Thomas Midgley discovered that adding lead to a vehicle’s fuel dramatically improved its performance. Unfortunately, the side effects soon became clear and Midgley, keen to make a positive contribution, went on to discover chlorofluorocarbons (CFCs) which enabled decades of refrigeration, aerosols and much more. It’s probably a good thing he died before finding out that his second great invention was arguably worse than his first, destroying the ozone layer. Some people end-up with a portfolio that is all bad!
We’ve entered a difficult economy where we might find we have both leaded fuel and CFCs in our portfolio. Growth has been the norm for many years but for a long time to come we are going to be navigating economic white water. The products or services that grow today are likely to contract tomorrow and vice versa.
Over my career working with many businesses, I’ve observed that you can not only make money while growing but you can also make money while contracting. What is, however, a sure recipe destroy value is to allow any part of your business to stagnate.
The output of several decades where growth has been an overarching narrative includes datasets and reporting tools which prioritise lead and lag indicators of the profit from growth. Even though there was a period where this narrative was disrupted around 2008, this trend in business was still sufficiently dominant that everyone worked to get back on the growth track as quickly as possible.
The disruption we are dealing with now is completely different. The rules of the markets in which our products or services operate don’t hold because customer behaviour does not reflect economic drivers but rather health and government restrictions. The cascading effects of this disruption will take years to work through the system and mean that the metrics we’ve traditionally used to measure profit just won’t help us shift gears as a result of rapid market changes.
As I wrote previously, history has shown that pandemics and wars act to accelerate trends that were already nascent rather than create new ones (see The pandemic-driven business shifts). To adapt to this new environment, we need to prioritise metrics that amplify and identify early shifts in customer or market behaviour which we can then use to continually adjust our portfolios.
The unpredictability of the market we are entering will be further exacerbated by greater government involvement in every aspect of our lives including economic policy, regulation and stimulus including building their own digital infrastructure.
Industries such as fashion, real estate, education, hospitality and even health have been turned on their head by COVID-19. For much of the fashion industry, their entire business model was built on assumptions about seasons and collections which may not hold for a more sustainably focused 2020s post-pandemic. Real estate will continue to be disrupted by newfound digital flexibility which could change the way we live and work forever. Students who are now confident to learn remotely won’t hesitate to augment subject choices with virtual options. Greater self-sufficiency and focus on the environment could challenge a disposable takeaway and food hospitality culture. And, in the midst of a health crisis, the business of health will also never be the same now we can seamlessly consult practitioners digitally and physically as needed.
For every downside there is a new upside somewhere in society. In the white-water economy left in the wake of this disruption there are opportunities galore as consumers and businesses explore new ways of living and working. It is likely that there will be more experimentation in an unsettled market with new ideas taking off and then falling away. To keep up, we all need to be helping the people we lead to lean-in to new skills so they can switch focus in our increasingly complex portfolio of offerings.
That means pairing data with market sensing and intuition. Pairing strategy with relationships in government where behaviours are impacted. And, pairing customer insight with societal trends.
We need to build the information sets that will support these rapid changes and constantly have one eye to growth and one eye to pruning where the market shifts. If we do this well, we can be profitable in both the upside and the downside while leaving no-one behind.
We can look to sectors more experienced in such significant and ongoing change such as the technology industry. Companies including Apple, Microsoft and Dell have had to navigate seismic shifts in their markets and, when they’ve been at their best, they’ve successful managed diverse portfolios. Products that used to be their mainstays can be cash cows, funding their transformation before they finally disappear over time. Examples include iPods, DVD-based software and even the traditional PC.
Writing today, it doesn’t look like the pandemic has a clear finish line, rather we will have some sort of “COVID normal” which will stretch into the future. As much as I believe in an “information-driven” business, I think we also have to be looking at “pandemic-driven” business behaviour as well. Above all else, the next five years will require a “portfolio-driven” business approach to truly succeed.