We call this module Changing World, Changing Strategies. And as the name suggests, we're gonna be looking at ways that the world has changed in the last 40 or 50 years, the way it continues to change, and how that might impact a practice of strategy. It's been a very basic idea in this course that companies need to align their plans, their activities to the external environment in a way that creates good fit, in a way that allows them to use their internal capabilities to seize opportunities that are present in the external environment. Well, it follows from that, that it's very important to understand the external environment. And so one of the biggest problems that leaders of an organization can have, whether they're CEOs or generals, is to misunderstand the external environment and implement strategies that fit with a different environment, rather than the way the world really is. In the early 1990s, IBM had this problem. IBM had been a dominant technology company in the world for a very long time, but as it entered the 1990s it made a fundamental miscalculation. IBM thought that the internet was not important. They thought it was a university thing, that it would never have great business importance and as we all know from our own experience now, they got that very wrong. So they implemented a strategy that might have worked very well in the 1980s. But in the 1990s it was disastrous and as a result they lost $5 billion in 1992 alone. That ended well when Lou Gerstner came in in 1993 with a fresh appraisal of the external environment and helped the company turn itself around. If we speak metaphorically, one thing people say is that leaders, whether they are generals or CEOs are often prone to fight the last battle rather than the current battle. If we look back to the American civil war, Robert E Lee, the top general in that war, arguably had this very problem. He disregarded the advice of one of his own subordinates, General James Longstreet. Who told him that technology had improved, that the accuracy of rifles was much better now and that if he implemented the tactics of a previous era, which involved large numbers of troops charging at the enemy, that before we were able to get to the other side that the enemy would lay waste to our columns. And indeed, that is exactly what happened. Robert E Lee lost the battle of Gettysburg and that was the turning point in the war. So an imperative for strategy, whether you're in business or warfare, is to understand how the world is changing, how it has changed, especially if it's technology driven change and how that should influence your strategy as you go forward. So let's take a look at how the world has changed over the last 40 or 50 years. Let's go back to say 1975 and take a look at how the world looked then. Well, in 1975 there were about 600 million people in the world who participated in the market economy. 600 million is a relatively small subset of the world's population in 1975. The people who participated in the market economy lived in places like the United States, in Western Europe, in Japan, in Australia, in Canada, maybe a few other places. Also in 1975, the internet was not a big deal at all, maybe 100,000 users. The first four nodes of the internet happened in 1969. So it had been growing a little bit, but it mostly been in universities. Less than 100,000 internet users. So the internet is really not a factor in 1975. Finally, if we look at how much traffic, how much freight was moving around the world, on the worlds oceans, between countries. We see that about 10 million TEUs of freight was moving on container ships that could contain maybe 3,000 or 4,000 TEUs. Now as a sidenote, a TEU is a twenty foot equivalent unit. 20 feet long is the size of a container that we stack on container ships to move freight around the world, so we measure freight in TEUs. In 1975, that number was 10 million TEUs moving across the world's oceans. Okay, let's flash forward now to the current day. In the current day, the number of people participating in the world's market economy has increased from 600 million in 1975 to about 6 billion. Almost everybody now participates in the world's market economy. We've seen Russia, we've seen China, we've seen India, and very many more. There's just a few places where they're not participating in the world's market economy now, places like North Korea. As you know from your own experience, the internet has become a very big deal indeed. And whereas, we had less than 100,000 internet users in 1975. Now, we have in excess of 3 billion and we're on our way to 5 billion by 2020. If we look at how freight traffic is moving, we also see a huge change. The number in 1975 was 10 million TEUs, that has increased in the current day to more than 200 million TEUs. That's a more than 20 fold increase. And, freight now moves in ships that are much larger, whereas the largest ships in 1975 held about 4,000 TEUs. The largest ships today hold more like 18,000 TEUs, so they're more than four times as large. What does that mean? It means efficiency. It means scale economies. It means moving freight, moving data, moving communications around the world is extremely easy and extremely cheap in the current day, as opposed to say 1975. What does that mean? Well, it means it's never been easier to move products, to move services, to move work between countries across national boundaries. So, what does this mean for companies? Well it means companies everywhere have to worry about more competitors, because competitors that aren't local can reach into their local markets. The flipside of that, it means that buyers have more choices. They can buy not only from local providers, but from providers that are far away and are delivering their goods and services across global communications and transportation networks. It also means that companies, especially in rich countries, have a big incentive to move work to lower cost geographies. Those same companies operating in rich companies also have the playing field tilted against them now when it comes to cost. It's much harder for those companies to compete based on cost than it ever has been, because the playing field is tilted, the game is not fair. In the next lesson we're going to look in more specificity at how this new world came about and how it's impacting specific companies, specific countries. We wanna make sure that you understand the external environment so you won’t have these problems. We'll be right back.
