IT solutions — whether offered by package vendors, or service providers — have been geared toward a long period of stability.
They have assumed several factors that are now turning into dangers: operational excellence (meaning the search for lower costs within highly repeatable and fairly rigid processes), global supply chains mobilized against relatively global products, and the ability to count on a global reserve currency (the US dollar) as a store of value over time.
All of these are now in doubt.
Add to this the transition from an era of generally cheap energy to one of supply constraints and permanently much higher average costs (removing the engine for low cost transportation and general economic growth) and turbulent doesn’t even begin to describe the challenge facing managers.
Yet, when we look back at this period twenty years from now, we will discover that some organizations were able to master even this and prosper throughout it — and not merely by mobilizing financial power and buying up rivals. (Without low money costs — and real interest rates will be higher over the next twenty years as the world currency regime realigns, uncertainty being the engine to force higher rates to accommodate risk — the M&A waves we have lived through will also taper off.)
How will these organizations thrive, in an environment that is biased, for the first time in many decades, against it?
A Focus on Quality and Uniqueness: The view these organizations take will be on a steady stream of high value, high quality, products.
These organizations will look to be global leaders in niche categories, customizing their core products to fit unique customer situations.
Products will be designed for residual revenues from upgrades and supporting services, much like the German Mittelstand company that holds an over-90% share in bread ovens and focuses on teaching restauranteurs — repeatedly — how to use the oven (which their competitors likely also bought) to greater advantage.
For products which are less focused on creating experiences, companies will deal with smaller and more production facilities, each of which is focused not only on runs of a commodity part, but also on local market needs, using Jane Jacobs’ theory of import substitution for city growth to secure communities and stabilize their employment base.
Closed Loop Economics: These organizations will have recognized that considering energy and materials costs throughout their product life cycles and running an inverse recycling and reuse “supply chain” will make as much sense as the traditional, product-building one.
Likewise, in their internal operations, they will have paid attention to local energy needs (for instance, including the costs associated with home workers, long commutes and the like into determining facility locations and contents).
On the surface, these organizations will seem to overspend, with many more locations; in a full life-cycle analysis, they will be seen to have minimized the total cost of operation.
They will then trade off these benefits against situations — a carbon trading regime, local tax regimes, etc. — in order to generate cost reductions in these areas against their boosting of local economies.
Many of these companies will also operate portions of the municipal infrastructure in their own interest in the later years in exchange for municipal tax elimination: we are returning to the 19th century industrial towns such as Port Sunlight or Saltaire once found in the north of England.
A Focus on Continuous Education (but not credentials): Staffing needs will be thought of rather less in terms of degrees and rather more in terms of a steady trickle of education.
These companies may well, for instance, capture as early stage employees the more gifted children (bored and lost in traditional secondary schools) and ensure over time that they are educated on an as-needed basis. They will encourage learning of all types rather than take a simple job training approach.
If this sounds as though these corporations are likely to become social work entities, it is because they are: mass society and its institutions will be breaking down in the turmoil, and the company estate will need to experiment with new ways of delivering these services if only to assure steady supply and quality.
Such firms may be resolutely local (a global “brand” operating from a small locale) or they may be world operators with thousands of facilities, but they will be, in effect, safe havens in a world undergoing traumatic adjustment.
It would not surprise me, toward the end, that they also become money agencies (probably based on precious metals, joules of energy, or foodstuffs rather than a “government currency”) in their own interests.
This is a far cry from the Friedmanite shareholder-as-only-beneficiary model of the past twenty five years. It is the model that will provide for growth as the practitioners of finance capitalism popularized by the monetarists of the Thatcher-Reagan-Friedman revolutions and the believers in eternally cheap energy and ever more “globalization in search of cheaper production” falter and fall.