Corporation, MD

The present economic scenery does not allow for narrowness in the search for diagnosis and remedies. It may very well be the case that our macroeconomic illness also plunges some of its roots into microeconomic malfunction.
Let’s therefore put aside for now both (i) the regular macroeconomic cycles, although one of them definitely just ended, and (ii) the long term decline in the technology gradient between East and West, although it threatens the foundations of the entire international trade model, as well as (iii) the leverage bombs which triggered the depression. Let’s focus instead on business management at corporate level.
Business administration theory is essentially teaching how to fight Schumpeter’s concept of inevitable corporate death. The mainstream idea is that, given enough goals setting, planning, focus, hard work, diligence, persistence and disciplined execution, corporations can follow a perpetual ‘S curve’ from fast growth to maturity, from start-ups to cash-cows. The transition to maturity is recognized as a critical phase, which calls for new managers and business consultants, in order to regenerate income, in spite of reduced growth. The task of the consultant is to recommend and the task of the tough (=good) new managers is to implement the recommendation of trimming the fat, i.e. eliminating any product line, market segment, supplier, channel, employee or investment, which either does not fit the historical success profile of the company or does not produce the best income. This method has proven itself, and it is a certain fact that the deliberate trimming of the business to the core, does indeed create a short- or mid-term improvement of income in the so-called ‘mature’ companies, i.e. companies large enough to be in the first tier of their own sector and now probing the limits of their core market.
On the other hand, it is a dangerous medicine the one that guaranties the death of the patient. If the trimming logics are pursued to their end, as a matter of fact, the company will find itself with only 1 product, 1 client, 1 employee and no investment, another name for sheer disappearance. There is no practical escape from this theoretical conclusion: large companies die. The more the mainstream management cure is applied and the better the managers are in implementing the recommendation, the more in fact the company is doomed.
With the temporary exception of oil companies, almost no corporation listed on the US stock market at the time of WWI is still in existence today; and the handful of survivors is mostly in bad shape. The biggest, strongest, and best managed corporations according to standards are dead or in agony. There is no space enough here for the endless obituary they would deserve. Just think of PanAm and most airlines, Polaroid, Kodak, Kmart, Dell, GM and most automakers, AT&T, ITT, DuPont, all banks, DEC, Bell-Lucent-Alcatel, Bethlehem and most steel titans, Tribune and most newspapers companies, AOL, Marlboro and most tobacco companies, etc, etc, etc.
The main reason behind the mass slaughter is that while companies tend to stick to what made their success and eliminate the fat around their core business, markets have a life of their own. Few assertions are more certain than the following: there will always be a market change capable of killing any company.
Based on these facts, one would think that the best management method is not the ‘trimming to the core’ but the preparing at all times for market change. The problem here is twofold. First, stock markets are not inclined to sacrificing sure short-term improvements by trimming for unsure long-term investments for survival.
Second, the risk, as usual, is to underestimate randomness. It takes many entrepreneurs to get a successful one. God and Evolution, with their 50 million spermatozoids per ejaculate, are in fact much more conservative than venture capitalists with their acceptance of a 90% average rate of failure. Moreover, the established business management theory is wrong in confining randomness at the level of start-ups. Randomness remains a reality after the initial stage. Even if an exceptional business genius was capable of anticipating most of the future market changes and designing the appropriate product solutions, he or she would still be confronted to randomness under the form of timing. Timing is determined by such a complex combination of factors, that it can almost never be forecasted and can only be guessed. Wrong timing is yet the worst of all outcomes, having consumed vital resources to no avail.
Under these conditions, is it possible to design the kind of meta-corporation it would take to continuously self-reorganize in order to face market change? A couple of entrepreneurs, like Jack Welsh (GE), Steve Jobs (Apple, Pixar) or to a lesser extent Richard Branson (Virgin) and Lou Gestner (IBM) have shown it can be done on an individual basis. But can this be done on a global basis?
In what is possibly one of most stimulating books ever written on Business Management (Create Marketplace Disruption: How to Stay Ahead of the Competition FT press, 2009), Adam Hartung gives a positive answer, and explores various ways for a corporation to manage its success formula to achieve adaptative success: such as stop the ‘Defend & Extend’ old habits through trimming, generate controlled disruptions of the corporate personality, and create an autonomous ‘White Space’ to continuously create revised success formulas.
Although I am not sure any business organization can overcome Schumpeter’s spell forever, Hartung’s suggestions may certainly increase their longevity. If he is right, the good old ‘best practice‘trimming will give way to a much healthier type of management. Successful corporations would probably not only survive longer, but they would also be likely to do a much better job than venture capitalists at attempting new success formulas , having more resources to do so and a portfolio of potentially synergetic technologies to leverage. Last but not least, consumers’ markets would be filled with a smaller number of laid-off employees…
This is how the world goes