Tuesday, November 9, 2010

Trends that are shaping the World – part 4

Whereas in the previous weeks we have looked at megatrends affecting emerging countries, this weeks’ blog will mainly focus on societal changes in developed countries. It is an aspect that almost all western countries face, often referred to as the ageing population as in the increase of the proportion of people older than 65. In Germany this proportion was as large as 20% in 2009. In the UK and the US it amounted up to 16% and 13% respectively and is rising. In comparison with China on a mere 5%, these numbers are very elevated. Why is this proportion so high in western countries and how should the public and private sector react to it?

Due to improved quality in health care and a relatively higher fertility rate in the 1950s and 1960s, there has been an increase in the ageing population. Another driver which further increases this proportion is the higher independency of women since the 1980s.

Unless more funds are made available to support the ageing population, the burden of this growing segment will continue to impact the economy further. To counteract this, if productivity can be increased especially in the public sector, more resources are freed to finance the elders’ pension schemes of tomorrow. There are a number of ways to improve performance that include organizational redesign, strategic procurement and operational design.

Firstly, organizational redesign is the broad term for streamlining processes to provide more of a focus on the end-customer. Secondly, a better understanding of a suppliers’ economics and the environment in which a public institutions operates in, often leads to positive savings and therefore performance improvement. Lastly, through redesigning the operations and subsequently reducing waste and duplication of effort, improvement can be achieved.

These three ways of performance improvement are already established methods in the private sector, why aren’t they commonplace in the public sector? It is often stated that in the absence of competition, managers do not have an incentive to take risks or to improve their business. This is what happens in most monopolies and why governments prohibit them in many industries. The same goes for public institutions: choices should be created for the end-user to create competition and private companies should be able to bid for social service contracts.

In terms of the private sector, businesses in B2C should position themselves to be able to address the growing segment of older people. The elderly of today and tomorrow are wealthier and more outgoing than yesterdays’. Hence, the right brand image and products could prove fruitful when tackling this growing segment.

The ageing population in western countries is a fact and poses a major change in the external environment of public and private entities. Therefore both types of entities should proactively approach this societal change.

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