It’s the Demography, Stupid!: Six Reasons Why Global Birth Rates Will Force Innovation Efficiency on Your Company
The sputtering economy is, in part, a symptom of a greater problem—a tectonic shift in global demographics. This shift may change consumers’ consumption and saving behaviors for years.
These changes open up new opportunities for companies that can learn and adapt most efficiently.
Here are six things you should know…
1. Declining birthrates are eroding the economies of developed nations. Their deleterious effects will likely be with us for a long time.
Reputable demographers and economists with the WCF, tell us, “The population of the world, particularly in developing countries, is aging. The baby-boom generation is reaching retirement and will need to be supported by the generations that succeeded them, all of which have had fewer and fewer children. This means fewer and fewer workers paying into the social security, medical and welfare systems of the world. Economies will be strained and governments will slow bleed as relative production dwindles and tax revenues decrease.”
Last month’s media coverage of worker protests in Greece might leave us to believe that the cause was the Greek parliament’s reigning in liberal social welfare programs. But, Greece’s fiscal math worked before. Not anymore.
The birthrate required to sustain population equilibrium is 2.1 children per woman in Europe. Greece’s birthrate had been declining for years. As of 2004, the Greece’s birthrate was 1.3. Today, there are too few younger workers to pay for the social security of Greece’s retirees.
Similar problems plague Spain (with a birthrate of 1.3), Italy (1.3) Germany (1.4), Netherlands (1.7), Norway (1.8), France (1.9) and Ireland (2.0). In Russia, the birth rate is so low that the government is paying women to have more children. According to the WCF, Russia is expected to lose one-third of its current population by 2050.
Japan is facing similar demographic imbalances and economic challenges. According to a market update circulated by Charles Schwab last week, “The problem in Japan is that “cheap money” hasn’t stimulated demand, a liquidity trap exacerbated by an aging population that’s shifting away from consumption.”
Similar challenges exist in the United States, though they are somewhat ameliorated by influx of immigrants, particularly immigrating women, who bear more children on average than women born in the U.S.
2. Deflation is a risk in developed markets.
Schwab’s update continues, “The weight of deflation is also a factor. Consumers believe that prices could be lower in the future, providing little reason to consume or invest today, so economic activity gets delayed. Lower demand results in a drop in production, job cuts and wage decreases, resulting in a reinforcing and detrimental cycle. Global economic growth is slowing, and with the threat of a double-dip recession in Europe amid fiscal austerity, there’s increased potential for deflation, not inflation, for most of the developed world.”
3. As a result, consumers say they are reverting to post-World War II spending and savings patterns.
Recent McKinsey&Company research shows that 90% of U.S. consumers 36 to 65 years old with incomes of $25K to $100K say they are reducing spending. The personal savings rate, which was zero in 2008, climbed to nearly 6% of disposable income in 2009, approaching the 9% savings rate of the post-World War II era.
Less than half of surveyed U.S. consumers believe the stock market will outpace inflation over the next 30 years. Eighty-five percent of consumers ages 36 to 45 believe that it won’t.
Unlike recent business cycles, this downturn appears to be leveling off at range of economic activity that will remain with us for the long haul. Consumers and business leaders looking for help from financial services institutions and governments are finding them bereft of solutions.
4. The future favors companies that efficiently learn and adapt more efficiently in response to customers’ new savings and spending habits.
Learning and adapting sound simple. However, most companies fail to integrate the components of learning–data collection, analysis, knowledge sharing–with the components of adapting–planning and managing change.
5. Change management skills are required to get organizations to adapt more quickly, but change management is a blind spot for most CMOs.
This is where there is plenty of opportunity for improvement.
“CEOs and CMOs agree that the formula for success involves leading innovation, improving marketing’s alignment with the rest of the organization, business strategy and marketing execution. Yet, both CEOs and CMOs agree that marketing is not as effective as it can be,” according to a report by executive recruiting firm, Spencer-Stuart.
6. As we reported in our 2009 white paper, “Bridging the Research-Innovation Gap,” (downloadable from our home page) most companies’ learning and adapting processes are quaint and inefficient.
Companies are attempting to learn and adapt via assembly-line management practices conceived at the turn of the last century. Potentially valuable customer insights are thrown over marketing’s silo wall to next-in-line executives who either don’t understand them, don’t believe them, don’t remember them or are unwilling to use them.
Hundreds of executives and marketing researchers have read our white paper and support our conclusions, which specify 11 ways to bridge the research-innovation gap. The U.S. Department of Commerce cites our paper as recommended reading for U.S. business leaders.
With businesses and consumers becoming more budget and value consciousness, demand will likely continue to shift toward companies that operate more efficiently.
That applies to innovating more efficiently, too.
Over the last ten years, Whyze Group has helped dozens of top companies innovate more efficiently. We integrate customer experience research, design and change management to enhance the innovativeness and performance of companies with which we work.
- Customer experience research surfaces the influences of someone’s experiences, memories, goals, mental models, perceptions and emotions on their behaviors around brands and products. This understanding of ‘the person’, who has a life beyond the limiting role of ‘customer’, helps us more accurately anticipate how people are going to respond to specific new product and service ideas.
- Customer experience design uses a workshop approach to designing advertisements, sales processes, products and services, packages and post-purchase events that deliver experiences customers deem worthy of rewarding with their loyalty and referrals.
- Change management is applied in creating leadership alignment around what leaders believe and need to learn about the customer experience. Change management is integral in implementing organizational changes needed to deliver the intended customer experience.
Jason M. Sherman is president of Cleveland-based, Whyze Group. Whyze Group provides qualitative, customer- and user-experience research and innovation workshops to Global 2000 clients. The company has been recognized by the Baldrige National Quality Program, business associations and numerous business media as a leader in research and innovation.
Jason direct: (440) 785-0547.
Add comment July 8th, 2010