Dave Pollard's papers on business innovation & knowledge management

	Tuesday, May 12, 2009

Ten Important Business Trends Cartoon by Robert Weber in The New Yorker I've been asked to be a panel member at a conference on Thursday with the intriguing theme What's Next? My role on the panel is to talk about What's Next in Business. So I thought I might rehearse what I might say there, here, and get some comments from you, dear readers, before I make my presentation. The interesting thing about forecasting What's Next is that, usually, forecasters simply project that the future will be like today, only more so. There is little perception of possible upcoming discontinuities, and little imagination for what might follow such discontinuities. So if three years ago I had predicted that the Dow would be at 8000, the major American banks would all be substantially broke or nationalized, and that almost every major newspaper chain would be failing, my audience would have laughed me out of the place. Today, however, despite the constant drumbeat of pundits proclaiming the end of the recession and the return to growth as normal, those who predict radical discontinuities might be afforded a little more attention and credence. In that light, here's what I'm thinking of listing as the ten most important current trends in business: The dawn of an age of uncertainty, and a refocusing on business risk and sustainability: What we have witnessed recently -- turbulent markets, vacillation between good news and bad news, and growing skepticism over the veracity of what we're being told -- is actually a historical normal state, but since the 1960s we have experienced such a protracted period of invariability that we have come to think of it as normal. It is not. We can look forward once again to astonishingly rapid and unpredicable cycles of boom and bust, collapse and reinvention of corporations and entire industries, the fall of empires, belief frameworks and conventional wisdom. Our whole approach to health care and education, on which so much of our tax money is spent, is poised for revolutionary change. Insurance may soon become so risky to insurance companies that the industry disappears. Mexico may well fail as a state, and become as dangerous and expensive to keep in check as Afghanistan -- and a lot closer. We will probably witness environmental phenomena that are almost unimaginable -- hurricanes, droughts, flooding, hail and ice storms on a massive scale. And when a real, high virulence, high transmissability flu pandemic hits (and it will, we just don't know when), a simulation done by Homeland Security says it will cause business disruption on the order of the Great Depression. As a result of this there will be a growing realization that the primary purpose of business is sustainability. This is not to say that all businesses will become green. It means that there will be a huge new emphasis on risk management as Job One in most businesses, and an appreciation that short-termism, the propensity to obsess about short-term profits over longer-term viability, is extremely dangerous. It means that climate change will be discussed in board rooms not because the company wants to be seen as socially and environmentally responsible for PR reasons, but because executives and directors realize that if the planet is sick and depleted and constantly coping with catastrophes, every company is imperilled too. More than trying to mitigate their emissions and waste, companies will be struggling to figure out how to adapt themselves to what comes next -- when they don't know what comes next. Competent scenario planners and experts in simulation will be in popular demand. Rethinking the religion of growth: In business guru Charles Handy’s book The Age of Paradox, Handy interviews the natural entrepreneur who owns a top-rated winery in California. He writes: "After one sun-drenched day in the wine country of California I asked the owner of the winery about the future. He was passionate about their winery, he said; they were putting back every cent they could into its growth. 'Where can you grow?' I asked, looking around at the valley where every inch of land was now fully planted with other people’s vines. 'Oh, we don’t want to expand,' he said, 'we want to grow better, not bigger'." Natural entrepreneurs understand that your business doesn't have to grow to succeed, and a lot of companies whose future has depended on double-digit annual profit increases to placate their investors, are now looking at ways they can thrive by simply being better, and staying the same size, so that even when we move to a steady-state economy, these companies will stay prosperous. The new business model: Your basic product/service is free: This is the world that marketing whiz Seth Godin describes in his books and blog, and was to some extent predicted by Clay Christensen and Mike Raynor in The Innovator's Solution. And it's beginning to force every company to re-examine its business model before some competitor comes in and prices its bread-and-butter product or service at zero dollars. The 'freemium' model ("Give your product or service away for free, acquire a lot of customers virally, then offer premium priced value added or enhanced products and services to your most loyal customer base.") is no longer limited only to software firms. For the next few years, this business model innovation is likely to change what we buy, how we buy, and what we pay for virtually everything in the marketplace. A 'World of Ends' for business: In their famous treatise explaining the Internet phenomenon, Doc Searls, Dave Weinberger et al said that what made the Internet so powerful and so resilient was that it had no control 'centre' and no hierarchy: All the value was added, by millions of people, at the 'ends'. And if someone tried to disrupt it, these millions of users would simply work around the disruption. There is growing evidence that the same phenomenon is happening in businesses, which have long suffered from diseconomies of scale and bureaucracy that stifle innovation and responsiveness. Think of this as a kind of 'outsourcing of everything' (parodied in the cartoon above). Already companies like Levi Strauss make nothing at all -- they simply add their label to stuff made by other companies, and distribute it (largely through independent companies they don't own either). The Internet can allow this fragmentation to be carried to its logical limit -- R&D, manufacturing, sales, logistics and service can all be done by different companies, cutting out the 'management middleman' entirely. And even beyond that lies what is called Peer Production, that even blurs the line between these 'suppliers' and the customer, such that the customer 'invents' what she wants and then works with various partners to produce it. I described this in an earlier article: Suppose I want a chair that has the attributes of an Aeron without the $1800 price tag, or one with some additional attribute (e.g. a laptop holder) the brand name doesn't offer? I could go online to a Peer Production site and create an instant market, contributing the specifications, a bunch of technical links available online about just what makes this chair so special, and, perhaps a maximum price I would be willing to pay. People with some of the expertise needed to produce it could indicate their capabilities and self-organize into a consortium that would keep talking and refining until they could meet this price -- and, if not, they might counter-offer something close. Other potential buyers could chime in, offering more or less than my suggested price. Based on the number of 'orders' at each price, the Peer Production group could then accept orders and start manufacturing. The possibilities are endless -- somebody might want customization or some other attribute, to which the same or some other Peer Production group might respond. Another Peer Production group might self-form and come in with a lower price, perhaps creating a new or larger market. People might 'subscribe' to this market to watch bids and offers progress, or put in 'silent' bids if the offer fell to a certain point. Perhaps Herman Miller (maker of the Aeron) might enter the bidding itself, meeting my bid and offering the intangible value of their brand as well. Perhaps eBay would chime in with used Aeron chairs that meet my specifications at an even lower price (in fact eBay would be a natural host for these virtual instant markets), bringing their reputation systems into play. The intellectual capital associated with this instant market becomes part of the market archive, available for everyone to see, stripping this intellectual capital cost, and the executive salaries, dividends and corporate overhead out of the cost of this and other similar product requests and fulfillments, so that all that is left is the lowest possible cost of material, labour and delivery to fill the order. And the order is exactly what the customer wants, not the closest thing in the mass-producer's warehouse. See a fashion design by a big-name designer on FTV that you really like, but which sells for $10,000? Get a generic for $200, with your own custom modifications, before the big-name designer can even get the originals into the stores. A shift from 'free trade' to 'fair trade': Free trade is a euphemism for unregulated trade, and it's been a colossal failure for everybody except multinational corporations and a few third-world workers. Its cost has been the collapse of the middle class in many affluent nations, horrific working conditions in many struggling nations, and massive environmental destruction everywhere. As WTO talks dissolve in disarray and we begin to see NAFTA for the social and environmental disaster it truly is, we will start to see trade regulated to ensure protection of working-class jobs and local environments. This will be a huge boon to local and green employment and businesses opportunities, that will far outweigh the additional cost of imported junk. Growing oil scarcity: Our economy -- from the fertilizer that produces our food to the energy that accounts for virtually all the 'productivity' improvements we have benefited from since the dawn of the industrial revolution -- runs on oil. There is no way to reengineer our economy quickly, even at a cost of trillions of dollars, to wean ourselves off it before its availability begins to plummet. Once it becomes scarce we will have to decide between closing down factories and letting people freeze to death. Even if we were able to find enough new oil, even at the cost of creating more environmental holocausts like the Alberta Bitumen Sludge Mines (sorry, the "oil sands"), the cost of that oil will quickly soar to $200 and then $2000 per barrel by simple supply and demand. What's worse, climate scientists tell us that even consuming half of the known oil and coal reserves of our planet will push atmospheric CO2 past the 350ppm tipping point and produce calamitous climate change by the end of the century.  Growing water scarcity: Next to oil, our economy runs on a staggering level of consumption of fresh water. The Western half of North America, according to agronomists, is losing its fresh water supply so quickly because of glacier melt that they will face severe rationing within 10 years and absolute shortages -- to the point where, as happens now in many struggling nations, the water supply will only be turned on for a hour per day, and each household and enterprise will be limited to a fraction of what we now use. You don't want to know how much water the Alberta Bitumen Sludge Mines use, and turn into toxic ponds, already. A three-stage entrepreneurial boom: Even before the recession, in the 1997-2007 period Canadian businesses with more than 500 employees created less than 20% of net new jobs, and in the US the situation was and is much worse. If you're young, or a boomer looking for a 'second career', chances are you'll either have to start your own business, or work for someone who recently has done so. Last month virtually all of the sudden surge in job growth was entrepreneurial. I've been watching the entrepreneurial market for years, and I'll make a prediction: In twenty years, working for a large company will be rare. But there will be major hiccups in the transition to an entrepreneurial economy. The first burst of entrepreneurs will almost all fail for one reason: they will be sole proprietors who try to do everything in their business alone. They will find this so difficult that they'll burn out, or run out of money, or scurry back to the job market as soon as they see a recovery. The second wave will be younger -- educated new graduates who are too impatient or idealistic to claw their way up the increasingly steep corporate ladder. They will fail because they have to fail to learn. Many, unfortunately, will fail badly and find the experience so unnerving that they'll lose the heart and confidence to try again. But the third wave will be educated and experienced at failing quickly and inexpensively, and they will blaze a trail for others to follow that will be transformative. It will become the norm for new graduates. It will reduce the big corporate oligopolies and the big professional associations to minor players in the economy. The Gen Y phenomenon: There is something fundamentally different about those coming of age in the 21st century, as Don Tapscott has documented for the past decade. This generation is very sociable, connected, trusting, collaborative, and protective of each other. They're comfortable using technologies the rest of us haven't really got the hang of, and they're fearless and masterful at finding workarounds when corporate policies or restrictions or firewalls or bureaucracy get in the way of them doing their job the way they know is best. They're going to work, on average, in 12-14 jobs over their lifetimes, so they aren't as easily cowed, dictated to, or influenced by bribes or threats as previous cohorts of workers. You won't be able to tell them what to wear, when to do their work, when to do or not do 'personal stuff', what tools they must or cannot use, or where they must work. They know none of these rules make a difference to their performance, so get used to it. But also know this: Unless they've worked as entrepreneurs, they won't have the faintest ideas what 'business' is really about. You'd better be prepared to tell them, show them, explain it in terms they can understand, because if you don't, they won't be able to help you do what's important to your business, and its success. A shift back to basics and real value: There's nothing like a recession or three to make you refocus on what's really important in your life. There are already signs that people are valuing their time more than they have for decades, and that may mean that workers will seek careers that allow them time to do what's more important than their jobs. Fewer hours and less overtime means they'll have less disposable income, and that means they'll do more things themselves that they used to 'outsource' -- less eating out, more do-it-yourself home and car repairs, purchase of clothes and other durables that are well-made and timeless, more self-made entertainment and recreation (good for your health and creativity!), less willingness to commute, less tolerance of low-quality goods and services, preference for locally-made and hand-crafted products, more saving and less spending in general. That means companies that are depending on a rebound of frenzied consumer spending after each recession will not fare well, and those that help customers to be self-sufficient, to connect with each other, and to learn, those which have a reputation for quality and attentiveness, and which get most of their business by word of mouth, will flourish. Oh, and in the process, twelve tools that you are getting used to in your business will disappear. They include corporate websites, Intranets, e-mail, groupware, cell phones, classrooms, 'best practices', and most of the types of boring text-based documents you love so much. Category: Business Innovation 10:45:45 PM  trackback []  comment []

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