For most of the history of modern business, we have enjoyed falling prices on nearly all raw materials, which has made us dangerously oblivious to the shaky foundations of our global market economy. But the tides are turning: the new era is upon us. It is time to look into the facts – and to prepare a strategy for dealing with them.
Like his father and grandfather before him, Al Cattone has been living off the sea for all his life. For the Gloucester fisherman who spent over 30 years braving the Atlantic’s waters, fishing is “not so much a job as it is an identity. But this legacy is coming to abrupt end. In light of extreme declines of cod stocks, the New England Fishery Management Council voted to slash allowed cod catch rates by 77 percent in the area from Cape Cod to Nova Scotia. The destruction of fishing communities across the region is expected to follow, with a domino effect on seafood processors, wholesalers, distributors, and retailers – an entire industrial ecosystem. But the unpopular move is backed by the harsh reality that the cod stocks today are very far from healthy, with some communities netting a bare 7 percent of moderate targets set by the National Oceanic and Atmospheric Administration.
In his struggle and sadness, Al is not alone. In the United Kingdom, the modern fishing fleet must work 17 times harder for the same catch as its sail-powered 1880s counterparts. In northern Japan, the entire fishing industry has been in “terminal decline,” with the 2011 tsunami only accelerating the collapse.3 Recently, the Financial Times has become one of the most prominent voices about the fish crisis, warning the world of the decline in fish stocks, which is more severe than predicted. “More than half of fisheries worldwide face shrinking stocks, with most of these in worse condition than previously thought, leading to yearly economic losses of $50 billion.” And if the proven losses of the present are not enough, the projected losses of the future exceed anything that could be imagined. According to a Stanford University study, over fishing could take all wild seafood off our tables by 2048.5
With its easy maths and empty-plates impact, the story of fish serves as a perfect metaphor for the entire world of resources our economy is built on. Whether it is fish or oil, clean water or gold, vitamin C or helium, the ocean of resources is running dry, and this is creating havoc in the market worldwide.
Where Are the Fish?
The question of declining resources is not new. Long before current reports put declining resources at the center of attention, the issue of resource scarcity commanded the notice of theorists and practitioners alike. From Plato in the fourth century BC to Thomas Malthus in 1798 to the Club of Rome in 1972, a parade of esteemed thinkers drew our attention to the looming collapse – to no avail. Hardly any changes in the behavior of businesses, governments, and consumers alike were inspired by their powerful outcry – if anything, the global market grew tired and deaf to the calls for radically new business models. Why?
Well, the theory of resource decline seemed strong and sound, but for nearly two centuries the market reality had been telling the opposite story. McKinsey’s 2011 report Resource Revolution puts it best: “Throughout the 20th century, resource prices declined in real terms or, in the case of energy, were flat overall despite periodic supply shocks and volatility. The real price of MGI’s index of the most important commodities fell by almost half. This decline is startling and impressive when we consider that, during this 100-year period, the global population quadrupled and global GDP increased by roughly 20 times. The result was strong increases in demand for resources of 600 to 2,000 percent, depending on the resource.”
In essence, what the declining prices of resources told us for decades was that we could have our cake and eat it too – grow our population, increase our consumption, and keep cutting prices, all at the same time.
But that was then.
As the story of fish and every other resource shows, the now looks drastically different, and the speed of waking up to this new reality will determine who will survive and who will vanish in the new era. It is time to accept the facts – and to prepare a strategy for dealing with them.
In Search for a New Competitive Advantage
We live at a time of remarkable transformation. The linear throwaway economy of today – where we extract resources, process them, use them barely once, and trash them immediately as we would a cheap plastic fork – is coming to an end. We are, simply put, running out of things to mine and places to trash.
Kyle Wiens, CEO of iFixit, the largest online repair community, and founder of the software company Dozuki, describes this transformation with laser-like precision: “The economy is broken. It’s not because of partisan bickering or the debt ceiling. It’s not because there is too much government spending or too little, too many taxes or too few. The problem cuts much deeper than that; it’s systemic and it’s global. The economy is broken because the principles that make the marketplace thrive will eventually destroy it.”
And the market is beginning to recognize this as well: after an entire century of falling costs of raw materials, the first 10 years of the new millennium have seen a whopping 147 percent increase in real commodity prices. Do you happen to be one of millions of managers fighting the ever-rising prices of raw materials, transportation, operations, and more? Welcome to the future!
Now, for any of us running a business, the question becomes: how do we prepare a solid strategy for dealing with this new reality? For decades, companies claimed their victory by finding the best spot – a unique position on the crowded competitive landscape. Others strive to avoid the crowd by discovering a new market space – swimming into the “blue ocean” waters far away from shark-filled blood-red existing markets.4
But this old economic order is running its course. Whether red, blue, or rainbow, the oceans are getting empty. A new economy is being born, one that takes the line and turns it into a circle, where at the end of the life of a product, all of the waste comes back into a production cycle as a valuable resource, infinitely. With that comes a new economic order, where we compete and win using a radically new set of rules. Managers who deeply understand and master this shift are able to turn the new reality into disruptive innovation and remarkable competitive advantage. As they ride ahead of the wave, new products, new business models, new markets, and new profits follow. The art of turning resource scarcity into competitive advantage is what I call Over-fished Ocean Strategy.