We aren’t just experiencing the aftermath of a financial crisis: It’s the dawn of a new economic era and of a new business reality! - 'The Seven Fields of Reorientation and of Action for Renewal in Enterprise Management"
What we currently experience is not just an economic downturn. It rather seems to be the start of a fundamental structural change of the world economy that may shape economic development and the business and enterprise management practice for the next decade. 'The Seven Fields of Reorientation and of Action for Renewal in Enterprise Management' describe what entrepreneurs and managers can do to prepare themselves and their companies for that change.
We are in the middle of the sharpest economic downturn that the current manager generation has seen. What is its cause and what is the major driving force behind it?
It is a structural imbalance in the world economy. That imbalance was already due to cause a major downturn a few years ago, but has been hidden for another couple of years by ‘financial engineering’. It became finally visible when the banking sector wasn’t any more able to cover it: the so called financial crisis was born - another, final symptom of that structural imbalance in the world economy.
One part of the imbalance has been the systematic overconsumption of the U.S. economy. George P. Shultz, former finance and foreign minister of the U.S. government described it with: “We have consumed more than we have produced. [...] America has lived beyond its means.” (quoted from an 
interview published in German in “DIE ZEIT”, issue from 19.02.2009)
The second part of the imbalance has been the reaction of the Non-US-economies to the overconsumption of the Americans: first the overproduction and the built up of overcapacities in other parts of the world, namely in the so called ‘export nations’ such as China and Germany, then the overfinancing of that overconsumtion in the U.S. by the same (export) nations.
What are the perspectives for the future?
Again George Shultz: “We [in America, after consuming too much,] have to go back to the ethics of saving. [… But others have to change as well]. The wealth of many countries has been based on that they have exported more than they have imported. The buyer of these exports have been the U.S.. When we are starting to bring our house in order and readjust our international trade and payment balance, then a lot of other people have to adjust as well.” (“DIE ZEIT”, issue from 19.02.2009).
In summary, if the engine of growth of the past years will stall because the overconsuming consumers in the U.S. start to save more and spend less, we will see a major structural change in the world economy happen in the future, with much lower growth for a long period – even after the bank balance sheets have been brought in order and the overcapacities in many industry sectors have been reduced. And we can add: Companies and nations that still want to base their business model on exports need to be very, very good, if not unique with their offerings.
I participated last week at an SAP executive event in Germany that I have conceived and moderated and where about 20 senior executives (CEOs, COOs, CFOs, and Chief HR Officers) of German companies discussed the causes and consequences of the current financial and economic crisis. The outcome of the discussion was another proof that we are facing not just a simple downturn, but a paradigm shift in economic development and thus in enterprise management. Here some of the statements made at the event:
“Growth in the past years was mostly artificial. We now have to face the reality for the future: lower growth not for the next three years, but for the next 20 years. As a consequence, companies require new strategies. In an environment of low growth or even contraction, creating and disposing of a visible, relative competitive advantage is key for survival. A second consequence is, that sustaining price levels will become more important than defending sales volume.”
“We, as export business, do not expect any major growth at least for the next five years. We have to re-focus on our core competencies – value creation through German engineering based on a highly educated workforce – to improve our relative competitive strength on the world market. That requires courage and money. We have to be smart in deciding were we have to save costs and were to invest. As a consequence, we have to become much more flexibile.”
“We have to focus in the future much more on qualitative than on quantitative growth. The heavy focus on volume and size in the past years was wrong. All my competitors that expanded abroad just for the reason to become bigger went bankrupt and seized to exist as a company. We have to re-focus on our strength: competitive advantage through high quality products. And we have to move back to a more organic growth model.”
Consequences for businesses and enterprise management: 'The Seven Fields of Reorientation and of Action for Renewal in Enterprise Management'
What does this mean for businesses and for enterprise management? How can entrepreneurs, companies and their executives and managers prepare themselves and their organisations for this new reality?
At the IIOE we have identified "Seven Fields of Reorientation and of Action for Renewal in Enterprise Management' on which we will focus our research, training and advisory activities in the future:
1. Strategic enterprise management:
The focus will shift from: “How can we become bigger and dominate our markets? to: “How can we improve our relative competitive strength and remain a player in the market”?
We will see a reorientation on the capability of an enterprise to create original, visible organic value-add for its customers. stakeholders and investors and to maintain that capabilities over market cycles through strategic innovation and flexibility.
- How do we manage for strategic competitive advantage and strategic renewal & flexibility?
2. Innovation management
The focus will shift from: “What is the next product innovation we have to deal with?” to “What is the appropriate business model for us in the future and how do we get there”?
We will see a new focus on the capability of a business to renew its business model in shorter time intervals to leverage technology and market developments in order to make a difference not only in what it sells, but in how it does business. A critical piece will be the identification, management and continuous improvement of the underlying platform of capabilities, intellectual capital and potential yield, as well as the systematic evaluation of technologies and stakeholder markets.
- How do we organise for continuous innovation and renewal that makes a difference?
3. Operations management:
The focus will shift from: “Operational excellence (today widely understood as ‘operational efficiency’)” to “Operational effectiveness in customer value creation”.
We will see a new focus on the capability of the operations to not only operate in an efficient way but to create superior value-add for customers and stakeholders and to constantly optimize both and to adapt the current business model in time. That requires an approach that moves beyond the process perspective and includes the identification, management and continuous improvement of the underlying platform of capabilities, intellectual capital and potential yield, as well as the continous monitoring of possible changes of demand.
- How do we design operations for effectiveness, agility and responsiveness?
4. Finance and control:
In finance the focus will shift from: “Net earnings” to “Financial flexibility (i.e. cash flow and working capital)”. In controlling the focus will shift from “Where and how do we earn money?” to: “Why are customers buying and how can we stay in business?”
We will see a re-newed focus on the capability of finance to provide the liquidity to stay in business and the funds to invest in innovations and critical capabilities required for the future. We also will see a new focus on the capability of controlling to provide the tools and concepts to not only manage profitability (price/cost) but to monitor and manage as well relative customer value-add (value/price), i.e. competitive advantage, and to thus enable managers to make better trade-off decisions between short term profitability, customer value-add and investments required to create the foundation of future success.
- How do we create enough financial flexibility? How do we control performance in a more holistic way?
5. Leadership, organisation and people management:
The focus will shift from: “Command and control organisation & leadership model” to: “Sense and response organisation and leadership model”
We will see a reorientation in the leadership model of enterprises: away from an organisation that can easily be managed by ‘orders’ from the management hierarchy, to an organisation, where people are empowered to respond to changes in the market environment and customer demand without involving management all the time - in other words: to a more reactive and a more intelligent organisation. That requires the right team structures, an organisation that works more like a network than a hierarchy, and appropriate leadership and people management programmes.
- How do we organise for high performance?
6. External communication and marketing
The focus will shift from: “Reporting” and “Attracting” to “Relationship” and “Engaging”
We will see a reorientatation to communicate the true value-add story of the enterprise by personal and community experience, rather than by self-created marketing ‘messages’ that are pushed at external audiences. That requires more than the traditional one-way corporate and marketing communication, but new relationship, network and engagements models that involve customers, stakeholders and investors personally.
- How do we engage effectively with customers, the public, with stakeholders and investors?
7. Values
We will see a new focus on the true “corporate values” of enterprises and "personal values" of managers.
Customers, stakeholders, shareholders and employees will be more interested in the future how sustainable an enterprise is operating and how sustainable its managers are managing, i.e. if it is stable enough to still exist in ten years and how it deals with the interest of others (such as of the communities in which it operates, of its business partners and employees etc.) - than just knowing a company's product offerings and last quarter's profitability. Therefore they want to know why a company is in business (what its values and its mission are) and what the personal values of its key personell are. And another reason exist, why values will be more important in the future: Only when a company has decided what its core values are, it can decide what can be given up, i.e. only then true innovation, the engine of competitive advantage and of new growth can happen.
- For what are we in business? What are our core values? What will always stay?
Join us!
In the coming months we will continue to describe in more detail 'The Seven Fields of Reorientation and of Action for Renewal in Enterprise Management'.
We will also start to offer a newsletter and plan to organize workshops (organised on demand).
If you are interested to contribute with your input to our reserach programme or if your are interested to receive our newsletter about this initiative or to participate in one of the workshops 
please contact us
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Related article:
Interview with Juergen H. Daum: "Sustainability as Objective for Enterprise Management and Control"
