by Jack Welch
By contrast, finding an entrepreneur in Old Europe—especially one young and fired up—is a rare event. (We have certainly encountered more of this breed in Eastern European countries like Slovakia and Hungary.)
Finally, the United States has vibrant capital markets. There are investors everywhere with money, looking for new ideas and the passionate entrepreneurs who go with them.
The U.S. business environment, while by no means perfect, offers a stark contrast to the one in Europe right now.
Now, some people say that as awful as the riots were in France, they are bound to stop. And they won’t start elsewhere either. The reason they give is that Europe’s slowing population growth will, in time, create employment opportunities for all.
Reality isn’t so easy.
Employment opportunity in Europe will come when governments and companies work together to create work—real work—in the form of exciting new jobs. Tax and employment laws will have to change, as will other government policies. And attitudes will have to change too—toward risk taking. Companies will need to take the plunge and invest in new ventures. Entrepreneurs will need to come out of their caves and start building the future.
Yes, some new ventures will fail.
But many will win. And with them, so will Europe.
VIVE L’EUROPE—JUST NOT YET
* * *
People are always talking about the future of China and India, but where do you see Europe in five years’ time?
—FARMINGTON HILLS, MICHIGAN
* * *
Given everything happening in Europe—every economic, political, social, and demographic trend, not to mention one million French people taking to the streets to protest one little labor reform—it would be very easy to write the whole continent off as dead.
But Europe isn’t done for, and it won’t be either.
Now, without doubt, Europe has been treading water for the past ten years. In fact, as the rest of the world has rushed to globalize and become more competitive, Europe has just kept its head above the waves of change.
We don’t mean all of Europe, of course. Two decades ago, the UK faced the reality of the emerging global marketplace and liberalized its economy to stay competitive. And several countries in Eastern Europe, such as Hungary and Slovakia, have thrown off the shackles of Communism with effective pro-business reforms.
But the promising economic news coming out of these countries is dwarfed by the disturbing news coming out of France, Germany, and Italy. With their aversion to capital investment and risk taking, the three pillars of Old Europe are practically paralyzed by the arteriosclerosis of their welfare-state economies.
Consider a few statistics.
Over the past thirty-five years, according to Joel Kotkin of the New America Foundation, the U.S. economy has created fifty-seven million new jobs. In the same period, Europe—with a combined GDP about the same size as that of the United States—has created just four million (and most of those were in government). Meanwhile, the European unemployment rate hovers around 10 percent, double that of the United States.
Nor is Europe positioned to reap the gains of the growing science and technology sectors. R & D spending per capita in France, Germany, and Italy, for instance, is about half that of the United States. Demographic statistics are similarly bleak. France, Germany, and Italy all have shrinking populations that (naturally) are also aging.
Perhaps most worrisome of all, the continent seems to be suffering from a collective bad mood. Asked, “How satisfied are you with your life?” by a Harris Interactive poll, around 18 percent of Europeans (from France, Germany, and Italy) answered “very,” compared to 57 percent of Americans. Worse, these Europeans said they felt stuck in their rut. Asked, “How do you expect your personal situation to change in five years?” only a third predicted improvement. By contrast, two-thirds of Americans expect a better future.
So, if Europeans themselves seem ready to write an obituary for the continent’s future, why aren’t we?
Three main reasons.
The first is that Europe is simply too large and established an economy to collapse. Remember 1980? Japanese competition was going to put America out of business. The U.S. unemployment rate approached 10 percent, inflation was at 14, and the prime rate was more than 20. As with Europeans today, Americans back then were so morose, President Jimmy Carter declared the country in “malaise.”
But too much was at stake for surrender. Americans elected a new president whose defining characteristic was optimism. He galvanized national pride (and defense-sector spending) by taking on Communism, and he reduced taxes and released the entrepreneurial spirit that revived the American economy.
Europe similarly has too much history, infrastructure, and promise to slide into nothingness. Its workforce, for instance, is among the most highly educated in the world. And while tepid, there are some signs of emerging discontent with the status quo. The quasi reformer Angela Merkel was elected chancellor in Germany. And the French government, hoping to spark job growth, did attempt to change an employment rule. That reform was shot down by protest, but at least the government took a swing at progress. It will again—by necessity.
The second reason is Europe’s exciting new cadre of transformative business leaders: Carlos Ghosn of Renault and Nissan, Dieter Zetsche of Mercedes, and Klaus Kleinfeld of Siemens, to name just three. These individuals, and they are not alone, understand that their companies operate in a global world and are making the tough changes required to stay competitive.
And the final reason that Old Europe will survive is New Europe. The Eastern European nations, with their pro-business governments, are churning out a whole new generation of entrepreneurs who see opportunity everywhere and boundaries nowhere.
During our last trip to Warsaw, for example, we heard a businessman give a speech to about three hundred other Polish entrepreneurs. He shocked them by saying, “We are getting too expensive here. I want my company to be the outsourcer of Europe, so I’m putting all my new operations in Ukraine—and you should too!” After a collective gasp, the group, albeit small, was electrified with excitement. And that, we would suggest, says more about the future of Europe than an opinion poll of French, German, and Italian grousers.
So, where will Europe be in five years?
It won’t be thriving. But it will be better. In fact, drawing on the energy of its new business leaders and entrepreneurs, and increasingly cleansed of the calcifying effects of the socialist system, Europe will be well on the road to a positive economic future that apparently—and sadly—many of its own people don’t foresee today.
OUTSOURCING IS FOREVER
* * *
How can we change things in the United States so we don’t have to outsource to India and other countries anymore?
—ORLANDO, FLORIDA
* * *
We can’t—and we shouldn’t.
Look, the debate over outsourcing should be over by now. It was pretty much all about politics to begin with. The question now is not how do we stop outsourcing, but how do we use outsourcing to enhance competitiveness in what is, and forever will be, a global marketplace.
Of course, outsourcing has not been painless; layoffs really hurt. Still, they have to be seen as part of a broader picture, one in which outsourcing is not only integral to the world economy, but crucial to our own.
Integral because economies, by definition, respond to consumer demands. People have come to expect the lowest price and the highest quality in one package. And companies can’t deliver on that expectation without moving around the world to capture cost advantages and innovative minds.
As for the impact of all this on the United States, well, it’s pretty hard to criticize. Since mid-2003, the American economy has grown about 20 percent. That’s more than $2.2 trillion—equal to the size of the total economy of China. Seven million jobs have been added. Wage growth has accelerated from 1.5 percent in early 1994 to more than 4 percent in the
last year.
Such statistics, you can be sure, mean that outsourcing’s opponents, many of whom disappeared into the woodwork even before the 2004 election, will not be out there in the 2006 campaign. Those foes had predicted American technology jobs would migrate in hordes. In fact, tech jobs have increased 17 percent from the pre-bubble 1999 level. No wonder most politicians now tout the overall benefits of an integrated global system.
If there is a problem with the U.S. economy right now, it is not the loss of jobs because of outsourcing. It is the shortage of skilled labor because of immigration restrictions. Indeed, if Congress really wanted to make our economy more competitive, it would be to raise the limits on H-1B visas, making it easier for educated foreigners to work here. Ideally, the whole program could be replaced by a permanent green card system that would draw skilled workers into a more positive, long-term relationship with the American culture—and ultimately build a better economic future for all of us.
So, to your question then, forget outsourcing. America’s labor challenge today is talent insourcing.
GETTING GLOBAL BEFORE IT GETS YOU
* * *
How should a traditional company—with its solid structures, rigid processes, and long-term employees—change in order to compete with the fast-moving global competitors popping up everywhere?
—SÃO PAULO, BRAZIL
* * *
First, we’re going to make an assumption. Your company is not under siege from global competitors quite yet. You’re too calm.
That’s OK, for now. But get ready, because the fact that “war” hasn’t officially broken out will make your job going forward much more difficult than if your company was in well-publicized trouble. Organizational transformations, especially the brave-new-world kind required by global competition, almost never happen unless people really feel the need for it. Survival is a mighty motivator.
Without a crisis, oh, how people like the way things are. A bureaucracy like yours, in fact, can feel like a warm bath. People never want to get out. And they certainly don’t have an iota of desire to jump into ice water, which is how the radically different behaviors required by global competition will feel at first. After all, globally competitive organizations must be flat, fast, and transparent. Informal, candid communication is a must. And so too is a mind-set that has people constantly seeking best practices inside and outside the company.
Since people won’t jump into ice water, they need a push. Which is why you, or any leader trying to galvanize change, has to make a case—and make it personal. Your people will change when, and only when, they see how new behaviors will improve the company and, more important, their own lives.
So, get gritty and detailed. Use as much data as you can gather on industry dynamics, profit margins, emerging technologies, political trends—whatever—to come up with two vivid story lines, one about what the company will become if it doesn’t change and the other if it does. Contrast plant closings with growth opportunities at home and abroad, lost jobs with more interesting work, and flat or shrinking wages with more money for everyone.
Then start campaigning. Talk and talk and talk. Not believing—or absorbing—a tough message the first or second time around is just human nature. You will have to repeat your case to the point of gagging, and then repeat it again.
Eventually, however, if your case is compelling enough, behaviors will change. They will change faster if you publicly praise and celebrate them whenever they occur, and faster still if you reward the people who demonstrate them.
Speaking of people, two other actions will help your transformation effort into a company up to the challenges of a boundaryless marketplace. First, make sure you start to hire and promote only true believers—people who completely accept the case for change and will proselytize for it too. And second, make sure you start to ease out resisters who cannot let go of the good old days, no matter how much persuading they hear. Yes, some of these individuals may do their jobs satisfactorily, but they should be working someplace else.
That is, at one of the few companies left out there with no global competition.
THE HOME FIELD ADVANTAGE
* * *
Ever since the Czech Republic and other post-Communist countries have opened to outside investment, many foreign companies—in particular American and European ones—have mainly sent in their own people to run operations. The problem is that these managers are usually incompetent and bush league, and have only one skill, an ability to speak the mother tongue. They add nothing and end up relying on the innate loyalty and enthusiasm of local employees to get things done. Why are companies so foolish this way?
—PRAGUE, CZECH REPUBLIC
* * *
They’re not foolish—they’re just uneasy. Like American tourists who eat at the McDonald’s on the Champs-Elysées or French tourists who bring their own wine into Disney World, they’d rather have comfort than authenticity. Now, preferring the familiar may not be a principle of great management, but it’s certainly part of human behavior.
And look, the problem you describe is universal. It is not unique to American and European companies moving into the post-Communist world. From the beginning of modern globalization, companies have tended to “stick with their own kind” when opening up foreign operations. When the Japanese first moved into the United States, or anywhere else for that matter, they typically installed Japanese bosses. And the same pattern is true of the Germans, the British, and many other nationalities. They all want their own trusted people in charge of far-flung operations, especially at the beginning, when so much is unknown about the local environment.
The key phrase here is “at the beginning,” because trouble of the type you describe begins when foreign companies stay in comfort mode and keep their own people in charge for longer than a few years. This tactic misses a real opportunity. Why? Because local people always know their own country better; they know how its government works and how its people think. They know which local universities produce the best minds; they can understand what people on TV, in living rooms, in bars, and on the factory floor are really saying about the country’s political and economic future. They can always “work the system” with more insight and ease. And that’s why good companies know that the sooner you put local executives in charge of foreign operations the better. And the best companies work hard from the day they arrive to find and develop local talent with global training programs, creating a pipeline chock-full of middle managers with a shot at the top.
Without doubt, there will always be global companies that don’t move quickly enough to turn management over to local executives. But eventually, these companies will suffer from real brain drain, as smarter companies move in and steal the local talent for their own expanding operations. In thriving Eastern Europe, as in Asia, the competition for professional management is fierce. No foreign company can afford to keep local employees in lower-level positions, beneath the controlling cloak of executives from the motherland. The local talent will leave for companies that offer growth and a future, taking their knowledge with them.
So, while we understand your frustration with the “foolish” companies in your region who continue to value the devil they know over a leap into the unknown, don’t worry too much. This problem is typically self-correcting. In time, good companies put local managers in charge. They have to.
LEADERSHIP
On Being a Better Boss
You know the stereotype of the know-it-all boss who rules his people like an arrogant little dictator? There is probably some truth to it—and it probably happens at too many companies—but to read the e-mail questions and comments we receive is to see just how many people positively yearn to be great leaders. They want to reach into their people’s minds and hearts to help them grow and thrive. They want to build trust, earn respect, and unleash their team’s energy to win. Indeed, their passion can be best summarized by a South African engineer who e-mailed us the day he was promoted
to manager for the first time. “My goal,” he said, “is to be remembered by my team as the very best boss they ever had.”
In one way or another, that’s what every question—and answer—in this chapter is about.
ARE LEADERS BORN OR MADE?
* * *
Is it possible to train people to be effective leaders—or do you think that the best leaders are just born that way?
—BRASILIA, BRAZIL
* * *
For some people, the question of whether leaders are born or made is truly intellectual—fodder for a good classroom or dinner party debate. But for people like you, in front-line positions to hire, promote, and fire, the question “Who has the right stuff to lead?” definitely has more urgency. Getting the answer right can drive an organization’s culture and performance to new levels. Getting it wrong can too—downward.
So, what’s the answer? Of course, since we’re talking about real life here, it isn’t neat or simple. The fact is, some leadership traits are inborn, and they’re whoppers. They matter a lot. On the other hand, two key leadership traits can be developed with training and experience—in fact, they need to be.
Before going any further, though, let’s talk about our definition of leadership. It’s comprised of five essential traits. These traits, by the way, do not include integrity, which is a requirement in any leadership position, or intelligence, which is likewise a ticket to the game in today’s complex global marketplace. Nor do they include emotional maturity, another necessity. These three characteristics are baseline—they’re givens.
