The economic effects of the budget crisis and how to respond to it

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The current budget crisis in the US and Europe have been building for decades, but can be traced back to the same root cause: governments living beyond their means. Just as people who choose a lifestyle beyond what they can actually afford, governments in the developed world have been living beyond their means for decades. Just like individuals who eventually ‘hit the wall’, some governments have now also hit the wall (Greece), or find themselves under a microscope (US) after years of profligate spending.

What does this mean for the business environment going forward? I believe we are now entering an age where the populations of the developed world must face up to some hard and unpleasant facts: we have too much debt and not enough growth  to sustain the current increases in debt levels, as well as an aging population that will demand even more resources from the state. In order for the developed world to get its house in order, the pace of government spending must be ratcheted back to sustainable levels. This will entail drastic changes in many developed societies, including a reduction in military spending (US), reductions in social services such as unemployment insurance and state pensions (Europe), and an increase in taxation (all).

All these factors will have a negative impact on economic expansion and the ability of companies to generate top line growth, as their customers will have less disposable income to spend. In other words, we are in a period of stagnant economic growth in the developed world that may last a decade. In order for companies to grow and prosper in this environment, they must find alternatives to increasing sales to drive profits, as a slow growth environment makes sales growth much harder to come by. What alternate methods are available to drive profit growth?

1)  Increase market share at the expense of competitors: This is a sure way to increase sales, but requires an enterprise focus on development, customer service, or execution.

a) Designing products that customers want is a sure way to increase market share, but entails risks if product launches are not successfully managed and executed.

b) Superior customer service will always be welcomed in the market place, but the tools and training for staff must be available and properly implemented. Systems to support accurate order promising and rapid issue escalation are some of the key requirements, but they must be fully utilized by employees and customers alike.

c) Superior execution may enable more sales growth, but will definitely reduce costs, allowing for larger margins and/or pricing competiveness.

2)   Reduce the cost of doing business: This goes back to the previous point (1.c), but the bigger question is how to wring those excess or wasteful costs out of the system? It is estimated that billions of dollars of inefficiency and waste are clogging up global supply chains. It seems that this would be a good place to start. With the state of modern infrastructure enabling individuals and companies to connect as never before, the ability to create dynamic supply chain networks now can be achieved in reality, allowing for huge reductions in time to market and cost to market.

The question then becomes how to achieve the promise of points 1 and 2? Part of the answer lies in creating an integrated network that will allow the strategy and resources of the enterprise to be applied quickly and in sync to the solving of complex business problems. This network must connect all demand and supply points together to allow a real time view of the complete network, where data can immediately transferred between any point on the network, can be made visible to all who need to react to it, and where the network can be tuned to optimal performance through the use of “what-if” analysis and simulation.

The complexity of modern business networks dictate that any system that can support these requirements will be very technically complex. In my next blog, I will go into detail of what the requirements to successfully implement such a tool are, and how to go about designing and bringing this system to life.

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