Seven trends that could make or break your business

Written by Rick Spence

We live in a time of unbridled change. Computers are taking us in bold directions never foreseen — in business, communication and society — even as marauding viruses and spyware threaten almost every gain we’ve made. Surging economic growth in developing nations such as India and China is disrupting traditional trading patterns. Eternally youthful baby boomers are contemplating retirement, provoking a succession crisis even as they redefine our notions of old age. And in business, markets are becoming tighter and customers more demanding. Entrepreneurs are being warned to innovate, boost customer service and make better use of technology — all in the face of ever-shrinking margins.

There are now so many possible futures based on how we handle an array of scientific advances, social problems and economic opportunities that it’s getting harder to see the way ahead. “It’s all happening at once,” says Vancouver-based Frank Ogden, the 84-year-old dean of Canadian futurists. “Everything is going to be disrupted. I don’t think there’s a future for futurists.”

Yet you have to keep moving forward, making sure your firm keeps up with its customers and ahead of the competition. If the path ahead isn’t perfectly clear, at least you can understand the forces that are driving us all and the directions in which they’re heading. To help you and your business adapt to the unmapped future, here is PROFIT’s list of seven key trends that could make or break your business between now and 2010.

The sensor society

Miniaturized electronics and the wireless revolution are combining to create brand new technology: tiny, automated sensors that stand on guard to transmit vital data about almost anything, from the location of your inventory to the state of your heart.

This trend’s familiar face is RFID, or radio frequency identification. At its core are tiny electronic tags that transmit data via radio waves to nearby sensors that can be used to track inventory, laundry, library books or wandering pets. RFID hit the news last year when Wal-Mart demanded its top 100 suppliers identify their inventory with radio-tag sensors by Jan. 1, 2005, to cut the retailer’s inventory-management costs. In a report on wireless technology, Deloitte Touche Tohmatsu predicts this will be a breakthrough year for RFID: “The impact is expected to be enormous, immediate and global, with literally billions of RFID tags being deployed in 2005.”

But RFID doesn’t just replace bar codes. These smart tags can be readily detected even when hidden from sight or embedded inside products (or poodles). The “reader” — the little box that senses the tags and records the appropriate data — can work from 30 feet away, or just a few inches. Deloitte calls RFID “a transformational technology that can help reduce waste, curtail theft, manage inventory, streamline logistics and even increase productivity.”

As Calgary-based wireless consultant David Crowe notes, RFID tags are already being embedded in clothes to speed up processing at dry cleaners and in key fobs for automated purchases at Esso service stations. We will soon see them built into vehicles to register payments on toll roads or discourage car theft, and to open doors for qualified employees in high-security areas.

Savvy entrepreneurs will look for creative ways to use these devices to cut costs or generate new services, especially since RFID prices are expected to fall from a current low of 50¢ per tag to just a nickel by 2010. But you’ll also have to figure out how and when to incorporate them into your supply chain, before customers make you do it their way.

The sensor society will extend far beyond smart tags. Toronto-based technology investor Ken Nickerson, former general manager of the Microsoft Network in Canada, sees RFID evolving into networks of sensors that will literally extend the human senses. “This is RFID squared,” he says. “You can take anything you can sense — chemicals, temperature, humidity, even your heart rate — and capture and transmit it wirelessly.” In a few years, he says, tiny sensors will measure radiation in hazardous areas, watch for smoke in your home or intruders in your cottage, or monitor your health. “Your shoes could track your heart,” says Nickerson. When there’s an anomaly — say, if your blood sugar drops or blood pressure rises — the sensors will issue an alert to stop minor problems from becoming major ones.

Spurring on such applications could be the insurance industry. Nickerson says life insurers may promise lower rates to customers who wear sensor-equipped watches, while car insurers could offer discounts to policy-holders who install sensors in their cars to reveal the causes of accidents. “Anything that can be tracked will be tracked,” Nickerson predicts. “This will be as big as the Internet.”

Telling customers what they want to hear

Long before Ken Wong became a respected marketing prof at Queen’s University, he learned relationship marketing first-hand. Running a music shop in Kingston, Ont. in 1976, he developed a system that tracked his customers’ behaviour. Knowing that saxophonists, who are very picky about the reeds they use, dropped in for a new supply every month, he was able to special-order their favourite products in time to have them on hand when the musicians came in. It was a simple system that generated unshakable customer loyalty. “We kept track on index cards,” says Wong. “This is not sophisticated stuff.”

Today, understanding your customers’ behaviour is crucial. Big businesses are investing millions of dollars in complex customer relationship management (CRM) systems to manage and act on customer intelligence. Over the next five years, Wong expects to see more small and mid-sized businesses adopt similar approaches. Yet he insists that you don’t have to get fancy about it. With today’s off-the-shelf database or contact-management software, “anyone can manage a customer database.”

The challenge is not technology, but imagination. The key, says Wong, is to find innovative ways to use existing technology to provide services that clients will appreciate. When a customer calls, for instance, Wong expects more businesses will know who they are instantly and adapt to their needs. Knowing that the caller is a senior, for instance, your phone system could automatically raise the volume of your voice, offer a specific type of music if the caller is put on hold or serve up an ad targeted to the caller’s age group or purchase record.

It sounds so easy. But Wong wonders why, in this day and age, his pharmacist never calls to ask if he wants to order more contact lenses, given that Wong buys a new set every three months. “Not only would they provide me with a service, but research says that they would have a better chance of keeping me as a customer,” he says. “Loyalty increases with dialogue.”

As consumers become ever more wary of sharing personal data, companies that add value will have an advantage. For instance, a cellphone company that uses customer billing info to suggest a more economical calling plan would own that customer for life, says Wong. “We need to convince consumers that we can use this technology to become their advocates.”

So is client-centred relationship marketing really a trend, or is Wong just wishing out loud? “I don’t think that there’s going to be a choice,” he says. “Customers will demand it. We live in a world of scale, where companies like Wal-Mart offer average products at low prices. Everyone wanting to stay in business against these giants will be selling at higher prices. So you have to give your customers something more.”

Aging boomers fight it every step of the way

Next year, the oldest of Canada’s 9.8 million baby boomers will turn 60. With half of today’s workforce now over 45, the sheer numbers of aging workers over the next five years will create opportunities and risks you probably haven’t considered.

Caroline Tapp-McDougall, publisher of Solutions, a Toronto-based magazine about senior care, points out just a few problems that employers could encounter as boomers dancercise into their 60s. “You’re looking at issues about the health of your workforce,” she says. From office workers to equipment operators to truckers, most employees will have to cope with the physical challenges of aging: “You’ve got hearing loss and vision loss, which could really affect safety issues. Plus, you could be dealing with loss of skills.”

She says employers must become more sensitive to the needs of older workers. They should beef up wellness programs, for instance, elder-proof the workplace (e.g., by upgrading the lighting or eliminating stairs) and supply more healthful food in the cafeteria.

Of course, many boomers will want to work past retirement. But Tapp-McDougall says they’ll demand more flexibility, such as shorter days, three-day workweeks or job-sharing. Since Canada is producing fewer 25-year-olds to replace them, employers may have to give the boomers what they want.

On the other hand, many of the boomers will decide to retire early, to travel or work part-time in their own businesses. “The wave of retirement that sweeps across North America in the coming years will create serious labour shortages and knowledge gaps in many industries, professions and communities,” warns Toronto futurist P.J. Wade.

It could also create a succession crisis in small business itself. Catherine Swift, president of the Toronto-based Canadian Federation of Independent Business, says up to half of Canada’s business owners could retire over the next decade. Since most lack succession plans, this could create a leadership vacuum that business and government should be preparing for now. “You might think this is just a problem for the companies involved,” says Swift, “but if they have problems handing off these businesses, it could affect the whole economy.” Tapp-McDougall says Canada’s banks, worried about succession screw-ups as well as turnover in long-time accounts, are increasingly asking older business owners about their succession plans, and even offer consulting services to help clients through these transitions.

Of course, a greying populace creates business opportunities, too. Aging boomers will demand more products and services geared toward their stage of life. That means more stylish walkers and more functional clothing (e.g., Velcro fasteners instead of buttons). Boomers will patronize retailers with wider aisles and clearer signage, and expect larger type on books, packaging and menus.

While seniors’ residences will boom, the real opportunity will lie in helping aging Canadians stay in their own homes through delivery services, telemedicine or even new homes built with roughed-in elevator shafts. “Today’s seniors don’t want institutional care,” says Tapp-McDougall. “There are opportunities for anyone who can help people stay home longer by providing comfort and convenience, or support in the community.”

The China syndrome

Only a few years ago, China’s economy was too primitive for it to be a member of the World Trade Organization. Now, four years after joining the WTO, China is the world’s industrial powerhouse. Its 1.3 billion people generate 12% of the world economy — and with GDP expanding by 8% a year, China is on track to become the world’s largest economy sometime around 2020.

If your firm already considers China’s aggressive manufacturers a major threat, expect things to become even tougher over the next five years. On the other hand, the country’s rapidly developing economy has a voracious appetite for resources, industrial products and business services that many Canadian firms are well positioned to supply.

The scourge of global manufacturing firms is what BusinessWeek calls “the China price”: the ability of Chinese manufacturers to undercut competitors by 30% to 50%. The key is low labour costs, in a country in which factory workers — many of them living in bleak dormitories and working 12- to 18-hour days — may earn only US$1,800 a year.

Increasingly, however, China’s exports are not toys and cheap footwear, but higher-value products that incorporate sophisticated design and technology. According to Statistics Canada, last year Canada for the first time imported more capital goods, such as electronic equipment and machinery, from China than consumer goods.

“As Chinese manufacturers continue moving up the value chain, small and mid-sized enterprises around the world are all going to be impacted,” notes Eldwin Thay, director of membership services with the China Business Council in Toronto. “It’s a huge challenge.” He receives calls daily from panicky Canadians who are suddenly being outpriced in their own markets. “A lot of companies weren’t aware of what was going on,” he says. “We call that ‘China denial’.”

His advice for competing with Chinese suppliers: “Forget about your margins.” Some Canadians respond by sourcing their own products from China, but Thay calls that short-term thinking. As Chinese manufacturers move up the value chain, they’ll go after your customers directly.

The solution, he says, is to specialize. Analyze the long-term threat of Chinese competition. What is your long-term strategy? What can you do better than anyone else? If you design and manufacture machinery, for instance, your competitive advantage may be design, which suggests you should focus on that, and farm out the assembly.

As the world’s third-largest importer, China may be a good market for your products. Thay foresees big opportunities for business services, such as human resources and public relations. In Ottawa, Export Development Canada chief economist Steven Poloz points to China’s upcoming investments in power generation, transportation, mining, waste treatment and water purification, as well as farm and medical equipment, automotive tooling and robotics, and pharmaceuticals.

Beware, however: Chinese firms compete as fiercely at home as they do abroad, regional markets within the country vary widely and your patents and other intellectual property could be at risk. To succeed, you’ll need a well-defined strategy and trustworthy partners. “There’s a lot of hype about the opportunities in China, but there are risks,” says Thay. “A lot of bad things can happen to you. You have to take every precaution.”

Innovation in process, not product

For years, companies have been told that their future lies in product innovation: figuring out what customers want, and providing ever-improving products they want to buy. Still, many companies supply undistinguished commodities little different from those sold up the street. That’s why James Canton, CEO of the San Francisco-based Institute for Global Futures, says tomorrow’s winners will be those firms that become innovators in how they do business — not in what they make or sell.

“The essential nature of what business is will be transformed by innovation,” says Canton, author of Technofutures. “Innovation in business is going to be much more about communicating, collaborative marketing, identifying opportunities among different suppliers and agents …  It’s going to be a much more sophisticated process.”

Dell Computers became the world’s largest PC maker by applying speed and service to generic-product retailing. Starbucks transformed the coffee business by making the experience of drinking it — in a comfy, intimate setting built around the customer — more important than the java. And WestJet captured a substantial share of the market by creating a customer-centric culture (flexible and fun) that’s the exact opposite of its biggest rival’s.

Canton says successful firms will increasingly bond with partners and networks to enhance their processes and build customer value. A company that offers computer games over the Net, he says, may really be in the business of connecting consumers with unique online experiences. It could find partners to extend these relationships into new sectors, such as insurance, retail or even telemedicine. “Innovation is not what you produce, but how you’re going to play the game.”

It won’t be easy, but design guru Bruce Mau of Toronto-based Bruce Mau Design sees collaboration as the key tool of growth: “The space between people working together is filled with conflict, friction, strife, exhilaration and delight — and vast creative potential.”

The end of cheap oil

The next five years could see the beginnings of a new energy crisis that will reshape the way we live, work and get around. Yes, you’ve heard this before. (In the 1970s, then-U.S. president Jimmy Carter advised everyone to wear sweaters.) But this time it looks like the real thing.

The energy crisis of the 1970s faded after rising oil prices attracted new supplies of non-OPEC oil from around the world. Since 2001, however, environmentalists and academics have been warning that we’re consuming the globe’s oil reserves faster than we can find new ones. A European movement known as Peak Oil contends that by about 2010 the world will have consumed half its total supplies of oil, and will be forced to confront a future without fossil fuels.

Until recently, the major oil companies insisted that exploration and new technologies would keep supply and demand in balance. As British Petroleum CEO Lord Browne said last October, “It is not helpful for the world to believe that it is running out of oil.” But with demand soaring, especially in large developing nations such as China and India, Big Oil has been coming around. In November, a senior BP exploration consultant forecast that global oil production would peak between 2010 and 2020 — fully 20 years sooner than the other oil majors had predicted.

The world isn’t about to run out of oil any time soon (or natural gas, which is following a similar depletion trend). But tightening energy supplies will mean rising prices that boost costs across the board for consumers and business, from food, plastics and manufactured goods to heating, fertilizer and transportation. Canadians will have to question many of the things that they now take for granted. Can we afford to keep building far-flung suburbs based on the family car? Will we still go up to the cottage or ski hill every weekend, or fly Grandma home at Christmas? What are we willing to give up in order to enjoy SUVs, five-bedroom houses, imported tomatoes and central air conditioning? And for those already tired of hearing about the One-Tonne Challenge, expect issues of energy conservation, diversification and security of supply to dominate the public agenda indefinitely.

But there will be opportunities, too. The end of cheap oil will spark new interest in alternative energy sources, including hydrogen, fuel cells, wind power and solar and geothermal energy. (It could also breathe life into hydro, coal and nuclear, with all their environmental ramifications.)

Depressed? Don’t be. As a net exporter of energy and with a head start in innovative energy sources such as fuel cells, Canada will be better positioned than most countries to adapt to these changes and even prosper. “Things are going to be terribly different, but that’s another way of saying that we’ll be requiring a lot of new goods and services,” says David Wheeler, a business professor at York University’s Schulich School of Business and director of its business and sustainability program. “All of these changes are terrifically positive if business, governments and institutions see them as opportunities and drivers of a new future in which Canadians should excel.” Companies that make plans now to produce alternative energy products or lower-cost transportation services — or simply to reduce their own energy consumption — will be in good shape as world energy markets evolve.

“We’ve been getting our oil products too cheaply,” says Wheeler. “The job now is to get Canadian companies to be more efficient, so they won’t be stranded when prices go up.”

Treating customers like human beingsWhat is the future of customer service in a world of wireless e-commerce and outsourced call centres? Over the next five years, savvy marketers may just go back to the past and start treating customers like people again.

No matter how sensitively you use your collected customer information, your clients want to be able to reach out and touch someone when they contact your firm. “For the most part, people are really irritated at how companies communicate with their customers,” says Wade. “Technology and call centres are becoming huge barriers between companies and customers; they’re building up very negative attitudes. Companies should be using technology to help customers and clients deal with the personnel in their organization.”

Maybe she was just cranky after a technical glitch that had left her business without phone service for a week — a problem that no one at Bell Canada seemed to comprehend or be able to fix. But Wade is far from alone. In the fourth quarter of 2004, the American Customer Satisfaction Index, a widely watched economic indicator that normally moves only in tiny increments, fell 1%. That was its biggest quarterly decline in seven years, suggesting that U.S. consumers want more action and less talk when it comes to customer service. This gap could be costly; according to Claes Fornell, a business professor at the University of Michigan, which produces the index, declines in customer satisfaction generally foreshadow slowdowns in consumer spending.

There’s an opportunity here for communicative marketers. As Canada’s population ages even further, Wade predicts that consumers will increasingly want to talk one-on-one with customer service reps to ask questions or fix problems: “Maturity lets you see that if you speak up, you will get a little more contact and a little more service.” Yet, she says, few companies let customers get anywhere near staff members with decision-making clout.

This could be a strategic point of differentiation for many smaller businesses that are trying to grab market share from larger rivals. “This is the age of the individual,” says Wade. If Canadian consumers can find local businesses that provide comparable services combined with personal contact and responsiveness, they’ll “dump the big companies in the wink of an eye.”

© 2005 Rick Spence

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