Why a slowing US economy my help to boost productivity again

News categories: Enterprise and business strategy, new business-to-business (B2B) models, digitizing the New Economy enterprise

The recent US GDP revision from 2.7% to 2.4% - compared with 4.6% and 5.6% growth in Q1 and Q2, respectively – make it clear, that the US economy is slowing down. But this may not be all bad.

As slower revenue growth affects profits, finding new ways to preserve these profits in a tighter market environment becomes tantamount, since, as even Internet investors are being reminded, the goal of business is to make money. Usual tactics of the past to achieve this goal, like laying off employees, cut salaries, slow the pace of new hires etc., may not be the right solution in a New Economy, which is founded on intangible assets like human capital, allowing the one, who can dispose of the best talent in industry, to get a head start before others and ride the wave of a new technology and new markets, leaving others behind and force them into a merger or let them vanish at all. The problem with this type of solutions is that they are short-term fixes that typically do not create long-term value. A more preferred path to profit preservation may be automation and streamlined business processes.

Analysts and consultants all agree, that there is a huge opportunity for cutting costs, reducing working capital and fixed assets and increasing market share and revenue in moving to new E-Business models, which are founded on business processes that cut across the borders of the company. Powered by new B2B software applications, totally new transaction and collaborative performance management processes can be designed. They let information directly flow from one company to the other and trigger immediate transactions, thus eliminating the need to keep for examples large inventories, because the transparency you get through a vendor management inventory process and systems, will enable you to know exactly, when your customers needs a new delivery of raw materials or services. Experts estimate, that a New Economy business based on these concepts can generate, compared to an old economy business, enough additional value to boost market cap to up to 8 times higher than the one from a old economy business which is operating under similar market conditions as the New Economy business (this are based on a generic case described in the “book of the month” from November 2000: “Meta-Capitalism” by Grady Means and David Schneider).

Why does this matter when we talk about the forthcoming economic slow down in the US ?

After the US recession during 1990-1991, we saw an explosion in spendings for streamlining business processes under the term of “business process reengineering” and for ERP systems, giving companies better tools to manager data and support such new business processes. Productivity as a result of these systems increased dramatically as these systems enhanced planning and procurement, inventory, and logistics management. Now we have a similar situation. A new breed of enterprise solutions, such as the mySAP solutions for customer relationship management, supply chain management, financials, human resource management and product live cycle management, are taking these prior improvements and raising them to new levels by leveraging the Internet to streamline intra- and intercompany communications and transactions.

As the economy slows, such E-Business products will be the CEO’s vehicles of choice to drive efficiency throughout their businesses and bolster bottom-line performance in a weaker top-line environment. The cost associated with doing business as usual will become a competitive disadvantage. Companies that do not embrace new E-Business solutions will pay a price in an increasingly competitive marketplace in the midst of an economic slowdown. And as the US economy is the leader for all other economies, we will see this development spreading out globally, affecting all other national economies as well and boosting – hopefully – business performance and the overall world economy again in the next years to come.

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