For the foreseeable future, the economy will no longer ebb and flow like the smooth upward rising sine waves of the past 50 years. Rather, economic activity on a graph will look like the choppy spikes of a heartbeat in an EKG—a series of non-uniform Ws. Readers of this article will learn how to manage in what this author calls the “new normality.”
Business leaders today need to throw away the old two-playbook strategy book—one for the up-cycle and the other for the down-cycle (recession). Instead, they need to create a fresh strategic framework for managing both vulnerability and opportunity, while coping with intermittent and unpredictable instability—a Chaotics® approach to managing in The Age of Turbulence. Companies today must learn how to capitalize on a heightened, continuously turbulent environment—the new normality—to steadily grow more responsive, more robust, and more resilient, and to achieve Business Enterprise Sustainability.
A new economic paradigm: The Age of Turbulence
Today, globalization and information technology are the main forces behind a new phenomenon, interlocking fragility. And while in good times, such interconnectivity and interdependence work in everyone’s favour, in bad times, such interlocking fragility spreads considerable pain and damage, virally. The fact that we now live in a new normality doesn’t mean that companies did not have to withstand great turbulence in the past. However, the turbulence of the past was episodic and coincided with great disruptive events, such as cataclysmic wars, terrorist attacks and others that eventually ended, allowing us to again resume the traditional, multi-year economic cycle.
Let’s analyze this traditional cycle further. Over the past 50 years, we’ve come to count on two essential swings that, when they occur, indicate that an economy is normal. The first is the upswing that has historically lasted between five and seven years on average, oftentimes referred to as a “bull” market.” The second force is the market downswing, lasting on average for ten to twelve months, which we’ve referred to as a “bear market”, or sometimes as a “market correction”. These two swings were largely smooth and somewhat predictable. Once a recovery was confirmed to be under way, the upswing would continue largely unabated and uninterrupted until the next bear market. (See Figure 1).
Figure 1: Normal Economy versus Chaos Punctuated New Normality
No more. In The Age of Turbulence, companies are stressed, compressed and tested at many levels, sometimes so much so that they cannot recover fully, because the former predictable five-to-seven year up-cycle can no longer be counted upon to run its normal course. Imagine a company that has been severely buffeted by turbulence and chaos, exposing its weaknesses and vulnerabilities. Then, just after it’s had one or two “up” quarters that have given it the time to repair the damage, turbulence hits it again. These companies will become weaker still, and may not be able to survive over the mid- and long-term.
During past recessions in a normal economy, most surveys have shown that at most, 15 percent, or one out of seven companies, actually improves its position once it has emerged from a recession. This begs the question: What happened to the 85 percent or more of the companies that didn’t fair so well in the past, when the return to the normal economy with its extended multi-year prosperity was so predictable? The essential point is that, from now on, companies will never again emerge from a recession to find a normal economy, specifically the extended, multi-year up-cycle of the bull market that we’ve experienced in the past seven (or eight) recessions. This reality begs a second disturbing question: What percentage of those companies that improved their competitive position after they emerged from recession actually did so by basing their “recession-emerging” strategies on the traditional, predictable and extended multi-year economic up-cycle?
In fact, the whole talk about a recession is irrelevant. It presumes to a certain extent that the U.S. economy—or those with vivid imaginations who contend that China or India will soon have such economic might—will reclaim its place as the great Boeing 747 or Airbus 380 lifting off with the rest of the world’s economies being pulled up in its updraft. But what if, even with all the engine speed and lift-off power we can muster, the economy never gets past more than two or three or maybe seven or eight quarters of an upturn before it back-slides once again? Most indicators today are in fact pointing in that very direction.
The word “recession” can best be described as Jurassic, or grossly anachronistic. In fact, labeling this global mess as a “recession”— two consecutive quarters of falling real gross national product— may be a bit misguided when such a cycle as we knew it may no longer exist. Although mainstream economists and politicians alike have yet to realize it, the definition of a recession as “two consecutive quarters of negative growth” may need to be redefined, much like the very term “recovery” may require us to redefine the term “recovery.”
The bottom line is that we are witnessing a dramatic shift in our global and national economic systems. The new economy may very well be one that is forever punctuated by periodic and intermittent spurts of prosperity and downturn. This environment of continuous economic fluctuation, where turbulence, chaos, risk and uncertainty reign, is the “new normal” condition for industries, markets and companies. It is also a scenario that government and business leaders around the world—and the rest of us—must be prepared to confront and eventually come to embrace.
In The Age of Turbulence—an age that will extend far into the future—even companies successfully emerging from recessions of will need to adjust their behaviors and adopt new, turbulence-resistant strategies.
Metaphor: turbulence and chaos; vulnerability and opportunity
Recently, I was preparing to board a business flight from Chicago to Shanghai. Just then, the gate agent announced that take off would be delayed by 30 minutes because air traffic control had detected turbulence along our intended flight path. More time was needed to reroute us onto a different flight path, so that we would avoid the detected turbulence.
Thirty minutes later, we were flying calmly, until our plane was buffeted by severe, undetected turbulence. The turbulence was so was so intense that virtually all of our meals and drinks ended up on the floor. Most of the overhead luggage compartments opened, spilling out coats, briefcases, packages and luggage on many of the passengers, who by then were screaming.
We were all shaken and rattled right down to our teeth, but after what seemed like several minutes—but was probably only a mere 20 to 30 seconds—the pilots calmly told us that they had found a more favorable altitude. In fact, this new altitude was not only calmer, it had a 200-mile per hour tailwind that enabled us to land one full hour earlier than originally scheduled.
Like the Boeing 777, our businesses are also subjected to turbulence, some of it detectable and some of it undetectable. But unlike the pilots, who are trained to fly in extreme turbulence, business leaders must undertake their own form of training to prepare them to manage in a turbulent environment. Specifically, they must find and develop new business models and adopt new strategic behaviours. Otherwise, they will find themselves operating in chaos. The important distinction is that the pilots were able to manage through, and emerge from, the chaos; untrained, unprepared business leaders, however, will suffer from whatever damage the chaos inflicts on their operations.
Turbulence, and the chaos that results from it, has two major effects. One is vulnerability, for which companies need defensive armor. The other is opportunity, which companies need to exploit.
Let’s consider vulnerability first. The vast majority of companies around the world today are ill prepared or not prepared at all to succeed in an environment of continuous, unpredictable turbulence. And when economic turbulence hits a company that is ill prepared, chaos will result and vulnerabilities will be exposed. .
Now let’s address opportunity. Opportunity occurs when a company is responsive, robust and resilient, and has transformed or otherwise prepared its organizations and business models to manage turbulence and chaos in the new normality. Business leaders and companies who embrace the new normality will have implemented new systems to spot turbulence that can be detected, while they instill new strategic behaviors in their organizations and business models to minimize or preempt any ill effects when unanticipated turbulence strikes. Such companies can then take away competitors’ business, or even acquire vulnerable competitors at bargain prices. (See Figure 2)
Figure 2: From Turbulence to Sustainability
The New Normality
Businesses, like the Boeing 777 and other modern aircraft, must become more responsive, robust and resilient in The Age of Turbulence. In the new normality, which is characterized by heightened, more frequent turbulence that will itself be punctuated by unpredictable, intermittent spurts of prosperity and downturn, governments and businesses alike must be able to withstand turbulence—both detectable and undetectable—to prevent or minimize the chaos that might cause them to lose their way. In the “new normality,” our national economies will be characterized more by a chaotic up-and-down EKG heartbeat wave—a series of non-uniform W’s—rather than the smooth and more predictable sine wave of the past 50 years. Gone is the familiar rhythm of the five-to-seven-year average up-cycle (prosperity’s “bull market”) followed by the average ten-to-twelve month down-cycle (a recession’s “bear market”).
Once turbulence hits a company that is unprepared, its vulnerabilities will be exposed, setting the company back and disrupting the smooth running of its business.
On the other hand, when turbulence hits and a business : 1) has understood and embraced the new normality, and 2) is more receptive to accept and embrace new strategic behaviors—Chaotics Strategic Behaviors, that business will be more readily able to capitalize on opportunities created by the turbulence. Being prepared for turbulence enabled the Boeing 777 to stay on course and meet its goal. So too will a well-prepared business be able to meet its goal, in spite of any sudden turbulence.
The Chaotics Management System®
What is needed in today’s new normality is not a conservative, risk-avoiding approach to developing strategy, but rather an alert and prudent approach that protects governments and business enterprises from the effects of disruptive forces in times of turbulence, and yet still advances its interests. This is the Chaotics approach.
A Chaotics approach may be considered a prophylactic approach to managing risk and uncertainty, one that wards off the likelihood that hubris and greed will overtake the more sober and thoughtful management style of a particular business.
In addition to the everyday challenges of dealing in a perpetually competitive arena, as well as managing in specific stages of the business cycles, business leaders need to recognize that a faster, thicker-flowing stream of major and minor disturbances is challenging their business planning, and adjust appropriately. There is a need for business leaders and their organizations to develop a new mindset—one that takes into account intermittent, unpredictable periods of disturbance, and enables them to thrive while under the threat of global, industry, market or company chaos. Beyond developing a new mindset, business executives must drop their reliance on traditional two-playbook strategies—one for up markets and the other for down markets—and continuously fine-tune their strategies, or even discard them when the environment demands it. The primary difficulty lies in the fact that during stretches of normality, their strategies begin to settle down, get optimized and become entrenched. Such relative complacency leaves them unprepared to manage during turbulence, when it eventually breaks out. (See Figure 3)
Figure 3: Traditional Two-Playbook Approach vs. The Chaotics Approach
The Chaotics Management System presents a new system—and a new set of strategic guidelines—designed to help businesses navigate through the new normality to be successful and profitable over the extended term, regardless of the economic conditions.
There are eight (8) key components to The Chaotics Management System: 1) Development of an early warning \system; 2) Construction of key scenarios and strategies; 3) Prioritization of key scenarios and strategy selection; 4) Implementation of Chaotics Management strategic behaviors; 5) Implementation of Chaotics marketing strategic behaviors; 6) Expansion of the stakeholder Bbse; 7) Flattening of the organization; and finally, 8) Shortening strategic planning intervals and multiple execution scenarios. (See Figure 4)
Figure 4: The Chaotics Management System©
Achieving Business Enterprise Sustainability
Chaotics ultimately serves as a disciplined approach for detecting sources of turbulence, predicting consequent vulnerabilities and opportunities, and developing critical and appropriate responses to ensure that the business lives on successfully and thrives for many years into the future. The eventual goal is to achieve what is now called, Business Enterprise Sustainability (BES).
Business Enterprise Sustainability is a comprehensive strategy to maximize the underlying value of companies in the extended long-term, while optimizing company performance and value in the short and medium term—but never compromising long-term value. It involves the implementation of the Chaotics Management System, a system that enables companies to be responsive, robust and resilient in its business and operational strategy, especially in a time of turbulence. Critical to such a strategy are the preservation of well-maintained assets, ongoing replenishment of innovative products and services, and a favorable reputation with customers, employees, distributors and suppliers, governments, and other key stakeholders investing in the business. (See Figure 5)
Figure 5: Achieving Business Enterprise Sustainability©
Too often in the past, business leaders have confused high growth with high performance. They may have unwittingly taken unwise risks in their businesses to maximize short-term profitability, while at the same time jeopardizing the company’s mid- and long-term viability. They may destroy mid-term or long-term value through their overly ambitious short-term growth plans, which sometimes include foregoing needed short-term investments to build the platform for longer-term strategy, as well as unwise and expensive acquisitions intended to increase shareholder value in the short-term. Certainly growth is important to the sustainability of any business, but longer term sustainability should override any short-term or even medium-term ambitions—especially in turbulent and unpredictable environments where chaos, if not managed well, could cause irreparable harm and even sink a business permanently.
“Chaotics: The Business of Managing and Marketing in The Age of Turbulence” is copyrighted exclusively by John A. Caslione and Philip Kotler 2009.
“Chaotics” is a registered trademark owned exclusively by John A. Caslione 2009.