HAPPY NEW YEAR!
We end the first decade in 2000 with another first. In ReutersBreakingViews.com "Don't Diss the Dividend" we learn 2000-2009 is the first time in modern stock markets when U.S. investors made no money for a decade. Right. Worse performance than the 1930s Great Depression. Over the last decade, the S&P 500 had a net loss of about 1%/year. After dividends a gain of 1% – less than half the average inflation rate of 2.5%.
Things have shifted. We ended the last millenium with a shift from an industrial economy to an information economy. And the tools for success in earlier times no longer work. Scale economies and entry barriers are elusive, and unable to produce "sustainable competitive advantage." Over the last decade shifts in business have bankrupted GM, Circuit City and Tribune Corporation – while gutting other major companies like Sears. Simultaneously these changes brought huge growth and success to Google, Apple, Hewlett Packard, Virgin and small companies like Louis Glunz Beer, Foulds Pasta and Tasty Catering.
Even the erudite McKinsey Quarterly is now trumpeting the new requirements for business success in "Competing through Organizational Agility." Using academic research from the London Business School, author Donald Sull points out that market turbulence increased 2 to 4 times between the 1970s and 1990s – and is continuing to increase. More market change is happening, and market changes are happening faster. Thus, creating strategies and organizations that are able to adjust to shifting market requirements creates higher revenue and improved operational efficiency. Globally agility is creating better returns than any other business approach.
A McKinsey Quarterly on-line video "Navigating the New Normal: A Conversation with 4 Chief Strategy Officers," discusses changes in business requirements for 2010 and beyond. All 4 of these big company strategists agree that success now requires far shorter planning cycles, abandoning efforts to predict markets that change too quickly, and recognizing that historically indisputable assumptions are rapidly becoming obsolete. What used to work at creating competitive advantage no longer works. Monolothic strategies developed every few years, with organizations focused on "execution," are simply uncompetitive in a rapidly shifting world.
And "the old boys club" of white men in top business leadership roles is quickly going to change dramatically. In the Economist article "We Did It" we learn that in 2010 the American workforce will shift to more than 50% women. If current leaders continue following old approaches – and generating anemic returns – they will rapidly be replaced by leaders willing to do what has to be done to succeed in today's marketplace. Like Indra Nooyi of PepsiCo, women will take on more top positions as investors and employees demand changes to improve performance. Leaders will have to be flexible and adaptive or they, and their organizations, will not survive.
Additionally, the information technology products which unleashed this new era will change, and become unavoidable. In Forbes "Using the Cloud for Business" one of the creators of modern ERP (enterprise resource planning) systems (like SAP and Oracle) Jan Baan discusses how cloud computing changes business. ERP systems were all about data, and the applications were stovepiped – like the industrial enterprises they were designed for. Unfortunately, they were expensive to buy and very expensive to install and even more expensive to maintain. Simultaneously they had all the flexibility of cement. ERP systems, which proliferate in large companies today, were control products intended to keep the organization from doing anything beyond its historical Success Formula.
But cloud computing is infinitely flexible. Compare Facebook to Lotus Notes and you start understanding the difference between cloud computing and large systems. Anyone can connect, share links, share files and even applications on Facebook at almost no cost. Lotus Notes is an expensive enterprise application that costs a lot to buy, to operate, to maintain and has significantly less flexibility. Notes is about control. Facebook is about productivity.
Cloud computing is 1/10th the cost of monolithic owned/internal IT systems. Cloud computing offers small and mid-sized companies all the computing opportunity of big companies – and big advantages to new competitors if CIOs at big companies hold onto their "investments" in IT systems too long. Businesses that use cloud architectures can rearrange their supply chain immediately – and daily. Flexibility, and adaptability, grows exponentially. And EVERYONE can use it. Where mainframes were the tool for software engineers (and untouchable by everyone else), the PC made it possible for individuals to have their own applications. Cloud computing democratizes computing so everyone with a smartphone has access and use. With practically no training.
As we leave the worst business environment in modern times, we enter a new normal. Those who try to defend & extend old business practices will continue to suffer declining returns, poor performance and failure – like the last decade. But those who embrace "the new normal" can grow and prosper. It takes a willingness to let scenarios about the future drive your behavior, a keen focus on competitors to understand market needs, a willingness to disrupt old Lock-ins and implement White Space so you can constantly test opportunities for defining new, flexible and higher returning Success Formulas.
Here's to 2010 and the new normal! Happy New Year!