ThE
nEw
NoRmAL
by
Tom Pryor
When flying to Europe I experience jet lag… fatigue, insomnia, disorientation, irregularity and headaches. If you're experiencing those symptoms without taking a jet trip, welcome to the "New Normal".
Have you heard the phrase "New Normal"? If not, chances are good you will be read about it more frequently in coming months. What is "New Normal"? Here are three descriptions:
- "Sometime
between January 1, 2002 and January 1, 2003, the world figured out that this downturn
isn't a blip in an otherwise unfettered march to untold prosperity,"
says veteran technology investor Roger McNamee. "Forget about the Next
Big Thing. The next thing has started. It's called the New Normal. The New Normal
isn't where you wait for the next boom. It's about the rest of your life."
(1)
- Tech
Sgt. Daniel Kenney of Hanscom Air Force Base says, "New Normal is pretty
much the current security posture, FPCON Bravo, with additional random antiterrorism
measures. Barring any major changes in our threat, this is the posture Air Force
senior leaders see Hanscom remaining in for the foreseeable future."
(2)
- "The fall of the dotcoms. Technology industry turmoil. The upheaval in capital markets. The horrific events of September 11th and their aftermath, including war, restricted mobility, fear and economic disruption. When will things get back to normal? They are. This is the new normal," says business strategy consultant Don Tapscott. (3)
The economic recovery of 2003 is unlike those of previous years. The economy is growing 1-2%, yet there is no job growth. Despite a 25% drop in the stock market, S&P 500 Price/Earnings ratios are still high (30 in 2003 vs. 15 in 1991). And the U.S. is experiencing deflation instead of normal inflation.
This "New Normal" is unfamiliar waters to sail corporate ships and lead our lives. According to investment advisor John Mauldin in May 2003, "This is an economy which must strive to move forward burdened with the heavy baggage of old problems created in the last century while facing the strong headwinds of new challenges." (4)
Old problems with roots in the 1990's … corporate greed, accounting fraud, 25% excess manufacturing capacity, depleted retirement accounts, escalating healthcare costs, 80% of Americans owing more than they own, and global terrorism … require new battle plans. "Like generals who plan for future battles based upon the last war, if you plan for a future which looks like the 80's and 90's, you will not be happy with the outcome of your investment battles." says Mauldin.
How
to Handle the New Normal
Your
business can't change the economy, but you can change the economy of your business.
Business owners, leaders, managers and entrepreneurs should use the "Un-Natural"
in the "New Normal".
-
Combine competing ideologies
When Activity Based Costing (ABC) was first introduced in 1986, the most outspoken critic and contrarian was Eli Goldratt, creator of the Theory of Constraints (TOC) process management methodology. Eli shuns the need for accounting. While many articles have been written on how ABC compliments TOC, few organizations have adopted both.
Indalex Aluminum Solutions Group, the largest producer of soft alloy aluminum extrusions in North America, has successfully combined ABC and TOC. The result is improved sales and profits in a low margin marketplace. According to their CFO Mike Alger, "To us, TOC and ABC are both useful, complementary measurement concepts. We call this 'profit velocity." (5)
My daughter makes great peanut butter cookies. Valerie's recipe calls for more than just peanut butter. She combines several ingredients to make great cookies. Business is like a cookie. To have a great business, it is important to mix together the right ingredients. Amazon.com combined Six Sigma and Activity Based Costing in 2002 to significantly improve customer satisfaction and profitability. What do you need to combine in 2003? Look around for ingredients and a recipe to take charge of the New Normal. -
Process Purchase "Offers"
Purchase Orders were common in the 20th century. The 21st century has brought us something new called Purchase Offers. Purchase Orders are a commitment to a specific volume and price. Purchase offers are non-committal solicitations for your lowest price and best service.
One form of Purchase Offers is a reverse auction, made popular by General Electric. Home Depot and many other industries now use reverse auctions to purchase product. Gross Margin Profiling, the simplified approach to Activity Based Costing (ABC) developed in 2002 by ICMS, is a tool manufacturer and distributors are successfully using to respond and win Purchase Offers. ABC and Gross Margin Profiling bid & quote templates are valuable tools to take control in the New Normal. Read a Gross Margin Profiling case study at www.icms.net/doig_case_study.htm.
-
Look for facts, not faults
Like in a marriage, solely fault finding in business is destructive. Fact finding, however, can be constructive. Especially when those previously closely-held facts are given to everyone.
Instead of finding fault with their shop floor workers, Ondeo Nalco, maker of water-treatment chemicals at 52 sites worldwide, gave them financial facts. Division VP Rick Lijana said in a recent Industry Week magazine interview, "Our operator knew that if you turn to the right, we'd be making $780 per hour. If he had to back off to the left, it would go down to $650 per hour." (6) In the New Normal, profit visibility on the plant floor and office floor extends a sense of ownership throughout the organization. -
Live horizontally
In the 20th century, a horizontal position was equated with death. In the New Normal, operating horizontally is a requirement for staying alive. Most organizations are structured and operate vertically in functional silos, e.g. Sales Department, Accounting Department, Shipping Department. Space between the silos adds cost, cycle time and leads to dropped handoffs. The New Normal requires a Procurement Process, not a Purchasing Department.
In their new book Stand Out from the Competition, Tom Gale and Bill McCleave, Jr. recommend four "P's" to differentiate distribution companies:- Position yourself in the market.
- Pitch your message.
- Prove your value using metrics.
-
Perform your processes with discipline.
For a free process-based P&L, send an e-mail to TomPryor@icms.net.
Have great expectations
"Did you know it's a Biblical principle that you and I most likely will get what we expect in life? Listen to the words of Solomon in Proverbs 11:27, 'He who seeks good finds goodwill, but evil comes to him who searches for it.' We can't expect one thing and get something else. We will get what we go after. That's why our expectations are so important." (7)
The New Normal is populated with terror, terror alerts and terrorists. To counter negative attitudes and acts, we must be expectantly optimistic. Stress management specialist Vatche Bartekian says, "That little voice in the back of your mind that whispers, anything is possible instead of it's just not possible, or what a great day instead of life bites serves as a light that can guide you through the twists and turns of life's hardships. And this outlook brings great benefits; better health, more energy, creativity, problem-solving abilities, the facility to hang in there, and an overall sense of happiness." (8)
The cures for jet lag are not unlike those things we'll need to confront the New Normal … get out of the dark and into the light, change our watch, get up, exercise, take a cleansing bath. You and I may not like this new place we've landed called the New Normal. But according to the authors of Stuff Happens and then You Fix It?, "It's not what happens to you that's important - it's how you respond." (9)
What's your response to the New Normal going to be?
(1)
"The New
Normal", Polly LaBarre, FAST COMPANY, May 2003
(2) FPCON
Measures become 'new normal', Tech. Sgt. Daniel Kenney, Hansconian, March
8m 2003
(3) Speech titled "Competing
in the New Normal", Don Tapscott, 2002
(4) Investors Insight newsletter,
John Mauldin, May 30, 2003
(5) "Customers
to Drive Profit", Mike Alger CPA, Strategic Finance, June 2003, pg. 54-57
(6)
"Goosing
the Bottom Line", David Drickhamer, Industry Week, December 12, 2002
(7)"What
do you Expect?", Barry Cameron, Crossroads Christian Church Weekly, May 27,
2003
(8) "How
to Be an Optimist", Vatche Bartekian, AskMen.com
(9) Stuff
Happens, John Alston and Lloyd Thaxton, Wiley & Sons, 2003
Send
your comments on this article to Tom Pryor at TomPryor@icms.net.
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