Hagel & Seely Brown on U.S. Economic Trends, Talent and Passion

Tuesday night at the San Francisco's Wharton School on Howard, Kevin Werbach moderated a discussion with John Hagel III and John Seely Brown about The Big Shift: measuring the forces of change.

In the Harvard Business Review this month, they wrote an article explaining what these forces of change are and mean for the U.S. economy.

"During a steep recession, managers obsess over short-term performance goals, such as cost cutting, sales, and market share growth....the problem is, focusing only on traditional metrics often masks long-term forces of change that undercut normal sources of economic value."

They assert that "normal" may be a thing of the past and that after the economy starts booming again, the pressure will continue.

They just completed the 2009 Shift Index, which measures the forces of long-term change. The conversation revolved around their findings which was published in this shift index, apparently the first of many to come.

While this research focused on the U.S. economy and trends of publicly traded companies, they hope to take this global in the future.

The report focuses on the U.S. economy over a long period of time. One outcome is to demonstrate the trends over decades to see what we can learn about corporate, economic and individual behavior.

So, what did they learn? Hagel who drove most of the discussion reports that the return on assets is the best measure over time....beyond income statements.

From 1965 to 2008, the long term trend shows that asset profitability has gone down by 75%. Over the same period, labor productivity has gone up, so why are companies not seeing the rewards of that productivity?

Hagel says, "Business is broken. Most executives don't look at economic trends over a forty year period. Our findings show that public companies in the U.S. have experienced deteriorating performance over time."

Brown adds, "In 1937 in the height of the depression, if you made it on the S&P 500, you stayed there on average of 75 years. We've seen an 80% decrease in the duration of how long you can expect to stay on the S&P 500 today."

He also says that companies have become obsessed with managing stocks. "In this world of flow, how do you move from scalable efficiency to scalable learning -- within firms, across firms, across ecosystems?"

So, what are we going to do as a nation of entrepreneurs and innovators to get the performance up and change this trend of decline?

Could this also be the death of branding? Manufacturing is getting outsourced oversees and companies are getting less of a premium for their brand than they've ever gotten in the past.

Companies are still spending money on branding but they're doing it poorly. It's harder to rise above the noise because there's so much of it yet it's cheaper than ever been to have a voice.

Hagel repeats, "Business is broken." It's not as if one industry pulled down another - all of them declined over the 43 year period.

Brown talks about knowledge - passive verus active knowledge. He suggests that more knowledge is passive today and that we don't know a lot about passive knowledge flow. He asks, "how do we surface all of these social networks?" Surfacing them alone however is not where the magic is.

Surfacing them is one thing, invoking passion in individuals and employees is another layer. In the report, they actually have a passion index. I had to laugh. Now we're measuring passion - what's next, love and appetite?

Passion of course is an important factor in knowledge and participation flow. Bottom line: we have to make our passions our professions in order to turn this Index around.

This isn't new advice. If I remember correctly, Sesame Street told me to go that route in the early seventies. It's really the only authentic way to live. It's the thing that will create more happiness and fulfillment in our lives than any other choice we can make.

That said, not everyone is comfortable with stepping outside the comfortable corporate mold and that's why while self employment in this country is exploding, it will never be the path for everyone. And because it will never be for everyone, we need to revitalize business and passion inside its walls.

We need to allow people's passion to flow in large organizations. We need to remind them they all have value, they all have knowledge and they're not merely a link to another link to make the big guy at the top a profit. Everyone should be considered 'talent.'

Read what they have to say recently about "why we need big organizations."

Below is a shot I took of Hagel during a one-on-one chat before their talk.

The event pulled together an interesting mix of Silicon Valley industry talent across multiple sectors. Hellos and chats with @kwerb, @debs, @heysanford, @cathybrooks, @jhagel, @ahesse, @stoweboyd, @chrisheuer, @maryhodder, @hirshberg, @ccarfi, @map650, @rycaut, @davesifry, @elliottng and a handful others.

They hope to make the Shift Index an annual event. In November, they'll issue the same index broken out by industry so we can compare economic trends between healthcare and technology for example.