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Website last updated 17 AUGUST 2010 |
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Website last updated 17 AUGUST 2010 |
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2010 AND BEYOND:
The real issues and trends
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| Published: 24 November 2009 |
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In
this executive
briefing I will identify what I believe to be the real issues that
could fundamentally reshape your business as we enter the
post-recession world. None of these issues will be a surprise to
those who have followed my writings and blog since the collapse of
Lehman's – this is really an executive summary of my thoughts and
observations over the last 12 months. The real issues, all of which
are inter-linked, are:
ISSUE #1: GOODBYE GLOBALISATION, HELLO
LOCALISATION. There are too
many forces pushing against globalisation for you to bet on the end
of history and a harmonised world. Even academics are divided
upon
the issue of the sustainability of a single global society. Remember
too that we have not suffered a global recession, we are in the midst
of a series of localised depressions, recessions, recoveries or in some
cases, just
mere slowdowns.
ISSUE #2: CHANGE COMES IN PHASES. Unlike
some, I don't see a
simple 'bounce back'. The real effects of the recession in terms of
your markets and the behaviours of your customers will take between
three
to five years to appear. Understanding and monitoring four key phases
of
change must be a central task for any customer focused organisation.
ISSUE #3: FROM LUXURY TO SECURITY.
FROM CONSUMERISM TO REPLETION.
Customer needs (both in consumer and business markets) will change.
How they change will largely be determined by the direction taken by
globalisation. For example, purely Web based customer management
strategies may prove problematic in at least one future where new
consumers seek more personal inter-action. In another future
world it will be erroneous to assume that consumers will have an
unquenchable desire for new technology based profducts.
ISSUE #4: BIG BROTHER, MY FRIEND.
Some large corporate brands have
been tarnished – especially in the financial sector.
There is some emerging evidence that new consumers may trust central
government more than large corporates.
ISSUE #5: CSR – A NEW GENERIC STRATEGY?
In the face of new
regulation, many especially in financial services, will find it
difficult to gain competitive advantage. Is corporate social
responsibility the answer?
ISSUE #6: BACK TO THE PAST – THE
FRUITS OF CREATIVE DESTRUCTION. Within all the doom and gloom
there is the prospect of quite massive
levels of innovation, bringing with it opportunity. But you may
have
to move quickly. So, in what shape are you to innovate?
ISSUE #7: THE DEATH OF 'WHAT WORKED
BEFORE'. Be careful about
extrapolating from the past. The datasets and variables have
changed.
ISSUE #8: BEWARE OF STRESS.
It's going to take time to get through
this. So are you taking care of your staff?
Each
of these issues has implications for your business in 2010 - these are
summarised at the end of this executive briefing.
The 14 or so months from September 2008 hold
terrifying memories. Many assumptions about the world of business that
were never questioned have been consigned to the gutter.
But these months hold important learning
points and clues too as to the way that the business world will change
and evolve. I have looked back over these months and I would like to
put forward eight key issues that your business really must consider as
it moves ahead.
Most of you will be thinking about business
planning for 2010 and beyond – this is an ideal opportunity to debate
each issue and identify the potential impact on your strategy for the
future. To those of you who have followed my writing and blogs, none of
these issues will be a surprise – so treat them as an executive
summary.
I will now introduce each issue.
Before the downturn, most of us assumed that
globalisation was an unstoppable force and would, in turn, bring wealth
and security to all. We probably also assumed that US-Western
definitions of capitalism would prevail and be accepted in most, if not
all, emerging economies.
Capitalism would bring wealth to all, so who
would want to reject it?
But some of the hard lessons that we have now
learnt are:
(I)
Many don't see US-Western based versions of capitalism or even
democracy as ultimate panaceas [1] [2]. Many new emerging
economies have, understandably, their own views on what will work.
(II) The
wheels could very easily come off the globalisation train. Forces on
the geo-political front will be the major drivers of the shape of our
future business environment. For example, consider
the impact of (a) a failed military excursion in Afghanistan and the
resultant ripples throughout Asia and Russia, (b) calls for
protectionist measures from developed economies with now staggeringly
high unemployment levels and (c) the struggle for energy security. All
could be stumbling blocks in the path of globalisation.
(III)
It is clear that we don't yet have the mechanisms to control a globally
inter-connected economy.
(IV)
This has not been a global recession. It has been a series of
localised depressions, recessions or mere slowdowns as the following
unemployment trends, sourced from the November 2009 OECD forecasts,
demonstrate:
Source: OECD
November, 2009
We can see from this illustration that some countries have suffered
only slightly and temporarily (Korea), others have yet to reach the
peak (UK, Germany, US) yet still others face the prospect of a slow
climb down from socially destructive levels of unemployment (Ireland,
Spain).
(V) But
even at a country level we have learnt that there are very significant
local
variations. Visiting some cities it is hard to imagine that we
are in the midst of an economic crisis, but travel a few miles and the
reality is everywhere [3].
In summary, issue #1 tells us:
(a) Not to just assume that when the crisis
is over we will return to a period of benign globalisation. Betting the
future of our companies on just one picture of the future looks rather
too risky. You should now start to consider say three broad global
futures and what they mean for your business:
“The World is One”: The best possible outcome. We learn to settle differences. The G20, led by a newly aligned G2 (China and US), acts as the architect of a new level of globalised order.
“The World is a Jigsaw”: Uneasiness and instability fill the vacuum left by a dis-empowered US. Energy, resource needs and historic differences grate together to produce a divided world.
“The World as
Segments”: We respect differences, but countries align and
gravitate
together around common values and resources. Global trade continues,
but tariffs, regulations and other inhibiting factors rise.
(b) That we need to construct strategy very, very, much on a localised
basis. Significant country to country and within country localised
differences will remain with us for the foreseeable future. Now is a
time to get really close to
our marketplaces and customers.
It may be wrong to think that recovery will
come in one phase. In terms of opportunities and changing customer
needs, my proposition is that it will come in phases.
As we have seen, calling the crisis 'a
recession' is too simplistic a label. For some (China, India and
possibly Brazil), it is a catalyst to increased economic and political
dominance. To others, it speeds a decline from the halcyon days (US,
UK, Spain). For others, early dreams are dashed (Ireland, Eastern
Europe).
Many, including the US, face the task of
rebuilding their economies to move away from financial services towards
more tangible export-led sectors. Others realise that certain sectors,
such as construction and real estate, may never reach their
pre-recession levels of importance.
So recovery will be a complex process and
will vary again at the local level.
In all, I propose that you will observe
change in four key phases:
#1: Shock and Horror.
This is what we've just been through. Nobody expected a downturn as
sharp and deep as the one that hit us. As this came without any warning
we all reacted with shock and took immediate, short-term steps to
protect our businesses, our livelihoods and our familieis and homes.
These measures included,
typically, cutting back on going out, travel and training budgets.
These were understandable, but reactive changes. These were just
short-term
changes that allowed us to adjust to new circumstances, not ones to
base new, long-term strategies upon.
#2: Acceptance.
This is where most of us are now. If recovery takes a long time, then
this will be the most important phase. Consumer behaviour may be
reshaped permanently and businesses will have to radically rethink
their strategies to cope with a period of change and low economic
growth. This period will be the most significant phase for countries
facing the prospect of a long recovery.
#3: Emergence.
In time, real recovery will take place. But as we talking about
behaviours, we need to talk about recovery in employment terms, not
simply GDP terms. Unlike some observers, I do not believe that
capitalism is fatally wounded. It may change, but it will still be a
permanent part of our lives. So, the steps that are now being taken to
stimulate confidence and growth will bear fruit. A sustained recovery
and increasing confidence will eventually appear, but in different
forms in different countries.
#4: Restructuring.
New industries will emerge to fill the gaps left by the
dying sectors. Energy and bio-technology are just two examples. This
will be a period of large-scale innovation.
The timing of these phases will vary at least
on a country by country basis. As we have seen, each has its own
particular macro-economic problems. Below you will find the guess that
I took in respect of the UK. Note that customers' behavioural impact is
on the vertical axis. So looking at the blue curve, representing 'Shock and Horror', the initial
reaction to the crisis, we see that there is a large but temporary
behavioural impact. The red curve is the really important one. Here,
customers' needs and attitudes will be shaped by the time that it takes
unemployment firstly to stabilise and then to reduce. The behavioural
impact within this phase is permanent I will argue. So, probably from
now to 2011 is the time to be out there sensing the changes and
responding to them. The yellow line follows employment recovery. There
is, I propose an impact, but not as large as 'Acceptance'. Finally, the green
line reflects the impact of economic restructuring – the emergence of
innovative, new industry sectors.
We can get a feel of the potential depth of behavioural shift by
looking at proportionate shifts in projected unemployment rates (OECD
November 2009
projections) for the period 2009-2011, using the pre-recession year
2007 as a baseline:
As they say, a picture paints a thousand words. The major questions of
course are:
(a) how long it
will take to reach pre-recession employment rates;
(b) what industry sectors will grow to provide employment and
(c) how attitudes, behaviours and needs will change.
Clearly, in some cases, countries may not
return to the wealth levels that they enjoyed before the recession
until 2015 – 2016[4]. So, for some, slow recovery becomes the status
quo, a normal state, not a passing phase.
Issue #2
tells us that now is the time to go
out and research what is happening in your marketplace and what it
means for your long-term strategy. Customer needs, behaviours and
attitudes are about to be redefined, not on a global, but a local
level. This current phase may be the new normal for some years to
come.
Quite a few observers have been talking about
the impact of the recession on consumer behaviour. One of the first was
John Quelch[5] who predicted the fall of luxury brands and the rise of
the 'experience'. In other words, family and friends based
experiences and memories become more important than brand-based
displays of wealth and success.
There are two problems however with many of
these predictions.
Firstly, they do not go deep enough and
question some fundamental principles. For example, there is the
emerging view that consumers may be approaching saturation point. A
confluence of a bombardment of new (primarily technology based)
products, time limitations and resource shortages – amongst other
factors – could limit the market for the next big breakthrough[6] . So
we cannot just assume that consumerism will march steadily onwards and
that there will be a market for the next big breakthrough.
The second problem is that these predictions
are not scenario specific. As we have seen, the business world could
move in a number of directions and nobody knows for sure where it will
actually go. But importantly, customer needs could vary considerably in
these different future worlds as I illustrate below:
Here the arrows indicate the potential shifts. You can see that I
suggest that customer needs will be completely different in two equally
probable future worlds. In the best possible picture, 'The World is One', consumer
confidence rebounds leading the world's economy into a new period of
growth. The world feels safer too, people travel more and materialism
spirals. But in another possible future, 'The World is a Jigsaw', things are
different. The world is a less stable place, economic recovery is slow.
Personal experiences and protection of the family and the home rise to
key positions.
Again, this means that a key priority in 2010
is to understand how customers' needs, attitudes and behaviours are
changing. But we really need now to start to understand how our
strategy must change to accommodate these equally probable, but totally
different, future worlds.
This is already an emerging issue, that I
first picked up in July, when I looked at research focusing upon
Generation X (the offspring of the 'baby boomers') in the US[7].
These findings indicated a growing mistrust
of large corporations but an increasing disposition to trust the State
- 'big brother' - to care for
us in an uncertain world.
Some of the key findings from this study
were:
(a) Rejection of
military force to solve external problems and threats to the US.
(b) Belief that the state should step into protect the economy.
(c) Decreasing support of “free market” solutions. 42% agreed that “our
current economic problems show what happens when you rely too much on
markets and reduce regulations on corporations”.
(d) Progressive views on climate change, energy, sustainable living and
the role of government as the 'central protector'.
(e) The view that past policies have benefited primarily the rich.
Rebuilding trust must therefore be high on
the agenda of large organisations caught up in or on the periphery of
the banking crisis. This leads one to wonder if increasingly
depersonalised and distant distribution and customer relationship
strategies really will work in the financial services sector. Which
leads me on to issue #5.
There is now emerging evidence that corporate
social responsibility (CSR) could become a new differentiator[8].
Traditionally, we may have viewed CSR as just a corporate level issue.
But if we reflect upon the findings briefly summarised under issue #4,
there is a strong indication that we should consider CSR at the product
and customer segment levels.
Another perspective is that organisations in
the financial services sector will find it more difficult to innovate
in the face of increasing regulation. Therefore, new forms of
differentiation could be sought.
In other words, CSR may become an important
new differentiator to join the ranks of product features, price and
service, all more traditional value proposition differentiators.
There is always a great silver lining to any
recession – the fruits of creative destruction.
Nature and business abhor vacuums so a great
opportunity for strategic innovation will appear at some point – just
as financial services emerged to become a key employer in the UK
following the decline of the manufacturing sector in the late 1970s.
Now, however, the challenge is for the
developed economies to reduce their dependence upon:
(I) what is now
seen to be as a volatile financial services sector and
(II) domestic consumer fuelled demand [9],[10].
All these economies face the challenge and
opportunity of finding and building new export-led sectors.
Some of the mooted new opportunities exist in energy and
bio-technology. DNA research could produce a new generation of
treatments for example. There is also the broad need for the developed
countries to 'rebalance' their economies away from a services bias to a
tangible, export-led foundation.
So we will be faced with new industry sectors
and changing customers needs, attitudes and behaviours.
Now therefore seems a good time to dust off
your organisation's innovative capabilities.
All this tells us is that the world has
changed and will continue to change in, as yet, unknown ways.
So, relying on what worked before might not be the best idea.
A better course of action may be to treat
2010 as the year of exploration, when the organisation focuses on
finding out how attitudes, behaviours and needs really are starting to
change. It's a good time too to consider strategy in not just one but
three future worlds.
This could a long recovery and bumpy
recovery[11].
Research that I conducted with colleagues
earlier this year, pointed to the levels of stress that employees were
experiencing.
Over 80% of respondents in this survey noted
multiple symptoms of stress amongst colleagues and 70% felt that they
too had experienced multiple symptoms.
There is no doubt that stress destroys motivation and productivity.
Stress management must therefore be a central part of action planning
for 2010. At the very least, consider training managers and team
leaders in how to spot the symptoms of stress in their working areas.
1. This recession has emphasised the need to
'get local'. We have not yet reached the truly global single
marketplace – almost perversely - the crisis has emphasised local
differences and we need to plan around these local differences. As I
have demonstrated, the profile of economic recovery and the
opportunities that it creates, will vary materially on a country by
country basis and even locality by locality.
2. Change, in terms of customer
behaviour and emerging needs, will not happen all at once. I propose
that there are four phases to explore. We are now entering the most
important of these phases.
3. Customers' needs will change, but
the shape of these needs will be dependent upon the path that
globalisation does or does not take. This why thinking now about
strategy in these different future worlds is so important.
4. The image of large corporations may
be tarnished in the eyes of Generation Y – the new consumers – the
offspring of the 'baby boomers'. Do we need to consider CSR more
actively as a new source of differentiation?
5. The silver lining is that a new
period of opportunity will appear, especially as the developed
countries seek to re-engineer the structure of their economies. Now is
the time to dust off your organisation's creative capabilities.
6. Be careful about relying on 'what worked before'. We are in a new world, but nobody is yet sure about how it really works and fits together.
7. Don't forget your most valuable
resource – your people. Chances are that a slow recovery will bring
pressures that they will need help to manage.
[1] J. Bajoria, “Democracy Troubles in
Southeast Asia - Council on Foreign Relations,” Council on Foreign
Relations, Dec. 2008.
[2] G. Burtless, “The Financial Crisis and a Flaw in Corporate
Capitalism,” Brookings, Mar. 2009.
[3] K. Dynan, T. Gayer, and A. Berube, “How We're Doing: What's
Blocking the Recovery - Brookings Institution,” Brookings, Nov. 2009.
[4] L. Chandy, G. Gertz, and J. Linn, Tracking the Global Financial
Crisis: An Analysis of the IMF's World Economic Outlook, Washington:
Wolfenson Center for Development at Brookings, 2009.
[5] J. Quelch, “The Next Marketing Challenge: Selling to 'Simplifiers'
— HBS Working Knowledge.”
[6] K. Hudson, “The Social and Economic Background of the Modern
Developed Nation-State,” Evolutionary Economics.
[7] R. Teixeira, “Millennials Are a Progressive Generation,” Center for
American Progress, May. 2009.
[8] M. Lagace, “Corporate Social Responsibility in a Downturn,” HBS
Working Knowledge, Aug. 2009.
[9] J. Williamson, “RealTime Economic Issues Watch,” Peterson
Institute: Real Time Economic Issues Watch, Jan. 2009.
[10] F. Bergsten and A. Subramanian, “Op-ed: America Cannot Resolve
Global Imbalances on Its Own,” Peterson Institute, Aug. 2009.
[11] A. Posen, “The Path of True Recovery Is Never Smooth,” Peterson
Institute, Oct. 2009.
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