A clear point emanating from my earlier posts and, importantly, discussions with business managers and leaders is that we cannot afford just to “sit this one out” and expect the business world (and in fact the world in general) to be in exactly the same shape as it was before when this recession comes to an end. It is becoming clear now that we are at the threshold of a new world and things will be very different. The recession scenarios provide us with a mechanism to see what the new worlds could look like, but in this post I would like to start to explore what the process of transition to the new world itself might look like. When looking at the transition process, I will adopt the perspective of your businesses customers and clients, in other words the phases of change that your clients and customers will go through.
In this post I am going to put forward a proposition for debate that as we go through this journey from recession to recovery there will be multiple behavioural and structural shifts to look out for. Each will provide challenges but also, and more importantly, will provide new opportunities for your business. I will describe 5 of these waves of change in this post. Remember that some will run sequentially and that some will run concurrently.
Phase 1: Shock and Horror.
Whilst there was some talk about 24 months ago of an impending economic “blipage”, nobody thought it would ever be this bad. The accepted thinking appeared to be at worst that we would have say a slowdown period of 12 months and then we would get back to growing in a predictable world. Nobody thought that capitalism might be brought to its knees. Therefore, when the news broke last year – particularly when Lehman Brothers went down on 15 September – we were all thrown into a state of shock. It was as if the bottom of our worlds had been pulled away. A good way of looking at this is to think about that old, but classic, motivation model Maslow’s Hierarchy of Needs. It was as if the bottom layers, the foundations, had been stolen. For this reason, people and organisations act a little irrationally during this first phase. As security is threatened, we need to do something to protect ourselves and this usually means making immediate cost-cutting decisions many of which might not be in the long-term interest of either the individual or the business. In shock there is the over-riding desire to do just something. An example is that 74% of Americans intend to cut back on eating out and entertainment .
So this is where we are now. In an irrational period. From a business perspective, it is a period to make temporary adjustments to match these new behavioural patterns. But it certainly is not the time to make long-term irreversible decisions. As I try to show in the first illustration below, this is a temporary phase.
And my guess is that we will come to the end of this phase in late 2009.
Phase 2: Acceptance
Phase 2 is important for three reasons.
- It represents almost certainly a longer period than the first phase.
- It is the period when customers adjust to accept the fact that we are (probably) in for the long haul. Expect therefore more reasoned decision making that will hold for the medium term.
- During this period the behaviours of Generation Y (the children of the “baby boomers”, Generation X) will be shaped permanently. Remember that in the last real downturn, Generation Y would have been in nappies (diapers). What they see and feel during this period will have a permanent impact. It is the first time that their world will have been shaken and their beliefs and assumptions challenged. Long-term behavioural changes will appear, such as a move away from external, tangible displays of wealth.
At the time of writing this entry I would say that we are just about to enter this phase – a phase that may last for 3 or more years, but as I show in this second illustration, the impact is far more permanent.
Phase 3: Emergence
At some point the stimulus packages and measures that are now being put in place will bear fruit. Confidence will be restored. Demand will increase. New demands and needs will appear, but these will have been materially shaped by experiences (that are now largely unknown) that will have occurred during phase 2 – Acceptance. New customer segments will appear. But the effect may not be so dramatic in the long-term in terms of customer needs.
Phase 4: Restructuring
I opened this post by saying that we can’t just sit this one out. One of my propositions is that certain developed economies need to undergo second order macro economic changes. The UK is a good case in point as I have observed earlier with its near 22% of employment in financial services. These macro economic changes should produce new opportunities and needs to meet as new employment champions appear – just as financial services did in the early 1980s when manufacturing went into decline, at least here in the UK. This phase, as new employment sectors appear, will be more permanent in its impact.
The first 4 waves of change are all shown with a subjective view of their period of influence in the illustration below:
Phase 5: New Influencers
Here we go out into the medium to long-term, beyond the illustration above. And I have in mind 3 to 10 years out from now. During this period the winning BRICs (the emerging economies of Brazil, Russia, India and China – if any of them do make it) will really have the position to reshape both the business world and capitalism itself. The mechanism to do this (G20) is already being put in place and remember that by 2019 China could control 13% of the world’s banking system and 16% of the global stock markets.
So now is not a time to sit back and wait – it is a time to sense, inter-act with customers and learn. I propose that our customers will go through 4 – 5 waves or phases of change. Of these 2 will probably have a permanent impact. The first of these is the “Generation Y” effect within Phase 2: Acceptance. Here, attitudes and behaviours could be shaped for a lifetime. Finally, the second phase to have a permanent impact is Phase 4: Restructuring when new (as yet unidentified) employment sectors emerge.
So now is the time to sense and explore these proposed waves of change. Before your competitors do.
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 The Daily Stat. Harvard Business Publishing. April 1, 2009
 DB Research (2009) China’s financial markets: A future global force? March 16