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The Shift Index: Executive Summary

A big shift


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In the midst of a steep recession, when it’s all too easy to fixate on dramatic, cyclical events, there’s real danger of losing sight of deeper trends. Strictly cyclical thinking risks discounting or even ignoring powerful forces of long-term change. To provide a clear, comprehensive, and sustained view of the deep dynamics changing our world, Deloitte's Center for the Edge has developed a Shift Index consisting of three indices and 25 metrics designed to make longer-term performance trends more relevant and actionable.

The Shift Index highlights a core performance challenge that has been playing out for decades: return on assets for U.S. companies that has steadily fallen to almost one quarter of 1965 levels, while labor productivity has continued to improve. Some additional findings that highlight the performance challenges facing U.S. firms include the following:

  • The performance gap between winners and losers has increased over time, with the “winners” barely maintaining previous performance levels, while the losers experience rapid deterioration in performance
  • The “topple rate” at which big companies lose their leadership positions has more than doubled, suggesting that “winners” have increasingly precarious positions
  • U.S. competitive intensity has more than doubled during the last 40 years
  • While the performance of U.S. firms is deteriorating, at least some of the benefits of the productivity improvements appear to be captured by creative talent, which is experiencing greater growth in total compensation
    • Customers also appear to be gaining and using power as reflected in increasing customer disloyalty towards brands
  • The exponentially advancing price/performance capability of computing, storage, and bandwidth is driving an adoption rate for the digital infrastructure that is two to five times faster than previous infrastructures such as electricity and telephone networks

Levels of Implication

These findings have two levels of implication. First, the gap between potential and realized performance is steadily widening as productivity grows at a rate far slower than the underlying performance increases of the digital infrastructure. Potential performance refers to the opportunity companies have to harness the increasing power and capability of the digital infrastructure to create higher returns for themselves as they achieve even higher levels of productivity improvement through product, process, and institutional innovations.

Second, financial performance continues to deteriorate as a quickly evolving digital infrastructure and public policy liberalization combine to intensify competition. The benefits from the modest productivity improvements that companies have achieved, increasingly try to capture creative talent and customers, who are gaining market power as competition intensifies.

How Do We Reverse This Trend?

To address that question, the Shift Index seeks to measure three waves of deep and overlapping change - a Big Shift - operating beneath the visible surfaces of today’s events. The relative rates of change across the three indices will help executives understand where we are in the Big Shift and what to anticipate in the future.

 

As used in this document, ‘Deloitte’ means Deloitte LLP (and its subsidiaries). Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.

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