Agents2Change - Smart Business Thinking

The Curse of Unsustainable Growth

One does not have to look far to see the impact of the collapse of some Euro-Zone economies.  The shock is quite palpable and is being felt at every level of society in Portugal, Greece & Ireland.  But you also do not need to look far to see the blind faith that was placed in the economic growth continuing for some time to come.

The time before the bubble burst was the most active and optimistic in business and construction industries across Europe.  Nobody  (apart from a few Economists and analysts) wanted to believe that the party was going to come to an end, and therefore continued unabated, in their belief that it would continue on – or at least until the next big deal is done.  Now we see the impact of that denial through the high unemployment, bankruptcy increases and half-finished construction sites up and down their lands. 

But none of us are unaffected by these economic collapses.  It affects the daily lives of every government around the world, in our now globalized and inter-connected economies.  We can all take lessons from this crash and learn how we might read the signs better next time around, because one thing we can predict is that there will be a next time.

In business we are also often tempted by two paths to growth.  One that will be rapid, bring quick returns and seem to be easy to achieve as it is riding on the wave of a wider growth pattern.  The other one, which can be a hard sell for shareholders, will be slow, sometimes painful, based on internal strength and a much shallower growth curve (albeit one that sustains over a much longer time line).  Real sustainable growth however is based on the latter.  It is based on sound business sense, a tangible product or service and a robust internal business model. 

Like all economic bubbles, it is easy to get carried away with the excitement of the possibilities at the time, but those firms that kept their feet on the ground and looked to a steady path for growth are now riding the wave of endurance far better than some of their larger counterparts. 

Sustainable business growth is by its nature fairly conservative.  It does not look for double-digit growth or rapid expansion to new markets.  It is about working from a position of strength and superiority in one area and gradually expanding from that, based on a realistic assessment or resources and competence capacity.    If we take a leaf out of their book, we are likely to be better equipped to face the uncertain future ahead.

2010 - That was the year that was!

2010 may not go down in history as an outstanding year, but it will certainly go down as an eventful one.  There have been environmental disasters, both natural and man-made.  We have seen economic hardships and we have seen innovative breakthroughs.  Here's our recap of some of the big events that shaped our year.   A year that’s seen us turn the corner on the global recession only to be faced with a more gloomy perspective of widespread austerity measures facing almost every nation.

It was year of earthquakes that devastated Haiti and floods in Pakistan affecting up to 20 million people.  A hitherto unknown Volcano in Iceland bringing Europe to a standstill when ash cloud interrupted air travel.

For many countries in Europe it was the start of major public sector cutbacks, the biggest since welfare states were established.  The backlash is widespread protests and at times civil unrest in many European countries.  The Euro currency itself is under threat after some of its members needed rescue packages, the latest of these being Ireland.

The International Monetary Fund made the momentous step of ceding 6% voting rights to developing nations. Some political regimes seem to loosen their grip slightly – such as the release of political activist Aung San Suu Kyi in Burma, and others tighten theirs, such as the increasing tensions in North Korea.   

For Business, it could be argued it has been a less tumultuous year, in that we have not seen the major collapses of banking corporations, finance houses and retail chains that occured in 2008, but it certainly has not been easy. 

BP stand out as having the worst year of their existence, following the disastrous spill in the Gulf of Mexico which quickly spiralled from an environmental crisis to a political and for a time a financial one. 

The use of new media and its impact on business (as well as public life) is also evolving.  We see business leaders getting more savvy in their use of new media and we see game changing protest sites such as Wikileaks which is bringing sharp transparency to government dealings.  

America whilst still having high levels of unemployment saw clear rebounds in the retail trade, allowing Walmart to knock Exxon Mobil of the no 1 slot of the Fortune 500 companies again showing the domination that retail has over lives.  It was another year for Innovation with Apple launching not one but three new must-have gadgets this year including the much anticipated iPad.

The full impact of the global recession continues to send out ripples and it is still difficult to predict the impact it will have on all of us, but the hoped for rapid recovery seems unlikely and private sector will be braced for retrenchment as the austerity measures start to hit at contracts and agreements with 3^rd party suppliers.

Regardless of how history views the year 2010,what it does tell us about business survivial is that it is based on adaptiveness, customer centricity and a  loyal and committed workforce.  Efficiency will continue to be the most important theme.  It is about doing more with less whilst still delivering excellent customer services.  Technology has always played a role in this, but staff motivation and buy-in to the company values are what will stand the test of time.  If you keep these in mind as you enter 2011, you can be sure of continued success.  

 

Seeing isn’t always believing! – how we can stubbornly refuse to take in data to support decision making

Some recent Massachusetts Insititue of Technology (MIT)researched posed the question, why do we not pick up on the signals of impeding disaster or meltdown in a system?  The ‘Weak’ Signals as they call them are ignored.  Of course with hindsight, it all seems rather obvious, but it is seeing them ahead of time that proves far more challenging.

 

They cite a number of traps:

 

Objectivity Undermined:

Our filtering system is pre-programmed with what we know and understand, leading us to hold certain biases in how we view and analyse new information.  This can lead us to close down options quickly and become over-confident about our particular view.

 

Filtering to fit our world view

All information passes through filters both cognitive and emotional, hence one person might lead to a different set of conclusions to another.  But it also leads to ‘rationalisation’, whereby information that fits with past understandings is incorporated into generalised internal representations (mental models or beliefs). Information that does not fit with these generalisations is automatically either distorted to fit or deleted by sensory filters.  A famous historical example is the natives of the pacific islands not being able to ‘see’ the colonial ships arrive, because they simply did not fit their world view, only being able to register ripples on the water.  More recently, the Increase is the use of derivatives in the last decade and an increasingly risky portfolio approach, leading to the financial meltdown shows that such misconception can happen on a global scale.  The weak signals were simply ignored.

 

Bolstering

Once we are set on a course of action, we can then act out a confirmation bias, by actively pursing evidence and people that support our view, rather than opening up discussions about alternative perspectives.

 

The article concludes which some sound business advice:

“The individual and organizational biases discussed above underscore why it is important to bring together different perspectives on the same issue”. 

Without such a mature approach to all business decision making we will see many corporate disasters like those of recent months like Northern Rock, Lehman Brothers  etc.  Facing up to the weak signals as they arise, although painful could save considerable trauma further down the line.

Recession - What the very rich tell us about the state of our economy

Its that time of year again, when the Sunday Times Rich List(UK) is published.  Normally just an interesting aside, but this year it holds up a barometer as to just how far some of the nations fortunes have fallen.

The Sunday Times reports an unprecedented collapse in individual wealth with over £155 billion wiped from the fortunes of Britain’s richest 1,000 people, equivalent to more than a third of their wealth.

Does it matter you may ask.  Well yes and no.  At one level, it might be seen that huge wealth had accumulated from unsustainable growth and that this is merely a recalibration to more realistic levels; perhaps.

The other more worrying indicator is a similar gap in the public spending budget, which has been responded to by introducing 50% tax, a rise in spend from the golden rule of 40% GDP to 50% and huge quantatitive easing by the Bank of England (& other national banks).  

The wealth of individuals, especially those in the Rich List is closely linked to Corporate Wealth.  Britain’s richest man Lakshmi Mittal, has seen £16.9 billion tumble to £10.8 billion after the collapse of the world steel market this year.

Where this rollercoaster ride of a recession will take us is hard to predict, but we can see that business decisions, like personal spending needs to be based on cost, value and business improvement.  Anything else in these difficult times will surely be a folly!