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TheShiftIndex

UncoveringtheEmergingLogicofDeepChangeJohnHagelIII,JohnSeelyBrown,andLangDavison

DeloitteCenterfortheEdgeJune2009

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ThisarticleisanextendedversionofthearticlethatappearedintheJulyAugust2009

versionoftheHarvardBusinessReview. JohnHagelIII,JohnSeelyBrown,LangDavison,

TheBigShift:MeasuringtheForcesofChange,HarvardBusinessReview,JulyAugust

2009,BR0907.

Downloadthereport:Measuringtheforcesoflongtermchange:The2009ShiftIndex

http://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdfhttp://www.edgeperspectives.com/shiftindex.pdf

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Aglobaleconomiccrisis.Gyratingcapitalmarkets.Bluechipcompaniesinbankruptcy.Howdidwegetintothismess?

Thecausesarecomplex,butunderlyingmanyofthemistheascendancyofshort

termthinking

and

behavior.

Mortgage

lenders,

consumers,

regulators,

real

estate

speculators,investorsduringthelongboom,justabouteverybodychosenearterm

resultsoverlongtermcosts.

Isitanysurprisemanyofourcurrentmodels,forecasts,andassumptionsanticipatea

returntonormalaftertheGreatRecessionends?Suchcyclicalthinkingrisks

shortsightedlydiscountingorevenignoringpowerfulforcesoflongerterm,secular

changeforcesthatareincreasinglyundercuttingwidelyheldassumptionsaboutthe

sourcesofeconomicvalue.

Normalmay

in

fact

be

athing

of

the

past.

Trends

set

in

motion

decades

ago

are

fundamentallyalteringthegloballandscapeasanewdigitalinfrastructure,builtonthe

sustainedexponentialpaceofperformanceimprovementsincomputing,storage,and

bandwidth,progressivelytransformsourbusinessenvironment.Thisinfrastructure

consistsofinstitutions,practicesandprotocolsthattogetherorganizeanddeliverthe

increasingpowerofdigitaltechnologytobusinessandsociety.

WhilethecoretechnologiesunderlyingpreviousdisruptionstheBessemersteel

process,theSiemenselectricalgenerator,theautomobileallhadonebigperformance

breakthroughandthenverymodestperformanceimprovementsthereafter,today's

coretechnologiescontinuetoevolveatanexponentialrate.Astheydo,the

discontinuitiesthatinthepastoccurredinfrequentlynoweruptonacontinuousbasis,

drivenbyadigitalinfrastructurethatshowsnoprospectforstabilization.

Noone,toourknowledge,hasyetquantifiedthedimensionsofdeepchange

precipitatedbythisBigShift.Bydeepchange,wewanttohighlightthatnotalllong

termchangeisequallyimportant.IntryingtounderstandtheBigShift,wefocusonthe

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changesthatwillhavethegreatestlongtermimpactinreshapingthegameintermsof

whosucceedsandwhofails.

Intermsofunderstandinglongtermchange,fragmentarymetricsandsporadic

studiesexist,tobesure.Butnothingyetcapturesaclear,comprehensive,andsustained

viewof

the

deep

dynamics

changing

our

world.

We

experience

instead

adaily

bombardmentofshorttermeconomicindicatorsemployment,inventorylevels,

inflation,commodityprices,etc.

Cyclicalmeasureswillalwaysbenecessaryandhelpfulbuttheyarenolonger

sufficient.Inanattempttosupplementtheseshorttermmetricswevedevelopeda

ShiftIndexdesignedtomeasurethevelocityandmagnitudeofthelongerterm,secular

forcesreshapingtheworldaroundus.

Our first releaseof theShift Indexhighlightsacoreperformancechallenge for the

firmthat

has

been

playing

out

for

decades.

Remarkably,

the

return

on

assets

(ROA)

for

U.S.firmshassteadilyfallentoalmostonequarterof1965levelsatthesametimethat

wehaveseencontinued,albeitmuchmoremodest,improvementsinlaborproductivity.

Additionalfindingsincludethefollowing:

TheROAperformancegapbetweenwinnersand losershas increasedover time,withthe winners barely maintaining previous performance levels, while the losers

experiencerapiddeteriorationinperformance.

Thetopplerate,atwhichbigcompanieslosetheirleadershippositions,hasmorethandoubled,suggestingthatwinnershaveincreasinglyprecariouspositions.

U.S.competitiveintensityhasmorethandoubledduringthelast40years. While the performance of U.S. firms is deteriorating, the benefits of productivity

improvementsappear tobecaptured inpartbycreative talent,which isexperiencing

greatergrowth in totalcompensation.Customersalsoappear tobegainingandusing

powerasreflectedinincreasingcustomerdisloyalty.

The exponentially advancing price/performance capability of computing, storage, andbandwidthisdrivinganadoptionrateforournewdigitalinfrastructure

1thatistwoto

five times faster than previous infrastructures, such as electricity and telephone

networks.

Given these longterm trends, we cannot reasonably expect to see a significant

easingofperformancepressureasthecurrenteconomicdownturnbeginstodissipate

onthecontrary,alllongtermtrendspointtoacontinuederosionofperformance.

1More than just bits and bytes, this digital infrastructure consists of institutions, practices, and protocols that together organize anddeliver the increasing power of digital technology to business and society.

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Labo r Pro ductivity Co mp eti tive In tensi ty Return o n Assets To ppl e Rate

1965

Firm performance metric trajectories (1965-2008)

Source: Deloitte analysis

Present

Theseconclusionscanbeframedintermsofaperformancechallengeontwolevels

forourinstitutions. Atthefirstlevel,ourproductivityisimprovingataratefarslower

thantheunderlyingincreaseinperformanceofourdigitalinfrastructures. Thegap

betweenpotentialandrealizedperformanceissteadilywidening.

Atasecondlevel,firmperformancecontinuestodeteriorateascompetition

intensifies,drivenbythespreadofdigitalinfrastructuresandpublicpolicyinitiatives

thatreducebarrierstoentryandbarrierstomovement. Inotherwords,firmsarefailing

tocapturethebenefitsforthemselvesorfortheirshareholdersofeventhemodest

productivityimprovementsachieved.Thesebenefitsinsteadappeartobecaptured

increasinglybycreativetalentandcustomers,whoaregainingmoremarketpoweras

competitionintensifies.

Simplyput,theperformancechallengeisthatfirmsarefailingontwolevels:theyare

failingtoharnessthefullpotentialofdigitalinfrastructuresintermsofproductivity

improvementand

the

benefits

from

the

modest

improvements

in

productivity

are

being

suckedoutofthefirmandcapturedbyincreasinglypowerfulconstituenciestalentand

customers.

Ourinstitutionalleadership,preoccupiedbyshorttermforces,hasfailedtonotice

thedeeperchangestakingthecorporatesectoreverfurtherintodifficulty.Cyclical

Exhibit1:WhileU.S.workersproductivityhasgrown,ROAhasdropped

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recoveryintheeconomymayagainmakethesymptomslessimmediatelyapparentbut

theunderlyingtrendsappeartoberelentlessintheirforwardmarch.

Howdowereversethisseculartrend?Forprecedentandinspirationwemightlook

tothegenerationofcompaniesthatemergedintheearly20th

century.AsAlfred

Chandlerand

Ronald

Coase

later

made

clear,

these

companies

discovered

how

to

harnessthecapabilitiesofnewlyemergingenergy,transportation,andcommunication

infrastructurestogenerateefficiencyatscale.

Todayscompaniesmustmakethemostofourownerasnewinfrastructurethrough

institutionalinnovationsdrivenbyshiftingtherationaleforthefirmfromscalable

efficiencytoscalablelearning.Theseinstitutionalinnovationsofferthepromiseof

generatingmuchgreaterproductivityimprovementfromourcontinuallyevolvingdigital

infrastructures.Evenascompetitioncontinuestointensify,substantiallygreater

rewardsshouldmakeiteasierforcompaniesandtheirshareholderstocapturetheirfair

shareofthesegrowingrewards.OnlythenwilltheShiftIndexturnfromanindicatorof

corporatedeclinetoonereflectingpowerfulnewmodesofeconomicgrowth.

TheDeepDynamicsoftheBigShift

TheShiftIndexconsistsofthreeindicesdesignedtocapturethreewavesoflong

term,deepchange.Byquantifyingtheseforcesweseektohelpinstitutionalleaders

steeracoursefortruenorth,whilehelpingminimizedistractionfromtheshortterm

eventsthatcompetefortheirdailyattention.Ratherthansimplyreactingtoevents,

institutionalleaderswillbebetterpositionedtoanticipatethechangesthatwillmake

thegreatest

difference

in

terms

of

success

or

failure.

While

this

Shift

Index

offers

rich

insightevenitsfirstrelease,thevalueoftheShiftIndexwillincreaseovertimeasthe

broadertrajectoryandpaceofchangecanbemoreclearlydefinedforeachmetric

WaveOneBuildingtheFoundationsThefirstwaveofchangeinvolvestherapid,unflaggingevolutionofanewdigital

infrastructureandparallel,magnifyingshiftsinglobalpublicpolicythathavereduced

barrierstoentryandmovement.Thesefoundationalforces,playingoutoverthelast

five

decades,

catalyze

and

contextualize

the

many

other

changes

occurring

in

nearly

everydomainofcontemporarylife.Asaresult,thechangesinthesefoundationalforces

providepowerfulleadingindicatorsofthedeepchangesthatwillbeplayingoutover

timeinotherwavesoftheBigShift.

TheFoundationIndexquantifiesandtrackstherateofchangeinthesefoundational

forces.Keymetricsincludethechangeinperformanceofthetechnologyfoundationsof

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thedigitalinfrastructure,growthintheadoptionrateofthisinfrastructureandasub

indexmeasuringproductandlabormarketregulationintheeconomy.

WaveTwoUnleashingRicherFlowsofKnowledgeThesecondwaveofchangewillbecharacterizedbyincreasingflowsofcapital,

talent,andknowledgeacrossgeographicandinstitutionalboundaries.Inthiswave

intensifyingcompetitionandtheincreasingrateofchangeprecipitatedbythefirstwave

shiftsthesourcesofeconomicvaluefromstocksofknowledgetoflowsofnew

knowledge.Inthisrapidlychangingworld,ourstocksofknowledge(whatweknow)

obsolescemorequicklyandsuccessdependsincreasinglyonourabilitytotapinto

expandinganddiverseflowsofknowledgetomorerapidlyrefreshourdepletingstocks

ofknowledge.Whiletheseknowledgeflowsareenhancedandenrichedbydigital

infrastructures,themostvaluableknowledgeflowsthosethatresultinnew

knowledgecreationratherthansimpletransfersofwellcodifiedexistingknowledge

stillmostoftenoccurinphysicalspacethroughfacetofaceinteractions. Inthisrapidly

changingworld,thereisfarmorevalueinatightlyknitteambringingtogetherdifferent

experiencesandviewsoftheproblemtosolveanewperformancechallengethanin

readingatrainingmanual.

ThemetricsintheFlowIndexcapturesphysicalandvirtualflowsaswellasthe

amplifierssuchashowpassionatelyengagedemployeesarewiththeirjobsandsocial

mediausethatresultfromandmagnifytheeffectofthedigitalinfrastructure.Given

theslowerratewithwhichsocialandprofessionalpracticeschangerelativetothe

digitalinfrastructure,thisindexwilllikelylagtheFoundationIndex.Itwillbeextremely

helpfulto

track

the

degree

of

lag

over

time

for

specific

elements

of

knowledge

flows

is

itincreasingordecreasing?

WaveThreeEffectivelyAddressingthePerformanceChallengeThethirdwaveoftheBigShiftreflectstheabilityofcompaniestoharnessthefirst

twowavesofchangesthroughinnovationstoinstitutionalarchitecturessuchasthe

abilitytodeployscalablelearningecosystemswhereperformanceacceleratesasmore

participantsjoin.Overtime,theseinnovationswillenablefirmstodevelopandadopt

newwaysofcreatingandcapturingwealthinthedigitalera.Initialdeteriorationin

shareholder

value

and

ROA

will

eventually

improve

as

firms

harness

the

foundational

andflowforcesofthefirsttwowavesofchangeandacceleratetheirrateof

performanceimprovement.

TheImpactIndexisforthatreasonalaggingindicatorreflectingtheimpactofthe

deepchangesplayingoutinthefirsttwowavesontheperformanceofthefirmand

equitymarkets,consumerchoice,andthevaluecapturedbytalent.

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Shift index indicators

1. TRS Total Return to Shareholders2. Creative occupations and cities defined by Richard Florida's "The Rise of the Creative Class." 20043. Measured by the Bureau of Transportation Statist ics Transportation Services Index

Source: Deloitte analysis

ImpactIndex

FlowI

ndex

FoundationIndex

Markets

Competitive Intensity: Herfindahl-Hirschman Index

Labor Productivity: Index of labor productivity as defined by the Bureau of Labor Statistics

Stock Price Volatility: Average stand ard deviation of daily sto ck price returns over one year

Firms

Asset Profitability: Total ROA for all US firms

ROA Performance Gap: Gap i n ROA between firms in the top and the bottom quartiles

Firm Topple Rate: Annual rank shuffling amongst US firms

Shareholder Value Gap: Gap in the TRS1 between firm in the top and the bo ttom quartiles

People

Consumer Power: Index o f 6 consumer power measures

Brand Disloyalty: Index of 6 con sumer disloyalty measures

Returns to Talent: Compensation gap between mo re and less creative o ccupational groupings2

Executive Turnover: Number o f To p Management terminated, retired or o therwise leaving companies

Virtual Flows

Inter-firm Knowledge Flows: Extent of employee p articipation in knowledge flows across fi rms

Wireless Activity: Total an nual volume of mobile minutes and SMS messag es

Internet Activity: Internet traffic between top 20 US ci ties wi th the most domestic bandwidth

PhysicalFlows

Migration of People to Creative Cities: Population gap between top and bo ttom creative cities2

Travel Volume: Total volume of l ocal commuter transit and p assenger air transportation3

Movement of Capital: Value of US Forei gn Direct Investment inflows and outflows

AmplifiersWorker Passion: Percentage o f employees most passionate about their jobs

Social Media Activity: Time spen t on Soc ial Media as a perc entage of total Internet time

TechnologyPerformance

Computing:Computing power per unit o f co st

Digital Storage: Digital storage capacity per unit of cost

Bandwidth:Bandwidth capacity per unit of c ost

InfrastructurePenetration

Internet Users: Number of people actively using the Internet as compared to the US population

Wireless Subscriptions: Percentage of ac tive wireless subscriptions as compared to the US population

Public Policy Economic Freedom: Index o f 10 freedom components as defined by the Heritage Foundation

ShiftIndexFindings

OurinitialdevelopmentoftheShiftIndexhasfocusedontheUSandUSindustries.

Subsequentreleaseswillbroadentheindextoaglobalscopeandprovideadiagnostic

tooltohelpassesstheperformanceofindividualcompaniesrelativetoasetoffirm

levelmetrics.

Thechoice

of

metrics

reflected

arobust

selection

process.

Many

metrics

are

directionalproxieschosenintheabsenceofidealalternatives.Somearedrawnfrom

secondarydatasourcesandanalyticalmethodologies;someareproprietary.Whilethe

datarevealssignificantcorrelationsacrossmetricsconsistentwiththeunderlyinglogic

ofourtheoreticalframeworkthefindingsaresuggestive.Wehavenotattemptedto

provecausalitygiventhelimitationsintheabilitytogeneratedatatodirectlyandtightly

measuremanyofthedeepchangesoccurringaroundus,butwearehopefulthatthe

Exhibit2:TheShiftIndexconsistsofthreeindicesthatquantifythethreewavesofthe

BigShift FoundationIndex,FlowIndexandImpactIndex eachmeasuredbyasetof

indicators.

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ShiftIndexwillbecomeacatalystforabroadsetofresearchtotestandrefineour

findings.

Foramuchdeeperlookatourmethodologyanddataaswellasafulldiscussionof

ourfindingspleaseseeThe2009ShiftIndexReport.

Overall,theShiftIndexsuggeststhatthedeepchangesintheFoundationIndex

continuetomoveatafasterpacethanthechangesineitherFloworImpactIndices.

ThetrendlineforchangesinFoundationmetricshasamuchsteeperslopeof7.83

relativetotheslopeof5.95measuringchangeforFlowmetricsorandtheslopeof1.93

forImpactmetrics.

ThisisoneimportantwaytotrackwhereweareintheoverallBigShift. Wewould

expectthatcountriesandindustriesthatareintheearlieststageoftheBigShiftwillsee

thehighestratesofchangeintheFoundationIndex.Overtime,astheBigShiftgathers

momentumandpervadesbroadersectorsoftheeconomyandsociety,wewouldexpect

toseetheratesofchangeintheFlowandImpactIndicestopickupspeedwhiletherate

ofchangeintheFoundationIndexmaybegintoshowsignsofslowingdown.

FoundationIndexTheFoundationIndex,witha2008scoreof153,hasincreasedata10percent

compoundannualgrowthrate(CAGR)since1993,andtellsthestoryofaswiftlymoving

digitalinfrastructurepropelledbyunremittingpriceperformanceimprovementsin

computing,storage,andbandwidththatshownosignsofstabilizing.Ourfindingsshow

thattherateofchangeintheperformanceofthetechnologybuildingblocks

substantiallyexceeds

the

rate

of

change

in

the

two

other

foundational

metrics

adoptionratesandpublicpolicyshifts. Itremainstheprimarydriverofalltheother

deepchanges.

Publicpolicyremainsthewildcard.Thereisconsiderableriskthatapolicybacklash

drivingincreasingbarrierstoentryandbarrierstomovementmaygainforcein

responsetotheintensepressuresofthecurrenteconomicdownturn.TheShiftIndex

willmonitorthistrendovertimerelativetothechangesintheotherfoundations.

FlowIndexTheFlowIndex,witha2008scoreof139,hasincreasedatasevenpercentCAGR

since1993,althoughthetrendanalysesarelimitedherebytheearliestdatesforwhich

dataisavailable.

ThecreativeclassesRichardFloridaidentifiedasthedrivingforceforeconomic

developmentcontinuetoincreasinglycongregateinconcentratedspikesoftalent.

Increasingnumbersofcreativesarefleeingtheconfinesofthefirm,aswell.This

http://www.deloitte.com/dtt/cda/doc/content/us_tmt_ce_ShiftIndex_0620092_1344(3).pdfhttp://www.deloitte.com/dtt/cda/doc/content/us_tmt_ce_ShiftIndex_0620092_1344(3).pdfhttp://www.deloitte.com/dtt/cda/doc/content/us_tmt_ce_ShiftIndex_0620092_1344(3).pdfhttp://www.deloitte.com/dtt/cda/doc/content/us_tmt_ce_ShiftIndex_0620092_1344(3).pdfhttp://www.deloitte.com/dtt/cda/doc/content/us_tmt_ce_ShiftIndex_0620092_1344(3).pdfhttp://www.deloitte.com/dtt/cda/doc/content/us_tmt_ce_ShiftIndex_0620092_1344(3).pdfhttp://www.deloitte.com/dtt/cda/doc/content/us_tmt_ce_ShiftIndex_0620092_1344(3).pdfhttp://www.deloitte.com/dtt/cda/doc/content/us_tmt_ce_ShiftIndex_0620092_1344(3).pdfhttp://www.deloitte.com/dtt/cda/doc/content/us_tmt_ce_ShiftIndex_0620092_1344(3).pdfhttp://www.deloitte.com/dtt/cda/doc/content/us_tmt_ce_ShiftIndex_0620092_1344(3).pdfhttp://www.deloitte.com/dtt/cda/doc/content/us_tmt_ce_ShiftIndex_0620092_1344(3).pdfhttp://www.deloitte.com/dtt/cda/doc/content/us_tmt_ce_ShiftIndex_0620092_1344(3).pdf

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creativetalentisthemostpassionateabouttheirwork,andmostlikelytoparticipatein

knowledgeflowsrelativetotheirlesspassionatepeers.

Thefacetofaceinteractionsthatdrivethemostvaluableknowledgeflowsresulting

innewknowledgecreationareimpossibletomeasuredirectly.Socialmediausage,

conferenceand

web

cast

attendance,

professional

information

and

advice

shared

by

telephoneandinlunchmeetingsallprovidesuggestiveproxiesofvariouskindsof

knowledgeflows.OurShiftIndexsurveysestablishabaselineoftheseactivitiesand

indicatesthatsocialmediasuchasFacebookmaybeexpandinginterfirmknowledge

flows.Futuresurveyswillquantifythemagnitudeandpaceofchangeofthese

importantflows.

0%

5%

10%

15%

20%

25%

30%

Disengaged Passive Engaged Passionate

ParticipationPercenta

ge

Google Alerts Web-casts Social Media Lunch meetingsCo mmun ity Org. Co nferences Pro fessional Org. Sh are in fo on p hone

Participation in Inter-Firm knowledge flows by type of worker (2008)

Source: Synovate, Deloitte analysis

ImpactIndex

TheImpactIndex,witha2008scoreof111ata2.4percentrateofchangesince

1993,tellsthestoryofintensifyingcompetitiontakingitstolloncorporateperformance

despiteasteadyriseinlaborproductivityacrossalltheindustriesinourstudy.

Consistentwithourviewthatnewdigitalinfrastructurescreatethepotentialformuch

greaterimprovements

in

productivity,

it

is

striking

that

the

Technology

and

Telecommunicationsindustriestheonesmostheavilyinvolvedindefiningand

deployingthedigitalinfrastructures haveledthepackintermsofproductivity

improvement.

Atthesametimetheeconomicenvironmenthasbecomeconsiderablymore

unstable,asshownbyincreasesinthetopplerateatwhichcompanieslosetheir

Exhibit3:Workerswhoarepassionateabouttheirjobsaremorelikelyto

participateinknowledgeflowsandgeneratevalueforcompanies

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leadershippositions,adoublinginstockpricevolatilitysince1972,andgrowing

divergencebetweenwinnersandlosers,asmeasuredbybothshareholdervalue

creationandROA.

Meanwhile,creativetalentcontinuestocaptureincreasinglydisproportionate

returnsin

terms

of

total

compensation

relative

to

the

rest

of

the

labor

force.

These

increasesinreturnstocreativetalentappeartobecorrelatedtoanaccelerationof

growthofthemostcreativecities.Onthecustomerside,newgenerationsenteringthe

marketplaceappeartobemorewillingtoexercisetheirmarketpowertoswitchto

productsandservicesthatmoreeffectivelymeettheirneeds,puttinggreaterpressure

onvendors.

Thegrowingpowerofcreativetalentandcustomersascompetitionintensifiesrises

helpstoresolvethemysteryofwhyROAisdecliningsomarkedlyatthesametimethat

productivityimprovementscontinuetooccur.Theanswerisnottofindwaystosqueeze

creativetalentandcustomersinazerosumbattletocapturemoreoftheexistingpie.

Economy-wide Asset Profitability (1965-2008)

Source: Compustat, Deloitte analysis

4.7%

0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005

R

eturnonAssets(%)

Return on Ass ets

2008

TheShift

Index

suggests

that

in

some

industries

companies

have

pursued

aggressive

M&Astrategies. Whilethismayhelptodrivenewscaleefficienciesandmarketpower

intheshortterm,thesedefensivestrategiesareadiminishingreturnsgame.Thistends

tobeconfirmedbythefactthatwinnersinthegrowingperformancegaparebarely

hangingonintermsofsustainingexistinglevelsofperformanceeventheyarefinding

itverydifficulttoholdontothebottomlinebenefitsofproductivityimprovements.

Exhibit4:AssetprofitabilityforU.S.firmssteadilyfallmorethan75%

overthe astfourdecades

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Economy-wide Asset Profitability by quartile (1965-2008 )

Source: Compustat, D eloitte analysis

1.2%

-14.7%

-100%

-80%

-60%

-40%

-20%

0%

20%

1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005

Bottom Quartile

12.9%11.0%

0%

5%

10%

15%

20%

Top Quartile

ReturnOnAssets(%)

2008

Asanalternative,theopportunityistodriveinstitutionalinnovationtomore

effectivelyharnesstheperformancepotentialofdigitalinfrastructuresandfindwaysto

unleashthecreativepotentialoftherestoftheworkforce(notjustthecreative

professions)sothatthereisamuchbiggerpieintermsoftotalreturnsthatcanbe

sharedmorefairlywithallrelevantconstituencies.

Summary

Itiscompletelyunderstandablethatweallhavebecomesofocusedontheshort

termeconomiceventsplayingoutaroundus. Atthesametime,though,itisvery

dangeroustolosesightofthedeepchangesthatwillcontinuetoplayoutlongafterthe

currenteconomicdownturnisadistantmemory. Wefacealongtermperformance

challengethatcontinuestointensify. Thestepswetakenowtoaddressthischallenge

willnotonlyhelpustoweatherthecurrenteconomicstormsbutwillpositionusto

createsignificanteconomicvalueinanincreasinglychallengingbusinesslandscape.We

believethat

the

Shift

Index

can

serve

as

auseful

compass

and

catalyst

for

the

actions

requiredtoturnaperformancechallengeintoaperformanceopportunity.

Exhibit5: Winningcompaniesarebarelyholdingon,whilelosersarerapidlydeteriorating

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JohnHagelIII

Cochairman,

Deloitte'sCenterfortheEdge

JohnHagelIIIhasnearly30yearsexperienceasamanagement

consultant,author,

speaker

and

entrepreneur,

and

has

helped

companiesimprovetheirperformancebyeffectivelyapplying

informationtechnologytoreshapebusinessstrategies.John

currentlyservesascochairmanoftheSiliconValleybased

DeloitteCenterfortheEdge,whichconductsoriginalresearchand

developssubstantivepointsofviewfornewcorporategrowth.

BeforejoiningDeloitte,Johnwasanindependentconsultantand

writer.Priortothat,heheldsignificantpositionsatleading

consultingfirmsandcompanies. From1984to2000,hewasaprincipalatMcKinsey&

Co.,wherehewasaleaderoftheStrategyPractice.Inaddition,hefoundedandled

McKinseysElectronicCommercePracticefrom1993to2000.Johnhasalsoservedas

seniorvicepresidentofstrategicplanningatAtari,Inc.,andearlierinhiscareer,worked

atBostonConsultingGroup.HeisthefounderoftwoSiliconValleystartups.

Johnistheauthorofaseriesofbestsellingbusinessbooks,includingNetGain,NetWorth,OutoftheBoxandTheOnlySustainableEdge.HehaswontwoawardsfromHarvardBusinessReviewforbestarticlesinthatpublicationandhasbeenrecognizedasanindustrythoughtleaderbyavarietyofpublicationsandprofessionalservicefirms.

DeloitteCenterfortheEdge TheBigShiftBlog JohnHagel.com EdgePerspectives EdgePerspectivesBlog

http://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://www.johnhagel.com/http://www.johnhagel.com/http://www.edgeperspectives.com/http://www.edgeperspectives.com/http://www.edgeperspectives.typepad.com/http://www.edgeperspectives.typepad.com/http://www.edgeperspectives.typepad.com/http://www.edgeperspectives.typepad.com/http://www.edgeperspectives.com/http://www.edgeperspectives.typepad.com/http://www.johnhagel.com/http://blogs.harvardbusiness.org/bigshift/http://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.html

7/29/2019 Shift index Abstract

14/15

14

JohnSeelyBrown

IndependentCochairman,

Deloitte'sCenterfortheEdge

JohnSeelyBrownistheindependentcochairmanoftheSilicon

Valleybased

Deloitte

Center

for

the

Edge,

which

conducts

original

researchanddevelopssubstantivepointsofviewfornewcorporate

growth. Inaddition,heisanAdvisortotheProvostandaVisiting

ScholarattheUniversityofSouthernCalifornia,apositionhehasheld

since2003.ThispositionfollowedalengthytenureatXerox

Corporation,whereheservedaschiefscientist(19922002)and

directoroftheXeroxPaloAltoResearchCenter(PARC)(19852000).

WhileheadofPARC,Johnexpandedtheroleofcorporateresearchto

includesuchtopicsasorganizationallearning,complexadaptivesystems,micro

electricalmechanicalsystem(MEMS)andNanotechnology.Hisresearchinterests

includedigitalculture,ubiquitouscomputing,serviceorientedarchitectures,global

innovationnetworksandlearningecologies.

In2009,JohnwaselectedasamemberoftheAmericanAcademyofArts&Sciencesin

thefieldofComputerSciences.HeisalsoamemberoftheNationalAcademyof

Education,afellowoftheAmericanAssociationforArtificialIntelligenceandatrusteeof

theMacArthurFoundation.Heservesonseveralcorporateandadvisoryboards.John

haspublishedmorethan100papersinscientificjournalsandauthoredorcoauthored

fivebooks,including"TheSocialLifeofInformation"and"TheOnlySustainableEdge."

Heholdsabachelor'sdegreefromBrownUniversity,adoctoratefromtheUniversityof

MichiganandhonorarydoctoratesfromBrown,theUniversityofMichigan,Claremont

GraduateUniversity,

the

University

of

Londons

Business

School

and

North

Carolina

StateUniversity.

DeloitteCenterfortheEdge TheBigShiftBlog JohnSeelyBrown.com

http://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://www.johnseelybrown.com/http://www.johnseelybrown.com/http://www.johnseelybrown.com/http://blogs.harvardbusiness.org/bigshift/http://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.html

7/29/2019 Shift index Abstract

15/15

15

LangDavison

ExecutiveDirector,

Deloitte'sCenterfortheEdge

LangDavisonistheexecutivedirectoroftheDeloitteCenterforthe

Edge,which

conducts

original

research

and

develops

substantive

pointsofviewfornewcorporategrowth.

Inthisrole,Langdefinesandguidesthemarketplacepositioningand

developmentofthecentersplatformsandkeyactivities,andhelps

representDeloittewithselectclients.Heisalsoresponsiblefor

discoveringanddevelopingdistinctiveintellectualcapitaland

distributingittoaudiencesinnewandmeaningfulways.

LangjoinedDeloittefromMcKinsey&Company,wherehewaseditorofitsflagship

publication,TheMcKinseyQuarterly.Duringhis14yearsatMcKinsey,Langservedinavarietyofseniorcommunications,contentandmediaroles,leadingthedevelopment

teamformckinseyquarterly.com,whichheeditedfrom1998to2003.Hewasthe

collaboratingwriterforthebestsellingandcriticallyacclaimedbooksNetGainandNetWorthandformorethan300articlesinTheMcKinseyQuarterly,HarvardBusinessReview,FinancialTimesandTheWallStreetJournalbythoughtleaderslikeStanfordsRobertSutton,HarvardsPankajGhemewat,McKinseysLowellBryanandEric

Beinhocker,andInternationalInstituteforManagementDevelopmentsPhil

Rosenzweig.UnderhisownbylinehehaspublishedinHarvardBusinessReview,TheConferenceBoardReview,DeloitteReview,andotherpublications.

DeloitteCenterfortheEdge TheBigShiftBlog

ThisabstractispartofalargerresearcheffortaroundtheShiftIndexconductedat

DeloitteCenterfortheEdgeledbyDuleeshaKulasooriyaandTamaraSamoylova

withthesupportofBrentDance,MarkAstrinos,andDanElbert.

http://www.deloitte.com/dtt/leadership/0%2C1045%2Csid%25253D153749%2C00.html?langdavisonhttp://www.deloitte.com/dtt/leadership/0%2C1045%2Csid%25253D153749%2C00.html?langdavisonhttp://www.deloitte.com/dtt/leadership/0%2C1045%2Csid%25253D153749%2C00.html?langdavisonhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.htmlhttp://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://blogs.harvardbusiness.org/bigshift/http://www.deloitte.com/dtt/leadership/0%2C1045%2Csid%25253D153749%2C00.html?langdavisonhttp://blogs.harvardbusiness.org/bigshift/http://www.deloitte.com/dtt/section_node/0,1042,sid%253D227141,00.html