This week my colleague Ken McGee pointed out an article in the Wall Street Journal that provides more evidence of the end of the great BRICS story. Western business belief in BRICS as the big growth gold rush, has been a dominant feature of the corporate strategy landscape for a decade or so. That has distracted a lot of mindshare and money away from the strategic use of IT for innovation.
Driven by Moore’s law progress rates, IT in all its forms, has for decades been a powerful tool for business innovation. However, to want value from that force, genuine innovation needs to be high up your corporate growth agenda. Despite every CEO’s protestation that they value innovation, there are often easier ways to make money. BRICS has been a great example. Why take risks inventing new things or new ways to do things – if you can just do a lot more of the same thing, but in China? If China builds more cities and every city needs fast food outlets / mains water pumping systems / traffic lights / buses / insurance – lets just make a China adapted cookie cutter version of what we already know – and replicate, to make some money. Alternatively, lets transplant the same method of production to India, where labor is cheaper and use the saving to reduce prices and increase the size of our market. Simple, and rewarding growth – without new management science or new computer science.
Of course surfing the BRICS play is not the only “innovation-less” strategy path to growth. Consolidating parts of an industry by serial M&A is a good traditional alternative to significant innovation. Another is smart refinancing. In recent times larger corporations have been issuing a lot more bonds, which they often use for stock buy-backs that in turn pump up share prices – providing a good capital return to shareholders. Ratings agency Fitch points out that US Industrial company bond issues “now total $3.2 trillion, up from $2.2 trillion at the end of 2009“. However, the reason that corporate bond issuing play has been working so well is mostly because governments are suppressing interest rates on their own bonds artificially low. And though the cheap money is also available for a possible M&A war chest, the fact is stock prices have risen considerably over the last 2 years.
So the BRICS are slowing, the bond issuing play will become less attractive as central banks start tapering and interest rates gradually start to rise, and good M&A targets may not be priced cheap enough to make them an easy and obvious win for skeptical shareholders.
Under these conditions, CEOs and boards will need to look for alternative growth strategies. Deeper innovation of products, services, business models and operating models might start looking like a stronger alternative, despite the complexity and risk. It’s been long time since business leaders invested deeply in technology enabled growth strategies – the last time we saw something like 10% average IT budget increases was 2001.
There’s nothing a farmer likes to see more than a long-time fallow field that is ready to be seeded. Right now, digital business looks like that kind of field. The soil is choc full of new nutrients – mobile, social, cloud, big data and the internet of things. Meanwhile some of the growth plans in the over-used ”undigital” strategy fields are starting to look distinctly wilted.
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