There is an old Hawaiian proverb that says “Never Turn Your Back On The Ocean”. The people of Hawaii have a tremendous respect for the Ocean and it’s beauty, but also for it’s tremendous power. One minute you may be relaxing in the sun enjoying the sun and surf, and in the next moment you can find yourself swept out to sea. The calm of the Ocean is hypnotic, lulling you into a sense of security and safety beside this enormous body of water, but when you least expect it the Ocean can turn and delivery a powerful blow with an unexpected wave that has the power of significant destruction.
I was reminded yesterday of the concept of “pre-acting” in a post by Daniel Burris on LinkedIn (3 Keys Leaders Can Use to See the Future). Burris is the author of a fantastic book called Flash Foresight which provides a terrific framework for looking into the future and leading forward into that future.
My own interpretation of Burris’ thoughts and the term “pre-active” is this:
Proactive is the action of dealing with events and changes that can be anticipated or predicted easily. Pre-acting is the act of predicting and acting on less obvious or predictable change, or creating a disruptive change. Being proactive has become tablestakes – entry to the game. Being pre-active is the new differentiator.
The business landscape over the 15-20 years preceding 2008 followed a pattern much like the Ocean with somewhat predictable waves lapping up on the shores of the finance world. Certainly some waves were slightly bigger than were expected at the time (ie. 2001), but their magnitude was still not significant enough to wipe out entire industries.
Each time there was a hiccup or wave, the economy and business recovered and marched onward to yet another high. Since 2008, however things look very different.
Growth has been flat and things have not meaningfully recovered. Every time our governments, bank economists, or other experts have predicted that “growth and a return to normal is around the corner” another echo of the crisis hits (Greece, Spain, Portugal, Fiscal Cliff etc).
Everyone continues to point to the financial crisis of 2008 as the cause of the current flat economic conditions and our business and government leaders continue to hold out hope that things are on their way to a “return to normal”, but I personally believe that that type of thinking is the equivalent of “turning our backs on the ocean”. If we look at the Dow Jones performance since 2000 we can see that the previous pattern of “waves” of continuing growth interspersed with moderate drops has actually not been the case for over 10 years.
Perhaps what we are seeing and pointing to in 2008 is really an echo of what actually started in 2001 with the Dot Com “Bubble” bursting. Perhaps what we’re seeing isn’t actually a series of “bubbles”, but a fundamental shift in our business landscape brought on by the Globalization of business, the commoditization of products and services, and a rapidly expanding consumer demand for more, better, faster, and free.
Our “proactive” business leaders are pulling the traditional levers of cost cutting, process improvements, and pressure on customer acquisition and retention to improve their productivity to help them deal with the current flat economic reality. In past periods of flat growth, these have been the key levers to pull that have allowed good and great companies to “weather the storm” to emerge back into the “normal” growth economy on the other side.
I contend, however, that what we are actually seeing is “the new normal”. The marketplace and customer expectations have fundamentally changed, and the companies that will drive growth in the new reality are not those that pull on the traditional levers, but those that push the limits and disrupt the market.
Productivity is defined as the amount of output per unit of input. Simple concept right? So when leaders can predict that in the near term the amount of output will have limited growth, the traditional answer has been to pull the lever on the inputs to reduce the growth of cost drivers to either match or be lower than that projected level of output growth. In that way over a short period of flat economic performance a company can continue to grow profits and productivity.
The problem comes when that period of flat growth extends for a longer than normal period of time. You can only pull so hard on the cost of inputs lever before things start to get constrained. The existing business model has a base run rate or fixed set of costs that are essentially required to “keep the lights on” – once you have retracted the cost of inputs to that base level there is nowhere else to go.
Looking at the landscape today a more pre-active approach would be to consider the other side of the productivity equation with more priority. Let’s look again a the three drivers of the new reality that I mentioned earlier:
- Globalization
Even if your company doesn’t compete globally on paper, you are competing globally in reality. Your customers have the ability to business anywhere in the world – gone are the days that they needed to deal with the local supplier or service provider because of geography. The Internet, reduction of trade barriers, and the development of vast pools of skilled and knowledge workers throughout the rest of the globe means that whether you do business outside of your home country or not, your customers have the ability to shop in other markets… you’re competing globally today. If you’re operating in the developed world there are some realities to that: the wages you have to pay your employees are higher than those in the developing world; the differential in skills and knowledge that your local employees bring to the table in relation to the level of skills and knowledge in the developing world are shrinking; and differences in laws and regulations in different global markets can make your products and services less attractive to your potential customers. - Commoditization
There is almost no industry that is immune to rapid commoditization of products, services, and features. Barriers to entry are dropping rapidly with the broad and inexpensive availability of new technologies like mobile computing, cloud computing, and social networking. As an example, Square entered the retail payments space with an offering that was essentially written and developed in a weekend and which over night commoditized the services that have traditionally been offered only through big banks and payments gateways. Cloud Computing allows start-ups with little to no capital to launch robust Enterprise class services with immense computing power that they can pay for only as they use it – owning a big data centre is no longer necessary to compete with the “big boys”. Services and product features can be mimicked seemingly overnight and your market share can disappear just as quickly (see “Mobile Market Share: This Trend Is Very Worrisome for Apple“). - Customer Expectations
When the cost of entry drops to near zero, the price that customers expect to pay for increasingly more robust features and convenience similarly drops to near zero. As Chris Anderson outlined in his book “Free: The Future of a Radical Price” (and in his new book “Free: How Today’s Smartest Businesses Profit By Giving Something for Nothing“) this trend to zero is not a fad – it’s the new reality. What that means is that as a business you have fundamentally two choices to compete – and it is a choice… you can’t play in both sandboxes at the same time. First you can attempt to compete on price in the commodity space by driving your cost of input down to increasingly small levels to allow you to reduce your price of output and control the marketplace. Alternatively you can be the market maker and continually disrupt both your competitors and yourself (both in product, features, services, and most importantly business model) and drive to maintain or grow the price of outputs while carefully controlling the cost of inputs by leveraging technology (and the products and services of the commodity providers).
It is time for us as leaders to move beyond being proactive – moving our beach blankets a few feet further from the shore on the expectation that the next wave will be as predictable as the last (although perhaps slightly larger). After watching the ocean behave in a predictable way for thirty years we’ve been lulled into believing that we can turn our backs and remain “safe”.
It is time for us as leaders to move to being “pre-active” and keep our eyes squarely on the swells of the ocean and the ripples on the horizon. We need to look across the landscape for signs and trends both inside and outside our organization and industry that will allow us to both predict the radical changes that are on the way as well as be ones driving the disruption along the beach rather than being swept away by it.
The companies and industries that remain in a proactive frame of mind may survive the short term, but when the next wave hits many will be shocked to see the names on the list of those lost to the sea – major companies with long and storied histories, all-star business leaders with long track records for success, and even entire industries will be completely swept away when the Ocean turns on them.
The companies and industries that become pre-active will not just survive the short term, but will be the companies and industries that are left standing with their faces squarely turned towards the ocean when the dust has all settled.
The new reality is here. Become pre-active and never turn your back on the ocean.
Tim Empringham is a passionate advocate for Innovation in organizations of all sizes as a mechanism to drive growth, create uncontested market space, create new customer value, and drive efficiency into the internal organization. His focus is on disruption of thinking and markets through integrative thinking, structured Innovation frameworks, and leadership development of Innovation and Change leaders within the organization.
