Most Impactful for the Next Three Years

This is a quick two-page rundown of six dynamics that we believe will have the largest impact from now through 2020.  We will provide a brief refresher on those dynamics and focus on their biggest implications. A Q-and-A session would best serve this subject.

The New Economy, Work and Stress

Stress and anxiety continue to develop at the workplace, and recently, the effects have been significant, ranging from addiction – to drugs or digital devices – to weak salary increases. Work once provided employees with purpose, meaning and well-being, and a few precious jobs still do.  But since the Great Recession, more and more jobs no longer provide any of that. The New Economy is changing work and the workplace, leaving employees to deal with the consequences. Employees are currently expressing four ways to deal with the stresses and anxieties that work (or the absence thereof) cause: Cope with It; Adjust to It; Fight for It; and Separate from It. As these kinds of changes in employee attitudes become more pronounced, employers are having to provide extras to keep employees engaged.

The Anxious American Life

Secular forces have helped create a New Economy in the United States - an economy with less job and income security and more wage and cost pressures than citizens had experienced in the past.  Meanwhile, the pervasiveness of digital technology and digital media have created additional sources of distraction and pressure.  These combined stressors have produced diffuse, long-term anxiety throughout American society.  This anxiety is driving some individuals to practice unhealthy and dangerous coping mechanisms; yet others have sought more healthy and sustainable ways to adjust their lives and soothe their anxiety.  Finally, some are going a step further, saying “enough is enough” and looking to change society in ways that would help reduce this pervasive anxiety.

Flashing Warning Lights

Every dynamic has a life cycle.  We call it, Riding The Wave.  And understanding where on the wave any dynamic is at a particular time, can be very helpful.  We have found that there are external characteristics which are very good indicators of how far along a change is in its lifecycle.  This, subject examines those indicators as they apply to the market’s cycle.  This view should give helpful guidance on avoiding the next downturn.

A Bumpy Road to a New Economy

The economy has many leaders, experts and economists confused, and it is confounding individuals and politicians as well. What most government and corporate leaders are missing is how to look at the economy. As we have written and discussed over the past two years, the American economy is heading toward a New Economy, and the many miscalculations and the extensive confusion are caused by the period of transition from the historical model to something new. Governments dedicated to lowering taxes are having to raise them; corporations focused on growth are having to dig deeper into efficiencies to realize profits; and individuals are turning to financial devices of their own to make ends meet. At present, the country’s models, processes and concepts are essentially out of line with the emerging set of conditions. 


Social and Consumer

Seeing What Others Don't: The Remarkable Ways We Gain Insight

After a new capability in warfare was evidenced by the British at the Battle of Taranto in November 1940, both the Japanese Admiral Yamamoto and the U.S. Admiral Stark recognized that torpedoes could be dropped from planes in shallow water and damage ships. They both alerted their respective military commands that such a new capability could be used to attack the American fleet in Pearl Harbor. The use and misuse of this insight by Japan and the U.S. illustrates how insights can be used effectively or not. Within the experiences of how those insights were used effectively or not, are several lessons to be learned.

A New Paradigm Takes Hold in Video Distribution

The days when consumers of television can be forced to purchase a content bundle that includes many unwanted channels are coming to an end.  While many consumers will still choose to receive their video content through large or skinny cable bundles, building a content lineup via à la carte subscription-video-on-demand (SVOD) and over-the-top (OTT) channels is now a legitimate option.  In the extremely competitive Battle for Consumer Time, content producers have recognized that the consumer is in control, and that in order to gain their attention providers are now offering consumers a proliferation of OTT options, including the ability to receive sports and news.  Additionally, platforms have been created to make viewing of OTT content easier, and advertisers are starting to get on board.  All of this is driving a new phase of video distribution. 

The Brilliance of the Brain's Nonconscious Capability: The Antithesis of Busyness and Creativity

Stresses in workplaces, stresses around societal issues and stresses over finances, all make for an anxious American life.  Digital devices cause anxiety, and social media’s ability to stimulate the user’s brain to issue dopamine when a positive result happens in a video game or Google search or any interaction make connections addictive.  Those kinds of issues are not going away, and individuals must find a way to balance between demands on their time and their minds and needs of their body and mind, including physical activity and quiet time.


It is during such quiet time that the brain turns to its Default Mode Network (DMN), which is sometimes called, pejoratively, daydreaming.   The DMN is part of the brain’s involuntary system – the part that operates heartbeats and breathing, among other things. The Default Mode operates without the control of the rational or voluntary part of the brain, and its deeper thoughts are where the “aha” moments of creativity come from. Understanding and utilizing this part of the brain goes against traditional negative perspectives about idleness. Yet it is an effective way to unleash the brain’s creativity.

Brands, Branding and Changing Market Dynamics

The terms “brand” and “branding” are getting more widely applied, creating confusion among consumers, who seem less and less interested in purchasing “overpriced” branded products. Thus, the rising appeal of private-label or store brands – which can be lower priced and are “good enough” for a busy consumer. With the advent of consumers armed with product information and reviews from pros and friends (and “friends”), online buying possibilities, store brand availability and the related decline in number and shrinking in size of retailers, brands face many challenges. Several old beliefs about brand names – Brand Names Sell Products, Brand Names Attract Consumers, Brand Names Enable Product Extensions and Brand Names Provide Stability – are proving harder to realize. In all, the function of a brand name is changing; its claim of superior quality is weakening; its higher prices are being challenged; new competitors are coming from everywhere; and its once stable place in the market is becoming less tenable.

On A Different Road To A Better Life

As we have written, Americans are passing over a bumpy road to the New Economy. That rough ride is making the road to what we have called a Better Life more attractive, but still bumpy for individuals. But individuals are, bit by bit, action by action, moving ahead in their transition from focusing on a Better Living, including resetting priorities and values to yield meaning, growth and happiness. They are making the transition by changing their behavior in a variety of ways and then changing their minds about the way they relate to the economy.


The Digitally Trained Consumer

Like automobiles before it, digital technology is creating its own reality - that is, digital tech is essentially training humans how to think, act, read, behave and experience life. The training is still ongoing, but its impact has already been widespread. From this point in time, we can see numerous things that digital tech has taught consumers, and they are causing challenges and forcing changes for any company wishing to attract those trained consumers. First, Distractions are appealing. Second, Impatience has become ingrained.  Third, Expectations are rising.  And finally, consumers get better at Resourcefulness.

Justifying the Human Element

Before the twenty-first century, having access to unique information was a major competitive advantage, but, in today’s digital world, information is so easily accessible that everyone is overloaded with it.  In this environment how do we create real insights?  Justifying the Human Element explores how to create an environment in which an organization and its people can generate insights and great results, and therefore “justify the human element” in an era of algorithms, AI and automated decision-making.  We explores how to choose the right people, how to create a process that emphasizes intelligence and how to employ disciplines that minimize distractions and provide room for insight generation on an individual and organizational level.

Society, Reason & Emotion: Decision-Making & The Brain In Today's Context

“Our point is not that people are ignorant.  It’s that people are more ignorant than they think they are.”  That is how psychologist Steven Sloman and cognitive scientist Philip Fernbach explain the results of their research.  Meanwhile, back in the 1950s, famed psychologist Leon Festinger described how individuals with convictions think:  “A man with a conviction is a hard man to change.  Tell him you disagree and he turns away.  Show him facts or figures and he questions your sources.  Appeal to logic and he fails to see your point.” Together these pieces of research provide insight into how humans deal with contemporary society with its widespread uncertainty and resulting anxiety.  The human brain does not like uncertainty, and so it seeks out information that confirms what it already believes (and issues a shot of dopamine when confirming information is found to make that belief feel good). When the mind has reached a decision, it does not want to change because such challenges are seen as threats to one’s personal identity.  These kinds of realities make decision-making more difficult to do objectively. We have some lessons learned that could guide the decision-maker interested in overcoming society’s and most people’s current biases…and ignorance. 

Americans Go Outdoors

As we have noted, various social, economic and technological problems are driving Americans to the brink of their sanity.  One way some Americans are “Coping with Today” is by destressing through participation in outdoor activities.  At a time when the lure of digital technology and especially video programming is quite strong, Americans are once more getting outdoors and the sales of equipment and services to take advantage of various outdoor activities are likely to continue to increase. 

The Rise Of The Next Grand Narrative

Like earlier grand narratives, the new one is emerging from current realities. The global growth of a huge middle class is putting pressure on some natural resources, a consequence of what we have called The Effects of Large Numbers.  More stresses on resources encourage a sharing economy, a clearer sense of what is necessary versus what is excess and a focus on less wasteful processes that are depleting both human and natural resources. Much of the effort being guided by the new grand narrative will be around repairing damage done during the prior grand narrative, and more and more efforts will be focused on enhancing personal, cultural and economic capabilities.  The new perspectives point toward values different from those expressed in the past.  The new values – Sustainability, Sufficiency, Interdependence and Empathy – do not speak of making things larger to make them better or of making more things to create a better society. Rather, these values speak of the long term, of limitations and innovation and of social interactivity, and of a more meaningful life as being better.

Coping With Today: Americans Seeking Sanity

A large swath of American society has been unable to fully participate in the economic recovery in this “New Economy”, and many have found themselves under a heightened pressure to perform.  Those stresses have combined with digital overload and a range of real and perceived conflicts in the world, to create a society that is “driven to the brink”. This society is experiencing higher rates of alcoholism, suicide, insomnia, mental health disorders and premature deaths among multiple age groups, education levels and income levels.  As a result, many are looking for coping mechanisms to restore their sanity.

Different Adulthood

In the years following the Great Recession, many have wondered when the “delayed adulthood” lifestyle would come to an end for the Millennial generation, assuming that a return to a “normal” economy would precipitate a return to “normal adulthood.”  Our observations suggest that the traditional markers of adulthood are changing, suggesting there won’t be a “delayed adulthood” but rather a “different adulthood,” and not just for Millennials.  Structurally, different economic realities have been a major driver of the changes in living arrangements, family make-up, and job preferences, but so is the move to an increasingly digital society which is altering the expectations and the responsibilities of adulthood. 


It's Not the Trade War: China Manages its Now and Later

The Chinese economy is tilting toward what some observers might call a recessionary slowdown but which market-centered critics might prefer to characterize as the imminent collapse of another centrally planned economy. One that many think will be made worse by a trade war.  Bad news about economic conditions has been surfacing regularly, from equity-market declines to declines in infrastructure spending. Beijing’s response, which started before discussions of a trade war, has been to reduce taxes, control off-balance-sheet lending and to alter bank regulations. If these actions fail to keep the economy at the targeted 6.5 percent growth rate, Beijing will try something else. Overall, the Chinese economy will be slowing down, as planned, but it is not headed for the oft-envisioned economic collapse.  While the Chinese domestic economy is slowing, Beijing is continuing with its long-term strategy. First, Chinese corporations are using their capital and making their moves into new markets around the world, and that means new markets geographically as well as new markets commercially; second, China has been making moves through its massive Silk Road Project;  and third, Beijing is working hard at expanding relationships with the countries of the world. As the United States is retreating from foreign obligations and pulling back from international leadership, China is becoming more assertive in pushing forward its international agenda.

China's Consumer Behavior Now

President Xi recently said that the Chinese economy has transformed from a phase of rapid growth to a stage of “high-quality development”.  Our intelligence suggests that the Chinese consumer is moving to a similar stage, with  an increasing number of Chinese consumers’ focusing their spending on quality of goods as well as things that improve their quality of life.  This context examines how the Chinese consumer, led by the young, are spending their money.

Washington Consensus and The Beijing Consensus: Managed Vs. Market Economies

The Beijing Consensus and the Washington Consensus remain two models for developing and expanding an economy. While the models have done each side well, their differences tend to trigger conflicts, as both sides claim the other side is unfair and unsustainable. The Beijing Consensus revolves around the idea: “manage.” More specifically, centralized governmental management. From such centralized decision-making comes a strategy to be pursued by private and public institutions, with plans laid out by the government. The Washington Consensus revolves around the idea: “free.” More specifically, freedom to let markets decide value. With that decentralized format, companies decide what they wish to do to excel in the market, as they don’t need to align with any national strategy. Lately, the Beijing Consensus has yielded some positive economic and geo-political results. How will those who support the “invisible hand” of the “efficient market” mount an international response?

Russia Goes After the World's Vulnerabilities

Russia has a strategy to enhance its image in the world and to expand its influence in a location it identifies as vulnerable.  That strategy involves identifying a vulnerability anywhere and then exploiting it to the Kremlin’s advantage.  This practically assures victory.  Russia has applied the strategy to its own domestic troubles, charging and imprisoning more dissenters recently to keep the citizenry feeling uneasy.  It entered the Middle East when the region seemed vulnerable to falling into a new era of chaos, asserted its military weight.  Russia utilized social media to confuse, anger and divide American voters, by using its own cyber-trolls to further the cause of a candidate the Kremlin preferred.  The odd thing about the strategy is it mirrors that of terrorists, who have always identified a vulnerability and then exploited it.  Terrorists are fighting an asymmetrical battle, they being less powerful than the entities they attack.  Is Russia admitting to a similar relationship of power?  Or are its actions clever judo moves?

Saudi Arabia, Iran and The Endgames In Syria and Against ISIS

Saudi Arabia, which has been frustrated for years by geo-politics in the Middle East has upped its rhetoric against Iran and radicals in the region and has targeted Qatar for its alleged sympathies toward Iran. The original “Saudi Trifecta” (2014), has returned some favorable results to Riyadh, but other objectives have not been realized.  A major objective was controlling the radicals in the region with the weapon of low oil prices used to incent Iran to cooperate.  The frustration from those shortcomings and antagonism over the Syrian conflict has moved the Saudis to narrow their focus to a renewed conflict with Iran, essentially restoking the ancient rivalry between Shia and Sunni Islam.  Resurrecting ancient rivalries now seems to be a way of making a play for the endgame in Syria and against ISIS.  Who will rule what in post-war Syria and Iraq?  Will there be a Shiite Islamic crescent from Bahrain, through Iran and Iraq, across Syria and into Lebanon?  The Saudis are rallying allies to put Iran on the defensive. The conflict could become hotter in the future.

The Digital Silk Road

The Belt and Road Initiative (a.k.a. the Silk Road Project) has created a whirl of activity along the land and sea routes that are combining under Chinese leadership to create an international marketplace.  Yet moving ahead of these massive infrastructure projects is another piece of the project, the Digital Silk Road.  This aspect of the larger initiative seeks to expand communications and networking across the Eurasian and African continents, all pointing toward one large, global online marketplace.  E-commerce drives the digital infrastructure buildout, which can move ahead via the Skip-a-Step routine much faster than the larger projects that require physical buildouts.  The Digital Silk Road has generated business and deal-making in three components: Systems and Networks; E-commerce; and Payments. 

What To Focus On, Now: The U.S., Russia and China Differ

We have discussed the issue of where individuals choose to place their attention and how that is their first decision; from that one decision, all others follow.  As a result, where to focus one’s attention and energy is critical because significant consequences will likely follow.  One of China’s principal focuses is on building out the Silk Road, and as a result, Beijing is changing international relations and local economies; One of Russia’s principal focuses is on making moves into geo-political arenas, and as a result, Moscow is changing political dynamics in several areas of the globe; a principal focus of leaders in the United States is on domestic politics, with attention to whatever international crisis interrupts, and a result, Washington, D.C., is disrupting domestic politics and changing international relations. These countries are focusing on what their leaders think will bring the most favorable outcomes for them, and as a result, international relations are being reshaped

It's Time To Examine India

India is a land of possibilities…and challenges. The country still suffers from extreme poverty, unbuilt infrastructure, and political and cultural disunion. However, the country, particularly under the nationalist leadership of Narendra Modi, is pursuing significant reforms in areas such as taxation, FDI, infrastructure investment, social welfare payments, and manufacturing that could greatly improve the economy of this young, large, optimistic population. India also has the benefit of being the regional “not-China” - a large country in Asia that other countries can partner with over their fears of China’s growing clout. 

Global Realignment Underway: The Appeal Of The New Autocrats

A new form of autocratic leadership is ascendant globally.  These leaders use strongman tactics to make quick bold decisions, which appeal to neighboring countries, while the global West remains mired in internal political struggles.  This autocratic leadership is realigning the world and undermining established institutions and international networks, while creating news patterns of friendship and cooperation.

China Building Out

One aspect of China’s long-term strategy is to “go out” and invest in both emerging markets and developed countries and purchase global strategic assets. Beijing continues to consolidate state-owned-enterprises to reduce oversupply while simultaneously pursuing the long-term Silk Road Strategy by deploying their sizable foreign reserves. These strategies will impact raw materials markets, basic industries and the growth of other emerging markets.  At the same time, China is investing domestically in innovation in order to develop new products and services to sell into the global marketplace.

(Update) China: The Low-Cost Innovation Center

China is in the process of moving beyond low-cost manufacturing and is becoming a global center of low-cost innovation due to an emphasis by Beijing on science, research and technology with deep pockets to back that up. Chinese research and technology labs are now creating lower costs for high-tech products and services and, in turn, making those products and services more accessible to global buyers, especially in other developing countries. This shift in emphasis is indicative of a broader transformation under way in the Chinese economy: to create more high-paying jobs that can fuel a growing consumer economy. At the same time, China is becoming a serious competitive threat to traditional centers of innovation and high-tech manufacturing.

(Update) China's Consumer Brand Strategy

Beijing has a clear plan for China’s next stage of economic development: generate a consumer-based economy, and help cultivate a cornucopia of indigenous Chinese brands that consumers will buy from.  As such brands ramp up their brands in China (and increasingly, internationally) Beijing appears to be creating intentional roadblocks for foreign brands operating in China.  Many such internationally renowned brands will have to reconsider whether it is worth doing business in China.


(Update) Augmented Reality

After the embarrassing “glasshole” market failure of Google Glass, augmented reality (AR) at the consumer level went into a swoon, lifted only by the mad swirl of activity around Pokémon Go. Even as Google seeks to reintroduce an improved Glass, Snapchat seeks a market for its Spectacles and other companies work the consumer market, a solid growth area for AR seems to have shifted to the industrial, or B2B, market. While companies in the consumer area look to create glass devices that will be “the next mobile computing platform” or some new entertainment medium, it is the corporate side where employee training, education and knowledge-transfer practices have started to spread.

Tracking 2.0: Monitoring and Surveillance

Digital capabilities continue to expand and grow more influential, and as a result, the digitized ability to monitor and surveil has expanded and grown as well.  Utilizing biometrics, the ability to track and monitor individuals is spreading globally with numerous contextual tailwinds driving the practice.

China's Race to the Front

As part of President Xi Jinping’s China Dream to orchestrate a “great rejuvenation” in China, the country is seeking to shift from being an innovation follower to an innovation leader.  To accomplish this goal, China is using a multi-pronged approach: increasing R&D spending; recruiting world-class scientists; incubating innovation labs; and, increasing publishing and patents in basic science.  Our observations suggest that, with a concerted effort, China is moving toward the global forefront in several technologies.  We have isolated five significant areas to explore: 5G telecommunications technology, satellite navigation, mobile payments, AI, and quantum computing.

Implications of the Proliferation of Voice-Controlled Technology

One aspect of the Artificial Intelligence context we have been discussing over the past 18 months is natural language processing.  While still very early, this technology is increasingly being utilized in software applications and new hardware. While there are still as many questions as there are answers, as we move to voice as a technology interface there will be many social implications as well as industry implications for consumer products, retail, advertising and hardware.  The move from web pages to mobile apps created many winners and losers and the move from text interfaces to voice interfaces may have the same kind of impact.


New Kids On The Block(Chain)

Blockchain, or distributed ledger technology (DLT), has become a major focus of financial institutions, corporations in general and the government. Institutions are joining consortia to develop standards and products, and they are already testing and deploying specific products based on DLT. They seem to be excited about the capability that made cryptocurrencies, such as bitcoin, possible. But their interests have little to do with the actual currencies and much to do with enabling better ways to complete transactions. The main motivators for moving ahead rapidly are efficiency, by which is meant a large money savings on transactions, and security, by which is meant easy and secure payment transfers. Regulators are meeting to discuss how to oversee this new capability, and competitors are starting to take to the field.

(Update) From Mobile-First To AI-First

In our original look at Artificial Intelligence (AI), we explored the scramble by companies such as Google, IBM, Facebook, and Baidu to develop an “AI First” strategy as AI capabilities quickly developed and redefined how people and machines interact.  Those capabilities can be categorized to include voice recognition, language processing, image recognition and pattern recognition.  In this first update to our AI topic, we explore how those capabilities are now being applied in various industries, including healthcare, finance, retail, defense, automotive, and media. 


Telemedicine Hits Its Stride: Healthcare and the Digitally Trained Consumer

As a whole, the healthcare industry is looking for ways to align with the Digitally Trained Consumer to deliver digitally enabled healthcare products and services. Operating in a highly regulated, high-cost, information-restricted, and deeply personal environment, this digital way of operating that transformed retail and other industries has been slower to restructure healthcare.  However, in recent months, a variety of providers, ranging from hospital networks to insurers to drug stores have ramped up ways that their operations can align with the traits of the Digitally Trained Consumer, in part to offer faster, more efficient, and more convenient access to healthcare products and services, through a variety of smartphone apps, omnichannel retail systems, online portals, and telemedicine/telehealth systems.

The New Business Model: The Customer Ecosystem

Alibaba, one of China’s largest enterprises, is currently involved in at least twelve different areas of business. From education to e-commerce, from finance to the cloud, from entertainment to logistics and from sports to tourism – Alibaba is spreading out horizontally.  While Alibaba and Amazon own companies that make things, they also both have marketplaces that enable other people and companies that make things to take advantage of their (Alibaba’s and Amazon’s) logistics and delivery mechanisms to market goods.   These companies and others like them are not just focused on a specific set of market relations; rather they are creating a new business model around ecosystems – that is networks of companies focused around consumers’ wants and needs.  These companies’ horizontal growth, as they jump into new industries and across traditional categories of enterprises, outmaneuvers traditional monopoly laws; yet their influence is enormous.

Tech in Retail: Automation and Robotics

As part of the industry’s Great Restructuring, retailers are increasingly utilizing automation software and robots in the manufacturing process, in logistics and in physical retail locations in order to align with the needs of the Digitally Trained Consumer, to cut labor costs and to improve margins.

Mainstreaming Cannabis

Last year, the state of Colorado took in $247 million in taxes and fees from the legal sales of marijuana, not enough to solve the state’s education-budget shortfall but a sizable chunk of change. Medical marijuana and cannabis-derived non-psychotropic products have been gaining more and more acceptance in more and more states...and countries.  What is the status of the legalization and assimilation of cannabis?  We will look at the building out of a cannabis-industrial infrastructure.

Video Games Grow Up: IF Diagnosis Process + Update

Since our initial 2015 inFocus on the topic, the cultural relevance of video games has continued to grow, as has the popularity of e-sports. E-sports are also gaining more media attention, investment and interest from traditional sports-related organizations and colleges. Many of the companies involved appear to be experimenting with how to make money from this growing popularity and interest. Companies that are successful in those experiments and can figure out how to profit from the growth in e-sports will have significant tailwinds.  As part of this update, we look back at how we diagnosed this context in 2015, as a lens for understanding the Inferential Focus research discipline.

Tech in Retail: Experimentation on the Way to a New Paradigm

In any Great Restructuring, an industry must let go of old thinking and adopt widespread experimentation.  An industry changes how it relates to its customers and then restructure operations, products and services to align with new economic, digital and social realities. While many experiments fail, the ones that do work begin to form new industry paradigms. In the retail industry, the seamless integration of technology in physical retail is proving to be one of the new paradigms.  The best seamless integration of technology helps align retailers with the digitally trained consumers’ desire for novelty, convenience, speed and personalization while also allowing the companies to make more informed decisions.   An increasing number of retailers are using technology, and often the data that is gathered by it, informs marketing, product, inventory and pricing decisions. 


(Update) Digital on Defense

In our first look on the rising scrutiny of digital media in late 2017, we looked at how industry insiders, academic researchers, and regulators were raising critical questions about the role of digital media: on the teenage brain, on general human well being, on democracy, on productivity, and the like.   Now in this update, we observe a crescendo of concern coming from additional quarters:  leaders of related technology companies, major advertisers, and institutional investors are all pressing for reforms of digital media, which in turn is leading some of the digital media platform companies to themselves propose and try adjustments to their algorithms and business models.  Meanwhile, the public themselves appear to be questioning their use of some of these technologies, and for the first time, making adjustments to their use.  This fast moving dynamic suggests potential risks for the previously can-do-no-wrong digital platforms. 

The Rise of EVs

The auto industry, already dealing with numerous secular changes, now has another significant shift to deal with., electric vehicles.  Nations across the globe are adopting requirements for hybrids and full-electric vehicles and with sales likely to increase substantially over the next few years, there are many implications for auto companies, auto suppliers, and the makers of batteries and components, among others.


(Update) The Great Distribution Experiment

It has been four years since our inFocus,  “Retail Restructuring: The Great Distribution Experiment,” and companies are still trying to figure out the best and fastest ways to get packages into the hands of customers.  This update contains new examples of how retailers are trying to respond to current consumer demand to receive their items how, when and where they want it, with implications for retailers, distributors, warehouses and technology providers.

Restructuring Hollywood

Like many before it, the movie industry is facing a restructuring.  Streaming video has created its own reality that along with changing consumer behavior and preferences, is forcing the movie industry to rethink its operations. The Battle for Consumer Time is negatively impacting movie theater attendance while consumers’ preference for Access over Assets will continue to increase the streaming of movies and other entertainment.  Movie studios appear to recognize some structural changes taking place, but adjusting to new realities is challenging and will take time. Other established players in the ecosystem, such as movie theaters, also need to recognize the changes and find new models and sources of revenue.

Restructuring the Grocery Business

Like many other industries, the grocery and home-food market is undergoing a restructuring as more and more companies are trying to grab a share of $727 billion that U.S. consumers spend on food for consumption in the home. How does a company stand out among the 38,000 grocery stores, meal-kit start-ups that have drawn $650 million in venture capital over the last four years, dollar stores, big-box retailers and online retailing giants that all attempting to grab a larger share of consumers’ grocery dollars? The companies that are best able to offer what consumers value – Restraint, Simplicity, Connectivity and Experience – will be the ones to succeed in the grocery and home-food market. Bankruptcy and consolidation will await many others.

(Update) Cyclical & Secular Of Autos

The auto industry is facing two different realities, one cyclical and one secular.  The industry posted record sales numbers in 2015, but a closer inspection of leasing terms and delinquency rates in 2016 forewarned a turning point in the U.S. auto market that has now come to pass.  Those realities are continuing in 2017 and suggest ongoing cyclical weakness.  At the same time, car companies have decided that "the writing is on the wall," changes in driving habits are secular, and they will need to adjust business models and product lines accordingly.  In an attempt to not be disrupted like many entrenched companies in other industries, the big global auto makers are heavily investing in both transportation services (offering access over assets) and in-car technology, including autonomous and semi-autonomous driving features.

(Update) Disruption in the Financial Sector Disrupted (Death By 1,000 Cuts)

In a 2014 inFocus we noted that: "Technological change is coming to the financial sector at the same time that regulators are cracking down, and social and demographic changes are highlighting secular shifts in what consumers want and, indeed, expect from their financial institutions."  In the two years since that inFocus, financial institutions have acknowledged their new competitors and noticed the success of products and services coming out of the fintech arena.  This update examines the financial industry's reactions, including buying or forming partnerships with fintech companies or simply imitating them and offering similar services.  

In Search Of The Next Grand Narrative: Companies Seek To Do Good

The U.S. has been in search of its next Grand Narrative, a shared story or theme about what our society stands for and how to pursue it.  As individuals continue rethinking their priorities and principals in search of this next Grand Narrative, some of them are taking the results of their reflection and applying them to the companies they run.  Managements at companies are posing questions about how those businesses can “do good” in the world, even when those actions might not maximize profit.  Stakeholders, including customers, employees, community, and vulnerable groups in society, are getting more credence.

(Update) Military Arms For Image and Profit

Gunboat diplomacy has evolved into the Propaganda of Power. The nineteenth-century practice of deploying advanced naval power to coerce lesser-powered countries to yield to the wishes of an imperial power has shape-shifted into a twenty-first century practice of using superior air and sea capabilities to threaten the sovereignty and security of lesser-powered countries for the purpose of triggering fear. Russia and China have become adept at this new iteration of public displays of power. Such practices have enlivened the arms market, as countries deploying the Propaganda of Power seek to increase their image of menace by increasing their weaponry and as the countries that are feeling the brunt of that power propaganda increase military spending to defend themselves. Curiously enough, this focus on current military weaponry, while both necessary and heretofore effective, has the feel of being out of date, as new weapons move up the list of priorities and change the very concept of a battlefield. The turn to cyber and digitized weapons will expand the range of the arms market and bring new players into the industry

Energy and Resources

(Update 3) Energy Industry Restructuring

Political actions in the United States have raised the question: Is the growth of renewable energy generation sustainable?  Our observations suggest that, like the oil price drop from 2014 to 2016, these political hurdles will not slow down the renewables revolution. The restructuring of energy sources continues unabated thanks to several events and strategies. In the U.S., most of the jobs created by and electricity generated by renewables are located in the so-called “red states.”  Further, installations and components are more efficient, while new efficiency technologies have resulted in larger and more productive U.S. installations. The shift to greater reliance on renewable energy also includes transmission and energy storage buildout. Meanwhile, renewable energy generation is growing globally, from offshore wind in Europe, to the large, and energy-hungry countries of China, India and even Saudi Arabia.  This renewables revolution, combined with an ongoing focus on energy efficiency and a Chinese-led shift to electric vehicles, will create growth challenges for the “old” hydrocarbon sources of energy. 

Evergreens and One-Offs

(Update) The Great Restructuring: Society Moves Ahead in the Process of Rethinking Everything

The military and other institutions that are participating in what we are calling The Great Restructuring are following a three-stage process for change identified by physicist Thomas S. Kuhn over 50 years ago; normalcy, an era of accepted wisdom; crisis and experimentation, an era in which too many anomalies make accepted wisdom no longer effective and in which new ideas and methods start circulating; and then, a new effective structure emerges.  We see this process starting in education, media, publishing, retail, advertising, brand marketing and management around shareholder value.


Water: Problems & Solutions

Extreme weather, the agricultural Effects of Large numbers, aging public infrastructure and increased energy production have wreaked havoc with U.S. water supplies.  Problems are now being recognized publicly and major efforts are underway to fund more resilient infrastructure and build smart(er) systems of water use.  In addition, the public controversies over water use and contamination during the process of hydraulic fracturing are creating opportunities for companies that treat fracking water for reuse.  Those entities that can protect, extend and reproduce usable water supplies will be valued for years to come.


Skip A Step

Our observations suggest that there are many ways developing economies might skip, bypass and avoid developmental stages that are historically associated with becoming a modern industrialized economy. Assumptions about what tools, infrastructure, services and capital a country will need to move from “developing” to “developed” should be rethought. 

Data Arms Race 2.0

The capabilities of "Big Data" are fast moving beyond the most obvious uses in sales, retail marketing and targeted advertising.  Data scientists are increasingly applying their techniques to a variety of new sources of information.  Applying algorithms and insight to such data, applications of the Data Arms Race are increasingly emerging for government management, higher education, healthcare and research, risk and actuarial calculations, fraud detection, agribusiness, human understanding of complex systems, and even insight into human psychology and sociology.

Intelligence, Diagnosis and Effective Decision Making

New digital media communications get shorter and shorter, moving from Web pages and blogs to text messaging and Twitter posts.  Those shorter communications technologies along with all digital technology are reprogramming the human brain.  New-media adopters have found it easy to place three barriers between themselves and those who would like to communicate with them: Receptivity, Selectivity and Connectivity. To overcome these barriers, anyone wishing to communicate with the digitally adept must focus on these users’ minds first and then think about the technology, which may be uncomfortable for advertisers and agencies.

Sensing and Tracking Everything: The Primary Tool of the Data Arms Race

Cheap sensors and other technologies are enabling the capability of tracking seemingly everything.  Machines can be made "aware" of their surroundings, and companies can track everything from worker productivity to customer behavior.  The capabilities are ramping up quickly and will have varied effects, including displacing workers, reducing fraud and increasing operational efficiency.

Identity & Decision Making In The Digital Age

New digital media communications get shorter and shorter, moving from Web pages and blogs to text messaging and Twitter posts.  Those shorter communications along with all digital technology are reprogramming the human brain.  New-media adopters have placed three barriers between themselves and those who would like to communicate with them: Receptivity, Selectivity and Connectivity. To overcome these barriers, anyone wishing to communicate with the digitally adept must focus on these users’ minds first and then think about the technology, which may be uncomfortable for advertisers and agencies.

The Effects of Large Numbers

Pressures on supply and pricing increases for commodities, energy, food, and even water are the product of secular increases in demand, one of the Effects of Large Numbers.  The steady increase in standards of living among once fairly poor countries have created new middle classes worldwide, which are creating these rapid demand increases.  The pressures caused by these types of price increases, especially in the food sector, became too much for a number of Middle East countries, where an unusually large demographic bulge of youth under the age of 26 created another kind of large-number stress.  These issues triggered revolutions and massive protests.  Elsewhere, governments are falling, and new elections promise changes as well.  We have not seen the end to the Effects of Large Numbers.

Unaddressed Consequences: The Risks of Not Following Cause & Effect to the End of Linked Systems

This context raises the issue of elevated risks derived from interlinking complex systems with other complex systems.  The human mind wants to make things easy and simple, and so, those in control of these systems often launch projects with an eye only on short-term benefits, choosing not to focus on the more difficult yet possibly more costly long-term consequences.  “Who could have known that…” or “I was not aware that…” are usually later public comments.  They are, so to speak, living with technological and financial changes without fully embracing the range of consequences.

Client Quote

"Inferential Focus' ideas and thoughts are unique, non-traditional; not your typical front page thoughts."

Ed Antoian

Partner, Senior Portfolio Manager
Chartwell Investment Partners

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