Here's a brief snippet from a speech given to CEO's at the WEF at Davos last year.
What In The World Is Going On? A Global Intelligence Briefing For CEOs by Herbert Meyer.
Yesterday, we featured Part 1 of 4; The Emergence of China-What In The World Is Going On?
Today we continue with Part 2:
Restructuring of American Business-What In The World Is Going On? Part 2
Currently, there are four major transformations that are shaping political, economic and world events. These transformations have profound implications for American business owners, our culture and our way of life.
Restructuring of American Business
The fourth major transformation involves a fundamental restructuring of American business. Today’s business environment is very complex and competitive. To succeed, you have to be the best, which means having the highest quality and lowest cost. Whatever your price point, you must have the best quality and lowest price. To be the best, you have to concentrate on one thing. You can’t be all things to all people and be the best.
A generation ago, IBM used to make every part of their computer. Now Intel makes the chips, Microsoft makes the software, and someone else makes the modems, hard drives, monitors, etc. IBM even outsources their call center. Because IBM has all these companies supplying goods and services cheaper and better than they could do it themselves, they can make a better computer at a lower cost. This is called a ‘fracturing’ of business. When one company can make a better product by relying on others to perform functions the business used to do itself, it creates a complex pyramid of companies that serve and support each other.
This fracturing of American business is now in its second generation. The companies who supply IBM are now doing the same thing- outsourcing many of their core services and production process. As a result, they can make cheaper, better products. Over time, this pyramid continues to get bigger and bigger. Just when you think it can’t fracture again, it does. Even very small businesses can have a large pyramid of corporate entities that perform many of its important functions. One aspect of this trend is that companies end up with fewer employees and more independent contractors.
This trend has also created two new words in business: integrator and complementor. At the top of the pyramid, IBM is the integrator. As you go down the pyramid, Microsoft, Intel and the other companies that support IBM are the complementors. However, each of the complementors is itself an integrator for the complementors underneath it. This has several implications, the first of which is that we are now getting false readings on the economy. People who used to be employees are now independent contractors launching their own businesses. There are many people working whose work is not listed as a job. As a result, the economy is perking along better than the numbers are telling us.
Outsourcing also confused the numbers. Suppose a company like General Motors decides to outsource all its employee cafeteria functions to Marriott (which it did). It lays off hundreds of cafeteria workers, who then get hired right back by Marriott. The only thing that has changed is that these people work for Marriott rather than GM. Yet, the headlines will scream that America has lost more manufacturing jobs. All that really happened is that these workers are now reclassified as service workers. So the old way of counting jobs contributes to false economic readings. As yet, we haven’t figured out how to make the numbers catch up with the changing realities of the business world.
Another implication of this massive restructuring is that because companies are getting rid of units and people that used to work for them, the entity is smaller. As the companies+ get smaller and more efficient, revenues are going down but profits are going up. As a result, the old notion that ‘revenues are up and we’re doing great’ isn’t always the case anymore. Companies are getting smaller but are becoming more efficient and profitable in the process.
Implications Of The .... Transformations
Restructuring of American Business
The restructuring of American business means we are coming to the end of the age of the employer and employee. With all this fracturing of businesses into different and smaller units, employers can’t guarantee jobs anymore because they don’t know what their companies will look like next year. Everyone is on their way to becoming an independent contractor. The new workforce contract will be, ‘Show up at the my office five days a week and do what I want you to do, but you handle your own insurance, benefits, health care and everything else.’
Husbands and wives are becoming economic units. They take different jobs and work different shifts depending on where they are in their careers and families. They make tradeoffs to put together a compensation package to take care of the family. This used to happen only with highly educated professionals with high incomes. Now it is happening at the level of the factory floor worker. Couples at all levels are designing their compensation packages based on their individual needs. The only way this can work is if everything is portable and flexible, which requires a huge shift in the American economy.
The U.S. is in the process of building the world’s first 21st century model economy. The only other countries doing this are U.K. and Australia. The model is fast, flexible, highly productive and unstable in that it is always fracturing and re-fracturing. This will increase the economic gap between the U.S. and everybody else, especially Europe and Japan .
At the same time, the military gap is increasing. Other than China, we are the only country that is continuing to put money into their military. Plus, we are the only military getting on-the-ground military experience through our war in Iraq. We know which high-tech weapons are working and which ones aren’t. There is almost no one who can take us on economically or militarily. There has never been a superpower in this position before.
On the one hand, this makes the U.S. a magnet for bright and ambitious people. It also makes us a target. We are becoming one of the last holdouts of the traditional Judeo-Christian culture. There is no better place in the world to be in business and raise children. The U.S. is by far the best place to have an idea, form a business and put it into the marketplace. We take it for granted, but it isn’t as available in other countries of the world.
Ultimately, it’s an issue of culture. The only people who can hurt us are ourselves, by losing our culture. If we give up our Judeo-Christian culture, we become just like the Europeans. The culture war is the whole ballgame. If we lose it, there isn’t another America to pull us out.
Expert, Consultant, Keynote Speaker and Lecturer on Emerging Smart Technologies, Innovation, Entrepreneurship, Strategic Foresight, Business Development, Lateral Creative Thinking and author of an upcoming book on the Smart Economy
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