You know business is in trouble
when it starts suing its customers. Bad sign. What has led to this
terrible state, and what does it mean for the future of business?
Let's take a look at some of the recent trends:
- After the heady days of 'Continuous Innovation' and 'If it
ain't broke, break it' in the 1990s, business has made an about-face,
shutting down innovation and becoming infrastructure-averse. This
occurred mainly because customers either wouldn't, or couldn't afford
to, shell out more and more money each year for overpriced brand-name
junk, causing return on investment (ROI) in many industries to level
off or fall, causing shareholder unhappiness that the double-digit
increases in profit needed to justify the absurd share prices of the
day were not forthcoming. If you can't increase the 'R' in ROI, you
gotta cut the 'I'. The integrated business model (Figure 1 above) had
to change.
- So began the race to the bottom, the attempt to prop up
profits by cutting costs, anywhere and everywhere. That means
manufacturing offshore, outsourcing, converting employee jobs to
temporary 'contracts' with no benefits or obligations to the employer,
"offshoring" (exporting jobs to third world countries), and cutting
heads, since the major costs in most organizations, next to sacrosanct
executive salaries, are line staff wages. The only 'competitive
advantage' that counted any more was the lowest fixed cost. Of course,
along with the lower cost came, inevitably, shoddier products and less
service.
- With the recession came a drop in share prices, and rather
than invest in new ideas and technologies, businesses who had any cash
to spare spent it acquiring competitors, so that the few remaining
players in each industry could more or less set prices where they
wanted. A lot of lobbying to eliminate regulation, especially
regulation over concentration of ownership, occurred to allow this to
happen. This is euphamistically called 'consolidation'.
- As customers began to protest against poor value for money,
poor service, lack of competition, and price-fixing, big business
responded by suing customers. Suddenly, exploiting new technologies to
acquire exorbitantly-priced merchandise at reasonable cost was labelled
'theft', and corporations were suing for the right to lie to their customers about their products and how they were made. A corporation vs. consumer war was on.
- Business executives began complaining, only half in jest,
that their businesses would be fine if it weren't for the customers.
The nuisance, cost and risk of having to deal with unfriendly customers
was addressed by outsourcing help-desk functions and other 'non-core'
functions of the business, to outside organizations. Let them look after the damn customers.
As a result of these changes, instead of the integrated business model
in Figure 1, large corporate empires are starting to look more and more
like the model in Figure 2. They are virtually 'dis-integrating'. The
main customer-facing functions are outsourced to marketing and sales
agencies, independent logistics companies (FedEx etc.) pick up the
product from the manufacturer and deliver it to the customer
(end-consumer or retail store), and outsourced 'help' desks (often in
inexpensive third world countries) deal with the customer from there.
And companies are finding it's cheaper and less risky to buy patents
from independent R&D companies (often one-man operations) than
developing their own, and use generous new intellectual property laws
(that only they can afford to protect) to prevent competitors from
introducing even vaguely similar products.
Even manufacturing is often outsourced to plants in third-world countries. Why bother actually owning
manufacturing plants when with your purchasing power you have all the
benefits of ownership and none of the risks? If the overseas plant uses
slave labour, or pollutes the land, "well, we just buy from them, it's
not our responsibility and we have no say in their operations". And
since the employees of these 'virtual subsidiaries' aren't the
company's, they are immune to charges of 'offshoring'. Even better, if
the product reaches the end of its life cycle, you don't need to deal
with layoffs or site disposal -- that's the manufacturing contractor's
problem. You can see the appeal.
What is left of the large corporation though? A small management team
and an army of lawyers who contract all of the risky functions of the
company to outside organizations. Assets that are all intellectual --
patents, trademarks, contracts, etc. Essentially no front-line
employees, no liabilities, and no risks. And no direct contact with
those pesky customers. The corporation has buffered itself against
everything. In the all-important ROI, it has minimized its 'I', and
guaranteed that, while the 'R' might not be as high as it was in the
high-flying dot-com days, it's now virtually risk-free.
You can't blame the management of large corporations for doing this.
The way corporate, employment, tort and intellectual property law has
evolved, and as long as the single overriding objective of corporations
is maximizing investor profit, they're almost pushed into it. The
wardens are just running the institution the way they're told to.
But the model in Figure 2 has an achilles heel, and new technology, especially networking technology and the world of ends,
gives us a powerful, perhaps even inevitable, means to attack it. In a
world of ends, where the network is everything and all the knowledge
resides in the network at these ends, there is no longer any need for a middle-man, especially one as costly as the executive in today's large corporation. The organizations around the outside in Figure 2 merely need to realize this, and start contracting with each other
directly. Some smart entrepreneurs are already doing this, connecting
these hard-working, risk-taking, mostly small and independent and
resilient specialized businesses one-to-one, and providing technology
that enables them to deal directly with consumers with no need for the
agency of (and the large cut taken by) the large corporation.
The baby, having thrown all the toys out of the crib, suddenly finds he
has nothing left to do. What remains is the business 'world of ends' in
Figure 3, no different from Figure 2 except that it has 'imploded',
with the removal of the no-longer-necessary large corporation getting
in the way of true, open, networked commerce. This is a world of
entrepreneurs, perhaps even New Collaborative Enterprises, agile and responsive to customers, specialized but working as a network, no middle-man required.
Lawyers and seven-figure executives need not apply.
On the weekend I met with two very bright thinkers on Innovation and Knowledge Management, Jon Husband of Wirearchy and Mike McInerney of Resonance Consulting and Helix Collaboration Commerce. We spent some time talking about Social Networking Software and Personal Productivity Improvement, and ended up talking about how A World of Ends might apply to business. This article is the result, and I thank Jon and Mike for the inspiration.
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1:24:20 PM 
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