I waited a couple of weeks before releasing this article- as I expected few news (on the macro- and micro-level) that arrived as expected.
Let's say it might well be that in the late 2010s (where we are now) and 2020s (where we will be from 2021) businesses will follow the same "rituals" we are used to since at least after WWII.
Industries, IPOs, M&A, watchdogs, regulations- business as usual?
As I wrote in past articles, digital transformation, when transferred to the social and political level, is not what it seems.
It might well be that, communication-wise,we will retain for a while the same "names"- but it will be mainly to manage the transition.
I will not repeat what I posted before, above those "business as usual" elements and digital transformation (that I prefer to translate into "rethinking business").
I will share few "themes"- as usual, this is "drafting for future publications"- sharing ideas (that may or may not eventually turn into publications).
Before, a prologue that in part reiterates what I wrote in past scribblings on "being a decent analyst".
Currently I live in Italy and, since starting to interact here on a daily basis (including by reading newspapers online and offline), "being an analyst" here still is closer to magic than to what others consider "analysis".
Now, there is obviously "ex-ante" and "ex-post" analysis: it is a matter of means, aims, and, of course, skills.
You can have the means (e.g. information, tools) to carry out a preliminary analysis, or have to wait to do a results assessment.
You can have the aim to use such a preliminary analysis to either assess the current status before information is complete, or to guide further steps.
But unless you have the appropriate mix of skills (or can procure and coordinate them somewhere else)...
...what you might call "analysis" would probably end up being at best a catalogue and a set of unsubstantiated assumptions.
If your analysis is actually in support of somebody else's decision-making, it might be that you, the analyst, are involved just in the "status", and somebody else, with a different set of skils, will instead focus on doing something else- what do to with the results of that analysis.
Somebody calls this "forecasting"- but, unless you have a crystal ball, it is closer to assessing the probability of one or more scenarios of consequences.
While an analyst focused on the "status" might trive on and struggle for completeness, somebody thinking about the future might, in turn, have a range of different inclinations.
From just forecasting, and then checking for confirmations, to assuming that the "status" is a starting point that might in reality be partial, and then, whenever new information enters the picture, refocus the forecast- or suggest to scrap it altogether.
But there is an additional approach, blending the two, and helping the decision-makers more: forecasting isn't just about targets, but about potential risk-mix scenarios, and the analyst, in this case, is there to...prove herself/himself wrong by helping to move toward a different mix.
So, presenting a set of potential consequences linked to the preliminary assessment might actually unleash a series of initiatives that alters the context.
If instead you think that the purpose of an analyst is to be a king of "fortune teller", and carry out analyses when their expected convergence is 95% with what will actually happen... you are describing a caretaker, not an analyst, in my view.
An analyst who, whenever talking about potential consequences, is fearful of being proved wrong, is a liability more than an asset, and potentially a fence-sitter until when it is possible to play "gotcha".
Theme 1: governance
Worked across multiple industries (at the same time) in few countries for few decades, and in my view was common already years ago to observe how our "governance by industry" wasn't enough.
Even if e.g. the "financial side" of a company such as General Electric or any automotive company were to register as a bank or an insurance, anyway the overall business would follow a different kind of "systemic approach".
I wrote about that issue in the past, but obviously the timeframe of communication is different for an observer, an industry member, and a regulator.
Recent speeches and interviews from the ECB (e.g. look just at 2020) outlined some key points in transitioning toward a new model of market governance.
A past crisis delivered us a "Too Big to Fail" framework (i.e. those financial institutions whose bankruptcy would generate a shockwave across the market), but the 2020s and 2030s will probably require something else: trust and sustainability.
As industry boundaries will lose meaning, and even organizational boundaries will become more "dynamic", market regulations will probably move from "technicalities" toward "basics".
And whenever you shift from the former ot the latter, usually communication becomes even more critical, to avoid ambiguity while at the same time conveying the information in a way that is understandable yet "formally correct": no small feat.
Hence: trust, not limited to ex-post interventions (e.g. as the various past forms or mutual insurance on current account deposits), but extended to other measures to ensure the continuous flow of transactions with financial and non-financial actors (including individuals).
But also a word that (beside the obvious climate element) is a recurring theme in recent speeches not just from the ECB: sustainability.
The actual meaning of sustainability, is actually still a matter of eventual convergence.
It is common with anything that becomes "trendy": until it becomes part of the common wisdom, each stakeholder uses the same nominal concept to cover specific interests.
As an example, also around the European Union, and even in Euroland, some countries already started preparing for the future sustainability of their social model (e.g. more automation implies less working hours per person, continuous learning, and a different kind of welfare).
Other countries instead seem more focused on an elusive, philosophical, almost exoteric concept of sustainability, that reminds XIX century bits of political philosophy.
Which, incidentally, is a safer way to obtain votes while displeasing as few potential voters as possible: it is easier to talk about "sustainability" and avoid the cumbersome issue of communicating the impacts to prepare for.
The latest speech from the ECB to the European Parliament by Christine Lagarde actually highlighted (again) how communication is critical for the choices to come, to involve all those that will be both affected, and necessary for the actual implementation of whatever choice will be made.
The "green investment" the European Union (Commission, ECB, Parliament) is talking about is also able to deliver opportunities, but I do not need to repeat what others more qualified than me keep saying, writing, present.
Again, this calls for a different kind of "systemic governance": where are the boundaries?
A digression, focusing on an industry (food and agriculture) that in Italy (my birthplace) some try to present as an alternative to producing industrial goods or value-added services.
Digression: Italy and food
All my foreign friends who visited Italy liked its food.
And, personally, between the late 1980s and the early 1990s I was travelling on a daily basis around the country for business (hence, restaurants), while in mid-1990s worked and lived for few years in or around Parma (yes, Parmesan, Ham, but also something else in Emilia-Romagna).
My fellow Italians sometimes seem to suffer from a delusional encroachment on symbols of a past that never existed.
Producing high-quality wines, cheese, salami/ham, etc that will take years to prepare for the market isn't possible without a strong and modern financial industry (let's sideline for now the term "banking", as it is too restrictive).
While living in Parma, one of the projects I was involved in within my role on cultural and organizational change programme management was on organizational design for banking branches for the next decade (I was just an advisor to the manager assigned to the initiative, not working on the operational side, albeit of course it was interesting).
I remember an organizational development manager from a bank who told me of two of the various unusual job descriptions that he had found: working as a "nose" for ham, and "hearing" Parmesan cheese "wheels" (the huge round thing you see mainly in documentaries and movies, but almost no Italian ever personally purchased as an individual, due to its cost).
The reason of both jobs? Because both Parmesan cheese and Parma Ham are an investment, and producers needed to finance themselves to support production, while what had already been produced "matured".
So, some banks had basically secure cellars, with specialised staff, as they accepted as collateral that production (it is actually a little bit more complex than that, but that was the main point).
Pipeline of investment for food? Land, consumables (fertilizers, seeds that cannot be reused, etc), supporting material, storage space and its associated costs, distribution network, lifecycle management (e.g. due to new regulations becoming increasingly common, such as "zero waste" on food), and so on and so forth.
Moreover: in the future, optimal use of limited fertile land (also in urban centres), e.g. via savvy use of all that business 4.0 can deliver (e.g. drones monitoring termally plants to identify diseases or pinpoint water needs, or even to pilot other drones to automatically pick what is ready).
I have been always critical of the "slow food" movement: yes, I like the concept- but, for now, way too often sounds close to a new "Middle Age": how many of those working within that segment of the industry can actually afford those products and, moreover, can adopt those consumption patterns?
Not because I am soft hearted or a communist.
I worked in environments where I had 30mins for lunch, and others where we had 2 hours (or more)- and this, considering only "ordinary, residential", not the typical "business/negotiation lunch or dinner", that can last as long as an Italian marriage lunch "ritual", but isn't really about eating.
No, the concept is that we need to create a different model of consumption- not really more democratic, simply enabling "potential access", while still (at least for the time being) being linked to monetary purchasing power.
It is, if you want, the same concept that saw Henry Ford increase salaries to enable also his own employees to turn into customers, concept extended, in terms of "sustainability", across all the product and services categories.
Already now many youngsters in Italy do not cook: they eat "home delivery" food that they would never be able to prepare.
Personally, as you can expect, I like cooking, and never used "home delivery"- at most, takeaway by going directly to the shop or restaurant.
So, I think that also on that side we need to rethink not just production, as, to be "sustainable" across the lifecycle, production should ensure sustainability also for all those involved.
This digression, therefore, wasn't really a digression: I just needed something easier to visualize but that wasn't a paraphrase.
Whenever communicating, figures of speech often cloud instead of conveying the meaning: so, I prefer to dig into my own or somebody else's experience to find examples that are real (and can be checked, researched, reassessed).
Now, so far discussed only part of the title.
Theme 2: sustainability of industries
When talking about "sustainability", many think about ecology, recycling, circular economy, etc.
Fine- but, within business contexts, there is a much, much older concept of "sustainability", which is called "profitability".
There is currently much discussion about "zombie companies", those still staying alive only because interest rates are low enough to enable them to service debt.
In automotive, banking, retail, "quantity" seems often to be still relevant: number of cars produced, number of branches, square meters or number of shops.
We moved from many smaller companies at the beginning of the XX century, to few large ones in the early XXI, albeit now probably Manufacturing 4.0 and a process of standardization linked to urbanization will... create space for more of the former, and even fewer (yet larger) of the latter.
Until recently the idea was to get to 10mln cars, but now seems to be 15mln.
If you look at statistics on the actual use, many private cars... spend most of the time not moving at all (parking, etc)- an inefficient allocation of resources.
Anyway, if you look at the actual demand foreseen for cars, also insurance companies are shifting business model (e.g. recent acquisitions and proposed acquisitions of re-insurance companies by insurance companies).
If you move (no pun intended) from "automotive" to "mobility", and blend that with increased urbanization, the actual number of individual cars sold to individuals will be smaller, and even "fleet" purchases will be focused on a kind of "occupancy rate".
Shorter distance within urbanized areas will imply a higher level of use- but that is possible only by adopting a different model of ownership.
Moreover, within urban centres, eventually also the concept of "mobility vehicle" will require something completely different from our current cars, to optimize the allocation of both road and parking space.
Aiming for 10mln cars now, and 15mln in few years, when probably fewer car makers will actually have to converge on even fewer "purpose-designed" platforms, differentiating in some other ways (and this, coupled with technologies, will open up further space for smaller "niche" suppliers integrated within the ecosystem of those few larger car makers).
But this "streamlining" will probably take a decade (or two, as requires also restructuring our current road networks toward new designs).
Shifting to banking, in Italy decades ago we had thousands of banks (and 25,000 "sportelli" still represent much of the old presence)- one could say almost a banking outlet for each town or village).
If you look at official statistics from the Bank of Italy, in a decade we moved from 800 to 500.
In banking, it is already well known that there is "overcapacity": too many banks, too many branches, in the end with limited differentiation and too excessive fixed costs.
If you have a branch with or without staff, there is also an "asset lifecycle" to manage- e.g. maintenance of buildings and technology used in each branch, as well as continuous learning for the staff.
Moreover, as discussed in other articles, while in the early 1990s I was one of the few almost never visiting a branch, as I used also on portable PCs the first (theoretically desktop-bound) homebank applications, Italy is still way behind other countries, but, considering the widespread use of smartphones, and the increase in technical expertise required by PSD2, it is only a matter of time before a large majority of Italian account holders will use just a smartphone or tablet, and maybe will never need to visit a branch.
As anyway financial activities are "dematerialized", that is to be expected- but newer generations are increasingly getting used to see retail too as something obsolete.
When large retailers made less economically viable the ubiquitous shop-of-the-corner that were common in Italy, eventually they removed something that most smaller shops used to have: expertise.
Now, the staff was rotating so fast, that the learning curve on products wasn't simply shortened through some smarter approaches- was removed, and sometimes replaced first by a website link, then a barcode, then a QR code, along with the portable code scanner used in all shops to access stock and product descriptions online.
If your shop clerk doesn't know more than you about the products on the shelves, shops turn into a showroom- then, most simply prefer to purchase online, as at least it is possible to receive products at home, send them back, and manage everything without having to visit the shop.
In these three industries, and many more (I selected those three because they were my main industries, along with some others providing services to them), "sustainability" therefore does not just imply "supply chain sustainability" thinking about environmental or social issues.
Increasingly, what matters is concentrating knowledge, more than physical assets, and ability to evolve that knowledge: and there is where "scalability" (i.e. large size, or ability to expand) still is relevant (most smaller and medium companies simply are built on a cultural approach that is unable to "stay on course" if scaling up).
Theme 3 (and conclusions)
No surprise, here: if you read the previous sections, you know understand that my concept of "concentration" through M&A, in a data-centric context, in reality can create two layers.
What we are seeing now is a continuous stream of concentrations that started decades ago as "economies of scale", but gradually became "sustainability of knowledge investment" (e.g. R&D on a new car platform), and eventually will be based on being... oligopolistic.
Therefore, it is a kind of grow, absorb, and dismantle.
E.g. if in the future most banking activities will be done online, will really 25,000 sportelli and 278k banking employees be needed to serve 60mln Italians (and visitors)?
And how many automotive factories, moving into mobility, will instead turn into knowledge-intensive assembly lines (mostly automated) using sub-assemblies produced in specialized factories, plus micro-factories for "consumables" spread across urban centres, and staff to deliver value-added services that cannot be automated (maybe from companies belonging to the "business ecosystem" of the few main mobility platform owners)?
Crossing the path of industries will imply a return of a new form of what in the 1990s was called "bancassurance", spread across the territory and associated with data-related transactions and interactions, across the "one day in town" approach.
Or: a single day in town will still generate needs and demands, but on each demand from a potential customer, a "market negotiation" involving multiple parties could be involved.
Incidentally: and I think that also the concept of "compliance" and "taxation" will eventually change, as each micro-transaction "at the Edge" (i.e. within parts of urban centres) could turn into a taxation point as well as a form of "community-level taxation", to sustain the maintenance cost of services.
Removing the concept of "jurisdiction", or, paraphrasing an old saying "jurisdiction is where the transaction happens".
But, of course, these last few paragraphs are an example of the different roles of "analysts" in supporting decision-makers: from the "steady as you go, just documenting what happened", to "looking deep into the future by extension, hoping that some choices will alter it".