Ascending from Decline: Change Your Way of Thinking

In this blog, I like to explain what’s driving the business cycle and what is causing the apparent shifts that we’re all witnessing today, such as the shift from profit to purpose, from consistency to change, or from sustaining to disruptive innovation.

First, I need to explain the concept of business cycles so you can perceive the situation.

Several renowned economists researched the phenomenon of recurring business cycles, amongst them Nikolai Kondratieff (1925; The Major Economic Cycles), Joseph Schumpeter (1939; Business Cycles), Arthur F. Burns and Wesley C. Mitchell (1946; Measuring Business Cycles), and Carlota Perez (2002; Technological Revolutions and Financial Capital).

A business cycle is a cycle of economic activity usually consisting of four stages, i.e., expansion, boom, recession, and depression. The business cycle is the natural rise and fall of economic growth in a capitalist system that occurs over time. It is a useful tool for analyzing the economy. It can also help us make better business decisions. 

Most economists agree with Schumpeter and Perez that there is a strong link between technological innovation and financial dynamics. At the same time, some believe the cycle is being driven by a combination of the credit cycle, the debt cycle, and the economic inequality. Nonetheless, the validity of business cycles is seldom disputed. 

A business cycle begins with a period of growth (bull period), followed by a tipping point, from which the cycle starts to decline, ending in a recession (the end of a bear period). While much of the value that was created during the first half of the cycle will be destroyed during the second half, the bull still outperforms the bear in terms of economic value.

The Kondratieff Business Cycle

So, what does the business cycle look like? Consider the following graph, known as the Kondratieff (also Kondratiev) long wave, derived from the rolling 10-year yield on the S&P 500. As you can see (right side), we’ve entered the final stage of the fifth business cycle. A complete business cycle, known as K-wave, lasts between 45-60 years (53 years on average):

Following the recent rise of the S&P 500, one could suggest that the fifth K-wave ended around 2016, however, that would violate the 53-average cycle by 10-15 years. Instead, I believe the financial crisis was a human error, caused by mark-to-market accounting on privately owned property (reintroduced in 2007). Milton Friedman had argued that the same principle was responsible for the Great Depression in the 1930s. 

When I’m correct, we should expect a significant financial reset somewhere between 2021 and 2031, most likely around 2023/2024.

The Four Stages of the Business Cycle

Now let’s look at how each business cycle is being divided. 

Kondratieff used the economic terms: Expansion, Boom, Recession, and Depression to address the four economic growth stages.

Since Kondratieff was an agricultural economist, he also compared the four stages to the cyclical seasons: spring, summer, autumn, and winter. 

Btw, it is not a fluke that the image below looks like ROUNDMAP; I was inspired by Nikolai.

Seen as S-curves

While a cyclical representation definitely makes sense (after all, a cycle is circular), another way of perceiving the business cycle is an S-curve. This is the way Carlota Perez made sense of the economic theories by Kondratieff and Schumpeter. Perez used the terms Irruption, Frenzy, Synergy, and Maturity to address the four technological stages.

Business Cycles Summary

Now let’s summarize the above: business cycles recur on average every 53 years. The fifth and current business cycle started around 1971 and is expected to end between 2021 and 2031. We are currently in the Maturity stage (Kondratieff’s winter), where most technological innovations, developed in the 1960s and 1970s are reaching end-of-life. 

Decreasing investment opportunities in the ‘old’ economic cycle drive idle capital toward new areas, sectors, and regions, thereby enabling the Next Great Surge. However, before the next Irruption phase, we first have to go through the turmoil of a depression, allowing the old to break down to make room for the new to emerge.

Disruptive Innovation Theory

In 1995, the late Clayton M. Christensen introduced the concept of disruptive innovation in his bestseller The Innovator’s Dilemma, in which he explained the actual process of incumbent breakdowns in favor of an entrant’s emerging technology. 

He also explained that more companies needed to shift from what he called sustaining innovation, implying incremental changes to continually deliver more value, toward disruptive innovation, a process of innovation that creates a new market and value network and eventually displaces established market leaders, products, and alliances.

Christensen’s theory expanded on Joseph Schumpeter’s (1883-1950) theory of creative destruction. Basically, the theory of creative destruction assumes that long-standing arrangements and assumptions must be destroyed (through innovation and competition) to free up resources and energy to be deployed for innovation. As such, creative destruction is an evolutionary process that rewards improvements and innovations and punishes less efficient ways of organizing resources.

Understanding both theories is absolutely critical in dealing effectively with the current Maturity stage of the business cycle.

Peak versus Trough

Now that you have a clear understanding of business cycles and where we are at, let’s have a look at the characteristics at the Peak (top) and at the Trough (trench) of a business cycle. To see where these two are located in the business cycle, I created a graph:

Three Perspectives

The graph above shows where we are today, close to the trough, relative to the K-wave (Kondratiev longwave). It’s an approximation; we can’t connect the dots looking forward, and as such, we’ll know for sure in hindsight. It would take quite a bit of time to explain the whole image, but understanding where we are suffices for now.

Next to Kondratieff’s economic indicators of the four stages of the business cycle (expansion, boom, recession, and depression) and Perez’s technological identification (irruption, frenzy, synergy, and maturity), I added my situational growth stages: expand, exploit, extend, and explore (bottom). Let’s see how these viewpoints relate:

CreatorStage 1Stage 2Stage 3Stage 4
Economic Growth (Nikolai Kondratieff)ExpansionBoomRecessionDepression
Technological Advancement (Carlota Perez)IrruptionFrenzySynergyMaturity
Business Growth (Edwin Korver)ExploreExpandExploitExtend

Dynamics at the Peak versus the Trough

OK, now that it’s clear where the peak and trough are located in the business cycle and that we’re moving toward the trough, I’m going to show you a list of pairs describing the differences between the two extremes in the business cycle ─ in random order. 

The list demonstrates that most, if not all, of the traits associated with approaching the trough in the current business cycle, relate directly to the subjects widely discussed in contemporary business publications. If you understand that a cyclical mindset is at par with today’s challenges while a linear attitude is not, you’ll know what to do.

Remarkably, we found that most of the pairs in the list point to a distinction between linear thinking and circular thinking (Btw, I prefer spiral thinking over circular thinking, given the framing of ‘circular’ in recent articles on sustainability). Considering our current position in the business cycle, we believe linear thinking will not solve our problems. 

ROUNDMAP, for the more significant part, is based on cyclical models in favor of spiral thinking.

Traits at the Peak of the cycleTraits at the Trough of the cycle
LINEAR THINKING (from A to B, roadmap)SPIRAL THINKING (coming full circle, round trip)
Linear Thinking (top-down, arrogant, ignorant, excessive, always be right, superiority attitude, 1-way communicating, ego-centric, absolute, take and keep, conquer nature, compete, judgmental) Spiral Thinking (connected, integrated, balanced, unity, equality, harmony, practical, pragmatic, life-based, intuitive, listening, give and share, modesty, trust, acknowledgement, cooperate, creativity, ingenuity, innovate)
Competition (closed formation, secrecy)Collaboration (co-opetition, across the silos)
Profit-driven (efficiency, productivity, costs)Purpose-driven (why, meaning, engagement)
Authority (restricted, procedures, protocols, scrutiny, conformity, compliance)Autonomy (empowered, distributed authority, given a voice, responsibility, self-organization)
Separated (SOS, siloization, exclusivity, boundaries, barriers, conflict)Connected (circles of trust, cooperation, psychological safety, emotional intelligence)
Hierarchy (ranking, subordinates, boss) Community (equality, diversity, amicable)
Masculine (conquer, acquire, everything is in a box, heros, extravert, hard skills)Feminine (consolidation, retain, regroup, everything is connected, commonalities, soft skills)
Specialists (expertise, barriers, boundaries)Generalists (cross-silo, connecting, innovative)
Logical/rational (head, self-centered, numbers, results, KPIs, intelligence, data)Intuitive (heart, community, gut feeling, emotional intelligence, social intelligence)
Conformity (convergent, consistent, commitment, alignment, part-of-the-box)Diversity (divergent, exceptions, conflicting, re-thinking, out-of-the-box)
Communication (sell, sending, telling)Listening (engage, empathy-driven, learning)
Me (ego-centric, selfish, pride, bold)We (community, humble, modesty, respectful)
Take and Keep (impatient, selfish, greedy)Give and Share (contribute, reciprocate)
Theoretical (models, forecasts, systems)Practical/pragmatic (experience, know-how)
Men Rule (conquer and deplete nature, pollution, indifference)Nature Rules (balanced, sustainable, reuse, refit, restore, respect)
Consistency (repeat, economies of scale)Change (adaptation, innovation, transformation)
Certainty (forecasting, risk averse, flow)Crisis/chaos (prototyping, LEAN, agile, flux)
Execute (result-driven, cost reduction)Experiment (discover, testing, scenarios)
Long-term (5-10 years)Short-term (1-2 years)
Mass Production (consistency, economies of scale, uniformity, market dominance)Personalization (products, services, or experiences; custom-build, build-to-order, agile supply chain)
Sustaining Innovation (existing products, incremental change, better value, higher margins, directed at the best customers, defending market share)Disruptive Innovation (new competitor or market entrant, more-suitable functionality, focus on overlooked segments, lower priced, nibbling away market share)
Acquisition (create a customer, relevance, persuasion, order value, transactional)Retention (keep a customer, satisfaction, significance, customer value, relational)
Relevance (focus on present problems, needs, and desires)Relevance (focus on present problems, needs, and desires)
Rational (facts, logical, calculated, predictability, cause and effect, IQ)Emotional (triggers, connection, relationship, reciprocity, EQ/SQ, deeper meaning)
Fragile (routines, systems, robustness)Antifragile (beyond resilience, embracing failure)
Revolving (repeat, resist change, predictable outcomes)Evolving (learning, adapting, changing)
Quantitative (playing the numbers game, cash conversion, ROI, KPIs, scale, mass)Qualitative (culture, beliefs, ethics, EQ, SQ, purpose, the story to tell, personalization, made-to-order)
Optimization (higher productivity, reducing waste & loss, increasing cash conversion)Innovation (prototype, iterate, design thinking, experience design, upscaling, venture design)
Productivity (produce more in less time)Creativity (discover more value in less time)
Captain (decisive leadership, unforgiving, steering, formal, masculine, hero-type)Culture (psychological safety, trust, confidence, diversity, engagement, alignment, open)
Competitive Advantage (sustainable, unsurpassable, differentiating, stability)Transient Advantage (responsive, fleeting, complementary, change as usual)
Exploit (capitalize on, mass, optimization, productivity, silos, product-centric)Explore (agile, innovation, product/market fit, job to be done (JTBD), market-centric, circles)
Robustness (the capacity to meet matched/known challenges)Resilience (the adaptive capacity to meet unseen and unmatched challenges)
The Art of War (big statements, attack, defend, shock-and-awe, exploit, linear)The Art of Raw™ (hypothesis, prototyping, testing, building, launching, expect-to-fail, cyclical)

Linear or Sequential Thinking

Linear thinking is that way of thinking in which we consider an idea or a process to begin from a point (A), follow a series of connected steps, and end at a point (B). Linear thinkers put things in order as they experience things in a sequential manner, like a straight line. 

It thinks that whatever starts must cease and not continue further after that. It is that school of thought in which we look at things as having a sequence. Hence, linear thinking is also called sequential thinking.

Because linear thinking is repetitious, and in many situations, the outcome or result never changes. This stunts higher sensory perception and suppresses consciousness. The mind gets stuck in a gear of belief and linear experience that it cannot shift out of. The more inflexible the mind, the weaker it is. 

Linear thinkers solve daily life problems by taking in information from one situation and applying the information gathered from it to another case. Linear thinkers find consistency, a rule, formula, or a pattern in matters concerning life to use it in other situations and even make predictions.

In linear thinking, we consider that one thing leads to another in a stepwise fashion. Linear thinkers tend to be good at mathematics, science, and technical subjects. 

Linear thinking is, therefore, associated with living in the future/past, driving consistency, continuity, productivity, predictability, repetition, forecasting, rational order, logical progression, sustaining innovation, and adaptation.

Nonlinear, Spiral, or Systems Thinking

As the name suggests, nonlinear thinking is not thinking along straight lines or in a sequential manner. In nonlinear thinking, we make connections among unrelated concepts or ideas. We conclude from examples coming from different fields or backgrounds.

Nonlinear thinkers have developed a capacity for spiral thinking and problem solving which extends into multiple directions or as an outward expansion spiral. Rather than thinking in step by step moving in one direction, spiral thinkers inherently know that there are multiple starting points from which one can apply the solution to a problem.

Spiral thinkers begin with more than one premise, make deductions from them, and then make an inference. A particular happening can have multiple reasons, and not just one is the essence of nonlinear thinking. Abstract thinking assumes something exists in mind, e.g., the definitions of success and happiness vary from person to person.

Systems thinkers are concerned with the whole and the underlying dynamics. They try to identify patterns amid the chaos. Systems thinkers are concerned with the process and less with the content. They believe organizations are unpredictable in a chaotic environment.

Nonlinear thinking is, therefore, associated with living in the now, change, disorder, complexity, chaos theory, systems thinking, sensory perception, discontinuity, circularity, insurgence, revolution, evolution, disruptive innovation, and transformation.

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Edwin Korver

Edwin Korver

Architect of ROUNDMAP™ - Advancing Grandmastership of Business™ ✪ Business Model Matrix™ ✪ Polymath ✪ Generalist ✪ Systems Thinker ✪ Board Member, CEO CROSS-SILO BV

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