It’s no secret that what were once predictable economic cycles of recession and prosperity over the last six decades seem to have gone the way of the dinosaur. The “interlocking fragility” created by the post-2008 global economy, and the immediacy that information technology has brought to every aspect of life, are among the top causes, says John Caslione.
Caslione is founder, chairman and CEO of GCS Business Capital LLC, a global advisory and investment firm focusing on emerging and high-growth markets. Over the last quarter century he’s advised global corporations across a wide array of industries and regions. Caslione is also an adjunct professor at Georgetown University and the co-author, along with Philip Kotler, ofChaotics. The Business of Managing and Marketing in the Age of Turbulence(AMACOM Books, 2009).
The perspectives and proposed new management strategies in Chaotics have resonated around the world: since its first edition three years ago, the book has been published in more than 30 languages and distributed in 78 countries.
Caslione spoke with Travel Weekly PLUS Editor in Chief Diane Merlino about the opportunities presented by economics in the “new normality”, and the new strategic behaviors businesses need to adopt for success.
Merlino: Your basic premise in Chaotics is that companies need to get rid of playing by the rules of a two-playbook economy that has predictable durations of prosperity and decline and instead position strategically for a global economic environment you describe as "the age of turbulence". How did you arrive at this construct?
John Caslione: If you recall what life was like for all of us in September of 2008, it seemed as though the global economy and the banking and financial system was crashing in, and nobody really knew what the next day would bring. It struck me then that we were beginning an entirely new era, and it wasn't just that the pending global recession was coming.
The tectonic plates under the global economy had finally begun to shift, and we were seeing tremendous drivers of turbulence starting to converge in the way of a perfect storm. They’d been under the surface for a number of years before that, but the financial crisis pushed it to erupt. So, in the fourth quarter of 2008 we entered the age of turbulence, or what we call the new normality.
Q. What do you mean by the new normality?
A. Gone are the days of predictable boom and bust markets as we’ve had for the past 60-plus years, where we averaged five to seven years of prosperity (the boom market) followed by 10 to 12 months of downturn (the bust market or recession). Instead, we now have going forward intermittent spurts of prosperity mixed with intermittent spurts of downturn, resembling more an EKG versus the sine wave of past years.
Q. What caused the demise of predictability in economic cycles?
A. We’ve listed ten drivers of turbulence in Chaotics; the two main factors are the push toward globalization, and information technology.
We now live in a global economy where all of our economies are interconnected, interrelated. So, what we have is an interlocking fragility. Europe is impacted before it wakes up by what happened in Asia, and then when people in the Western hemisphere wake up they are impacted by what has happened in Europe as well as in Asia. Because of this globalization, barriers have dropped between countries and their national economies.
The other key drive is information technology. We experience war and warfare as immediate events, as sad as that may be. Regardless of what happens in any part of the world, we instantaneously see it and feel it; we are impacted by it. The same thing applies to any type of business in terms of the supply chain, upstream or downstream. There are no more buffers, if you will. That creates an interlocking fragility.
Q: How might this interlocking fragility play out on the world stage?
A: In the past when we had a recession it was typically in the United States, which is the largest market. We would always have our consumers to rely on to spend our way out of the recession. And when this massive 747 of the U.S. economy was taking off, it created a vortex behind its engines that would pull up the other economies in the world.
Those days are gone. And it's not going to be China — or any other country. Whether it’s North America, Europe, or Asia, in order for one region in the world to start to rise, and rise considerably, all the other regions in the world have to rise with it. If one region doesn't, it weighs down the entire global economy and it pushes down each of the regions because of the interlocking fragility.
When individual regions can pull other regions down, we all have to work together to rise together. That's just a function of the new global economy. Some companies have resisted globalization for years, but it’s here, it’s well entrenched. Now competitors are coming from all over the world.
Q: The travel industry is somewhat accustomed to competition from all corners of the world because of the nature of the business, but do you have a specific travel example that illustrates the issues involved?
A: The airline industry is an example: European carriers as well as U.S. carriers. It’s just in the last year or two that they are starting to get wise to what's going on in the Middle East in terms of the three big carriers there. They missed the boat entirely in terms of strategy and in terms of vision.
You’ve got Emirates out of Dubai, Etihad out of Abu Dhabi, and Qatar out of Doha. Those three airports alone handle more traffic than do all of the major airports in Europe, and they're doubling their capacity in the next five years because they want passengers to bypass Europe altogether to go to emerging markets in the Middle East, in Asia, in Africa. And right now they’re starting direct connections to more and more cities in North America.
It’s one of those equalizers where now you have these emerging markets where there was nothing 20 years ago preempting other markets. It’s the student teaching the teacher how to do things. We’re starting to see dynamic shifts of power bases within industries, including the airline industry.
Q: John, we’ve covered your perspective on how the push to globalization and information technology is creating this “interlocking fragility” among economies. That’s a great phrase; can you elaborate on what it means.
A: Let's go back to between 2002 and 2008. All economies were doing well. If you had a pulse, if you had an I.Q. in double digits, you were making a lot of money. We were all riding high in the global economy. Demand was outstripping supply in most industries, whether it was for products or services. But as soon as there was crack, as soon as there was a falter, everything crashed all at once. And that falter came from the United States first, and then spread to Europe, and then to Asia.
There were strong economies in Europe and in Asia — especially in Asia, because that's where the new consumerism had been going for the last 10 or 15 years, with tremendous growth in the middle class and new wealth coming in with massive populations, billions of new middle class people. As strong as that was it started to crash down, because those economies were largely based upon export to the United States. That has now been overtaken by Europe; collectively, Europe is the biggest recipient of exports from Asia. So, as soon as exports started to falter the Asian economies came down, because of all of the economies are interlocked, interdependent with each other — interlocking fragility.
Q: To summarize, what are the defining characteristics of this new economic model, this age of turbulence as you describe it?
A: We’ve always gone through turbulence, and we've always survived. In fact, our countries have all survived world wars, and that's probably the highest level of turbulence you can have. But they were episodic; they had a beginning and they had an end.
What we have now is a higher amplitude of turbulence, of uncertainty, of risk, because of the interrelationships between global economies. What happens in one country, one part of the world, affects the entire supply chain in some way; it affects the distribution chain. It could be a skirmish that breaks out and threatens some oil or gas supplies, and that affects another part of the world.
This is now firmly established, and it's not going to go away. What we have to do in running our businesses is acknowledge that these heightened levels of turbulence, and the consequent higher levels of risk and uncertainty, are here to stay. They are not going to subside. Businesses have to come to grips with that and say, “Okay. Then how do I function in my business to be able to take advantage of the turbulence that's out there?”
Q: So businesses can still thrive in an unpredictable and interconnected economy?
A: The whole notion of our book was to say, "Listen, it's here. Step up, make the necessary changes within your organization, and put in different processes and strategies. Then you can get ahead of the power curve, so when the turbulence hits, your competitors falter, but you can speed up and rise above it all.”
COMING UP: John Caslione on detectable turbulence, creating strategic new partnerships in the interlocking global economy, the importance of scenario planning and adopting a prophylactic approach to strategic planning, and more.