Chaotics: The Business of Managing and Marketing in the Age of Turbulence

by Philip Kotler, John A. Caslione

Overview

As the fallout from the financial meltdown of 2008 grows progressively worse, companies, industries, and entire markets cling precariously to life or have ceased to exist altogether. And the turbulence may not be over any time soon.

In Chaotics, noted business strategists Philip Kotler and John Caslione present the intriguing, if unsettling, argument that these troubled times are not an aberration, but the new face of normal. In fact, the economic downturn is part of a continually oscillating Age of Turbulence, where both risk and opportunity are quickly felt around the world, now inexorably linked by globalism and technology. It’s a world that chews up the unprepared, but rewards the prepared—those robust companies that have the ability to quickly anticipate and effectively respond to potential threats.

Packed with illuminating examples of resilient companies that are successfully navigating turbulence, as well as many painful examples of bankrupt or soon-to-be defunct companies unprepared for the chaos that felled them, Chaotics provides deep insights and practical strategies for not only surviving the current economic down­turn, but also thriving amid the many slumps and spurts of prosperity that lie ahead.

At the heart of this book is an innovative Chaotics Management System for minimizing vulnerability and exploiting opportunities—and putting your­self way ahead of your competitors, most of whom are clinging to the same old panic tactics of across-the-board staff cuts, deep price discounts, and slashed investments in marketing, branding, and new product development. The system out­lined here helps you completely rethink how you man­age and market during recession and other turbulent conditions, including how to:

• Develop early warning systems for identifying the first signs of upheaval, including disrup­tive innovations and shocks
• Construct detailed worst-case, best-case, and most-expected-case scenarios using the strategies for effectively dealing with each
• Cut costs or enhance efficiency strategically in specific departments: finance, information technology, manufacturing, purchasing, and human resources
• Secure your market share from core customer segments—without decimating customer research and marketing budgets
• Compress strategic planning into shorter, three-month time cycles to keep a closer read on the pulse of the company
• Prevent the potentially catastrophic consequences of abandoning core principles

Timely, practical, and compelling, Chaotics is an indispensable guide for business leaders striving to survive today’s economic storms and to prosper through the inevitable turbulence of tomorrow.

 

Product Details

ISBN-13:	9780814415245
Publisher:	AMACOM
Publication date:	06/11/2009
Sold by:	HarperCollins Publishing
Format:	eBook
Pages:	224
File size:	1 MB

About the Author

Philip Kotler is the S.C. Johnson Son Distinguished Professor of International Marketing at the Kellogg School of Management at Northwestern University. Widely acknowledged as the world's foremost expert on strategic marketing, Professor Kotler is also a classically trained economist. He earned his Master's in Economics at the University of Chicago under the famed Nobel laureate Milton Friedman, who represented free-market thinking. He went on to pursue his Ph.D. at MIT under Paul Samuelson and Robert Solow, two Nobel Prize-winning economists who represented Keynesian thinking. "Many economists are not aware that the field of marketing originated as an economics discipline," Kotler observes. In his latest book, CONFRONTING CAPITALISM: Real Solutions for a Troubled Economic System (AMACOM; April 2015), he draws on his outstanding background in economics, as well as his esteemed knowledge of marketing, to offer unique insights into the inner workings of capitalism. "Capitalism, management, and marketing must be joined in a comprehensive framework to understand marketplace developments and impacts," Kotler contends. "I hope this book achieves that goal." Throughout his career, Dr. Kotler has received numerous honors and awards. He claims 22 Honorary Degrees, including five from Schools of Economics: Athens School of Economics (1995), Cracow School of Economics (1998), Budapest School of Economic Science (2001), Academy of Economic Studies in Bucharest (2005), and Plekhanov Russian Academy of Economics in Moscow (2014). In a Financial Times survey of leading global executives, Philip Kotler ranked fourth among the most Influential Business Writers/Management Gurus, following Peter Drucker, Bill Gates, and Jack Welch. He was also ranked the sixth most influential business thinker, following Gary Hamel, Thomas L. Friedman, Bill Gates, Malcolm Gladwell, and Howard Gardner, by the Wall Street Journal. Voted the first Leader in Marketing Thought by the American Marketing Association and named The Founder of Modern Marketing Management in the Handbook of Management Thinking, he has been recognized with a Distinguished Marketing Educator Award from the American Marketing Association and a Distinguished Educator Award from The Academy of Marketing Science. On his 75th birthday, Professor Kotler was honored with a commemorative postage stamp from Indonesia. Philip Kotler has consulted for IBM, General Electric, ATT, Honeywell, Bank of America, Merck, and other organizations on marketing strategy, planning, and organization. He has advised governments on how to develop and position the skills and resources of their companies for global competition. He has published more than 150 articles in leading journals, including the Harvard Business Review, Sloan Management Review, Journal of Marketing, Management Science, and the Journal of Business Strategy. He has also authored over 50 books on all aspects of marketing, including Marketing Management, the most widely used marketing textbook in graduate business schools worldwide, now in its 15th edition. Professor Kotler did postdoctoral work in mathematics at Harvard University and in behavioral science at the University of Chicago.

Read an Excerpt

INTRODUCTION

Meeting the New Challenges

WHAT IS THIS book about? Those who manage businesses have a certain view of the world and a certain set of practices for dealing with expected changes in the marketplace. Their view, in the simplest terms, is that times are either normal as a precursor to runaway growth and sustained prosperity, or weak as a precursor to dwindling demand and possibly recession. Businesses use a different playbook for dealing with each of these market conditions.

In normal times, they compete with a mixture of offensive and defensive plays, but are not likely to win big. In runaway growth periods, they see new opportunities everywhere. They invest and spend freely to capture what they can. In recession times, businesses cut their costs and investment to ensure their survival.

This view of two underlying market conditions, and two playbooks to guide the firm, is, however, outmoded. There are market conditions beyond these two basic ones. And conditions can suddenly shift from one to another and yet another. One day there is a

9/11 terrorist attack; another day, a Katrina flood. One day there is a panic aboutmortgages and defections that lead to a collapse of the world’s financial system. Big shocks happen more frequently today as a result of an increasingly interconnected global economy supporting giant flows of trade and information.

The shocks come in all shapes and sizes. Inmany parts of theworld a acrossmany industries, important things are happening that are only dimly perceived if at all, and certainly their implications are notmeasured.

It could be two people in a garage building a new gadget called a personal computer. It could be a guy named Jeff Bezos starting an

Internet business called “Amazon.”Or another guy named Steve Jobs building an iPhone. It could be a guy who envisions high yield bonds or another who develops the idea of securitizing mortgages. Had the computer industry, the book industry, the music industry, or the financial industry noticed these visionaries, they would have acted earlier to protect their turf or grab new opportunities.

Business leaders need a new view of the world and a new framework for dealing with it. According to this new view, change is occurring all the time. It can come quickly from any corner of the world and affect any company with a major impact. This is the view to which Peter Drucker first called our attention in his book The Age of Discontinuity.1 This is the view that Andy Grove articulated in

Only the Paranoid Survive.2 This is the view that former U.S. Treasury head Alan Greenspan articulated in The Age of Turbulence.3 This is the view that Clayton Christensen wrote in his Business Innovation and Disruptive Technology.4

It is our view as well that there ismuchmore risk and uncertainty in business affairs today than ever before coming from disruptive innovations and big unexpected shocks. Business leaders have always lived with some risk and uncertainty, taking out insurance wherever possible to blunt the damage. But today, the speed of change and the magnitude of shocks are greater than ever. This is not what was normal in the past. This is the new normality. It goes beyond disruptive innovation to include major shocks.

And how are business leaders to deal with it? Because they must manage during times of greater turbulence, they need a system to make better decisions. They need amanagement framework and system to deal with chaos. They need a Chaotics Management System.

It seems everywhere in the world where we encounter business and government leaders, virtually everyone senses that this time is different, even if they cannot articulate precisely what makes it different.

But as you’ll see in Chapter 1, we often find an immediate acknowledgment and agreement when we explain to these leaders that they’ve entered into a new normality, one in which the days of the two cycles—one up and one down—are over for the foreseeable future. These leaders sense that we’ve entered an era of ongoing a continuous turbulence and heightened chaos. This realization is often accompanied by a sense of relief that they can now articulate what they’ve been sensing, coupled with dread that the traditional up cycle may not kick in to let the good times roll again—at least not like it did in the past.

It is for this reason that we wrote Chaotics.

In Chapter 1 we will identify themany factors creating this heightened turbulence demanding that business leaders need to reinvent their thinking to adopt new strategic behaviors tominimize their vulnerabilities and exploit their opportunities in the new normality.

In Chapter 2 we will explain why mistakes made by business leaders in past down cycles that, while they were not necessarily helpful to their businesses, in this new era they will be not only harmful but fatal to a business if it fails to adjust.

In Chapter 3,we will introduce the ChaoticsManagement System a which provides a roadmap for business leaders to transition their organizations, including adding new critical internal processes, to function successfully and better understand and deal with the events unfolding around them. By providing guidance in the development of early warning systems to detect turbulence in the environment a and constructing yet-foreseen scenarios and strategies, Chaotics will offer new and robust organizational muscle to handle the heightened levels of turbulence and chaos with decisiveness and speed.

In Chapter 4, we will describe new strategic behaviors necessary for each key management function in the organization to improve its short-term performance without jeopardizing its medium- and long-term performance.

In Chapter 5 we will provide a comprehensive roadmap to show how companies can sharpen and strengthen their marketing and sales strategies in turbulent times even when there’s pressure to cut budgets in these areas, and to lay the groundwork for a stronger and longer future with a bigger and more loyal customer base.

And finally in Chapter 6, we will outline what business leaders can do to properly balance short-termwithmedium- and long-term demands of their businesses to preserve and build successful companies to live and thrive for many years into the future.

We are confident that Chaotics will provide business leaders the critical new insights, new perspectives, and a new system—including a set of new strategic behaviors and tools—to successfully navigate the unpredictable and uncertain waters in this new era, The

Age of Turbulence.

Table of Contents

CONTENTS

Preface VII

Introduction 1

1 THE WORLD HAS ENTERED A NEW ECONOMIC STAGE:

FROM NORMALITY TO TURBULENCE 5

What Is Market Turbulence? 12

Factors that Can Cause Chaos 18

Conclusion 41

2 MANAGEMENT’S WRONG RESPONSES TO TURBULENCE

NOW BECOME DANGEROUS 45

Resource Allocation Decisions that

Undermine Core Strategy and Culture 51

Across-the-Board Spending Cuts versus

Focused and Measured Actions 53

Quick Fixes to Preserve Cash Flow,

Putting Key Stakeholders at Risk 56

Reducing Marketing, Brand, and

New Product Development Expenses 57

Declining Sales and Price Discounting 60

Decoupling from Customers by

Reducing Sales-Related Expenses 62

Cutting Back on Training and Development

Expenses in Economic Crises 63

Undervaluing Suppliers and Distributors 64

Conclusion 69

3 THE CHAOTICS MODEL: MANAGING VULNERABILITY AND OPPORTUNITY 71

Constructing an Early-Warning System (EWS) 81

Construction of Key Scenarios 89

Scenario and Strategy Selection 98

Conclusion 102

4 DESIGNING MANAGEMENT SYSTEMS FOR RESILIENCE 103

The Chaotics Management System108

Finance and Information Technology 112

Manufacturing/Operations 122

Purchasing/Procurement 129

Human Resources 134

Conclusion 138

5 DESIGNING MARKETING SYSTEMS FOR RESILIENCE 141

Common Marketing Reactions to Crises 145

Strategic Marketing Responses to Crises 150

Operational Issues Facing the Marketing Department 157

Operational Issues Facing the Sales Department 162

Conclusion 166

6 THRIVING IN THE AGE OF TURBULENCE:

ACHIEVING BUSINESS ENTERPRISE SUSTAINABILITY 169

Business Enterprise Sustainability 172

Conclusion 190

Notes 193

Index 205

Editorial Reviews

Globalization and technology have heightened the interconnection, interdependence and fragility of today’s marketplace…Chaotics provides a system for steering businesses through both the best and worst of times.” — Research magazine

“Kotler and Caslione have produced a timely and thoughtful analysis of the turbulent economic environment in which we now live, with a series of practical responses to the challenges faced.” — The Irish Times

“…wrestling with how the increasing speed of change is affecting your business…then there is plenty of rock-solid…common-sense advice in the book...well worth your time.” —1to1 magazine

“In Chaotics, authors Philip Kotler and John Caslione pool their expertise to provide business leaders with a system for navigating the turbulent times…” — Consulting magazine

“…outlines a powerful new system for managing waves of uncertainty affecting customers, employees, and other stakeholders….The best of the year so far!” — CEO Refresher.com

"The authors hit a home run with this book. Reader value is off the charts.” — Springfield Business Journal

“Philip Kotler…The man who brought metrics to marketing doesn’t disappoint…even the chart-averse will admire the skillful discussion of economic ‘chaotic theory.’” — The Deal

“…very timely book…world economies are still turbulent, and given their interconnectivity, that's increasingly likely to continue…well-written, lucid treatise on surviving the new state of capitalism.” —Financial Executive

Selected as on the best books of 2009 by CEO Refresher.com

“…true value of the book is in pressing readers to change their mindset...never expect normality nor take it for granted…excellent read for anyone who does not want to be one of the dimwits.” —Graziadio Businessreport

CHOICE April 2010 Editors' Picks “…clearly written, interesting, and practical book.” — Choice magazine

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