Globalization means that producers in one country are increasingly importing resources from other countries and increasingly exporting their output to other countries. Technology—in the form of computers, the Internet, and mobile phones—enables information to course through the world at lightning speed. News of a breakthrough discovery, a corporate scandal, or the death of a major figure is heard around the world. The good news is lower costs, but the bad news is increased vulnerability. Outsourcing has always had its defenders and its critics.
But what is turbulence? We know it when it occurs in nature: It creates havoc in the form of hurricanes, tornados, cyclones, or tsunamis. We experience turbulence in the air from time to time when a pilot asks us to fasten our seat belts.
In all these cases, stability and predictability vanish; instead, we are buffeted, bounced, and jabbed by conflicting and relentless forces. And sometimes the turbulence will be so continuous as to plunge the whole economy into a downturn, a recession, or possibly a protracted depression.
Economic turbulence creates the same impact on us as turbulence in nature. One moment we hear that Miami has built more condominiums than buyers are buying. Speculators are carrying the cost and having a hard time meeting the payments. Banks start realizing that they have deadbeat assets due to securitization and hesitate to make more loans to either customers or other banks. These companies, in turn, announce major layoffs that result in less available consumer purchasing power.
ISBN 13: 9780814415214
Meanwhile, companies slow down their buying from other companies, creating hardship for their suppliers, who in turn, lay off their workers. Companies in these difficult times tend to make across-the-board cuts. They deeply reduce their new product development budgets and marketing budgets, both of which undercut their short-term recovery and long-term future. Consumers, workers, producers, bankers, investors, and other economic actors feel that they are living through an economic hurricane, a maelstrom that is unstoppable and relentless. Hopefully, this turbulence is only short-lived.
In the past, it has been. It has not been the normal state of an economy.
A particular country may be racked by turbulence, as Iceland experienced in as its banks moved into bankruptcy. A particular industry—advertising, for example—may be racked by turbulence as companies move more of their money from thirty-second TV commercials into newer media such as websites, emails, blogs, and podcasts. Some markets may be turbulent, such as the housing market or the auto market. Finally, individual companies such as General Motors, Ford, and Chrysler may be buffeted by turbulence while others—Toyota or Honda, for example—may experience less of a plight.
It would take just one agile competitor to come out with a superior chip at a lower price to topple Intel. Grove had to live with uncertainty.
Chaotics: The Business of Managing and Marketing in the Age of Turbulence on Apple Books
Intel had to erect an early-warning system that would reveal signs of imminent trouble. And it had to preplan different responses to the different scenarios in case they occurred. Grove had to create a system that would insure against risk and respond to uncertainty. We have a name for such a system.
We call it chaotics. All companies must live with risk which is measurable and uncertainty which is unmeasurable. They must build an early-warning system, a scenario construction system, and a quick response system to manage and market during recessions and other turbulent conditions. But our finding is that most companies operate without a chaotics system. Their defenses are scattered and insufficient. Most companies operate on the assumption of a built-in self-restoring equilibrium.
Economists built price theory with equilibrium in mind. If oversupply occurs, producers will cut their prices. Sales will increase, thus absorbing the oversupply. Conversely, if a shortage occurs, producers will raise their prices to a level that will balance demand and supply.
Chaotics The Business of Managing and Marketing in the Age of Turbulence by Phil…
Equilibrium will prevail. We postulate that turbulence, and especially heightened turbulence, with its consequent chaos, risk, and uncertainty, is now the normal condition of industries, markets, and companies. Turbulence is the new normality, punctuated by periodic and intermittent spurts of prosperity and downturn—including extended downturns amounting to recession or even depression. And turbulence has two major effects.
One is vulnerability, against which companies need defensive armor. They need to make sure that unpleasant truths are not filtered before they get to the top.
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Leaders should also accept the inevitability of strategic decay and be honest enough to recognise when their well-worn strategies are losing steam. At the heart of the book, the authors propose a three-stage system for detecting, analysing and responding to turbulence and the resulting chaos. Crucially, organisations should develop an early warning system to identify both the vulnerabilities of the business and potential opportunities that could result.
Toymaker Mattel, for example, lost 20 per cent of its market in the three years to by failing to see the vulnerability of its Barbie doll range. Rival MGA recognised that preteen girls were maturing more quickly and preferred dolls that looked more like their teenage siblings and the pop stars they idolised.
The importance of scenario planning is discussed in detail and a distinction is made between it and contingency planning that normally focuses on just one major variable. Constructing scenario plans — a form of war-gaming — helps business leaders understand how the various threads of a complex tapestry move if one or more threads are pulled.
When teams explore all of the factors together they soon realise that certain combinations can magnify the impact. Some companies have developed fast and automatic response systems to market changes, the authors note. The Swedish furniture giant Ikea is a case in point. When sales of selected expensive items drop in either a single store or in a predefined area, it automatically increases the floor space devoted to cheaper items and decreases the area showing expensive ones.
It does the reverse when sales of expensive items increase. Kotler and Caslione have produced a timely and thoughtful analysis of the turbulent economic environment in which we now live, with a series of practical responses to the challenges faced. Practical responses to the turbulent times we find ourselves in Mon, Jun 15, , Sponsored Need a more efficient business?
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