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Driving Forces I: Economic and social trends that can influence strategic decisions

Arecent comprehensive overview of economic and social trends (Marvin Cetron and Owen Davies “The Futurist,” March-April 2005) should provide useful backdrop for strategic decision-making. The authors conclude that the economy in the developed world will continue to grow for the next five years and that interruptions will be relatively short-lived. This should be good news for the paper industry with the caveat that needs-patterns in the market place are changing, particularly in the areas of age demographics, the knowledge-dependent society and migration-patterns. This information will facilitate more informed strategic business decisions, in such areas as capital expenditures, workforce skills adjustment, facilities closure, partnerships, government relations, new business, global presence. In formulating their decision-making processes, winners will need to look beyond the “current business noise” and dig deeper into the implications of these fundamental trends.

All signals indicate a continuation of the recent growth in the U.S. economy — this is from an analysis of resilient real-estate markets, new job growth, and manageable inflation. Economies in the EU and Japan are re-emerging; China appears to be moving toward sustainable growth rates. New economies are emerging in the former Eastern Block, and India will have the highest growth rate by end of this decade. The implications are that labour markets will remain highly competitive in the skilled fields. New and creative business attitudes will be required for rewarding speed in business/technology innovation within the workforce. The growth of a knowledge-dependent society is creating new phenomena such as telecommuting, outsourcing of knowledge services (including research and innovation) and new highly competitive entrepreneurial enterprises. This trend will provide developing economies with new options for creating wealth to complement the traditional ones of resource supply, manufacturing or tourism. The global economy is becoming even more integrated, with implications for all companies in the value chain to shop globally for the best deal in price and services; proprietary knowledge is also more freely shared and less valued.

With regard to societal issues, age demographics and migration are major driving forces. Growing fertility rates in regions that can least afford it, and declining fertility in developed countries, will result in increased immigration to industrialized countries to meet skills needs. Age demographics are also steadily increasing the proportion of seniors in the developed economies. Global demand for products and services aimed at this demographic will grow rapidly. Barring dramatic advances in geriatric medicine, the cost of health-care is destined to skyrocket throughout the developed economies, creating the long-expected crisis in health-care financing and delivery. Rapidly aging populations make the economies of countries like France, Italy and Spain, particularly vulnerable to old-age dependency costs. Canada and Japan are rated as having medium vulnerability; the U.S. and U.K. as having low vulnerability (Source: Center for Strategic and International Studies). Immigration is providing new demographic market segments in most developed countries; mass media and the Internet (of which paper is an important part) are providing a unifying effect toward multicultural societies, particularly amongst the younger generations. Companies will be forced to accommodate more cultural diversity. The Gen X’ers and “Nexters” (born 1960-80 and 1980-00 respectively) are driving homogenous attitudes around the globe. These groups are entrepreneurs and are largely responsible for the current economic growth in India and China. Branding is becoming increasingly important for developing repeat business.

Why is this important?

Space limits a more complete listing of driving forces; others will be examined in a subsequent column. For strategic decision analysis, directly influencing and indirectly influencing driving forces that are uniquely relevant, should be identified. These forces are analyzed for their potential outcomes and impacts within the context [e.g. Time horizon, market dynamics, competitor activity, resource availability] of the critical issue in question. Driving force outcomes and impacts need to be mutually self-consistent and supportive of the strategic decision to be made. Inconsistencies between the critical issue, the driving force impacts, and the strategic decision under consideration, will signal that the decision parameters need to be adjusted.

Alan Procter is an international consultant and strategic adviser. He can be reached through www.alanprocter.com