50th GLOBAL ALUMNI REUNION

ROADS TO INNOVATION

Some 2,800 alumni attended the 50th Global Alumni Reunion in Madrid in November. Speakers at the meeting focused their attention on the challenge of how to achieve sustained and sustainable growth based on ethics, knowledge and innovation.

IESE’s 50th Global Annual Reunion opened with some telling words from Michel Camdessus, former head of the International Monetary Fund and now honorary governor of the Banque de France, who told the assembled alumni in the Museu Thyssen Bornemisza in Madrid that utilitarianism had corroded the social values of the market (the speech is on page 34). We need a citizens’ Europe, not one of technocrats, he said, accompanied by IESE Dean Jordi Canals and Antonio González-Adalid, head of the alumni association.

The following day more than 2,800 alumni from 42 countries gathered at the Palacio de Congresos in Madrid for a day of stimulating debate on a wide range of issues initiated by a series of top-flight speakers. 

It was then the turn of Dean Jordi Canals, who talked about the previous reunions that over the years have expanded beyond Spain to be held in Amsterdam, London, Munich and New York. The 2012 meeting is to be staged in São Paulo. Prof. Canals then went on to talk about IESE’s mission and its future, including the proposed expansion of the Madrid campus and the launch of some of the school’s programs in São Paulo.

Santiago Álvarez de Mon then introduced Isidro Fainé, president of “la Caixa” and Caixabank. Fainé described how he began his career in the banking sector, despite initially being interested in physics as a young student. His first supervisor predicted that he would be president of the bank in 20 years.

Fainé said that he looks for the following three characteristics in employees: a driving force, being able to relate to people on all levels and the ability to acquire technical knowledge. “The most important thing is the attitude, their personality and ambition,” he said. “If people don’t trust you as a leader they will never follow you. It’s about trust and truth. I always start out with 100 percent trust and then subtract if need be.”

Asked about the future of Spain in view of the country’s current economic difficulties, Fainé said that “if we don’t believe in ourselves, nobody will.” He said he is optimistic because of his own life experience, which has led him to believe that anything is possible. “Spain has enough critical mass and talent. Ultimately, it’s a question of character,” he said.

THE RISE OF LATIN AMERICA

The next session highlighted the continued ascent of Latin American economies, which are steadily boosting their trade with China. Analyzing the global economic landscape during the session were moderator IESE Prof. Juan J. Toribio, along with José M. González-Páramo, a member of the executive board of the European Central Bank, Susan Segal, CEO & President of the Americas Society and Council of the Americas and IESE Prof. Pedro Videla.

“The impression of Latin America is changing,” said Segal, which is proven by growing foreign direct investment. The important challenge for Latin America is how to move to value-added products and shift away from exportation of raw materials. “Chile is the only Latin American country that has a rainy day fund for the day commodity prices fall,” she said. Political, crime and security issues also continue to plague many Latin American nations. There is a great opportunity to reduce poverty and expand the middle classes today in Latin America, she said.

In his remarks, Prof. Videla described emerging countries that are experiencing particularly good times, such as India, despite the overall drop of GDP last year.

CHINA’S GROWTH AXIS

Over the past two years, economic recovery is being driven by the “growth axis” of China, Africa and Latin America. In recent years, China has been contributing more to global growth than the United States and in 2020, China will be larger in total terms in GDP than the U.S. He said that in the past four years China’s GDP has grown by 42 percent while the U.S. grew by 4 percent in the same period.

Huge financial investments made in China, which constitute 50 percent of its growth, have triggered inflation and raise questions about the long-term viability of infrastructure projects. Bad loans have also become a key concern in China. The one-child policy also means that the country will get old before it gets rich, which will incite families to become increasingly austere. China is entering a situation much like Japan in the 1980s, he said.

In India, meanwhile, consumption is the main factor in growth, and it is developing with significant exports and a service sector that is growing. India’s economy remains limited, however, by underdeveloped infrastructure. India’s economy remains centered on services, while China’s is on exports. India needs to expand its industrial sector in order to grow, Videla said.

González-Páramo said financial risks are greater today than they were a few months ago and inflation rates are higher than the ECB would like. But he stressed that central banks are highly focused on inflation at all times in order to maintain price stability.

The central bank can only fulfill responsibilities within its institutional scope, he said. The sovereign debt crisis is a problem for governments. They share a currency but not much else, he said. “Now is the time for European leaders to find the broadest area of agreement among themselves.”

The bank’s main goal is to make sure channels for translating monetary policy remain open. He described actions the ECB is taking to confront the crisis, such as limiting liquidity risks, extending the fixed income rate through next July and taking measures that will encourage banks to make loans.

Today’s crisis will be just “a boring footnote” in a history book, since the big change that is occurring is that millions of people in emerging countries are becoming more prosperous, said Videla. The world is witnessing a “fundamental turning point” as historically poor nations gain economic traction. “What is really happening is that about 3.5 billion people are coming out of poverty,” he said.

Leaving the euro would not make sense and no country would gain from going it alone, said González-Páramo. If a country has been fiscally undisciplined, the solution is to solve the problem for the long term. “Europe will only survive if it stands united,” he said. “Imagine the credibility loss for a country that left the euro. What international funding would be available to such a country?”

OPPORTUNITIES IN EMERGING MARKETS

This was followed by a session on business opportunities in developing economies, with IESE’s  Prof. Pankaj Ghemawat and Bruno di Leo of IBM Growth Markets, based in Shanghai, and moderated by Adriana Hauser, a journalist and anchor at CNN.

Prof. Ghemawat said that what is happening is that parts of the world are trading places in terms of GDP. By 2030 Asia will account for 45 percent of world GDP. To operate in new markets, you must go beyond market size, recognize differences, expand the competitive set, adjust how you do business and transform your organization, he said. He added that you will have to compete in these markets with local companies, pointing out that China is Brazil’s biggest trading partner, as it is India’s.

“At IBM we have learned that entering a market is not the same thing as creating a market,” said Bruno di Leo. “You must be relevant to your clients. At IBM, the only thing that is constant is change. A multinational model worked well in the second half of 20th century, but we have moved to become a globally integrated enterprise. This is about where you concentrate decision making, which is not at headquarters but where the client is. We think emerging markets go far beyond the BRICs and we are in 150 countries. But you have to be there to be relevant.”

The next session featured Jay Ireland, CEO of GE Africa and Kees Storm, retired chairman of Aegon and a member of IESE’s International Advisory Board, and was moderated by IESE’s Eric Weber. Ireland talked about what GE is doing in Africa. GE has had an office in Johannesburg since 1888 but has really only started operations in Africa over the past 10 years. “We now have about 1,100 employees in Africa, but probably fewer than 20 of them are part of our leadership,” he said. “For Africa to develop, it has to do something about its electrical infrastructure, as well as other basic factors such as clean drinking water which is a major health problem.”

“We are also focusing on job creation,” he said. “The best thing you can do as a company coming into a country is employ people and to build a supply chain.”

Kees Storm talked about innovation and creating a better world. “It is amazing the amount of innovation that has gone into making fuel-efficient cars and planes, as well as electric bicycles,” he said. While innovation leads to products and therefore profits, it also makes the world a better place, he said. “We have to produce sustainably if we are to save the planet for future generations.”

“I am worried that our society is developing in the wrong direction. In the United States 1 percent of the population earns 19 percent of the total income. This is unsustainable when 15 percent of Americans are poor. The developed world is in a mess, our systems don’t seem to work anymore and our leaders are paralyzed. In the past, this has led to wars. Another threat is anarcho-capitalism. It’s like playing Monopoly, it’s great at the beginning when you’re all playing, but not at the end when one player has all the property and the money. I urge you to give something back to society and to do something innovative.”

CALLING ON HAUTE CUISINE

The first afternoon session moderated by Prof. Julián Villanueva brought together chef Ferran Adrià and Luis Abril, secretary-general of Telefónica. Adriá, the most innovative chef of his generation who has led a revolution in cuisine, began by saying “when you talk about innovation you have to understand that we all have different problems. A bar faces different challenges from haute cuisine.” After screening a video of the last two minutes in the life of El Bulli, he said that “chefs who worked with me were offered salaries three or four times what they were getting but they didn’t go because they believed what we were doing was for the greater good.”

“Innovation is not a nine to five job, it’s passion. You don’t need a lot of money, you need ideas, you need to be brave. I worked with multinationals on 35 occasions and in 15 years I never made ends meet at El Bulli. Eighty percent of innovation in cooking took place at El Bulli but we had an R&D budget of only €200,000.” His advice: “Always give more than they ask you for.”

“Working with Ferran Adrià means you have to forget about being shy or uncomfortable or having inhibitions,” Abril said. “Everything that is generated is positive and easy. This is a partnership and I hope it’s good for both parties. It’s certainly good for Telefónica.”

NEW HORIZONS IN MOLECULAR RESEARCH

Next, it was the turn of Carlos Cordón-Cardó, head of pathology at Mount Sinai School of Medicine in New York and Jesús M. Prieto, Director, Division of Hepathology and Gene Therapy, CIMA, University of Navarra. In the session, moderated by IESE Prof. Beatriz Muñoz-Seca, a new healthcare model was highlighted, as well as the growing importance of molecular research.

Muñoz-Seca said that “in an environment such as healthcare, which is undergoing a crisis, the concept of translational research is important because it offers an opportunity for entrepreneurship.”

Prieto defined translational research as “observing problems presented by the patient in the hospital, translating them to the research laboratory to find solutions that will then be taken back to the patient with new diagnoses and treatments.”
Prieto explained the process of molecular development of pharmaceuticals and said “the discovery phase is carried out at research centers, but the following phases require a biotechnology firm and if the product works, a pharmaceutical company.”

The involvement of companies in this dynamic is essential, he said, since the business world is able to realize the potential of research. “If what is discovered in the laboratory doesn’t make it to the company, it doesn’t work. To make a product available to patients, you need companies. On one hand, to get financing for the research centers, and on the other hand, to create technology companies linked with research centers to reach the clinical stage, and, then, clinical use,” he said.

Cordón-Cardó presented an overview of the sector, stressing that “in the United States and the world in general, we are seeing a decline in large pharmaceutical companies, which have become significant elements in implementation, but not in innovation. However, there is strong growth in the field of biotechnology, which represents innovation in our sector. And there are important differences. You get results if you invest. But large investments are not what is necessary; instead, good ideas and good executors are needed.”

Ángel Cano, president and COO, BBVA, Spain’s second largest bank, Patricia Francis, executive director of the International Trade Center and Hans Ulrich Maerki, ABB board member and who, with Francis, is a member of IESE’s International Advisory Board, then discussed the next steps for international companies. The session was chaired by Francisco Iniesta.

“More than 50 percent of our profits come from emerging countries,” Cano said. “We are changing from an international group to being a global one. We are working to become more transversal. We need to invest in training to produce the best people. We need tools, policies and procedures that can be used around the world, and that represent our principles of integrity and transparency.”

Francis reminded us that 10 years ago China was the sixth largest economy in the world, now it’s the second. “But what has happened is there is a huge lack of trust between various players and this has led to many misunderstandings. While we think globalization is making the world flatter, it’s creating tensions among us,” she said.

“We need to promote what I call active listening, for people not to come to the table with “already listening,” that is, with their minds made up.” She talked about the need to bring women, whom she said could be regarded as an “under-performing asset,” into playing a more active role in the economy. We need to be networked and work in a joined-up manner.

Maerki then said that “a globally integrated enterprise is one that produces and allows to be produced goods and services wherever they are, and if buyers aren’t there they create their markets. It reinvents itself and fosters innovation.”How can CEOs capitalize on complexity? Maerki said they can do it through courageous and visionary leadership, through reinventing the client relationship and understanding that the business exists to make the clients successful and through building operational dexterity. The key to operational dexterity is to simplify.

“Given today’s challenges it becomes clear that creating success in tomorrow’s world will take leaders who are courageous and visionary enough to make decisions to alter the status quo, in other words leaders who can take very bold decisions,” Maerki said. “These are people who can live with or embrace ambiguity, people who reach beyond the silos in their companies, who proactively exchange knowledge and cooperate with internal and external stakeholders, in order to improve the ability to handle the unknown.”

“Creative leaders act despite uncertainty, they take calculated risks, they rely on deeply felt values and a well-defined vision to provide the confidence and conviction and to exploit windows of opportunity,” he said. “Be global where possible, local where necessary, don’t assume one size fits all, understand cultural differences in local markets but realize all the benefits globalization offers. Remember what IBM’s Sam Palmisano said: in a global world, work moves to where work is done best.” (The speech is on page 40).

The meeting wound up with a few words of thanks from Antonio González-Adalid, Jordi Canals and Mireia Rius. Prof. Canals said the ideas shared during the day were practical and not just theoretical. He thanked all the speakers, the professors and the organizers and sponsors of the meeting. “The human capacity to overcome obstacles even in these difficult times is cause for optimism,” he said.
See you all next year in São Paulo.