Scarcity doesn't mean the end for businesses – here's what they should do

Scarcity could prompt businesses to think outside the box on success metrics.

Scarcity could prompt businesses to think outside the box on success metrics. Image: Unsplash/Mostafa Meraji

Martin Reeves
Chairman, BCG Henderson Institute, and Senior Partner and Managing Director, Boston Consulting Group
Madeleine Michael
Alumni Ambassador, BCG Henderson Institute
David Young
Fellow, BCG Henderson Institute; Managing Director and Senior Partner, Boston Consulting Group (BCG)
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  • Recent crises have constrained resources and increased costs but the slow return to normality indicates an incoming era of scarcity.
  • In the new reality of scarce resources, businesses will need to adapt their business model to ensure sustainable growth.
  • Businesses should focus on medium-term activities that will ensure an abundance of talent, a sustainable business model and the leveraging of technology for advantage, while changing their mindset around growth and success metrics in the long term.

Since the industrial revolution, we’ve lived in an economic system predicated on high growth. Today, that model is at risk and we can see the limits of resource abundance encroaching on multiple fronts:

  • Costs of capital are rising.
  • Labour supply is becoming tighter with shifting global populations.
  • Natural resources – essential elements, water, forests and climatic stability – are depleting.
Recent crises have constrained resources and increased costs but the slow return to normality indicates an incoming era of scarcity.
Recent crises have constrained resources and increased costs but the slow return to normality indicates an incoming era of scarcity. Image: BCG Henderson Institute

How to deal with the incoming era of scarcity

The acute constraints we’re experiencing are, at least in part, driven by crises such as the COVID-19 pandemic. However, even as we find the light at the end of the tunnel of the global health crisis, the disruptions have not tempered. This slow rebound to normal can be an early warning indicator of deeper systemic change, signalling an era of protracted scarcity that could make growth harder.

This new scarcity could threaten the successful business models of today’s large companies, which are built on virtually unlimited access to resources such as labour, raw materials and energy. But threats to current business models need not threaten business itself, so long as firms embrace new constraints, leverage them to advantage and in the process, uncover new sources of abundance.

Prosperity without easy growth

Realizing new avenues of growth will require leaders to take strategic actions on different time horizons. It will need businesses to adapt their market positioning and stance on innovation to mitigate and exploit scarcity to their advantage.

Today’s business environment is not the tail end of the COVID-19 crisis but the first phase of a new volatile and resource-constrained environment. Therefore, businesses should protect themselves by re-positioning for growth in this new environment while doubling down on resilience across the entire operation.

For example, TRIMET, a German aluminium producer, invested in new technology to allow its smelters to vary energy consumption and aluminium production by up to 25% in either direction (from a usual range of 5%), mitigating some of the impacts of the European energy crisis.


Medium-term activities

In the medium term, new abundance could be found through innovation in talent and business models and by making environmental sustainability a durable competitive advantage. Sustainability as a competitive advantage is a challenging charter but one that has the power to be a true differentiator – one that only 20% of businesses even claim to be able to realize. To put these ideas into practice, companies should:

1. Expand talent access

Adapt your talent strategy with the present day and future in mind. Create a “bionic organization” by focusing human talent where it is needed most, in areas requiring imagination, empathy or ethics and leveraging AI where it is especially adept.

Expand the search at home by developing upskilling or reskilling capabilities to support evolving talent needs and reach underrepresented populations. And expand talent access globally, creating a culture and structure that supports borderless collaboration.

2. Practice disciplined innovation

Continued evolution in technology, the shifting economics of input resources and demands for more sustainable business models require innovation just as an increased cost of capital makes this more expensive. A new, more disciplined approach to innovation is therefore necessary.

One such approach will be the adoption of “co-ambidexterity,” wherein the assumed trade-off between exploration and exploitation is broken and customer interactions are mined more effectively to learn and shape emerging preferences through a greater ability to customize, shorter learning cycles and more targeted innovation.

3. Build sustainable business models

Companies will also have to reinvent business models to thrive even as consumers and governments become more concerned with preventing the degradation of the planetary systems that support life and economic activity.

We have found that most successful sustainable businesses have reimagined their business models around new environmental, societal and financial priorities rather than simply adding sustainability as a separate consideration.

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Long-term ambitions

In the long term, we may live in a world where material growth is severely constrained in aggregate. Businesses should, therefore:

1. Stop relying on material growth

Dematerialize your product offering by taking “reduce, reuse, recycle” to the next level, embracing the service and experience underpinning product offerings or innovating and creating offerings in the digital realm.

Selfridges, the British department store, has set a goal of having half of customer transactions based on resale, repair, rentals or reuse by 2030. These benefits customers, who have more options for engaging with the brand and Selfridges, creating durable business lines with lower material intensity. Importantly, it will also benefit the earth.

When it comes to experience, luxury clothing brands are also pioneers. The luxury sneaker brand Golden Goose differentiates itself in a crowded space by promising the highest level of shoe repair. It fits the company’s brand of quality shoes built to last and creates an immaterial business arm and differentiator.

Whatever method a business takes to dematerialize, the result is lower cost and decoupling of revenue from scarcity-induced instability.

2. Change your metric for success

Become a company that reinvents the metrics for success. As we value our shared context more, we will measure and manage it with new metrics that reflect this.

The proliferation of environmental, social and governance (ESG) standards and impact investing firms has also resulted in many success metrics from which to choose. However, we could also change our goals at the level of a nation or society. For example, we could adopt inclusive wealth. This macroeconomic concept can include natural capital and human capital, in addition to the more familiar production capital as a measure of progress.

The United States plans to publish inclusive wealth metrics alongside gross domestic product in the next couple of years. Such a development would naturally affect how companies are taxed and regulated and, therefore, how they ought to measure success.

Ultimately, the companies that use new cascading resource constraints to their advantage will succeed by creating a new type of abundance.

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