IMD International

EUROPE NOW

Europe’s political elite would benefit from reflecting on five lessons from the corporate survival handbook

February 22, 2016

By Seán Meehan – Martin Hilti Professor of Marketing and Change Management at IMD

The EU Council Summit saw the collective energies of senior politicians across the European Union focused on renegotiating the United Kingdom’s terms of membership. This process has gone on for months. Irrespective of the principled motives of the parties, or indeed the eventual judgement of the outcome by UK citizens (and member state parliaments who’ll need to ratify the agreement), the process has been, and will continue to be, a colossal and wholly unhelpful distraction.    

In terms GDP per capita, the steady catch-up of the EU (in its different forms) relative to the US from 1950 onwards was understandably halted at 75% by enlargement and a reframing of purpose. Today the EU struggles to recover from the global economic crisis. Austerity measures have cut so deeply that the prospect of full recovery with a bright future seems a pipedream to many. The misery of unemployment, at an unacceptably high level (almost 11%), is mostly felt by the younger adults of Greece, Spain and Italy where almost one in two are either out of work or have never had a full-time job. The response to mass migration has been weak, un-coordinated and ineffective to date. It is hardly surprising that against this backdrop extremism rises and member governments fall. The EU is in crisis. It leadership must retake control and respond proactively to avoid a complete breakdown.

According to a survey undertaken by the EU Commission in 2015, less than one-third of respondents felt the EU budget represented good value for money. 43% believed it represented bad value for money. Perhaps this is to be expected given that administrative and personnel costs as well as buildings were perceived to be the budget’s biggest line item while at the same time being the item respondents felt should be the lowest priority. A recent Economist critique of the EU budget declared it fault ridden: “…too much goes on agriculture, plenty of spending in Mediterranean and east European countries is wasted, Eurocrats’ pay is excessive, and fraud and misappropriation are distressingly common”. It is little wonder that public engagement is at a low. Participation in the direct elections of the EU parliament has declined on each occasion since they were first held in 1979.

The irony of the EU leadership’s approach to this renegotiation is that by focusing on important issues of principle where opposing positions are firm and genuinely held, the negotiations have yielded little and a golden opportunity for much needed reform which could make the EU truly fit for purpose has been missed. The outcome isn’t a win. It is a defeat for the citizens of Europe. With or without the UK, the EU will lurch from crisis to crisis as its performance falls further behind rival economic blocks. Transformation is urgently needed.

Empires, institutions, companies and people need to evolve in response to changes in circumstances. Survival is a matter of honestly addressing the ills of today and assessing fitness for current and future purpose. Such are the tremendous macro socio-economic, technological and political forces at work that transformation is a persistent theme for companies operating pan-regionally or globally. With their fundamental purpose in mind they adapt and stay relevant to those they serve. They reject the sanctity of the organization, instead opting for refreshing, rebuilding and modernizing, while eschewing complexity and unproductive costs.

In short, the EU should apply lessons from the corporate handbook of long-term survival.

Here are five things that successful companies do in times of trouble that EU leaders should be considering right now.

1] Redefine and re-commit to its purpose

Effective purposes are clear, relevant, achievable, and desirable. Europe’s objective of achieving free movement of goods, labor and capital so as to enable more efficient trade was noble and had tangible benefits for its society.

On the other hand, its quest for an “Ever Closer Union,” which has no concrete interpretation, hasn’t benefited anyone. Worse, it fills skeptics with fear and resentment and Europhiles with false optimism and unrealistic ambition.

Define a clear, relevant, achievable and desirable purpose for the EU and its other issues will be easily addressed.

2] Become more agile

Today companies die if they can’t change course to deal with unexpected challenges. With its inherent rigidness, there is no wonder the EU is not able to come up with sufficient solutions to its most pressing issues like the migration crisis.

Right now, EU leaders have a “one way: my way or the highway” approach which only benefits ill-informed domestic audiences, and pits the Brits against Junker, Merkel and Holland in a futile game of chicken, while Europe fails to tackle its real problems.

Enough of the dogma. Sort out the vision and be flexible on the how. Sell a vision, work together, persuade and cooperate.

Multinational companies are very adept at using these methods to rally together people in diverse parts of the world.

3] Be more customer-centric

Governments exist at the pleasure of citizens. Policies and expenditures must connect to all communities meaningfully. EU officials have to find a way to (re)connect the ‘me’ with the ‘we’. All over Europe citizens struggle for a meaningful contemporary identity connecting their communities, their histories, their struggles and triumphs to an uncertain, scary future.

Remember all politics are local – even the politics of Europe. Today’s most successful companies put their customers first. Europe take note.

4] Attract the best talent

The European economy is complex. It needs the best minds available. But most countries send second string politicians and a good number of senior but stuck government officials end up “in Brussels”. If they want the EU to succeed, governments of member countries must present an “A-team” who are ready and willing to sacrifice and serve.

5] Get lean and cut costs

One of the first things companies do when the going gets tough is reduce their spending. The EU could definitely benefit from a corporate-style round of cost-cutting. It must address widespread perceptions of waste and excess.

Two parliaments(!) are emblematic of the EU’s cavalier attitude towards its members and citizens struggling under the pressures of austerity programs.

A great place to start reducing spending would be to eliminate duplication. Anything that can be achieved at the national and intergovernmental level must be dealt with only there.

Two futures

The EU must choose between two imaginable futures. Continue as is, insisting on a vague “Ever Closer Union,” and watch member countries give up, disengage, bicker and leave, until one crisis too many leads to a breakup and plunges the world economy into disarray, leaving future generations burdened with impossible debt and poverty.

Alternatively, it can rethink, reform and restart like an ailing company would. Aiming for the best Monnet could have reasonably expected, it can nurture a supra-national community of co-operating “adults” constructively working through the big challenges.

Seán Meehan is the Martin Hilti Professor of Marketing and Change Management at IMD. He directs the Breakthrough Program for Senior Executives (BPSE), which caters to a carefully selected group of senior executives searching for game-changing moves in their business through high-impact strategy and leadership.



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