This
is the third in a series of four articles.
This article summarizes what I believe were the most important ideas of
2003 in the world of business.
The first article in the
series covered the world of blogs &
blogging, the second covered politics
& economics, and the fourth, later this month, will cover the
environment.
BUSINESS: THE TEN MOST IMPORTANT
IDEAS OF 2003
 Regular readers of How to Save the World know that I
believe corporatism -- the concentration and abuse of power by
oligopolies of multinational corporations that work hand in glove with
sympathetic and indebted governments -- is one of the greatest scourges
of our time, one that threatens to destroy our democracy and our
economy. My readers also know that I'm infatuated with innovation,
entrepreneurialism, and with social networking as the saviour of both
knowledge management and information technology in business.
Corporatism was covered off in my earlier 'most important ideas' post
on politics & economics, so I won't include it again here. Having
said that, the biases I have just revealed are clearly evident in the
choices I make below. I hope you'll find them interesting, and useful
fodder in your discussion with business colleagues and customers. As
always, I welcome your comments, especially what you think is
conspicuously missing from this list.
- Profit needn't be the
bottom line - Charles
Handy continues to argue that businesses need to focus away from
profit for shareholders and more towards serving employees, neighbours
and customers, creating what he calls 'existential enterprises'. Fast
Company shows that single-minded pursuit of profit is not in most
stakeholders' best interests, and gives rise to what I've coined The
Wal-Mart Dilemma. With today's low interest rates, debt is low-cost
capital and it comes with fewer strings attached than equity. And new
technologies and connectivity allow businesses to grow organically
without having to depend on significant outside capital. And as Po
Bronson's bestseller What Should I
Do With My Life demonstrates, many of the most valuable potential
employees are no longer willing to be wage slaves, are walking away
from mind-numbing jobs and realizing that saving up money for one's
personal dreams just doesn't work. What is coalescing is the concept of
a business enterprise of self-selected and self-managed equals, whose
objective is to achieve the self-defined well-being of its members, and
to respect and advance the social and environmental needs of the
communities in which it operates. Organizations, that need not even be
incorporated, where no one is beholden to either paternalistic and
abusive bosses, or the excessive and insatiable demands of absentee
investors. I've called such businesses New
Collaborative Enterprises.
- Bigger is worse -
Several books and articles this year argue compellingly that big
corporations are less efficient, less responsive to customers, less
innovative, and worse places to work than smaller enterprises. Although
the concept of autonomous, loosely-managed business units is not new,
it has received new credence, in works such as Shulman &
Stallkamps' new best-seller Getting Bigger by Growing Smaller,
which calls for breaking big companies into Strategic Entrepreneurial
Units (SEUs), provides data that such decentralized and fragmented
businesses outperform their larger peers, and provides models for
decentralization. Indeed, there is considerable evidence that many of
the problems facing big business -- complexity, risk management,
information dissemination, leadership, scaling of operations,
cross-communication and 'matrix management' -- are all largely products
of unwieldy size, and disappear when the business is broken into SEUs
with autonomy to make decisions, and local control, responsibility,
authority and ownership. 'Head office' can then assess the SEUs
objectively as investments, and measure ROI very simply, while giving
the SEUs both much-wanted independence and the headaches that go with
it. Recent research also indicates that 80-90% of acquisitions are
failures (the combined entity ends up with less market value than the
separate predecessors), and that with very few exceptions there is no
longer such a thing as 'economies of scale'.
- New Market Disruptions could slay today's business giants - Clay Christensen, who
previously wrote The Innovator's
Dilemma, is back this year with a sequel co-written with Michael
Raynor entitled The Innovator’s Solution: Creating and Sustaining
Successful Growth. The new book provides another quantum leap
advance in our understanding of what innovation is and how it impacts
business. The authors say that innovation, which Cap Gemini recently and brilliantly definedas
'a robust creative process that turns out a very distinct output
with significant impact on the market', comes in two forms: 'Low-end
disruptive innovation', the subject of the earlier book, fills a
particular niche, usually at the low-margin end of the market and then,
as it is improved, starts to encroach on the higher-end market. Steel
minimills and discount airlines and retailers are examples, and TiVo
may prove to be one also. The second type of innovation, introduced in
this book, is 'New Market Disruption', which opens an existing type of
product to a vastly larger untapped market by either making it much
simpler or much cheaper, cannibalizing the pre-existing market in the
process. The authors' advice to entrepreneurs is to exploit New Market
Disruption by (a) looking for new potential markets for an existing
product in areas and applications far removed from their current
application, (b) looking for new potential distribution channels or new
customer groups for an existing product, and (c) building the core
competencies needed to introduce and support the New Market Disruption.
The book is enormously stimulating for the creative entrepreneur, and
reinforces the idea that in the 'mass' market simple easy-to-use products that do several things reasonably well (e.g. the
diary, the typewriter, the newspaper, the clock, the telephone, radio,
the motion
picture, television, the personal calculator, CD/DVD and other personal
storage devices) will always trump complex, sophisticated products that
do one thing exceedingly well (e.g.the personal computer, musical instruments, the VCR,
the fax machine, word processing software, spreadsheet software, PDAs,
videoconferencing, and of course, the Internet and blogging tools). Simplify and succeed.
- Viral marketing is soaring
in importance as trust in business tanks
- With every additional
business scandal, the public becomes more cynical about advertising, PR
and product claims. The concept of viral marketing is not new: Seven
years ago Jeff Rayport of Fast Company introduced its six fundamental principles:
Use stealth and subtlety to convey your message, give stuff away free
up-front, exploit peer-to-peer networks to spread the message, make the
message memorable and 'sticky', exploit the strength of weak ties, and
work to reach a 'tipping point'. But this year Rayport's message caught
fire when Malcolm Gladwell's book The Tipping Point
became a best seller, provided more detailed evidence of how well and
how broadly these six principles work, and gave detailed instructions
on how to employ them. These two factors -- the increased distrust of
corporate messages and the new recipe for 'doing' viral marketing, may
together make viral marketing mainstream -- no longer just a technique
for those that can't afford advertising, but a technique to replace advertising.
- A business is nothing more
than the sum of its people's productive efforts
- Forget standard operating procedures, the myth of leadership, the
importance of corporate
management, motivational philosophies, 'corporate memory',
sophisticated, customized tools, knowledge management and 'best
practice' repositories. As Peter Drucker said at the start of the
decade, we now live in a world where every knowledge worker is more
competent in his/her specialized area than anyone else in the company
-- including the boss. 'Best practices' no longer work because every
situation is different, every aspect of every project unique. The best
thing management can do is hire the top people, establish goals and
roles and suggest general processes to achieve them, and get out of the
way. With everyone's job different, the best infrastructure is
decentralized and personal, which is why Business 2.0 was right to call
Social Network Applications the Technology of the Year, and why personal content management systems, built on a blog-like platform, and open to individuals' networks inside and outside
the enterprise, will succeed where centralized systems and databases
and intranets failed. Even the PC, originally expected to be a work
'productivity' tool, has achieved almost all of its value from its connectivity and portability, not its 'office' applications. In all aspects of business, it's still who you know, not what you know, that counts. Business is vitally and essentially social, and relationships will always trump knowledge.
- Innovation only flourishes
in an environment that is open, collaborative and agile - In his
new book The Slow Pace of Fast Change,
Bhaskar Chakravorti explains why the atmosphere in Fortune 500
companies in the past few years has been so averse to innovation. These
large enterprises are not only heavily invested in the status quo, they
are also largely closed systems, with exchange of information outside
the organization (sometimes even outside the department) viewed as
risky, as a breach of confidentiality, and as giving away something of
the organization's 'competitive advantage'. Worse, these enterprises
are highly competitive, not collaborative -- employees try to 'win' in
the marketplace against competitors, vie against other business units
and compete one-on-one in the marketplace -- the antithesis of
cooperation. And finally these organizations are hierarchical and
committed to existing products and processes, and discouraged from
challenging them. Chakravorti's book, and several other 2003 business bestsellers,
stress the importance of either changing that culture or allowing the
innovation to occur in separate, autonomous units where openness,
collaboration and agility are viewed as advantages, not threats.
- Stories are subversive,
and far more persuasive than presentations, prescriptions and reports
- Take a look at the best selling business books -- from the stories of
corporate frauds and spectacular failures to the biographies of CEOs --
and you'll find most of them are stories. Rather than analytically
laying out the causes of failure or success, they tell a story in
dramatic style, first-hand, in chronological order. Not only is this
more engaging, it is more consistent with how we learn, and more
persuasive because it slyly leads us to reach our own conclusion,
unaware at how the narrative is manipulating
us to that end. Having reached that conclusion, we embrace it more
readily than if someone else tried to 'sell' us on it, and we remember
it better because we recall the 'journey' that took us to it. There is
a whole business school
dedicated to the use of stories as a persuasive business technique. And
Charles Handy's favourite business book of the year is not only a
story, it's not really about business -- the bestselling Moneyball
by Michael Lewis, which tells the story of the Oakland A's and how they
consistently get their low-salaried, unusually-recruited players to
outperform the expensive stars that every other team is vying for.
Stories in business aren't new, but realization of their tremendous power is.
- Business will evolve into
a World of Ends, with federations of small, specialized, networked
enterprises replacing hierarchical, vertically-integrated conglomerates
- This is a corollary to point 2 above. In recent years, large organizations have outsourced, and more recently offshored,
millions of jobs in an unending attempt to eliminate everything they do
that is not a 'core competency' -- something they do better than
virtually anyone else in the world. The risk they take doing this is
that the core competencies that are left -- things like specialized
decision-making, raising capital, and allocating resources -- are so
shallow that they don't justify the freight -- the high rates and
mark-up the organization charges for providing these services. As a
consequence, if Searls & Weinberger's World of Ends model applies as well to business as it does to the Internet -- and there's evidence it does
-- the consequence might be that the hollowed out conglomerates might
be dis-intermediated out of existence as well-networked, specialized,
independent manufacturers, distributors, servicers and R&D houses
(many of them in the third world where they've become quite expert at
doing this) contract directly with each other and cut out the (Western)
middleman entirely.
- When a business'
relationship with its customers is adversarial, it's in its death throes
- From the RIAA suing its customers to Nike and others going to court
to defend their right to lie to customers in their PR and advertising,
to ExxonMobil contributing 5% of the world's pollution and refusing to
pay a penny to clean up the mess they are creating, there are signs
that many large, established companies and industry groups are entering
the fourth and final stage of their business cycle -- start-up, rapid
growth, maturity, decline
-- and doing whatever they can to stave off their inevitable (and by
now, in most customers' eyes, welcome) collapse and demise. It is
increasingly common wisdom that customers are every company's greatest
and most fragile asset. Corporate actions that are clearly not in the
customer's best interests are evidence of desperation. The most visible
evidence of this in 2003 was the frantic lobbying by these dying
companies to entrench themselves a little longer by extending and
expanding what they can register as intellectual capital. To the point
where many experts are starting to say that patents are innovation's worst enemy.
- Developing 'Purple Cows' - Innovations that are truly remarkable, is the best way to break out of the pack - In his book Purple Cow, Seth Godin says if you really want to distinguish yourself,
forget product extensions, product enhancements, and product 'sequels',
and employ some truly novel thinking to develop products, processes,
services, channels or technologies that are real eye-openers. See may earlier article for some examples of purple cows, and Seth's ten ways to raise them. Then see how I applied Seth's methodology to the field of Knowledge Management.
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