In case you haven’t noticed, the U.S. economy today is actually being hit by two tsunamis at once: The Great Recession and the Great Inflection
The Great Inflection is the mass diffusion of low-cost, high-powered innovation technologies — from hand-held computers to Web sites that offer any imaginable service — plus cheap connectivity. They are transforming how business is done. The Great Recession you know.
The “good news” is that the Great Recession is forcing companies to take advantage of the Great Inflection faster than ever, making them more innovative. The bad news is that credit markets and bank lending are still constricted, so many companies can’t fully exploit their productivity gains and spin off the new jobs we desperately need.
Two examples, one small, one large: The first is my childhood friend, Ken Greer, who owns a marketing agency in Minneapolis, Greer & Associates. The Great Recession has forced him to radically downsize, but the Great Inflection has made him radically more productive. He illustrated this by telling me about a film he recently made for a nonprofit.
“The budget was about 20 percent of what we normally would charge,” said Greer. “After one meeting with the client, almost all our communication was by e-mail. The script was developed and approved using a collaborative tool provided by www.box.net Internally, we all could look at the script no matter where we were, make suggestions and get to a final draft with complete transparency — easy, convenient and free. We did not have a budget to shoot new footage, yet we had no budget either for stock photography the old way — paying royalties of $100 to $2,000 per image. We found a source, istockphoto.com, which offered great photos for as little as a few dollars.
“We could easily preview all the images, place them in our program to make sure they worked, purchase them online and download the high-resolution versions — all in seconds,” Greer added. “We had a script that called for 4 to 5 voices. Rather than hiring local voice talent — for $250 to $500 per hour — we searched the Internet for high-quality voices that we could afford. We found several sites offering various forms of narration or voice-overs. We selected www.voices.com. In less than one minute, we created an account, posted our requirements and solicited bids. Within five minutes, we had 10 to 15 ‘applicants’ ” — charging 10 percent of what Greer would have paid live talent.
By being able to access all these cheap tools, Greer got to focus on his value-add: imagination. The customer got a better product for less money. But he didn’t create many new jobs. For that, he needs the economy to pick up. “If we could only borrow a buck and invest,” said Greer, “we’d all be rolling again.”
Farooq Kathwari, the longtime C.E.O. of Ethan Allen Interiors, had to accelerate reinvention of his company for the same reasons. In the last year, he reduced his work force by 25 percent, consolidated several U.S. manufacturing plants, including transferring all upholstery manufacturing into a large state-of-the-art facility in North Carolina, enabling Ethan Allen to substantially decrease its production time. The most labor-intensive upholstery work is done in the company’s new plant in Mexico, and the components are shipped to the North Carolina facility for completion.
“Five years ago,” said Kathwari, “it would take about 20 hours of labor time to make a high-quality custom sofa. Now, due to our investments in technology and a smaller work force that is more highly skilled, the labor time to make this sofa is about three hours.”
Everywhere he can, Kathwari says he is leveraging technology to cut costs and improve quality to retain his competitive position in world markets. This enabled Ethan Allen to maintain sufficient cash to survive. “We now produce all our advertising programs in-house, including national television commercials, at a fraction of the cost we spent a few years back — just as your friend is doing,” said Kathwari. “Our associates recognize that reinvention is vital to our survival.”