PwC
I would like to kick off by asking how good you think CEOs are at predicting the future. To what degree do you think having the ability to predict future trends makes for being a good CEO? And do you think that CEOs are good at predicting future trends?
Mr. Bremmer
It is absolutely critical. CEOs should develop a world view and lead their organisation accordingly – this is what makes a massive difference between those companies that can navigate uncertainty successfully and those who can’t. Having a solid world view enables CEOs and the businesses they lead to weather shocks as well as plan and take advantage of longer term trends. Having a world view creates stability in the CEOs thought process and gives them a framework to interpret change so that if something unpredictable suddenly hits, a CEO can say, right, I know where we are in today’s world. The difference from ten years ago is that these days shocks come along more frequently, they are often more dramatic and they also can increasingly have international ramifications.
Our abilities to foresee shocks are just as lousy today as they were ten years ago and that is true whether we’re talking about a tsunami off the coast of Indonesia or the sudden assassination of a political leader.
On the other hand the underlying stability and trends in global markets are more discernable and predictable, and I think that it is imperative for CEOs to understand them — especially given the fact that many shocks related to global trends can have a much greater impact on business.
Never has it been more important for CEOs to have a better understanding of the underlying stability and future trends in the global markets and the way that their portfolios may react to shocks.
PwC
You said our ability to foresee shock is just as poor as it was ten years ago and that it is more important that CEOs and companies understand the underlying trends in the markets that are relevant to them. Is there anything a CEO can do to try to pre-empt shocks?
Mr. Bremmer
In general, I would be extremely sceptical if a CEO started telling me that he is going to be able to predict shocks. Occasionally you will get good intelligence, occasionally you will be lucky and you will be ahead of the market by just a beat. You may be able to somehow position yourself before a shock occurs. But the reason that we call them shocks is because they are surprises. I don’t think that is new. In today’s environment with new technologies, with globalisation and with inter-linkages between different countries’ economies and different sectors around the world, a shock in a far flung part of the world can have much more dramatic implications today than it did ten, 20 or 30 years ago. They come faster. They can be bigger and so if you are lousy at predicting shocks it makes it more imperative that the CEO is ahead on the curve on trends and is ahead of the curve on stability.
PwC
So let’s talk about predicting those underlying trends. From our conversations with other CEOs, there appear to be two distinct views emerging. One group of CEOs say that it is a vital skill that a CEO does everything they can to invest in predicting future trends — not shocks — but predicting the way future trends will go. Then there is another view from other CEOs who say you would be better to focus your efforts on having a flexible organisation that can sense when things are changing and adapt accordingly. I would be interested to get your views on those two viewpoints and where your views fall.
Mr. Bremmer
If you are in the second camp, for many firms by the time the trend is hitting, it is too late. You are done. Other people are ahead of you and they have positioned themselves.
I am someone who sees corporations as super-tankers — these are large organisations. We know the world is speeding up. We know that there’s a need to make decisions faster. There’s a necessity to react to change — particularly now with the speed that change comes in a global environment. Yet the decision-making processes in corporations, for example, the ability to get approval on an investment or a market entry, are largely as long and as difficult as they were five or ten or 20 years ago.
So given the fact that CEOs are typically dealing with so many factors that are fixed in the short term, the only thing that you can do is to improve your ability to react to this changing environment and keep up with it. CEOs need to be ahead of the curve on trends as they develop and they emerge. You cannot wait for trends to hit or you’ll have missed them.
PwC
You said that events move faster and advances in technology mean they hit faster than you think. Yet our decision making processes and much of the other elements that go with large companies haven’t necessarily kept pace. Could you just briefly comment on whether you think concerns about management governance for the large corporates have slowed down the decision-making process making it more difficult for CEOs to react to trends and prepare.
Mr. Bremmer
Has it slowed them down? It probably has in some industries. I think that there is certainly there is a lot more double checking going on, a lot more making sure that you are compliant on issues, and so you could argue that slowed up the process somewhat. But, it also creates a more thoughtful and more considered process around business decisions. I think that just points to the fact that it is so critical that you take advantage of superior management and superior understanding and ability to assimilate and assess information from around the world. CEOs should get ahead of the curve on trends.
PwC
Which sectors would you say have organisations with a good track record of keeping up with and pre-empting trends?
Mr. Bremmer
The people who historically have had to deal with the longest exposures to risk are some of the best. The fact that many of them also have found themselves behind the curve at some point and got caught-out has meant that they have had to get better.
So which sectors am I talking about? I am talking about energy, about mining. I would probably say utilities — and other heavily regulated industries. I would add telecommunications to the list. Automotive has not been as effective. They have been well behind the curve on issues. Aviation has also been less good at predicting change and adjusting to it. I would also say that construction is still not adapting effectively.
You often have to get burned before you learn. And that’s true for political leaders as well as CEOs. Look at the big issues such as global warming. We all know they are coming. We all know that there will be winners and losers and the best thing for you to do is to hedge yourself now. But that’s often not what we are seeing — sometimes on issues like this, it needs to get much worse before people make decisions. CEOs’ learning comes from being tested in a crisis. And usually that is not a fun experience. Leaders don’t typically get it right on the first go.
PwC
A number of CEOs said that the informal ways — say at the golf club — in which they used to be able to discuss trends and future and future strategy about their company with their board and their non-execs and perhaps with other peers, have changed. That’s partly because of increased governance concerns which have transformed the board into less of 'a sounding board' where new strategic ideas can be discussed. These days it is not so clear who CEOs turn to as their sounding board. Could you comment on that view?
Mr. Bremmer
That is right. There is a lot more external learning going on, but with so much information out there, it’s important that all CEOs develop a proper 'filter' to replicate the informal ways strategy used to be discussed. That filter should comprise a trusted group of people who can help to give you their gut feeling on a decision for the future.
I also see a number of CEOs and multi-national corporations taking advantage of technology to help create collective wisdom both inside their firms as well as with those that they trust outside their firms. The goal is to create a more collective process of information and analysis gathering than in the past. You see Google taking advantage of this in terms of their internal management, in terms of how they make investments in new projects and procedures. You see this happening in Microsoft. Apple has also always been good in this respect. Not surprisingly this approach is coming out of the technology sector, because as the creators, they are ahead of the curve in terms of using it effectively. But I see small corporations using this as well.
PwC
Do you think CEOs have the right tools at hand to analyse future trends? What tools and approaches do you think that CEOs should use in order to understand and anticipate trends?
Mr. Bremmer
One of the things that I would say that it is important for a CEO to have, is a world view. Having a world view helps to define, it helps to clarify and it helps to motivate staff and shareholders and is increasingly important in the public sector.
A world view provides a 'straw man' so that people within and outside the company can use it as a reference point as the world changes. In other words, it is important that the CEO is not just a collector of wisdom but that he or she actually has a view that ideas can be tested against.
Looking at it another way, for me, it is impossible to be able to project trends effectively if you don’t have a baseline story. A baseline says, “Here is what we are trying to accomplish as a company and here is why we think that it works”. If you are responsible for your numbers and your forward plans, you are making projections. Those projections are not just made according to path dependency; those projections are made in the context of a story. It is very important that that story, that world view, gets out and is made public.
PwC
How do you think that they shape that world view or story? Do CEOs have a clear structure about how to shape that view? And how do they understand what is coming their way? Is it informal and very unstructured or a formal process?
Mr. Bremmer
We are in a world where there is a glut, an over-abundance of information. It’s a question of understanding what pieces of information are directly relevant to CEOs for their business. They need to develop a tailored filter that can change over time with their business. For example, say a CEO plans that China will account for 30 percent of their firm’s increase in profitability and income for the next five years. What are the things they should benchmark with regards to China? What are the issues that executives are going to hit that may enable or encumber this plan? What is the information on China that they need to absorb? How will they apply an intelligent filter to the thousands of pieces of information on China from various parts of the organisation on the ground?
And business leaders need to ask how do we filter relevant information from various sources including the government, our partners, the news, and all the rest? They will be getting information everyday — most of it will not matter for their business. Most of it will not affect their view. A CEO’s filter helps them appreciate what are the benchmarks that highlight, “if this were to happen, if this showed up on our radar, we should take action”. Effective information filters let people piece together the future and create actionable decisions. That means frankly that 95 percent maybe even 99 percent of the information CEOs receive, they should let go.
PwC
What do you think that filter is? Is it a group? Is it a team? Is it a process? What does it look like?
Mr. Bremmer
It is a process, a methodology. You have to have a team that understands what they are looking for and what they can throw away. And for that you have to have a single mechanism. That mechanism focuses on certain factors around which there has to be a general agreement. When you look at your enterprise risk management framework, everyone has to agree what things drive risk for your firm and drive opportunities for your firm and which don’t. You cannot have five people working with five different methodologies; no matter how good they are, because that information will not be assimilated effectively.
There is no set standard model — it can be very informal if that’s the character of the CEO. One informal mechanism is a kitchen cabinet outside the firm which might be peers or a few selected wise men or gurus or consultants. You might have a structured group inside, like a strategic planning group that does scenario planning.
It doesn’t matter how formal your structure is as long as the CEO trusts the group of advisors. And what determines trust? Trust is determined by a shared filter. You can create a tremendous team and you can create a tremendous management structure and you can have some of the best and smartest people in the world but if you aren’t processing the information through a filter that everyone agrees on it will not be used by the CEO.
Look at the Iraq study group project. You had Mr Baker and Mr Hamilton and the top international folks in the country coming together, sorting all the information and coming out with what they thought were the best possible recommendations on Iraq, and Bush completely dispensed with them because the filter that he was looking for had nothing to do with what they were trying to accomplish.
PwC
I am playing devil’s advocate, but you are saying that you should have a shared set of filters? Supposing that doesn’t give you the right answer? What is the process that gives you as a CEO, the objective view?
Mr. Bremmer
I think that in today’s world the filter and the presumptions themselves have to be continually assessed and refined. My point is that process must occur in step with the CEO. The process might involve bringing in an outside group to challenge the filter.
PwC
Who do you think are the biggest influencers on a CEO when he or she is coming to look to the future and position the company appropriately? Is it the media? Is it non-exec directors? Could you just give me some examples of people who might be the filter or might contribute to that filter or might be influences on CEO thinking?
Mr. Bremmer
The person most likely to affect the CEO and the filter are people within the firm or outside the firm who are viewed as having offered successful advice in the past. I think that the media is generally picks ex post. The media becomes a feedback process that effectively strengthens biases and views.
PwC
Let’s talk about some specific examples — I think that this is very much on your home territory and so it would be interesting to get your views. Do you think that CEOs under estimated the importance of China and India as emerging markets or did they get it about right or could we not blame them for having underestimated the importance of those two markets?
Mr. Bremmer
That depends on which CEOs you are talking about. I think that CEOs in the United States have underestimated China and India. The CEOs who are closer to those markets have less so. The speed of the growth, the rapidity of the decline of the United States in terms of power projection and the growth in the level of interdependence of the US economy and China were definitely underestimated by most folks.
And those countries’ prominence is a consequence of the relative speed of globalisation and the compounding effects of technology and the transparency of international markets.
The result is that they have encouraged a speeding-up of the decision-making processes in terms of length. Most companies still make quarterly projections. They still think of whole cycles for R&D — of processes taking a year or 18 months. But the rapidity with which China has expanded is far faster than those processes were occurring a generation ago.
PwC
So you agree that many people underestimated the importance of the rise of these emerging economies. What filters should CEOs put in place next time so that we spot this as it is happening? Or do we just have to accept that we are always going to be slightly buffeted by events?
Mr. Bremmer
You are always going to be buffeted by events at some level, but if you have a mechanism to spot trends early, you can start seeing prospects for growth. For example, we have known about climate change for a long time. When did the CEO start thinking about or hearing about the prospects of going carbon neutral? How many were doing that two or three years ago?
The CEO has to be much more involved in what was traditionally considered to be the responsibility of the new business development — doing research and looking at new ventures. The CEO needs to be involved to spot when a trend becomes a big opportunity. Small opportunities can become big opportunities much, much faster in today’s climate and that means that they need higher level engagement at an earlier stage.
PwC
Let’s look at another trend that many underestimated or overestimated; the Internet. Why do you think people did not assess that change correctly either — at least in its initial phases.
Mr. Bremmer
They overestimated it to begin with in the same way that lots of boom bust-cycles happen. I don’t think that the boom-bust cycle is bad for the economy. Although some folks lose a lot of cash, the infrastructure that gets built then gets taken advantage of by others and gets developed down the road. That’s what happened with the railroad boom, with the oil boom and it happened with the Internet boom.
PwC
CEOs say identifying the trend is important but that the major challenge is to energise their people to adapt to that change, to be fit for purpose. Could you comment on whether you think that is important? Secondly, what are the best companies doing to energise their staff to embrace change?
Mr. Bremmer
You cannot underestimate the importance of a charismatic leader. It is one of the reasons why I said that a CEO has to be seen as having a story and a world view. Especially in a human capital industry, you want to be able to harness the intellectual capital of various parts within the organisation. To do that, you have to be able to subvert hierarchy to a degree. You need to have an organisation that seizes good ideas quickly and reacts to new development. You need to have a more entrepreneurial and intellectual culture where someone can be directly inspired by the CEO.
There should also be a reward and an incentive for entrepreneurial culture to occur. This happens most effectively in the relatively flat structures — like those you see in Silicon Valley where the companies themselves understand that entire life cycles from products can be measured in months as opposed to years.
PwC
If there is one thing that you think a CEO could add to his or her armoury to help them respond to a rapidly changing global environment, what would it be? Also is there one barrier which you would advise a CEO to remove in order to help them respond to a changing environment?
Mr. Bremmer
One thing that I would like to add would be a process that forces CEOs to challenge the conventional wisdom. The other thing is to have the CEO directly engaged with folks that are most involved in new business opportunities and developments for the company - whether it is a new technology or new research or new operations capacity.
I think that CEOs need to have the ability to talk to folks that are engaged in 'pushing the envelope' and those who are the 'futurists' in their company. It is becoming so important to focus on trends and these people need to have direct access to the CEO. And the CEO has to hear from those people. CEOs have to be regularly inspired by people that can change their story and their world view. If the CEO doesn’t have that capacity to have their world knocked on the floor by someone who is working on something longer term, then I fear that they are going to be in the second group as opposed to the first group of those corporations that we talked about at the beginning.
PwC
That is asking quite a lot of them isn’t it? You have to have a lot of courage to be the person within an organisation to challenge the CEO’s view. After all, he or she is the CEO and their people have to be very confident that the CEO wants to accept that challenge don’t they?
Mr. Bremmer
That is one of the reasons why the companies that do it best are those that have their raison d’etre shaken up completely on a month to month or a six month basis. How many times has Apple had to reinvent itself over the last ten years? And look at how effective they have been in turning things around as a result. That is the point.
The traditional titans in business are the ones that will get most hurt when big changes hit them. Think about General Motors and the American automotive industry. Then look at their ability to get ahead of the curve with hybrid technology and electric. Then compare that with what Toyota has been able to do.
I fear that you will see the same thing happening in a number of other industries in the United States where people are just too comfortable.
PwC
Let me ask you to wind forward ten years and look back what is the trend that you think the majority of CEOs might have missed or underestimated?
Mr. Bremmer
Aside from the fact that they will be working in Chinese companies? I mean that somewhat flippantly. They will consistently underestimate the speed of change. They will not be ready for challenges that will come from outside of traditional players. If you look at the fact that China is increasingly graduating more college students than the west, you will see that it is going to have an enormous impact on where the next Bill Gates is going to come from.
Global warming, big macro trends, the decline of the United States and the rise of other countries, the proliferation issue, energy sources coming from unstable parts of the world and the rapidity with which entire sectors rise and fall are the issues large corporations must address.
PwC
Let me finish with a more personal question for you which is as a business leader yourself what would you want your legacy to be as a business leader? Imagine going forward ten years and looking back on what you have achieved with your company? What would you want people to say about you?
Mr. Bremmer
I want corporations out there to look at the world differently. I want them to understand and incorporate what we do at Eurasia Group. I would say we have been successful as a consequence of our willingness to look at things differently. We are creating a field which is new and we are creating new knowledge capital that was not out there before. This is not a business that is dealing with traditional ways of thinking about or dealing with the world. It is about understanding and creating a new business environment. I hope that it becomes one that is ascending and not irrelevant in ten years.
