Friday, February 01, 2008

Phase Transition -- time to rethink that business model

In physics there is a concept of a phase transition -- from the Wikipedia definition: "The distinguishing characteristic of a phase transition is an abrupt change in one or more physical properties. "

In the late 80's and 90's one of the dominate drivers of the global economy and geo-political events like the fall of the Soviet Union was falling and low oil prices. Oil price was underlying many decisions that were made in that time frame -- "extend my supply chain to China so I can save a bit of labor costs, no problem I'll build a plant and get enough volume to make good profits." Over the last two decades this has served companies pretty well.

Now the world is transitioning to another state -- Consumers are no longer satisfied with high volume of similar products that change slowly. The country is undergoing some radical "ag-flation" is driving up the cost of food. Long supply chains built to serve those old demands are becoming less viable.

I think companies will have to rethink their business models rather quickly. Take a look at the article and let me know what you think.