Part 1: General Transformazion and the IT Sector
What do the insurance, the pharmaceutical, and the IT industries have in common? It is quite an unusual question to ask, as from a general business perspective, these sectors don’t seem to be too closely related. But if we look at these three industries from a business development perspective, we can see that they are facing the same fundamental challenge: finding the recipe that solves the business challenges caused by the generational transformation.
A belated and painful realisation
There are other similarities between these areas too, but having completed numerous business development projects, based on our experiences of the business strategies devised, it is evident that those who have found the solution to the generational challenge have placed the success of their companies in a brand-new dimension. To give a complete picture, it also needs to be pointed out that those who couldn’t find a remedy even after witnessing the entire process from the outside will spend their lives with continuous and demanding work, usually without much to show for it. So, what is this big challenge exactly? A generational transformation will always bring surprises and some extra work for the executives and owners of a company. For the leaders of companies that used to be successful, or that are still successful in the present, it is an enormous task itself to realise that they have to make significant changes. The first problem is that in the case of a company that is regarded as truly successful, even a simple analysis may reveal severe deficiencies and dangers. Many get lost in the world of absolute numbers, and why would they get suspicious when the turnover and profits are in order and they are growing as expected? Who cares if the 10% growth could be 35% instead? What’s the point in being greedy? Well, for one thing, because when an unfortunate situation has already developed, it will be too late to act. Typically, company leaders tend not to get involved in business matters, and they don’t look into development options as long as there is no sign of an actual setback. This attitude was prevalent 10-15 years ago, but due to the above-mentioned generational transformation, more and more companies decide to monitor their business regularly, and ask for an overall assessment of it even when everything still seems to be going fine. A significant advantage of this is that this way they can make the recommended adjustments without significant costs, with relative quickness and effectiveness. Not to mention that they will not be driven by the stress generated by the fear of failure, as performing under pressure is much more difficult. This attitude was typical of the generations preceding the Individual Generation. By attitude, I mean belated realisation. The 46+ age group – with honourable exceptions – is not able to make these steps even when they are far overdue. And if they do, they are still not thinking in terms of real change, even when the walls of the house are starting to crumble. They will still believe in traditional methods and the restoration of the market. That holds huge risks. Members of the 34- to 45-year-old Individual Generation are reacting differently to the situation. They had a harder time building up their businesses, and so even the toughest characters appreciate success. They are used to the fact that in this world, successful companies don’t grow out of nothing. It needs a lot more than that today. If this is true for the members of the Individual Generation, then exponentially so for the Ruler Generation – the 22- to 33-year-olds of today who are building their market presence with incredible momentum. And while members of the Individual Generation are usually looking for the right experts to help them with business development, members of the Ruler Generation ‘are experts in this field too’. According to them, they are capable strategy builders, organisational developers, product concept designers, and anything and everything else at the same time that is necessary to be successful. Unfortunately, not even a dozen failed business ideas can overwrite this approach.
So, what is this big change?
Generations come and go, rise and decline. But this process is entirely different now! If someone thinks that the same ‘young and foolish’ approach will bring any results, they will have to face a series of unpleasant surprises. Essentially, the change is that the Individual and Ruler Generations have found their way into the business world smoothly and fairly quickly. Moreover, the Individual Generation has made it all the way to the top of the business decision-maker elite, and the Ruler Generation is starting to take over the field of middle management. In the Hungarian business world, successful companies of the last few years are all closely tied to these two generations. Of course, we have to be careful with generalisations. I personally have some business development projects where a member of an older generation is the one who leads the company to success, even if he does that by surrounding himself with young people. This could be considered a natural phenomenon, as every generation gets their share of the business world. What is not so natural, and what is typical to the post-communist region, is that older generations tend to disappear from success stories. This might sound like a bold assumption, but if a given company owner is about 60-70 years old, the key to success will be the younger team he has wisely brought in to the company. This is not to say that I am exclusively pro-young and middle-aged people. I am only trying to say that the X years of experience that sounds so appealing and substantial in the case of the older generation is not enough anymore. People who are unable to change and want to rest on their laurels will have a tough time finding opportunities nowadays. Based on my research, I can say that those who remain successful in this age group all show an outstanding capacity for self-development. This means that they not only want to follow the trends of our world, but they always want to be up to date and stay ahead of the trends. And this approach is not a question of age anymore, but of personality! And back to the original question: what makes the generational transformation so evident now? Mostly the fact that two ‘passive’ generations, the Supporter and Expert Generations from the most inactive side of the psychological circle, are being followed by the Individual and Ruler, the so-called ‘active’ generations from the proactive side of the psychological circle, which brought significant changes to the decision-making mechanism. So, the current process is not a general change. Not to mention that the Individual Generation has excellent diplomatic and network-building skills, which calls for a business approach completely different from before. The Ruler Generation is defined as the ‘power-hungry’ generation in the generational research system of Mentors & Partners Group. There is no need to explain the meaning and effect of this in detail here. On top of all these changes, the degree to which certain generations are accepted has also changed significantly. The Individual Generation does not accept managers from older generations. They don’t consider them an example to be followed neither regarding their theoretical business knowledge nor their relevant practical experience. Again, I am talking about a general attitude. In the case of the Ruler Generation, the situation is even more ‘difficult’. We can safely say that there is only one generation they can accept and define as a necessary factor for success. And that is the Individual Generation. These factors and relationships are perfectly mirrored in their choice of suppliers or workplaces or anything that might motivate their economic decisions. The situation is further exacerbated by the fact that even the older generation can’t trust its own age group anymore if there are signs of trouble. It is evident in their business development strategies that if they need real solutions, they turn towards representatives of the two active generations.
Consumer market restructuring
We have talked about the changes from a generational perspective but considering the changes this brings to consumer markets is even more interesting. New groups of customers have emerged, the understanding and motivation of whom are essential for the three sectors we are discussing today (among others). First of all, members of the Individual Generation have created the so-called ‘Ruler Premium’ consumer group, or as it is called in the business development profession, the ‘true premium’. Due to their life philosophy and standard of living, they have created a genuinely new attitude on the market. Their households are often referred to as the ‘Single Generation’, as even if they don’t live alone, they are typically independent to a great degree, whether they are in a serious relationship or marriage or not. Consequently, Individual needs are predominant in their purchasing habits. For the Individual character, the design element is most important, and so creating this image environment of products and services has become critical in achieving success. Older generations have a rather difficult time in understanding this new lifestyle. The lifestyle where freedom, travelling, sports, and looks are in the forefront. Many of these have been defined for the older generations as utterly useless things. Riding this wave and building upon it, the Ruler Generation has added ‘brand orientation’ to the equation. These two generations together have created a brand-new market environment – which is not likely to change in the upcoming decades because the Ruler Generation will be ‘followed’ by the Supporter Generation. So, love it or hate it, successful companies will have to provide for this new approach. Clichés, mediocre products, and professionally or technically strong services that are otherwise neglected regarding brand will not be able to prevail anymore. Decision-makers see this happening; still, they are often unable or unwilling to make the necessary changes. Of course, you can always say that there are other consumers on the market apart from these two generations, but the problem is that they constitute up to 35% of the country’s purchasing power by now, and you’ll see similar figures internationally. In fact, they are the most profitable consumer group. It is not a mass market, where you would expect a rigorous price competition, at the end of which it would be a multinational company taking it all anyway. This competition is the kind in which multinational companies have not much say. True, there is also evidence that the clumsiness of local companies and the fact that they realise their situation late gives an advantage to international companies, which means that they become more prominent in fields with which they should have nothing to do normally.
It was probably the IT sector through which the winds of generational change first blew, if you can endure the metaphor. The labour shortage has been in the centre of attention for years now, which has led to significant changes in the sector. Indeed, as there is no modern technological advancement without the Ruler Generation here. That’s IT! Many times, what comes naturally to a five-year-old, an IT leader with 40 years of experience behind him will have to sit down and learn. Technological advancements have no regard for age, and that is only natural. Many companies have trouble recruiting or retaining young employees. Without a doubt, there is a huge competition for talented young workers. And in this competition, the only truly effective tool is idolism – a concept that is unknown, at least for its actual meaning, to most older managers. Younger generations search for idols, and they go to work where they can find the people who guarantee their personal development. Rejecting the older generation is the strongest in IT. ‘I’m not going to listen to a 50-year-old leader who didn’t touch a computer until high school!’ These thoughts are there in the heads of the young. This also means that IT companies were forced the most to do a complex ‘rejuvenation’. It is interesting to observe the approach of multinational companies regarding this change. They follow the traditional way – the financial approach. They compete with smaller, local companies by constantly offering higher wages to potential employees. Of course, this means they fall into their own nets without realising it. There is only one personality type in the Ruler Generation that can be enticed by higher wages, and that is the Supporter. But this type is not going to change the world! They have a stable knowledge, they can cope with monotony, and they are loyal. But they are not suitable for stunning developments, managing new challenges, or showing excellence in professional knowledge. We have seen this in many business development projects. Employees of Hungarian companies at which serious professional work and product development are happening, and where there is a multitude of interesting projects, will never be ‘seduced’ by a 30-35% raise in salary offered by multinational companies. Of course, managers from the Individual Generation are needed to obtain and retain Ruler youth. Actually, it is not so difficult to set up a prosperous IT company that keeps developing rapidly. If we keep these ground rules in mind, the owners of the company won’t have to face great surprises. There is another important criterion, which most Hungarian companies fulfil. Multinational companies used to be able to impress a certain part of the youth by their international connections and their constant use of foreign languages. But today, any decent Hungarian company will aim for international expansion, and given the right strategic expertise, their success is guaranteed, as quality IT professionals are in increasing demand worldwide. So, if the solution is that simple, why are so many Hungarian companies offering truly excellent technologies still struggling on the market? Saying ‘you need a change’ is easy. Facing the fact that you actually have to change is harder. We have seen plenty of cases where the Individual Generation is responsible for standing still. The 50-year-old manager from the Expert Generation would still be going forward, but the representative of the Individual Generation who is supposed to be proactive, but who is lacking all characteristics of the Ruler type, is holding the process back. One should always be cautious about assigning age with a way of thinking! Even though this article is trying to present generations in general, we have to keep in mind the following: generational effects and sociological or social circumstances never overwrite personality! So, if a member of a fundamentally active generation has no activity in them at all, he will not be able to move forward, regardless of the generational effect. That’s the other big problem Hungarian IT companies have to face nowadays. So, is there no good way to do things? Should we listen to young people or not? Our answer to this question is that it is always the person that needs to be in the focus of the analysis. We have to know the given individual, what he says, why he says it, what he does, and what he will not do. And it could be beneficial to use some outside, objective help for this, or at least being impeccable judges of character ourselves. Members of the Individual Generation like to refer to themselves as the engines of development, the bringers of change, and they are quite right about that. What they will fail to mention though, is that they can just as well be an impassable obstacle in front of positive changes. If I could only give a single piece of advice for successful business development in IT today, that would be ‘bring a carefully chosen, truly proactive Individual to the company’. Someone who can be an idol for the younger generation. If an IT company does this, then they can be successful, often even despite their possible technological or professional weaknesses.
IT companies in another dimension
General challenges affect the entire IT sector. But simply following the generational trends and having the right leaders or idols at the company does not necessarily mean that the company can reach its highest potential. Certainly, following the ground rules will make an IT company viable and able to progress, but more than that is needed to bring out the most from it. In my own business development practice, I am currently working with several companies that got ‘stuck’ in a market niche. In the case of these companies, following the generational trend is a given. They have placed their companies in another dimension. In this dimension, a completely new set of issues has to be dealt with when it comes to scaling a business. It is a mainly positive fact that today even these companies can achieve amazing international success, turnover, and profit. This is a new opportunity for Hungarian companies. The start-up revolution is more or less over now, but the most successful endeavours of the day have now become notable companies. They are tested on an international stage, but several success factors necessary for this were simply not given in their own, local markets. Not surprisingly, they fall behind Americans, and even representatives of other continents now, in sales and marketing know-how. There’s a world of difference between continents in brand- and image-building, as well as in relevant background knowledge and experience – to the disadvantage of the Old Continent. In many cases, Hungarian companies holding outstanding, state-of-the-art technologies are simply unable to market them effectively. The process of ‘productisation’ is missing, which would be critical in every aspect of our world. Selling ideas, concepts, or opinions is much more difficult than selling tangible products. To make the situation worse, in IT we can hardly talk about traditional, ‘packaged’ products anyway. Thus, company leaders who have never studied strategy have to figure out how to present products that are 70–80% finalised, which are already interesting but still leave some room for fashioning them to fulfil the function in demand. Then we have to attach the right brand to it, which is mostly based on personality, or if we want to be bold, based on the decision-making mechanism, in the international world. And of course, we have to design the image, communication, and actions of the leaders, owners, and faces of the company to fit this brand. In Europe, and especially in Central and Eastern Europe, most managers still consider this as something from a ‘grimoire’. Still, more and more of them are becoming aware of the fact that on an international level, and in fact, now even on a domestic level, technology doesn’t sell itself anymore. Business strategies shaped to suit brand- and image-building are becoming prominent. In turn, these strategies sooner or later permeate the entire organisation of the company: if we decide to create products for a Ruler target group, for instance, then we will need to employ Ruler-type leaders and developers who not only try to understand the needs and lives of the given target group but ‘feel’ them in every detail. This makes them able to find the most suitable solutions. So, if this is such a huge challenge, why don’t they just stay in the local market, where they can secure their revenues and make a predictable income? There is a simple answer to that: that is not who they are, their personalities would never allow it! Predictability is dull for them, and keep in mind: we are talking about 34-year-old people, who just do not want to stop – actually, they might not want to stop even when they are 70. And it is exactly this that makes their technical knowledge and products unique, which really just have to be ‘packaged and sold’ to achieve true success.