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Crisis is good!

January 18, 2017

First, let me say, that I am not the kind of guy, that thinks everything used to be better in the old days.
On the contrary, I love progress and adore evolution, sometimes even revolution. However, on the other hand, I am, what I like to call, balance economist. I believe, that balance and equilibrium automatically emerges. The most important reason, as far as I am concerned, is the inherent drive to survive of nature. And by nature, I also mean humans.

 

 

I think I was about 9 or 10 years old, when I went for some Sinterklaas shopping, a traditional dutch festivity. I adored going with her, because on our way back, after some very straining shopping activities, we would pass by THE candy store. I lively remember the older couple, that ran the store. And while all of their candy was amazing throughout the year, at Sinterklaas time it was absolutely fabulous! In that period, they would sell their handmade sugar candy, called ‘borstplaat’. I remember, that the bag would only contain a couple of candies, when we would get to the car… In societal momentum and ‘progress’, this mom-’n-pop store disappeared. This same store however, represents a large number of other shops and little factories, that have disappeared. Let me be positive: this type of store or company will return automatically.

 

Let me first give a couple of reasons why they disappeared in the first place. A lot of organizations grow, either by adding support departments, or by buying other, smaller organizations. Both are symptomatic for their biggest problem: they are having huge difficulties to keep on developing creative ideas and truly understand their markets. The implications of this are three parallel developments.

 

First of all, these organizations have grown tremendously in their hunt for higher growth rates to please shareholders. They were just buying other organizations to mask their own lack of understanding of their customers. For years and years, they were able to present positive financial growth, through centralizing functions, without adding real value for their customers.

 

Secondly, they were able to realize a continuing flow of investment and financing for the banking sector, purely on the basis of their increasing scale; by the way, these banks did exactly the same thing, something that caused the recent problems in the financial sector. With these cashflows, they would acquire smaller companies, that were closer to their market segments and that understood their customer groups better. The Moloch had lost that quality already long ago.

 

Thirdly, (local) governments are maybe the best example of the type of organization, that has huge difficulties in understanding its customer groups (citizens). By nature, she creates opportunities for those big organizations in terms of building and accomodations. But this is exactly how they pushed the mom-’n-pop stores out of business. And please note: not because they had superior products or a better understanding of the market, but solely because of their scale and abilities to stay afloat!

 

The customers for the original products of those small, flexible organizations have not disappeared. They just cannot find those products anymore. They prefer high quality vegetables, better bread, better clothing, safer and more special cars and more products, produced by those specialized, pioneering organizations.

In short, the crisis has been caused by the urge for centralization and efficiency and by losing the focus on added value. And currently, and because of the crisis, these giant organizations are falling apart again.

The thing that creative pioneering organizations need to understand, is that they need to retrieve their customers, because they are still there! They are able to produce high quality meat, traditionally baked bread and pastries and safer cars by directly investing in production and operations. And through modern technologies they are able to reach those customers easily; democratization of the internet! At the same time, (local) governments are confronted with empty stores and office buildings, because those huge organizations are losing ground. This will have as a consequence, that real estate prices will drop and will enable pioneering organizations to establish themselves again.

 

My expectation is, that organizations will automatically aim for niches and smaller segments in the market: mass individualization. But only companies, that truly understand their customers and focus on the market will be successful. See? the balance in the market between large and small is reestablishing itself.

And who knows?

 

Maybe next Sinterklaas, I can finish the traditional, home made sugar candy again, before getting to the car.

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