As evidenced during the Arab Spring, and earthquake in Japan, we are often unable to recognize the magnitude of events as they unfold. Such could be true of the Occupy Wall Street Movement.  Are world-wide protests an indicator of momentum into a global revolution of the people, or will it fizzle into a clash between local police and a group of poorly organized discontents? What effect will all of this have on the business climate?

Many remain skeptical. One analyst said that a friend of hers had mused that she could, “smell them through the TV.”

Yet this is no ordinary protest, and to dismiss “the movement” on its face would seem shallow and naive. Regardless of ones political leanings, we must all be conscious that the movement on Wall Street has struck a nerve on Main Street. It is clear there is a faction within America who believes that significant reforms are required, and they believe they represent 99% of Americans.  It is hard to know if Wall Street CEO’s are paying much attention, but  one must assume that legislators are watching the 6 o’clock news with some discomfort.

The most direct effect will be the influence all of this has on the Presidential election, not only in terms of the selection for President, but of the agenda, which will define his term. Seemingly, the protestors will embolden those who seek higher taxes on the rich and broader controls and regulations.  The inability for the Republican Party to provide a clear front-runner, with a populace message could only further the left’s ambitions to reallocate American wealth.

Regardless of the winner, it would appear that laissez-faire capitalism is the institution under greatest attack. There seems to be a belief that the corporation itself is an instrument for evil.  A tentacle of the movement seems to be that government should legislate or guarantee employment, a concept with deep implications for labor law, unions, and taxation.

In the year ahead, the executive branch will continue to drive on tighter regulation. While there are streams of regulations under review, some of the most noted include[i]:

• Stricter interpretation by the IRS on expenses related to meals and entertainment, and a new tax on self insured health plans.
• A revamp of the SEC, including greater oversight of “broker/dealers”.
• Labor Dept. enforcement on the use of “contractors” and more restrictions on the use of minors on farms.
• Environmental controls on “fracking” and similar activities.
• The revamp of Medicare by the “deficit panel, including the potential of extending the Medicare eligibility age.
• New rules by the Equal Employment Opportunity Commission that crack down on discrimination against disabled workers.
• The Occupational Safety and Health Administration focus on violence in the work place and protections required in “high risk” work settings.
• A push by the Consumer Financial Protection Bureau for new rules on banks offering high-interest direct deposit loans.

The spread of protests in Europe is of particular concern, as the degradation of fragile economies there could provide fuel to the fire.  Those feisty Europeans are not new to protest, and their governments are not immune to violence. One thing that is hard to reconcile is that governments (such as Greece) are completely broke, yet their residents seem to expect a preservation of services, a zero sum game for all.  The failure of banks in Europe poses a much greater threat than in the U.S. It is a situation ripening quickly.

The fact that tax rates will escalate for the wealthy is somewhat inevitable. The President is calling for an unfathomable increase in corporate tax rates to boot.  Let us hope that such impetus does not create much in the way of immediate stress on the U.S. economy in the short term.

Batten down the hatches; it could be a long winter.

There has been the occasional business leader whose reign has been magical (Welch and Jobs come to mind).  Yet their business often fall to sustaining enterprise value after they leave. GE’s revenue and stock appreciation has been stuck in neutral since Welch’s departure, as the 20^th century’s most profitable company tries to find its way.  Apple has been trading all over the map in the last few weeks as the market tries to reconcile a world without the imagination of Jobs and his fancy gadgets.

A systemic problem for private companies is that a lack of management and bench strength.  This dearth of talent goes deeper then inhibiting productivity in the short term; it is a significant barrier to value creation for the entrepreneur.  If an exit is an objective (as is often the case), buyers generally want to see a strong management team and bench that can support future growth. If it is the business owner and his brother-in-law that possess all of the tribal knowledge (intellectual capital) about how a business operates successfully, the enterprise can lose luster with investors.

There are similar problems when one or two employees within a company are technically superior to those around them. Often, feeling their power and value, they are unwilling to teach, document, and delegate. When management and boards allow such conditions to persist, they are doing a disservice to the shareholders and are putting the company at risk.

Organizations should:

1. Require that every manager have a delegate – Identify and develop strong number twos that can eventually step in and take on the job duties of every manager. If people can’t attend conferences or go on vacation, because no one else can cover their desk, it is a sign that they have not developed the talent around them. To develop others takes time and investment including focus on performance reviews, career pathing and training.
2. Institutionalize activities, duties and best practices – Develop thorough documentation. Companies must maintain policies and procedures if they are going to be operationally excellent. When a supplier errs, it is usually because an inexperienced junior staffer doesn’t do something the way his senior counter-part would have. Often the junior staffer is criticized, even though it is their management who put them in position to fail.
3. Teach - Great leaders are usually great teachers; they aspire to develop others through daily interaction, and the sharing of information. The inability to teach is often a sign that a manager views themselves as the only person competent enough to complete certain tasks, and makes excuses as to why they can’t find other people to step up.  Great companies have development plans for every key employee, and make resources available for their continuous improvement.

Organizations that formalize these practices in their companies will maintain a long term strategic advantage over those who do. The talent war has only just begun.

Google’s behemoth $12.5 Billion acquisition of Motorola’s phone business set a salvo across the bow in technology circles. Google’s largest acquisition raises the stakes in the quest for platform dominance. The trend towards vertical integration is clear, as Coke and Pepsi buy up their bottlers, and manufacturers such as General Motors and Boeing eat up suppliers.

Consider the plight of HP, who has no software dancing partner in the world of mobile computing and announced last week of their exit from the desktop business. Investors penalized the company (who bought competitor Compaq a decade ago) severely, erasing $12 Billion in market value with a matter of days. [i]

And then there is e-textbook publisher Kno, the VC backed darling of Silicon Valley, who recently shelved plans to create a tablet for the education market after realizing that they did not have the chops to compete on a global scale with tablet manufacturers. The company moved towards an App for iPad only to have their margins raided by Apple (who earns a 30% royalty). [ii] While Kno has enormous upside, it is unlikely to realize its vast potential unless it owns or is owned by a distribution partner.

Today’s turf wars are not with a single competitor, but with their entire distribution platforms (as in the case with mobile devices). So the consequences of globalization persist; the large get larger and the small find the right alliance or face considerable competitive disadvantage. Vertical integration provides a recipe for greater control of cycle time and quality and a significant cost advantage. At a time when margins are slimming, companies are looking to participate both up and down stream.

It appears that the swell of distribution channels has made distribution even more important, so those who can find unique methods of delivery are creating a first to market advantage, such as Amazon has with books. As private equity investors look for deal flow, and shrewd entrepreneurs look for bargain basement acquisitions, they should look not only at competition, but for suppliers or customers that present control and cost advantage throughout the entire supply chain.

With so much cash on the sideline, some sectors may be ripe for another round of consolidation. The choice many businesses face today is will they be the consolidator, or the consolidated?

When the Internet was first thrust upon us, we didn’t know what to make of it. Nor did we know which of the entrants of the budding new market would win the beauty contest.  Our intuition was that someone (such as AOL, Netscape, Microsoft, Google, and Yahoo) would, and that the technology would be a game changer.

There are times when a technology is bigger than the first-to-market entrant who introduces it to us.  A current case in point is Toyota, a company who has been vilified in light of their massive quality and public relations problems. Yet Toyota has my attention, as they are braced to create disruption.

I recently bought a Lexus hybrid. I didn’t really buy it for environmental reasons, although reducing my carbon footprint was certainly a bonus. I bought it because I wanted all the toys, Lexus service and quality and was intrigued by the concept of 35 miles to the gallon (in a volatile world where the price of oil is at risk).

At its core, strategy is about managing trade-offs, and this technology provides the potential for consumers to gain the most, and give up the least.  I believe hybrid technology will emerge as a breakthrough, cross-over technology adopted by the majority of drivers in the U.S. in the next 5-7 years.  Electric cars are novel, yet inconvenient.  Americans are not going to adapt to sitting at charging stations for 2 hours, nor will they settle for a lack of power.  U.S. oil producers will not support any material shift to hydrogen, or corn, or recycled Twinkies, or whatever.  While the Prius was perceived as small and sluggish, the Lexus (a Toyota brand) is neither, and proves that the underlying technology can appeal to the masses. Toyota is way ahead of the pack in hybrid technology and I believe the day will come when it will provide a significant competitive advantage.

Of course this post is not about hybrids at all, it is about identifying breakthrough technologies that can disrupt an industry. Often, fortunes are made by the purveyor of a technology, as well as others who create alliances or business that can feed off it.

There are entire cottage industries being built to support such technologies, including the myriad of developers creating apps for The App Exchange (SalesForce) and Apple App Store.

Will Apple beat Microsoft in business computing (the answer is already clear in consumer products)?  Will cloud computing completely alter the technology landscape in ways we can’t even comprehend? Which mobile technologies will change the way we work and live?

What changes in health care technologies will revolutionize the way we care for the sick?  What emerging technologies could reshape your industry? What new delivery systems will improve the way your customers do business (or consume products)?  The answer will come based on who can create the best balance of trade-offs and win the beauty contest.