CSSP - Course and Direction

Here Comes the Old Economy!
by Denise A. Harrison

This year's headlines continue to be dominated by negative news — why are economists optimistic about the continued recovery?

Consumers lack confidence in the stock market as more and more financial and accounting scandals are unveiled: Enron, Qwest, WorldCom. Financial shell games to bolster growth, hide debt, increase stock prices or reduce the tax burden stimulated the creative juices of many corporate executives while the corporate board members slept (or looked the other way). With corporate credibility at a low point, will the economy continue to recover? Of course, scandal is not new to the US or to capitalism — remember the names Michael Milken and Ivan Boesky? How about the Savings and Loan debacle? The only question is when the next boom cycle evolves (in about 15 years) what new twists will the corporate mavens develop?

Looking beyond the headlines, one finds the economy perking (percolating?) along. This recovery is lead by old economy companies; many are bolstered by the declining dollar. Inflation and interest rates are low. Productivity continues to increase as companies find new applications for the technology developments of the 90s. Unemployment is high relative to the late 90s allowing companies to find qualified workers when they want to expand.

One old economy company seeing an upturn in business is 3M. 3M operates in six business segments: a. industrial; b. transportation, graphics and safety; c. electro and communications; d. consumer and office; e. health care and f. specialty materials markets. Their business upturn is attributed to higher sales in the Asia-Pacific area. The company will continue to benefit from the lower dollar and the upturn in the Asian economies.

In addition to the Asian economic upturn, Europe, Mexico and Canada are showing signs of growth. The amplitude of the boom and bust cycle was not as pronounced in these economies as it was in the US. Hence international consumers are not dealing with same wealth effect decline as US consumers.

In the US, real estate is seen as an alternative investment to the stock market and consumers continue to buy. This stimulates many industries including building materials, carpet, furniture, fixture, white goods (washing machines) and brown goods (video/stereo).

Is all well in Camelot?

No — while housing continues to be an attractive investment alternative to the stock market — the automotive market is taking a hit. Real estate may be an alternative investment, but the wealth effect that was caused by the high stock prices of the last decade is gone. Consumers are not looking to invest in major outlays on a car or a truck that depreciates the minute you drive off the lot.

The technology sector continues to lag as it licks its wound from the bust cycle. Industries labeled, as "Old Economy" will continue to benefit from the application of technologies developed during the boom cycle.

RFID Technology

RFID — radio frequency identity - identifies the consumers and is able to automatically debit the consumers account for a specific transaction.

The application is currently used to automatically identify a car driving through a tollbooth and debit the car owner's account for the toll: E-ZPass. For drivers who do not drive on roads with tollbooths this is a yawn. But wait — Mobil (now Exxon/Mobil) is using this technology in its Speedpass program. This program allows Speedpass customers to simply wave their "Speedpass" by an electronic reader and it debits the customer's account for gas or any other convenience item purchased.

"An average Speedpass transaction is more than double the cash amount." NYT, 7//7/02

What's next? Speedpass at McDonalds — now we will be able to get fatter faster!

Spreading the use of RFID technology to new applications shows how technology developed for use in one industry is used to speed transactions in different industries.

The challenge for a company's strategic planning team is to search for technology applications in other industries and look for ways that technology can be applied to the business (e.g., McDonalds using Speedpass.) Looking for shifts in productivity, customer service and product/service enhancements can be a key factor in developing a "first mover" advantage for your company.

Weakened Dollar

In addition to enhancing productivity through new applications for technology your team needs to evaluate the impact of the dollar's decline on the business.

Will it help exports?
Will it raise the price of raw materials?
Labor?
Capital?
Will it change your pricing strategy?
How will it impact your market segments?
How will it impact your suppliers?

How will it impact your suppliers?

These are some questions that will stimulate thinking as you update your strategy in your quarterly strategy monitoring meeting.

Denise Harrison is a consultant with Center for Simplified Strategic Planning, Inc.
She can be reached via e-mail at harrison@cssp.com.

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