In order to effectively embrace the New Economy you must understand the Five Key Drivers that are responsible for the “constant white water” in which businesses must now operate. Knowing how these drivers impact your business and your customers is essential for developing and implementing business strategies.

1.    The Economy has Become Customer-Centric. Customers today are more informed and have more options available to them for getting their wants and needs met. They are no longer content to be passive in the buying process. Instead they are aggressively seeking alternatives, comparing offers and holding out for the best price.

Customers are also engaging vendors/stores later in the buying process because they are doing the education themselves. Big box stores like Best Buy are seeing transactions per customer drop due to strategic shopping (customers do their research and enter the store with the sole intent of buying the one product and then leaving). Businesses are seeing this as well based on Marketing Sherpa’s estimate that eight out of 10 B2B sales are now initiated by the buyer finding the seller.*

-*How to Find New Customers: The Definitive Guide to Driving Demand for Your Company’s Products and Services, Jeff Ogden

“Once a guest or a prospective guest picks a destination they can go on-line and find a thousand different options for how to travel there… So, we have to be very, very tight and do a very careful job of defining value, because people have tremendous shopping power at their hands. So, we have to be very good at communicating and finding ways of communicating the value in our trips.”

-Edward Piegza, President of Classic Journeys, a 5 time winner in Travel and Leisure Magazine’s World’s Best Tour Operator

2. Globalization.No matter how you look at it we are in a globally-connected marketplace. From finances, to technology, to market demand… we are connected. When China sneezes everyone gets a cold.We, in the United States, can’t pretend that the rest of the world doesn’t exist.
Even a small business in the Midwest that doesn’t import or export anything is no longer exempt from being impacted by the global marketplace. This is because someone in that business’s value chain or customer base is being impacted by a company abroad.

What does growing corn and soy beans in Minnesota have to do with a global economy? Nothing unless you were a farmer with funds being manage by MF Global.

Dean Tofteland a Minnesota farmer who missed his deadline to buy seed for the spring’s soy and corn crops is a good example of how the global economy can impact almost anyone.  Tofteland missed his deadline because he lost $200,000 that was being held in an account managed by MF Global.  MF Global is the firm that was run by former New Jersey Governor Jon Corzine until it collapsed on October 31 after making bad bets on European debt.

Because Tofteland missed the early-buyer deadline he couldn’t take advantage of the $5,000 discount and may have to buy seed with borrowed money. Tofteland is not alone as farmers across the country have yet to recover up to a third of their money invested with MF Global. The ripple effect is that many of these farmers will see the cost of doing business going up, profits being threatened and prices increasing. All of this was caused by the unintended consequences of investing in European debt.*(Reuters)

3. Business Volatility.Change is now a constant. As markets and customers become less predictable businesses must vigilantly monitor the landscape. Trends start quickly and can escalate overnight bringing with it either great threats or opportunities. This often leads to shorter life cycles of products and services. With shorter life cycles market leadership is short lived, as is the opportunity to fully leverage the profit potential of the leadership position. Being the market leader in the past, meant years of market domination (think about IBM, Kodak, Nokia, Sears and Polaroid). In the New Economy market leadership is often measured in months. How quickly and effectively a trend is recognized and acted upon is the key to success.
Market leadership is not a destination. It’s a race that must be won every day!

4.  Technological Velocity. Trying to keep up to speed with the advances in technology is similar to trying to drink from a fire hose. The volume and speed of innovations in technology are simply becoming overwhelming.  One of the biggest dilemmas with technology is that it represents a double-edge sword. Although advancements in technology bring about greater efficiency and productivity, they also eliminate jobs and put constant stress on organizations to continually adapt and assimilate new systems and processes.

To highlight this trend consider the following:

• Just a few years ago a website was considered a luxury for many businesses. Now it’s essential for survival.
• Cyber Monday didn’t exist before 2005 and now retailers do over $1 billion in online sales on that day.
• Digital advertising wasn’t a serious vehicle for most businesses 10 years ago. Now it exceeds $30 billion and captures 1/5 of advertising money spent in the US.
• Worldwide there are 88,000,000,000 searches a month done on Google and 46% of the searches are for products and services.
• Facebook has 800,000,000 active users. This population would make it the third largest country in the world.
• There are 6.6 billion mobile phones for a worldwide population of 7 billion.
• Last year’s mobile data traffic was three times the size of the entire Internet in 2000.* (Cisco Visual Network Index: Global Mobile Data Traffic Forecast Update, 2010)
• The computing power of a smart phone is equal to that of mainframe computers from the 1980s.

Armed with this technology customers want information available to them at anytime and anywhere. If one company won’t provide it there are dozens more who will.

Technology is changing every aspect of our lives both at work and at home. Let me share a real-life example that highlights this concept. I was eating breakfast at a McDonald’s reading the newspaper when I noticed a 5-year-old girl giggling and pointing at me to her father. The father quickly apologized by saying, “I’m sorry about my daughter, it’s just that she has never seen anyone reading a newspaper. I always get my news on my phone.” The young father was in his twenties and had never relied on the newspaper for getting news so his daughter had never seen it.

To succeed companies must incorporate technology strategically into their organization so that they are better equipped to function in a changing marketplace. One of the biggest challenges leaders have with technology is determining which technology will actually move the business forward. Select the right technology and the company leap frogs ahead of the competition. Guess wrong and the company is saddled with obsolete gadgets that become obstacles to doing business.

5. Emotions Rule. Financial markets from Wall Street to main street and beyond are driven by fundamentals and psychology (i.e. emotions). Most financial experts feel that the fundamentals for continued economic growth across the board are lacking.  There’s just too much debt coupled with tightening credit and a stagnant job market necessary to drive sustained demand.

Steve Hennigan, President and CEO of San Antonio Credit Union explains our current market situation this way, “… we’ve been in a growing money and credit system for 70 years; it’s never seen a contraction. And what most people don’t understand about capitalism is that our capitalist society today is built on money and credit and that the money and credit system is not a finite system. It’s actually an expandable and contractible system just like your lungs. So we’ve actually been expanding the money and credit system, which is their lifeblood of the velocity of money, and I should say of credit and business and commerce. We’ve been expanding and in that expansion mode for 70 years. And so we’ve hit a peak, and it now requires a contraction.”

With the fundamentals breaking down (financial, housing, investment, retail, etc.) markets are being kept afloat by three basic emotions:  Hope, Greed and Fear. People buy when they have hope that the “recovery” has arrived or is just around the corner. They also purchase when they feel they can beat the system (the dot com bubble, housing bubble, etc.) which is greed. Finally, they withhold purchasing when they fear that they might take a loss or make a poor purchase decision.

These three emotions impact individual consumers, businesses and governments alike. In the New Economy everyone’s emotions are more exposed, excitable and vulnerable. That’s why there is so much volatility and disparity in how these emotions express themselves in the marketplace.

Recent Gallup research captures the emotional disparity that exists in the US. The index showed:

• 44% say they are struggling and 3.7% are suffering, while 53% are thriving
• 49% of US say their finances are worse off than a year ago and yet 56% predict that their finances will improve in the coming year. (Gallup)

An example of emotions driving volatility in a stock happened when CIT, a key lender in the retail industry, announced that it would no longer supply credit to suppliers shipping goods to Sears’s stores. Sears stock fell 6% before recovering at the end of the day. Although CIT finances less than 5% of Sears’s inventory their announcement sent fear into the marketplace that could create a domino effect on Sears’s business. Other finance companies may be driven to raise their rates to protect themselves from the perceived risk that Sears won’t be able to pay their bills. If this occurs Sears will have to pay more to stock their shelves and reduce the amount of capital needed to grow their business.  This chain of events is a likely possibility even though the fundamentals indicate that Sears has the liquidity to fund its inventory.

Leaders need to understand that emotions are impacting markets far more than any time since The Great Depression. Ignoring this key principle can lead to negative and possibly devastating consequences.

The five key drivers of the New Economy are gaining steam and will continue their influence on businesses of all kinds and sizes. Monitoring them and assessing how they impact your market, your customers and your company helps you take proactive steps and to course correct when needed.

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