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WHITE PAPER OF THE MONTH
»The Asset Revolution & The Sources
  of Volatility

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White Paper of the Month

The Asset Revolution & The Sources of Volatility

Although economic volatility can have many causes, it has historically been most common in those periods of adjustment when a new class of assets with unknown and unfamiliar risks is being incorporated into the economy. There have been three different periods of extreme volatility associated with foundational changes in Western economies; the earliest stages in each of the Commercial Revolution, the Industrial Revolution and more recently the Knowledge Asset Revolution.
 
Once again the economy’s engine of growth is transitioning… from the mechanical workhorse of the industrial age to the more agile and faster moving mental powerhouse of the new age, as knowledge and the ability to master knowledge becomes ever more valuable…
 
The Changes are Remarkable
 
Manufacturing’s decline in developed economies has been dramatic; consider that between 1995 and 2002 the world's 20 largest economies lost 22 million industrial jobs. Nevertheless, despite the shrinking of their industrial work forces, the output in these countries as a measure of GDP increased by an astonishing 50%...
 
Today, in the U.S and other Western economies in particular, market services have displaced industrial production as the primary engine of growth; World Bank statistics suggest that intangible assets are now contributing over three-quarters of U.S. GDP. 
 
The Lessons of History
 
…  but history does teach us some things that are critical to business leaders today:
 
The Strategic Organization
 

There is no returning to the status quo of a few years ago, organizations must adapt to a new normal, one that is far less certain and predictable than we’ve grown accustomed to in the past. Today it’s not enough to have a strategy, you need to build a ‘strategic organization’; one that works together effectively as a team, can plan and move with speed when the inevitable changes in economic circumstances occur.
 
Remember the old adage, ‘nothing fails like success’, beware that the contrast could not be greater between the recent past, that period of reliable, steady growth and the circumstances going forward. Foundational assumptions must be revisited: for instance, it’s quite popular in many industries to use ‘rolling thirty year averages’ for commodity prices in capital projects. It was a useful and reliable planning assumption until recently; present circumstances have rendered it completely obsolete.
 
Furthermore, the need for high performance planning, with real effective contingency plans in place, ready to go will be a survival necessity – not a luxury. Importantly, it is becoming a critically important role of leaders to communicate a new message, to impart a positive new mind-set in order to prepare their organizations to win in this new, more challenging, commercial environment.

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