Growth Strategies in a Highly Disruptive World

This article was published in BW Businessworld issue dated 'April 2, 2017' with cover story titled 'India’s Fastest Growing Companies 2017'

Extreme automation refers to such rapid pace of automation that for the first time in history, more jobs are getting destroyed by automation than those getting created by automation

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30March, 2017by Dr Jaijit Bhattacharya

Companies have always been operating in a disruptive world, and those who could manage the disruptions, have survived, while others have folded up in the sands of time.

The oldest companies to survive are from Japan, with Kongo Gumi topping the list as it dates back to 578 AD (it continues as a subsidiary of Takamatsu Construction Group from 2006). Clearly, it indicates that relative political stability is a necessary requirement for survival and growth of companies. However, that is not a sufficient requirements, as is shown by a litany of firms that have closed down and gone off the collective memories of people.

But the disruptions that companies face now in the 21^st century, are qualitatively and from an impact perspective, significantly different from anything that companies ever faced previously. Which is why, in the turn of this century, one of the oldest independent companies in the world, Kongo Gumi, had to finally become a subsidiary to another company, after roughly 1500 years of existence. We will be witnessing one of the largest mass extinctions of current companies, as the next two decades roll in. The reason for such a large mass extinction of companies would be their inability to be able to survive and grow in the rapidly changing global business scenario.

So what is fuelling this rapid change in the business environment? Fundamentally, there are five forces that are driving this change – (a) Extreme Automation, (b) Changing demographics, (c) Changing geo-political landscape, (d) Simultaneous playing out of protectionism and globalization and (e) Regulatory response of the government.

Extreme Automation refers to such rapid pace of automation that for the first time in history, more jobs are getting destroyed by automation than those getting created by automation. This is in turn driving social unrest, such as Jat agitation, anti-globalization sit-in’s, movement against exiting from trading blocs such as the European Union, riots in China etc. Politicians are responding to this challenge by identifying different root causes for the social unrest, leading to new trade policies such as the evolution of a new economic philosophy of the US government, popularly referred to as Trump economics, UK’s exit for the European Union, popularly referred to as BREXIT, anti-immigration policies of a host of countries and so on.

Extreme Automation is also forcing governments and economists to think of new ways of redistributing wealth as jobs become scarce and the economy could come to a grinding halt of demand evaporates due to joblessness. Hence concepts such as Universal Basic Income (UBI) are being considered, which would also imply different kinds of taxation systems evolving.

And of course, Extreme Automation will also threaten existing business models, completely wiping out some businesses (such as camera, watch and music devices companies getting threatened by smartphones and hence needing to reinvent themselves) or significantly reducing the number of players in those businesses (such as number of trucking companies reducing due to autonomic computing, as it may tend to push the market towards consolidation).

The issue of Extreme Automation will get compounded by changing demographics. Some nations, such as India, have over 50 percent of its population below the age of 25. With jobs reducing due to Extreme Automation, such countries and businesses in these countries, will face significant challenges. Some nations such as Japan, have roughly 35% of the population above the age of 65, with a predicted rapid increase in the geriatric population. This would fuel the demand for automation that supports the geriatric industry, such as supporting robots, autonomous healthcare systems etc. It would also eventually see large scale migration of workers from countries that have excess trained workers to countries that do not have sufficient trained workers, in the backdrop of xenophobia and anti-immigration laws. The scenario would be, to say the least, very complex.

From a business perspective, businesses would have to cater to a burgeoning population of millennials, who have very different requirements, and also a burgeoning population of possibly rich retired people, that would have a very different demand and requirements.

Such rapid changes globally, juxtaposed with perceptions in various pockets of the world that their people have been given a raw deal in the post-colonial era (or as some would refer to it as the neo-colonial era), with a savage competition for control of resources, has led to very severe geopolitical issues and challenges. This has also led to the rise of terrorism and asymmetric conflicts. Such asymmetric conflicts has been further exacerbated by cyber conflicts, which is being leveraged by both powerful nations as well as by individual teens, sitting out of attics.

These geopolitical changes are impacting businesses, increasing their cost of doing business by increasing cost of safety, security, business process continuity investments and cybersecurity for themselves and their clients/customers. It has also increased the cost of managing liability.

Such changes are forcing a simultaneous playing out of globalization and protectionism. Globalization is happening beyond the control of governments, with free flow of ideas, concepts, business models etc, driven by ever increasing communications connectivity, road and rail connectivity, airways connectivity and regular shipping and coastal shipping connectivity, alongwith banking, finance, gas grid and electricity grid connectivities. This has led to ever increasing migration, which has been accelerated due to conflicts in certain areas, as well as ever increasing attempts to legally reduce taxation burdens by leveraging the tax regulations various countries in an era of global production and supply chain. As a response, governments have been clamping down on immigration and bringing up protectionist walls in an attempt to reverse globalization, primarily with an objective to keep jobs for their nationals and to shore up their tax revenues.

The above forces of Extreme Automation, Changing Demographics and Changing geopolitical landscape and Simultaneous playing out of globalisation and localization, has led governments to react with a spectrum of regulatory measures. These measures are not limited to immigration, but extends into tax measures such as regulations on Base Erosion Profit Sharing (BEPS), Place of Effective Management (POEM), General Anti-avoidance Rules (GAAR). The regulatory responses also appear to extend into areas such as reservations in the private sector. It would also include economic policies on wealth redistribution such as Direct Benefit Transfer (DBT) or Universal Basic Income (UBI). There would also be regulatory challenges around new technologies such as liability identification for autonomic driving, taxation entity in terms of home based 3D printing etc. Governments are also bringing in regulations from a security perspective, such as but not limited to, preventing travellers flying through certain destinations, to not carry electronic items.

Now that the expected nature of disruptions are somewhat identified, it now brings us to what companies should be doing to address these disruptions and manage growth.

The first mantra is, paraphrasing a quote from Mahatma Gandhi, Be the Disruption that you want to address. Companies need to evolve need organizational structures to be able to creation an organization that continually works on innovation and disruption, while scanning potential disruptions while they are at an infantile stage.

The second mantra is to leverage disruptions. Every disruption is an opportunity to have disproportionate growth, as long as you are one of the first to identify and act on the disruption. Established companies have the advantage of relatively deeper pockets and a stable organization, as compared to startups, and are hence in a better position to be able to implement a disruptive idea.

The third and last mantra is to have an effective Regulatory Strategy that helps the companies work in alignment with the government’s policies and regulations, creating synergies that contributes to national priorities while generating sustainable profits. It would be impossible to address the mindboggling hurricane of challenges that this article touches upon, without all stakeholders of the economy and the society working together. Companies must take the first step towards an effective Regulatory Strategy that is crafted from the foreseeable challenges, and has a detailed action plan to implement the same.

The fourth and last mantra, is to have a detailed, 360 degree risk management strategy, that addresses legal & taxation liabilities, changing geopolitics, changing national and international regulations, changing user preference, changing definition of markets, products and services and of changing international dynamics.

However, the above mantras are only necessary conditions for survival and growth in the highly disruptive world. What would be required is to have the best of talent to steer a company through the choppy waters ahead. And hence, talent and leadership cannot be overemphasized as a critical requirement for managing growth in a highly disruptive world.

This article was published in BW Businessworld issue dated 'April 2, 2017' with cover story titled 'India’s Fastest Growing Companies 2017'

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.