Leadership in A New Era (By McKinsey)

Leadership in a New Era:
a course at Tsinghua SEM

by McKinsey
2015 Fall Semester
CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission of McKinsey & Company is strictly prohibited
Todays discussion
Course overview
Winning in changing industry environments
Questions?

McKinsey & Company | 1
The objective of the course is to develop future business leaders among

top students at Tsinghua through McKinseys unique approach
Soft
skills
Leadership development
Hard
skills
To enable students to interact with distinguished business

leaders and build their leadership capabilities
Emphasis on helping students to understand broad yet concrete
leadership concepts
Global perspectives
Discuss topics on a global level rather than China-only specifics

Providing global context for the next the 10-20 years
Cutting-edge functional thinking
Provide an overview of key functions with leading practical ideas

Topics include strategy, operations, organization, marketing, and
investment management
2015 Fall - The syllabus: lecturers and topics (1/2)

Class 1: Kickoff: Course Overview Core Themes of Leadership
Sept. 15th (Tues)
Dominic Barton
McKinsey Global Managing Director
Class 2: Organization
Jeff Hsu
Chief Innovation Officer
FarEastern Group
[October - Date to be confirmed]
Kevin Sneader
McKinsey Director from Hong Kong office,
leader of McKinsey Asia
Class 3: Corporate Finance

To be confirmed
[Oct./Nov - Date to be confirmed]
Nicholas Leung
McKinsey Director from Beijing office,
leader of McKinsey Greater China
Class 4: Technological Disruption
Nov. 12th (Thurs)
Suja Chandrasekaran
Brad Brown
Chief Digital Officer of Walmart
McKinsey Director from New York office,

leader of America Business Technology Office
2015 Fall - The syllabus: lecturers and topics (2/2)

Class 5: Corporate transformation / Restructuring
To be confirmed
[Nov/Dec - Date to be confirmed]
Wesley Walden
McKinsey Director from Melbourne office,
leader of McKinsey Asia RTS practice
Class 6: Operations
Nov. 26th (Thurs)
Fredrick Spalcke
Karel Eloot
EVP and CPO of Phillips Electronics
McKinsey Director from Shanghai office,

leader of McKinsey Asia Operations practice
Class 7: Investors Perspective
Dec. 17th (Thurs)
Mark Wiseman
Conor Kehoe
CEO of CPPIB
McKinsey Director from London office,

leader of McKinsey Private Equity practice
Class 8: Closing
Jan. 14th (Thurs)
Tan Sri Azman
Dominic Barton
CEO of Khazanah
McKinsey Global Managing Director
2015 Fall - The course outlines

Schedule
8 classes in fall semester 2015
Format
2 hours per class with a 15-min break

1 hour lecture and 1 hour Q&A
Pre-assigned student teams for each class to formalize interaction between
Adjunct Lecturers and students
Offer flipped classroom for students who have conflict: combine online
video and in-class discussion
Class size and

composition
We will create more exclusiveness hence more commitment and effectiveness

Focused on 4 Masters programs, including MBA students
Large size, ~150-200 students
Pre-screen/interview process to select students outside of the 4 programs
with stronger commitment and capacity for the course
Grading
Credits
SOURCE: McKinsey and Tsinghua SEM
35% on individual learning journal (per class) : every student to hand in

learning journal (<500 Chinese characters) after each lecture on his/her key
learning
15% on interactions and exercises
50% on group project: assignment: teams of 5- 6 students should be formed;
each lecturer to leave an open question/topic to the class; every team
choose a question/topic to write an essay (3000-5000 Chinese characters)
and hand in by the end of semester
2 credit units
The course will be run by the Lecture Review Board, consisting of

committed people from both McKinsey and Tsinghua SEM
McKinsey Team
Tsinghua SEM Team
Responsibilities
Responsibilities
Structure the course by
business functions
Set the themes with
individual lectures and
maintain the global
perspectives of the
course
Invite and coordinate
schedule with lecturers
from both McKinsey
and other
organizations
Facilitate in-class
interaction between
lecturers and students
Dominic Barton,
Prof. Yingyi Qian,
Global Managing Director

(Taking full accountability)
Dean
Arthur Wang,
Prof. June Qian,
Partner
Associate Dean
Mei Ye,
David Pan,
External Advisor
Director
Approve course outline
Qinzheng Tian
Prof. Zhirong Duan
Engagement Manager
Faculty Coordinator
The Lecture Review Board
and content
Market the course on
campus
Select suitable top
students for the course
Handle academic
curriculum compliance
with the university
Provide venue and
facilities for each class
Facilitate class-related
activities
Collect student and
faculty feedback
Joint responsibilities
Refine the scope and content to maximize students learning, focus on balancing
between practice and academic
Review and grade students group assignments and class participation
Improve the quality and impact of the course, constantly incorporating meaningful
student feedback
Todays discussion
Course overview
Global forces
Implications for business
Implications for leaders
Questions?

We are living in historic times
The Great
Transition
~200BC
Qin Dynasty
begins first
imperial
dynasty in
China
Silk road
trade routes
begin during
Han dynasty
~600
~1100
~1500
India connects
Medieval warm
Columbus to
period improves
agriculture and
spurs massive
Division of Europe migration
and shift in focus Crusades
to land from sea
expose Europe
culture
to Far East
trading between
Middle East and
China
Islam influence Genghis Khan

to Persia, North
Africa, Spain
and Mongol
Conquests close
northern trade
routes
Americas
Reformation
splits Europe
Renaissance
and
innovation
(Gutenberg
printing
press, first
bank)
~1750-1850
2000-40
Transformation
from agrarian to
manufacturing
economy
2x growth in
GDP per capita,
U.S. and Europe
Massive
population
growth and
urbanization
Five forces are changing the world at an unprecedented pace and scale
The rise of emerging markets
The power of disruptive

technologies
The aging of the global

population
The integrating world

beyond trade and finance
The return of (geo)politics
1. THE RISE OF EMERGING MARKETS
The worlds economic centre of gravity is shifting back to Asia

Locations weighted in 3D space by GDP
2000
2010
1950
1940
2025
1500
0
The number of Asian companies in the Fortune Global

500 has more than doubled in 5 years
Rest of Asia (excluding Japan)

China
130
36
+145%
53
94
29
24
2007
2014
There will be 2.2 billion new middle class consumers by 2030

Global middle class1
Billions of people
5.0
4.2
2.2 billion
2.8
Sub Saharan Africa
Middle East & North Africa
US & Canada
2.8
Latin America
2.1
Europe
Asia-Pacific
1.1
2013
2025
2030
1 Annual personal income between $3,600 and over

SOURCE: United Nations World Population Prospects; McKinsey Global Institute CityScope 2.55 (updated November,
2014)
Urbanisation is driving rapid increases in individual wealth

Per capita GDP by urban density
1990 Purchasing Power Parity (log scale), Percent
United States
2010
Japan Germany
2010
2010
United Kingdom
2010
Italy
South Korea
2010
2010
30,000
China
2010
10,000
Brazil
2010
India
2010
1950
3,000
1950
1860
1820
1,000
1891
1930
1950
1920
1950
300
0
10
20
SOURCE: McKinsey Global Institute
30
40
50
60
70
80
90
Urban population (%)
Shanghai in 1990
Shanghai in 2004
Shanghai in 2014
What will these cities look like in 10 years?
Bogor, West Java,

Indonesia
Puducherry, India
(Pondicherry)
Anshun, Guizhou,
China
Africa is also a continent to be reckoned with
21%
of the world's landmass
$2.4 trillion
in GDP
~1.1 billion
people
~$1 trillion
Household consumption
64
United States
of America
India
Argentina
cities with more than 1M people
Western
Europe
Significant global resources

69% of platinum group reserves
82% of phosphates
China
8% of oil reserves
60% of unused arable land
SOURCE: BP statistics; Metals economics Group; CIA world fact book; Global insights: World Market Monitor
Water
Global demand for

water could rise as
much as 50% by 2030
Energy
Natural gas production

will need to rise 50%
by 2030 to meet
expected demand
Food
Growth in population and the rise of the middle class will place significant
strain on global resources
Global agricultural
production will have
to increase 38% by
2030 and 60% by 2050
SOURCE: The 2030 Water Resources Group, "Charting Our Waters Future," 2009; FAO, World Agriculture towards
2030/2050, 2012; Energy Insights
2050
2030
2007
Without action, this path will be unsustainable for the planet

In 2007, it took 1.5
years to fully
replenish our
annual resource
use
1.5
planets
2.0
planets
2.9
planets
With current
consumption, it will
take 3 years to
replenish our
annual use in 2050
we would need 3
earths to live
sustainably
2. THE POWER OF DISRUPTIVE TECHNOLOGIES

Low
12 disruptive technologies will have enormous

economic impact by 2025
Range of sized potential

economic impact
High
XY
Economic impact of the 12 most significant disruptive technologies

$ Trillions, annual
1
2
3
4
5
6
7
8
9
10
11
12
Mobile Internet
3.710.8
Automation of knowledge work
5.26.7
Internet of Things
2.76.2
Cloud technology
1.76.2
Advanced robotics
1.74.5
Autonomous and near-autonomous vehicles

Next-generations genomics
0.21.9
0.71.6
Energy storage
0.10.6
3D printing
0.20.6
Advanced materials
0.20.5
Advanced oil and gas exploration and recovery
0.10.5
Renewable energy
0.20.3
Technological innovation have already driven immense

productivity improvements
A modern washing machine has more computing power than
Apollo 11 did in 1969
Worldwide mobile phone sales totaled near 1 billion units in 2013,

with more than half of sales coming from smartphones
By 2020, 80% of the adults on the planet will own a smartphone
In 2013, industrial robot sales totaled ~180,000 units a 300%
increase from 1995
In the 1950s, nearly all goods were shipped loose; today, nearly
100% of sea freight is packed in standardized shipping containers
SOURCE: Gartner; International Federation of Robotics; a16z
The impact is affecting all industries
Healthcare
Retail
Worldwide healthcare
data will increase 50x by
2020
Half of US retail sales

are made online or
influenced by
the Web
Manufacturing
Transportation
Over a million industrial

robots are operating in
factories around
the world
Proposed hyperloop train

could travel 2x as fast as
high-speed rail, and near
the speed of sound
Banking
The number of people
using mobile banking will
double in the next two
years
Agriculture
Acreage with geneticallymodified crops has
increased 100x in
past 15 years
Social sector
Energy
Over half of new
electricity generation
capacity added each year
is now renewable
The One Fund Boston

launched online 7 hours
after the marathon
bombings, raising $20
million in one week
Digitization enlarges the risk of missing trends and the upside from
predicting correctly
Industrial companies are in the

information business whether they
want to be or not
Jeff Immelt
Anticipated shift from hardware

to services, investing billions
from 2010 on to add sensors and
become a services company
Incremental income from

digital-enabled services
(e.g., fuel efficiency
monitoring) >$1B p.a.
Digitization and analytics are driving massive improvements in efficiency
Locomotive velocity
Average miles per hour per day
22
Typical
Data analytics
optimized
scheduling
and predictive
maintenance
reduce
downtime,
increasing
velocity
1 mile per
hour increase
worth $250M in
annual profit
23
Digitalenabled
In healthcare, smartphones are enabling low-cost medical diagnostic tools

Netra example
Worlds first smartphone diagnostic
tool for the human eye from MIT
Benefits over conventional technology

Affordability
Plastic lens attachment that costs about $2
Can measure farsightedness,

nearsightedness, misshaped eye,
age-related blurriness, and pupillary
distance
Accuracy
As accurate as $45,000 autorefractor
Almost 20,000 tests conducted

worldwide; commercial launch
expected
Ease of use
Patient has results in less than 3 minutes

No need for training
Anywhere
Works wherever people have a smartphone

Analysis
Analytics software picks up patterns in
eyesight and suggests specific solutions
SOURCE: EyeNetra.com; expert interviews; http://web.media.mit.edu/~pamplona/NETRA/; McKinsey Global Institute
analysis
3. THE AGING OF THE GLOBAL POPULATION
The global population is aging: by 2050
The proportion of worlds population over age

65 will double
The number of people worldwide aged 80 or

older will quadruple to 400 million
80 percent of people 65 or older will live in

low or middle-income countries
For the first time in history, there will be more
people over the age of 65 than under the
age of 14
In Italy, Japan and Spain, one in three
people is expected to be 65 or older
This is taking place in both developed and developing markets
Globally...
and in the emerging world
For the first time in history, there will

be more people over the age of 65
than under the age of 14
Share of workers over the age of 55
40%
of expected retirees will be in

advanced economies and China
Share of older workers in China
will increase to 31%

2010
14%
2030
of the workforce in 2030

22%
Aging will place massive strains on governments

Without policy changes, age-related spending could increase median net
government debt in advanced economies from 59% in 2010 to 216% in 2050
Net government debt
Percent of GDP
260%
216%
200%
Global government
debt will be larger than
world GDP ~2030
71%
100%
59%
2010
SOURCE: Standard and Poors
2025
2050
4. THE INTEGRATING WORLD
The world will is more interconnected than ever and the intensity of flows
has increased greatly in the last decade
Value (2012) and growth of cross-border flows, 2000-2012
Goods
Services
$17.5T 11%
Data and
communication2
$4.4T
10%
2012 value
Compound annual growth rate,
200212
Financial
$4.0T
6%
People1
194M
people
2%
21.2M megabits/second
52%
1 Measured by cross-border migrants; values from 2000 and 2010.

2 Measured by cross-border Internet stock traffic; values from 2005 and 2013.
SOURCE: Comtrade; IHS Economics & Country Risk; World Bank; Bank for International Settlements; IMF Balance of
Payments; Telegeography; Web of Science, Thomson Innovation; Global flows in a digital age: How trade,
finance, people, and data connect the world economy, McKinsey Global Institute, April 2014
These various flows help generate global GDP growth
+$250-$450B
Annual increase in world GDP from flows

about 15% - 25% of worlds total GDP growth
+40%
Difference in impact of flows on GDP growth for countries at
the center of the network compared with ones at the periphery
SOURCE: McKinsey Global Institute analysis; DHL Globalization Index
A growing share of all economic activity is cross-border

Share of total flows that cross international borders
Percent (%)
1995
2010
2025*
X%
Change 2010-2025
X%
Change 1995-2010
+240%
51%
+26% 44%
+40% 35%
+20% 42%
+88% 35%
25%
19%
+114%
15%
+61% 11%
0%
3%
0%
3%
People
+29%
7%
5%
7%
3%
Services
Goods
Financial
* Note: Future growth rate modeled on historical trend; in practice, it might well diverge from this trend
Data & Comms

32
Goods trade among emerging markets (South-South) has quadrupled its

share of goods trade since 1990
Goods trade among countries
%; $ trillion
100% =
3.3
6
60
4.9
6
56
6.5
10
48
10.4
15
41
14.7
17.4
17.5
22
23
24
Between emerging markets

(South-South)
32
31
31
Between developed markets

(North-North)
North-South
44
46
46
45
34
38
42
1990
1995
2000
2005
2010
2011
2012
SOURCE: The Direction of Trade, IMF; McKinsey Global Institute analysis
33
Knowledge-intensive flows are half of total flows, and are

growing faster than other types
Total value of flows
Trillion USD
Growth rate
2002-12, %
25.9
All other flows
13.5
5.5%
Foreign direct
investment
1.8
10.9%
R&D intensive
manufacturing
8.5
Biz., financial and

Legal services
Knowledgeintensive
2.1
SOURCE: Comtrade; World Development Indicators, World Bank; International Monetary Fund Balance of Payments;
Telegography; McKinsey Global Institute analysis
7.9%
7.0%
34
The number of global refugees is at its highest level since World War II
Refugees, internally displaced people, and asylum
seekers worldwide
Millions
60
51
43
36 34 35 36
32 32 34
20 19 20
16
19 20
2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 2015
Intensification of
sectarian violence in
Iraq (Iraqi Civil War)
ISIS emerges
as an
autonomous
entity
Number of
migrants
surpasses
WWII level
Growth in the number of Internet users and per capita Internet use has led
to a surge in cross-border traffic
Growth of Internet population
Billion Internet users
2.5
Growth of cross-border Internet traffic

Million megabits per second
45
2.0
1.5
+144%
1.0
40
35
0.5
30
0
2005
2012
Average cross-border Internet usage

Kilobits per second per person
20
25
20
+1,769%
15
15
10
10
+665%
0
2005
0
2005
2012
SOURCE: Telegeography; McKinsey Global Institute analysis
2012
36
Digital is enabling flows that were previously entirely analog and

helping pass more surplus to consumers
2005
Share of selected cross-border flows that are digital

Category
%
Flow
Goods
Data and
communication
Services
2013
(digital
component)
Goods
(E-commerce share of
total goods trade)
Calls
(Skype share of international calls)
Services
(Digitally-enabled share of
total services trade)
SOURCE: iResearch, Telegeography, OCED, Bureau of Economic Analysis
3.0
12.1
Skype has massively

increased consumer
surplus by offering
free service
3.0
39.0
51.0
63.0
37
Digitization allows SMEs to become global players, a space previously

dominated by large multinationals and governments
Micro-education
Almost a third of Coursera visitors are from BRICs

% share of site visitors by country
600+ courses offered free

online in 12 languages
22
United States
15
India
Micro-goods
Brazil
30 million buyers
and sellers
Micro-services
300,000 registered solvers

in nearly 200 countries
Micro-work
More than $30 million
of contracts per month
Micro-finance
More than $500 million in
loans from 190 countries
Russia
China
Spain
Mexico
United Kingdom
Canada
Nigeria
Colombia
Ukraine
Chile
Portugal
Greece
Other
SOURCE: McKinsey Global Institute analysis
32
38
5. THE RETURN OF (GEO)POLITICS
Geopolitical uncertainty is again at the center of daily life
And executives now say geopolitical instability is the

single biggest risk to global economic growth
Top 5 potential risks to global economic growth, 1 next 12 months
% of respondents
Sep. 2014,
n = 1,367
Geopolitical instability
60
Increased economic
volatility
74
22
Increased economic
volatility
10
One or more defaults

on sovereign debt
New asset bubbles
Jul. 2015,
n = 1,202
34
22
39
31
20
1 Out of 12 risks that were presented as answer choices in the question

SOURCE: McKinsey Global Survey, Economic Conditions Snapshot (September 2014)
Variety in the regulatory and political framework is as diverse as consumer

tastes
Argentina now requires that car importers have to match
their imports with exports of equal value. To comply,
BMWs Argentinian subsidiary has resorted to exporting
rice, and Porsche has exported olives and Malbec wine
Bloomberg, November 2012
In November 2013, Mexico taxed junk foods (e.g., food

high in saturated fat, sugars, and salts) by 8% with an
additional tax on sodas
The Guardian, November 2013
In May 2014, France enacted legislation requiring the

Minister of Economys approval for foreign investment in
the energy, transport, water, public health and
telecommunications sectors
Latham and Watkins (top US Law Firm), May 2014
In an increasingly volatile world businesses must ask if they are ready for
the shocks
What if.
An epidemic goes global (SARs,
MERs, Ebola)
A popular uprising over-throws

a major state government
The Internet breaks down (can

business run without it for an
hour?)
A major currency collapses (the

Euro tried, is the Yen next?)
Geopolitics cuts off cross border

energy flows
Terrorists (state-controlled or
insurgents) release a WMD with
global impact
A natural disaster debilitates a

major global economic focal
point
An Icelandic volcano shuts

down air traffic over large parts
of Europe for several years
Todays discussion
Course overview

Global forces

Questions?

These global forces are creating a new normal for the business world
and result in several imperatives for businesses
New state of the business world
Implications for businesses
Consumers in emerging markets especially cities are

the primary drivers of global growth
Think about demand in

granular terms
Workforces will be smaller due to automation and aging
Invest in talent and Human

Resources
New technical skills with a shorter shelf life are required

Constant innovation is paramount to success
Industry distinctions will be less firm

Competition is intensified
Companies are operating in more markets than ever before

Geopolitical risk is revived
Design a flexible
organisation
Foster agility
Cyber presents a new type of risk
Know the risks and

test your resilience
Every industry will be digitised those companies that dont

will be left behind
Digitise and learn

to innovate
Think about growth in granular terms
Invest in talent and Human Resources
Design a flexible organisation
Foster agility
Know the risks and text your resilience
Digitise
GRANULAR GROWTH
424 cities in emerging markets will fuel nearly half of the growth in
global GDP through 2025
Percent contribution to global GDP growth, 20122025
100% = $42.5 trillion
100
424 largest
emerging market cities
45%
28
of global growth
25
315 cities
in Asia
31
0
China
region
Latin America Middle East

& Africa
Eastern
Europe &
Central Asia
Other
emerging
regions
Developed
countries
Global growth
In China, 15 MM people move to a city each year equal to adding New York City proper twice
SOURCE: McKinsey Global Institute Cityscope 2.55 (updated November, 2014) ; note: does not sum due to rounding
GRANULAR GROWTH
Emerging market cities, especially in China, will become the largest

consumer markets in many categories
China
2025
Sales
Rank
Other emerging regions
Sports & Energy Drinks
Facial Moisturizers
Spirits
Chongqing
Tokyo
Shanghai
Tokyo
Shanghai
Beijing
Beijing
Beijing
Moscow
New York
Chongqing
Guangzhou
Shanghai
Osaka
Tianjin
Haerbin
Tianjin
Chongqing
Tianjin
Guangzhou
Shenzhen
Wuhan
Shenzhen
Tokyo
Nanjing
Wuhan
London
10
Bangkok
Chengdu
Wuhan
11
Xian
Dongguan
Rhein-Ruhr
12
Chengdu
Nanjing
Foshan
13
Los Angeles
Hong Kong
Hangzhou
14
Shenyang
Foshan
Chengdu
15
London
Seoul
Nanjing
SOURCE: McKinsey Global Growth Compass
Developed regions
Foster agility
Digitise
TALENT AND HR
A radically evolved future will mean that workforces are smaller and
more technical requiring new skills
Talent is the
next great
competitive
battlefield for
organisations
INVESTING IN TALENT AND HR
A radically evolved future will mean that workforces are smaller and more
technical requiring new skills
38%
Of global employers
can not find the
talent they need
38m 40m
Shortage of workers
with higher education
degrees by 2020
#1
Concern among CEOs

in 2015 survey was
human capital
SOURCE: Manpower survey; McKinsey Global Institute
Competition for talent will intensify
Digital tools like LinkedIn give

employees more mobility and options
and competitors a tool for poaching
Aging population means fewer

available workers
Concerns over inequality are putting

upward pressure on wages
TALENT AND HR
AT&T is reinvigorating its talent management by partnering with a

university to provide low-cost worker training
Telecom being
disrupted 2.6B will
AT&Ts challenge:
AT&Ts response:
230,000 employees, with
use smartphones by 2018
skills becoming
partnering to provide online

MSc in Computer Science to
obsolete
83% faster than just a
few years ago
2,200 employees at
$200/month
TALENT AND HR
Advanced data analytics is opening up new ways

of predicting successful hires
Uses an online test and sorts
applicants using an algorithm
identifying traits associated
with retention, giving
candidates a 0-100 score
Reduced attrition to 4% per

annum, and was able to
decrease hiring timeline to
under 2 months
Screens applicants based on

data points associated with
retention (e.g., having a
short commute)
Saw 20% reduction in call

center attrition, significantly
reducing training costs and
improving quality
Supplements selection process

with screening for traits
correlated with abusing
workers compensation (e.g.,
driving record)
Realized substantial savings

from 68% decrease in
workers compensation
claims
TALENT AND HR
The new HR is one of the hottest topics for managers today
TALENT AND HR
Applying the rigor of Finance practices to HR can significantly

improve talent management
Anticipating whether candidates will be a fit

Predicting
outcomes
Identifying the strategic skills that will be most in

demand 2-3 years forward which 2% of jobs will
drive 98% of your impact?
Discovering the people problems that are below the

surface of business failures
Diagnosing
Monitor and maintain the social engine of
problems
organisations ensure that communication lines are

open and robust
Approach the reallocation of human capital between

projects with the same rigor as investment
Prescribing
actions
Recognize value creators both inside and outside
the organisation and find ways to bring them into
high-impact roles
Advanced
people
analytics will
support each
of these
goals
Integrating
digital HR
tools can
increase
productivity
9%
Foster agility
Digitise
FLEXIBLE ORGANISATION
The organisation of the future is a flatter, more decentralised model
The organisation
of the future has:
Fewer layers
Decentralised
decision-making
More
partnerships
Powerful data
and digital tools
Extreme fluidity
Collaborative
Traditional hierarchy
Organisation of the future
external
partnerships
Apple exemplifies a modernising organisational structure
17 direct reports
to Tim Cook
Tim
Cook,
CEO
VPs in charge of
critical pieces of work
will temporarily
report to CEO
Haier is restructuring to become an organization of the future
Reorganized 80,000-person workforce into 2,000 independent units

Each unit manages its own P&L
Employees paid on performance
Most valuable brand in China for the past 13 years

Market cap tripled from 2011-2014
New entrants are using flatter structures to increase

transparency, speed, and innovation
Online shoe retailer
Gaming company
Highly decentralized model offices in each

city have only a few dozen employees at most
Drivers interact directly with customers, using

the Uber app
Follows a self-organisation model, without

traditional managers
Employees organized by cluster, not

traditional linear hierarchy
Employees are their own managers

Allows fluid movement between
individual and group contribution roles
Foster agility
Digitise
AGILITY
In the private sector, resource allocation is generally inherently

conservative
Relative business unit year-to-year CapEx correlations1
Correlation index over years 1990-2010
1.0
0.9
0.8
This years
allocation is
highly
correlated
with last years
allocation of
CapEx
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Year
1 Each years proportion of company CapEx in each business unit was correlated to previous years figure
SOURCE: McKinsey Corporate Strategy Service Line; Compustat
AGILITY
But top performing companies tend to be those that reallocate resources

most frequently
Median TRS CAGR of companies by degree of reallocation

Percent, 1,508 companies, 1990-2010
10.0
A company
growing at
10.0% CAGR
vs. 6.1% would
be worth twice
as much in 20
years
8.5
6.1
Dormant
(0-30%)
Drowsy
(31-49%)
Dynamic
(>49%)
Degree of reallocation
SOURCE: McKinsey corporate strategy research program
AGILITY
Several companies have moved agility levers to the top of their agenda in
order to make sure they can adapt quickly to external conditions
Agile capabilities
Preparation
Detection
Fast
response
Example lever
Description
Develop modularization
approach
Increased modularity in design and

production
Back-up sites
Redundant sourcing of supplies
Flexible plants to take volume from

others
Updates forecasts real time with

product performance, external
factors, and live stock levels
Uses market prediction approach

for forecasting
Used pre-planned disaster strategy

during 2011 tsunami
Forecast demand
Develop playbooks for

critical processes
Moved production to other sites

Returned damaged sites to
production within 1 month
AGILITY
Volkswagens modular toolkit between its brands reduces

engineering time, product development speed and cost
VW standardized several components of its cars 65-70% of
parts can be shared among models while still allowing
individual brands to control the face of the vehicles
This modularization
effort is expected to
reduce:
Unit cost by 20%
One-off expenses by
20%
Engineering hours per

vehicle by 20%
Weight and emissions
SOURCE: Volkswagen strategy 2018 publication
AGILITY
Toyota has introduced factories-in-a-box that create greater

operational flexibility
Smaller, simpler factories give
Toyota agility to move
production to emerging
markets
The factories are small format
producing only 250 units per
day vs. up to 2,500 at some
Factories can be built quickly

and stacked, allowing supply to
be built up rapidly, anywhere
The factories can function with

low automation
Allows for opex-capex

adjustment and reduces need
for technical expertise in young
markets
Up-front investment is up to
40% less than traditional plants
Capital can be saved and used

to quickly take advantage of
future opportunities
AGILITY
Nutellas global sourcing and production means that it can withstand

shocks such as local supply shortages or currency fluctuations
Nutella global value chain
Agile supply chain
Headquarters
Main international suppliers
Factories
250,000 tons of
product are
produced in 9
global factories
Packaging and
some ingredients
(e.g., skim milk)
sourced locally;
others e.g., sugar,
cocoa, vanillin, palm
oil, hazelnut)
sourced globally
AGILITY
Leveraging assets rather than owning them converts capex into

opex and has allowed companies like Airbnb to rapidly scale
Airbnb leverages public assets
peoples private homes to build a
hotel business
Despite owning -0- properties and

having only 1,600 employees, Airbnb
has grown 353x in five years
Number of Guests
17M
15M
10M
5M
2010
2011
2012
2013
2014
2015
Foster agility
Digitise
RISK AND RESILIENCE
As global growth has diverged, volatility has become the norm

everything is a variable
From a relatively narrow set of possibilities to edge cases becoming normal
1990s & 2000s
Probability
of outcomes
2010s - ?
Probability
of outcomes
Range of
outcomes
Range of
outcomes
This volatility manifests across the global economic system:
Oil prices
Commodity prices
Equity markets
Exchange rates
RISK AND RESILIENCE
Other companies are encouraging transparency

to surface risks before crises
Encourages complete transparency

on potential risks and delays, even if
they would be costly to address
Encourages out of order

communication between anyone,
at any time, outside of the normal
chain of command
Ford Edge team admitted pre-launch

issues, delaying launch, and was
praised by former CEO Alan Mullaly
Communication needs to be
between anybody at any time
President Ed Catmull
Transparency and freedom of communication are key to

ensuring that risks are raised early and can be managed
proactively
RISK AND RESILIENCE
Digital also creates new risks
Cybersecurity incidents have

increased 1,100% over the last 5 years
This was an
unparalleled and
well-planned crime,
carried out by an
organized group, for
which neither Sony
nor other companies
could have been fully
prepared
2015
11x
Investigations
Team
2010
RISK AND RESILIENCE
Cyber threats require fundamentally new defense systems

Poor cybersecurity could cost $3T in lost economic value in 2020
Need to
Prioritize business risks and information assets align with
1 top ~50 executives on most important data to protect
Enlist front-line users create a Top 100+ program for staff
2 dealing with most sensitive information (e.g., deal data)

Build cybersecurity into business processes create a
3 secure path to handle most sensitive data
Test ability to respond to breaches create a team tasked
4 with trying to penetrate critical systems
Use active defense create a counterterrorism-style fusion
5 center combining intelligence, analytics, and operations

Foster agility
Digitise
DIGITISATION
Digitisation is upending the fundamental truths of business
What we used to believe
Need to own assets to leverage

their value
Marginal costs > 0
Core services need to be delivered

by own employees
Competitors take years to emerge

and scale
Disruption comes from within your

industry
Disrupting companies
v.
DIGITISATION
Disruptors are attacking all aspects of traditional businesses

(banking ex.)
Financial technology example the unbundling of Wells Fargo
Software is
cheap and easily
scalable,
providing
incentive to try
to disrupt all
aspects of
business
Not all of these

start-ups will
survive, but the
bank will have to
respond to these
disruptions
SOURCE: CB Insights
DIGITISATION
To capture the digital opportunity, companies will need to understand

the value at stake in their particular businesses
P&L impact of digital

% of total
6%
3%
56%
Majority of
impact from
digital is cost
(36% cost vs.
20% revenue)
13%
14%
20%
Digital sales
from outperformance
Digitize
Production
and
Servicing
Reshape
distribution
model
Reduce
material
cost
Streamline
overhead
functions
Total
impact
Cost
SOURCE: Digital Enterprise modeling
DIGITISATION
Companies will also need to assess their Digital Quotient

does digital run through everything they do?
TM
Strategy
Bold, long-term
orientation
Linked to business
strategy
Centered around
customer needs
Scored out of 90
Based on 1,000s of benchmarks
Culture
Organization
Capabilities
Risk appetite
Roles and
responsibilities
Connectivity
Speed / Agility
Test and learn

Internal
collaboration
External
orientation
Content and digital

marketing
Talent and
leadership
Customer Experience
Governance / KPIs
Data-driven
decision-making
Automation
Digital investment
IT architecture
DIGITISATION
Companies that are directly facing disruption will need to respond

swiftly and decisively
Reaction
1
Improve current
business using
digital tools
Build
a complementary
digital channel
Shift into adjacent

digital business
Fund and/or acquire

potential disruptors
Disown traditional
business, engage in
digitally aligned one
Description
Examples
Dominoes Pizza shifted their entire pizza order

process from the phone to its apps and website
Topman, a UK mens clothes retailer, launched a

service where customers can videoconference
with a personal shopper
Nike launched the Nike+ line of wearable

technology (e.g., shoes that track your
distance) and build social apps to share results
Google Ventures funds companies that could

disrupt its businesses, and provides design,
marketing, recruiting, and engineering teams
Starbucks is introducing a mobile ordering

service where customers can order ahead and
pick up or even have coffee delivered
DIGITISATION
Appointing a Chief Data (or Digital) Officer is a way

for companies to make digitisation a priority
CDOs are increasingly a part of the top team at major

multinationals
Number of companies with CDOs
Examples
2,000
1,000
500
2013
SOURCE: Gartner, CDO Club Network
2014
2015 (est.)
Todays discussion
Course overview

Global forces
Questions?

Leadership in a new era

Ready for trend
breaks
Network
Receptor and
connector
Telescope
and a
microscope
Perception
and judgment
What
leaders do
Tri-sector
athlete
How
leaders
interact
Unlocking
drive
Influence
without
authority
Who
leaders
are
Strong sense
of purpose
Calm in the eye of

the hurricane
Marathon
and a sprint
Set ambition
Ready for trend breaks

Value insight over experience - force
your team to challenge and plan for tail
scenarios
Ready to connect and scale innovation
from everywhere
Modern leaders must

live in 2-3 realities
simultaneously
(e.g., oil $35/barrel or
$200/barrel)
Willing to shift resources massively year

to year (winner takes all)
Personally champion the next

opportunity or else the organization will
naturally kill it
Nurture cross industry connections
personally and as a model for others
Connect to understand growth pockets
even if very distant
Ready for trend breaks
Jeff Immelt
Industrial companies are in the information
business whether they want to be or not we
want to treat analytics like its as core to the
company the next 20 years as material science
has been over the last 50 years
Made an fundamental, bold decision in 2010
to make rather than buy digital capabilities
within GE, entirely from scratch
Has overseen major investments into the
industrial internet and analytics spaces
hiring thousands of new people with new
skills, launching new products and services,
experimenting with business and innovation
models
Receptor and connector
Provide purpose and meaning that

helps workers thrive and make
decisions
Find a few profoundly simple
Chief reality tester:

continuously calibrating the
organization with the
external world to ensure
relevance
messages that provide clarity globally
Run a boundary-less organizations:

suppliers, customers, front line,
public are all your stakeholders
Find ways to spend time with front

line to receive and connect ideas
(e.g., retail CEO 1 day a week in
stores; bank CEO top 20 required
to listen to call center complaints
each month
Lead with a telescope and a microscope

Time of significant
opportunity to build
for future
New markets
New consumers
New business
models
but next 5-7 years
bring huge volatility
and risk (telescope
not enough)
Prices
Capital flows
Trade
Geopolitics
You are much more

exposed to major
unforeseen shifts in
trends often more
negative surprises
than positive
How some
manage
Use calendar,
e.g., 3 days a
quarter only
on long-term
strategy
Stress test
the
organization
and team
(scenarios)
Lead with a telescope and a microscope
Randall Stephenson AT&T

We need to be ahead of the curveif
we see ourselves falling behind global
trends, we know we are in trouble
Anticipated the industry trend of mobile
media consumption and completed
merger with television provider DirecTV
Recognized that shifts will be required
at individual employee level and
developed plan to reskill 90,000
employees through higher education
partnerships and gamification of HR
development system
A 'tri-sector athlete'
Social sector
Private sector
Bill Gates
Balanced motivation: A
hybrid engine of selfinterest and concern for
others serves a much
wider circle of people
than can be reached by
self-interest or caring
alone
Jeff Seabright Unilever
Transferrable skills:
leveraged public sector
experience with the
Foreign Service, the
Senate and USAID to
help Coca-Cola reduce its
water usage per liter of
Coke from 3 liters to 2
Michael Bloomberg
Networks and contextual

understanding: Tri-sector
leaders are adept at
building and maintaining
networks outside of their
fields and understanding
the relationships between
sectors
Public sector
Strong sense of purpose
Invest time in developing your

personal purpose and values
framework
Purpose and core beliefs are
needed to guide right versus right

decisions
Exert self-control in decision-
making to avoid decision fatigue

and exhausting finite willpower
Character is a
muscle a leader
must constantly
improve and build
Keep trusted advisors and seek

multiple viewpoints
Connect to your roots (e.g.,

people or places to ground you)
Strong sense of purpose the importance of perseverance

After Dashrath Manjhis wife died due to lack of medical treatment (the nearest town
with a doctor was 70 km away), he spent the next 22 years working day and night to
build a road through the mountains reducing the distance between towns to 15 km
Calm in the eye of the hurricane

Intensely focused/outwardly
calm
Shrinking interval between

major shocks, national
crises become global
Leader must dampen

volatility and panic
Importance of
compartmentalization
Test the team avoid

panic-prone individuals
Never share your doubts, but be

looking for reasons you are wrong
Pole vaulting
Renaud Lavillenie broke

the world pole vault record
that had stood for over 20
years in February 2014
then immediately
attempted to break it again
Set ambition
independent of others
Celebrate success, but

always aim higher
A single failure does not
mean the bar is too high
Pole Vaulting
Larry Page
Over time companies tend to get
comfortable doing the same thing, just
making incremental changes. But in the
technology industry, where revolutionary
ideas drive the next big growth areas, you
need to be a bit uncomfortable to stay
relevant
Decided to undertake a complete

restructuring of the 2nd largest company in
the world in order to stay innovative
Gave up his role as CEO of Google to
cultivate more ambitious and in his own
words crazy ventures outside of the core
business
Marathon and a sprint
Know yourself and

manage personal energy
Your schedule and
travel no more rest
days so how do you
rest?
Best times of day
(decision making)
My biggest challenge
is now managing
energy, not time
Have the personal

disciplines of an athlete
(nutrition, health)
Be authentic
exhausting not to be
Influencing without authority
Invest time to
understand others
motivations and pain
points
Be deliberate in use of
language and choice of
communication (e.g.,
email vs. phone vs. inperson)
Honesty breeds trust
Unlocking drive
Control leads to compliance,
autonomy
leads
tobasic
engagement
Move away
from
carrot
and stick models
of motivation
Daniel Pink,
Drive (2009)
(e.g., compensation, promotions)
and unlock drive through:
Autonomy e.g., Google 20%

time generates half of its
innovations
Mastery tap into desire for

self-improvement and calibrate
responsibilities to motivate (not
bore or discourage)
Purpose e.g., stonemasons

working, one says I am
hammering a rock, one says I
am shaping a block, one says
I am building a cathedral
Move away from basic carrot and

stick models of motivation (e.g.,
compensation, promotions) and
unlock drive through:
Autonomy e.g., Google 20%

time generates half of its
innovations
Mastery tap into desire for selfimprovement and calibrate

responsibilities to motivate (not
bore or discourage)
Purpose e.g., stonemasons

working, one says I am
hammering a rock, one says I am
shaping a block, one says I am
building a cathedral
Perception and judgment
When the temperature

goes to 1,400 degrees,
some people crack
like glass
Difficult to assess
peoples leadership
potential, strengths and
weaknesses without
getting to know them
very well
Invest time finding the

people who can make
the right decisions, not
in making more
decisions
Challenge people to
reach their full potential
Move quickly and

decisively on people
Network
Build networks inside

your organization, within
your industry, across
industries and across
sectors in order to:
Broaden horizons and

extend influence
Understand and
anticipate potential
disruptions from
different directions
Networking
Shimon Peres
State of Israel
Leaders have lost their way

Leadership is about being a servant,
not a ruler
3 time Prime Minster and recent
President of Israel, Nobel Peace
prize recipient
Is working to bring together
businesses with the public sector to
solve the worlds most pressing
issues especially human
development and early childhood
well-being
Always on
As a CEO, 10 years ago no one

would recognize me, now they do
at home, in China, in Russia
24/7 visibility living in

a reality TV show
through Twitter,
Youtube
CEOs as face and

name of the company
Radical transparency
and open data
Must create a mental

refuge from the
spotlight
Todays discussion
Course overview
Questions?

Questions
Questions for classroom
Topic for group assignment
Please write an essay (3000-5000

Chinese characters or 2000-3000 English
words) on one of the below questions:
Which of the 6 implications for business

is most important to China and why? Do
you see other implications other than
the six mentioned?
In your view, what are the business

challenges and opportunities facing
Chinese companies? Which Chinese
companies do you think are best
positioned to address those challenges
and opportunities? Why?
What steps can you take to adopt the
characteristics of successful leaders in
the new era?
What are the business opportunities

and challenges for Chinese companies
in light of key global forces and their
implications?
Imagine you are a CEO of a leading

Chinese company in a chosen industry
(you can choose any sector). How
would you lead your organization to
address opportunities and challenges
in the next 10 years? Please use
concrete data, case examples and
logical inference to support your
argument.

Leadership in A New Era (By McKinsey)

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Leadership in A New Era (By McKinsey)

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Leadership in a New Era:

a course at Tsinghua SEM

CONFIDENTIAL AND PROPRIETARY

Winning in changing industry environments

CONFIDENTIAL AND PROPRIETARY

McKinsey & Company | 1

The objective of the course is to develop future business leaders among

To enable students to interact with distinguished business

Discuss topics on a global level rather than China-only specifics

Cutting-edge functional thinking

Provide an overview of key functions with leading practical ideas

McKinsey & Company | 2

2015 Fall - The syllabus: lecturers and topics (1/2)

Sept. 15th (Tues)

[October - Date to be confirmed]

Class 3: Corporate Finance

[Oct./Nov - Date to be confirmed]

Class 4: Technological Disruption

Nov. 12th (Thurs)

Chief Digital Officer of Walmart

McKinsey Director from New York office,

McKinsey & Company | 3

2015 Fall - The syllabus: lecturers and topics (2/2)

[Nov/Dec - Date to be confirmed]

Nov. 26th (Thurs)

EVP and CPO of Phillips Electronics

McKinsey Director from Shanghai office,

Class 7: Investors Perspective

Dec. 17th (Thurs)

McKinsey Director from London office,

Jan. 14th (Thurs)

Tan Sri Azman

McKinsey Global Managing Director

McKinsey & Company | 4

2015 Fall - The course outlines

8 classes in fall semester 2015

2 hours per class with a 15-min break

Class size and

We will create more exclusiveness hence more commitment and effectiveness

SOURCE: McKinsey and Tsinghua SEM

35% on individual learning journal (per class) : every student to hand in

McKinsey & Company | 5

The course will be run by the Lecture Review Board, consisting of

Tsinghua SEM Team

Structure the course by

Prof. Yingyi Qian,

Global Managing Director

Prof. June Qian,

Approve course outline

Prof. Zhirong Duan

The Lecture Review Board

Winning in changing industry environments

CONFIDENTIAL AND PROPRIETARY

McKinsey & Company | 7

We are living in historic times

Islam influence Genghis Khan

McKinsey & Company | 8

The rise of emerging markets

The power of disruptive

The aging of the global

The integrating world

The return of (geo)politics

McKinsey & Company | 9