Organizing for the Future: No Time for Moderation
Since returning from China two months ago, I've largely avoided airplanes, hotels, and the speaker's podium, choosing instead to reflect and write. I've filled page after page of notebook paper with paired phrases—actually opposites. Some examples: "from the age of synergy to the age of breakup value"; "from economies of scale to dis-economies of scale"; and "from the hour as standard unit of time to the nanosecond." In this and next week's column, I will review six of the most important pairs. Each is significant in its own right. Moreover, the six form a coherent tapestry that weaves together a lot of the strange data accumulating in today's world of business.
1. From the age of predictability to the age of uncertainty. In Lee Iacocca's latest book, Talking Straight, he divulges that he seriously considered launching a takeover bid against General Motors. Couple that fact (although the bid never took place) with the stock market crash on Oct. 19, 1987, and you have an era in which the unthinkable—in which anything—is now thinkable.
Who would have predicted that Korea's Hyundai Excel would become California's top-selling car just two years after its launch? Or imagined that exchange rates would gyrate a few percent a week as a matter of course? That 50-point rises or falls in the Dow Jones average would occasion little more than a yawn? That IBM would lose one-third of its share of the PC market, much of it to upstart Compaq? That despite its expenditure of $60 billion on high technology between 1979 and 1987, GM would lose over a fifth of its market share during that same period (despite government provided protection in place since 1981)?
Each of the above is of tremendous significance for one reason: Virtually all our bedrock management practices, from setting strategy to creating "charts-and-boxes" structures to recruiting as well as evaluating job performance, are predicated on a future that is largely predictable. In fact, today's organizations still reflect Henry Ford's mass-production model of doing business. The simple truth is that we have no tried-and-true organizational models—or management practices—to fit an age in which volatility is the norm.
2. From the era of the elephant to the age of the gazelle. On June 29, IBM, for the second time in three years, announced the shift of several thousand people from staff jobs to sales positions. Battered in every corner of its once-impenetrable empire, the firm is said to be secretly hoping that many workers won't accept a shift of jobs, thus helping "Big Blue" to reduce its badly bloated payroll.
In a recent column, I named what I consider to be America's 20 most important firms. The common thread among them: Each is an upstart and a challenger—e.g., Chaparral Steel, Cypress Semiconductor, Cray Research, Genentech, Turner Broadcasting, The Limited, Federal Express. More significantly, each is a gazelle. Through speed of response to altered market circumstances, each has humbled an elephant, such as USX, NBC, Sears, IBM, and even the U.S. Postal Service. I'm not suggesting that "tiny is beautiful." But it is clear that acting big, by old standards, is a design for disaster in any market.
The unprecedented volatility mentioned previously demands continued quick response, since the average enterprise no longer knows who its future competitors will be, next month's exchange rate or what new use of technology is about to make obsolete half its product line and/or distribution system.
Technology is the supreme wild card. Not only is it leading to the miniaturization of everything, but it also is permitting us to build organizations without hierarchies. With these new organizational forms in place, the pioneering gazelles, even after they have grown larger, are outperforming the old standard-bearers not by an inch, but by a country mile. In steel, for example, Nucor (of Charlotte, NC) or Chaparral (of Midlothian,TX) are as much as 400 percent more productive than are the integrated steelmakers, despite the huge strides the majors have taken in the last few years. In retailing, firms such as The Limited and The Benetton Group move up to ten times faster than do their elderly competitors. Honda (still but a fraction of GM's size) blithely predicts a 300 percent increase in productivity in the next few years, and it's already far ahead of Detroit. Moreover, the company develops new models of automobiles up to five times faster than its American competition does.
The most conclusive proof of the arrival of the age of the gazelle is that virtually every old-line firm, from DuPont to the Bank of America, is working overtime to emulate the principles of its more agile kin. They're shedding layer after layer of hierarchy and hundreds of incompatible business units. With almost reckless abandon, they're setting up entrepreneurial elements, and subcontracting is skyrocketing. And the leaders of the biggest firms (such as Campbell Soup President Gordon McGovern) for the first time are seeking advice from the new arrivals (for example, Celestial Seasonings Founder Mo Siegel).
Never before has there been so much turmoil in the ranks of the Fortune 500, as even the unprecedented fluctuation in the list itself suggests. Today's corporate elephants, like nature's dinosaurs before them, are by and large an endangered species. Only the most fundamental transformation—into a herd of gazelles overseen by a bare-bones corporate superstructure—will suffice as a response to these altered times.
Next week I will look at four more radical changes that are reshaping the corporate landscape.
(c) 1988 TPG Communications.
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