Why is growth slowing?

The drivers of economic growth are all now heading in the wrong direction.

Demographics: Population growth has accounted for nearly half of economic growth globally over the past 50 years—but global population growth is slowing.

Economics: Productivity, the second big engine of growth, is also declining.

Technology: The ICT wave which began in the 1970s appears to be running out of steam. Digital markets are mature and are becoming commodified.

Values: Our values are shifting from materialist to post-materialist. Post-materialists are less interested in consumption, more interested in experience.

Growing slower

The past 50 years were a period of rapid economic growth. Globally, per capita income almost tripled, and GDP grew sixfold. But something fundamental has changed in the global economy since 2008. The long- term growth outlook is poor, and is unlikely to improve in the near future. The global economy is slowing and there is little consensus among policymakers around how to respond.

All of the trends suggest that for at least a decade to come, slow economic growth will be the backdrop shaping business decisions and business strategy.

Slower growth requires fresh ways of spotting growth opportunities and building on them.

The impact of slower growth is immediate. It creates a vicious cycle of lower demand and lower consumer spend. For businesses and business leaders who came of age in a world of growth and stability, this new environment is a challenge. Growth creates its own expectations about investment, innovation, profitability and strategy. When it goes, the whole rhythm of business changes. Like a cyclist climbing the hill in the wrong gear, businesses find themselves losing speed and wobbling as they try to adjust.

The question is clear: how to grow a business in a low-growth world?

Thinking differently about strategy and innovation

The slow growth world is an unfamiliar business environment, so familiar tools work less well. What it means for business is that demand falls and markets start to fragment.

But there are always peaks of growth to be found. Even in low growth worlds, economies are dynamic environments in which consumers and companies move their spending between categories and sectors – or to new business models.

To reach the peaks, you need a platform for growth. Building this requires a strategic vision that reframes the way you think about your current business, and an approach to innovation that finds new value right across the value chain.

 


 

Six guiding principles for profiting in a slow growth era

The good news is that in markets where the rules are being rewritten, savvy companies have a greater chance of success. The winners see change in their markets earlier than their competitors and adapt to take advantage of it.

From our deep understanding of market and business change, built on more than 40 years of experience, we have identified a number of ways to understand change, and to anticipate and shape it in a slow- growth world.

These provide a new way of approaching category, brand and corporate planning and innovation processes.

1. Take an integrated view of change

Trends don’t happen in isolation, but in clusters. The interactions between them create new patterns (we call them Dynamics) that open up new market possibilities.

For example: in the auto sector, demand for cars is influenced by the interplay of economic conditions, oil prices, shifting generational attitudes, and public investment in alternatives.

2. Identify emerging profit pools

As demographics shift, so does the money. Successful future-proofed strategies look for these new value pools as money moves moves between different groups, to new generations, new markets, and new groups of consumers.

Just as you can future proof a segmentation, you can identify ways that spending patterns could change between different social groups. For example, we quantified a category opportunity for a client around a minority ethnic group across European markets.

3. Look to the edges

Cultural and social values are always shifting. The challenge is to identify how the emerging behaviors, values and attitudes of today will reshape mainstream markets tomorrow.

For example, the surge in farmers’ and food markets in the late 1990s wasn’t about a change in food distribution, but it was an early signal of changing consumer expectations around food, and indicated how supermarkets would need to reshape their offer in the ‘00s.

4. Learn from the disrupters

Who says an elephant can’t dance?,’ asked Louis V. Gerstner in his memoir about reinventing IBM in the 1990s. While slowing growth presents challenges, it also presents an opportunity to learn from the innovative players at the edges who have often found a customer need that is under-served or not well understood.

For example: Funding Circle, the British fintech company, which is now worth $1 billion, specializes in connecting savers to SME businesses looking for loans. This area is largely ignored by the financial services mainstream, but Funding Circle is lending around $100m a month globally.

5. Create new markets

Markets need customers. It’s an obvious point, but companies often underestimate the extent to which they can create demand, rather than following market trends. Successful companies in a slow growth environment look to make new markets.

For example, Transport for London created a city-wide contactless market by moving London commuters from cash and paper tickets to the Oyster contactless card, and later opening up the system to bank contactless cards. Its initial business case was based on the need to increase passenger throughput at stations.

6. Reinvent the Value Chain

New value from new business models is key. Slow growth is more than a marketing or positioning problem: it’s a whole-business problem. The most valuable innovation can come from using business model innovation to reshape your value chain and create new value in your markets.

For example, Nike+ demonstrates the truism that in the 21st century all companies are data companies. This runners’ community allows Nike users and others to share their exercise data, including routes and performances, increasing customer engagement hugely.

This summary prepared by Joe Ballantyne and Andrew Curry

 


 

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