11 Jun 10 Recession, change and the heroic leader

John Kay (Beware the cult of the heroic chief executive FT, June 9) provides us with an excellent summary of the failings of the dominant, heroic leader.

My research, conducted after the 1990s recession, shows that a special type of leadership is required if organisations are going to successfully pick their way through a changed post-recession business landscape.  Notably:

• Leaders must be strong enough to sweep away the blockers of change – those that believe “that the old ways will win through”.
• Leaders must also be prepared to admit that even they do not have enough knowledge of the new landscape to craft a new competitive strategy.
• Experimentation and learning.  Leaders need to focus their organisations on a period of experimentation and learning to fill this knowledge vacuum.
• Short-termist stakeholders – leaders must be strong enough too to resist the demands of those with only a short-term agenda.  Giving the organisation a breathing space to learn is an essential task.

Barking orders, vision statements and grand plans from the top, based on a dated and flawed view of the new world will have disastrous consequences.

My response to the above article, in the form of a letter to the FT, is here.

Tags: chief executive, competitive strategy, leadership, recession, vision statements

09 Jun 10 Interview: The Perfect Storm

Many businesses face the prospect of a “perfect storm”.

For those in the insurance industry, this is a combination of catastrophe losses followed by the challenges of a “W” shaped recession that could bring social upheaval and political change in many countries that we have historically considered as “stable entities”.

But the perfect storm is not limited to the insurance sector – it could sweep across all sectors in many developed economies and reshape the business landscape.

I talk more about the perfect storm and what it means for business in this interview which includes findings from the research project I conducted with Cass Business School and the Chartered Insurance Institute:

Tags: insurance industry, insurance sector, perfect storm, recession

29 Apr 10 Recovery Tip #3: Experiment and Fail

An unusual title, but to find out how your customers’ needs are changing you need to go out and experiment.  Not just experiments around new offerings, new supporting services and new markets, but new ways of inter-acting with customers and potential customers too.

Reporting back on the learning from this “innovation agenda” should be part of regular management meetings.

But excel at analysing and learning from failure too.  In the most successful recession recovery organisations that I have worked with the best initiatives had their roots in failed experiments.

Tags: customers needs, learning from failure, recession

29 Apr 10 Greece, Debt, Contagion and Political Change

Unlikely bedfellows you may think, but two articles from the Institute of Fiscal Studies[1], [2] can help us to see the type of future that may await us, particularly for the losers of the Great Recession, those that I call the “bloc #3“.

The key points from the above articles are:

(1) Public sector spending has risen strongly in bloc #3 (and the so-called PIIGS with the exception of Italy) 1997-2010 as is illustrated below:

Source: [1]

(2) In view of the crisis in Greece (and potentially many others) interest rates on sovereign debt are rising – the cost of borrowing is increasing beyond that envisaged.

(3) Just as interest payments on national debt are rising, so are welfare payments as, for example, the Generation X “baby boomers” age and retire.

(4) In the UK, the massive injection into public services has not delivered, as Chote puts it, the “bang we get for each buck”. In other words, the return on investment is lower than would have been expected from the private sector.  This observation may apply in other countries too (although I have not yet researched this point).

All four combine to produce pressure for the so-called “austerity measures” to reduce debt levels.

But we must couple these observations with those of Caldwell[3] who notes that in the above countries there may not be the stomach for massive spending cuts – the “austerity measures”.

So, we must look beyond the well-publicised spending cuts to see the true long-term  impact, which could be felt not on the economic stage but the political stage.  Could this  even embrace the total rejection of capitalism and the re-emergence of – wait for it – communism[4]?

Hopefully this will start a debate.

References
[1] Chote, Robert Two questions the leaders must answer tonight. The Times. April 29 2010.
[2] Crawford, R and Emmerson, C The axe is coming soon and it will hurt, warns the IFS. Public Service. April 21 2010.
[3] C. Caldwell, “The Weekly Standard,” The Weekly Standard, Apr. 2010.
[4] N. Lezard, “First As Tragedy, Then As Farce by Slavoj Žižek,” guardian.co.uk, Oct. 2009.

Tags: contagion, cost of borrowing, Innovation, recession, sovereign debt, welfare payments, welfare state

26 Jan 10 Looking for weak signals

Introduction
In his book The Art of the Long View, Peter Schwartz[1] talks about the concept of looking for weak signals to help form ideas about the possible shape of future worlds.

In this briefing I would like to examine two signals (and, some of you may argue, quite strong ones) that have appeared over the last couple of weeks and discuss what they might mean for business strategy.

Looking for a new “generic strategy”
First off, I will start with a US survey-based study, The National Leadership Index 2009 [2] that tracks Americans’ confidence in their leaders, in both the political and business worlds. Here is a selection of findings:

• Confidence in Wall Street leaders has, unsurprisingly, sunk to an all-time low. This sector too has the lowest of all leadership confidence ratings recorded (the survey looks at sectors from the military, through to charities, business and media).

• In addition to leaders in Wall Street, confidence in national leaders plummeted too.

• Americans only have above average confidence in leaders in three sectors, the military, medical, and not for profit/charity.  Note the absence of the business world.

And here are some (summarised) answers to specific questions addressed in the survey:

How much do you trust what leaders in these sectors say?

To what extent do you agree that today’s leaders in these sectors share your values?

Which would you agree with most, that leaders in these sectors generally work for the greater good of society, generally work to benefit themselves or generally work to benefit a small segment of society with special interests?

The really important message out of this is that only 10% of Americans think that business leaders work for the greater good of society. And it gets even worse when we learn that only:

• 2% strongly feel that business leaders share respondents’ values (22% of respondents strongly  feel that business leaders do not share their values).

• 3% strongly feel that business leaders are in touch with their needs (over 70% of respondents either disagree or strongly disagree that business leaders are in touch with their needs).

All this goes to demonstrate:

(a) the steep hill that businesses have to climb and
(b) deficiencies in the way that businesses think about competitive strategy.

For well over two decades strategic thinking has been dominated by two questions – how can we drive down costs and how can we make our offerings (products) different from the competition? Both these questions really assume a rational, economically driven marketplace. Frequently, they are referred to as “generic strategies”.

But neither of these questions really addresses the problems that this survey reveals.

In a world that is increasingly concerned about the environment, security and human rights, businesses need to move from this thirty-year old view of strategy and seek out a new “generic strategy” that says more about what the organisation and its offerings really stand for.

The age of localisation
So much for global strategies. A growing mass of research is pointing us towards thinking locally, not globally. A report issued earlier this month from the think tank Centre for Cities[3] clearly indicates the need to take very much a localised approach to strategy-making.

Some key points from this report:

• Many of the cities in the UK that are suffering the most from the current recession are those that have not yet recovered from the last two recessions. In short, some areas such as Hull and Grimsby, are now in the grip of a 35-year period of decline and stagnation. These locations are experiencing the worst scenario of all – an “L” shaped recession.

• Many cities where we have seen large increases in public sector employment have yet to feel the impact of public expenditure cuts – these areas could well experience the double-dip “W” shaped recession.

• However, there will be some that will experience a relatively short downturn – the “V” shaped recession. Cities in this final category include London, Brighton, Luton and Crawley – very much a South-East UK picture.

Nationally, the report tells us that five years must elapse before employment levels recover. For some, it will be shorter. For others, it will be an extension of the last three decades.

Don’t think that this solely a UK issue.

Localised depression and recovery is an issue reported in the US[4] too and probably exists to some degree in every developed economy.

Putting the signals together
When I opened this briefing I said that some may view these reports as more than weak signals. Indeed, I would argue that the findings discussed here are emerging certainties.

We can be sure that the recession will bring enduring pain for many. An enduring pain that will permanently change attitudes, perceptions and behaviours.

We can also be sure that attitudes to big business are deteriorating. Indeed, there is such an gulf to be filled that we must now strongly question the efficacy of established approaches to competitive strategy that merely deal with costs and what the offering (product) does or does not do.

A new generation of customers, a recession hardened Generation Y, is emerging that will make up their minds using different criteria. And the rational economic logic that has traditionally underpinned strategy-making will not provide the answers.

Finally, these are type of signals that we should pay attention to – they are the new signals that will help us to see what capitalism in the post-recession world will really look like.

References
[1] P. Shwartz, The Art of the Long View, New York: Doubleday, 1996.
[2] S. Rosenthal, S. Moore, R. Montoya, and L. Maruskin, National Leadership Index 2009: A national study of confidence in leadership, Cambridge, Massachusetts: Harvard Kennedy School for Public Leadership, 2009.
[3] Cities Outlook 2010, London: Centre for Cities, 2010.
[4] L. McPheters, “Unemployment’s Uneven Impact,” Knowledge at W P Carey, Jul. 2009.

Tags: business leaders, future worlds, generic strategy, recession, weak signals

14 Dec 09 So how long are we in this for? Part II

In my post So how long are we in this for? I reflected upon unemployment as a key indicator for strategists.  It is, after all, employment, or the lack of it, that could reshape human and therefore customer behaviour.

Well I have an update on the issue of unemployment or the question how long are we in this for.  I listened at the end of last week to a podcast given by Michael Mussa of the Peterson Institute[1] on the suject of the outlook for the US economy and the prospect of a jobless recovery.  Some key points from this podcast are:

• It will take from three to four years for unemplyment levels to reach 6%.  This assumes a “vigorous” recovery.  Note that the OECD expects that US unemployment will peak at 9.9% in 2010 and that pre-recession unemployment levels stood at 4.6%.
• It will take a decade to return to pre-recession unemployment levels.
• Recovery will entail higher levels of labour mobility.
• The construction sector is not coming back “anytime soon”.
• The automobile is, in employment terms, in secular decline.

This perspective reinforces the view that developed or “advanced” economies face seismic changes and that consumers attitudes will be reshaped across generations.

A similar perspective is taken (in respect of the UK) by Martin Wolf[2].  The depth (and duration) of the problems faced by the so called advanced economies has not yet received sufficient attention.

We have, in the developed world,  a long period of slow growth and uncertainty ahead.

We need to get out now and find out how needs and behaviours are changing amongst our customers and how, in turn, such shifts will impact our businesses.

This must be a key priority for 2010.

References
[1] Mussa, M A jobless recovery? Peterson Institute. Dec. 2009

[2] Wolf, M Britain’s Dismal Choice: Sharing the losses.  Financial Times.  Dec 15, 2009

Tags: attitudes, customer behaviour, recession

01 Sep 09 HR should do more in a recession?

I read this morning, with some interest, a web page[1] summarising a recent survey by the Economist Intelligence Unit[2].

Broadly, this survey looks at the perceived role of HR in a recession taking the perspectives of both business executives and HR executives.  The survey points to a number of issues including a perception gap between HR and business executives.

But the key findings can be summarised as follows:

(1) HR possesses  “An inadequate understanding of the relationship between workforce reduction and business goals”.

(2) Quantitative performance measurement is seen as a key priority – with over 90% of organisations either having or planning implementation of such systems.

(3) Boosting productivity without increasing employee costs is another major priority – with a focus on training, more stringent performance appraisal and process innovation.

One could conclude that the emphasis is upon cost reduction and increasing productivity.  Understandable in these interesting times, but the question must be: “Are there other elephants in the room?”

I would suggest that there are two that deserve more attention.

The first is the psychological trauma induced by a sudden and unexpected recession.  My research, conducted with colleagues, indicates that getting to grips with an unseen sea of psychological trauma should be top of the list – from the perspectives of both business efficiency and staff well-being. This research revealed some alarming statistics – for example over 80% of respondents noted multiple symptoms of stress among their workplace colleagues and over 70% of respondents said that they had themselves experienced multiple symptoms of stress.  In this survey, only 8% of respondents did not report experiencing symptoms of stress.

And do not think that that recession induced stress is going to go away.  The recovery is fragile and it looks as if we are entering a period of lower growth especially in the advanced economies[3], [4].  So uncertainty induced stress will be with us for the medium term.  The implications for productivity are obvious.  Stress management should be at or near the top of HR’s agenda and too should figure strongly in any organisation’s business planning process for 2010-2012.

But there is a second elephant in the room.  The world is not going to look the same after the recession.  We are seeing quite fundamental shifts in consumer behaviour[5] coupled with an emerging view that, in at least the advanced economies, macro economic restructuring may be needed with a reducing emphasis upon the banking sector [6], [7].  The stuff of creative destruction  – but with plenty of opportunity for externally based not internally based innovation.  Developing exploratory skills should also figure strongly in HR’s agenda – we don’t want organisations that just excel in reducing their expense bases.

We are, after all, moving towards a world where there is more to strategy making than cost reduction.  And getting to that world will take time, new externally based exploratory skills – and of course motivated staff.

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References
[1] Churchard, C “HR should do more in recession, executives say”. People Management. August 2009
[2] The role of HR in uncertain times. Economist Intelligence Unit. 2009
[3] N. Roubini, “The risk of a double-dip recession is rising,” FT.com, Aug. 2009
[4] W. Galson, “The ‘New Normal’ For the U.S. Economy: What Will It Be?” Brookings, Sep. 2009
[5] U. Haque, “The Generation M Manifesto,” Harvard Business Publishing, Jul. 2009.
[6] N. Cohen, “British outlook trailing other G7 nations,” FT.com, Sep. 2009.
[7] S. Sassen, “A global financial detox,” Open Democracy, Sep. 2009

Tags: downturn, hr executives, HR management, Human Resource Management, psychological trauma, recession

19 Aug 09 Social Networking and the Web: An unreliable distribution channel?

Just before I went on my summer break, an interesting article crossed my PC screen – “Social sites losing popularity with young“  – an article in the FT on 6th August[1].

This article makes two interesting points:

(1)  The number of “young” internet users (defined as 15 to 24 year olds) using social networking sites (such as MySpace and Facebook) has, surprisingly, declined for the first time.
(2)  These sites (and others such as LinkedIn) are growing in popularity – but only in terms of older internet users.  However,  these may be totally new social networking users looking to adopt social networking as part of a post redundancy job search exercise.

For me, these are interesting findings and support my own thinking that both the use of the internet and social networking media is at a relatively immature stage and may not offer businesses the total relationship building and distribution solution that many are wishing for.  Therefore, basing a long-term business model on these routes may be risky.

We can make some early inferences:

(a) Usage of the web, and particularly social networking sites, will probably change depending upon the user’s age and life cycle stage.

(b) Users – and I would suggest particularly younger users – will be relatively ‘promiscuous’. From my own family experience, I was surprised to see how quickly MySpace fell from fashion to be replaced by Facebook.

(c) Social networking – a lifecycle. Early indications are that the lifecycle of social networking sites – such as Friends Reunited for example – may be surprisingly short. This leaves us with the question – what will replace Facebook?

If we couple these findings with other work (for example [2]) that looks at the emerging effects on consumer behaviour of the recession – especially amongst generation Y (the offspring of generation X – the ‘baby boomers’) – a complex picture merges. Early research on recession effects inform us that there may be a growing mistrust of larger corporations – and a need for greater personal inter-action – a ‘visible not digital handshake’.

So, a wholly web based distribution and relationship building strategy could look fairly shakey.

If customer lifetime and loyalty maximisation are important for your business then a far more complex model may be needed of which the web and social networking are but two components.

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References:

[1] M. Palmer, “Social sites losing popularity with young,” Financial Times, August 6.
[2] U. Haque, “The Generation M Manifesto,” Harvard Business Publishing, Jul. 2009.

Tags: generation y, internet, recession, relationship management, social networking, strategy, web

05 Aug 09 Creative Destruction: A special type of change management

The upside of a recession is that it brings with it a wave of creative destruction, generating new opportunities.  The sting in the tail however, is that this wave will also threaten established business strategies, making some obsolete.

Many businesses are in the vice-like grip of the recession – on one side there is the need to to stem losses – on the other is an awareness that past strategies and ways of doing business might not work in the future.  In this situation it can be difficult to decide what to do next.

My research from the last recession reveals that a special type of change management is needed – to read more about change and creative destructive just click here to go to my executive briefing Recession and Creative Destruction: Guidelines for change management.

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Tags: Change Management, creative destruction, recession, turnaround management

16 Jul 09 Behavioural Shifts: An X, Y or M issue?

In my last entry I focused on looking at behaviours and responses to the downturn from a B2B perspective – judging the likely winners and losers amongst business customers.  But what about consumers?  Will their attitudes change?

My argument is that the deeper the recession runs and the longer that it takes for economies to regain the wealth levels that they enjoyed before the recession then the greater will be the behavioural shifts that we will have to get to grips with.

It is interesting to note that the issue of a behavioural shift amongst consumers in the advanced economies has been picked up by some economic forecasters. The latest OECD forecast[1] makes for thoughtful reading.  In the US, consumers spent 2.4% more in GDP terms than income in 2007.  A debt and confidence fuelled spending spree.  The OECD now assumes that the same consumers will spend 7.9% in GDP terms less than income.  In other words, a massive shift from debt fuelled spending to saving is predicted.

But what other behavioural shifts are being detected amongst consumers?  What about Generation Y – the children of Generation X – the baby boomers (and, yes, I’m a baby boomer with Generation Y examples to observe).

A study[2] looking at the political stance of Generation Y (18 to 29 year olds in this study) in the US has some interesting pointers including:

• Rejection of military force to solve external problems and threats to the US.
• Belief that the state should step into protect the economy.
• Less supportive of “free market” solutions.  42% agree that “our current economic problems show what happens when you rely too much on markets and reduce regulations on corporations”.
• Progressive views on climate change, energy, sustainable living and the role of government as the “central protector”.
• Holding the view that past policies have benefited the rich.

Well you could say that in the current circumstances these views are to be expected but will soon change when things get better.  But what if it takes a long time to get better?

There are other observers to who think that a behavioural shift might be more widespread than within Generation Y.  Umair Haque[3] talks about Generation M – defined broadly as those people who are “acting very differently”.  Some of the proposed characteristics of Generation M are:

• A preference to small responsive enterprises.  An anti large corporate viewpoint.
• Less focus on shareholder value – more focus on the benefits of commerce for the individual.
• More inclusive leadership and trust – both in the political and commercial arenas.
• Rejection of material trappings of wealth.
• Rejection of the continuous growth mantra.
• Experiences with people, friends and family matters more than tangible goods.

Is this a permanent shift or just a temporary reaction?

Nobody knows.

But we had better make sure that we are out there finding out.

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References
[1] See: M. Wolf, “After the storm comes a hard climb,” FT.com, Jul. 2009.
[2] Teixeira, “Millennials Are a Progressive Generation,” Center for American Progress, May. 2009.
[3] U. Haque, “The Generation M Manifesto,” Harvard Business Publishing, Jul. 2009.

Tags: baby boomer, consumer behavior, downturn, generation m, generation x, generation y, recession