2008 was quite a year.  Many businesses came out far worse than they dreamed possible when the year started.  The Wilshire 5000 (one of the broadest measures of U.S. equity values) declined 40% – losing some $7trillion dollars of value.  More than 1.2million jobs disappeared in the USA.  Foreclosures and bankruptcies are at record levels.  Although we'd like to think this has been a very recent phenomenon, bankruptcies and business failures took a dramatic turn upward in 2000 (to what were then record levels) and remained at rates far above any historical norms for the decade.  Not only small, but very large companies (those with assets greater than $1B) have been failing at rates exceeding 10x the failures of almost all decades in the 1900s.  2008 was more the climax of a trend than really something totally new. 

So, what should you do about it?  One option would be to cut costs and try to "survive the downturn."  Unfortunately, that approach is very likely to doom the business.  Firstly, the recovered economy won't look like the previous economy.  Macro shifts in competitiveness and required capabilities to succeed have been happening since the 1990s, so the recovery will not benefit those who did well (and certainly not those who were mediocre performers) in previous times.  Second, more innovative competitors who are better aligned with current markets will steal sales, customers and share while you retrench.  Innovation doesn't stop during weak economies, and retrenching companies fall further behind while in survival mode to those who embrace the shifts and alter their Success Formulas. Just look at previous recessionary cost cutters like Xerox, DEC and Montgomery Wards.

With companies like Circuit City, Bed Bath & Beyond, The Bombay Company and Sharper Image failing while WalMart sales increased 3% in November, it might be tempting to say that now is the time simply to grow by doing more of what you've previously done.  Or by focusing on ways to cut costs.  But that would ignore the underlying trends that caused these companies to fail – and WalMart to stagnate with wickedly weak performance the entire last decade.  While the credit crisis pushed the failures over the brink, their troubles were tied to broader themes in consumer demand and retail expectations.  These companies were doing poorly long before the credit crisis emerged.  And customers didn't flock to WalMart.  3% growth isn't what would be called spectacular.  When WalMart looks good only because it isn't failing, it tells us that the future opportunity isn't to be like WalMart (which is the retail leader in low cost operations) – but instead to lead customers in new trends.  Customers don't want all retailers to be like WalMart (which happened to be in the right place when this once in a lifetime crisis happened).  They want innovation which will attract them.

Darwin himself said, "It is not the strongest that survive, nor the smartest…It is the most adaptable."

Increased use of digitization opened the floodgates to greater globalization.  The search for "low cost" went global seeking the cheapest labor and lowest currency values.  But it has also opened doors for more innovation.  Companies in the U.S., Europe, India and China all have the opportunity to bring forward innovation in new products and new services to delivery value.  The search for lower cost does not create growth, merrely lower cost.  Innovation leads to real growth.  Those companies which will emerge much stronger will be those who identify opportunities for real growth in these changed markets – by looking internally and externally for innovation.

If you find it hard to get excited about Delta, which is now the largest airline since merging with Northwest, don't feel bad.  Just because higher fuel prices pushed some airlines over the brink, and left others (like United) badly crippled doesn't mean Delta is going to be a leader.  Lower fuel prices short term, combined with decreased capacity due to failures, may increase short-term airline profits, but does not mean customers are any happier flying now than before.  To the contrary, now that customers have to pay for their own soft drinks and sandwiches (at incredibly expensive prices, by the way), pay extra fees for checking bags, have to take connecting flights more often with longer travel times and greater risks of delays, and deal with unhappy airline employees who are working for less pay, benefits and pension means customer satisfaction is at an all-time low.  It's not likely that Delta will lead people back onto flights.  Instead, customers are looking for a supplier that will use innovation to provide a better experience and value — possibly Virgin America?

If we all go into 2009 with plans only to cut costs and "wait it out" then 2009 will not be a good year.  What are we waiting out?  How can we expect things to "get better"?  But if we use 2009 to identify innovation which can better meet customer needs, we have every reason to be optimistic.  Now, more than ever, it is time to Disrupt our Lock-ins to old behaviors.  We don't need "more of the same, but cheaper".  We need to be aware of the limits in our existing Success Formulas by Disrupting.  And we need to explore White Space where innovations can be tested.  White Space will create new Success Formulas which will create growth – and that could make 2009 into a great year for those companies focused on the future and willing to adapt to this latest market shift.