MEGA-TRENDS AND MICRO-DECISIONS

Paul Gascoigne is better known for his prowess on the football field, and often controversial behaviour off it, than for his philosophical musings. It may therefore come as something of a surprise to find him being quoted in an article on change management. Consider this classic from the football howler hall of fame: “I won’t make predictions and I never will”. Compare it with some sound advice from Hollywood’s Sam Goldwyn, “never make predictions, especially about the future” and we have set the scene for the somewhat confused world of forecasting the future of change management. The risk of being completely wrong, and it is a high one, naturally leads to a certain amount of reticence when commentaries on the future of change are made. Assumptions tend towards a projection of current trends and patterns of behaviour. After all, there are more known facts about the present than there can ever be about the future.

Forecasting the future in any subject area is difficult and in change it is especially so. There are an infinite number of variables to consider and an equally infinite number of circumstances where change arises. Over time, patterns of behaviour develop and these occasionally emerge as trends. The rise of shared service centres in the late 1990’s and 2000’s or the appearance of outsourcing and offshoring are examples of a number of random management practices synthesising and earning a label. Popular trends can sustain for some time but eventually there comes a point where it comes face to face with an extraneous and often disruptive force. That may be simply be time itself, in the sense that the fashion has simply run its course, or it could be something more immediate. These more instant forces of change can be driven by any variable - a step change in technology, economic and social factors, or perhaps combinations of elements.

 In the world of the second decade of the 21st Century all the influences of the past are still in place but there are important differences. The world now moves at internet speed, the challenges we face much greater and the time we have to resolve the big issues seems to be becoming much shorter. 2010 marks a watershed, a moment in time where we need to look again at what we have been doing in the recent past and consider whether it is right or relevant for our constantly changing world.       

The 2008 crash and the ensuing global credit contraction have provided a catalyst for a ‘rethinking’ of the landscape of change. The patterns and trends extant in 2007 are no longer likely to be as valid in the second decade of the 21st century as they were in the first. Fundamental changes are afoot which are not yet completely understood but which are subliminally, but inexorably, gnawing away at the foundations of practices that have been promoted as ‘best’ for the last ten to twenty years. As these fundamental global trends and features are examined in more detail, it becomes obvious that features of the ‘noughties’, such as ‘offshoring’ for example, are far less likely to be relevant to future decades.

Outsourcing and offshoring have been promoted as good performance improvement practice for over a decade. Both earned labels during the 1990’s, became fashionable business practice in the early noughties and are now accepted as textbook material. They are well established trends. The question we have to face is whether the rationale for continuation is still valid. If we take the specific case of offshoring, the whole basis for this particular trend has been a savings in cost. It has in recent years been considered to be cheaper to produce in Asia and China than in Western Europe or the United States. But is this still likely to be the case in three or four year’s time? In this particular example there are two ‘mega-trends’ which will have a severe impact on trans-continental outsourcing in the not-too-distant future. At least two global socioeconomic trends are likely to affect this popular management practice.

The first is oil. Oil is going to get much more expensive and in a far shorter time period than most people realise. It is by far the most dominant energy source in our international transportation network and cheap sources are already rapidly evaporating. With marginal exploration costs now approaching $70 barrel how likely are prices to fluctuate below this level for more than very short periods? The 2010 oil excesses will be consumed within months as soon as the global recovery is underway and the future promises little more than a global ‘peak oil’ challenge. For the uninitiated, ‘peak oil’ is not about exhaustion of oil - there is no geological shortage – but is the all about the economics of extracting it. At some point in the near future the energy costs of extracting oil will exceed the revenues that can be generated. It will simply become too expensive to buy it for running around in planes, trains and automobiles.              

A second is the speed of industrialisation in Asia and China. Although there are apparently inexhaustible supplies of cheap labour, unit costs are nonetheless still increasing. There may still be some way to go before the average Chinese or Indian industrial employee earns the same as his or her western counterpart, but that day will eventually come. A combination of nascent unions and western consumers becoming increasing interested in working conditions will hasten the day. ‘The Great Recession’ has also raised the spectre of protectionism across the globe. While actions are still isolated, the longer economic activity in western economies remains at a low ebb, the more likely that measures evolve from sporadic action into national policy.  

With cost savings as the dominant driver for trans-continental outsourcing, it will not be long before the combined effects of prohibitively expensive oil, the increasing unit costs of developing country labour and the influence of politically driven economic measures will start to have an impact. The oil factor alone has the potential to act as a globally disruptive force of change. The debate on ‘de-globalisation’ and ‘reverse outsourcing’ is waiting in the wings for an airing. Given the 20 – 25% decline in global investment in oil and gas infrastructure in the past couple of years and the inexorable annual increases in demand for oil from China and India, it will not be a long wait.  

So, if you are considering outsourcing to somewhere else in the world you may just want to think about the bigger picture. The numbers may look good today and it may well have been a successful initiative over the past ten years, but is it right for the next decade? Can you still afford to base decisions on micro-economic factors and ignore the mega-trends? A systemic mismatch between oil production and demand may be two or three years away or it could be 2020. But do you want to risk being on the wrong side of the pricing solution when that happens?

Unpublished article written in 2012  

Darwen Management Services

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