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Paul Laudicina discusses a world he says is growing more complicated by risk, and what companies and governments can do to mitigate the chances they must take. The A.T. Kearney managing officer visited Kellogg Jan. 16 as part of the Dean's Speaker Series.

A.T. Kearney chairman: five factors driving global risk

Increased regulation, demographic shifts among business challenges, Paul Laudicina tells Kellogg audience

By Matt Golosinski

1/17/2007 -  In a world both “enabled and imperiled by connectivity,” how do companies achieve sustainable top- and bottom-line growth while managing risk?

The daunting question seemed to energize, not enervate, A.T. Kearney Managing Officer and Chairman Paul Laudicina who outlined several elements driving global business change during a Jan. 16 Kellogg School visit. He also warned against conjectures that can blind leaders to emerging challenges, especially when the market seems to be doing well.

“We should not assume that economics trumps politics,” said Laudicina, citing the example of circumstances precipitating World War I. Decades of market growth came to a crashing halt when an assassin’s bullet killed Archduke Franz Ferdinand of Austria.

Today, too, a host of seemingly uncontrollable potential dangers haunts leaders in business and government, even as technology “turbocharges the velocity and amplitude of globalization,” said Laudicina, ranked among the “Top 25 Consultants” for 2005 by Consulting Magazine.

It’s the job of consultants to help clients understand, anticipate and manage these risks — while also mapping related opportunities, Laudicina told the Kellogg audience gathered to hear his talk, part of the ongoing Dean’s Speaker Series. Doing so, he said, entails “rigorous research” that reveals vulnerabilities and suggests alternative strategies that can include dramatic organizational realignment. (But not simply rehashing the “five-year plan” that he said often attracts little attention beyond the company’s annual report.) Consultants develop “peripheral vision” that enables them to see the broad field of business and society, and understand globalization’s dynamics — such as shifts in global power to China and India. MBA students should emulate the practice by pursuing additional study beyond their core curriculum, said Laudicina.

Compared with the market’s halcyon days of the early 1990s (the era of “Davos Man,” when the unofficial corporate mandate was, “Don’t think, get out there and do,” according to Laudicina), today’s global business environment seems fraught with hazards that give leaders pause.

“The pendulum has swung the other way,” said the A.T. Kearney chief, who joined the consultancy in 1991 and, a year later, founded its elite Global Business Policy Council, a leadership think tank whose objective is providing advance knowledge of shifts in technology, politics, demographics and culture that could affect business. The next generation of globalization is shaping up as one where organizations are as eager to grow as ever, but are also focused on strategies that minimize and manage risk, including threats that range from terrorist attacks to emerging diseases.

Laudicina shared his framework for addressing such challenges, one that is also articulated in his 2005 text, World Out of Balance: Navigating Global Risks to Seize Competitive Advantage. There, he focuses on five drivers he believes critical to understand: globalization (rising levels of trade, communication and travel); demographics (slower population growth in developed countries; accelerated growth in developing nations); consumption patterns (increasingly diverse consumer markets creating fierce competition); natural resources and environment (oil and other shortages predicted in coming years); and regulation and activism (increased calls for government oversight of business from citizens who feel increasingly vulnerable).

Taken as a whole, these factors suggest a complicated landscape through which leaders — in the corporate world and government — must negotiate. Increasingly, said Laudicina, management consultants are bringing together the public and private sectors in ways that enable them to collaborate effectively and anticipate challenges.

“We have to learn to live with risk and vulnerability,” Laudicina said. Doing so becomes easier when leaders create a viable plan to mitigate jeopardy by assessing threats specific to their organizations. By filtering unlikely risks, leaders gain the ability to pursue opportunities that they might otherwise believe unachievable.

The “wildcard” that is influencing globalization, according to Laudicina, is technology, a force he believes will help humanity leapfrog significant challenges, such as environmental threats. He believes that future technological advancement will occur first in places like China that will serve as proving grounds, since these nations have the greatest need for technology’s boon.

With all the challenges confronting business and government, is technology and better management enough to save the day? Laudicina thinks so.

“I’m optimistic about this,” he said. “We’re starting to realize that the consequences of [not solving serious problems] is too terrible to contemplate.”