Change Is a Necessity
The interplay of inflation and central-banks intervention continue to spoil the global economy. Taming current inflation without stymying growth is not possible. Global GDP growth has been trending down from 6% in 2021. The factors affecting the growth are sticky core inflation, higher borrowing cost, and realignment of the global supply chain. There is hiring slowdown in slow motion, with each passing day, a new company is joining the layoff spree.
The US Dollar Index, Inflation, GDP, and Income Growth are all going down in 2023. Central Banks are accepting the facts that inflation will remain above their target inflation rates. In the meantime, global unemployment is slated to rise to 208 million, corresponding to a global unemployment rate of 5.8%. That means a large number of youths in the prime of their working life will not be able to find jobs easily. At the same time large global investments in AI and Chips will struggle to find talented youths. Things may normalize only in 2024 and beyond. What went wrong?
Productivity is the key driver of economic growth and well-being. The Total Factor Productivity (TFP) is negative now. The new digital economy is still in its installation phase and productivity effects may occur only once the technology enters the deployment phase. TFP is expected to turn around next year. Capital and Labor Quantity contributions in GDP growth are expected to stagnate and fall. Current consumption is largely driven by higher spending of high-income households. Spending by middle and lower-income households continue to remain low amid sustained inflationary pressure and rising interest rates. With further expected global economic slowdown in 2023, private consumption may take a bigger hit. Government spending is expected to decline amid tightening liquidity and fiscal space.
In a recent survey conducted by PwC, 41% Indian CEOs said that they do not expect their companies to be economically viable in next ten years if they continue on their current path. The future business needs to be dynamic, and the traditional management has to be done away with. The traditional management is unsuitable for an era of continued unpredictability and full of disruption. AI, Machine Learning and Quantum Computing are all going to act as a co-pilot, helping people do more with less. The essentials are adaptability, agility and transparency. Important part of the organization's agility is the shift from hierarchical organizational structures to team-based work structures, where people respect each other and remain focused on fulfilling customer requirements. We need a thinking organization, reflecting upon a few basics:
What are the organization’s priority problems? How to solve these problems? What are the capabilities required to solve these problems? What are the people behaviors needed to solve these problems?
These questions are universal, applicable to all levels of organization and all types of organizations. We have designed and tested a Business Transformation Framework to bring adaptability, agility and transparency for improving the Total Factor Productivity of a business and creating a thinking organization:
Why is it important to focus on improving Total Factor Productivity?
Let's take the case of India, a 3.5 trillion-dollar 5th largest economy in the world is having manufacturing capacity utilization of 70%. Since 2013, the contribution of the manufacturing sector towards India’s GDP is stagnating at 14%. Gross fixed capital formation, a measure for domestic investment, has risen at a compound annual rate of just under 8% throughout the last one decade, down from 14% in the decade earlier to the last decade. Private investment is difficult when the central banks are trying to kill demand and drain out liquidity to the extent that the global economy is perilously close to falling into recession. So, there is no other way but to improve the TFP to cater to the growth. Innovation using new technologies and reducing wastes can easily expand the capacity, enough to cater to the growth of this year and even the next year. Increased TFP means increased profitability, that will support the growth capital needed for the golden days ahead.
The long-term projections are great for India. According to EY report "India@100," India’s GDP is projected to be US$ 26 trillion by 2047-48, with per capita income of US$ 15000. India’s urbanization rate would exceed 50% by 2046 from nearly 36% in 2023. India's growth will be more sustainable and much better. It is going to be driven by the millennials using cleaner energy and state of the art technology. The primary driving force will be the poor Air Quality Index in cities and depleting water tables throughout the country.
By increasing the fixed capital formation rate and TFP we can achieve India@100 milestones earlier. A great long-term strategy will be product and process innovation in line with dramatic demographic, economic and urbanization changes taking place. Develop new products that customers want. Invest in new processes and technology to produce and deliver the new products. We bring you a proven model for new product development, frontloaded to develop hit-products.
Organizations must value consumers more than ever as they are being provided with many options. This can be done by adopting a user and use centric innovation approach. Keep a tab on your customers’ experience with your product and service. Interact for suggestions and identify their pain points. Check your product performance with respect to your competitors, you will get a deep understanding of your product and customers' vital few requirements, stated as well as implied. Incorporate few attractive quality elements as per Dr. Kano model to delight your customers.
The next step is to act on these and find innovative ways to eliminate the pain points. Decentralize your company’s innovation, opening up the innovation processes to all employees, stakeholders, and consumers, and include them in every step of your plan. This enables diverse thoughts and enriches your company’s level of innovation which keeps you ahead of competitors. We have developed a unique House of Quality, a method to transform qualitative user demands into quantitative parameters, to deploy the functions forming quality, and to deploy methods for achieving the design quality into subsystems and component parts, and ultimately to specific elements of the manufacturing process.
Everything starts with the customer and how they are adapting their lives given all the changes taking place around them. As different industries come together and form new hybrids, the competitive landscape transforms.
Are we creating products and services that will meet the new demands of the customer? Are we taking care of rapid demographic shifts taking place? Are we working enough to contain global temperature rise?
36000+ people are turning 65 years of age daily and are likely to contribute half of the consumer spending growth. By 2030, 60% of the workforce will be from Gen Z and 40% of the workforce will be from the Millennials, who are ready to take the driving seat in every walk of life. The Millennials and Gen Z will contribute to another half of the consumer spending growth.
Millennials spend as much on digital equipment and smartphones as older generations do on new car payments. Previous generations were more likely to hold on to things for long; but for the digital natives, constant change is a given. Modern consumers are less likely to get attached to the brands, gadgets, apps and software. At the same time, the combination of speed and abundance has led to an expectation for instant access.
Developed countries are struggling with ageing and shrinking populations. China has reported a population drop. The global share of the working-age population has peaked at 66% and is declining. The greatest increase in overall population between now and 2050 is expected in a few countries like, Democratic Republic of the Congo, Egypt, Ethiopia, India, Indonesia, Nigeria, Pakistan, and the United Republic of Tanzania.
The manufacturing for the world has to gradually shift to the countries with increasing population. The developed world must attract talent from all around the world to keep their economy running.
The US has been successfully attracting global talents. After decades of continued growth in foreign enrollment in American colleges and universities, peaking in 2018-19, their number dropped by 20% in 2020. This has had an adverse effect on higher education, one of the largest U.S. service exports. Furthermore, foreign students have been very important contributors to US research and innovation and patenting.
Alfred Wegener Institute, Helmholtz Centre for Polar and Marine Research report on 18th Jan 2023 states, "A temperature reconstruction from ice cores of the past 1,000 years reveals that today's warming in central-north Greenland is surprisingly pronounced. The most recent decade surveyed in a study, the years 2001 to 2011, was the warmest in the past 1,000 years, and the region is now 1.5 °C warmer than during the 20th century."
This ends the debate on Global Warming. It's time for everyone to act now. It is good to see many economies around the world competing today to be leaders in the new energy economy and drive an expansion of clean technology manufacturing. The global expenditure in environmentally friendly alternatives was more than $1 trillion in 2022, equal to fossil fuel investments in the year. India employs 1,64,000 active workforces in the solar and wind energy sectors in 2022, a 47 per cent increase from the previous year.
It’s important to understand how the various emerging forces impact and how these may affect sentiment and buying decisions of the different generations of consumers. 65+ are often the most concerned about the economy, and Gen Z is least likely to consider the economy as their top concern, focusing instead on social and environmental issues. Companies should reassess their product portfolio, processes, and policies for the new reality aligning innovation efforts with strategy. It is all about creating new things, new ideas and new products or making an existing product faster, cheaper and better. These all can be done by making sure that new product and process development is not an isolated department but central to the mission of the leadership team. Grow your talent pool, transform your products and processes, make a breakthrough in energy transition, and work on rapid digital adaption. These have immense potential to make a truly transformative impact on the world stage. The wave of crises in last two decades teaches us that we can neglect a vision for future-preparedness only at our peril.