Too many US companies today are still suffering whiplash from the economic shift. As mentioned in a previous post they are focusing on day to day survival as opposed to new market realities.
Long-held assumptions are about to change and will be shaped by an evolved market demand and altered business models. Some Fortune 500 companies have already started adopting governance reform and task teams to get a head-start on anticipated change.
As a director, you must demonstrate to investors, your customers, and the general public that you are actively managing key business decisions that will make or break your organization when the new market order emerges. Do not wait until the economy is fully recovered and have people start asking you why you did not start preparing for growth now.
To do this you must:
- be prepared to explain how your board came to agree on compensation packages,
- start building risk management practices into business process and your operating plan so the recent turmoil does not occur again,
- be transparent in your messaging to the market, it is a new market.
Necessity breeds the saying goes, so too for innovation in organizations looking to find new survival skills. Video conferencing reduces travel costs, the Web enables decentralization of resource, opportunities to collaborate blossom. It is through tough economic times, argued by McKinsey’s August publication of “Using technology to turbocharge innovation in a downturn.”
Recession has historically given way to an increase in technological advances for multiple reasons. One being that during economic downswings only major innovations become successful, the kind capable of shifting the paradigm of existing business models and establishing new growth areas to excel into the economic upswing.
Over a dinner last week I was talking with friends about how so many organizations make the mistake during a downswing to go into crisis management unaware that market positioning is underfoot. McKinsey researchers found that nearly 40 percent of leading US industrial companies tumbled from the top quartile of their sectors during the 2000-01 recession, as did a third of leading US banks.
The report states there are two areas of innovation currently taking place. First is the “Internet of People”, in short people are integrating with each other, the market, and workplace. The second is the “Internet of Things” in which micro devices on wireless networks become more interactive and intelligent capable of transforming business models.
The coming paradigm shift here is that the new logic of paying for value will determine the success of your business model.
The McKinsey August China report brings into focus the coming paradigm shift that will transform China from a servant to a master on the world stage.
The article argues a more consumer-centric economy allocates capital and resources more efficiently while simultaneously generating more jobs and expands growth equally and rapidly. This is a major transformation opportunity for China in addition to the market demands and influence of the empowered Chinese consumer.
Point 1: China needs to immediately raise rates of consumption
Point 2: Chinese consumption relative to GDP is lower than other countries
Point 3: Households account for the lowest end of total spending
When the US market collapsed millions of Chinese migrants in Chinese factories lost their jobs. The Chinese government responded with a $600 billion stimulus package and new lending opened up by state-owned banks. The Chinese government is now adamantly focused on stoking Chinese consumption to match its stimulus.
Provided China can mend the social safety net and encourage savings accounts currently stored between mattress covers to be invested back into the economy. Balance will be restored with the creation of more jobs and higher wages.
The opportunity for US companies is to uncover new ways to unleash the spending power of Chinese consumers.
With the recent economic downturn and credit crunch a paradigm shift in business is currently underway moving us towards a shared resource model with a devaluation of devaluation of each transaction.
Traditional methods of business structure retained scores of individuals with particular skills to provide specific centralized services. With the increased flow of information due to the reduced cost of the transition technology is facilitating a breakdown of middlemen and giving rise to community value oriented growth.
Middlemen will need to start looking for work soon as constant relationships and circular contributions are on the rise. The hope expressed by Harvard professor Stan Stalnaker is that the next evolution in economics is to a more natural, life-like sustainable system. It is a rejection of the ever quickening and consuming society we have become.
Business strategy over the next five years will need to realign to this new order. Customer oriented value and reassessing point of sale in relation to the end user is an imperative. Growth-at-all-costs businesses will soon be threatened and the agile organizations with common social values will be given a brief opportunity to step in and take the reigns.
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