In an increasingly complex business environment, companies have much to learn from governments. Companies are increasingly facing a much more complicated stakeholder environment, reconciling multiple objectives, and balancing short and long term interests. These are familiar challenges for governments, and there is much to learn from how governments have responded.

In particular, real insights can be obtained from governments of successful small advanced economies (say those with populations of less than 10 million people). These economies are consistently high-performers in the global economy. And the annual GDPs of these nations are similar to the market capitalisations of companies like GE, HSBC, and Shell, making comparisons interesting. In addition, both large companies and small countries operate extensively across borders, are exposed to a wide range of external forces, and face some similar challenges and opportunities.

Of course, not all governments are high-performers, just as not all corporations are world-class. Nevertheless, successful governments have insights to share. From my experience of working with governments of small nations, I have found three insights from small country governments that are relevant to large companies.  

1. Licence to operate

Small countries are deeply exposed to the global economy, in terms of reliance on foreign markets, capital, and talent. Changing global competitive dynamics, external economic shocks like the recent global financial crisis, and changes to international economic and political relationships can have substantial consequences. Small countries that do not respond appropriately can face harsh consequences, as we see in Greece. Small countries have little margin for error, as is also the case for many companies.

It is often supposed that small country governments have simpler political systems and so can respond more easily. The reality is more complicated. Many successful small country governments have minority or coalition government arrangements, such as many of the Nordic countries. And even in majority systems, such as Singapore, small country governments have many stakeholders (citizens, companies, unions, and so on) and media scrutiny is becoming more intense. Small country governments also need a licence to operate.

In response, small country governments have deliberately established institutions and processes for public engagement. Examples include the social compact achieved in Ireland in the 1980s, the Economic Strategies Committee process in Singapore, and joint public/private taskforces on globalisation in Denmark. Small country governments also spend time talking and educating the public, and try to develop a shared understanding and a sense of shared purpose.

Although this takes time, the more deliberative process increasing the likelihood of stability of medium-term direction and provides permission to governments to respond quickly when they need to. It is no accident that it is the small countries, in Europe and elsewhere, that have responded most effectively to the crisis through fiscal consolidation and structural reform. Social capital and trust is a hugely valuable asset.

For large companies faced with an increasingly competitive environment, as well as a more demanding stakeholder environment, this small country experience is instructive. Companies also need to establish processes to engage constructively with stakeholders, both internal and external to the company, such as by using social media in public settings and regular, structured, open engagement with unions and regulators. This engagement can create a more constructive operating environment that generates better outcomes, and allows for more rapid responses when necessary.

2. Managing for the long-term

It is often said that government thinking is too short term in nature, responding to the 24 hour news cycle and frequent elections. Some of this criticism is fair, but there is another perspective. While managing short-term pressures, governments also need to have a long time horizon. Many policy issues are long-term in nature (for example, education, infrastructure, pensions, and foreign policy) and major changes cannot be made quickly. Indeed, Ministers often complain about the inertia and long-term focus of their bureaucracy. Take away the noise of the news cycle, and it turns out that governments are built for the long-term.

But there are inevitable political and other pressures to act in short-term ways. So governments also establish institutions that help to resist these pressures.

These include the creation of medium-term targets; setting up independent processes around long-term policy in areas like energy infrastructure; establishing fiscal rules or transparency around the long-term fiscal prospects; and, central bank independence. Many successful small country governments also have well-developed strategic functions that have a clear focus on important long-term issues.

Leaders of big companies also face market pressure to act in a short-term manner (for example, meeting quarterly targets), even when this compromises the long-term strength of the company (such as reducing valuable R&D spending). But, as with governments, institutions can be created to promote a long-term orientation.

For example, companies like Shell built strategic capacity through its famous scenario planning approach, which was adapted from military intelligence practices. Thanks to this, Shell was better prepared for the sudden drop in oil price that occurred in 1973.

Another way for companies to manage in the long-term is to move away from quarterly earnings targets. One noteworthy example is Unilever, which has been actively approaching long-term investors. The holding of Unilever shares by hedge-funds has reduced from 15% to less than 5% within three years.  

The top-performing small country governments – such as those from Scandinavia and Singapore – are distinctive in terms of their sustained investments in human capital and R&D. This is one of the features that have propelled them to the top of the per capita income rankings.

Most small countries have not become wealthy as a consequence of a natural resource endowment but because of the productivity and innovation of their people. And now, they continue to rely on these factors to compete and sustain their performance on the global stage.

However, such investments carry risks, especially for small countries. Human capital is highly mobile and educated people can leave for opportunities elsewhere. And investments in R&D can benefit firms that subsequently relocate.

Despite these risks, small countries continue to invest. However the best of these countries are very deliberate and thoughtful about how to make these investments. For example, creating innovation systems that are difficult to replicate because of the mix of companies, research institutions and the like; aligning educational output and industry demand to ensure that jobs exist for graduates, as has been done systematically in Ireland; and making the location very liveable so that talent wants to locate there (as is the case in Singapore).

Similarly, for companies operating in intensely competitive markets, investing in human capital and innovation is important for future profitability. But, this has to be done very intentionally.

Means by which to achieve this include creating an environment that makes people uniquely productive; creating a distinctive culture; and providing distinctive career opportunities for people.

A company that is known for such traits is Google, which provides its staff with ‘beyond ordinary’ benefits and which continues to reap top performance in return.

It is difficult to get these choices right, but there is much to learn from how small country governments have approached these issues.  

Central to the success of many small countries over the past decade has been the ability to respond appropriately to global changes through deliberate policy. Companies looking to thrive in an increasingly complex and volatile world need to seek learnings from the most unlikely of sources.

Small countries like Singapore have long learnt from leading corporate organisations. Perhaps it is time for big corporations to do the reverse.  

This article was first published in HQ Asia (Print) Issue 04 (2012).