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Example #3: The Markets

Experts appear on TV shows and offer advice based on market cycles, believing that what occurred before will occur again, using the pendulum analogy. Few people have made fortunes based on expert panelists’ advice. That’s not because the cycle was called wrong. It’s because most of these experts couldn’t see what would be different this time around. For example, in 2002, many economists and pundits who saw recession were surprised when retail spending did not track with economic projections quarter by quarter. At the same time, we were beginning to learn that consumer sentiment is no longer as closely tied to purchasing behavior, as was previously thought. According to an article in the Wall Street Journal on April 8, 2002, neither the University of Michigan’s Index of Consumer Sentiment nor the Conference Board’s surveys had been predictive of consumer spending. Over the past 20 years, there has been little evidence of a relationship between consumer confidence, which might be driven by such factors as war, terrorism, and disasters, and consumer spending, which may be driven by cash flow.

It is entirely possible, some experts now assert, that depression as a result of economic downturn actually spurred spending on the part of some portion of the public, especially women. Consumer spending during the 2001–2002 slowdown years may have actually led to the validity of "When the going gets tough, the tough go shopping."

In neglecting to see the spiral, many retailers did not innovate or competitively attract customers with anything but price cuts. This could be, and often has been, a disastrous strategy. They saw the pendulum that the experts portrayed, but the consumer had moved on to wholly new adaptive behaviors in the face of economic hardship, a highly competitive marketplace, new information channels, and new spending categories. For example, the home improvement and home furnishings businesses profited greatly. So did Starbucks. So did video game manufacturers. The consumer’s cycle spiraled, the experts clung to the pendulum, and the businesses that could distinguish between the two and strategize based on the spiral, are now in much better shape.

As you try to understand the unfolding future, it is important that you free your mind of the trap of the pendulum. When there seems to be a "return" to some former time or condition, make an effort to figure out what has changed in the intervening months and years—the social, political, technological, environmental, demographic, and economic events and circumstances that are true now but weren’t true then. After that, let your mind’s eye take in the new landscape. Then and only then will you begin to get the cycle right. Businesses can do this in teams. Individuals can do this alone or with people whose insights they respect. You can decide who can help you best do this. If any strategy is based on the process of a cycle, or a seeming return to an earlier condition, the trap of the pendulum can be seductive. The freedom to think in terms of spiral, however, can be far more visionary and far more profitable.

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