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Tuesday, December 9, 2008

The Mother of All Disruptions: Part One

By Mark Beckford

recessionThis is Part One of a two-part series on the economic crisis and what disruptive leaders everywhere should do to survive and thrive.

If you have been following my posts here or on my blog you'll notice that my underlying approach to business is how all things disruptive - disruptive thinking, disruptive strategies, disruptive innovation to name just a few - can be a good thing. Change is good. Thinking out of the box is good. Alternative business models are good. Etc. I've been thinking long and hard about how what is clearly the biggest disruption to nearly every market and industry around the world can be a good thing.

Call it what you want: the financial crisis/meltdown, the economic downturn/recession/disaster. It dominates my two favorite business magazines: BusinessWeek and The Economist. It's hard not to finish reading these and not find myself in a funk. I've stopped looking at my IRA/401K, but I still have a guilty addiction in watching what the Dow does every day.

The biggest challenge facing every person, business and government is the unprecedented uncertainty that has come from the perfect storm of credit paralysis, depressed consumer/business confidence, and dwindling wealth. Why the wild swings in the stock markets? Not even the smartest analyst or computer model can predict the future in this environment. So every little bit of news, whether positive or negative, sends the market into a tizzy.Take this quarter for example. Beyond the current dire news of massive layoffs or the potential demise of the US auto industry, nobody has any clue what Q4 earnings results will be come January.

So what should leaders of struggling businesses, big or small, for-profit or non-profit, do while pummeled by plummeting demand, irrational pessimism and unbridled uncertainty. I would like to share a few recommendations that I think are crucial for navigating a disruption this massive.

The catalyst for social entrepreneurship.

No one can avoid the squeeze in this environment, especially non-profits that depend on charitable donations or government subsidies to survive. Some very wealthy philanthropists are bucking the trend, as discussed in BusinessWeek's article on Feeling Pinched, but I think the real winners as funding sources dry up are social entrepreneurs.

BusinessWeek sees this as well the complementary article "Social Entrepreneurs Turn Business Sense to Good." I've written before how non-profits must embrace "creative capitalism" to ensure scalability and sustainability. I believe that non-profits will be forced to embrace business principles to stay alive and ultimately will be the turning point for what until now has been a nascent movement.

What about emerging markets?

Emerging markets have been hot for most of the decade now. In the first half of they year, rising oil and food prices began impacting that growth, and while those prices have since eased, the credit crisis and the dollar's rise has cooled growth prospects. Some will fare better than others, with China and Asia likely doing the best. China's government will do whatever it takes to prop up their domestic economy...the threat of social unrest in both the rural poor and new middle class will be too great to ignore. So on a relative basis, China will still be a go-to market for most industries. The greatest danger is that the economic impact in these countries destabilizes government. In emerging markets, especially in technology, a stable government environment is critical for success. Thailand and most of the nations in Africa are perfect examples of this. Companies should do a deep analysis by country, and market segment, looking at multiple factors such as government stability, IT budgets, ecosystem and infrastructure health. This analysis should lead to a re-prioritization of emerging market growth plans.

My bet is on China to weather the storm better than others.

Part Two will discuss how companies must streamline their operations, but can't "save" themselves out of a recession.

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