the future of business - put simple series

The next businessHow changing economic environment impactswealth creation

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Put simple: The next business

Konstantyn

Nov. 2009

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Background: flickr.com

new wealth growth points


new rules and tools


Who are


Chapter #1

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Chapter #3

Legacy business instruments


What next?

Chapter #4

Chapter #5

New business instruments


#1 Economy: players that matter


Konstantyn

Aug. 2009

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Simple modelThe economy is as com-plex as our life. Though, big moves in economy are always reserved to big players. There are just a few big players. If big shifts happen, a simple model can des-cribe, help to under-stand and predict eco-nomic development. Simple models compris-ing of a few players and their interactions en-able strategic and proactive business planning.

a few players

USA 71%Canada 60%

Germany 54%South Korea 48%

China 37%

Private domestic consumption, % of GDP, 2008

Source: Janamitra Devan, Micah Rowland, and Jonathan Woetzel McKinsey Global Institute

1. Consumermajor market force

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2. Supplierserves to consumer’s needs,but follows its own interests

CostsEarnings-

PROFIT=

The supplier’s foremost interest is profit. There are two methods to improve profit. Increase earnings or decrease costs. Focus on one target is essential while in a competitive race.

2A. Manufacturingfocus on the most efficient

transformation of resources

Supplier

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costs

Manufacturing focuses on the costs. Costs reduction equals the most efficient resource transformation into a plurality of products. The core competences are production methods, labor utilization and natural science.

2B. Marketing/Salesfocus on pleasing the consumers

Supplier

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earnings

Marketing focuses on the earnings. Earnings increase equals sales of the same mass produced product to a plurality of individuals. The core competences are requirements management, custo-mization, advertise-ment, distribution.

3. Market controller

Financial system change

Federal Reserve

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Market controller regulates the process of goods exchange between consumers and suppliers. Particularly, it controls the exchange medium = money. The amount of money supplied to the market impacts behavior of both consumer and goods supplier.

#2 The recently dominant business model


Co. & Konstantyn

Aug. 2009

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The next business model opportunities – by Konstantyn Spsokukotskiy, Atlanta 2009

1981Financial system change

Source: Peter Stella, International Monetary Fund, The Federal Reserve System Balance Sheet What Happened and Why It Matters, 2009

Last time the general business model was forced to modify thirty years ago. Since the year 1981 an access to easy-to-get credit was granted. The volume of money consumed by the economy nearly doubled. The additionally released credit money were not necessarily matched by the goods. This became a source of excess money.

Financial system changed

2008

x GDP US credit market assets

1951 1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006

2

3

4

1

the way to drive wealth creation

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America’s New Beginning: A Program for Economic Recovery, Feb 18,


Federal Reserve primarily pours money into consumer market. Consumers have more money for disposal than earned. There were certain reasons for doing this.


Primary upload model

Consumer’s bonanzaas primary money upload model

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money flow


The business target “get the money” results in the hunt for the excess money. Being first in line (here chasing after consumers) equals bigger pie. A big part of service is the process of product customization.Customization helps to sell mass produced products into plurality of individuals.



Industry shifts priorities

Source: Directorate-General of Budget, Accounting and Statistics

70%

50%

30%

10%

1952 1962 1972 1982 1992 2002

GDP sector percentages

service

industry

Consumer is truly King/Quinn

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Earnings-side (delivering immediate value for consumers) factors were taken under magnifying glass. Costs-side pro-duction factors had less managerial attention. They were frown out of the list of core compe-tences. Malfinancing, off-shoring.



Neglect cost

factors

Industry neglects costssome core competences vanish

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480k0 120k 240k 360k

1k

2k

3k

4k

4.5k7.5k

8.5k

manufacturingsale and trade

professional servicesfire

administrativeservices

recreation & hospitality

agree, mining, energy

health careeducation

Efforts: employee equivalent/company 1991- 2005

Lack of local competence: Number of foreign affiliates 1999- 2005

construction

Source: McKinsey Global Institute, 2009

Industrial efforts in the past two decades


The upload scheme works until credit is becoming cheaper over time. It allows to refinance previous debts and cover inefficiencies. Refinance for lower interest and win. Interest(2000) – interest(2004) = profit.

The leading interest rate driver is Federal Reserve Rate. It approached it’s bottom limit (the rate is effectively zero) in 2008. No further refinancing is available unless you endanger the wealth.



Focus on sales

Neglect cost

factors

Excess costs covered by refinancing

How long will it work?

1981 20091989 1994 1999 20041984Ba

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Game over

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the business modelof the last three decadesis effectively done

Source: Federal Reserve statistical release, G.17, 2009 annual revision

Consumer goods

#3 Legacy business instrument examples


Konstantyn

Aug. 2009

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1diversity proliferation


“Any-One” economy

Any flavor, any time, any place delivery. One device, one function, one time use design.


2production offshoring


Service-oriented economy

More focus on marketing and consumer design, less on production and tools


aggressive sales3


Push-over-pull , age of abundance

Unsophisticated consumer has more money to disposal than time to decide what to buy.

Marketing being business unit at the money stream begot business.

#4 What comes next?


Konstantyn

Aug. 2009

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opportunities

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Optimism check up

Help Industry



Neglect cost

factors

Focus on sales

upload scenario 1


In this scenario industry has no real incentives to please the customers any more. It slows the necessary changes down. More show than go. Stricter governmental regu-lations are essential to keep industry in check. There are incentives to sell complex products. Production of those products is problematic. Result: bad product quality and no warran-ties. Stale mate eco-nomy. Restricted con-sumption.

Hallmarks:sophisticated consumer,sneaky supplier delivers old shoe with new label,minute wealth increase if at all, values shift

upload scenario 2Build Infrastructure



Focus on sales


Also supported by Obama administration. Examples: investment in transport infrastruc-tures, health-care IT infrastructures, etc. The probability of more stress on this scenario is low. It requires new (forgotten) competenc-es. Typical results: back-shoring, in-house pro-duction, more students in engineering. Better control over long-term product/service quality.

Hallmarks:sophisticated consumer,marketing-centered businesses die-off,wealth increases slower than used to be

upload scenario 3Scary the crowd


The scenario utilizes the effects of world-wide deflation and/or mass hysterics. That is people as well as businesses save and stack money in unusual quantities bas-ed on gains in deflation economy or scared by the wave of failing (in their perception) insti-tutions and danger of coming challenges. Banks decrease leverages. It isn’t pro-life scenario and thus not sustainable.

Hallmarks:business as usual,expensive banking regulations ,people are scared to death by any available reason



Focus on sales

Neglect cost

factors

#5 New business instruments to win


Konstantyn

Aug. 2009

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“All-in-One” economy

Consumer has no access to easy money. Hard won money will be spent wisely. Multi-functional products with low TCO per function will be preferred.

Complex products1

simple and obvious productsgoing to be extinct

Jack Trout’s


Back to basicsThe stress on particular instrument is not clear until a dominant scenario evolves

2

event marketing

directmarketing

promotion

public relations

advertising

tele-marketing

directsales guerilla

marketing

participatorypush

mas

spe

rson

al

Source: Pinko Marketing

Pull-over-push, age of scarcity

Sophisticated consumer has more time than money to spend.

participative sales3

Advertisers

establish/use trust

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The future of business


What is your opinion?

coming soon

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what do future successful businesses do?

1. _____________________

2. _____________________

3. _____________________

4. _____________________

5. _____________________

the future of business - put simple series

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