Quite often policies and programs created by the federal government are viewed with distrust, dislike, and a general skepticism. So when a program such as Cash for Clunkers comes along that, while still having opponents, seems to have been so well received that it has almost ran out of it’s initial budget--it is somewhat refreshing to see a policy strike such a chord.
As a small part of the much larger $787B stimulus package, Cash for Clunkers was designed to provide two main benefits:
- to provide a quick and profound boost to the flagging auto industry
- to remove some of the most poorly fuel efficient vehicles off the roads and replace them with modern fuel efficient vehicles, thus reducing carbon emissions, environmental impact, and a minor reduction in oil consumption.
Whether the program will make a noticeable impact on both of those fronts will be determined when it is over, however there have definitely been a large number of people buying newer cars so it would seem that it is on its way to achieving its objectives. But what this article is about is not those two goals, rather I am interested in the other, not so recognizable effects of the program, which come about in part from the multiplier effect.
The multiple effect is the idea that increased spending in an industry, or segment, or geographic area can cause increased economic activity beyond that one focus. A simple example would be a new factory coming to town which will provide paychecks to people who will then spend that money at other places thus increasing those businesses’ economic situation enough that they in turn would spend more, and on and on…
In regards to the Cash for Clunkers program, to see a snapshot of this effect occurring you can look at the advertising and media industries. Economic benefits are being felt by newspapers and radio stations through an increase in car dealership advertising, media planners and buyers are making more money by placing those ads, and writers, designers, and audio/video pros are busy producing the ads. All of this activity would be less had there not been the initial effect of increased car purchasing. Beyond this one snapshot, the effect can be seen in such small ways as an uptick in the lunch rush at the restaurant across form the dealership or the retail shop that smartly runs a sale that plays off the increased traffic in the area.
Now to be clear, there are many who don’t think trying to improve the economy through a multiplier effect is a good thing because it does require an often large influx of money or capital at the outset (in this case taxpayer dollars), can often take a long time to work its way through the economy, and is hard to measure, evaluate, or tell if it actually worked. What can’t be denied, however is that there is a relationship, sometimes strong, sometimes less so, between the success of one company or industry or geographic area and the success of others. Sometimes it even makes sense to wish success for a competitor because it may have a positive spillover effect on your own business.
Which brings me to my last point which is how this relates to your own organization. The multiplier effect relies on a holistic approach to the economy through the interconnectedness of relationships I just described. But there is also another whole world of connectedness going on within your own company or organization. This holistic approach is something we at Westfall | Group have incorporated into the foundation of our thinking for clients, as we take them through the process of identifying those relationships.
When you are developing new strategies or new products and services, it is crucial that you take a look at all the effects your decisions will have (a little tip: there are many more than most people think). Laying out the various outcomes of a decision and the outcomes from those outcomes and so on, is something we call Reverse/Domino, and while it may seem daunting, it really does provide a clear understanding of how the choices you make will have an effect on your success in the marketplace.
Once those internal decisions have been analyzed the other step is to pair that information with a look at the external landscape: competitors, economics, government actions, new technologies, and so on. This Opportunity Mapping is crucial because your organization does not live in a bubble and it is a fact that you have at least one competitor not sitting back waiting for something to fall in its lap.
This two-part evaluation is something that should become an integral part of every organization regardless of size or focus. We’ll look at both of these tools in more detail in the future, but right now we need to get our gas-guzzler to the dealership before it’s too late.
Inside the Group is the brainstorming and discussion world of evolution firm Westfall | Group
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