What will the firm of the future look like? At Bain & Company's 13th annual Davos breakfast at the 2017 World Economic Forum, Orit Gadiesh, chairman of Bain & Company; James Root, who leads Bain's Organization practice in the Asia-Pacific; and Paul Bulcke, chairman designate and member of Nestlé Board of Directors discussed why companies as we know them today are changing and what those changes will mean.
Read the transcript below.
ORIT GADIESH: My name is Orit Gadiesh. And on behalf of our partners here, welcome to what is actually our 13th annual Davos Bain breakfast. The breakfast is about new research that we have done over the past year on the future of the firm. We believe that there is a deep-seated change that is coming that will challenge the prevailing ideas of what a firm is, and how it is organized, managed, and financed—a change that is perhaps bigger than anything we had seen for 50 years.
We are fortunate today to have two speakers who are uniquely qualified to address this topic. From Nestle, Paul Bulcke.
GADIESH: A 37-year veteran of the firm, and its CEO for the last eight. Kicking off the session is James Root, my friend and a fellow partner at Bain & Company.
JAMES ROOT: Thank you, Orit. Thank you, everybody, for being here. So as Orit says, I'm here to report out on a pretty major piece of work we're doing at Bain on the future. As a starting point for this work, we surveyed business history. And it turns out when you do that, the dominant ideas about how firms should be managed and financed and operated do, in fact, change quite fundamentally, it seems like about every 50 to 70 years since the Industrial Revolution. Maybe that cycle is actually speeding up.
The CEOs we work with are invariably frustrated, exasperated, by how difficult it can be to free up resources to focus on the most important priorities, despite the obvious need for speed—speed to innovate, speed to react to customer feedback, speed to make decisions.
Meanwhile, a shareholder-value-only mission is evidently not enough to capture the hearts and minds of the critical talent. Something's changed there. People want to work for a firm with a higher purpose. And far fewer, at least so far, seem to be that interested in climbing the corporate pole in pursuit of total shareholder return. There were many, many pressures on the current model of the firm, even before the revolution of technology hurled us over the edge towards the future.
So, what is ahead? Well, the brief in front of you talks about five things. We talk about the way that scale is working differently than it ever has before, in the firm of the future. We talk about the importance of managing partnership systems, as opposed to just owning assets. We talk about the balance sheet, and how the capital is getting a reset in the future, and becoming more flexible.
And we talk about the power of the twin-engine firm. The firm of the future is going to be part venture capital, part professional services, part startup, and just a little part the current matrix organizations that we know so well.
We obsess about organization structure. I obsess about organization structure. About role clarity and decision rights. And we fuss about whether reporting lines are dotted or solid, or twin or single. We talk about this stuff all the time. But maybe fixed organization structures actually will become a relic of the past.
So, some zero-base thinking is required here, because what none of us wants, I'm sure, is to wake up in 2027 to find that we actually have no one who knows how to run the firm of the future.
PAUL BULCKE: Speaking about the future, to us Albert Einstein—everybody agrees with me, Albert Einstein was a very smart man. And he said, Look, I never think about the future. It comes soon enough. And the problem with that is, if you don't know where you're going, you may end up in another place.
If you were to ask me, what is the firm of the future? I would say I don't know. What I do know is, it is definitely not going to be the same as it is today. The problem of today is that the future is not anymore as it used to be. And it's very hard to predict what the driving forces of the future are going to be. And the danger of companies today—and CEOs, it was mentioned too—is that we get into defensive mode, in the sense of really trying to hold on to what we know, what is close to us, what we understand, the way we feel cozy.
When you have major transformation, the CEO may be inspired and say, we have to change. The younger people and the bottom says, yes, we have to change. And middle management says, over our dead body. And so you have to bring into your organization the lowest level, their dynamics of push for change, that you empower.
Cultural change. We were a company that—call it a gravity again—that because of what we were, because of the success we had, we have a very strong culture. And it's a good culture. And it is based on good values. But it has the caveat, the negative, of also inducing no change.
I would stop here somewhere and say also, very important, in my eyes, is to have a very explicit, clear purpose as a company—these vision-mission statements, if you want, that are broad enough to embrace old and new, so not defensive. Broad enough, and yet clear enough, and inducing also that redefinition of value. And what does Nestle want to be? So, we have redefined, re-articulated no change, but enhancing quality of life and contributing to a healthier future.
And the world is moving again to short-term. We had the financial crisis, which was basically a value crisis, because short-term took over over long-term. We have to balance that permanently. We are a long-term thinking company. We all know that to get to the long term, you have to survive the short term. But we are definitely inspired by the long term, and we want to be known for that. It should be long-term inspiration, short-term intensity.
In that sense, a CEO is also a chief equilibrist officer, to balance these things permanently, then he has to be very explicit on this, too. And last, a CEO has to be also the chief entertainment officer, in the sense of entertaining the organization for the future.
GADIESH: Thank you all for coming. I think both Paul and James, in his introduction, actually talked about themes that Davos has been about for a long time, independent of what is being written out. And Paul, in his remarks about the 150 years of doing that, and James, in really trying to crystallize some major trends going forward, not just in one industry, have given us a lot of thought. So thank you both. And thank you, everybody. And please have a great Davos going forward.