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Senior executives will better balance people and priorities by embracing the paradoxes of organizational life.

I often ask business leaders three simple questions. What are your company’s ten most exciting value-creation opportunities? Who are your ten best people? How many of your ten best people are working on your ten most exciting opportunities? It’s a rough and ready exercise, to be sure. But the answer to the last question—typically, no more than six—is usually expressed with ill-disguised frustration that demonstrates how difficult it is for senior executives to achieve organizational alignment.

What makes this problem particularly challenging is a number of paradoxes, many of them rooted in the eccentricity and unpredictability of human behavior, about how organizations really tick. Appealing as it is to believe that the workplace is economically rational, in reality it is not. As my colleague Scott Keller and I explained in our 2011 book, Beyond Performance,¹ a decade’s worth of data derived from more than 700 companies strongly suggests that the rational way to achieve superior performance—focusing on its financial and operational manifestations by pursuing multiple short-term revenue-generating initiatives and meeting tough individual targets—may not be the most effective one.

Rather, our research shows that the most successful organizations, over the long term, consistently focus on “enabling” things (leadership, purpose, employee motivation) whose immediate benefits aren’t always clear. These healthy organizations, as we call them, are internally aligned around a clear vision and strategy; can execute to a high quality thanks to strong capabilities, management processes, and employee motivation; and renew themselves more effectively than their rivals do. In short, health today drives performance tomorrow.

Many CEOs instinctively understand the paradox of performance and health, though few have expressed or acted upon it better than John Mackey, founder and CEO of Whole Foods. “We have not achieved our tremendous increase in shareholder value,” he once observed, “by making shareholder value the only purpose of our business.”

In this article, I want to focus on three other paradoxes that, in my experience, are both particularly striking and quite difficult to reconcile. The first is that change comes about more easily and more quickly in organizations that keep some things stable. The second is that organizations are more likely to succeed if they simultaneously control and empower their employees. And the third is that business cultures that rightly encourage consistency (say, in the quality of services and products) must also allow for the sort of variability—and even failure—that goes with innovation and experimentation.

Coming to grips with these paradoxes will be invaluable for executives trying to keep their people and priorities in balance at a time when cultural and leadership change sometimes seems an existential imperative. Just as a circus performer deftly spins plates or bowls to keep them moving and upright, so must senior executives constantly intervene to encourage the sorts of behavior that align an organization with its top priorities.

Change and stability

Organizational change, obviously, is often imperative in response to emerging customer demands, new regulations, and fresh competitive threats. But constant or sudden change is unsettling and destabilizing for companies and individuals alike. Just as human beings tend to freeze when confronted with too many new things in their lives—a divorce, a house move, and a change of job, for example—so will organizations overwhelmed by change resist and frustrate transformation-minded chief executives set on radically overturning the established order. Burning platforms grab attention but do little to motivate creativity. Paradoxically, therefore, change leaders should try to promote a sense of stability at their company’s core and, where possible, make changes seem relatively small, incremental, or even peripheral, while cumulatively achieving the transformation needed to drive high performance.

A large universal bank provides a case in point. Given the tumult in the financial-services sector in recent years, it needs to change, and change profoundly. But the cry of “let’s change everything” will be counterproductive in an organization where staff members are mostly hard-working, committed people operating processes that involve millions of transactions per hour.

One large automotive company I’m familiar with, buffeted by three different owners and five different CEOs in the last decade, has recently embraced this paradox with a new management model dubbed “balance,” a word loaded with meaning in the automotive industry because of its association with reducing drag and increasing speed. The simple idea behind the model is that any changes to a company’s systems, structures, and processes should always be introduced in a consistent way, typically quarterly, as part of an explicit change package. If a proposed change isn’t ready in time for one of these regular releases, it is either deferred to the next one or abandoned.

Previously, leaders of each of the company’s functions had been inclined to introduce, on their own, changes they thought might generate value—for example, finance would launch a program to make costs variable, HR would announce an initiative to shake up performance management and compensation, and manufacturing would bring in new vendor-management systems. Hapless middle managers found themselves in a blizzard of change that made it difficult to focus on the organization’s top priorities. Now, before change programs are rolled out more broadly, all of them are integrated, and the resulting complexities are addressed at the top of the organization.

In this way, the company’s underlying operating model has remained more stable than it would otherwise have been, and more stable than it used to be when changes were announced in an uncoordinated fashion. Managers now understand and accept the rhythm of change, while managers and employees alike have gained new confidence that the different elements in the releases will be complementary and coherent.

The result is that a well-intentioned but disjointed flow of unending change has been converted into a well-structured one. Moreover, after years of lagging behind industry peers, the company has shortened its product-development cycles and increased the quality of its products. And it is running much more smoothly, with 20 percent fewer managers.

Control and empowerment

All organizations need at least a thread of control to link those who own the business to those charged with implementing its objectives. Companies that neglect mechanisms that enforce discipline, common standards, or compliance with external regulation do so at their peril. The share price of one global energy group, for example, collapsed when it came to light that poor oversight had allowed internal analysts to develop metrics based on optimistic assumptions and to overstate the company’s oil and gas reserves substantially.

Yet excessive control, paradoxically, tends to drive dysfunctional behavior, to undermine people’s sense of purpose, and to harm motivation by hemming employees into a corporate straitjacket. The trick for the CEO-cum-plate-spinner is to get the balance right in light of shifting corporate and market contexts. In general, a company will probably need more control when it must actually change direction and more empowerment when it is set on the new course.

The story of how a major global technology company recovered from a crisis four years ago is instructive. Forced to write off more than $2 billion of unmanageable contracts—and facing insolvency—a new management team took drastic and decisive action to strip out costs, renegotiate old agreements, change established practices, and impose stringent new controls. The company (with more than 100,000 employees) was saved but in the process found that it had lost the ability to deliver on its top priority: creative new ideas that would fuel organic growth. That’s because an unintended consequence of the much-needed cost reductions had been the emergence of a “parent–child” relationship between the company’s top team and middle managers. These managers had become so used to being told what to do, and had been given so little room to maneuver, that they eventually lost the ability to experiment. The “tree” of top management had grown so large that nothing could grow in its shade.

This company’s solution was to introduce an “envelope” leadership approach, which first involved defining a set of borders. Employees could not go beyond them, but within them there was almost complete freedom to innovate and grow. Other businesses have attempted to copy the envelope idea but few have had the success of this global technology company, whose approach had real teeth. The flame of empowerment was fanned by first identifying some 600 leaders with the best capabilities and then rotating them around different businesses, with a mandate to shake things up. Meanwhile, the company’s purpose, vision, mission, and values were all rewritten and drilled into leaders. Its “signature processes” (five core ones, where it aspired to be truly differentiated) were fundamentally reimagined. And evaluation and reward mechanisms were dramatically tightened to reward stars and actively manage people who seemed to be struggling. As the company added a greater degree of empowerment to the stricter controls—plates both balanced and spinning—its performance improved. Sales are growing again, and fresh energy is palpable throughout the organization.

Consistency and variability

Producing high-quality products and delivering them to customers on time and with the same level of consistency at every point in the value chain is critical to success in most industries. Variability is wasteful and time consuming, not to mention potentially alienating for customers. Most organizations therefore applaud behavior that attacks and eliminates it.

Yet in human terms, consistency too often hardens into rigid mind-sets characterized by fear of personal and organizational failure. It’s been shown that we feel the pain of failure twice as much as we do the joy of success, so employees naturally tend to protect themselves and their teams, behavior that can inadvertently hamper innovation and calculated risk taking. After all, mistakes—from Edison’s countless failed filaments to 3M’s accidental creation of the adhesive behind Post-it notes—can sometimes be the mother of invention; as they say in the mountains, “If you’re not falling, you’re not skiing.”

It’s hard to think of a sector where it’s more important to get the balance between consistency and variability right than it is in pharmaceuticals. Lives are at stake, and the development and launch costs of a new compound often run to billions of dollars. Faced with the approaching expiration of many licenses, one of the world’s biggest pharma companies found that its tradition of reliability and consistency had become a limiting mind-set. Although it desperately needed to make new discoveries, a status quo bias took hold of the organization, which froze around a complex bundle of assurance, governance, and controls. Fear of failure and an obsession with getting these things right produced defensive 100-page PowerPoint presentations in abundance, but little meaningful product-development progress.

Behavioral problems didn’t help, of course. An excessive “telling” rather than “listening” culture had degenerated into bullying; some senior executives literally shouted at their underlings. On one notorious “away day,” a number of exercises revolved around cage fighting, a sport (dubbed “human cockfighting”) that combines boxing, wrestling, and martial arts. The signal this sent from the top was that the culture really was dog eat dog.

Things came to a head when two scientists, frustrated by the time needed to get approvals, left to set up their own successful research business and were openly lauded by colleagues for breaking free of a stifling bureaucracy and dictatorial culture. The morale of those left behind suffered further, and energy drained out of the organization.

The solution the company devised combined building “slack” (additional people) into its resourcing—a bold move in austere times—with a direct attack on negative behavior. The worst offenders were removed, and it was made clear that cage-fighting attitudes were unacceptable.

Steps were taken to bump up the innovation rate by investing in smart people, but the top team went further. It set out fundamentally to alter what it called the organization’s “social architecture” by building worldwide communities of scientists and encouraging exchanges between them across geographical boundaries and industry disciplines.

Successful experiments, to be sure, were more highly valued than failures, but both had their place in the company’s culture. An emphasis in communications on “our wealth of ideas” promoted the simple notion that wealth (economic progress) arises from ideas (experimentation and innovation) and showed how carefully crafted language can help drive change. The result was an increase in the pipeline of products and, over time, a resumption of profit growth.

Embracing the paradoxes described in this article can be uncomfortable: it’s counterintuitive to stimulate change by grounding it in sources of reassuring stability or to focus on boundaries and control when a company wants to stir up new ideas. Yet the act of trying to reconcile these tensions helps leaders keep their eyes on all their spinning plates and identify when interventions are needed to keep the organization lined up with its top priorities. Last, this approach makes it possible to avoid the frustration of many executives I’ve encountered, who pick an extreme: either they try to stifle complex behavior by building powerful and rigid top-down structures, or they express puzzlement and disappointment when looser, more laissez-faire styles of management expose the messy realities of human endeavor. Far more centered and high performing, in my experience, are those leaders who welcome the inconvenient contradictions of organizational life.

Printed with permission from McKinsey Quarterly.

Almost overnight, China has become the world’s second-largest e-tail market, with estimates as high as $210 billion for revenues in 2012 and a compound annual growth rate of 120 percent since 2003. The country’s retail sector already is among the most wired anywhere—e-tailing commanded about 5 to 6 percent of total retail sales in 2012, compared with 5 percent in the United States—while it is distinctly different from that of other countries. Only a small portion of Chinese e-tailing takes place directly between consumers and retailers, whether online pure plays or brick-and-mortar businesses on retailers’ own Web sites. Instead, most occurs on digital marketplaces. What’s more, Chinese e-tailing is not just replacing traditional retail transactions but also stimulating consumption that would not otherwise take place. Finally, e-tailing may catalyze a “leapfrog” move by the broader retail sector, putting it on a fast track to a more digital future. These are among the key findings of China’s e-tail revolution: Online shopping as a catalyst for growth, a new report by the McKinsey Global Institute.

Structural differences

Some 90 percent of Chinese electronic retailing occurs on virtual marketplaces—sprawling e-commerce platforms where manufacturers, large and small retailers, and individuals offer products and services to consumers through online storefronts on megasites analogous to eBay or Amazon Marketplace.¹ The megasites include PaiPai, Taobao, and Tmall, which in turn are owned by bigger e-commerce groups. A large and growing network of third-party service providers offers sellers marketing and site-design services, payment fulfillment, delivery and logistics, customer service, and IT support.

By contrast, in the United States, Europe, and Japan, the dominant model involves brick-and-mortar retailers (such as Best Buy, Carrefour, Darty, Dixons, and Wal-mart) or pure-play online merchants (such as Amazon), which run their own sites and handle the details of commerce. Developed markets have major specialized retail chains in the e-commerce arena. In China, such independent merchants account for only 10 percent of e-tailing sales. Although still in the early stages of growth, China’s e-tail ecosystem is profitable, logging margins of around 8 to 10 percent of earnings before interest, taxes, and amortization—slightly higher than those of average physical retailers.

Powering consumption

This unique e-tailing engine is enabling China’s shift from an investment-oriented society to one that’s more consumption driven. E-tailing, our research indicates, is not simply a replacement channel for purchases that otherwise would have taken place offline. Instead, it appears to be spurring incremental consumption, particularly in less developed regions. By analyzing consumption patterns in 266 Chinese cities accounting for over 70 percent of online retail sales, we found that a dollar of online consumption replaces roughly 60 cents of sales in offline stores and generates around 40 cents of incremental consumption (Exhibit 1). It’s important to note that the data sets behind this analysis don’t cover the full market. Our approximations do, however, provide a preliminary picture of what’s occurring in China and permit a rough calculation of the extent to which e-tailing may be boosting consumption there. (These estimates suggest that the channel may have added 2 percent of incremental value to private consumption in 2011 and could generate 4 to 7 percent in incremental consumption by 2020.)

Exhibit 1

E-tailing’s impact is more pronounced in China’s underdeveloped small and midsize cities. We found that while incomes in these urban areas are lower, their online shoppers spend almost as much money online as do people in some larger, more prosperous cities—and also spend a larger portion of their disposable income online (Exhibit 2). For these shoppers, the utility of online purchasing may be higher, since they now have access to products and brands previously not available to them, in locations where many retailers have yet to establish beachheads.

Exhibit 2

Further boosting online purchases is the fact that e-tailing has cut consumer prices: depending on the category, they are, on average, 6 to 16 percent lower online than in China’s stores.² Apparel, household products, and recreation and education are the categories where price discounts are greatest. They are also the three largest online retail segments (Exhibit 3).

Exhibit 3

The leapfrog effect

China’s retailing industry, coming of age in an era of digital disruption, will probably follow a trajectory different from that of retail sectors in other markets. In developed nations, the industry typically followed a three-stage path. It began with the rise of regionally dominant players. This field then consolidated into a smaller number of national leaders. Eventually, online players challenged them, and the industry became multichannel. Some brick-and-mortar players (Tesco and Wal-Mart Stores, for instance) have embraced a multichannel strategy, while others (such as Borders in the United States and Jessops and Woolworths in the United Kingdom) have been driven from the market.

China differs from these developed markets, however, because a crop of national leaders has yet to emerge in traditional retailing. Building stores across China’s considerable geography, with its many smaller cities, takes both time and high levels of investment. As a result, China’s largest brick-and-mortar retailers have captured a smaller share of the country’s overall retail market than have major players in the United States and elsewhere: the top five retailers by category hold less than 20 percent of the market—much lower than US levels of 24 to 60 percent in comparable categories.

In China, the combined effects of the complexities of store expansion and a distinctive model of e-tailing could lead to a different retail dynamic: as e-tailing continues to grow, China’s industry may leapfrog the second (national) stage, passing directly from the regional to the multichannel one. In fact, China’s online ecosystem of marketplaces and agile support services has grown rapidly precisely because it can exploit the inefficiencies and higher costs of China’s existing retail market. Already, the major online companies Alibaba (which owns marketplaces such as Taobao) and 360buy.com (focusing on sales of electronics) have established a prominent national role, ranking among China’s top ten retailers.

Coming next

The view forward may be more impressive. We estimate that by 2020, as 15 to 20 percent annual growth rates (before inflation) continue, e-tailing could generate $420 billion to $650 billion in sales, and China’s market will equal that of the United States, Japan, the United Kingdom, Germany, and France combined today.³Patterns of future change are coming into focus.

Retail modernization

E-tailing will continue to transform the retail sector. As competition among e-tailers has lowered prices, it has also both increased the size of the consumer market and created efficiencies in the important adjacent markets that support e-commerce—logistics, supply chains, IT services, and digital marketing. This efficiency edge should force brick-and-mortar retailers to modernize and pave the way to a more efficient coordination of supply and demand across the Chinese economy.

One cloud hanging over the e-tailing scene is a growing talent shortage resulting from heady growth. Eventually, it could raise labor costs and hamper expansion plans unless e-tailers significantly improve their labor productivity, which at best matches that of physical retailers. The good news is that if the online ecosystem learns from developed markets, e-tailing’s productivity should rise as high as two to four times that of offline retailers.

Meanwhile, China’s store-based retailers, and the manufacturers that supply them, will need to place some new bets—soon. Many have yet to fully embrace multichannel strategies, focusing instead on the sizable growth and consolidation opportunities still available in their brick-and-mortar businesses. They’ll have to decide whether to join existing e-tail marketplaces or establish their own online storefronts and whether to own parts of the value chain (such as distribution and IT) or use third-party suppliers.

To what extent will e-tailers bypass virtual marketplaces?

As the e-tail ecosystem diversifies and matures, merchants that today use digital marketplaces may find it tempting to pursue growth by operating independently. To do so, these companies must go beyond current strategies, which depend chiefly on products and prices, where competition already is fierce. Instead, to build a strong online brand, e-tailers will need to dedicate management resources and investments to creating an attractive package of value propositions—superior customer service, fast and reliable delivery, a better shopping experience, or more targeted marketing. That will require a new level of capabilities and, perhaps, partnerships with experienced players outside China.

Consumer companies: Threats and opportunities

Since marketplaces hold the leading share of China’s e-tailing market, they are a natural place for consumer-products manufacturers to focus when they enter China—or grow outside its leading cities. Marketplace ecosystems provide a business infrastructure to reach customers at a reasonable cost. That infrastructure is particularly valuable for new entrants, which may find it an economical way of testing a market’s temperature. Uniqlo, for one, used a combination of marketplaces and service providers when it started its online apparel business in China in 2009.

At the same time, however, e-tailing innovation is creating more competition. New entrants have sprung up on the major e-tail marketplaces (known as Taobrands on the Taobao marketplace) to sell lines such as apparel and cosmetics directly to consumers. With products sourced straight from workshops and OEM factories, and sales stimulated by targeted marketing campaigns, these immensely popular companies offer good quality and attractive prices.

Meanwhile, China’s model and innovations are spilling beyond its borders. Other emerging economies are developing e-tailing markets that could follow China’s business model—and potentially achieve similar growth rates. China’s new marketplace sellers are expanding internationally, leveraging their direct access to Chinese workshops and OEM factories. Global consumer-goods players should be ready to face competition from Chinese small and midsize enterprises and microbusinesses selling directly through marketplaces in emerging economies.

China may have largely sat out the 19th-century Industrial Revolution, but as the explosion of its new consuming class continues to reshape 21st-century economic life, e-tailing and the Internet revolution have important roles to play. E-tailing is boosting the Chinese consumer’s propensity to spend. The distinctive course charted by the country’s e-tailers is having an impact on merchants, consumer-product companies, and value-chain partners. And it’s widening the field of opportunities for players both in and outside China. With continued robust growth, changes in industry business patterns that are already under way will only grow in importance.

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Printed with permission from McKinsey Global.

About one-third of early buyers in Japan say their next car may not be an electric vehicle. Companies should heed their complaints.

If electric vehicles (EVs) are to develop from a niche into a mass market, car makers should learn from early adopters who say they may not buy one again. Our recent research on such consumers in Japan finds that about one-third of them fall into this category. These buyers said they were “seduced” by low energy costs, attractive subsidies, and a good test drive. But they were less well informed about EVs than were environmentally conscious “green enthusiasts” (who love EV technology for its low energy costs and comfortable driving experience) and became less enthusiastic about their purchase when they faced issues such as higher electric bills and locating places to charge their cars. To lock in the reluctant buyers, EV makers should adopt retention and education programs to avoid negative market feedback that could “poison the well” for new buyers. We also found that although early adopters weren’t concerned about price, nonbuyers were. Until prices drop to the point where the level of mass-market uptake stimulates infrastructure development, manufacturers must learn how to build customer loyalty to broaden the market for EVs.

Additional Findings:

1. Approximately one-third of early adopters in Japan may not buy an electric vehicle next time.
2. 58% of electric-vehicle buyers with 58% satisfaction rating said they would not choose an electric vehicle for their next car purchase.

Adopted from McKinsey Quarterly.

Asia’s conglomerates

Conglomerates are shaping the competitive landscape in Asia. Would-be rivals must understand them to compete with them.

Conglomerates may be out of favor in much of the developed world, but don’t tell that to senior executives who contend with fast-growing conglomerates in major Asian markets, where this business model remains a competitive force.

McKinsey research finds that over the past decade, the largest conglomerates in China and India expanded their revenues by more than 20 percent a year, while conglomerates in South Korea exceeded 10 percent annual revenue growth (see sidebar, “About the research”). These companies diversified at a blistering pace, making an average of one new business entry every 18 months. The nature of those moves was striking: nearly half of the companies favored businesses that were completely unrelated to the parent companies’ operations.

Of course, only time will tell if Asian conglomerates’ “step out” approach to diversification will endure as the region’s economies mature. Nor is it clear how much shareholder value will be created—and sustained—by these companies’ growth. Nonetheless, a closer look at its characteristics and at the aggressive, M&A-fueled strategies that sustain it offers insights for senior executives seeking growth in Asian markets and gives potential entrants a useful glimpse into the evolving nature of competition there.

Big and growing

Over the past decade, conglomerates in South Korea accounted for about 80 percent of the largest 50 companies by revenues. In India, the figure is a whopping 90 percent. Meanwhile, China’s conglomerates (excluding state-owned enterprises) represented about 40 percent of its largest 50 companies in 2010, up from less than 20 percent a decade before. All these companies generated strong topline growth: an average of 23 percent a year over the past decade for conglomerates in China and India, and 11 percent for those in South Korea. Such growth is remarkable considering the large size of the companies involved—an average of $3 billion in revenues a decade ago and $12 billion in 2011.

Stepping out

When we looked more closely to determine the sources of this revenue growth, we found a strong connection with new business entry. The average rate of revenue growth for companies that entered at least one new business over the period we studied was 25 percent a year—more than two times higher than the revenue growth of companies that didn’t.

Also notable were the strategic motivations behind the new business entries. Fully 49 percent were step-out moves into businesses completely unrelated to the parent companies’ existing activities—for example, a South Korean chemical company acquiring a life insurer or a Chinese mining group’s expansion into the media industry. The remaining half were about equally split between two kinds of moves: category expansions into adjacent businesses and value-chain expansions that positioned the parent company up- or downstream from its existing business.

Large returns, large risks

Although step-out moves were the most common form of new business entry we observed, they were far from the most successful. Just 22 percent of those we studied had a beneficial impact on revenue growth, profits, and market share relative to those of competitors. In fact, our findings almost certainly understate the difficulties involved in diversifying into entirely new businesses, since companies rarely publicize the full financial and organizational implications of unsuccessful moves. Nonetheless, when step-out moves were successful, they delivered strong results—$3.8 billion in additional revenues, on average.

Regardless of how related the new business was to the existing one, the most common paths to success were M&A, joint ventures, and technology partnerships. Together, these accounted for three-quarters of the successful moves we studied.

Outlook and implications

Given the rapidly changing business climate in much of Asia, we believe senior executives in other regions should approach these findings judiciously. Certainly, not all Asian companies will follow the path of the conglomerates we examined. For example, state-owned companies and companies in markets with strong traditions of board governance (such as Malaysia) might find it difficult to convince skeptical boards of the need for bold step-out moves. Furthermore, if governance structures in Asia continue to evolve toward the shareholder-driven models prevalent in Europe and the United States—away from family-ownership or -control models that can introduce major shareholders’ personal interests into the equation—the growth patterns will probably change.

Nonetheless, there are equally valid reasons to believe that Asian conglomerates’ push for growth through aggressive diversification could continue for some time. For starters, many Asian conglomerates have ready access to capital, as well as aggressive growth ambitions that cause them to view strong local reputations and relationships as platforms for stretching into new areas. They seem to be particularly attracted to nascent industries, such as green energy, where dominant global leaders have yet to emerge. Local market dynamics also play a role. Ambitious conglomerates in smaller Asian economies, for example, may seek growth in new geographies given the relatively limited opportunities at home.

High growth aspirations intersect with a singular feature of emerging Asian economic life: the extraordinary need for infrastructure, since conglomerates are often involved with it. Finally, they can offer up-and-coming managers broader career-development opportunities, boosting their attractiveness to local talent in a region characterized by tight talent markets. Potential competitors will be well served by developing a better understanding of these and other sources of the conglomerates’ advantage.

The bottom line: business leaders in Asia are building large, fast-growing companies around the conglomerate business model. Understanding the drivers of that growth may give competitors and emulators alike a firmer footing in a volatile business environment.

The CEO of a global staffing firm and a Nobel laureate economist discuss the changing face of US employment and the obstacles to job creation.

The US economy has lost seven million jobs since 2007 and remains in the grip of a weak and largely jobless recovery that could take five more years to restore prerecession levels of employment, McKinsey research indicates.

In this video, two experts examine the jobs issue from two different vantage points. Carl Camden, CEO of Kelly Services, a global staffing company that manages external workforces for corporations around the world, describes fundamental changes that have occurred in the nature of work. In response to globalization and fast-changing technology, entire categories of jobs can now disappear with breathtaking rapidity. That has led to a big expansion worldwide in the number of people who work under new forms of employment: part-time, temporary, contract, even fractional workers who put in their hours where and when they can. But while the US workplace has changed, Camden argues that tax and benefit policies have failed to keep up.

Michael Spence, recipient of the 2001 Nobel Prize in Economics and author of The Next Convergence: The Future of Economic Growth in a Multispeed World (Farrar, Straus and Giroux, May 2011), sees structural changes in the economy that present major challenges to job creation. A loss of middle-class jobs in the tradable sector—mostly manufacturing—was offset largely by jobs in the non-tradable or service sector during the housing bubble, thanks to debt-fueled consumer spending. When that binge ended, many of those service jobs disappeared as well. Filling the void will be neither easy nor quick.

Hear what these two experts have to say about jobs in America.

You can download a PDF of the transcript.

A rebound signals opportunity—and a need for flexibility as the market evolves.

While the private-equity business remains in the doldrums in much of the world, the Asia–Pacific region stands out as an exception. A recent McKinsey report, Private equity Asia–Pacific: Is the boom back?, shows that in 2011, Asia was the world’s only major region where these firms’ total investment values returned to 2006 levels—a total of some $65 billion (exhibit). At 21 percent of global deal values, Asia’s share of the private-equity business is now close to matching Asia’s share of global GDP: 28 percent. Yet the gap between the two figures leaves substantial room for growth: on average, the ratio of private-equity investment to GDP among Asian countries is less than half that of the United States or the United Kingdom.

Taking advantage of the opportunity will mean confronting rapid changes. Among the most notable is a sharp increase in deal volumes, which are growing faster than total deal values almost everywhere in Asia. Across the region, volumes more than doubled, while values have risen by only 40 percent. The size of the average deal is therefore falling.

Consequently, investors feel new pressure for strategic innovation, especially in light of a steady (if slow) recovery in fund-raising. More money chasing smaller deals may strain some players’ current business models. Partly as a result, partnerships with strategic acquirers are becoming increasingly common, reflecting Asia’s newfound prominence as a source of outbound M&A. The number of “cornerstone” deals, in which a fund takes part in an initial public offering (IPO) by agreeing to hold its shares for a certain period of time, has also continued to increase, despite a weak IPO market in much of the region. And investors are pushing into countries, including Vietnam and Indonesia, that previously attracted little attention.

Change also marks the exit stage of investments, both for general partners and limited partners. For the former, volatile public-equity markets meant that, on the whole, exits were down by almost 40 percent in 2011—especially via IPOs (notwithstanding a few notable exceptions), which fell almost 60 percent. But for the latter, the news is more encouraging: a maturing market for “secondary” funds (which invest in limited partners’ interests in existing funds) has increased the liquidity and flexibility of limited partners’ investments.

The report then provides an in-depth look at the six diverse markets that together account for virtually all private-equity investments in the region: Australia/New Zealand, Greater China, India, Japan, South Korea, and Southeast Asia. Among the highlights:

• China alone accounted for almost 45 percent of Asia’s 2011 activity, but slowing economic growth has raised concerns about that trajectory’s sustainability.
• In India, by contrast, the private-equity business’s growth has rested almost entirely on small deals. Combined with rising dry-powder levels, greater local competition, and persistent regulatory uncertainty, the emerging picture is that of a traditional operating model under greater pressure than ever.
• Southeast Asia saw a number of high-profile deals, with Indonesia and Vietnam generating particular excitement, along with Myanmar, whose attempts to emerge from decades of sanction-enforced isolation have caught many observers by surprise.
• Among Asia’s mature markets—Australia/New Zealand, Japan, and South Korea—Japan saw the most significant changes in 2011. For investors locking in currency gains, the rising yen made exits especially attractive: exits doubled in number over 2010 and more than quadrupled in value.

Download the full report, Private equity Asia–Pacific: Is the boom back? (PDF 576 KB).

Companies whose social investments focus on women in developing economies help not only the recipients but also themselves.

Few companies make social investments specifically aimed at empowering women in developing economies, but we believe that supporting this goal is good business and good practice for all companies. In the course of our work, we’ve uncovered a startlingly wide range of ways in which private-sector companies can offer sizable economic benefits not only to women and their societies but also to the companies themselves. The benefits to businesses come from enlarging their markets, improving the quality or size of their current and potential workforce (for instance, by attracting talent globally), and maintaining or improving their reputations.

Women in developing economies are hampered by many of the same concerns that face women in other countries, but they also deal with a number of additional barriers to economic security. In some cases, these problems are straightforward—girls getting less food and education than boys, for example. In others, they are as complicated as the difficulty women in many countries have in keeping control over money they may earn (because of regulations or long-standing cultural traditions that prevent them from having secure access to bank accounts), owning property, or acquiring loans.

Women’s unfulfilled potential significantly hinders economic growth. One recent study, for example, estimates that lower education and employment rates for women and girls are responsible for as much as a 1.6 percentage point difference in annual GDP growth between South Asia and East Asia. On the other hand, educated, income-earning women are especially powerful catalysts for development because they tend to invest more of their money in their families’ health, education, and well-being than men do.

Nevertheless, only 19 percent of the respondents to a recent McKinsey Quarterly survey said that their companies had invested in economic-development activities specifically aimed at women in developing markets. Yet 83 percent said that economic growth there was at least somewhat important to their companies’ success over the next ten years. (Read more in the accompanying survey results, “Rethinking how companies address social issues: McKinsey Global Survey results.”)

Companies whose social investments do focus on women in developing economies, the survey and our other research show, benefit not only women and their societies but also themselves. Among survey respondents, 34 percent say that such investments have already improved profits, and a further 38 percent expect them to do so.

Even more notably, our research shows that private-sector companies can create such benefits with a much broader range of measures than most executives believe. Promoting literacy, for example, offers a straightforward link to improved workforce productivity—but, it turns out, so does providing antiretroviral drugs to workers’ families. Anglo American, a mining company, extends HIV antiretroviral benefits to dependents (mostly women and children) of its employees in Africa. It has benefited from increased worker loyalty—retention rates are up—and from fewer missed workdays by employees who would otherwise need to care for sick family members. Furthermore, the communities Anglo American is serving now see lower infant mortality rates and healthier children.

Hindustan Lever’s Shakti program, meanwhile, tapped into the significant potential of empowering women to reach markets the company couldn’t otherwise. Launched in 2000, the program offers microcredit grants that enable rural women to become direct-to-home distributors of Hindustan Lever products. This new sales force has significantly boosted sales of the company’s products in rural villages, a market that is otherwise dauntingly expensive to reach. By the end of 2008, the Shakti network had grown to include more than 45,000 saleswomen covering more than 100,000 villages and more than three million homes in India.

Private-sector programs can also give companies longer-term or more intangible rewards, such as maintaining a positive brand image or creating a more educated workforce or wealthier consumers. In India, Standard Chartered recently partnered with the International Federation of Netball Associations to build a program designed to use the sport to develop the life skills and self-esteem of girls between 14 and 16 years of age from families earning less than $2 a day. Piloted in Mumbai and Delhi, and currently being significantly expanded, the program includes an additional direct economic-empowerment component: a loan fund to help girls achieve their professional goals.

Private-sector companies, we’ve found, can make development investments in programs that help girls and women throughout their lives—from infancy through education, preparation for work, support in the workplace, and ensuring financial security. For each stage of women’s lives, we’ve distilled a set of high-impact actions, which range from offering prenatal care and infant vaccinations to providing onsite bank accounts ensuring that female employees control their income and retirement savings. Companies don’t have to go it alone: successful ones, we’ve seen, design and implement their investments collaboratively with the women they’re trying to help, nongovernmental organizations with relevant experience, and other companies with similar interests. They can create real benefits for everyone by creatively combining an interest in empowering women in developing markets with a strategic assessment of where doing so can help meet corporate goals.

We invite you to share your experiences. Has your company acted to empower women economically? Are you the beneficiary of an economic-empowerment program? What results have you seen?