Navigating the future: what business models for tomorrow?
For the second year running, IMD held its "Navigating the Future" conference, drawing a large crowd of top executives. Fifteen teams of participants from IMD's MBA class presented research on three broad themes: business models, key industry trends and the global competitive landscape.
Launched in 2014 by the Director of IMD's MBA program, Ralf Boscheck, the conference aims to bring MBA participants closer to business leaders and ensure that they have a sustainable grasp on their capabilities to lead. Before the conference, the MBA class surveys senior executives, decision makers and fellow participants on the trends they see shaping tomorrow's business environment.
After determining the most pressing trends through the survey, participants carry out extensive research with companies that are facing related issues and then present their findings at "Navigating the Future." After the June session of the conference at IMD, the teams go on the road to address business executives in Dubai, Kyoto, Monterrey (Mexico), San Francisco, Shanghai, Singapore and Tokyo.
The opening presentation focused on food security in Sub-Saharan Africa. Although the region has roughly 25% of the world's arable land, its agricultural output and production levels lag behind most other countries and it has some of the highest rates of undernourishment in the world.
85% of agriculture in Sub-Saharan African is done by small farms with under two hectares, while large-scale industrial farming produces higher-yield agriculture in more advanced countries. In order for the African continent to feed itself, it would need to transition to modern industrial farming. This would also create economic growth and prosperity. To make this happen, Sub-Saharan Africa needs investment in infrastructure, agricultural research, education and institutional reforms.
Another group of MBA participants looked at chocolate and skincare companies to show how business models are adapting to global trends in the FMCG (Fast Moving Consumer Goods) industry.
According to the Belgian luxury chocolate maker Dominique Persoone, chocolate is "now on your plate, but will soon be in a museum" due to the low efficiency of production methods used by cocoa farmers. Over the past six years cocoa prices have doubled and by 2020 the world will face a cocoa shortage. Among the multiple approaches taken to dealing with this shortage, some chocolate manufacturers have moved away from the mainstream chocolate market to position themselves in the hyper premium segment, which is growing at 5.7% vs. 1.3% in the traditional market. Mars, one of the global leaders in the industry, has set up a large scale co-development program aimed at providing 150,000 cocoa farmers with knowledge, technology and fertilizer in order to improve overall productivity and crop stability.
In skincare, the numbers of low income consumers are increasing and making it more difficult to develop brands that match the key criteria of affordability, acceptability and availability. The FMCG industry must re-think the business model it has used in mature markets until now. Rather than continuing its mass-produced one-size-fits-all approach, it should reshape the current supply chain model. Local production should be tailored to the needs of people in emerging markets since most future potential profits are in these economies.
Key industry trends
Big data, demographics and regulatory changes, as well as other emerging trends, will transform the way we live and how business is done.
Often talked about, but less often understood, big data is information that people generate about themselves and their habits through increased use of social media, mobile and smart devices.
Unlike traditional databases, big data is typically unstructured and complex technology is needed for companies to benefit from its potential payoffs. According to research, organizations that use big data strategically are five times more likely to make faster decisions than their competitors, three times more likely to implement decisions as intended and twice as likely to be in the top quarter of financial performers. To give one example, MGM Resorts has developed a big data analytics system to help it understand how different types of customers respond to its promotional programs. In 2012 the system created between $1 and $5 million of incremental profit per marketing campaign. There are challenges however, such as the role of regulation and public policy or the ability to share and re-use data.
Steep drops in the populations of developed countries like Japan are resulting in declining contributions to their social systems. Demographic changes in developing countries such as Brazil are providing some benefits while in Israel, although the population is growing, its makeup is putting pressure on the political system. For businesses these changes mean opportunities, particularly in the healthcare, medical technology and pharmaceutical sectors. But shifting demography also poses challenges such as the need for continuous education to prevent the loss of expertise due to the upcoming retirement of a significant number of currently active experts.
The global competitive landscape - emerging and emerged markets
The final portion of "Navigating the Future" explored the contrasts of three emerging markets - Mexico, the United Arab Emirates and China - and three emerged markets - California, Singapore and Japan.
Strategically located between North and South America, Mexico is a growing economy. It is currently the 4th largest in the Americas. It is the world's 11th most populated country with 114 million people, of which 40% are under 20. It has a labor force of over 47 million.
Mexico is an export oriented economy with a highly competitive, labor intensive workforce which has been achieved at the expense of low wages and widespread inequality. Moreover, the labor market is dominated by the informal sector, which represents more than half of the workforce.
Some of the main challenges Mexico faces are public security problems, weakness of internal demand, excessive dependence on exports, increasing poverty and inequality, a high level of corruption, and a lack of high-quality education.
The current administration is working to tackle its problems through its "pacto for Mexico" plan that proposes 95 initiatives on areas such as energy, oil, telecommunications, social security, crime, corruption, education and political institutions. This new plan, together with Mexico's abundance of natural resources, provides some hope for the country to tackle its problems.
Its neighbor to the north, California, projects an image that is still representative of the American dream. However, the reality most inhabitants face does not correspond to that appearance. California is the most populous state in the nation with 39 million people and a GDP of $2.2 trillion in 2014. Many say it would be the 7th largest economy in the world if it were independent.
But, California is also plagued with debt, has outdated infrastructure which needs massive investment to repair, and suffers from political blockage that complicates any attempts to address necessary structural changes.
In 2013 venture capitalist Tim Draper launched an initiative to split California into six states. This failed due to a lack of required signatures but with nearly 800'000 received, the proposal indicated discontent among many of the state's residents about the way their government is addressing key issues.
For example, California is home to many world-class universities but the quality of public education up to the secondary level is ranked among the worst in the country. California also has more billionaires (111) than any other state, and at the same time it has the highest poverty level (15.9%) in the U.S.
In other words, it is a state of deep contrasts and fixing many of these would require painful, but necessary, compromises.
This year's "Navigating the Future" focused on a wide range of fascinating and useful topics for business executives and provided the MBA class with an enriching research and professional experience.
Every year, IMD's MBA program enrolls 90 mature individuals, with an average work experience of 7 years, broad international exposure and recognized leadership potential.They invest 11 months of rigorous work to acquire a solid and actionable education that is research-based but practice-focused. They work with coaches and analysts to develop themselves and each other. We offer a state-of-the-art career counseling process and access to IMD's community of business executives and corporate sponsors. At the end, we aim to provide the skills to know, the confidence to act and the humility to lead.