Monday Mornings with Madison

The Challenges Ahead for U.S. Businesses in 2015

According to President Obama’s State of the Union Address this week, “After a breakthrough year for America, our economy is growing and creating jobs at the fastest pace since 1999.  Our unemployment rate is now lower than it was before the financial crisis. More of our kids are graduating than ever before; more of our people are insured than ever before; we are as free from the grip of foreign oil as we’ve been in almost 30 years.”  Indeed, just a few weeks into 2015, the nation’s economy does seem to be in the best shape it’s been since before the Great Recession (which is indeed good news, but certainly does not set the bar very high). U.S. employment increased by nearly three million jobs in 2014.  Unemployment decreased a full percentage point between 2013 and 2014, dropping to the current 5.6% — the lowest rate since 2008 and the largest year-over-year decline since 1984.  If things continue on this track, the U.S. is predicted to reach 5% unemployment by the end of the year, which is nearing that economic nirvana of “full employment”.  Also, declining oil prices have helped bolster consumer purchasing power.  The U.S. dollar is also at its highest value in many years.   These are all good indicators.

Despite all the positive economic indicators, most U.S. businesses will still face certain challenges in the year ahead.  Even as the U.S. enjoys a healthier economy than most any other industrialized nation in the world today, companies will have to contend with issues, many of which were carried over from 2014.   Companies that ignore these problems do so at their own peril.  However, recognizing what issues lie ahead is the first step to either tackling them head-on or sidestepping them altogether.

1.  An Absence of Certainty

People in general — and business owners in particular – do not handle uncertainty well. Yet, uncertainty is common in business, especially today.  Business leaders are unsure about the global economy.  They are skeptical about the stability of the credit markets.  They have misgivings about how new regulations will affect business.  They are unsure how competitors will impact their company.  They have reservations about how new technology will affect business.  They especially distrust government involvement in business.  The list of uncertainties goes on and on.  While uncertainty is a normal part of life, and business, too much uncertainty leads to short-term focus and action. Uncertainty serves as either the true cause or good excuse for short-term decisions instead of long-term. While this reaction is instinctual, failure to plan for the future kills opportunities destroys value.

Solution: Accept that uncertainty is part of business, and balance the desire to focus on the short-term with the genuine need for long-term planning.

2. An Increasingly Global Marketplace

Understanding foreign cultures and markets is essential to everything from the ability to penetrate new markets with existing products and services, to creating new products and services that cater to a broader marketplace, to recognizing emerging, disruptive competitors in off-shore markets that months earlier may not have even existed.

Solution: Better understand international markets and cultures through better information gathering and better analysis of what it means.

3. Spurring and Handling Innovation

Most business leaders understand the need for ongoing innovation, defined as the creation of a product or service that can radically remake an industry, change consumer habits, or challenge economic assumptions.  While innovation increases the likelihood of a business succeeding, most companies don’t know how to nurture the innovative process, in part because innovation is seen as synonymous with invention.  Companies, big and small, struggle with developing and nurturing a better innovation process within the organization.    However, innovation does not necessary require a large budget or investment in Research and Development.  It is also about new ideas and responding to new trends and market conditions, or making improvements to products and services that already exist.

Solution: To nurture the innovative process, companies need to welcome new ideas. These ideas can form the basis for new products, services or processes which will satisfy a need, be the result of an opportunity or to solve a problem.  Business leaders should look for these ideas to come from any number of sources including customers or problems encountered.  The goal is to become more innovative while maintaining control over the organization.

4. Intrusive and Excessive Government Regulation

Regardless of which political party is in control and who is in the White House, a changing regulatory environment is always of concern.  However, that, coupled with uncertain environmental and financial policies, has made the decision-making process for most companies that much more challenging.   Moreover, dealing with a rapidly-changing regulatory environment is fast becoming the new normal.   The constant talk about changing the tax rates.  The evolving healthcare mandate for businesses.  New regulations overseeing banking, lending and consumer finance.  The intrusions are multifold and relentless.

Solution: It may sound simplistic to say but basically companies have no choice but to accept government regulations, whatever those may be, and get on with the business of business.   Each company needs to understand the meaning of the regulation and government policies for that industry, discern the implications for the business, and implement the staffing, processes and systems needed to deal with it.  Those companies that are best able to adapt are most likely to succeed.

5. The Accelerated Pace of Technological Advancement

Technological development is advancing at an exponentially-increasing pace. That really isn’t new.  But, while this has been true for decades, the pace today makes capital investment in technology as much a handicap as an asset.   Continually investing in the latest technology can be draining.  Waiting to upgrade technology, however, creates the possibility that competitors will better time their investment in next-generation technology and gain an advantage. Moreover, even the best IT professionals are challenged to find the right balance between staying informed about emerging technology and the need to master the company’s current technology.

Solution: The key here is flexibility.  Companies must develop a long-term strategy for investing in next-generation technologies remain flexible to take advantage of key, unforeseen developments that are clearly game-changers.  For each industry and business, the pivotal technology will be different so it is key to stay abreast of the latest developments.

6. Increasing Complexity

Most would agree that life and business has gotten more complex, even as certain tasks and activities have become easier due to technology.  Just as the speed of new technological advancements is increasing, so too is the pace of change in general.  The global economy is becoming more interconnected, creating a potentially larger and more diverse population of customers and suppliers. Manufacturing and services are increasingly aimed at smaller, specialized markets due to the flexibility provided by inventions.

Solution: The key is to develop better systems-thinking capability in order to design business models, processes, products and services in a way that minimizes unnecessary complexity.

7.  Information Overload

Although written information has been around for thousands of years, the invention of the printing press a few hundred years ago made it possible for the first time to distribute written information to large amounts of people. However, it was only with the advent of modern computers that the ability to create, duplicate and access vast amounts of information amongst the general population came to be.  With it came information overload.  The first recorded use of the phrase “information overload” was by author and futurologist Alvin Toffler in 1970, when he predicted that the rapidly increasing amounts of information being produced would eventually cause problems.  At the root of the problem, while computer processing and memory are increasing all the time, the human brains using the information are not getting any faster.

Consider that, in today’s world, nothing is growing faster than the volume of information. Researchers from the University of Southern California and Open University of Catalonia in Santiago calculated the world’s total technological capacity — how much information humankind is able to store, communicate and compute.  They concluded that one were to combine digital memory and analog devices, like books, humankind is currently able to store at least 295 exabytes of information. (That’s a number with 20 zeroes in it.).  Moreover, every day, 2.5 quintillion bytes of data is created. The ability of companies, much less individuals, to consume and make sense of the information that is available (and necessary) to make good decisions is becoming a nearly insurmountable challenge.

Solution: The goal is to deal with this growing mountain of information both technology and human know-how, then distill and convert that information into valuable knowledge.  It is a challenge that will continue to plague businesses for a long time to come.

Ultimately, the ability – or inability — of companies to tackle these issues by developing sophisticated approaches to information acquisition, analysis and the development of unique insight will either leave them at an advantage or disadvantage.  Companies that are able to do so, will think strategically and solve problems, developing a robust capability at all levels.  Those companies will succeed.  However, companies unable to do so will lack a long-term strategic imperative and will, instead, hop from one strategy to the next on a year-to-year basis.  They will run from one fire to another, depending on which their executives are trying to put out and that in many cases was ignited by the fast-changing business environment in the first place.

Quote of the Week

“Business, more than any other occupation, is a continual dealing with the future; it is a continual calculation, an instinctive exercise in foresight.” Henry R. Luce

 

© 2015, Written by Keren Peters-Atkinson, CMO, Madison Commercial Real Estate Services. All rights reserved.

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