To ensure survival, companies should look back to the past

Times of economic crisis are nothing new, neither are the methods that companies adopted to weather the storm to much sunnier futures

Alan_MitchellA trick question for the start of a gloomy new year: which 20th century decade delivered the fastest rate of technological innovation and the biggest boosts to productivity? Answer: the 1930s.

We think of the Thirties as a catastrophic period of economic stagnation and mass unemployment. In many ways it was. But beneath the surface, they also delivered a quiet explosion of economic activity. Breakthrough new materials such as Nylon, Teflon and Plexiglass were brought to market. Rapid advances in car technology and quality took place, along with the construction of car-related infrastructure including simple but transformational innovations such as suburban housing and retail stores with car parks. The UK’s electricity national grid was launched, which would act as a springboard for economic growth for decades to come. Expenditure on R&D also rose rapidly. Companies that invested heavily in research, such as AT&T, IBM, Dupont, Alcoa, GM, Kodak and General Electric, profited handsomely.

Across the economy productivity rates soared, partly because poor performing companies shut down leaving only healthy ones alive, but also because, as economic historian Alexander J Field puts it, “the disruptions of financial intermediation and very low levels of capital formation associated with the downturn fostered a search for organisational innovations that enabled firms to get more out of what they had”. As a result, real wages rose for those who were still in work (the vast majority).

History never repeats itself, of course, but given our current predicament, are there any patterns we can look for? One pointer: as Field remarks in his article The Most Technically Progressive Decade of the Century, new technologies that open up new opportunities to add value and or cut cost tend to get taken up, recession or no.

Thus in the Thirties, “the advances in chemicals, long distance communication, electrical machinery, structural engineering, and aviation proceeded largely independently of the Depression.” So perhaps not everyone’s prospects are bleak. Chances are, even the credit crunch won’t be able to stop today’s revolutions in digital media and communication, genetic and bio-engineering and nanotechnology in their tracks.

Necessary creativity
Meanwhile, there’s that other side to innovation, where sheer necessity spurs radical creativity – if only to enable companies “to get more out of what they had”. Looking around us today, there’s a huge need for this constraints-driven approach to innovation. Take the motor industry. It’s been suffering from overcapacity for decades. Business magazines such as Fortune were discussing the impending bankruptcy of General Motors three years ago. The Big Three didn’t respond to the superior “lean production” approaches of rivals such as Toyota. Now they’re going to have to.

Or take retail financial services. Most consumers never liked bankers very much anyway. Now they are positively hated. How big a prize now awaits financial services brands inventing new approaches that deliver financial security and efficiency while building trust rather than destroying it? This time last year, it wasn’t really politically possible to say the financial services industry was broken and needing reinvention. Now it’s obvious for all to see.

Retailing is already half way through its own revolution. It’s moved from “bricks and mortar” to “bricks and clicks” but it’s still only half way there. With the internet, we’re not only talking about different cost structures, but also different shopping habits, with many retail brands losing once taken-for-granted roles as first port of call for consumers. For some retailers this is a massive adjustment, still waiting to happen.

Closer to home, a perfect storm has been brewing in marketing for many years now. Its essential features are simple to describe. In an increasingly Google-ised world, consumers expect to be able to search for the information that’s relevant to their needs when those needs arise. In such an environment, media driven messaging still has a role, because brand fame is still critical. But the emerging consumer expectation is for information pull, not push; and for information that “fits my go-to-market agenda”, not information that happens to fit the agenda of some brand manager somewhere.

This means that both the underlying processes and the content of many marketing strategies face an urgent need for reinvention. So do many different marketing specialisms. The migration of marketing funds to the internet raises fundamental questions about the future viability of many (if not all) traditional advertising-funded media. Many media owners now have to reinvent their business models, or risk fading away – as the three biggest magazine publishers (Life, Look and The Saturday Evening Post) did after the arrival of TV.

Direct mail is also in a state of endemic crisis. It was built on the foundations of blanket mailing (with some of the inherent waste of this approach filtered out by a thin layer of data-driven targeting). Now it has to adjust to an emerging world of permission-based communication.

Meanwhile, the call centre industry is in a state of self-confessed crisis. The industry’s traditional operating model is broken and radical change is needed for it to survive. Those aren’t my words, they’re the words of Customer Contact Association chief executive Anne Marie Forsyth. Customers want better service even as companies want to cut the cost of providing it, and relocating call centres to India is not the answer.

Each one of these crises represents a huge opportunity for innovation that adds consumer value and cuts costs. Pull and permission-based marketing can be both relevant and useful while stripping out waste. Often, 50% of call centre calls come from customers with a problem relating to a product, service, delivery or bill. Such calls are really free bits of advice: “you need to fix your processes here, here, and here”. Companies acting on this advice and fixing their underlying processes are reducing inbound call volumes while improving customer satisfaction.

Over the past ten years, many business practices, processes and models, including marketing, developed real structural flaws. For a long time, the resulting stresses and strains were masked by a financial bubble. With the bubble burst, we urgently need to find new ways to add value to consumers while also cutting costs. Like the Thirties, that old clich頢innovate or die” really does have meaning. It also offers some hope.


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