As Prices Soar And Consumer Purchase Power Slides Here Are Two Reasons The Current Inflation Explosion Is A Moment To Thrive

We have all seen the latest inflation rates. The highest monthly rate for consumer since the heady days of 1990. Six percent is about as brutal a rate as you can imagine. Think of it this way. If the US economy is a GDP of $21 trillion that means a 6% raise in costs would be equivalent to $1.2 trillion of extra costs. Interesting number that is very similar to the American Rescue plan that President Biden just approved ($1.7bn). 

This is the power of inflation. It can wipe out the potential of a national recovery plan overnight. You can wipe out enormous potential for good with the effects of inflation.

Inflation is not a one-off issue. It does not occur for a month or a quarter. History has shown that significant and sustained spikes in inflation occur after wars and on this occasion a global pandemic. VOX and CPER (the leading modeling group for banks and bond markets) models this as a four to five year issue, not four to five month or even four to five quarters, but four to five years.

Consumer based inflation is the first part of this Tsunami. It is painful, traditional and it erodes confidence. A sustained shortage in micro-processors feels new to us all, but we have seen how it has manifested itself in the auto industry across the globe. Add on to this how tough it has been to get people back to traditional work. McDonalds now offers help with graduate degree costs for people earning $20 an hour. Other companies are offering highly flexible working conditions to attract talent. While trying to entice highly qualified software and or cloud engineers is a well-documented struggle. Ordering gifts for Christmas could be a challenge for us all. While recent research I did on supply chain challenges showed leaders expected (85%) to see supply chain issues go past 2022. We have a tsunami of inflationary effects converging on each other right now and it effects long term decision making. Every one of us will have to manage this inflationary period.

However, this is not all negative for leaders because great companies and extra-ordinary leadership is often born in inflationary times around two simple ideas. It is your choice how you react. In Ron Howard’s Mr. Mom. Howard Humphries, the president of Tuna Schooner cuts the price of his tuna in a can during the OPEC oil crisis, a period of significant stagflation. Howard should have also offered to change his offering too. Tuna in a can with mayonnaise, or Tuna with a loaf of bread. Inflation opens an opportunity to do differently. Even the most well-meaning intentions can miss that opportunity for innovation in relationships. Use this moment to open that opportunity and do not shy away from it with your customers.

Are your services and capable of delivering a vastly increased benefit for customers than before because of the effects of inflation?

Things get expensive with inflation. Services delivery is strained, things cost more, and people are often increasingly difficult to get or keep. The relationship you have with customers can get very strained. Your customers are the same with their customers. This is a commonly felt pain through a whole connected eco-system. So now is the moment to ask how they can use additional services or products from you to isolate your customers from the effects of inflation.

For example, are their ways to digitally scale your products and services so that they can be paid for once and used many times over by the customer. Are their ways they can use your company’s internal resources to help them deliver better to their customers without the burden of having to take on new capital expenses. Warehousing for example, machinery, software engineers to help fill capacity and skill gaps they have. Could you share cloud infrastructure resources together.

Do the exercise of what else could be used to help your customers and you are likely to produce hundreds of additive values a customer struggling with the consequences of inflation would be open to. Doing more with a customer in an inflationary period is more likely than doing less with a customer if you manage the relationship differently.

Can you digitally transform yourself and your customers to protect them from inflationary impact?

Digital transformation is the promise of digital results and digital scale, near instant dial up and dial down, The pressure to digitally convert everything was clear when we started to write The Digital Helix in 2015. We calculated it would take another ten years for the whole of the Fortune 2000 to get there. Imagine being able to dial up people, services, capabilities when pricing rises. That is the power of digital transformation in a stag inflationary period.

Inflation is going to force the question of how companies get to the promise of digital scale faster, because the ability to radically reduce incremental costs for customers also means a company can dampen inflationary pressures as they deliver. This gives them a competitive advantage (a digital ripple effect).

Think about the power of a shared collaborative workflows that reduce friction between workers, services, and costs. Or a completely integrated supply chain, straight from the customer to the supplier. Instant dial up, dial down. This cannot be achieved in an old monolithic world. This flexibility on resources can only occur in a digital world where everything is inter-connected, (people, things, and services) and can dial up and down. That is the Amazon effect. If in the last ten years you have questioned the power of digital, then this period of inflation should force the question of how you can accelerate yours and your customer’s digital transformations to protect yourself from inflationary effects.

This type of inflation has multiple dimensions to it that present a clear opportunity for dramatic changes. You can radically re-examine the relationship your company has with its’ customers. For example, asking the question of, how do we do things differently together to protect the customers long term costing concerns? We are all seeing inflationary implications all around us, from beef prices to microprocessors and labor inflation this is an easier conversation to have than ever before. Crisis is the mother of re-invention for the relationships we have.

This window is a wasted opportunity if you do not use it to reengineer your proposition to a customer. That is how leaders are born from inflationary times. Our recent incredibly low inflationary experiences might have numbed us to this time, but a period of inflationary tsunamis is severely disruptive. Take the opportunity to use this tsunami to change how you proposition your company thrives through it.

In 2012 the head of the Federal Reserve acknowledged the potential for feeding this challenge with the printing of more money (testing Milton Friedman’s hypothesis). We do not know yet who will be right. For leaders, the question is: how you ride this storm for success because not everybody has to be a victim of inflation, some leaders will be the beneficiaries of it.