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George F. Colony

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Beyond the Gateway Recession: What CEOs Will Face Next

Posted: 05/19/09 06:18 PM ET

We'll look back on this recession as much more than an ugly economic moment. History will view it as The Gateway -- a portal connecting two very different eras.

When the economic clouds clear, many prevailing elites will have been swept away, organizational structures will have fallen, and many who were formerly in control will have lost power. Those who can speak digital will thrive, and those who cannot will finally get the message and retire.

The signs are everywhere. Post-Gateway players: Obama; Amazon; Zappos; Jet Blue; Twitter; Facebook; blogs; Craigslist; broadband; Wikipedia; DVRs and iTunes. Pre-Gateway: GM; the New York Times; the Republican party; shopping malls; print advertising; excessive executive pay; TV networks; boards of directors full of aging plutocrats; and the TV-centered Washington chattering classes. Like the US Civil War, which separated an agrarian society from an industrialized economy, or World War I -- a death knell for many European elites -- the Gateway Recession is exposing fundamental weaknesses in long-standing political, cultural, and economic institutions.

Here are the new challenges and rules that await CEOs on the other side of that door:

  1. Digital will be mandatory, not a choice. Pre-digital CEOs could get away with IT/BT (information technology/business technology) ignorance. No longer. Tech will be key to how you sell, connect to customers, become more efficient, and lower costs. Why is Amazon so powerful? Because it combines two old-world attributes, great customer service, and superb execution with a critical post-Gateway attribute -- digital. In the new world, CEOs of all stripes will have to have it all, in the mode of Amazon.
  2. Brand loyalty will be limited. For five years, Forrester has been tracking the precipitous decline in brand loyalty -- particularly for complex products like cars. Brands will afford only limited protection for your company in the new world -- because choice has been radically expanded. All brands are subject to consumer testing, discussion, disclosure, and transparency. You can no longer own your customer -- your customer will own you.
  3. Customers will look very unfamiliar. They will learn, play, work, and live differently than you or the customers you studied in business school. In the US, 18- to 27-year-olds spend 30% less time reading magazines and newspapers than 28- to 40-year-olds. They spend twice as much time playing digital games, 53% more time on cell phones, and twice the amount of time on social sites like Facebook. You may not like it, and you may not understand it, but your customer is being changed by technology -- and your customer will change your company.
  4. The war for people will be intense. It's a counterintuitive thought at this moment of high worldwide unemployment, but the post-Gateway era will be distinguished by a pitched battle for good people. Basic demographics are at work -- in the next eight years 35% of nurses and 40% of federal government workers will retire in the US. Already-low fertility rates in Europe will continue to fall. Yes, the baby boomers' kids will fill the gap but not for another 20 years. CEOs will fight for people on three fronts: 1) Attracting and winning the best and the brightest takes world-class offices and factories, the best internal technology, and truly compelling corporate purpose and values; 2) retaining the best workers takes a great corporate strategy, excellent leadership, and inspiring management; and finally 3) getting productivity from the limited workforce you have -- again, this loops back to nailing the technology imperative.
  5. You will sell differently. You used to advertise in the local newspaper, BusinessWeek, CNN, Le Monde, or the Wall Street Journal. Many of these channels won't survive in the new era -- because the new consumer won't pick them up or tune them in. You will have to reach customers in new ways -- blogs, Facebook, Google, Twitter, and whatever supersedes them.
  6. The way you innovated is dead. The era of black-box innovation has passed. Look to P&G for the new model. CEO A.G. Lafley searches for product ideas all over the world -- competitors, customers, China, and India -- then partners to bring the new innovation to market. The biggest change will be the involvement of customers in building your products -- a concept that I call "social sigma" (with apologies to Six Sigma). The idea is that the customer, through social technologies, will spec the new product -- that the customer will be an active participant in broad aspects of product development.

The forces of the recession will trigger many of these changes. But the end of the Gateway Recession will also usher in a new technology era. Tech and the Internet have been around for decades, so why is their impact felt post-recession? Because while technology changes quickly, people don't. It has taken 15 years of cultural fermentation, generational transitions, and habit breaking for society to catch up to what technology can do. Pre-Gateway, society wasn't ready. Post-Gateway, technology and human behavior will align to create a powerful brew.

Elites will die, but new ones will take their place. The Sulzbergers will fade from view, but the Brins and the Bezos will fill the void. New companies (and therefore new elites) will aggregate around three areas: 1) new healthcare; 2) new forms of energy; and 3) technology. As CEO, you'll have to drop your connections to the dying elites and figure out how to form connections with the emerging ones.