions
6. Risks from Incentives: This includes the effects on behavior that results from both explicit and implicit incentives
7. Risk ‘Glass Ceiling’: Risks arising from the inability of risk management and internal audit teams to report on and discuss, with both executive and nonexecutive directors, risks emanating from higher levels of their company hierarchy, including risks from ethos, behavior, strategy and perceptions.

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In News Corp's case, the rising casualty count includes: Two senior executives forced out; a newspaper closed down; a key corporate acquisition lost (for now); law-enforcement investigations in Britain and the U.S.; the energies of top managers consumed by the problem; and shareholders increasingly restive.

Experts who deal with blow-ups like this say News Corp.'s big mistake was not understanding—or ignoring—the dimensions of the problem from the outset. The time for crisis management, they say, was in the years between 2006 and 2011, when evidence of wrongdoing kept emerging, when inadequate investigations were conducted by the police and the company, and when victims kept complaining and reaching settlements with News Corp.

The advice from other experts is straight forward: This time, get to the bottom of what occurred, find out if there was a coverup, and determine if the rot was unique to the down-market News of the World or if it extends elsewhere into the News Corp. culture. Then make everything public, make amends with victims and the authorities, and demonstrate how the company will assure it never happens again.

How the company manages the next stage of the crisis will determine one of two things: Will News Corp. be able to start rebuilding its reputation? Or will the crisis worsen into a more serious attack on the leadership of the company?

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Read the full article from John Bussey in the Wall Street Journal.

Read the Cass Business School Report: Roads to Ruin - A Study of Major Risk Events, their Origins, Impact and Implications

 

CEO Pay Increases Markedly as Performance Outweighs Governance Concerns

In 2010 boards approved pay levels for CEOs that were substantially higher than in 2009. Most expected to see much greater pressure on pay levels of chief executive officers (CEOs). Instead, the results from this year's The Wall Street Journal / Hay Group 2010 CEO compensation study suggest that, despite the drumbeat of pressure on executive pay issues, strong company performance trumps such concerns. However, while pay levels showed increases that were in line with improvements in company performance, the structure of pay saw meaningful changes, as more companies increased their emphasis on performance-oriented long-term incentive programs, and continued to eliminate some of the 'extras' like executive perquisites.

 Pay levels increase at a marked rate, buoyed by strong company performance

After a 2009 in which total compensation actually fell for CEOs of the largest companies, the trend reversed itself in a big way in 2010. Although base salaries remained flat at $1.1 million, annual incentive payments increased by 19.7 percent to $2.2 million, yielding a 12.8 percent increase in overall cash compensation at $3.4 million. For the first time in two years, long-term incentives increased, growing 7.3 percent to $6.2 million.

Source: Hay Group

 From a performance perspective, both companies and their shareholders had very big years. The median company showed a 17 percent increase in net income from 2009, alongside a very strong one-year total shareholder return of 18 percent.

 The biggest pay increases in the study were seen in the basic materials sector, where pay levels increased 27.7 percent on the strength of a 60.4 percent increase in net income, and a 14.3 percent one-year total shareholder return. At the other end of the spectrum, health care companies showed the smallest CEO pay increase at 0.2 percent, while holding the second-smallest increase in net income at seven percent, and the lowest shareholder return at 4.5 percent.

 The heavily-watched financials sector demonstrated some of the most interesting results in the study, as that group of companies increased net income 26.1 percent and returned 15.8 percent to their shareholders, while holding pay levels to a modest 1.2 percent increase; perhaps this is an indication that boards in the sector are continuing to tread very carefully amidst regulatory scrutiny and the court of public opinion.

 Companies emphasize long-term performance and balance in their equity portfolios

After a turbulent 2009 in which companies moved towards retention-oriented time-vested stock plans, they reversed course in 2010 by increasing their emphasis on plans that only pay out when companies achieve long-term objectives.

Source: Hay Group

Performance awards made up 41 percent of the long-term incentive (LTI) value provided to CEOs in 2010, up from 37 percent in 2009. Time-vested restricted stock was essentially flat moving to 25 percent (from 24 percent) of long-term incentive value, while stock options declined from 39 percent in 2009 to 34 percent. This was perhaps the strongest evidence that companies are trying to better align total LTI value with specific longer-term company outcomes.

 However, companies also moved to further diversify their use of long-term incentives by increasing the number of vehicles employed. All three major LTI vehicles increased in prevalence, with 72 percent of companies now taking a 'portfolio' approach to their long-term incentive grants. Stock options remained the most frequently awarded with 70 percent of companies using this vehicle (up from 64 percent in 2009), followed closely by long-term performance plans used by 68 percent of companies (compared with 58 percent in 2009). Time-vested restricted stock also saw an uptick, granted by 55 percent of companies (up from 46 percent in 2009).

For the second year in a row, the actual value of these LTI awards at the end of the year was likely to be significantly greater than they had been when they were first granted to the CEOs, given the strong increases in shareholder value during 2010. When combining these new grants with the equity awards made during the stock market lows of early 2009, many CEOs were likely sitting on substantial 'in the money' equity value by the end of 2010.

Source: The Wall Street Journal / Hay Group 2010 CEO compensation study

The study focuses on the primary elements of compensation for CEOs of the 350 largest U.S. companies that filed their final definitive proxy statements between May 1, 2010 and April 30, 2011.

WidgeCo. Management Needs Your Help!

Come join the fun in an immersive role-playing investigation. Your role as an Investor Relations Officer (IRO) will be to assess the latest set of challenges for WidgeCo and its management team, brainstorm the options and help make sure your Mission is “IR” Possible. Using a case study approach, participants will learn best practices and tools for effective IR communication during a fast developing corporate incident.

NIRI-Houston Southwest Conference

August 17- 19, 2011

San Antonio, Texas

http://www.niriswc2011.com/

Out of the Frying Pan…

Buckson (“Buck”) Dimes stared out the window of his second story office at Widgco’s headquarters. The coffee he sipped absentmindedly had turned cold, but Buck didn’t notice. His eyes were fixed on the deep purple clouds that churned against the distant rolling hills, the vivid green of the summer grass contrasting sharply with the darkening sky. Outside his window, the trees stood mutely in anticipation; not a single leaf stirred.

Storm’s coming, he thought and sighed as he turned back to the mound of files that had consumed his desktop.  “I’m getting too old for this.”

It had been a difficult two years since the Chumming Waters Hedge Fund had launched an aggressive activist campaign against WidgeCo, demanding not only a number of governance changes including seats on the Board, but the divestiture of the underperforming WonkWidge business. It had been a nasty fight and Buck and the Board had ultimately compromised, avoiding a very public proxy battle by selling the WonkWidge division. For a short period following the divestiture, WidgeCo’s stock had outperformed the market by 15% but WidgeCo had yet to find the right reinvestment vehicle for the cash from the sale. As the cash generated poor returns due to low interest rates, the stock had once again sunk to pre-sale levels and was currently range-bound.

Furthermore, the prolonged economic downturn had hit the Company hard. SemWidge, one of the few remaining domestic producers of widgets for the electronics industry, had seen a significant deterioration in its business volume and margins as both corporate and consumer spending had ground to a halt. Even MilWidge, once largely viewed as being immune to general economic conditions, had come under pressure as defense appropriations had been scaled back by Secretary of Defense Panetta. Only the MarWidge division, producer of widgets for the shipping and tanker industry, had shown any significant growth, due to its revolutionary new widget design for high pressure liquid natural gas tankers.

The Board was pressuring Buck not only to launch the next phase of WidgeCo’s strategic growth and make better use of the Company’s cash balance, but to finalize a succession plan to fill the gap caused when Ari Sing Starr, the previous heir apparent, had resigned as part of the sale of the WonkWidge division. And now Pressure Cooker Valves, a third-party assembly plant which had been contracted to manufacture the MarWidge widget, was having production issues. If these couldn’t be solved quickly, WidgeCo wouldn’t be able to meet its delivery obligations to customers and there would be a significant impact to earnings. The Company couldn’t afford any more damage to its reputation and Buck hated the thought of explaining the issues to the Board.

Buck’s eyes swept over his desk again and he made his decision. He needed to personally visit the Pressure Cooker Valves facility to see what could be done to solve the manufacturing issues and get things moving again, whatever the cost. He would leave immediately. Gathering up his files, he grabbed his jacket, hesitated a moment, then grabbed an umbrella. He flicked the office lights off, closed the door, and told his assistant where he was going and when he expected to be back. His assistant looked up from sorting the mail that had just arrived - mail that included a red inter-office envelope from Dr. Fran Kay Stein, head of WidgeCo’s research and development group. Had Buck received that envelope, it might have changed what would happen next. But he didn’t and then he was gone.

Outside, the wind picked up and whipped the trees into a frenzy. The sky grew black and rain began to splatter in large drops against Buck’s window.

THE STORM HAS ARRIVED!

Enterprise Risk Management Practices Should Include Human Capital Risks

Companies need to incorporate risks from workforce and people-management issues more fully into their overall risk-management structures suggests a report issued yesterday by The Conference Board.

At most companies, human capital accounts for at least half of operating costs and can have a significant impact on business results. However, the study finds that human capital risk (HCR) -- which can range from unionization/labor relations to offshoring and outsourcing to staffing in a pandemic -- tends to be siloed in human resources departments, away from the companywide assessment and mitigation processes of enterprise risk management (ERM). This arrangement prevents information about HCR from having a role in the comprehensive, aggregate view of risks, root causes, interactions, and impacts through which leaders set priorities and determine overall strategy.

Out of eleven risk categories, surveyed executives ranked HCR as having the fourth highest impact on business results, ahead of financial, reputational, supply chain, and IT risks. This high ranking is evidence that HCR should be taken seriously as an enterprise risk. However, less than one-third (31 percent) of companies believe they effectively assess human capital risk, and 24 percent believe they do an ineffective job.

The report also found the best-prepared companies were those with a formal process for assessing HCR, a board and CFO with deep understanding of human capital issues, and well developed capabilities in strategic workforce planning.

The report also includes a series of practical implications for companies looking to improve their risk-management processes. As first steps, HR and ERM must begin a conversation, which in turn, means having a common language to describe human capital risk. Most companies have a gap in their understanding of how critical human capital risks are to their ongoing success. It's time to think about these workforce issues holistically.

Source: Managing Human Capital Risk: A Call for Partnership between Enterprise Risk Management and Human Resources

The Conference Board Research Report No. 1477-11-RR

Global Entrepreneurship and the Successful Growth Strategies of Early-Stage Companies

Entrepreneurs are important drivers of economic and social progress and change. Much of our daily lives is greatly influenced by entrepreneurial companies. Many such companies in their first 10 years launch new ideas or new products that transform society and the way people live, work and play. Recombinant DNA, the desktop computer revolution, the Internet, mobile telephony and social networking are examples of areas where sea changes have occurred in the lives of billions and still occur in all parts of the world. In each of these areas, early-stage companies have been a key stimulus to the discovery, development or broadening of impact surrounding the new idea or new product. The last decade has seen a heightened global interest in early-stage entrepreneurial companies. Increasingly, the examples of successful early-stage companies that are changing society come from around the globe.

According to a report released by the World Economic Forum in collaboration with Stanford University and Endeavor Global, the top 1% of companies from among 380,000 companies reviewed across 10 countries contribute 44% of total revenue and 40% of total jobs while the top 5% contribute 72% of total revenue and 67% of total jobs.

Insights from the report includes:

A new framework of eight different growth strategies that early-stage companies from around the globe are adopting. These include wave ventures, new product in new category ventures, new product in existing category ventures and idea transfer/transplant ventures. The “wave strategy” reflects the incredible dynamic forces that can come out of the early-stage company sector. Companies like Microsoft, Genetech, Google and Facebook not only have their own rapid growth, but also stimulate (and benefit from) a broader ecosystem of related companies.

Another important growth strategy in the framework, from a global entrepreneurship perspective, is the idea transfer/transplant strategy. Many successful idea transplant ventures engage in substantive adaptation of the idea developed in a different geography as part of their growth strategy. This new strategy framework adds more structure to the seemingly large amount of diversity in the stream of new ventures that start in many countries.

A new framework of eight different opportunity/risk factors associated with the different growth strategies. Examples include market size, market value creation, market value capture, management team and execution/scaling. Many prior discussions in this area over-emphasize the risk dimension of such factors. The report highlights the importance entrepreneurs from around the globe place on taking a perspective of proactive opportunity. It includes extensive quotations from many entrepreneurs, including those who encountered substantive difficulties. These quotations highlight that viewing the business world through an opportunity lens is part of the DNA of many successful entrepreneurs. Starting and building a new venture typically requires an enormous amount of optimism, stamina and ability to survive some very rocky seas.

A systematic look inside the growth engine of early-stage companies from around the globe. Using a database of 70 executive cases, the report highlights the rankings key early company players attribute to different growth accelerators and different growth challenges. Factors related to (a) market opportunity/customers/competitors, and (b) human resources/people/organization culture dominate both the accelerators and challenges.

A key finding is that the similarities in early-stage companies around the globe are far greater than their differences. An aspect of the report that attracted high interest in interviews is the dark moments that entrepreneurs reported encountering along their journey. These dark moments include major customers departing, failed research projects, living through the dot-com meltdown with dramatic reductions in demand and heavy cutbacks in headcount, and financial difficulties with high debt levels.

Extensive evidence on the growth paths of early-stage companies from over 380,000 companies covering 10 different countries is presented. The norm of most companies in their early years is a combination of up years and down years. This is labeled a ladders and snakes growth path. For example, 42% of companies have a pattern of two positive revenue growth years and one negative growth year in their Year 2 to Year 5 eras.

Also presented is:

Systematic evidence of high-growth companies in 13 different countries. This evidence highlights the low probability that companies with high growth rates in their early years will sustain those growth rates over even a subsequent two- to three-year period. Being labeled a high-growth company in many of the published rankings of high-growth companies is a de facto label of “likely very short-run, high-growth company”.

Key aspects of successful growth management of early-stage companies around the globe include: (a) taking early actions to reduce the magnitude of down years, including reducing the likelihood of a subsequent downward spiral, and (b) taking lessons from the down years to build a stronger engine for future growth.

Documentation of the dominant contribution played by a small percentage of companies as regards both (a) total company growth in the early-stage company sector, and (b) total company decline in this same early-stage sector. The simultaneous analysis of growth and decline is an important contribution that highlights the sizeable instability in this sector.

The report presents the first extensive evidence that covers both revenues and headcount growth in Years 2 to 5 of early-stage companies across multiple countries. For example, the top 1% of all companies ranked by the level of revenue (job) creation contributes 44% (40%) of total sector revenue (job) creation. The top 1% of all companies, ranked by the level of revenue (job) losses, accounts for 53% (46%) of all sector revenue (job) losses.

There are dramatic differences in the types of VC investments being made in different parts of the world. For example, venture money invested in Chinese companies is more likely to be at later stages in their development and more likely to be in the consumer segments of the economy  vis-à-vis VC-backed companies in North America, Europe and Israel.

Entrepreneurs are people who have ideas, have vision and are willing to challenge the status quo. They play a vital role in society and the global economy. On the basis of extensive quantitative data analysis and 70 case studies, including some of the most iconic entrepreneurial success stories of our time, the report provides in-depth insights into the phenomenon of global entrepreneurship, and helps to encourage and foster further high-impact entrepreneurs around the globe.

Read the Report

Source: World Economic Forum