Tag Archives: strategic thinking

Anticipating The Future Will Make You More Money

Do you think it useful to know what the economy is likely to be like over the next 6 months, year or more? Business spends a fortune on economists to provide these insights to help with their forward planning – so the answer should be yes.

Strategic thinking requires forward vision.  An understanding of business cycles is an important element for predicting future scenarios. So where are we? What can we expect?

Predictions for improved economic circumstances are positive for 2017 and 2018, but the pessimists are ever-present, and it seems negative news is more pervasive than good news. The world is confused and concerned about Trumpenomics and the fracturing of the established political status quo around the world. We can expect more volatility and political unrest as unequal income distribution and accumulation of wealth give rise to more dissent.

There do exist some simple indicators of economic activity that are not widely considered by economists – despite (or possibly because of) their ease of understanding and reliability.

The first of these is the stock market itself. It predicts economic activity six months to a year in advance. The recent “Trump Rally” is based on expectations of massive economic pump-priming in the USA – the world’s largest economy and one that Australia follows. Why the rally? – Lower company tax rates, repatriation of international corporate capital back into the USA, massive infrastructure spending and expanded defence spending. Talk about a stimulus package – this could lead top one of the biggest booms of all time!

But there is more to forward looking than just following the news. Have you ever notice how the world seems to ebb and flow. Even your own energy patterns do this. It is part of the natural order of things, and relates equally to the world of business and finance.

I remember my History professor at University saying that we study history not just to learn from it, but because it repeats – never precisely, but in kind. If economic cycles repeat, an understanding of them provides valuable insights into longer-term economic prospects.

Kondratiev Waves

Many cycle or wave theories have been proposed over the last century – including the long form Kondratiev wave (45 to 60 years) based on the impact of new innovations, and supported by Kuznets’ 17 year harmonic cycle within the Kondratiev wave, attributed largely on credit creation. (The Austrian School economists also suggest business cycles are based on money supply and credit creation.)

Note that modern economists, despite a fair degree of empirical evidence, do not generally support cycle and wave theory.

“Recent research employing spectral analysis has confirmed the presence of Kondratiev waves in world GDP dynamics at an acceptable level of statistical significance…(with) shorter business cycles detected, dating the Kuznets to about 17 years, and calling it the third sub-harmonic of the Kondratiev, meaning there are three Kuznets cycles per Kondratiev wave.”[i]

It is generally agreed that the current Kondratiev wave commenced in the early 1990s based on information technology, which suggests that the economic impact of these innovations will peak in the 2020s.

Real Estate Cycles

There is considerable research to support the hypothesis of an 18 to 20 year real estate cycle (Homer Hoyt, Fred Harrison and Phillip Anderson), which also correlates to the cyclical behaviour the legendary Wall St trader WD Gann used for his famous predictions in the first half of the century. This also correlate roughly with credit creation and interest rate cycles.

These theorists suggest the real estate cycle will peak around 2025 – 2026.

Commodity Cycles

Commodity cycles are shorter in duration and pre-empt general economic conditions. The last cyclical downturn from 2008 on has now passed with all commodities experiencing an upsurge in demand and prices during 2016. This presages continued economic growth over the coming years.


So what does all this mean?

A continued commodities bull market supported by economic pump-priming in the USA, continued growth in China and India coupled with credit creation and the growth impetus of digital innovation. This translates into boom times, albeit with volatility, until the middle of the next decade. Early indications suggest this could be one of the biggest booms of all times – possibly followed by one of the biggest busts of all time.

But most of the wealth created will flow to the elite and less to the poorer segments of our society. This is likely to presage increasing levels of social unrest and political uncertainty. The political landscape will continue to fracture under pressure from the disaffected mainstream, with effective government becoming more difficult.

The decline of the middle classes which began in the 1970s will become more extreme, with disparity between the wealthy elite and the poor becoming more pronounced and providing impetus for massive social change.  Brexit, Trump and Hanson are indicators of this growing dissaffection and pressure for change. What form of revolution could we see?

Cycles and waves are long term signposts – not precision instruments. But they all suggest the potential for one of the biggest booms and busts in history.  Will the 100 year cycle Gann refers to come to fruition? – with a stock market collapse to mirror the 1929 crash and subsequent extended 1930’s deep depression?

I’ll certainly be looking at going to cash around the middle of the next decade, to capture the profits I expect to accumulate from several years of growth in mining, financial and real estate stocks as well as from the new innovators.

David Shelton

[i]  Korotayev, Andrey V., & Tsirel, Sergey V. A Spectral Analysis of World GDP Dynamics: Kondratieff Waves, Kuznets Swings, Juglar and Kitchin Cycles in Global Economic Development, and the 2008–2009 Economic Crisis.

 

How to Develop Better Strategy for Competitive Edge

Competition is the lifeblood of business, as all organisations compete – either directly or indirectly – for scarce resources. Your success depends on your ability to think strategically, how you compete or how you choose to play – your strategy.  Effective strategies begin with strategic thinking, not strategic planning.

Effective strategy development consists of four components, or stages of development:

  1. Strategic Thinking;
  2. Strategic Decision-Making;
  3. Strategic Planning; and
  4. Strategic Management (or Strategy Execution).

Strategic Thinking Leads Strategy Development
Many people confuse strategic planning with strategy – hence the annual strategic planning conference that has become institutionalised in many organisations. But planning is only the 3rd step in an effective strategy development process.

Famed business thinker Henry Mintzberg pronounced the demise of strategic planning as long ago as 1994 in his seminal HBR article “The Fall and Rise of Strategic Planning”.[1]

“When strategic planning arrived on the scene in the mid-1960s, corporate leaders embraced it as “the one best way” to devise and implement strategies that would enhance the competitiveness of each business unit.

While certainly not dead, strategic planning has long since fallen from its pedestal. But even now, few people fully understand the reason: strategic planning is not strategic thinking. Indeed, strategic planning often spoils strategic thinking, causing managers to confuse real vision with the manipulation of numbers. And this confusion lies at the heart of the issue: the most successful strategies are visions, not plans.

Strategic Thinking

Strategic Thinking

This is where genuine strategy is anchored.  It requires consideration of the world around you and how it is likely to evolve in the future. It involves identifying unique business insights and opportunities that can create competitive advantage.

The critical question is not “what?”, but “why?” or “why not?” and “how?” It is more about connecting the dots than finding the dots.

As a leader of your organisation, then, your first job is to think.  Too much action without thinking can end in tears. What things might cause a change? What could happen? What can you do about it? Can you be a leader, or is better to be a follower?

Check out what is happening down the road  – what are others looking at? What changes are being considered or introduced? What about in other countries?

Strategic Decision-Making

Thinking strategically will generate various options and alternative courses of action. There are many roads to Rome. It is up to you to decide which one, and Google Maps is of limited use.

Analysis is an important and essential input into the decision-making process, but there is always a danger of ‘analysis paralysis”. Often the future variables are hard to quantify and your analysis will inevitably be dependant on the assumptions that underpin it. Just look at the results of government budget forecasting, with all the resources and expertise that underline them as an example of the complexities and probabilities of success.

Strategic decision-making often involves an element of faith. Pursuit of vision and a clear sense of purpose are essential for this to work. There will always be risks and unforseen circumstances ahead, but commitment and consistency will generally overcome these.

So once you’ve figured out what you want or need to do – be decisive. Don’t be tempted to water down your vision – a strong commitment adds value.

Strategic Planning

Strategic planning is what happens between thinking and execution.

Don’t confuse strategic planning with strategy development – it only answers the question of how you are going to go about what it is you have decided to do. Once again
– not everyone gets this, planning is only really strategy if it follows a period of thinking strategically.

This is where we look at the “how to?” What resources will be committed? Over what time period? How will we measure success?

Strategic Management

For strategy to be effective, it needs deep commitment to execution.  This begins internally – many excellent strategies have failed because a Board or the management group is not wholly behind it.

All aspects of the organisation’s day-to-day functioning need to be fully aligned to the strategy, just as they need to be fully aligned to organisational purpose and values.

Where the strategy moves the organisation in a new direction, every individual needs to be fully aligned with it. Job descriptions, performance measures, bonus and reward structures all need to reflect the strategic direction.

Sometimes there are individuals who cannot move in line with chosen the strategic direction. These may be Board members, they may be Managers. When an individual, for whatever reason, continues to attempt to discredit or white-ant the strategy, they should be removed as their actions can be fatal. Cohesion is essential for success.

Constant review of key success measures is also critical. All plans need refinement and adjustment over time, and this can only occur successfully when we know what does and does not work.

In Conclusion

In a world where technology is changing rapidly, with the competitive framework constantly evolving in response, an understanding of these shifts is essential. This is the heart of strategic thinking, which allows you to develop suitable strategies and competitive responses. These decisions are then the ones which can give you a competitive edge. But they will only do so if the entire organisation is aligned behind them.

© David Shelton, Principal, Transition Capital, May 2017

[1] http://hbr.org/1994/01/the-fall-and-rise-of-strategic-planning/ar/1

 

Better strategy

Trends You Need to Know for Better Strategy This Year

 

We all know tomorrow will be different from today – but how?  Effective strategy starts with deep strategic thinking, so in this article I suggest a few things worth considering.

Everything in our lives is being transformed – our work habits, social interactions, the way we buy and sell goods, the products and services we consume, our expectations of suppliers, the way we receive and manage information.  Can you even remember life before smart phones and Google?

Keeping pace with new technology and how you can use it is probably the biggest strategic challenge facing business today. It gives you the opportunity to leap frog your competition, but also to be leap frogged. Yesterday’s standards simply don’t cut it anymore.

How can you create better products and services, with better customer experiences in a more efficient and less costly manner (read lower prices)?

Technology will deliver business efficiencies – but this is really just keeping up with the pack – you might get in front for a bit, but probably not for long. Speed of implementation is more critical now than ever, as is constant upgrading and staying current. That’s the first trend you need to know.

Take a look at your IT budget and what it consists of.  An broader definition with a bigger spend could reap untold benefits.
Efficiency is however in the low end of possibilities. The real potential lies in how it can redefine your products, business processes and change the business model.

This is big picture stuff – and you simply won’t be able to do it if you are not crystal clear on where you fit in your industry and where you want to be. Being clear on purpose and your aspirations is essential. This is the essence of thinking strategically.

Strong resolve is also critical. Without it you have little more than pipe dreams.

Uniqueness and personalisation become more important in a world of duplication and standardisation – “The internet is the world’s largest copy machine. At its most fundamental level, this machine copies every action, every character, every thought we make while we ride upon it.”[i]

Consumers ache to be different, to stand out from the pack, as illustrated by the popularity of high-end brands.  This opens endless possibilities for added authenticity, personalisation and other value-adds to products and services – all now possible using technology to dissect, repackage and sell.

Experiences become more valuable – e.g. popular musicians’ revival tours, making more money than when they were on top of the charts. Some call this the Experience Economy – demonstrated by the fact that concert tickets soared in price by 400% from 1981 to 2012, compared to 150% rise in consumer prices [ii]

Think also of the explosion of travel choices and related experience options. What product enhancements or add-ons can you introduce to make your offer more personal? How can you package an experience?

Artificial Intelligence (AI) is already redefining the way we interact with the world – in the algorithms used by Google and Facebook for instance, and your point & click digital camera.  Within ten years virtually every product or service will have some element of AI embedded in it.  Most will be hidden, we won’t even be aware of it.

How can you build decision-making processes into your consumer interactions and product use? What are your customers trying to get done? How can you use digital smarts to make it easier for them?

The upsurge in sharing is predicated on different attitudes to asset use. Some even suggest that individual ownership of many assets will be a thing of history.

“Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate. “[iii]

The trend is for individuals to create the products (media) and provide assets (vehicles or property). The business model is as the medium of exchange, to manage the transaction, rather than as a traditional supplier.

Is there potential in your industry for intermediaries to infiltrate and disrupt your market? Can collaboration with others generate more efficient transactions? Can you increase your capacity by accessing things that other people own?

The ability to break things into their component parts and reorder them or deal with them differently is another trend that creates new opportunities.

A lot of music is now made in piecework – for instance one of my friend’s sons describes himself as being in the music business rather than a musician. He lays down a rhythm, and then contracts musicians (over the web) to expand on this, to complete and then record the music. He then contracts others to write lyrics, and someone else to sing it. He owns and publishes the finished song. Whilst living in Melbourne, (about to do his Year 12 studies) he has a New York manager and is currently negotiating a contract with Sony. His first single received over 1million hits on YouTube, and he is profitable.

Where does the real value lie within your value-chain? How can you focus on the most profitable part of your process and have others do the other bits?

Consumer markets are fragmenting, and niches becoming ever smaller – “new volumes and sources of data are also taking many businesses closer to the nirvana of catering to a ‘segment of one’ at a mass scale (think Spotify’s Discover Weekly, which sees over 40 million users receive a unique playlist every Monday).” [iv]

The number of competing options grows daily, and as segments become more precise, the expectations of consumers become ever higher. Last year’s standards are likely to be found wanting.

Smart marketers gather detailed information about their consumers and their transaction experiences. Try going incognito and buy some of your own stuff, and see what you learn.

How can you improve the transaction experience?  How can you redefine your offer to make it more closely aligned with your customers?

In essence my message is to think deeply about how technology shifts might impact your business, and how you can create advantage over your competitors. This is a never-ending game, so the sooner you start, the better prepared you will be.

I have offered some insights, but it is far from definitive – intended rather as a teaser. Go exploring! Do the deep thinking, but make sure you bring the rest of the team with you.

If you have a Board, be aware they can make poor decisions as Directors often aren’t as smart as they think.  Without management buy-in, execution is likely to fail, so you need everyone fully committed.

 

© David Shelton, Principal, Transition Capital, May 2017

[i] Kevin Kelly – The Inevitable. Understanding the 12 technological forces that will shape our future. Viking 2016

[ii] https://www.whitehouse.gov/blog/2013/06/12/rock-and-roll-economics-and-rebuilding-middle-class]

[iii] http://trendwatching.com/trends/5-trends-for-2017

[iv] Tech Crunch  – https://techcrunch.com/2015/03/03/in-the-age-of-disintermediation-the-battle-is-all-for-the-customer-interface/