[LORANGE ] Thank you for inviting me here and I also thank Nikkei for inviting IMD to be the co-sponsor of the event. I'm going to talk a little bit about competitiveness and management structure from our vantage point at IMD, which is, as you know, a very global place, and I'll try to bring a global focus to this.

Let me first say that we are known for our World Competitiveness Yearbook, where we rank countries and we try to understand what's happening to our country's competitiveness over time. We have done this now for more than 15 years, and we are ranking according to eight groups of factors. Our model has more than 250 variables, so it's a very thorough model. And you may know that Japan comes out kind of okay, but it could have been better, so to speak. If you look here, you will see that Japan is number 16 and last year it was number 18. Of course there are many outstanding countries here, but I think that Japan should be higher than this, and that's a related issue for all of us.

If you look at Japan's overall performance over the last few years, we can see that we have a dramatic drop after 1996, and of course we understand why that has happened, but this is a reason to try to do our very best to move back up again. Clearly you can see that we seem to have bottomed out, that's very much in line with the positive spirit of this conference; we are in fact now building a new future.

It has also been pointed out, as Kobayashi-san mentioned most recently, that science and technology remains a very, very strong side of the Japanese economy. This is outstanding. Japan is really leading worldwide in that respect, and right now and for all recent years Japan has been ranked very slightly behind the United States when it comes to this. This is very good.

There are two areas where I'd like to suggest that we need to focus where improvement needs to be made. When it comes to Japanese management, it used to be seen as very strong, but as we have discussed, it has slipped. And frankly speaking, there are particularly some issues listed on the left-hand side that are important here. Productivity, we need to do better there. The cost of labor situation, we all know is an issue. We need to work on management efficiency, less red tape, less bureaucracy, we know that. And of course our corporate culture must be more globally strategic, as we have heard from many of the speakers. So I think that this is an area that we will all agree we need to work to improve the ranking of the Japanese economy.

There is also another area that we heard about, particularly during the panel discussion this morning, and that is the finance area within Japan. You know, one might say that the finance sector -- the banking sector -- is perhaps falling behind some of the other sectors of the Japanese economy. Cost of capital is perhaps okay, but the issue of the efficiency of the Japanese markets, availability of capital, is not okay, and we all know that. The stock market ...... can be improved. We heard about NASDAQ and its importance. And of course the banking efficiency needs to be improved. We are seeing now important steps in terms of consolidations within the Japanese banking sector; that's a very welcome sign in our opinion. We could go on and discuss these macro issues, I would almost say in absolute... they are important, but they are not necessarily all that directly helpful for us as managers. We are running our own firms, and it's important that we take a complementary, a different view from the macro-view, from the view of the economists and the policymakers and focus on our own firm. And I am very glad that many of the discussions yesterday and today have been focused exactly on that matter.

Clearly, the key here is to find what works for the firm: How can we make sure that we have outstanding companies, even though it could be that on the macro level their ranking is not exactly at the top, but hopefully it is creeping upward. So the issue is: What is firm competitiveness?

I feel that some of the research we are doing is relevant here. We have looked at some of the leading firms all over the world, trying to understand the difference. And here, I would say it is not a matter of cost positioning, not volume, and not a matter of re-engineering; it's an issue of creating value for the consumer. We heard that from Tokiwa-san this morning and we heard it from several other speakers; it is a matter of creating value and in a network. That has been a trend... our research seems to underscore that very clearly. It's a matter of doing it and being competitive in terms of creating value in the network reality.

We have looked at that more specifically, and we have five recommendations for you.

The first recommendation is one of creating a climate for competitiveness for network reality in your own organization, to try to be realistic here. And I'll say more about that later, but let me just run through the five points first.

The second one is to have strong internal entrepreneurs. We heard a lot about start-ups and entrepreneurs in the small firms. Our research indicates that in the large firm you must have more internal entrepreneurs. This is a major issue, and I haven't heard much about that at the conference so far. I strongly recommend you to think about that.

A third issue, not surprisingly, is to create this network for growth, this network reality for growth, around the individuals, around groups within the firm, and even on a broader scale than just the firm itself.

A fourth issue is the CEO. We heard from Kobayashi-san that we must have a top-down vision. The issue of communicating and driving the mission has to come from the top. We think that a CEO needs to think about himself as an internal entrepreneur, not as a big fancy, should we say, adding machine of the bottom-up.....

And last, organizational learning is of course critical. Things are going so fast now that we need to think about the firm almost like a child. Do you follow my thoughts? Similar to a child, learning fast. And that is the key.

Let me share with you a little bit more on these five issues.

The issue of creating the right climate first. Perhaps the most critical thing in our research is to ask: Do we have a climate that creates a growth platform? We heard an important message from Jack Welch. He said that if you invest in high-technology products, invest in research and development around the products, you then have the basis to develop service industries based on these products to migrate in the value chain from high-tech products to service. A major observation! This shows that General Electric is thinking centered around this issue of the platforms for growth. This is important to understand that we see new business opportunities in the organization before they are obvious for everybody else. R&D and products lead to service. That's an important thing.

Of course we must have the relevant human resources to back up these extensions of our business, and this is critical.

A few more observations regarding the climate. The issue of risk. Our research indicates that what we could call small trials, small experimentations are critical. Not huge plants and then one big bang, but try get your feet wet, not be worried about trying, not being worried about small failures. And we think that we can perhaps distinguish between what we could call ID failures versus management failures. ID failures are simply that we thought we were doing the right thing; it turned out not to be, and nobody can fault us for trying. Management failures are nothing else than screw-ups. Obviously, that is not permissible. ID failures based on trials and errors are permissible. That is a very important cultural issue.

So the issue then is to try to come up with a balance in our culture, which is partly being led by the market -- market closeness, market orientation -- but also leading the market, driving the market, ... lead and be led, creating new opportunities and destroying the old. Innovational operations, long-term and short-term, that is the balance, that is the climate we must come up with. I think that it is easy to see this in companies -- I think what we heard from Jack Welch illustrates some of it -- and it is a matter of finding a climate that appreciates initiative, appreciate energy.

The second issue: Have a strong internal cadre of entrepreneurs. What do we find there in our research? We think it is absolutely critical that these internal entrepreneurs see business entirely; they don't reside in the laboratory; they don't reside in the marketing organization; they are people who are able to see the various elements of business together as a business. And they are very good at, what could we say, borrowing with pride. In ABB they say, steal with pride. I find that a little hard to accept, so I have modified it to be "borrow" with pride. But the idea is clear. We don't need to reinvent everything ourselves. We should try to pick and choose what makes sense in this fast network reality. And that means we cannot be too confined by the rules. We must be willing to be flexible here. It is not a matter of the rule book ruling. And of course it means that we are close to the CEO; we can go in and ask for advice from the CEO; we don't need to go through the hierarchy. That is the key. But we need also to be on our own so that we can be a little bit more free to do things. And they are good at developing the customer interface. As I said, seeing what the customer needs in a new way, and again broadening the growth platform.

So this person is a borrowed general manager. Perhaps another way to look at this is that it is a matter of seeing the internal entrepreneur partly as somebody who is able to see new business opportunities, partly a real innovator, but also to find the competence in your organization eclectically from different types of companies..... so that he or she can put together a team to execute, and then partly to mobilize that team by truly action-oriented implementation to get things done. And it is a matter of being close to the CEO and distant from the CEO at the same time.

How do you pick that internal entrepreneur? What does he look like? Well, that is of course hard to say, but as I have indicated, in our research it seems clear that he must be an internal entrepreneur, a general manager; he sees the totality; he is able to see and implement, be creative, and behavioral. He has a lot of energy, a lot of propensity to speed, risk-taking; he is not afraid; a fast learner, and does not give up. This is not a functional bureaucrat; it's an internal entrepreneur.

So I cannot stress strongly enough how important it is for you in our Japanese-based multinationals to look for these people. Our research is very clear on this point, and we think this is a critical issue that you examine in your own context: Are we able to find these people and build them up? Do we have a lot of them? Well, we have talked with a number of CEOs and they say this is the most scarce of all resources in the firm. I talked to the CEO of L'Oreal, for instance, the cosmetics company, and he said, "If you want to be frank, Peter, we have around 20." This is a huge company. So we're not talking about large numbers. These are highly valuable people that we need to make sure we take good care of them.

Let me move on to the third issue that I want to share with you, the one of creating effective networks. We have talked a lot about the network yesterday and today and the importance of communication, the importance of the power of network for marketing, et cetera. But perhaps another way to see it is that the network is there to do three fundamental things. It helps you to borrow with pride from new ideas, to find those ideas faster. And it helps you to validate IDs. And the network is your laboratory. You don't need a big R&D center today; you do that via networking. And of course it's your implementor. It helps you put together the team so that you can get things done via the network. So it is important then that this network is perhaps seen as several things. First of all, we can talk about networks around the internal entrepreneur; it is critically important that he or she has that network. We can talk about a network around the organization, our division, our country organization, our company. And we can talk about networks that span much broader spectrums. As far as we can understand, it is critical that we as managers are explicit regarding this. What kind of networks are we talking about? Not simply saying, "This is great; we've heard a lot about that." We need to understand what types of networks are we talking about in this context.

Now let me just mention one more thing about the network. It leads to an organizational design which means a lot. These networks are obviously virtual in the sense that members of the network are in various places of the world. We at IMD, for instance, have a network with several of the leading Japanese-based multinationals so that Tokyo and Lausanne are together in one network. They are typically multi-talented. It is not simply a matter of R&D people talking to R&D people; it is this blend of IDs that makes a network so powerful. Obviously they are scattered, but they are linked in the sense that I am still seven hours away from you in Lausanne and we have to, in a sense, make accommodation for that; we cannot expect me to be up all night to communicate during your office hours or vice versa. So somehow we have to find ways to link within this networked world. They call for flat project-based organizations. And very importantly, they don't call for job specifications. They call for your ability to, when in doubt, do the right thing. This is critical. You need to understand that they are ambiguous by design. The issue of silos in the organization -- you know, departments, divisions -- that is not part of the networked world. They are going to fall and there are no barriers between businesses and cultures in this networked society. Right now, we see an epic battle going on where there are a number of conservatives in organizations that still cling to the formal organizational hierarchy, formal job titles, and are fighting this network reality. So there is a lot of tension. Personally, I am not in doubt as to which side will win.

We heard about the issue of trust from Kobayashi-san. It's very important to have this glue to hold the network together. In the past we held the organization together by our organizational design, by our formal organizational structure. Today we hold the organization together with this glue, with this trust that we heard so much about from Kobayashi-san.

Okay. Let's talk a little bit about the role of the CEO. That's our fourth finding. Of course he needs to be heavily involved now in managing that organizational climate, managing that climate to establish trust. He needs to be sure that he does that by keeping an innovative focus. You know, one of the interesting things is that many CEOs are not good at communication. We heard that from the previous speaker, Kobayashi-san. Communication is critical, and to be clear on that is critical. Many CEOs are bad at giving positive feedback and praise. You only hear from the chief executive when there is a problem. We need to hear from the chief executive when it comes to giving praise and positive reinforcement. That's the way to develop the trust that we heard about.

He also needs to tailor-make his use of energy so that he spends perhaps more time on new business and doesn't get sucked into all kinds of old business firefighting, the kind of the old existing protect-and-extend business. That can be done largely by others. He needs to be adaptive to the customers, but also to lead the customers. I thought that the presentation we got from Mr. Wallace gave a marvelous example of someone who really leads the customer, has a vision about how this will look. And that is what we need to have, as well as adapting to the customer base we also have, as Mr. Wallace said.

He needs to balance in the portfolio of the firm and understand, then, that the balancing is not a matter of core business definition; it is a matter of allowing the organization to grow outside of its old definitions.

So we have looked at this and we see this as a matter of the CEO very much interacting with his organization -- that is obvious. But it has to be done in such a way that he is also interacting with his internal entrepreneurs both in terms of vision, communicating a vision, leading and driving, and insisting on adapting to the customer at the bottom line. That kind of balance is critical. And, as I said, he needs to be perhaps more top-down, proactive-oriented when it comes to new business development and perhaps allow for more of a bottom-up and reactive-to-the-customer orientation when it comes to business as usual. So this is an important role definition of the CEO. There is not one way to manage; he needs to manage differently with the new and the old business according to what we are seeing. He needs to be an entrepreneur and not a glorified adding machine.

A few more comments on the CEO. He needs to be able to put unreasonable demand on the organization, a kind of growth paranoia, as Andrew Grove talks about. This seems to be very much a common trend among all of these successful CEO's. You can feel their sense of urgency. You heard that yesterday and today, when you think about these CEOs you heard and saw this issue of urgency coming through very clearly.

It is also important that a project must fit the portfolio, but he doesn't necessarily say "no" if a project does not fit with the portfolio. Creativity is to allow, to permit, and not to forbid. So if it turns out that a project does not fit, he then has a business option that can be sold off later on. This is again the way this internal entrepreneur in the role of the CEO works. Being business-oriented, not a big controller.

Now the last item, the organizational learning. I must confess that this is an area where I personally have gotten the most surprises. My own background is in mathematics, originally, and I am highly skeptical of some of the more soft behavioral sciences. So I did not readily accept the idea that we could learn anything from child psychologists, such as the famous psychologist of learning, Professor Piaget in Geneva. But it turns out that if you look at the Nokias and Ericssons and Hewlett-Packards, they are operating in a learning mode which is very similar to that of the child. They actually try to develop an overall picture of their business, initial and tentative as it is. Then, as they get new information, that gets put into the map in terms of then helping them to say, "What does the overall business look like now? And now? And now? And now?" They don't go back like many of the rest of us and look at budget deviations, write reports on what went wrong, pointing fingers at each others, and spending a lot of time fixing this element or that element. Instead, they use the dynamics of the business to accumulate more information which is put into this overall picture. So they learn much, much faster than the rest of us. It is so dramatic how fast they learn new business. And this is what we need to capture too. By looking at the small child -- have you ever seen how fast they learn languages and other new things? That's what we need to do, what we need to copy in our companies.

We need to think in terms of positive incrementalism, another path in the forest. Here we have had a lot of input from the Stanford-based psychologist Harold Levitt, who talks about the fact that there is nothing called a failure or a setback in learning; it is only a stimulus to try again to find the right path in the forest. That is a different mentality from saying, "Boy! Things went wrong. Let's give up." So this is critical, never to give up.

So, some critical issues for us, then, as business people is perhaps to ask the internal entrepreneur to always remind himself and us: "What did you learn today?" This sounds like a stupid question, but it comes right to the essence. To make sure that learning takes place around these fast-moving internal entrepreneurs. How can we maintain relevant experiences? How can they capture it? Perhaps that should be the topic for the budget review meetings as opposed to meaningless analysis of the numbers.

Of course, how can you make sure that good learning experiences are shared on the web? Again, back to the wonderful network. We can all share in it. But the bad news is that the more successful we are, the less we want to learn. That is very clear, that learning is fundamentally antithetical to business success. It is very, very hard to keep on learning when things are going well. So remember what I have just said here, and please remind yourself as you succeed.

Let me summarize, then, by suggesting five small points in terms of wrapping this up. I think that this is a matter of developing competitiveness in such a way that we are talking about a new management structure. It is not really structure in the old way of organizing on an organization chart, but structure in a networked way where we understand how to link in multiple ways the various resources that come into play. The organization is different from what it used to be. One of my colleagues, Professor J. Galbraith, is now talking about: How do you organize around the customer? And how do you organize a bank around the customer? The answer to that is clearly a network-type organization.

The new roles of the various actors. I spoke with a CEO of one of the large German-based chemical companies -- as you know, they are the biggest in the world -- and he said, "I used to be very busy going around making decisions and I having to consult on the strategic options we decided on, and I felt great. Now my role has totally changed. My role is now one of providing the glue to keep this dynamic organization together by building trust." So it is a different situation. Similarly, for the internal entrepreneurs, they are often organizationally way down at the bottom in the organization. But those are the important people, not the people who are old-time bureaucrats that technically look important but in reality are not.

The networked reality. Again, we are talking about not a single network but multiple networks and we must be explicit about it, what it really means. A critical new challenge for all of us.

The organizational climate. One of trying new things, one of experimenting, one of allowing, but not to go out with a big bang but with incremental trying, and of course making sure that we learn as we go so that this is not a senseless waste of resources but trying and experimenting so as to learn.

And again, I think this is a matter of coming up with an approach for winning. We heard that from several of our speakers, that all of these new ideas are fine, but we need to go from ID to action. That is critical. And personally, I think this means that top management needs to really put this as an item on their agenda. How do you develop your strategy today in these words? How do you develop a realistic strategy in these words? That is not a matter of the old competitive strategy; it needs to be totally reformulated compared to what we used to think about strategy. Not magical, very concrete, but a different focal point from the past.

So frankly speaking, I'd like to go back to the strength of our Japanese firms. I think you have a wonderful strength in technology. We need to match that strength with eclectic strength from other parts of the management field, from the international field, from marketing, so that we have this strong eclectic blend of strength, and then we need to reshape our strategy to make this happen.

These are some observations from our research, and I appreciate your attention. Thank you.