Stunning news if it turnes out to be true (still under peer review). Would be an exciting time to be a mathmatition and theorist!
The actual rate is closer to 17%. We are currently stuck in a vicious cycle. Consumers need to consume more to create demand that will lead employers to hire more employees. Unfortunately, due to high unemployment and the uncertainty surrounding the debt crisis both here and abroad, consumers are spending less (according to a CNN poll 70% of the respondents have cut back) leading to continued reduction in demand which is leading to continued cutbacks by producers.
The continued high national unemployment rates and uncertainty over the deficit problem and government regulation are making companys revise their short term goals and strategies to include holding off on investing in new hires and looking for sustained profitability through increased sales in emerging global markets.
It is easy for businesses to become complacent when things seem to be going smoothly. Sales are chugging along; new products are in the pipeline, management is focused on developing new markets. Then you wake up one day to find that your flagship product has dropped a notch in its rankings against you competitors. Does this kind of change happen overnight? Not usually. It is more likely that what happened was a slow change over time that went unnoticed or was misinterpreted. The company fell victim to Creeping Normalcy.
Creeping Normalcy is the concept of how a major change can happen largely unnoticed if the change happens over a long period of time as opposed to a change that comes on rapidly. This concept is best described in the parable of the boiled frog.
The parable of the boiled frog has been around for a long time, and goes something like this:
If you have a frog, and you try and put your frog in some rapidly heating water, the frog will immediately realize that here is a problem and will try hard to get out of the pot. But if you place your frog in a pot of room temperature water he will stay put. Now, while the frog is enjoying sitting there in the water, you begin to slowly heat the water. As the temperature slowly rises the frog will probably do nothing. The warming water will eventually make the frog gets groggy. Even if our groggy little frog realizes that the water it is sitting in is now getting too hot, it may be too late for it to climb out the pot.
A Frog’s internal apparatus for sensing threats for survival is geared towards sudden change, not slow gradual changes. This is same survival apparatus is often found in the business world as well, as we can see when we take a look at PepsiCo and the recent slide to the number three slot for their flagship product, Pepsi Cola.
You have probably noticed the new Pepsi Cola commercials targeted directly at Coca Cola and some of their advertising icons like the polar bears and Santa Clause, having them sneaking a Pepsi instead of a Coke. It is a clever advertising campaign almost on par with the Pepsi Generation ads that I remember when I was growing up. What you may not realize is that this is the first time PepsiCo has done this type of media blitz for Pepsi in over three years, and it is in direct response to this shift in Pepsi’s product ranking.
According to a recent Wall Street Journal article the uptick in the advertising budget is in the neighborhood of 30% and PepsiCo is also signing on to be a sponsor of the new Simon Cowall show, The X Factor.
PepsiCo CEO Indra Nooyl is under fire from investors and industry insiders for her strategy that, up to this point, has focused more on healthier alterative products in the PepsiCo lineup. She had set an ambitious goal of doubling the revenue on the more nutritious products to $30 billion by 2020.
While both Coke and PepsiCo’s product sales have fallen off, Pepsi has seen a much sharper decline in their flagship products even though PepsiCo revenues have been rising.
Mrs. Nooyl defends her strategy as a long term effort to diversify the PepsiCo portfolio, and to address the increasing number of health concerns voiced by critics. “I look at our numbers and I feel very good about the trajectory of the company” She said, according to the WSJ article.
While the path she has put the company on does make sense and does seem to be working, she seems to have inadvertently allowed creeping normalcy to blind her to the increasing necessity to continue to spent money on the flagship brand, even if it meant spending a little less on other parts of the overall corporate strategy.
Just like our little frog in the hot water, Pepsi is trying to get out now that the peril is more obvious. Pepsi is responding to the concerns of investors, analysts and their distributor network. They have scaled back plans to introduce a now lower calorie version of Pepsi (branded Pepsi Next) nationwide this year, opting to focus on existing brands.
Will Pepsi and its CEO make it out of the hot water in time? I am confident that they will and that Mrs. Nooyl’s strategy really is the best long term course for the company, provided that she learns from this faux pas and takes the time to check the water temperature a little more frequently.
As leaders we cannot let ourselves become complacent, or to be too accepting of the easy explanations for what seem to be just minor changes in both the internal and external environments that we work and live in. Instead we need to always be willing to question everything, being sure to test the water for temperature changes.
Have you had experience working for the frog in the water? In hind sight what could you have done differently to see that a change was creeping up on you? I’d like to hear about your insights.