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INNOVATION IS KEY IN GLOBAL ECONOMY

Not so long ago, the students at this elite European university had their pick of the global economy's plums. CEOs from the world's top companies would come calling each year at the annual symposium organized by St. Gallen's students, and the best and brightest would march off a few months later into fabulous jobs.

But that was then. The theme of this year's symposium was "Seeking Responses in Times of Uncertainty." That phrase sums up the psychology of the "deflationary" global economy into which this year's graduates will be heading.

Deflation is really a state of mind. In an expanding, "inflationary" economy, confident investors decide to purchase new capital equipment and grow their businesses. While inevitably uncertain about the future, they feel in their gut that assets will be worth more tomorrow than today -- so they invest. In deflationary times, the psychology is reversed: Investors fear assets will be worth less tomorrow, so it's better to wait.

The saving grace of the globalized economy is that it can't stand still. Even while economists are talking deflation, CEOs still have to plan for the future. They have to innovate or die. That was the message that a parade of top global executives offered the St. Gallen students. The only viable response to times of uncertainty and deflation is to innovate, innovate, innovate -- and hope for the best.

Christopher Meyer, director of the Center for Business Innovation in Cambridge, Mass., said we are entering what he called "the adaptive economy." The driving force during the next decade will be the convergence of biology and information technology -- so that business systems adapt automatically to the environment the way living organisms do.

He cited the experience of tractor maker John Deere, which improved the efficiency of its scheduling by 25 percent by letting computers "breed" software solutions in the laboratory. Using what Meyer called the "genetic algorithm," the company could test many generations of different scheduling models, with the most efficient emerging as the winner.

Stephen K. Green, the incoming CEO of HSBC, described his company's expansion over the past two decades from a regional Southeast Asian bank with 30,000 employees to a global powerhouse with 215,000 workers. To stay international, HSBC this year will recruit graduates from 49 different countries. He warned the students of an old Chinese proverb: "Today's rooster is tomorrow's feather duster."

The president of Toyota, Fujio Cho, told the students that he sees two trends ahead: relentless pressure to cut costs to meet "global mega-competition" and acceptance of environmental protection as an essential corporate goal. He said Toyota has been designing a whole new generation of environmentally friendly vehicles such as the hybrid gasoline-electronic powered Prius.

Colin Marshall, chief executive of British Airways, described the catastrophic conditions in his industry, which he said has lost more than $31 billion in the last two years and will lose another $10 billion this year. Especially in such horrific conditions, he said, successful companies must keep innovating.

Business must connect better with the world's values, argued Franz Humer, CEO of Hoffmann-La Roche. He wants his company to be seen as helping poor countries obtain drugs. "In today's world, shareholder value cannot be the only variable."

The most striking uncertainty was among the students. Many said they aren't eager to go into consulting or investment banking like their predecessors in the boom years. Today's students, like the CEOs who spoke here, know they are looking at a more complicated world and must struggle to adapt.

As one of the speakers here, I talked to a dozen or so students and found them less careerist than I had expected. If anything, their questions had an idealistic tone, as they pushed to know how companies can make the world better. Making money won't be so easy in this global downturn. So it's interesting that many of the St. Gallen graduates, like students who came of age in the turbulent 1970s, seem to be focusing instead on making a difference.

Washington Post Writers Group

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