Article

Chaotics : the business of managing and marketing in the age of turbulence

Author John A. Caslione is a global management strategy expert who has executed global business strategies in 88 countries on six continents. The founder, President and CEO of GCS Business Capital LLC, a global crossborder mergers and acquisitions advisory and middle market global cross-border mergers and acquisitions advisory with ofces in the US, Europe and Asia (Chicago, Frankfurt, Milan, Shanghai and Hong Kong).

Chaotics

Abstract
The world economy has been changed irrevocably and companies must plan now for the new normality. For the foreseeable future, the economy will no longer ebb and ow like the smooth upward rising sine waves of the past, but rather will look like the choppy spikes of a heartbeat recorded in an EKG a series of non-uniform Ws. Business leaders need to throw away the old two-play strategy one for the up-cycle and the other for the downcycle (recession) and instead, create a fresh strategic framework to manage both vulnerability and opportunity, at the same time coping with intermittent and unpredictable instability: a Chaotics approach to managing in The Age of Turbulence. Companies must now capitalize on the turbulence the new normality to grow more responsive and more robust and achieve business enterprise sustainability. They must also anticipate the unexpected detours they are likely to encounter making the necessary adjustments and keep on driving forward on the long and bumpy road to success.

internet and mobile phones. This new stage confers wonderful benets in bringing down costs and speeding up the production and delivery of goods and services. But it also comes with a substantially higher level of risk and uncertainty for producers and consumers. An event or change in the circumstances of one country whether a bank failure, a stock market or real estate crash, a political assassination or a currency default can impact the economies of other countries that are geographically remote. As a result, deliveries fail to arrive on time, banks stop making loans and start demanding repayments, employers lay off workers and economies begin a downward spiral. Companies become more cautious in their decision making. They put new product development on hold, they reduce their marketing and advertising budgets. Prudence dictates slimming down, surviving in the short run and disinvesting for the long run. While global interconnectivity and interdependence works in everyones favor in the good times, similarly, globalizations interlocking fragility can rapidly spread much pain and damage virally in bad times. Globalization and information technology are the two principal forces creating the new level of interlocking fragility in the world economy today and into the foreseeable future. For the foreseeable future, we can anticipate increasing turbulence around the world: rapid political leadership change in emerging markets; major policy shifts; increasing armed conicts; local and

The world has entered a new economic stage: The Age of Turbulence
The world is more interconnected than ever before. National economies are now all intimately linked, interconnected and interdependent upon each other. Commerce is conducted with information ows moving at the speed of light over the

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national government budget cuts and the spill-over effect on business. The uncertain times we are living in mean there is greater risk for businesses of all sizes in all locations. Businesses need new strategies to protect themselves, and to capitalize on the opportunities that will undoubtedly arise. We have already entered a new age, The Age of Turbulence. Moreover, it is heightened turbulence, which is always unpredictable and, oftentimes, undetectable. When turbulence is not detected nor addressed properly, it creates chaos for businesses, for governments and all of us alike. Turbulence, with its consequent chaos, risk and uncertainty is now the normal condition of economies, industries, markets and companies. In The Age of Turbulence, economic cycles will look more like an erratic EKG heartbeat wave a series of non-uniform Ws rather than the traditional sine waves of past economic cycles over the past 50 years in what is now the new normality. Turbulence, including heightened turbulence, is the new normality, punctuated by periodic and intermittent

spurts of prosperity and downturn, even extended downturns and including recessions. Todays turbulent economy, wherein we now have heightened turbulence, is markedly different from past economic cycles. Today, we can expect more shocks of differing magnitudes and many painful disruptions, causing greater levels of overall risk and uncertainty for businesses at both the macro-economic level and the micro-economic level. While it certainly doesnt mean that companies did not have to withstand great turbulence in the past it was just more episodic and coincident with great disruptive events, such as cataclysmic wars, terrorist attacks and other disruptive events in history that eventually subsided allowing us to again resume the traditional multi-year economic cycle. Over the past 50 years, we have come to count on two essential swings that mark a normal economy. First is the upswing that has historically lasted between ve and seven years on average, often referred to as the bull market. Second, is the market downswing lasting on average for

10 to 12 months, which we refer to as the bear market, or the market correction. These two swings were largely smooth, and somewhat predictable as a downturn would run its course, it would become apparent that, once the next upswing began, it would continue for the next ve to seven years in the old cyclical pattern. (see Figure 1) In The Age of Turbulence, companies are stressed, compressed and tested at many levels, sometimes so much so that they cannot fully recover because the former predictable ve to seven year up-cycle can no longer be relied upon. Imagine a company that has been severely buffeted by turbulence and chaos, leaving its weaknesses and vulnerabilities exposed, and then, when it has just begun to experience one or two quarters of upswing in the economy allowing it to begin to repair the damage to its business, it is hit by further turbulence. Such companies will become weaker still, and may not be able to survive over the mid- and long-term. Survey statistics for past recessions show that, at most, 15%, or one out of seven companies, actually improve their positions

Figure 1. Normal economy vs. chaos-punctuated new normality

High High
Strategic inection point

Level of chaos
New normality New normality

Low

Avg. 5-7 years Avg. 10 months

Time

Low

Time

Chaotics

Turbulence and chaos; vulnerability and opportunity

once they emerged from a recession. This begs the question: what happened to the 85% or more of companies who didnt fair so well when the return to the normal economy with its extended multiyear prosperity was so predictable? The essential point is that companies will not be emerging from a recession into a normal economy again, so there is no hitting the restart button to get back on the extended multiyear up-cycle of the next bull market that we have experienced in the past seven (or eight) recessions. This begs a second disturbing question: of those 15% of the companies that, in the past, did emerge from recession to improve their competitive positions, what percentage did so basing their recessionemerging strategies on the traditional fairly predictable and extended multiyear economic up-cycle? In fact, the whole talk about a recession is irrelevant. It presumes to a certain extent that the US economy or those with vivid imaginations who contend that China or India will soon have such economic might will reclaim its place like a great Boeing 747 or Airbus 380 lifting off with the rest of the worlds economies being pulled up in its updraft. But what if, even with all the engine speed and lift-off power we can muster, the economy never gets past more than two or three or, maybe, seven or eight quarters of upturn before it back-slides once again? Most indicators today are pointing in that very direction. The word recession is now a Jurassic term with all that is plaguing the world. And labeling this global mess a recession an extended decline in general business activity, typically two consecutive quarters of falling real gross national product as the word is loosely dened, may be somewhat misguided when such a cycle may no longer exist. Although mainstream economists and politicians alike have yet to realize it, the very notion of a recession may need to be redened away from todays two consecutive quarters of negative growth denition, just as the term recovery might also need redening. The bottom line is we are witnessing a revolutionary shift in our global and national economic systems. The new economic reality the new normality for the foreseeable future could very well be one that is forever punctuated by periodic and intermittent spurts of prosperity and downturn. This environment of continuous economic uctuations where turbulence, chaos, risk and uncertainty reign is now the more normal condition of industries, markets and companies and it is a scenario that governments and business leaders around the world and the rest of us must be prepared to confront and eventually embrace. In The Age of Turbulence, an age that will extend far into the future, even those companies that successfully emerged from recessions of the past will need to adjust their behaviors and adopt new turbulenceresistant strategies. Recently, I was preparing to board my ight from Chicago to Shanghai, when the gate agent announced that my ight would be 30 minutes delayed in departing because air trafc control had detected turbulence along our intended ight path, so more time was needed to reroute us onto a different ight path to avoid the detected turbulence. After departing a little over 30 minutes behind schedule, we were ying calmly until about one and a quarter hours into the ight our plane was buffeted by severe undetected turbulence that was so brutal in its intensity that virtually all of our meals and drinks ended up on the oor, and with many of the overhead luggage compartments opening up and spilling out coats, briefcases, packages and luggage on to many of us, along with plenty of screaming by the passengers. Needless to say, we all were rocked and rocked hard by the turbulence. After what felt like several minutes of being shaken and rattled right down to our teeth (but was probably only 20 to 30 seconds) the pilots came on the public address system to settle us all down and to calmly tell us that they had found us a more favorable altitude. In fact, the new altitude was not only a calmer one without any detectable turbulence, but what they found was an altitude that provided us with a 200 mile per hour tailwind that actually enabled us to land one full hour earlier than originally scheduled, despite our 30-minute delay in departing and our encountering undetected turbulence.

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Just as the Boeing 777 was buffeted by tremendous turbulence, our businesses are also subjected to turbulence some of it detectable, and some of it undetectable. While the Boeing 777 and all modern aircraft are built to withstand such turbulence even severe turbulence, it was never in any real trouble especially as the pilots, well-trained in operating in such conditions, jumped into fast action to steady the aircraft as we passengers and the ight crew were thrown about rather violently. And like the Boeing 777, when businesses are subjected to turbulence, if the new models for businesses are not changed and new strategic behaviors adopted, they will encounter chaos just as we passengers had encountered. It is turbulences consequent chaos that inicts the damage to a businesss plans and the smooth running of its operations. Turbulence and the resulting chaos have two major effects: one is vulnerability, against which companies need defensive armor; and the other is opportunity, which needs to be exploited. The vast majority of companies around the world today are ill-prepared if at all to succeed in an environment of continuous, unpredictable turbulence. As with the turbulence that buffeted the Boeing 777 during the ight described above, the turbulence is often undetectable despite the most sophisticated detection systems available. As a result, the airplane, its passengers and crew were rocked about, just as companies are when they encounter

turbulence. It is when economic turbulence hits a company that is ill-prepared to withstand it and quickly regain its strategic and operational footing, chaos will ensue and vulnerabilities will be revealed. Opportunity occurs when a company is responsive, robust and resilient, and has transformed or otherwise prepared its organizations and business models to compensate for turbulence and chaos in the new normality. Business leaders and their companies who embrace the new normality will have implemented new systems to detect turbulence as far as possible, while also instilling new strategic behaviors within their organizations and their business models to minimize or preempt ill effects on their businesses when turbulence strikes unexpectedly. Such companies can then take away competitors business, or even acquire competitors at bargain prices that have been weakened and made vulnerable by their inability to withstand the turbulence and it consequent chaos (see Figure 2).

The new normality

Businesses, like the Boeing 777 and other modern aircraft, must become more responsive, robust and resilient in The Age of Turbulence. In the new normality, governments and businesses alike must be prepared for both detectable and undetectable turbulence to prevent or minimize the ensuing chaos that will cause them to lose their way. On the other hand, when turbulence hits a business that has: 1) understood and embraced the new normality (which in turn, triggers its inherent survival instincts to evolve and change); and 2) it is more receptive to and accepts new strategic behaviors Chaotics Strategic Behaviors in the operations of its business, then that business is well placed to create new opportunities from turbulence. The situation is similar to how the Boeing 777 found a very favorable altitude to exploit the previously undetected turbulence in the form of the 200 mile per hour tailwind to allow turbulence to advance the businesss intended goals, rather than be hindered or made vulnerable by chaos when turbulence hits.

Figure 2. From turbulence to sustainability

Detecting Analyzing Responding

Opportunities Turbulence Vulnerabilities Sustainability

Chaos inection point

Chaotics

Figure 3. Traditional two-playbook approach vs. the Chaotics approach

1. Approaching turbulence Traditional twoplaybook approach Present a condent business as usual attitude Minimize the pending potential torrent; Quell/Quiet employees fears Develop a wait-and-see attitude before making structural changes 2. Confronting turbulence Aggressive, across-theboard-cost-cutting including cutting staff Cancel new projects Cancel new product research and new product introductions Cancel acquisitions 3. Emerging from turbulence To make up for past mistakes, downsize to become protable Attempt to rebuild the business, including the morale of employees, customers and other stakeholders

Chaotics approach

Build new strategic behaviors into key operations and functions Protect core business and markets Then boldly grow at the expense of weaker, less-prepared competitors

Broaden your resources Enlist support of strategic stakeholders as partners to guarantee success Acquire competitors, new talent and new resources Secure and grow core business stronger

Maintain consistent, steady and strong forward momentum Move purposefully and deliberately to build growth against faltering competitors

The Chaotics Management System

What is needed in the new normality is not a conservative, risk-avoiding approach to strategy, but rather an alert and prudent approach that protects both governments and business enterprises from the disruptive forces that impact both during times of turbulence, and yet still advances its interests a Chaotics approach. One such approach is The Chaotics Management System, which includes Chaotics Strategic Management and Marketing Behaviors. A Chaotics approach may be considered a prophylactic approach to risk and uncertainty, one that wards off the

likelihood of hubris and greed overtaking the more sober and thoughtful management of business affairs to prepare organizations to face the turbulent and chaotic situations that lie ahead. In addition to the everyday challenges of dealing in a perpetual competitive arena, as well as business cycles, business leaders need to recognize a heightened stream of major and minor disturbances challenging their business planning, and to adjust appropriately. There is a need for business leaders and their organizations to develop a new mindset, one that takes into account intermittent and unpredictable periods of disturbance and still thrive while under threat of global, industry, market or company chaos. Beyond developing a new

mindset, business executives must drop their reliance on traditional two-playbook strategies one for up markets and the other for down markets and continuously ne-tune their strategies or even discard them when the environment demands it. The primary difculty lies in the fact that their strategies begin to settle down, get optimized and become entrenched more deeply during stretches of normality, which leaves them unprepared when turbulence eventually occurs (see Figure 3). The Chaotics Management System presents a new system and a new set of strategic guidelines designed to help businesses navigate through the new normality to be successful and protable over the extended term, regardless of the economic conditions.
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Figure 4. The Chaotics Management System: key components 1. Strategy development in the new normality

Constructing key scenarios and strategies considering critical factors

Prioritizing and applying key scenarios: strategy selection

Developing early warning systems Structuring/ attening the organization

4. Planning in the new normality

Adapting/ shortening planning, budgeting and execution systems

The Chaotics Management System

2. Organizing for the new normality

Expanding the stakeholder base

Marketing and selling utilizing new strategic behaviors

Managing the organization utilizing new strategic behaviors

3. Managing and marketing in the new normality Figure 5. Achieving business enterprise sustainability (BES)
8 7 6 5 4 3 2 1 Development of an early warning systems Construction of key scenarios and strategies Prioritize key scenarios and strategy selection Implement chaotics management strategic behaviors Implement chaotics marketing strategic behaviors Expansion of the stakeholder base Flattening/ collapsing of the organization Shorten strategic planning intervals/ execution scenarios

Chaotics

There are eight key components to The Chaotics Management System: 1. Develop an early warning system 2. Construct key scenarios and strategies 3. Prioritize key scenarios and strategy selection 4. Implement chaotics management strategic behaviors 5. Implement chaotics marketing strategic behaviors 6. Expand the stakeholder base 7. Flatten the organization 8. Shorten strategic planning intervals and multiple execution scenarios (see Figure 4)

preservation of well-maintained assets, ongoing replenishment of innovative products and services and a favorable reputation with customers, employees, distributors and suppliers, governments and other key stakeholders investing in the business. (see Figure 5) Too often in the past, business leaders have confused high growth with high performance. They may have unwittingly taken unwise risks in their businesses to maximize shortterm protability, while at the same time, jeopardizing the companys mid- and longterm viability. They may destroy mid-term or long-term value through their overly ambitious short-term growth plans, which sometimes include foregoing needed shortterm investments to build the platform for longer-term strategy, as well as unwise and expensive acquisitions in an effort to increase shareholder value in the short-term. Certainly growth is important to the sustainability of any business, but longer-term sustainability should override any short-term or even mediumterm ambitions especially in turbulent and unpredictable environments where chaos, if not managed well, could cause irreparable harm and even sink a business permanently. For more information about Chaotics, visit www.chaoticsstrategies.com. Chaotics: The Business of Managing and Marketing in The Age of Turbulence is the copyright of John A. Caslione and Philip Kotler 2009. Chaotics and The Chaotics Management System are registered trademarks owned by John A. Caslione 2009.

Achieving business enterprise sustainability

Chaotics serves ultimately as a disciplined approach to detecting the sources of turbulence, forecasting consequent vulnerabilities and opportunities, and developing critical and appropriate responses to ensure that the business thrives for many years. The eventual goal is to achieve what is now called BES. BES is a comprehensive strategy to maximize the underlying value of companies in the longterm, while optimizing company performance and value in the short and medium term but never to compromise long-term value. It involves the implementation of The Chaotics Management System that enables companies to be responsive, robust and resilient in its business and operational strategy at its core. Critical to such a strategy are the

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