The World Is Flat
BA Forum Moderator
Most of my posts, I know, have become quite few and far between. I
will try, however, to make it up to you by posting here some of my new
readings. One of the few that caught my interest is NY Times columnist
Thomas Friedman's new book, The World Is Flat.
The book tells us about how globalization is changing the market place,
as well as the job or career landscape for IT professionals like us.
Below is an excerpt from an interview with the author.
Oh, btw, welcome to all the new members!!! The world is, indeed,
flat... we have colleagues in the egroup from North America and India.
Please feel free to send in your posts, and whatever relevant articles
that you know of.
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The New York Times's Thomas Friedman on Globalization
By Ellen Pearlman and Dan Briody
In Lexus and the Olive Tree Thomas Friedman argued that economic
interdependence equals prosperity and peace. In his new book he says
the argument's over; globalization is here and it's good. But
succeeding takes work, forethought, and resistance to "idiots" who say
borders protect us.
A well-worn map of the world stretches the entire length of one wall in
Thomas Friedman's Washington, D.C., office. Friedman, a foreign-affairs
columnist for The New York Times, has marked the map with star-shaped
stickers of red, gold and blue to indicate the myriad places he's
traveled during his Pulitzer Prize-winning career, but, lately, he has
fallen behind. "My daughter and I have to update that," he says.
Friedman's map needs updating because he has just spent the past ten
months circling the globe anew, researching and writing his forthcoming
book, The World Is Flat: A Brief History of the Twenty-First Century
(Farrar, Straus and Giroux, April 2005). A follow-up to Friedman's
best-selling The Lexus and the Olive Tree (his first attempt to
understand globalization), The World Is Flat delves even deeper into
the phenomenon he believes is reshaping the economic, cultural and
political landscapes of the world.
Friedman views globalization as a positive trend, but he admits to a
healthy degree of ambivalence. "A lot of this stuff is very worrying to
me," he says, in between fielding calls from Pakistan and Lebanon. "But
I'm also really excited about certain aspects of it." Friedman believes
that globalization is greatly misunderstood in this country-that it's
seen as something to be feared and legislated out of existence. "You've
got Lou Dobbs out there really making people stupid," he says. "But I'm
not trying to convert anybody. I'm just trying to explain globalization
to the world. You ignore it at your peril." Editor-in-Chief Ellen
Pearlman and Executive Editor Dan Briody caught up with Friedman in
between trips to discuss his views on this flattening world and its
consequences.
CIO Insight: Globalization is a highly charged political issue. Is it
fundamentally misunderstood in this country?
Friedman: Writing this book was a bit like being in a Twilight Zone
episode, because I would go around and interview all these CEOs and
CIOs, and they would tell me what they're doing in terms of
outsourcing. And they know just what's going on, and they're doing it
like crazy. But nobody's told the kids. They're like pod people,
they're off doing their thing, but nobody's told the kids.
And they haven't told the kids because of all the political and
economic sensitivities. As a result, we're now entering what I think is
a fundamental paradigm shift. A truly disruptive,
Gutenberg-printing-press-like paradigm shift, and nobody's told the
kids.
And we just went through a campaign where the Democrats were debating
whether the North American Free Trade Agreementis a good idea. Eh,
hello? And the Republicans put duct tape over [White House Chief
Economist] Greg Mankiw's mouth when he suggested outsourcing might be a
good thing, and they stashed him in Dick Cheney's basement. We just had
an election that history will look back on and laugh, because we had an
election at a time when the world basically went from vertical to
horizontal, and nobody talked about it.
What I am trying to do is say that something important really is
happening. The value-creation model is moving away from a vertical silo
model to an increasingly collaborative horizontal model, from command
and control to collaborate and connect, and that's going to change
everything.
Another reason that nobody is talking about it is that there was this
triple convergence, a kind of perfect storm, that obscured it all:
Sept. 11, the dot-com bust and Enron.
Because of Enron-despite the slavish, pro-business attitude of the Bush
Administration-you don't see the President spending a lot of time
around CEOs. You don't see the President coming out and saying, "We
need to have an increase in the National Science Foundation budget-not
a $100 million decrease-so corporate America will have more raw
material for innovation." I think that's the Enron effect. I know it
is, because CEOs have told me so.
And then, of course, the dot-com bust made everybody stupid, thinking,
Oh, this globalization thing might be over. And Sept. 11 completely
distracted us.
Not everyone is as optimistic about this flat world as you are. Why is
that?
You can understand why businesses don't want to [be openly optimistic
about it], because we have all these people out there. They don't want
to be a Benedict Arnold executive. And you've got a major
cable-television news show that has twisted itself into a platform for
the anti-outsourcing movement and made all its viewers stupid. And so
you create an environment where, if you defend this thing, you're Daddy
Warbucks or some plutocrat.
It hasn't stopped me in the least, as you can see. I couldn't care
less. I know what globalization is, I know its potential. I'm positive
about the potential, and I'm also very clear about the price of the
flat world and what we have to do about it.
CEOs are all worried about their brands. But companies that outsource,
outsource to win. They're not outsourcing to shrink. Show me a company
that's outsourcing just to save money, and that's a company whose stock
I want to short. They're outsourcing to do their innovative turns
faster, to grow their company larger, in order to hire more people
everywhere, in Los Angeles and Bangalore. That's why they outsource.
There's the impression that you've got to outsource to save money in
order to give it all to the CEO. I'm sure there are companies that do
that. Just tell me who they are, because I'd like to sell their stock.
But if U.S. companies can't talk about it, and if politicians can't
talk about it...
Then it's a real problem, and that's why this could all stop, and
that's why I wrote this book, because I think the new world is one that
we can benefit from. And part of this new world is taking advantage of
the ability to source any kind of product or any kind of service from
anywhere in the world.
What that means is we're connecting all the knowledge pools in the
world together. That's really cool, but it has all kinds of other
implications. And I wanted to write a book that simply said, let's
debate about this world, let's debate what new cushions we need, what
new fat we need, what new muscles we need to develop, but let's do it
on the basis of the world as it really is, not some imagined or
hyped-up version.
So I hope the book will contribute to an intelligent debate on the
subject-about a big transition that is going to be really good for some
people, wrenching for other people, maybe good for America as a whole
but bad for certain parts of America. It's going to be all of those
things.
Can we get more specific about who benefits and who loses?
Imagine if America were the only country in the world, and there were
only 100 people in America. We would have 80 knowledge workers and 20
manual laborers. And our manual laborers would be paid partly in
relationship to the number of knowledge workers; that is, they're a
fairly small pool. So if you want a nurse or if you want a factory
assembly-line worker, if you want a nanny or if you want someone to
work at McDonald's, there's actually rather a scarcity of them. So the
wages of those people aren't going to be what the CEO makes, but
they're also not going to be doing what the CEO does. Still, their
wages aren't going to be flat, either, because they're going to be paid
relative to the number of knowledge workers in our 100-person economy.
Now this imaginary world expands and there are two countries-America
and China. China has 1,000 people, and we have a free-trade agreement
with them. So now we have two countries in the world, and they are
totally integrated with free trade. We have 80 knowledge workers and 20
physical laborers. China, with its 1,000 people, also has 80 knowledge
workers, but they have 920 physical laborers.
Now we're in a two-country world with a total of 160 knowledge workers
and 940 physical laborers. If you're one of those knowledge workers,
you're going to do fine in this world. Why? Because the market for
knowledge products has just expanded from 100 to 1,100. And, remember,
knowledge people sell ideas and idea-based products, so they can be
sold to everybody. When you make a copy of Microsoft Word, all 1,100
people can potentially buy it. If you're working on a factory line,
there's only one factory that can buy your labor, and you're now
competing for that one factory job, not with 20 anymore, but with 940
people.
So what does this mean? For knowledge workers, it means this is going
to be a great world. You're going to do fine. You will have to move
horizontally at most. Ideally, you're going to have a lot more
companies that want to buy your product, and you won't have to move at
all.
The people in the 940 pool-physical laborers-they have a real problem,
and there's just no getting around it. They cannot move horizontally.
They have to move vertically. They have to get into the pool of
knowledge workers who sell their products to the 1,100, not just to the
one. And that's why I have a whole chapter on "compassionate flatism,"
about how we need to think about bringing more people up because they
can't just step sideways.
So I'm not worried, frankly, about you, and I'm hopefully not worried
about my kids. They're going to do fine. They're going to have a career
that's very different from anything I may have ever contemplated, but
they're going to do fine. But I do worry about John and Sue who are
working in the furniture factory in North Carolina. This is not a good
transition for them. They have a problem.
What about the IT worker?
Oh, the IT worker, that's all a bunch of nonsense. Show me a qualified
software engineer today anywhere in America who is looking for a job
and can't find one. Some of them may have had to move a little
horizontally. But show me one person who really has qualifications, is
an IT knowledge worker, and just cannot find a job. I don't believe
that.
We do get mail from people like that. What's going wrong for those
people who are not finding jobs?
I have no idea. Maybe they're not upgrading their skills. I'm
foreign-affairs columnist for The New York Times. Do you know how much
work I had to do to figure out how to write this book? You know what I
had to do to upgrade myself? I didn't have to write another book about
globalization. I went to Bangalore and realized, holy mackerel,
something's really changed, and I don't understand it. I called the
publisher at The New York Times and said, "I need a leave. My
paradigm's out of date."
It was as if I were an IT worker who only knew HTML. I didn't know
anything. I'd never been to Bentonville, Arkansas, and Wal-Mart. UPS to
me were funny guys in brown shirts who delivered stuff in brown trucks.
I didn't know XML from the NBA. And I went and I killed myself to learn
all this stuff in order to keep my skills relevant.
So if you think you can just know HTML and you're going to be fine in
this world, well, that's good work if you can get it, but the world is
flat, and I didn't flatten it. And if you're going to sit back and say,
"Wait a minute, I'm an IT worker and I'm entitled to a job"-well,
you're not. There is no such thing as an American job. There's no job
that's got your name on it. And you're going to have to get over that.
That's what I mean by telling the kids.
So basically people have to work harder.
Yeah. We all have to work harder, starting with me, because we're
competing against a wider pool. But if you do work harder, there are
going to be some incredible niches out there. Don't be surprised if
your kid comes home from college and says, "Mom, Dad, I want to be a
search-engine optimizer when I grow up." And the parents think, What
the hell are you talking about?
Look at this whole new field that's opened up called search engine, all
these firms that opened in Silicon Valley. Five years ago, no one had
ever heard about how to get your company ranked higher on Google,
Yahoo! or MSN Search. They're called search-engine optimizers and they
combine math and marketing, because search engine is all about
algorithms. So it's a whole new specialty created in the flat world.
A lot of people think, Geez, everything that's been created has been
created, everything that's been invented has been invented. But all
these new specialties are opening up, and no one's going to hand them
to you. It may be Jao in China who becomes a better search-engine
optimizer than you, but that job is opening up precisely because the
world got flat, and Jao now has a chance to Google.
What will happen to all our entry-level jobs? How will people get
started in this country?
It's a real problem. That's a real problem, and one of the things I
worry about is that to be a high-end software engineer, you need to
start as a low-end software engineer. But that's only if you think the
pie is fixed. See, if you think that all the software jobs in the world
have already been invented, and, therefore, there's only one way up,
then you have a problem.
And by the way, have you seen what's happened to wage rates in
Bangalore in the last year?
They're going up.
They're going through the roof. See, their wages are going to rise to
ours because there's now a bigger market for all the knowledge people
to play into. The wage rates of the physical-labor people are going to
go down in this bigger market.
Did you know that [India-based] Tata Consultancy Services has just
opened a new office in Montevideo, Uruguay, to take advantage of the
engineering talent there to manage GE's supply chain in Latin America?
They've seen what's happened to the wage rates in Mumbai. So that's
what happens.
One of the hardest things about explaining all of this is that it takes
a leap of faith. Look, if the critics were right, then why isn't our
unemployment rate now 25 percent instead of 5.2 percent? I mean, if the
world was the way they described it, then how is it that there are
search-engineer optimizers dying to hire people today in Silicon
Valley? So something's wrong with their analysis.
So the nature of the entry-level positions changes.
Exactly. So if you sit there and say, "I can't be a software
engineer"-well, yes, you can, but it may be that you're going to get
into the field as a search-engine optimizer and not as a classic HTML
developer.
Look at Intel, a really good example. Ten, 15 years ago, look at what
happened. China and Taiwan started making chips. And then they started
moving up the chip value chain, they didn't just sit there making
commodity chips, and people thought Intel was finished. Intel's doing
fine. Why? Because Google invented Google search, and the kind of chips
you need for Google search are really specialized. So the Taiwanese
semiconductor companies were specializing in one aspect of it, and
Intel could specialize in another.
The market doesn't just expand, it becomes more complex. It produces
more and more niches, and in those niches you're not competing against
the whole world. You may be competing against one other company or
yourself. And that's why Intel is dying to hire engineers today. But
what are they dying to hire? Not HTML engineers. Optical engineers,
very high-level engineers.
All of this assumes that the U.S. continues to innovate at a rate that
exceeds the rest of the world. Are we set up to do that?
I worry about that. We have all the necessary ingredients-we have the
best university system, the best financial market system, and a real
free market. But we're not tending to the secrets of our sauce.
So what needs to change?
Oh, a lot of things need to change. First of all, we need leaders who
will dare to describe the world to us as it really is and make us
smart, not make us stupid. Leaders who don't make us believe that any
CIO or CEO who does this is a Benedict Arnold. Jobs are produced by
thriving companies that are growing, and they may be produced all over
the world, that's a good thing, but plenty will be produced here.
And look at companies that outsource and thrive. Let's look at their
makeup. Who's here, which jobs stay here? The CEO, the CIO, the CTO,
all the top sales people, usually all the top technology people, and
all the people who've got to deal with the product in the market,
because the first adopters are here. So the best jobs in the company
are the ones that stay here, and the other jobs get sourced out around
the world.
That means two things. One is that where the innovation happens
matters. It matters that Google is in Mountain View, Calif. Look at all
the jobs they've spun off, and then all the jobs to jobs, like the
shopping centers and the gas stations and the restaurants and the
housing market. So thank God Google's in Mountain View and not in
Mumbai.
For now. But there are many companies in India and other countries that
are innovating and enjoy an economy more geared to competing in a flat
world.
Absolutely, and we'll have to work harder and faster to stay up with
them. But again, it ain't a fixed pie. And it'll only benefit us if
we're educating our people to take advantage of the bigger market and
the niches it will be creating. And I argue that we are not doing that.
We're in a quiet crisis where we are not producing the math and science
and engineering talent we need, and we're no longer importing it at the
level that we need because of Sept. 11. At the same time, the flat
world means you can innovate without having to emigrate, and when you
can innovate without having to emigrate, you don't have to come here.
But the first adopters are still here. Now maybe in ten years that's
not going to be true, and they'll be in China, but right now the first
adopters are here. So there's no product China can launch that's going
to have a global scale to it.
Won't other countries move up the food chain? Don't they want to be
where the U.S. is today?
That's right. They want to race us to the top, not the bottom.
So will the U.S. continue to have an advantage?
Potentially, yes. I still believe that we are so far ahead in so many
areas. Let's just take capital markets. If we go through our Social
Security reform, as the President has proposed, and you can invest your
Social Security, how many people would like to be invested in the
Shanghai stock market? I sure wouldn't want my mother to be investing
her savings in the Shanghai stock market.
People will say, "Oh, come on, Friedman, I mean, we have Enron." But
our capital markets are what they are not because we don't have Enrons
and others do. What distinguishes our capital markets is that we have
Elliot Spitzer and others don't. It's not that we don't have cowboy
capitalists here who are criminals. But what distinguishes our markets
is not Enron, it's Sarbanes-Oxley. It's that we actually address these
kinds of problems. That's still a big deal for a lot of the rest of the
world.
Some people view Spitzer and Sarbanes-Oxley as hindrances to America's
global competitiveness.
I think that's about as dumb as the day is long. Anyone who believes
that is an idiot. The rule of law is one of our competitive advantages,
and that's not to say that at times regulation can't go too far. But
I'd rather err that way, and reel it back, than not have it at all.
Ask people in Indonesia what they'd give for one day of Elliot Spitzer.
Ask people in the Russian stock market what they'd give for one day of
Janet Reno or the Securities and Exchange Commission.
What is guiding globalization? Is it the corporations?
The dynamic element of globalization is neither countries nor
companies, but the individual. The unique thing about this era is going
to be the ability of the individual to globalize.
Now I believe corporations have a huge responsibility. For example,
when Hewlett-Packard is in negotiations with the government of Canton,
China, about opening a factory, its leverage is enormous because the
stakes are so high for the local government. So H-P could come in and
say, "You know what, we'll open this factory here, but you know those
laws you have about dumping water in the river, we can't live up to
those. So you're going to have to turn a blind eye to that. And we
believe people should work 12 hours a day, not eight hours a day."
So the fact that companies resist doing that, for the most part, is
hugely important, because they can have just the opposite effect. They
can be the ones who tell the government of Canton, "You know, knowledge
workers like to live in places where the air is clean and where there
are parks, and we're a knowledge company. So we'd love to come to
Canton, but we're going to need a park here, and to attract Chinese
knowledge workers, you have to clean up your water and clean up your
air."
Companies should think about using supply chains to transmit values,
not just value. We've seen two breakthroughs on this in the last six
months: McDonald's partnership with Conservation International using
its supply chain to promote species preservation, and the H-P-Dell-IBM
alliance to use their supply chain to promote minimum standards on
child labor, environment, worker standards, all those things.
A lot of people just want to pass a rule. "What we need is global
government. If only there were a global government that would tell
these companies you ought to do this." Well, guess what? If you don't
have people at the local level to implement that global rule, it's not
going to get implemented, and you can pass whatever rule you want.
I don't want to rely on any company to implement these values, but they
can be enormously supportive in reinforcing a rule that's been made.
And that's why I think they have to understand that, and I would argue
the best companies do understand it. H-P's got a senior vice president
for global governance now.
What role should government play in globalization?
Oh, yeah, a huge role for government. And I think the most important
role for government is to strengthen its people to be untouchables.
Untouchables are people whose jobs cannot be outsourced. So government
needs to build the infrastructure, both human and physical, for people
to take advantage of the flat world, and that means everything from the
IT infrastructure to college education, which I think should be
compulsory in the sense that government will make it possible for every
American to have a college education. Our motto should be not a man on
the moon, but a man and woman on every college campus.
These are wonderful goals...
Somebody's got to put them out there.
But are you optimistic that these can happen?
Or am I just naïve? It's my nature. Yeah, well, let's take corporate
values, for example. You're going to get everything and its opposite.
You're going to see companies doing outsourcing so the CEO can triple
his wages and make off like a bandit. But I think that companies that
want to survive are companies that will want to do well for their
employees and their customers.
Look at Wal-Mart. One of the biggest companies in the world, grew by
leaps and bounds, and just last night I saw this Wal-Mart ad about a
guy going to the emergency ward, and only because of his Wal-Mart
health plan could he do this. Forget the ad. Wal-Mart got the message
that they were perceived by their customers as not being the best
global citizen they could be, and in a flat world that really matters.
They've been in denial for a long time. Then they admit the problem.
The good news is [Wal-Mart CEO] H. Lee Scott, in an interview for this
book says, "You know, I've got to come clean on this, we have a
problem. We were not as good as we should have been." He didn't come
out and say, "You don't understand, Tom, locking people in Wal-Mart
overnight is a good thing."
What about the small company in the U.S. that is used to a different
way of doing business. Do they have to think about being global
companies now?
Yeah, otherwise they're going to get hungry. And what's interesting
about this era is that we're seeing the birth of what I call the micro
multinational. In the old days, somebody starting a company would say,
"We dream one day it'll be a multinational." Now, they're a
multinational from day one.
And why? Because they're taking advantage of the flat world. And why
are they doing that? Because their venture capitalists came to them and
said, "In the old boom days, we could give you $500 million because we
knew that, if you did well, it was going to reap us $1.2 billion. Now
we can give you $50 million, and you're going to have to complete that
innovative turn much faster, because we want our money back. Because
out of that $50 million, we will only reap $175 million if everything
goes in the IPO, and you have to do it faster because the capital's not
there." And so from day one, they will be a multinational. We're seeing
the birth of the micro multinational.
And that means a lot of things for CIOs, because now one of the skills
of their job is managing a global knowledge supply chain across 24 time
zones and different nationalities. Suddenly there's a whole new job in
companies-manager of the China supply chain. This is going to be a
business school course: managing global supply chains. Another new
business school course is going to be how to use Google, how to get the
most out of search. And there's going to be a CIO Insight honorary
professor of Googling at the Wharton School, and you may hold the first
chair.
How does a CIO manage through a time of change like this?
The smartest things that I've seen companies do is trying to make their
employees "versatilists," which is another word for untouchable.
Versatilists are people who don't just know XML, they also know how to
do distributed computing.
You take every employee, and you make this bargain with them: We cannot
guarantee you a lifetime job, nobody can. But we can guarantee you that
while you're here, we'll give you every opportunity to really become a
versatilist. So if you stay here, you're more valuable to us because we
can move you from here to here to here to here. And if, God forbid, we
have to lay you off because we've found other ways to do this job
cheaper or more efficiently, you'll be that much more marketable
somewhere else.
And the thing about learning today-about making people versatilists-is
that with online systems it's so cheap and so easy for people to really
upgrade their skills. But you have to have your thinking cap on as a
CIO and be constantly incentivizing people to take courses online, so
you're producing a smarter and smarter workforce all the time that will
be more versatile, more adaptable.
That sounds great, but it also sounds expensive. Is it realistic to
think that many companies will invest the time and money in their
employees?
What's expensive is not doing it, and having one employee that can only
do this and another that only does that. And outsourcing, that's not an
easy thing for a company to do. It's not simply, "Oh, we'll just go to
India then." It's really complicated. I'd much rather be educating a
versatilist. I don't think expense is the problem. I think imagination
is the problem. But I think that's the bargain that's going to replace
lifetime employment.
Do you think CIOs will even have an IT department to manage ten years
from now?
One of the things that the best companies do is they get regular chest
X-rays, and then sell the results to their customers. They're always
looking inside themselves, seeing their core competencies, the things
that really distinguish them. Then a company such as H-P can say, "What
we really do well is manage a horizontal supply chain in over 178
countries, and do the bookkeeping and the human resources. If we can do
that for ourselves, we can do that for Procter & Gamble."
Productizing your own internal processes.
Exactly. Your own initiatives. Now Michael Dell's point is that he does
not believe in outsourcing your IT. Of course, for Dell, IT is their
core advantage. Because they're basically making a commodity product,
laptops and desktops. And so the way that they beat their competition
is the way they apply IT to their supply chain, beginning from the
customer to delivery. Michael Dell says to outsource your cafeteria,
but if you're outsourcing your IT, you're outsourcing your very
leverage, and no one will be able to do it for you.
That's true for Dell, but not so much for other businesses.
Exactly. It does depend on your business, because for Dell, IT is the
business. That is the thing that allows them to beat their competition.
For others it isn't so core. But different people have really strong
attitudes about this.
I think that's one of the questions every CIO has got to ask-how core
is IT for me? Is it something that I can outsource, or is it so
important that if I don't figure out how to use it in a way that will
drive my business, am I really putting myself at a disadvantage?
We do an outsourcing survey every year, and generally 75 percent of our
readers say they are not outsourcing...
They're lying.
Do you think they're lying or missing the boat?
Some of them are. I'd like to see you do the survey only you don't ask
about "outsourcing," and use the word "sourcing." Because if you say
outsourcing, they're thinking Bangalore. If you just said sourcing,
then you mean Bangalore and Bangor, and I bet you'd get a very
different answer. It is really not about outsourcing. I used that word
simply because it was the buzzword of the day, and it was too difficult
to start a new vocabulary. It's about sourcing, and there's a big
difference between outsourcing and sourcing, because outsourcing
implies Bangalore.
Sourcing is about North Dakota or Albuquerque or wherever, you know,
Ontario. It's about taking advantage of the flat world to get the best,
most efficient, effective producer of whatever it is that you need in
your chain of development. And I'd like to know the names of the
companies that aren't sourcing, because I'd like to sell their stock.
So what do you tell a career-minded ten-year-old today?
What I tell my own girls. When I was growing up, my parents used to say
to me, "Tom, finish your dinner. People in China and India are
starving." Today I tell my girls, "Finish your homework. People in
China and India are starving for your jobs."
And that's the only thing to tell people. That's the fact. I always
say, "When the world goes flat, reach for a shovel, not a wall." Dig
inside yourself. Dig inside your company. Find the secret of the sauce
inside. If you're reaching for a wall, it's a losing strategy because
the technology is going to blow that wall down.