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Tuesday, 20 May 2008

The “Nice Decade” – was anybody listening?

Last week saw the media pick up on the statement from Mervyn King the Governor of the bank of England that the “Nice Decade” was over and something altogether nastier is now upon us. Significant column inches were devoted to comment and analysis of the Governor’s remarks, including multiple attempts to come up with four words starting with letters that spelt out the word for the economic brown stuff we are now in.

However amongst all the words that were written and broadcast on this subject I can find no mention of the fact that Mervyn King first warned us about the “Nice Decade” coming to an end in October 2003! He said the same in a speech in Leicester four and half years ago as he said last week, but this time with the benefit of hindsight, on risk, asset prices, oil prices etc. He was also too polite to say “told you so”.

In spite of the fact that this man is paid to give us these warnings and that he did so in plenty of time, clearly nobody listened first time round. Government didn’t, banks didn’t, the FSA certainly didn’t, consumers didn’t and many business leaders didn’t. This is in spite of the fact that history shows us that a “Nice Decade” is an aberration, a highly unusual and temporary occurrence and therefore could not possibly last. The current level of economic and business challenge is actually closer to normal conditions; it’s just the nature and causes of the challenge that differ.

Why didn’t they listen? Can it be just explained away as a natural human trait that does not want to hear bad news and in the good times finds it easy to forget the hard times? Or is it the combination of short termism and herd instinct in financial markets? Whilst these have an influence we believe that the root cause is conventional thinking in finance, business, economics and in government. If the thinking does not change, then decisions and action will not change and results will be no more than what you deserve.

Applying our Competitive Strength perspective we can see that those few organisations who have achieved the Competitive Strength condition we call “Free” think very differently to the rest. This is why Warren Buffett enters the downturn with billions of dollars available to make acquisitions whilst the UK government’s coffers are empty. One aspect of this different thinking is that “Free” organisations always expect the unexpected and continuously improve their organisational competence and agility. This “Changeability” is at such a high level that they can respond to both positive and adverse circumstances as they happen, taking maximum advantage of both.

The Competitive Strength point of view shows that the deep seated managerial and behavioural values and competences of a business are the main differentiator of whether over time they will substantially outperform their competitors and successfully withstand unpleasant surprises. Yet this is not conventional thinking. This is not how analysts study performance and share values to make their recommendations, this is not how companies and their advisors evaluate the potential of a merger or acquisition and it is certainly not how government makes and attempts to implement economic policy.

This is just not good enough, as we are now finding out. Applying yesterday’s thinking to the challenges of today and tomorrow is not going to work, whether this is about dealing with the effects of the credit crunch, entering new markets, finding and keeping the skills you need or any of the many challenges we all face. For more insights into why Competitive Strength is such a key factor for business, the economy and even for our ability to tackle global challenges such as climate change please look at the Competitive Strength Report website– and the ChangeWORLD website