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To the writer, Essential Leadership in based on three pillars —Personal Excellence, Individual Essence and Organization Transformation. Within this framework, a leader must understand, define, and impact an organization's strategy, seeing to its development and survival. Organizational objectives must be clear and aligned, and this is the mission of every leader, whatever the structure's size and complexity. To this end, leaders need to be aware of their three vectors —Adherence to Beliefs and Values, Consistent Productivity and Emotional Bond. ELOS Essential Leadership Skills for Organizational Strategy methodology is based on six elos, and each one has four drivers. The elos that need to be fully understood and cultivated are Competitive Environment, Value Proposition, Organization Essence, Strategic Execution, Essential Leadership and Performance Catalysts. This book also contains a rich, in-depth analysis of Europe's, China's and India's past, and points out to leaders the direction and the steps needed to redefine and achieve organizational goals. Forewords by two top executives and testimonials from six others are a testament to Motta's theory.
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ESSENTIAL
LEADERSHIPDaniel Augusto Motta
Preface:
Alessandro Carlucci
Contents
Preface by Alessandro Carlucci 05
Introduction 08
Elo 1 Competitive Environment 25
Elo 2 Value Proposition 111
Elo 3 Organization Essence 159
Elo 4 Strategic Execution 222
Elo 5 Essential Leader Dimensions 257
Elo 6 Performance Catalysts 298
Acknowledgements 329
References 330
About the Author 347
I have thoughts which,
if I could bring them
forth and make them living,
would add new light to the stars,
new beauty to the world
and greater love to the hearts of men.
Fernando Pessoa
To Ana Paula, Julia and Fernando
COMPANIES MADE BY PEOPLE FOR PEOPLE
The world is a distinctly new place today, where time and space are measured differently and relationships have another dimension. Companies too, made by people serving people, are going through a profound transformation with all its intensity and nuances. In Essential Leadership, Daniel Motta invites us to take an in-depth look at this complex scenario.
With simplicity and passion, this work adds the concept of emotional bond to those of adherence to values and continuous productivity as the keys needed to boost individual performance. But when Motta talks about emotional bond, he does not propose another chore (one more “to do” on our corporate checklist) but to acknowledge us as full human beings, and that is one of the greatest challenges facing today’s enterprises.
As a leader, I consider the fostering of an emotional bond with people to be an ongoing journey. To know and acknowledge oneself continuously, truthfully and openly is crucial. In and out of the workplace, we need to be open to discussions that search for meaning in our lives and relationships, to develop bonds that are both real and gratifying.
The Essential Leadership Skills for Organizational Strategy© methodology, created by Motta and presented here, establishes objective concepts for those who wish to implement a consistent approach to management. The six ELOS©—Competitive Environment, Value Proposition, Organization Essence, Strategic Execution, Essential Leadership and Performance Catalysts—are treated clearly and realistically.
In a less and less hierarchical world, it is the leaders’ job to consciously and humbly take the champion role upon themselves, and to be aware of their influence in their companies’ dynamics.
ELOS© is not about the best leadership style. It is about continuous improvement, associated with individual essence—a critical combination for enterprise transformation.
I had the privilege of meeting Motta in 2010 when he helped us create our program for leadership development. His passion, his uncomplicated way of treating complex subjects and his alignment with our way of thinking not only brought him into the program training classes but also made him an important Natura partner. I was very honored to be invited to write this Foreword.
I hope you enjoy the reading and the reflections as much as I did!Alessandro Carlucci
CEO, Natura Cosméticos S.A.
3:15 a.m., Wednesday, September 29th, 2011
As I woke up, I looked for the notepad that had been my companion for years on my night table. Eureka! After more than a decade dedicated to organizational research and consulting, that was the very moment I finished the mental model that served as the basis for the Essential Leadership concept. A sudden rush went through my body and I had to suppress a shout that would have awakened Ana and the kids. With great certainty, I scribbled the myriad connections and ideas in the old notepad. It was in the solitude of those hours before sunrise that the ELOS© Essential Leadership Skills Organizational Strategy© methodology was born.1:15 p.m., Monday, September 29th, 1986
After another morning at school, an eight-year old boy arrived at the mercearia (Translator’s Note: Mercearia refers to a very small neighborhood grocery store, typically managed and operated by the owner and immediate family.) owned by his grandfather, a descendant of a Portuguese streetcar driver. It was his routine to stay there until early evening when his mom picked him up. The boy loved helping out throughout the store: at the cash register, serving customers, preparing snacks, managing the inventory, recording credit purchases and organizing the counter. That was me, and even though I am sure I wasn't a very effective helper, these memories would define my professional journey in the years to come and even today. My entrepreneurial drive never diminished nor did my commitment to devote myself relentlessly to perfect every customer experience. Also, it ingrained in me the idea that an organization should be based on a clear purpose that would inspire its contributors, leaders and shareholders to dedicate themselves daily to a flawless customer experience. These beliefs would be part of who I am as an entrepreneur, leader and professor. Twenty five years after that Monday, they would be firmly present in the ELOS© methodology.
11:15 p.m., Sunday, September 29th, 2013
Sundays are days of rest, but not today. I woke up early to finalize the last review of this book’s first edition. A strong cup of coffee and some toast have been beside me since 5:30 a.m. I keep thinking about the impact this work will have on its readers. This is not a how-to book. If you are looking for finalized answers, you will not find them here.
This is a book of reflections about the context and the challenges of Essential Leadership. I only recommend this book to those who really want to reflect on and challenge their paradigms. If you need to formulate the questions, you are in the right place!
Organizations nowadays are adrift. Old business models and organization charts can address neither new market dynamics nor stockholders’ increasingly higher expectations. People are distressed as they are unable to relate their daily activities and goals to aspirations that are ever more abstract and less exciting. Leaders are neglecting to face organizational transformation challenges.
We live in a collective angst concealed by the delusion of a calendar packed with activities, meetings and reports. We fail to distinguish between the real meaning of life and a life full of hustle.
We wrongly believe our days and weeks fly by much faster than they did decades ago. We do not realize how superficial our personal relationships are and we are unaware of the amount of rapidly changing information we foolishly try to process every day.
We just give up understanding ourselves because we are too afraid of the mirror. We forgo building long-term relationships as we accept the convenience of a long list of virtual contacts. And even as we unconsciously seek this escape, we silently ask ourselves again and again what our life purpose is. As a leader in your organization, it is your responsibility to engage in this personal quest and to influence your team, managers and peers to do the same.
So, ultimately, what is the meaning of your life? In view of the certainty of death, this question is the cornerstone of metaphysics and religions. We learn about death while still in the first years of our lives, and this question remains a fundamental, if not desirable, contemplation. But many people would rather live their lives in a state of thoughtless frenzy, lacking the courage to ask what their life’s purpose is, always taking advantage of convenient excuses, such as family, work, bills, and leisure distractions.
The four pillars of life’s meaning—family, community, nation and spirituality—are currently being challenged. And this is complicated. These pillars have sustained us for centuries. If they are in turmoil, our life’s meaning is challenged, so we look for answers by satisfying our individual needs and expectations.
Family as a concept is in the process of being redefined. Different family configurations are the new trend as the old dad-mom-kids model falls apart. Our work demands increasingly more of our individual energy. New technologies change the allocation of time spent in family activities. Credit-based upward mobility leads to homogenized consumer behaviors. Generational conflicts have always existed, but they seem more embittered now due to the speed and amount of information, which favor a desire for instant gratification instead of a journey towards an ideal future.
The community concept, particularly in large and midsize cities, is nowadays totally irrelevant for most people. In the past, relatives would live close by, neighborhood families would know each other for generations, and there were small neighborhood drugstores and grocers, community recreation centers, churches, street festivals, bakeries and little stationary stores. But those are all things of the past. These sweet memories reside with us now in a new environment of commuter towns, high-rises and faceless condo buildings. We just have to read homeowners association bylaws to realize that public and private space boundaries are exhaustively defined.
The concept of nation—not just in Brazil—is vaguely remembered in high profile sports events, but it is not part of personal priorities anymore. It has been buried under general political disappointment and surpassed by the power of huge multinational organizations. These companies, which are ever more omnipresent, self-sufficient and unconstrained by geographical borders, have enormous influence over the masses. Even though we are proud of being Brazilians at the finals of the Soccer World Cup, we don’t know our own national anthem. We have the colonial trait of valuing everything foreign over what we have. The love we have for our country is insincere, in spite of our desire to remember ancient European roots. To be a Brazilian is tacky, exotic and innocuous. Brazilian creativity in skirting the rules has been the standard for personal conduct for decades. The threat of Chinese piracy is used as a shameless excuse for informal deals and tax evasion. To believe the country is fast changing is heartwarming but misleading. It is true that many people are willing to change and it is true that many are changing lots of things, but they are disorganized and incapable of arousing civic consciousness in the general population, whose daily lives are focused on their own dilemmas, problems and pleasures. Also, the role of spirituality is being reviewed. I cannot think of anything more passé than hell and, for this very reason, God has lost ground to Google. One can argue we used to be more fearful of God and, therefore, were more loyal to the Church. Communion, confession, prayer and novenas have become lost customs for preparing for the Judgment Day and they don’t fit a modern life schedule anymore. Nowadays, our prayers happen pretty much only when we face some serious family problem. At the same time, the Church is going through an ethical crisis. That explains in part the amazing growth of self-help book sales and the success of the prosperity theology in its many shapes.
And so, in the absence of the four traditional pillars of meaning of life, we aspire for goods and services to fulfill our quest for self-satisfaction and our need to belong to a tribe that can differentiate us from the masses. We are back in the hedonist age! The search for the meaning of life has turned into an egocentric journey in which organizations exist as places to partially satisfy these needs but, at any moment, can be replaced by another professional opportunity with a more attractive value proposition. Even time is now viewed under the carpe diem philosophy because the future is uncertain and possibly adverse.
It is important to note that this quest does not translate into isolation. It is rather a constant search for social networks which represent the dynamic area of individual, virtual or face-to-face consensual relationships and associations. These networks serve a common purpose in a group where the components identify and mirror themselves in each other.
What kind of impact does this sociological, psychological and anthropological context have on the organizational environment? The answer is very simple: huge! Organizations had already broken their “job for life” commitment in the 1970s and 80s due to the speed-up of innovation processes. Now, facing an even stronger disruptive scenario, they fight every day to survive and to rediscover the importance of personal relationships and Essential Leadership to their processes of cultural transformation, strategic execution and high-performance team development.
The traditional structures of command-control—and their processes structured around layers of power, their emphasis on operational excellence of processes, their financial incentives for individual performance and their focus on short-term profit optimization—are being challenged by network structures based on shared values where a new “person to person” paradigm is fostered based on individual appreciation, focus on intellectual capital and emphasis on relationships.
Duty ethics, which had replaced power ethics, has been replaced by pleasure ethics. Several generations worked very hard, in more difficult work environments, so that one day, God willing, they could enjoy life in retirement. More recently, however, social security shortfalls, an enormous increase in life expectation, the individual quest for meaning of life and the power of social networks have all contributed to consolidate pleasure ethics —where each relationship and each activity must fit individual needs and expectations. This phenomenon is not exclusive to the new generations, though it is more natural for them to challenge the status quo. Men and women in their fifties or sixties are also thinking about this very subject as they try to find purpose for their next 30 years of life.
In this new context focused on a larger meaning, both organizations and individuals are aware of the typical challenges of a new Anthropocene geological epoch, which deals with the human impact on the biosphere starting with the First Industrial Revolution in the 18th Century. It is interesting to note that this egocentric quest for meaning of life is intensified exactly at the moment when human impact on the planet is irreversible. It is in this general context that Essential Leaders currently find themselves.
The very expression Essential Leadership has a meaning in itself. Essence, as defined in the Houaiss Dictionary (Translator’s Note: The Dicionário Houaiss da Língua Portuguesa (Houaiss Dictionary of the Portuguese Language) is a major reference dictionary for the Portuguese language.), is “the core, the central, the most basic feature of a being or thing, which confers to it identity, distinctive characteristics, meaning, raison d’être.”
To analyze Essence in depth, we need to draw upon philosophical concepts.
Philosophy differs from religion or science and can be organized around different subjects: politics, ethics, aesthetics, logic, epistemology, and metaphysics. And it is precisely in metaphysics that this essence can be fully studied, because metaphysics, which is also transcendental and is not subject to empirical investigation, focuses on the core problems of philosophy: the analysis of fundamentals, laws, foundations, initial causes, the meaning of everything and anything.
Essence has important philosophical properties:
it is necessary, for without it the being has no identity;it is indivisible, or it would not be what it is;it is unchangeable, for if anything was missing, it wouldn’t be what it is today;it is eternal, for it is not time dependent; it is seminal, for it has always existed.Plato, in Parmenides, defined essence as the true being which is acknowledged when the spirit becomes capable of recognizing the eternal and unchangeable components of reality, as it frees itself from the illusory aspects that are part of sensorial experiences. Platonism countered essence with appearance.
Aristotle, in Parva Naturalia, defined essence as a set of universal attributes in the nature of an individual as opposed to the circumstantial changes that occur to him. Aristotelianism compared essence to accident.
In Eastern philosophy, essence also has great importance. In Hinduism, for example, Swadharma (essence) and Swabhava (customs) are set apart, and only the latter is influenced by Samskaras (experiences registered in a mental map due to personal interactions with the external world.)
On the other hand, the existentialist philosophy of Jean-Paul Sartre valued human existence, stating that everything starts with the individual and is reflected by him or her, who creates the essence of anything through his or her own conception. In other words, human essence is not unchangeable or deterministic as stated by Plato or Aristotle but can be transformed at any given moment, even if this freedom has an agonizing feeling. And the biggest human mistake would be to simply shy away from these responsibilities, attributing the purpose of life to another person or even to God.
Essential Leadership, therefore, carries the weight of being philosophically essential.
It is intriguing how we start to notice a new car model as soon as we buy or contemplate buying one. Suddenly, hundreds of cars like ours seem to invade the streets and dozens of ads appear in social media and on websites, on TV and in magazines.
I have experienced these same feelings in the last few years. As a partner and CEO at BMI Blue Management Institute, a company that has provided education to more than 100,000 managers and executives since 1994, I have been fully engaged in leadership development and organization transformation processes in some of the largest companies in the country. Throughout this intense and gratifying journey initiated in mid-2001, in spite of my degree in Economics and my executive experience in the strategy and finance areas, I have been increasingly convinced of the pronounced impact culture and leadership have on the performance of teams and organizations. And this has been the focus of my studies during the past few years.
As soon as I intensified my quest for the drivers of a high-performance team influenced by Essential Leadership, I encountered many intellectuals and researchers with the same questions. I want to mention some of them: Anthony Giddens, Betania Tanure, Clayton Christensen, Chris Argyris, Daniel Pink, Daniel Goleman, Dave Ulrich, Edgar Schein, Gareth Jones, Geert Hofstede, Gita Bellin, Gurnek Bains, Henry Mintzberg, Jim Collins, John Kotter, Keith Ayers, Ken Wilber, Kim Cameron, Michael Beer, Nitin Nohria, Mihaly Csikszentmihaly, Peter Senge, Priscila Gripp Soares, Ram Charan, Richard Barrett, Richard Leider, Rob Goffee, Robert Quinn, Roman Krznaric, Teresa Amabile and Viktor Frankl, among others.
The ELOS© Essential Leadership Skills for Organizational Strategy© methodology is different from other widely known models because it emphasizes that individuals in a high-performance team reach their full potential when there is a combination of adherence to the organization’s beliefs and values, a high level of consistent productivity and, inevitably, an emotional bond.
Adherence to the organization’s beliefs and values is required so individuals can function within the group's rules. With it, a group's cohesion around group and individual values and behaviors minimizes the level of cultural entropy typical of an organization with no identity.A high degree of consistent productivity over time results from the particular combination of competences, skills and knowledge available to the individuals and to the group. At this particular point, ability to deliver better than expected results is assessed more closely than expected behaviors.Emotional bond is the biggest news in this scenario, boosted by the replacement of duty ethics with pleasure ethics. Emotional bond is a result of the erosion of family, community, nation and spirituality as pillars of an individual's meaning of life. It is also inevitable considering the intense egocentric quest for satisfaction of individual needs and expectations, and the desire to develop strong relationships with the social group.Considering this updated view of performance axes, Essential Leaders are integrated in the organization dynamics and its operation will require from them two elements: on one hand, close alignment between strategic reasoning and alliance with teams; on the other hand, team engagement and a systemic view of the business. As yin-yang in Taoism, this organizational dualism describes major opposed but complementary forces that drive all collective energy toward achievement of a purpose that inspires each individual in a team. This inspiring purpose defines the very logic of an organization dynamics.
Strategy has both a business model and decision making patterns built in as sources of competitive advantage. Organizational sustainability is more correlated to its value proposition and tactic-operational execution than to the right strategy.Culture defines an organization’s behavior style, considering its group rules, values and beliefs. The most relevant cultural attributes to a company's sustainability are defined by a strategic choice, the historic journey started with the company's creation, and the set of values of its founders and management.Structure is present in projects, processes and systems operations. Strategic and cultural changes end in catastrophic failures if the structure cannot be adapted. Paradoxically, while enterprise consistency and coherence depend upon a strong structure, this very structural force can be the largest obstacle to transformation.Essential competences, without which the whole structure is compromised, are affected both by strategic logic and a company's behavior style. They are somewhat different from business, functional and personal competences. Any organizational transformation process will require development of new essential competences, since excellence is a moving target in an increasingly fluid competitive environment.And, considering organizational dynamics, how does an Essential Leader influence high-performance teams? Well, this has been a fundamental consideration of the ELOS© methodology, which proposes a triangular vectorial space to articulate Essential Leadership as the main transformation driver, considering a self-awareness of one’s own individual essence and a systemic quest for one’s personal excellence using leadership tools and competences.
Individual essence self-awareness can be achieved through different and complementary ways, such as coaching, mentoring, sabbaticals, psychotherapy and meditation, besides psychological profile mapping tools. Here comes into play the rule that an ability to influence others depends directly on an ability to understand oneself.Personal excellence in methods and competences of leadership enables a mastering of practices of communication, coaching, tactical management and cultural rites. These are essential elements to strengthen or to change an organization’s identity.Organizational transformation is boosted by individual essence and personal excellence. Companies are adaptive systems when facing changes in the external or internal environment or in both. More radical changes, however, can exhaust this flexibility and lead to organizational stress, culminating in mistrust and apprehensiveness within the group, which will prevent an organization from delivering the expected results. It is possible to think of an organization operating in a force field where some forces inhibit and others promote the desired shift. Architects of change understand these forces and engage the group in building a critical path to achieve the intended purpose.The ELOS© Essential Leadership Skills for Organizational Strategy©1 brand was so named because its acronym (Translator’s Note: The Portuguese word elos is translated into English as “links”) is an instantaneous reminder of something with equally strong connections—no ELO© is more important than others—and to highlight Essential Leadership itself when the full name is spelled out.
Our research and consulting engagements point to the six most relevant ELOS©: Competitive Environment, Value Proposition, Organization Essence, Strategic Execution, Essential Leadership and Performance Catalysts. Each of these six ELOS© has four drivers, and each of the 24 drivers has four vectors. These 96 vectors constitute the ELOS© methodology and provide theoretical foundation and practical applicability to the development of leaders.
There is no rank among the six ELOS©. Each one is connected to the others as in a mosaic that defines the Essential Leader’s workspace. The 96 vectors, on the other hand, are more situational and circumstantial. They can even be replaced with more relevant ones, given a particular team profile, competitive situation and organization force field.
ELO 1 Competitive Environment positions the Essential Leader role considering Organizational Transformation challenges. It is not easy. Economic environment is impacted by social environment but also influences it. Both are affected by disruptive waves in the technology environment. All three environments set the change rationale in each industry’s business environment. This external dynamic intensifies internal pressures on an organization’s force field that affect a company’s ability to reach its goals and to execute its strategy through the work of high-performance teams.
ELO 2 Value Proposition sets an organization’s commitment to its several stakeholders, particularly shareholders, clients, contributors and community. And never before have these stakeholders been more knowledgeable or more demanding. That’s why it is important to build an emotional bond with clients and contributors and to strive for excellence in strategic execution toward economic value. It is also paramount to have a business model that acknowledges its impact on the biosphere and the community.
ELO 3 Organization Essence acknowledges that an organization builds its identity upon group rules, values and beliefs. An inspiring purpose generates the energy needed for culture, strategy and structure congruence. More than an exhilarating strategy, the winning approach here is to adjust cultural attributes, management systems and essential competences to the key factors for success intrinsic to an organization’s strategic choice. This approach influences and is influenced by new conditions brought about by disruptive innovation—from an external perspective— and the organization’s own life cycle—from an internal one.
ELO 4 Strategic Execution is inspired by the Chinese adage “Vision without action is a dream. Action without vision is a nightmare.” A carefully crafted strategic plan can be doomed by successive failures in execution, lack of unity among the leaders’ collective mental map or inability to adopt emerging strategies. After setting guidelines and strategic objectives, with critical factors for success duly identified, Strategic Execution requires implementation of a pact2, with definition of strategic initiatives, tactical actions, performance indicators, resource management and risk management.
ELO 5 Essential Leader Dimensions deals with three dimensions: individual essence, personal excellence and organizational transformation focusing on the main tools for high-performance teams alliance and engagement, which will promote stronger adherence to an organization’s values and beliefs, consistent productivity increases and deeper emotional bond.
ELO 6 Performance Catalysts clearly identifies a high-performance team’s four drivers: knowledge, commitment, trust and meaning. This might be ELOS© methodology’s main contribution to leaders and managers: ultimately, which drivers should be encouraged to sustain a high-performance organization?
We live in times of turmoil. Disruptive innovation cycles are increasingly shortened by full globalization of factors of production, information and products. Virtual social networks occupy more and more of our families’ and companies’ daily routines. New family configurations and aging factors affect aspirational consumption. Mass customization will soon surpass the standardized mass production model. Big data and cloud computing go hand in hand with integrated risks. Eastern economic resurgence and urban decentralization of the world’s wealth threaten the hegemony of large economic centers in the West. Nanotechnology and biomimicry establish new alternatives for materials and products. Digital currencies are encouraged by the technological convergence to smartphones. And in spite of all this prosperity, 20% of the world population still lives in extreme poverty.
Increasingly intense schedules, short time frames and information abundance have favored superficial knowledge in the form of learning pills on myriad subjects. This certainly does not promote a more holistic view and deeper knowledge of the major competitive environment factors impacting performance and, in some cases, the very survival of the organization.
Paperbacks and Wikipedia can be excellent tools to talk about a million things for hours, but they hardly help with deeper knowledge about any particular subject, even for just a few minutes. We look for practical knowledge that can be summarized and immediately applied. We want wisdom pills, but without developing abstraction abilities and integration to literature, music, sociology, philosophy, anthropology and psychology. There are no shortcuts... Competitive Environment analysis starts inevitably with the evaluation of macroeconomic environment trends. More than on short-term economic indicators (interest rate charts, foreign exchange rates, inflation, economic activity, unemployment rate, nominal deficit,) the Essential Leader must be focused on long-term vectors which, for their part, affect those same short-term indicators. Nowadays, these forces include the Eastern economic resurgence, urban decentralization of wealth, integrated risks and full globalization.
Social environment has also been increasingly relevant to an organization’s activities. Present-day family configurations and social networks are new social elements that have been added to more traditional ones: population aging and strengthening of social pyramid base. From the family daily routine to the evolution of a nation, those elements affect many internal and external facets of an organization and its competitive environment.
The technology environment has accelerated the number and speed of challenges faced by the Essential Leader. Big data and cloud computing are not just trends anymore. Now, they are part of an organization’s technological reality, with profound impact on information security and knowledge management. The technology convergence is centralized around smartphones and provides total mobility within iOS or Android environments. More and more, our TVs are windows to the world, including the machine-to-machine scenario.
The business environment reflects these economic, social and technology dynamics, leading to concentration and hypercompetition movements. It is easy to remember the “too big to fail” expression used relentlessly during the subprime financial crisis in 2007–2009. This coexistence between concentration and hypercompetition is remarkable, since Shumpeterian-inspired common sense would predict failures of large organizations at each disruptive innovation cycle. Also, ever more complex productive ecosystems give rise to a new economic order: state capitalism as seen in the BRICS and other emerging economies. Western minds have a hard time understanding Eastern peculiarities. We grow up believing in the supremacy of Western Empires, with their mythological leaders, from the Macedonian Empire to the British Empire, and the North American Empire in the 20th Century. As kids, we are taught about Feudalism, Absolutism, Renaissance and Enlightenment in much more detail than what is used to explain the rise and fall of the Holy Roman Empire, as well as the Persian, Turkish, Ottoman, German and Austro-Hungarian empires. We idealize revolutions like the Protestant Reformation, the Glorious Revolution and the French Revolution, as well as wars such as the Hundred Years’ War, Napoleonic Wars, WW I and WW II.
We understand the journey our civilization took from Mesopotamia and Egypt, and we focus on the creation of Western civilization in the consolidation of the Greek city-states, oblivious to the great developments in Hindustan and China. We value European heraldry and genealogy, while we are ignorant of traditions, rituals and symbols related to the two main empires in the world between the 1st and the 19th Centuries. China and Hindustan were responsible for more than 50% of the world’s GDP until the mid-1800s, while the Roman Empire during its peak, with 1.6 billion acres, represented less than 10%.
We consider India and China to be exotic emerging powers in the opaque BRIC group, while we are unfamiliar with their history, geography, culture and economy. We compare these countries to Brazil, Russia, South Africa and Mexico as if they also challenged the North American status quo. When we think about the likely major world powers around 2050, we are surprised by the role of India and China. From their point of view, however, it is only a resurgence of their economic, military and cultural weight.
An Essential Leader economic environment view must think of the current times as a moment in a time line resulting from multiple past correlations and part of a set of drivers that will shape the future of society and organizations. Under this integrated perspective, a comparison between the journey of major European powers and those of China and India creates a rich landscape around the interdependence between social, economic, technological, cultural, geological, anthropological and political facts. This same analysis corroborates my thesis regarding the extent and depth of economic movements influence on the organizational context.
We can consider the 18th Century as converging the decline of the Chinese and Indian Empires and the rise of the British Empire, which has as its most important historic milestone the First Industrial Revolution within the English Enlightenment. Before that, since the beginning of the Gregorian calendar, the world lived under Chinese and Indian dominance. After that, China and India fell into oblivion, eclipsed by the United Kingdom and, especially, by the United States.
With the First Industrial Revolution, arguably the most disruptive innovation wave of the 18th Century, English industrial productivity reached levels never imagined by the agricultural aristocratic mindset. Also, the stability inherent in institutions in the Glorious Revolution and the rise of Protestant ethics allowed wealth accumulation. Eventually, this wealth was directed to economic and military strengthening of the British Empire.
If such economic-military power had already been crucial to defeat Napoleon in the early 19th Century, it was even more pivotal to prevail against the Mongol Empire in mid-17th and 18th centuries and the Qing Empire in 19th-Century China. In the Indian case, the British Raj’s creation caused the death by starvation of more than 40 million people, since agriculture was redirected to poppy growing for export purposes. In the Chinese case, the two Opium Wars fostered by the British weakened China in such a way—at the time, the largest consumer market for British opium—that it became an easy target of its archrival Japan in the Sino-Japanese Wars and brought the country to a civil war that culminated in the People's Republic of China, led by Mao Tse Tung.
The British Empire itself, however, experienced short dominance, declining soon after two World Wars and the consolidation of North American supremacy during the 20th Century, which was initially challenged by Soviet ambitions and, for some time, threatened by Japan’s economic ascent. But not even the United States, at the peak of its global hegemony, had such relevant participation in the world GDP. The powerful Egyptian, Greek, Roman, German Holy Roman Empire, Mongol, Persian, Turkish-Ottoman, Austro-Hungarian and Soviet empires never reached 10% of the global GDP even in their golden periods.
Will China and India really be the two rival powers of the USA in the 21st Century? It is hard to say, considering the many and ever shorter disruptive innovation cycles and the unforeseeable political situation typical of those nations. But it is feasible, given their socioeconomic power. How will this geopolitical situation affect Brazil and Latin America? We can expect more interdependence, weakening local alliances and international relations with the USA and the European Union, both in trading and in factors of production.
From an organization’s point of view, the Eastern resurgence is an irreversible trend in the economic environment. It is also factual proof of the relevance of long-term large movements over the state of affairs in the short-term, the cycles of peaks and valleys of which are but small turbulences in the world’s big economic waves. This scenario presents the triple challenge of transforming the organization (1) to develop competitive differential to survive in these new markets, (2) to sell to these new consumers and (3) to adapt its cultural attributes in face of this new worldwide economic order.
Lastly, it is important to underscore to those who are delighted with this historic and economic landscape: don’t be satisfied with this description. In fact, don’t limit your history knowledge to books, movies and the Internet. Travel throughout China and India and go beyond the obvious tourist attractions. Experience their rituals and customs, their people and their dozens of languages and dialects. Try exotic local delicacies. Build your ideas about Eastern resurgence from your own experiences, not only from mere virtual superficiality.
Essential Leadership is based on relevant personal experiences that foster self-awareness regarding one’s individual essence and a stronger foundation for personal excellence, as well as a systemic perspective and proactive energy to position oneself as a champion for organizational transformation. In this personal quest, China and India must be part of your map.
HISTORIC ECONOMIC
LANDSCAPE:
Europe, China and India
Europe: kidnapping, union and crisis
Zeus transformed himself into a bull and kidnapped the Phoenician princess Europe, who later gave birth to his three children. One of them, Minos, gave rise to the Minoan Civilization, which existed between 3000 BC and 1500 BC and was followed by the Mycenaean Civilization, destroyed by the Dorians around 1150 BC. It was then that the Greek city-states were established, the most powerful being Athens and Sparta. When both were weakened by the Peloponnesian War, Greece was annexed by the Macedonian Empire, whose foremost leader, Alexander, was very much influenced by Greek ideas.
Sometime later, in 27 BC, Otavian was elected the Roman Empire’s first Caesar Augustus. The Empire reached its apogee in 117 AD with Trajan and was unraveled by the West Roman Empire fall to Germanic barbarians in 476 and the capture of Constantinople in 1453. Two milestones were important. The first one was the rise of Feudalism (500–1400), with the strengthening of the Catholic Church and the Holy Roman Empire (962–1806). The second one was a definite push for the Renaissance, particularly with the overseas explorations to the New World.
England and France’s long lasting rivalry started with the Frenchman William’s arrival in English lands in 1066 and lasted until Napoleon’s defeat in 1814. It is worth mentioning the terrible Hundred Years’ War, started in 1337 and won by France while English interests focused on its own civil war, the famous War of the Roses, initiated in 1455. The absolutist power of both nations was reduced, respectively, by the Glorious Revolution and the French Revolution.
The omnipresent power of the Church would also be challenged by the Protestant Revolution initiated in 1517 and, especially, by the Enlightenment (1604–1850), considered to be the inspiring movement for the First Industrial Revolution, starting in 1760, and the Second Industrial Revolution, begun in 1860.
While the British Empire was consolidated into the major economic power of 19th Century Europe, the Austro-Hungarian Empire was in a dynastic fight against France and Prussia for continental sovereignty, which would culminate with World War I (1914–1918) and, with the rise of the Axis powers’ right-wing nationalism, World War II (1936–1945). No European nation would escape unharmed from so many years in the trenches. They would partially recover thanks to the Marshall Plan offered by the USA to the west of the newly created Iron Curtain, the eastern side of which had the poor European nations easily dominated by the Soviet Union.
After decades of Cold War between North Americans and Soviets, the unraveling of the Soviet Union and the fall of the Berlin Wall, the Maastricht Treaty created the European Union in 1992, a new attempt at political and economic cooperation among the nations of Europe.
The European Union is the leading global example of monetary union between member countries of a preferential trading agreement and combines in the same block countries with very different socioeconomic profiles and productivity levels. As fiscal unification between these nations was impossible, less competitive economies turned increasingly weaker and debt-ridden due to German productivity and the competition of emerging economies outside of the trading bloc. Twin deficits (fiscal and trade) compromised the very pillars of the welfare state in these countries, causing unemployment, inflation, increase of country risk, loss of productivity in manufacturing, pressure for more spending on social security and subsidies, and, ultimately, a new wave of xenophobia.
In 2008, the international financial crisis created by delinquency of subprime loans in the United States made the feeble economic situation in Greece, Ireland, Italy, Portugal and Spain untenable. The very existence of the European Union was compromised and, inevitably, the risk of split between its members increased due to EU’s inability to come up with a mechanism of recovery for nations on the edge of delinquency.
Old World seems to be the perfect nickname for a bloc that is still powerful, but less and less relevant in the global competitive arena. Even though these countries are still at the top of the world HDI (Human Development Index) list and still have great multinationals in several industries, European families, while properly supported by their social security, watch flabbergasted at the increase in cultural, economic and military might of China and India.
China: tao, wall and opium
The Chinese mystery begins between 2850 BC and 2250 BC with the Three August Ones—Fuxi, Nüwa and Shennong—and the Five Emperors, among them the mighty Huangdi (the Yellow Emperor). After many tribal dynasties starting in 2100 BC, the same period when philosophers Lao Zi and Confucius lived, the Chinese Empire period started with the Qin Dynasty in 221 BC. Its more remarkable works were definitely the beginning of the Great Wall construction and the funeral ceremony for Emperor Qin Shi Huang in the Gee province, with 8,000 warriors, 130 horse cabs and 670 horses made of terracotta.
Several successive dynasties held imperial power. In 1211, the great Mongol warrior Temudjin, named Genghis Khan, began the invasion of China, which was then divided between the Jin and Song dynasties. His descendants ruled the Yuan dynasty between 1271 and 1368. They were then defeated by the Manchus, who ruled China between 1368 and 1644 as the famous Ming dynasty, which was followed by the Qing dynasty, the last Chinese imperial dynasty, between 1644 and 1911.
In 1405, the eunuch admiral Zeng He began a great expedition through the Indian Ocean with his reed ships. Some historians believe he also reached the Arctic, Atlantic and Pacific oceans. The construction of the Forbidden City started in 1406. In 1421, Beijing became the capital of the Chinese Empire for the first time. In 1557, Portugal conquered Macao.
The Great Chinese Wall was not able to deter the skilled Mongol archers in the 13th Century or the British naval squad during the horrendous Opium Wars in 1839 and 1856, which turned the Chinese into the world’s biggest opium consumers. An ancient Chinese proverb became a self-fulfilling prophecy for China’s inauspicious future: “Three things that never come back: the spent arrow; the spoken word; the lost opportunity.” China suffered two serious defeats by its archrival Japan in the Sino-Japanese Wars of 1895 and 1937. The Chinese Civil War, between 1926 and 1949, brought victory to the communist Mao Tse Tung and exile in Taiwan to the leader of the Kuomintang, Chiang Kai-shek. In the hands of the self-proclaimed Great Helmsman, China plunged into years of darkness. The People's Republic was kept under the influence of Soviet’s communism until the International Liberalization was started slowly in 1976 by Deng Xiaoping.
The Cultural Revolution of 1966 was an international milestone for decades of Maoist rule and it completely replaced all the philosophic and cultural legacy of Confucianism and Taoism. According to some Western historians, Mao Tse Tung was responsible for the death of approximately 70 million Chinese. Yet he is still considered a visionary leader in his country. His portrait still hangs in Tiananmen Square and his legacy is respected by current leaders of the Chinese Communist Party.
In the 21st Century, China surpassed Japan as the second largest economy in the world and assumed its role as a top global player. The Chinese GDP is expected to surpass North American GDP as soon as 2016, with nominal values adjusted for purchasing power parity (PPP). And, different from its historic rivals in the region, Japan and South Korea, China has been developing its own capitalism model instead of simply copying North American theoretical concepts.
The Chinese Communist Party rules the economy, the politics and the society in the very Big Brother style described by writer George Orwell. Much more than a manufacturer with low added value and a consumer market for Western products and services, China aspires to become the planet’s largest military power, largest technology hub and largest trading center. In the world’s geopolitical arena, the Chinese ascent translates into less North American influence over the international landscape, particularly in Africa, Asia and Latin America.
It is worth pointing out that this staggering growth could be considered the present-day opium of China. Intoxicated by consumption, infrastructure investments, productivity gains, urbanization and a remarkable balance of trade, China also starts to face challenges brought by the rise of inflation, increases in labor costs, pressures for freedom of speech, difficulties in controlling information access, trading retaliation due to piracy, increases in urban poverty, fragility of its banking system, high public spending and, especially, its growth’s impact on the environment.
