American Express: Bearish U.S. Economy Will Drive Social Networking Adoption

American Express—Bearish U.S. Economy to Drive Social Networking Adoption is my notes and thoughts on Steve Faktor’s dynamic presentation on the U.S. economy.

Steve Faktor, Vice President, American Express: Social Networking in a New Economic Reality

Steve Faktor leads American Express’s Chairman’s Innovation Fund, so he is constantly surveying the landscape for emerging market opportunities. He works with start-ups within the corporate environment, so that gives him a diverse perspective. He also tied economic conditions to the adoption of social networking: they will drive it up.

Background

Faktor opened the Social Networking Conference #snc2010 with some highlights and predictions for the U.S. economy from his forthcoming book. It’s going to be a hard reality for those who relish the return of “the good old days.” However, it’s been proven repeatedly that one can make money in any market. Among his insights:

• The current economic downturn is profound and it will change the DNA of the economy by forcing the U.S. economy to rebalance away from services to toward manufacturing. Commodities have high exportability while services do not.
• The U.S. government’s finances are in a shambles and will get far worse. By 2030, government will have no funds for basic services for roads and others because all its revenue will go to military, debt service, healthcare and pensions. There will be serious corrections.
• People will get poorer because taxes will increase significantly. Less disposable income, higher oil and commodity costs.
• The U.S. dollar is at risk as a reserve currency. China and other large dollar holders are pushing back, and the trend is to adopt a basket of currencies rather than dollars only.
• Small businesses and start-ups will be critical in rebuilding.
• Education as currently structured is unsustainable; there will be a seismic shift because it’s unaffordable, and there’s little clear ROI.
• The U.S. will have to increase “quality immigration” because we won’t have enough workers to pay for the large population of retirees. To understand this, look at Japan now.
• Expect significant capital constraints to persist, less retirement, and people working longer because they have little savings.
• Government will get more aggressive when looking for revenue; pursuing people with offshore accounts. Already they demand mobile GPS records at an unprecedented rate to help in prosecuting people, and expect this to increase.
• The use of social networking sites will increase; people will shift to a strong family focus because they will be poorer. Older workers will get computer literate due to going back to work and working longer.
• Mainstream media is finished because we will substitute new media. From newspapers to Twitter.
• There is more competitive value in business model innovation than product innovation. Experience and design are more durable drivers for competitive advantage.
• The most surprising prediction: based on his observation of Argentina’s economy, Faktor sees that unemployed service and retail workers will work in lower wage manufacturing jobs because the U.S. will shift more manufacturing near to demand (onshore). Higher oil prices add cost to multisourcing strategies.

Final Shots

• Faktor’s point of view was, for me, unorthodox and highly interesting because it challenged several assumptions I had about the shift to the Knowledge Economy. Therefore, it was one of the most valuable presentations of the conference for me personally.
• I can see the shift to local manufacturing, and his example of Argentina bolsters his point well. It’s very logical, especially in the face of much higher oil and transportation costs and major currency changes in the U.S. dollar. It would also require a major shift in U.S. worker expectations, but that could work in the face of a protracted downturn.
• The way I heard his preso, he predicted “returning” to manufacturing, away from services, focusing on commodities. This doesn’t make sense to me as stated because any “manufacturing” worth exporting would bear little resemblance to 20th century manufacturing. The products that can earn foreign currency would be highly evolved knowledge economy manufactured products because other nations will also shift to local manufacturing for commody goods and food.
• I am not an economist, but I observe that services are very exportable, but they aren’t magic; like products, they must be very appropriate to the demand environment. The Knowledge Economy will make services even more exportable: think telemedicine, financial services, management consulting, engineering, design, teaching, training, law. The world is rapidly moving to a global market. And services don’t require fossil fuels to move.
• Services will globalize due to the advent of the standardization of processes and frameworks like CMM. Having been in professional services my entire career, I have seen how the lack of standards limits services. Watch India because her management class has cut its teeth on standards-based schemes like CMM. As they standardize legal, healthcare and other services, they will lead the way. Tom Davenport has seen this for years. I have seen first-hand an analogous standardization process of enterprise software from 1995-2004 (SOA, etc.).
• Also watch sites like Alibaba, which can work very well when services are standardized and abstracted. Chris Anderson: “Alibaba.com [is] the largest aggregator of [China’s] manufacturers, products, and capabilities. Just search on the site (in English), find some companies producing more or less what you’re looking to make, and then use instant messaging to ask them if they can manufacture what you want. Alibaba’s IM can translate between Chinese and English in real time.”
• I plan to ask Steve what his rationale was for the premise that a balanced economy had equal revenue from manufacturing and services. Obviously, definitions are paramount here, and economists can’t even agree on them. “Economic” indicators used to calculate GNP are hopelessly 20th century.
• Steve’s prediction about the economy hastening adoption of social networking is already manifest. My networks of CEOs, CMOs and CIOs, none of whom are tech enthusiasts, with some of the CIOs as exceptions, are adopting much more aggressively because they can’t find jobs. I have worked with hundreds of them over the past four years, with the Executive’s Guide to Web 2.0.
• Since social networks enable people to collaborate, people will use them to manage in the face of adversity. I’m also seeing companies increasingly use alternatives to business travel.