Business - Written by Paul Artiuch on Thursday, January 29, 2009 16:32 - 3 Comments
From Growth to Efficiency
As the downturn continues to hit businesses and workers, many are wondering what will be the source of growth that will help lift the world out of recession. Initially, many thought that consumers and governments in developing countries such as China and India would boost spending enough to avoid a major global crisis. Although this would help, emerging economies are still not large enough to carry the burden. In fact the Chinese Premier is in Davos this week delivering a message to temper the expectations of the world’s business and political leaders. The result is that the world’s GDP is set to see the slowest growth in 60 years.
However, the discussions around growth seem misguided in a new world where virtually all resources are scarce. Due to the banking crisis, the flow of capital has slowed to a trickle. Even after banks are reorganized, it seems that leverage will be used more sparingly, raising the cost of capital for all. Human capital, despite the recent layoffs, is also expected to become scarce as the boomers retire, albeit a few years later than they were planning. All forms of natural resources, including water, timber, oil and minerals will be in short supply, especially as emerging market consumers look for ways to bring up their standards of living.
The reality of scarcity implies that economies will need to fundamentally rethink how they judge progress. It seems that efficiency will be the new mantra. How much more can you get out of what you have? This goes for financial capital, human capital as well as natural resources. While the amount of resources used stays constant (or shrinks) people will need to think of more efficient ways of exploiting them to lift their living standards. The interesting question for us is how the principles of Wikinomics can be applied to help organizations deal with scarcity.
Companies will need to shed legacy business models in order to more effectively use their human and financial capital. The practice of laying off workers in bad times and fighting for talent in good times may be suitable to monolithic and hierarchical organizations, but not the modern 21st century enterprise. Organizations need to become more fluid, agile and transparent to enable more foresight and flexibility in their operations. A focus on collaborative innovation, especially when there is slack in the organization during downturns, leads to gains when the economy picks up.
All in all, the current crisis presents an enormous opportunity to move away from exalting aggregate consumption to embracing responsible management of resources. This requires a major mind-shift, however, the burning platform is certainly there. It seems that along with Obama’s Era of Responsibility the Age of Efficiency is here. The limits of unbridled consumption are now obvious – growth will need to come from doing more with less.
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