Proactive management presupposes an organized approach to anticipating change, in so far as that is possible. Sometimes, a recognition of the underlying factors driving change helps to do that. This post, reprised from one of a series of posts on proactive management from about two years ago, offers a “heads up” on demographics and trends that may affect your business as the future makes itself manifest. — C.H.
In order to survive – let alone thrive – in the 21st century, management must proactively cope with ceaseless waves of change. One way to proactively approach the future (which doesn’t yet exist) is to examine existing conditions that are likely to drive change as the 21st century unfolds. There are a daunting number of current realities that, jointly or severally, are likely to drive change. For convenience of organization, this blog groups change drivers as:
Demographics & Trends
This series of posts examines a few especially significant change drivers in each of the four categories. This post, the last in this series, focuses on Demographics & Trends along with two of the change drivers associated with demographics and trends:
The Future is Now?
No, the future isn’t now. But demographics and trends allows one to reasonably project into the future. For example, given the number of people in the world who are 20 to 30 years old today, it is straightforward to approximate the number of people who will be 40 to 50 years old 20 years from now. Accordingly, demographic and trend information is at the core of the insurance industry. Insurers use demographic and trend information to approximate the number of life insurance customers will die in the year 2035, or the cost of replacing the insured houses that will burn down next year. For health insurance, segmented demographic information (segmentation by age, sub grouped by gender, medical history, lifestyle and so on), along with critical trend information such as medical treatment cost trends and advances in medicines.
Reliable demographic and trend information is powerful stuff. Especially demographics or trends which indicate that the future will be substantially different from the present. This isn’t just for insurance companies. A systematic means for continuously paying attention to a wide range of demographic and trend information can help businesses anticipate opportunities and avoid disruption.
Here are two “zoomed out” examples that may well affect every business:
It is my personal opinion that the single most important technical innovation of the 20th century isn’t space flight, penicillin, the internet or atomic bombs. Nope. It’s practical contraception. Practical contraception has already sharply reduced birth rates globally, and continues to reduce them. The graph labeled Total Fertility Worldwide, 1950 – 2050 indicates that the rate at which children are born has been cut it half (from 5.0, down to 2.5) since 1950 and is trending toward 2.1 around 2050. The projection to 2.1 is especially significant: a fertility rate of 2.1 corresponds to zero population growth, worldwide!
Of course, fertility rates, hence rates of population growth, vary widely from country to country. Rates in most economically developed countries are near or below 2.1 (populations in Japan and in some western European countries are already shrinking). People in less economically developed countries still prefer to have, on the average, more children, hence growing populations.
Changing age profiles within populations have enormous consequences for businesses – opportunities along with dangers. Population pyramids, a graphic device, helps make this clear. Rather than explaining, here is a five minute TED educational video titled Population Profiles: Powerful Predictors of the Future. It is worth your time to watch:
Global Financial System
Many, if not most American manufacturers have foreign components in their value chain, on the supplier side, on the customer side, or both. Those who do not still need to be aware of possible foreign suppliers or customers (or financiers, or competitors) in the future. So, an understanding of trends within the global financial system that makes globalization practical.
Today’s global financial systems consist of remnants from the Bretton Woods accords, elements from socialist systems and several quite new wrinkles, especially:
>> Fiat currencies – most national currencies today have no extrinsic value, save the credit worthiness of the issuing nation. Some of us remember dollar links to gold or silver. Those links no longer exist, so, to borrow John Maynard Keynes’ observation, the financial system and the economies that system supports “has no anchor”.
>> Currencies that do not correspond with national borders – The Euro comes to mind here. Each member of the Euro group is a sovereign nation, entitled to set its own national tax and spending policies. The rub comes when financially stronger members of the group are expected to support the weaker ones. The current situation with Greece and Germany is a primary example.
>> A trend toward perpetually unbalanced national budgets – Chronically unbalanced budgets – intentional or otherwise — result in ballooning national debt. Growing national debt means growing present and future interest obligations. Interest rates today are at historic lows. But many of us remember double digit interest rates not so long ago.
The point here is that the financial system that supports today’s globalized economies is quite fragile. Nobody really knows how that system might react to another situation like the 2008 financial meltdown.
This post mentions only a few of many demographics and trends worth following and understanding. There are many more. Because of the scale of these matters, the resulting conditions as they specifically affect your business may prove to be surprising. In the 21st century, it is absolutely necessary for even small businesses to follow and understand these zoomed-out, big picture change drivers, so that proactive steps can be taken.
Thoughtful comments and experience reports are always appreciated.
… Chuck Harrington
This post and its associated website (www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome.