Economic Disruption: How to Benefit Your Company and Career

mkt_analysis_insightThe 20th century created and democratized unprecedented wealth for humankind in many parts of the world, but soon after the 21st century dawned that party ran out of booze (credit), and the global economy is still seeking a new equilibrium. Businesses and individuals are beginning to suspect or realize that they find themselves in a fundamentally different environment.  Here I will briefly outline two levels of adversity executives are facing, one of which is serving as a smokescreen for the other. Then I will share some recommendations for managing through this period. By understanding some of the causes involved in these economic effects, you will be able to guide your company and career most appropriately.

Two Levels of Adversity

We are experiencing “a difficult economy” on two levels, and this affects your company and career in the short and long term, but for different reasons:

The obvious short-term contraction of the credit markets. Don’t have to write much here as you’ve undoubtedly read hundreds of pages. When you live on credit and a trigger event changes your relationship with your creditors, it’s like the pinball machine is on tilt. This is overtly painful and frightening; it’s life-changing for many firms. Many firms have sought bankruptcy protection, and I believe many more will follow, although for different reasons. Many governments, notably the U.S., are still struggling with this on national and global levels. It takes some time to change behavior and to find a new equilibrium. Business investment is curtailed to the minimum in many areas.

The hidden long-term transition to the Knowledge Economy. For the past 250 years, most of the world has been participating in the product-focused Industrial Economy, from which we are shifting away toward the experience-focused Knowledge Economy. To appreciate the profundity of this shift, look at the last metashift, during the 18th century when many parts of Europe shifted from the Agrarian Economy to the Industrial Economy. In mid-19th century Europe, technology, then in the form of industry and manufacturing, was causing massive upheaval because the move to cities and “working on the clock” changed family structure, culture and life; politics was bound to change, too. I urge you to read Wikipedia’s brief treatment, but I’ll quote this passage:

Numerous changes had been taking place in European society throughout the first half of the 19th century. Both liberal reformers and radical politicians were reshaping national governments. Technological change was revolutionizing the life of the working classes. A popular press extended political awareness, and new values and ideas such as popular liberalism, nationalism and socialism began to spring up. A series of economic downturns and crop failures, produced starvation among peasants and the working urban poor.

The current disruption has presented itself as a financial crisis, but that hides the real disruption. Many of the Industrial Economy’s assumptions will be shown to not hold true as they did before, and disruption will be pervasive, multifaceted and protracted. The executives who recognize this and move to adapt to the new environment will mitigate its negative impact and create opportunities for their companies, their families and communities. Those who don’t will increasingly struggle.

Here are some actionable observations and suggestions.

Strategic Considerations

  • Long product life cycles and innovation by long R&D cycles. I realize that this is a strong statement, but most companies will only survive if they innovate pervasively and constantly, not only in products/services but in customer experience, which is the main arena of the Knowledge Economy.
  • If you don’t change your innovation processes, your viability will decelerate quickly, not immediately, but many companies will not survive.
  • The problem is, the Industrial Economy thrived because there was pent up demand for goods; consequently, product life cycles were long, and firms focused on efficiency. Now experience life cycles are trending toward minutes, and they drive market share and profit.
  • You may think that you already focus on customer service. Most firms do the best they can, but the customer has been mute until now. Now customers increasingly have full-motion video cameras in their pockets, featuring one-click uploads to YouTube. Your company will soon be on candid camera full-time, everywhere.
  • Industrial Economy innovation processes were focused on the slow, high-cost, closed “expert model.” Generally, the Knowledge Economy model is driven by “open innovation” in which firms engage highly qualified, free resources for pervasive innovation, their customers and other interested parties. Social networks are the digital gateway to engaging these new resources.
  • Your company’s prowess at finding and engaging people using social networks is a critical success factor to succeeding in this environment. This is not an easy transition, but it is a necessary one for those who will lead in the foreseeable future.
  • Looking at it another way, one of the legacies of the Industrial Economy is linear thinking, which stemmed from the production line. Our companies existed in “value chains” and “chains of command.” We delivered value through economies of scale and efficiency and avoided disruptions to business processes. Inputs came in the back door and products went out the front. We depended on companies that were adjacent to us in the value chain.
  • Now we find ourselves in a pervasively networked environment in which there are multiple paths between players, “Value Nets.” Think about this shift’s impact on the MBA exercise, the “Beer Game.” Short circuit.

Tactical Guidance

  • 2008_Predct_actplnRemember how “Web 1.0,” the Internet, made an impact on your business because it enabled information and transactions on demand. Web 2.0 will be far more profound because it proffers relationships, opinions and knowledge on demand.
  • Digital social networks will change how people buy because they will ask their friends and colleagues for advice. Most companies are not talking with these new influencers, and this disruption will accelerate and disrupt most industries over the next 3-5 years.
  • Consider as strategic your company’s approach to adopting social networks. You need relationships on demand: ideas from customers, employees, partners, government—and processes to act on them while mitigating risk. Social networks drive down the cost of interaction, so you can have more interactions.
  • Approach social networks as a strategic competency you will need in the future: your main question is how to make the investment and develop the competency.
  • Put an executive with demonstrated enthusiasm for disruptive thinking in charge of an initiative to assess how these changes are affecting your company. Don’t focus your inquiry on “what competitors are doing”—rather, focus on customers and their key influencers.
  • Explicitly focus on developing in-house skills with emergent, cross-boundary interactions using social networks. Use a risk mitigation approach to accelerate your effort and minimize wasted time and financial resources. For one example, see the Social Network Roadmap.
  • Refocus your value proposition away from products and services—and toward the experience of customers. More on this in Consumer Empowerment Market Advisory.
  • In periods of disruption, you will mitigate risk by focusing on the end market signal as much as possible. Intel’s “ingredient brand” marketing strategy is instructive.
  • Rethink employment. Firms need increased flexibility, so they need to drive down the costs of hiring and firing. For more in this, see Alumni 2.0. Work with employees to help them transition in and out of your company. Social networks drop the cost of keeping connected to alumni, and they will bring you business if you approach the relationship as a partnership and serve them.

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