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The Darwinian theory of evolution is in vogue again! Only this time it deals not with species of wild life, but with modern companies and people managing them. Over the past decade the modern society and business world have been experiencing a ceaseless series of changes affecting all spheres of the economy. What makes these changes remarkable is their increasing frequency and lessening predictability, and most importantly, the range of the impact they have on today’s corporate world. As a result of recent advances in technology, regulation and geopolitical arena, corporations have to struggle to survive in an environment of severe competition and volatility. In this ruthless struggle the winners will be those companies who will be able to adapt to the new environment and adopt the new rules of the game. This essay is an attempt to outline the reasons of increased volatility and some of the rules that in my view will help companies in overcoming it.
The first and most fundamental rule is that volatility becomes the axiom of the business world and the framework outlining the principles of doing business. The increasing openness and transparency have caused capital and labour – the classical resources of economy – to move freely between states and continents. Dizzying advances in technologies, and particularly, information and communications technology, have allowed information and ideas – the resources that will be most valued by the XXI century corporation – to spread worldwide instantly. Combined, these profound developments resulted in dramatic exposure of today’s company to outside world, bringing about corporate interdependence and general instability. Taking into account the pace with which globalization is unfolding today, it is obvious that from now on there will be no returning to ‘business as usual’.
Never-ending volatility makes insurmountable the task of forecasting all threats and possibilities of tomorrow. Nobody could have predicted the September attacks on the World Trade Center in New York and the dramatic consequences they caused to the global economy: tightening borders, raising insurance costs and further deterioration of growth prospects. Neither could anybody foretell Enron and other Wall Street scandals that forced the US government to review and toughen corporate legislation and made shareholders more suspicious of celebrity CEOs and demand more transparency. Furthermore, rapid developments in information technologies virtually eradicated physical and geographical boundaries. Internet and e-commerce, which created new business models and transformed the way business is conducted, have been proved to be breakthrough developments in the history of business world. With these powerful tools, practically any new company emerges as a global player overnight. And with good management and sound strategies a start-up enterprise becomes an on-par competitor to established and powerful corporations. All these developments suggest us the second rule of the game: to prosper in a continuously changing environment, today’s corporations have to become continuously adaptive. And genuinely successful companies will be those changing and renewing themselves faster than the environment.
The other aspect that will guide corporations to success in the volatile reality of the Information Age is the shift of emphasis from physical assets to intellectual property. In the XX century most prosperous corporations used to have vast holdings and employ tens of thousands employees. Today’s corporate giants, most valuable and prized pets of the stock exchanges, instead, are less capital-intensive and have fewer employees. Ideas and inventions are now more valued than a decade ago. They have been the driving force of the New Economy in the United States. As information technology investments surged during last decade, productivity of the US economy increased almost twofold. Software, market research, consulting and other idea-based businesses are flourishing. American labour authorities forecast that by 2005 only 20% of workforce will be employed in manufacturing industry. The third rule says: the number of patents and innovations, not of plants and machinery, will define commercial success of tomorrow’s corporation.
Equally, if not more important is the length of time between defining a new idea or concept and realizing it. Corporations should shorten it to exercise all powers of trendsetters. Moreover, to churn out more ideas, companies should free information flow to and from their employees and use most recent technological advances. Brand giant Procter & Gamble, enabled its workforce of 110,000 people to post their ideas into CNV - Corporate New Ventures - panel through My Idea corporate network. The CNV staff have unlimited access to company resources to bring a new product to market. If an idea proves to be feasible, a project is started within days. Since its establishing, CNV has launched 58 products onto the market. Thanks to well-coordinated work of engineers and marketers, CNV is able to develop a completely new product in just 10 months, which is less than half the usual time (Marcia Stepanek, “Using the Net for Brainstorming”, Business Week, December 13, 1999).
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Chingiz Maatkerimov
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Comments
Too Obvious. Andrey Ryabovol | Aug 12th, 2004
I should say, that I couldn't find anything new in the essay. Aspects that the author underlined are almost the same. Moreover some of them don't say anything.
"Finally, business world should review its priorities on economic, environmental and social performance and work closely with government and civil society." This phrase says nothing... Absolutely... It has been true for last 1000 years.
All the time, in democratic society companies face ?ompetition, until there is a monopoly. Top managers job is to deal with problems that are being caused by competition. Top managers existed forever, so the fact that companies should work to struggle with other companies is old as business is.
I wanted to see some new definite examples of volatility, because most of them are extremly interesting.
I hope my comment will not be lost and forgotten.
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