All together now, heads out of the sand…
When I left the law industry, one major contributing factor was my frustration over my belief that law firms were deluding themselves that their current difficulties were merely caused by a down cycle — a very deep one, perhaps, but temporary — with a return to better times expected just around a macroeconomic corner of unknown length. So much of their (lack of) strategic behavior suggested to me that they really didn’t grasp the nature, magnitude or permanence of the seismic shift rumbling under their feet.
It seems that they’re not alone.
The Shift Index, a paper released a couple of weeks ago by Deloitte, says that most companies are similarly blinded to larger forces by the recession, and establishes a new metric to gauge performance independent of its short-term effects.
This excerpt from the Executive Summary will give you the essence:
In the midst of a steep recession, when it’s all too easy to fixate on dramatic, cyclical events, there’s real danger of losing sight of deeper trends. Strictly cyclical thinking risks discounting or even ignoring powerful forces of long-term change. To provide a clear, comprehensive, and sustained view of the deep dynamics changing our world, Deloitte’s Center for the Edge has developed a Shift Index consisting of three indices and 25 metrics designed to make longer-term performance trends more relevant and actionable.
The Shift Index highlights a core performance challenge that has been playing out for decades: return on assets for U.S. companies that has steadily fallen to almost one quarter of 1965 levels, while labor productivity has continued to improve. Some additional findings that highlight the performance challenges facing U.S. firms include the following:
- The performance gap between winners and losers has increased over time, with the “winners” barely maintaining previous performance levels, while the losers experience rapid deterioration in performance
- The “topple rate” at which big companies lose their leadership positions has more than doubled, suggesting that “winners” have increasingly precarious positions
- U.S. competitive intensity has more than doubled during the last 40 years
- While the performance of U.S. firms is deteriorating, at least some of the benefits of the productivity improvements appear to be captured by creative talent, which is experiencing greater growth in total compensation
- Customers also appear to be gaining and using power as reflected in increasing customer disloyalty towards brands
- The exponentially advancing price/performance capability of computing, storage, and bandwidth is driving an adoption rate for the digital infrastructure that is two to five times faster than previous infrastructures such as electricity and telephone networks
Download the full report and begin tearing apart the old to enable the necessary new.
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