Not so long ago, economic forecasting pretty much hit the mark based on predictable cycles of prosperity and decline.
“Those cycles are gone, and they’re gone for the foreseeable future, if not forever,” says John Caslione. “Now what we have is something more like an EKG; the cycles look more like a heartbeat.”
Caslione lays out a roadmap for business success in the new economic order in Chaotics. The Business of Managing and Marketing in the Age of Turbulence (AMACOM Books), co-authored with Philip Kotler. Caslione is a longtime global business consultant and founder, chairman and CEO of GCS Business Capital LLC, a global advisory and investment firm focusing on emerging and high-growth markets.
He contends that businesses need to change how they operate, implementing new processes and planning strategies in response to new global economic patterns. “Then you can get ahead of the power curve,” Caslione says, “so when the turbulence hits, your competitors falter, but you can speed up and rise above it all.”
This is the second excerpt from a discussion between Caslione and Travel Weekly PLUS Editor in Chief Diane Merlino about the challenges and opportunities presented by economics in the “new normality.”
Merlino: Do you find that businesses are developing strategies based on what you describe as the unpredictable “EKG model” of today’s economic cycles?
Caslione: Generally speaking, no. In this past year’s letter to his shareholders, Warren Buffet from Berkshire Hathaway basically lambasted companies out there, saying, “Listen, it’s all about scenario planning. You can’t just use traditional strategic planning tools that have been handed down generation after generation and that are based on static, predictable economies.”
Q: Scenario planning — is that a Business 101 basic, John?
A: Well it should be, but it’s not. There are only two parts of our society where it’s routinely done: in the military and intelligence community and in weather reporting and atmospherics, where things change so abruptly and so rapidly.
Predicting hurricanes can come up in a matter of one or two days, and you’ve got to be prepared to withstand it. You may not have had one hit you in 20 years, but when it happens, you’ve got to be darn ready for it; you’ve got to be prepared. It’s the same thing for the military perspective.
But that doesn’t translate into businesses; it’s not part of the culture. In business if you’re over 30- to 35-years-old, you grew up with the unofficial, informal, two-strategy playbook. You had one strategy on how to manage during the good times and another on how to manage during the bad times. We all had that. With scenario planning, you know that you can’t say, “OK, the bad times will come, on average, once every seven or eight years.” Forget that.
Q: Would you say it’s common or uncommon for companies to use scenario planning to develop strategy?
A: You have to think in scenarios before you can actually plan in scenarios, and relatively few companies do it, because it’s painful. There are a lot of gray areas, things you cannot predict. Then you’ve got to create multiple strategies that will coalesce under one overall strategy to be able to cover all your bases.
So, generally speaking, companies don’t do it, because once they get into a method or a role, they want to continue to move operationally in that direction. The way most companies are physically organized is based upon yesterday’s strategies. The companies that are doing scenario planning are the ones that are doing extraordinarily well because they’re always one step ahead of their competitors who are continually being buffeted by the turbulence out there.
Q: How does the U.S. business community compare with other international business communities in terms of strategic planning that understands the current global economic climate?
A: This question is a bit complicated. I’ve done business in almost 100 countries, and generally speaking there are no people in the world who are more pragmatic than Americans. If we understand the problem, we will always find a solution. That’s a generalization, but it’s generally true. At the same time, we are the least globalized in our businesses of any other major economy in the world.
When you look at all of the companies in the United States, small, medium, and large, fewer than 4% in raw numbers actually do any business outside of the United States. That doesn’t mean having an office outside the country; it means exporting even one thing out of the United States. Just 15% of all U.S. manufacturing companies actually engage in any kind of business outside of the United States. We have a situation where more than 80% of all U.S. world trade is done by fewer than 1% of our companies.
Our government is designed to help the Fortune 100 and the Fortune 500 companies do trade outside of the United States, but they do a miserable job in helping the middle market do business outside of the U.S. And the backbone of the U.S. economy — in sheer numbers of G.D.P. as well as growth in employment — is the middle market. It’s small and medium-sized companies, it’s not the largest companies.
That’s where we all suffer as Americans. We are the least globalized of any of the large economies out there. Even China does a better job these days in sheer numbers. That’s the challenge for the United States and U.S. businesses.
Q: You’ve said businesses have to develop a "prophylactic approach" to navigating their way to success in the current economy. What kind of fundamental change needs to occur inside of an organization to implement that approach?
A: Companies do a variety of things. We’ve pulled together the best practices that we’ve observed into what we call the Chaotics Management System. Essentially, it begins with an intense effort in scenario planning, where you look at each of the different parts of your business based on the different scenarios that are plausible.
Then you begin to plan around those scenarios, and you begin to change the behaviors within your organization with new skills training and looking for redundancies you can eliminate to increase your level of resiliency for when turbulence hits. That’s the first thing: You start to develop more robust, more resilient people and systems.
Coming Up: More strategies for success from John Caslione, including expanding your stakeholder base and developing a sales and marketing strategy designed for the age of economic turbulence.
Also see Get a Grip in the Age of Economic Turbulence