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).
In fact, information processing technology has advanced to such a degree, that FED Chairman Alan Greenspan named it among chief factors of curbed, short-lived recession in the US economy: “The massive drop in equity wealth over the past two years, the sharp decline in capital investment, and the tragic events of September 11 might reasonably have been expected to produce an immediate severe contraction in the US economy. But this did not occur. Economic imbalances in recent years apparently have been addressed more expeditiously and effectively than in the past, aided importantly by the more widespread availability and more intensive use of real-time information.” He puts it even further, saying that the use of technology brought about “reduction in the volatility of output and in the frequency and amplitude of business cycles for the macroeconomy” (Bank of International Settlements’ Review 48/2002).
The corporate world’s experience confirms this. During the bubble ‘90s General Motors invested billions in new computers and information technology, which proved vital for the corporation during the post-bubble slowdown. GM executives continually watched market and when needed, reacted immediately, adapting to the new circumstances. As the recession was unfolding, GM economists spotted downturn in weak sales reports. They immediately cut production by more than 20 %, laid off tens of thousands and launched biggest discounts campaign ever run. It helped boost sales, freeing storage lots, which were overcrowding only a few months ago. As other car producers followed GM lead, auto industry recovered and sold almost 17 million cars, which was second only to the previous year’s record. (R. Thomas, K. Naughton, “The Confused Economy: Is The Business Cycle Dying?” Newsweek, June 18, 2001).
The better, real-time, information enabled the GM executives react quickly according to the situation. Therefore, the next rule says: to reduce their exposure to volatile market, corporations should equip themselves with tools that will help better monitor day-to-day developments and react accordingly.
Permanent vigilance and quick, adequate responses to threats and challenges from outside world have become the central elements of another transnational company, Ikea’s strategy to overcome a different challenge facing business world today - a growing wave of anti-globalization and corporate-protest movement, which also has proved to elevate instability for large corporations. When the issue of poor labour conditions in developing countries, where majority of Ikea’s suppliers are located, had reached popular awareness a decade ago, the leading furniture maker became a target to numerous accusations from media and activists. However, “executives have scanned the horizon for possible threats – and stunned save-the-forest types by showing up at the door with generous offers of money and help. Not surprisingly, IKEA has rarely heard its name chanted in disgust, at least not for long”. (C.L. Miller, “The Teflon Shield”, Newsweek, March 12, 2002). According to the author, Ikea’s invulnerability to anti-corporate activists was “forged in rapid response to crises” and “hardened by strategic retreat when necessary”.
On the background of environmentally conscious society and a world divided into rich and poor, increased social responsibility of enterprises is indeed a big issue, which no company will afford to neglect. Today’s reality demands from the corporate world more than simplistic PR tricks. As founder and president of the World Economic Forum Klaus Schwab notes, the after-attacks developments along with growing resentment toward global business force us to rethink the roles of business and government in our lives. Resurrection of government as a society conductor and “de-legitimization” of business, particularly after the Wall Street scandals, are undisputable issues. Therefore, argues Schwab, the private sector, government and civil society should strike a real partnership to achieve cooperatively “a new era of growth and prosperity, accompanied by significant improvements in justice, equality and global governance” (K. Schwab, “What Business Can – and Can’t – Do”, Time, February 4, 2002).
To sum up, the environment of volatility dictates companies to pursue constant changeability instead of seeking stable havens. To succeed in this task, companies will increasingly depend on innovations and ideas. Permanently changing circumstances force companies to stay alert all the time to adjust timely. Sophisticated data processing equipment will facilitate it. Finally, business world should review its priorities on economic, environmental and social performance and work closely with government and civil society.
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