by florenzie
Sunday, August 23, 2009
WHAT IS CORPORATION?
In the late seventeenth century, Stewart Kyd, the author of the first treatise on corporate law in English, defined a corporation as,
"a collection of many individuals united into one body, under a special denomination, having perpetual succession under an artificial form, and vested, by policy of the law, with the capacity of acting, in several respects, as an individual, particularly of taking and granting property, of contracting obligations, and of suing and being sued, of enjoying privileges and immunities in common, and of exercising a variety of political rights, more or less extensive, according to the design of its institution, or the powers conferred upon it, either at the time of its creation, or at any subsequent period of its existence."
Management by Web
To thrive in this new century, companies are going to need a whole new set of rules
Sparked by new technologies, particularly the Internet, the corporation is undergoing a radical transformation that is nothing less than a new Industrial Revolution. This time around, the revolution is reaching every corner of the globe and in the process, rewriting the rules laid down by Sloan, Henry Ford, and other Industrial Age giants. The 21st century corporation that emerges will in many ways be the polar opposite of the organizations they helped shape.
Indeed, if you've worked as a manager for at least a decade, you can forget much of what you've learned so far. Prepare to toss out your business-school case studies and set aside many of the time-honored principles that have guided generations of managers. The vast changes reshaping the world's business terrain are that far-reaching, that fundamental, and that profound. ''We're not witnessing just a little change in our economy,'' says David Ticoll, chief executive of Digital 4Sight Systems & Consulting Ltd., a business think tank and consulting firm. ''This is an epochal change in the history of production.''
EPHEMERAL.
To survive and thrive in this century, managers will need to hard-wire a new set of rules and guideposts into their brains.
Not so long ago, for example, leaders believed that building assets over the long haul guaranteed competitive advantage. In this new century, success will go to the companies that partner their way to a new future, not those that put heavy assets onto their balance sheets. Leaders once thought that creating intense rivalries among competitors motivated their employees and assured success. But in the days to come, a company's fiercest competitor might also be its most important collaborator. Since the dawn of trade, every business leader has wanted to build an enduring enterprise.
In the new century, though, many companies will be intentionally ephemeral, formed to create new technologies or products only to be absorbed by sponsor companies when their missions are accomplished.
Many factors, from the need to expand beyond national borders to the inexorable shift toward intellectual capital, are driving change, but none is more important than the rise of Internet technologies. Like the steam engine or the assembly line, the Net has already become an advance with revolutionary consequences, most of which we have only begun to feel.
The Net gives everyone in the organization, from the lowliest clerk to the chairman of the board, the ability to access a mind-boggling array of information--instantaneously, from anywhere. Instead of seeping out over months or years, ideas can be zapped around the globe in the blink of an eye.
That means that the 21st century corporation must adapt itself to management via the Web. It must be predicated on constant change, not stability, organized around networks, not rigid hierarchies, built on shifting partnerships and alliances, not self-sufficiency, and constructed on technological advantages, not bricks and mortar. Already, old business models that emphasized fixed assets, working capital, and economies of scale have become increasingly vulnerable to nimbler organizations that employ new technologies to reduce costs.
Leading-edge technology will enable workers on the bottom rungs of the organization to seize opportunity as it arises. Employees will increasingly feel the pressure to get breakthrough ideas to market first. Thus, the corporation will need to nurture an array of formal and informal networks to ensure that these ideas can speed into development.
In the near future, companies will call on outside contractors to assemble teams of designers, prototype producers, manufacturers, and distributors to get the job done. Emerging technologies will allow employees and freelancers anywhere in the world to converse in numerous languages online without the need for a translator. ''The gap between what we can imagine and what we can achieve has never been smaller,'' says Gary Hamel, a consultant and author of Leading the Revolution.
That rapid flow of information will permeate the organization. Orders will be fulfilled electronically without a single phone call or piece of paper. The ''virtual financial close'' will put real-time sales and profit figures at every manager's fingertips via the click of a wireless phone or a spoken command to a computer. ''We don't have science-fiction writers who have seen and written this future,'' says Lowell Bryan, a consultant who leads McKinsey & Co.'s Global New Economy practice. ''Everything we see leads to greater diversity, greater choice, a far more integrative economy, yet more individualism.''
How, exactly, will these forces reshape the 21st century corporation?
The organizations that flourish will have several defining features.
-- It's management by Web. That means not just Web as in Internet but the web-like shape of successful organizations in the future.
The 21st century corporation, in contrast, is far more likely to look like a web: a flat, intricately woven form that links partners, employees, external contractors, suppliers, and customers in various collaborations.
The players will grow more and more interdependent. Fewer companies will try to master all the disciplines necessary to produce and market their goods but will instead outsource skills--from research and development to manufacturing--to outsiders who can perform those functions with greater efficiency.
''Companies will be much more molecular and fluid,'' predicts Don Tapscott, co-author of Digital Capital. ''They will be autonomous business units connected not necessarily by a big building but across geographies all based on networks. The boundaries of the firm will be not only fluid or blurred but in some cases hard to define.''
-- It's more about bits, less about atoms. The most profitable enterprises will manage bits, or information, instead of focusing solely on managing atoms (the corporation's physical assets). Sheer size will no longer be the hallmark of success; instead, the market will prize the ability to efficiently deploy assets. Good bit management can allow an upstart to beat an established player; it can also give an incumbent vast advantages. By using information to manage themselves and better serve their customers, companies will be able to do things cheaper, faster, and with far less waste.
-- It's mass customization. The previous 100 years were marked by mass production and mass consumption. Companies sought economies of scale to build large factories that produced cookie-cutter products, which they then sold to the largest numbers of people in as many markets as possible. The company of the future will tailor its products to each individual by turning customers into partners and giving them the technology to design and demand exactly what they want. Mass customization will result in waves of individualized products and services, as well as huge savings for companies, which will no longer have to guess what and how much customers want.
-- It's dependent on intellectual capital. The advantage of bringing breakthrough products to market first will be shorter-lived than ever, because technology will let competitors match or exceed them almost instantly. To keep ahead of the steep new-product curve, it will be crucial for businesses to attract and retain the best thinkers. Companies will need to build a deep reservoir of talent--including both employees and free agents--to succeed in this new era. But attracting and retaining an elite workforce will require more than huge paychecks. Corporations will need to create the kind of cultures and reward systems that keep the best minds engaged. The old command-and-control hierarchies, with their civil-service-like wages, are fast crumbling in favor of organizations that empower vast numbers of people and reward the best of them as if they were owners of the enterprise.
-- It's global. In the beginning, the global company was defined as one that simply sold its goods in overseas markets. Later, global companies assumed a manufacturing presence in numerous countries. The company of the future will call on talent and resources--especially intellectual capital--wherever they can be found around the globe, just as it will sell its goods and services around the globe. Indeed, the very notion of a headquarters country may no longer apply, as companies migrate to places of greatest advantage. The new global corporation might be based in the U.S. but do its software programming in Sri Lanka, its engineering in Germany, and its manufacturing in China. Every outpost will be seamlessly connected by the Net so that far-flung employees and freelancers can work together in real time.
-- It's about speed. All this work will be done in an instant. ''The Internet is a tool, and the biggest impact of that tool is speed,'' says Andrew S. Grove, chairman of Intel Corp. (INTC) ''The speed of actions, the speed of deliberations, and the speed of information has increased, and it will continue to increase.''
That means the old, process-oriented corporation must radically revamp. With everything from product cycles to employee turnover on fast-forward, there is simply not enough time for deliberation or bureaucracy.
DIGITIZATION.
Just as the smaller companies will use technology to gain economies of scale, larger companies will harness technology to reduce the costs of complexity.
McKinsey's Bryan points out that technology allows Bank of America to manage a continent-wide bank of $700 billion in assets as effectively as it once managed a single-state bank with $7 billion.
At the very core of the 21st century corporation is technology, or what most people today call digitization. Put simply, digitization means removing human minds and hands from an organization's most routine tasks and replacing them with computers and networks. Digitizing everything from employee benefits to accounts receivables to product design cuts time, cost, and people from operations, resulting in huge savings and vast improvements in speed.
Everything a company does involves what Bryan calls ''interaction costs,'' the expenses incurred to get different people and companies to work together to create and sell products. In the U.S. alone, Bryan surmises, such interaction fees account for over half of all labor costs. Digitization lowers these expenses dramatically. ''You are going to see unbelievable speed and efficiencies,'' says John T. Chambers, Cisco's CEO. ''Truly efficient companies, particularly in the first couple of waves of change, will be able to drive [overall] productivity at 20% to 40% a year.''
CULTURAL CHANGE.
The potential for productivity gains is everywhere, in every process, in every industry.
The bigger the company and the larger its costs, the greater the opportunity to see tremendous efficiencies. In the years to come, large incumbent corporations that get it will be the greatest beneficiaries of the Net, not the dot-com insurgents that once garnered all the publicity and market valuations.
For companies that have begun to grasp the possibilities, the payoff can be enormous. Enron Corp. (ENE), a onetime natural-gas pipeline company, is a good example. The Houston business employed the Net to make itself into a highly profitable energy and telecommunications service. Enron's Web-based trading platform, EnronOnline, now trades some 900 contracts per day for commodities including oil, natural gas, electricity, and even broadband telecommunications capacity. Earnings--up 30% in the second quarter--are skyrocketing, along with the company's stock price. Enron has created for itself an entirely new core competence: Web-based trading that could bring the company into financial products, chemicals, and data storage.
Many view Enron's transformation through the narrow lens of technology. The lesson for 21st century leaders, however, isn't just about clever application of the latest software. It's about culture and mind-set. By refusing to limit itself to the traditional notions of what an energy company should do, Enron has pioneered completely new businesses. And it's not just the bosses who are thinking up all the good ideas. Enron is a company of risk-taking entrepreneurs who share a broad definition of the businesses' boundaries.
The truly great 21st century companies will recognize that the real power of technology is not just the ability to make a business more efficient but also it’s potential to spark transformative change.
Much of that change will involve the company's relationship with its customers. In an era of unprecedented choice, in which prices and product specs for almost anything are only a click away, companies will have to offer a lot more than bargain prices.
DELIVERING THE GOODS.
In the hands of a creative leader, even the most prosaic Industrial Age enterprises can reap quantum efficiencies by applying the new management principles of the 21st century corporation.
No company proves that better than Cemex (CX), which operates in one of the most mundane, commodity-driven businesses in the world: cement. Based in Monterrey, Mexico, Cemex was a modestly profitable business in 1985 when Lorenzo H. Zambrano, a Stanford University MBA whose grandfather founded the company, became chief executive. Cemex' biggest problem in an asset-intensive, low-efficiency business was unpredictable demand.
Roughly half of its orders were changed by customers, often just hours before delivery. Dispatchers took orders for 8,000 grades of mixed concrete and forwarded them to six plants. The phones were often jammed with calls from customers, truckers, and dispatchers, resulting in lost orders and frustrated customers.
Then Cemex went digital, vastly reducing delivery and production problems. More important, the makeover helped management refocus efforts from managing assets to managing information. ''Technology allows you to do business in a much different fashion than before,'' says Zambrano. ''We used it not only to deliver a product but to sell a service.''
CONNECTIONS.
True 21st century corporations will also learn to manage an elaborate network of external relationships.
That far-reaching ecosystem of suppliers, partners, and contractors will allow them to focus on what they do best and farm everything else out. And it will let them quickly take advantage of fleeting opportunities without having to tie up vast amounts of capital.
Outsourcing and partnering, of course, are hardly new. But in the coming century, such alliances will become more crucial.
Cisco Systems has taken the concept to an extreme. It owns only two of the 34 plants that produce its products. Roughly 90% of the orders come into the company without ever being touched by human hands, and 52% of them are fulfilled without a Cisco employee being involved. ''To my customers, it looks like one big virtual plant where my suppliers and inventory systems are directly tied into an ecosystem,'' says Chambers. ''That will be the norm in the future. Everything will be completely connected, both within a company and between companies. The people who get that will have a huge competitive advantage.''
For some companies, the ecosystem represents not merely the outsourcing of a function or two to save a few bucks. It goes, instead, to the very heart of a company's ability to exist and compete. If not for its dozens of alliances and partnerships, Juno Online Services Inc. (JWEB) in New York, the Internet service provider, could not survive--at least not without hundreds of millions of dollars in additional capital and thousands of extra employees. ''If we had to do it all ourselves, it would be prohibitively expensive,'' says CEO Charles Ardai, who spends 25% of his time on alliances. ''For our customers, it's an invisible experience because of the technology. The coordination among the partners allows for real-time communication and makes it feel more like a single company.''
The 21st century corporation will require an array of new skills, all of which must be mastered for leaders to gain the upper competitive hand. Globalization has opened new markets. Deregulation has broken down industry boundaries. Venture capital has funded thousands of new tech-savvy insurgents who now threaten incumbents. And the ever-ubiquitous Web has brought the potential for remarkable gains in productivity--but also for frightening deflationary pressures. All these forces are fast propelling the creation of new business models in the 21st century, models that will look nothing like the once-healthy and seemingly invincible enterprises of an earlier age.
The New Leadership
The growing complexity of business will force dramatic changes in the corporate hierarchy
In recent years, top corporate executives have reaped a pay bonanza without precedent in the long and sweaty history of working for a living. Is today's boss overpaid? Probably, but to whom much has been given, even more will be expected. The job of leading a company has never been more demanding, and it will only get tougher in the 21st century. The CEO will retain ultimate authority, but the corporation will depend increasingly on the specialized skills of a host of subordinate leaders.
Long live the chief of customer relations, the chief of knowledge, the Web chief! The accelerated pace and complexity of business will continue to force corporations to push authority down through increasingly horizontal management structures. In the future, every line manager will have to exercise leadership's prerogatives--and bear its burdens--to an extent unthinkable a generation ago.
Designs for the Future
If corporate structures embody an era, what will tomorrow's office look like?
Few institutions embody their era as strikingly as the corporation. In form and function, it reflects the defining technologies and social organization of its time. This is as true of the physical manifestation as internal configuration, which is why corporations have captured the imagination of so many visionaries, especially architects.
The 1913 Woolworth Building, at 60 stories one of the first true skyscrapers, was called ''the cathedral to commerce.'' The Chrysler Building, the Pan Am Building, Rockefeller Center, all in New York, and the Sears Tower, in Chicago, symbolized the organizational hierarchy of the industrial era. Corporations lived in a vertical world.
Today, a synap- tic jump in technology is altering the way business gets done, the way companies are organized, and the way managers operate. Information is replacing physical goods and hard assets as the currency of commerce. The corporation is morphing into a horizontal, if not virtual, universe.
BUSINESS WEEK asked two award-winning architecture firms to envision the 21st century corporation. The firm of Thompson & Rose Architects in Cambridge, Mass., believes humanism, not technology, will generate the ideas and innovation needed for corporate success. New York's Asymptote Architecture thinks execs will live in the air and corporate headquarters will be airport terminals. Wow. Compare both visions to the Emerald City in The Wizard of Oz. We begin with images of things to come from the past.
The Ecosystem
A blurring of traditional boundaries will put a premium on creativity--and constant vigilance
The corporate ecosystem of the 21st century will be characterized by a blurring of once-distinct boundaries: between public and private, foreign and domestic, insider and outsider, friend and foe.
The effect will be liberating in many ways. Corporations will be freer to pursue opportunity wherever in the world they find it, and to exploit it according to the requirements of circumstance, not the blind dictates of tradition. Outsourcing will become ever more prevalent, transforming many corporations into superefficient, virtual facsimiles of their old selves. But success will not come easy in this brave new world. The growing fluidity of vital business relationships will require constant vigilance and improvisation by all concerned. Like it or not, corporations also will assume a larger role in education and other public-sector preserves, taking over tasks that government either is unwilling or unable to do itself.
There is no question that advances in information technology aided the cause of corporate creativity and played a central role in the business renaissance of the 1990s. The computer not only has given rise to vast new industries, but has come to pervade almost every aspect of corporate life. This has made possible not only additional decentralization but a restructuring of work itself. And just as the railroad and the telegraph made possible the fusion of local economies into a single national economy, so now new computer and telecommunications technologies are giving birth to a global economy.
That technological barriers to globalization are falling much faster than the political ones is to be expected, if only because the benefits of globalization to this point have been unevenly distributed. Economist Lester C. Thurow makes a persuasive case that large corporations operate in ways that tend to drive the distribution of income in the direction of inequality. CEO wage controls, anyone? In the U.S., there is a good deal of anticorporate sentiment roiling the political fringes, but nothing approaching a frontal challenge to the corporation's primacy. It's a different story overseas, where the legitimacy of the market remains in question across parts of the political spectrum in Europe and elsewhere.
The momentum of the market is a fearsome thing, but so is the stubborn, fixed force of nationalism. Western Europe's plodding and still incomplete struggle to create a common market suggests that a true integration of worldwide commerce will be a long time coming, if it comes at all. In the end, globalization might well be a puzzle that business is incapable of fully solving. But if the history of the last century is any guide, the corporation will endure regardless and fashion from its failures an unanticipated success.
References:
www.businessweek.com/2000/00_35/b3696001.htm
http://www.lloyds.com/News_Centre/Speeches/Can_the_21st_century_corporation_remain_secure_Lord_Levene_Chairman.htm
In the late seventeenth century, Stewart Kyd, the author of the first treatise on corporate law in English, defined a corporation as,
"a collection of many individuals united into one body, under a special denomination, having perpetual succession under an artificial form, and vested, by policy of the law, with the capacity of acting, in several respects, as an individual, particularly of taking and granting property, of contracting obligations, and of suing and being sued, of enjoying privileges and immunities in common, and of exercising a variety of political rights, more or less extensive, according to the design of its institution, or the powers conferred upon it, either at the time of its creation, or at any subsequent period of its existence."
Management by WebTo thrive in this new century, companies are going to need a whole new set of rules
Sparked by new technologies, particularly the Internet, the corporation is undergoing a radical transformation that is nothing less than a new Industrial Revolution. This time around, the revolution is reaching every corner of the globe and in the process, rewriting the rules laid down by Sloan, Henry Ford, and other Industrial Age giants. The 21st century corporation that emerges will in many ways be the polar opposite of the organizations they helped shape.
Indeed, if you've worked as a manager for at least a decade, you can forget much of what you've learned so far. Prepare to toss out your business-school case studies and set aside many of the time-honored principles that have guided generations of managers. The vast changes reshaping the world's business terrain are that far-reaching, that fundamental, and that profound. ''We're not witnessing just a little change in our economy,'' says David Ticoll, chief executive of Digital 4Sight Systems & Consulting Ltd., a business think tank and consulting firm. ''This is an epochal change in the history of production.''
EPHEMERAL.To survive and thrive in this century, managers will need to hard-wire a new set of rules and guideposts into their brains.
Not so long ago, for example, leaders believed that building assets over the long haul guaranteed competitive advantage. In this new century, success will go to the companies that partner their way to a new future, not those that put heavy assets onto their balance sheets. Leaders once thought that creating intense rivalries among competitors motivated their employees and assured success. But in the days to come, a company's fiercest competitor might also be its most important collaborator. Since the dawn of trade, every business leader has wanted to build an enduring enterprise.
In the new century, though, many companies will be intentionally ephemeral, formed to create new technologies or products only to be absorbed by sponsor companies when their missions are accomplished.
Many factors, from the need to expand beyond national borders to the inexorable shift toward intellectual capital, are driving change, but none is more important than the rise of Internet technologies. Like the steam engine or the assembly line, the Net has already become an advance with revolutionary consequences, most of which we have only begun to feel.
The Net gives everyone in the organization, from the lowliest clerk to the chairman of the board, the ability to access a mind-boggling array of information--instantaneously, from anywhere. Instead of seeping out over months or years, ideas can be zapped around the globe in the blink of an eye.
That means that the 21st century corporation must adapt itself to management via the Web. It must be predicated on constant change, not stability, organized around networks, not rigid hierarchies, built on shifting partnerships and alliances, not self-sufficiency, and constructed on technological advantages, not bricks and mortar. Already, old business models that emphasized fixed assets, working capital, and economies of scale have become increasingly vulnerable to nimbler organizations that employ new technologies to reduce costs.
Leading-edge technology will enable workers on the bottom rungs of the organization to seize opportunity as it arises. Employees will increasingly feel the pressure to get breakthrough ideas to market first. Thus, the corporation will need to nurture an array of formal and informal networks to ensure that these ideas can speed into development.
In the near future, companies will call on outside contractors to assemble teams of designers, prototype producers, manufacturers, and distributors to get the job done. Emerging technologies will allow employees and freelancers anywhere in the world to converse in numerous languages online without the need for a translator. ''The gap between what we can imagine and what we can achieve has never been smaller,'' says Gary Hamel, a consultant and author of Leading the Revolution.
That rapid flow of information will permeate the organization. Orders will be fulfilled electronically without a single phone call or piece of paper. The ''virtual financial close'' will put real-time sales and profit figures at every manager's fingertips via the click of a wireless phone or a spoken command to a computer. ''We don't have science-fiction writers who have seen and written this future,'' says Lowell Bryan, a consultant who leads McKinsey & Co.'s Global New Economy practice. ''Everything we see leads to greater diversity, greater choice, a far more integrative economy, yet more individualism.''
How, exactly, will these forces reshape the 21st century corporation? The organizations that flourish will have several defining features.
-- It's management by Web. That means not just Web as in Internet but the web-like shape of successful organizations in the future.
The 21st century corporation, in contrast, is far more likely to look like a web: a flat, intricately woven form that links partners, employees, external contractors, suppliers, and customers in various collaborations.
The players will grow more and more interdependent. Fewer companies will try to master all the disciplines necessary to produce and market their goods but will instead outsource skills--from research and development to manufacturing--to outsiders who can perform those functions with greater efficiency.
''Companies will be much more molecular and fluid,'' predicts Don Tapscott, co-author of Digital Capital. ''They will be autonomous business units connected not necessarily by a big building but across geographies all based on networks. The boundaries of the firm will be not only fluid or blurred but in some cases hard to define.''
-- It's more about bits, less about atoms. The most profitable enterprises will manage bits, or information, instead of focusing solely on managing atoms (the corporation's physical assets). Sheer size will no longer be the hallmark of success; instead, the market will prize the ability to efficiently deploy assets. Good bit management can allow an upstart to beat an established player; it can also give an incumbent vast advantages. By using information to manage themselves and better serve their customers, companies will be able to do things cheaper, faster, and with far less waste.
-- It's mass customization. The previous 100 years were marked by mass production and mass consumption. Companies sought economies of scale to build large factories that produced cookie-cutter products, which they then sold to the largest numbers of people in as many markets as possible. The company of the future will tailor its products to each individual by turning customers into partners and giving them the technology to design and demand exactly what they want. Mass customization will result in waves of individualized products and services, as well as huge savings for companies, which will no longer have to guess what and how much customers want.
-- It's dependent on intellectual capital. The advantage of bringing breakthrough products to market first will be shorter-lived than ever, because technology will let competitors match or exceed them almost instantly. To keep ahead of the steep new-product curve, it will be crucial for businesses to attract and retain the best thinkers. Companies will need to build a deep reservoir of talent--including both employees and free agents--to succeed in this new era. But attracting and retaining an elite workforce will require more than huge paychecks. Corporations will need to create the kind of cultures and reward systems that keep the best minds engaged. The old command-and-control hierarchies, with their civil-service-like wages, are fast crumbling in favor of organizations that empower vast numbers of people and reward the best of them as if they were owners of the enterprise.
-- It's global. In the beginning, the global company was defined as one that simply sold its goods in overseas markets. Later, global companies assumed a manufacturing presence in numerous countries. The company of the future will call on talent and resources--especially intellectual capital--wherever they can be found around the globe, just as it will sell its goods and services around the globe. Indeed, the very notion of a headquarters country may no longer apply, as companies migrate to places of greatest advantage. The new global corporation might be based in the U.S. but do its software programming in Sri Lanka, its engineering in Germany, and its manufacturing in China. Every outpost will be seamlessly connected by the Net so that far-flung employees and freelancers can work together in real time.
-- It's about speed. All this work will be done in an instant. ''The Internet is a tool, and the biggest impact of that tool is speed,'' says Andrew S. Grove, chairman of Intel Corp. (INTC) ''The speed of actions, the speed of deliberations, and the speed of information has increased, and it will continue to increase.''
That means the old, process-oriented corporation must radically revamp. With everything from product cycles to employee turnover on fast-forward, there is simply not enough time for deliberation or bureaucracy.
DIGITIZATION.Just as the smaller companies will use technology to gain economies of scale, larger companies will harness technology to reduce the costs of complexity.
McKinsey's Bryan points out that technology allows Bank of America to manage a continent-wide bank of $700 billion in assets as effectively as it once managed a single-state bank with $7 billion.
At the very core of the 21st century corporation is technology, or what most people today call digitization. Put simply, digitization means removing human minds and hands from an organization's most routine tasks and replacing them with computers and networks. Digitizing everything from employee benefits to accounts receivables to product design cuts time, cost, and people from operations, resulting in huge savings and vast improvements in speed.
Everything a company does involves what Bryan calls ''interaction costs,'' the expenses incurred to get different people and companies to work together to create and sell products. In the U.S. alone, Bryan surmises, such interaction fees account for over half of all labor costs. Digitization lowers these expenses dramatically. ''You are going to see unbelievable speed and efficiencies,'' says John T. Chambers, Cisco's CEO. ''Truly efficient companies, particularly in the first couple of waves of change, will be able to drive [overall] productivity at 20% to 40% a year.''
CULTURAL CHANGE.The potential for productivity gains is everywhere, in every process, in every industry.
The bigger the company and the larger its costs, the greater the opportunity to see tremendous efficiencies. In the years to come, large incumbent corporations that get it will be the greatest beneficiaries of the Net, not the dot-com insurgents that once garnered all the publicity and market valuations.
For companies that have begun to grasp the possibilities, the payoff can be enormous. Enron Corp. (ENE), a onetime natural-gas pipeline company, is a good example. The Houston business employed the Net to make itself into a highly profitable energy and telecommunications service. Enron's Web-based trading platform, EnronOnline, now trades some 900 contracts per day for commodities including oil, natural gas, electricity, and even broadband telecommunications capacity. Earnings--up 30% in the second quarter--are skyrocketing, along with the company's stock price. Enron has created for itself an entirely new core competence: Web-based trading that could bring the company into financial products, chemicals, and data storage.
Many view Enron's transformation through the narrow lens of technology. The lesson for 21st century leaders, however, isn't just about clever application of the latest software. It's about culture and mind-set. By refusing to limit itself to the traditional notions of what an energy company should do, Enron has pioneered completely new businesses. And it's not just the bosses who are thinking up all the good ideas. Enron is a company of risk-taking entrepreneurs who share a broad definition of the businesses' boundaries.
The truly great 21st century companies will recognize that the real power of technology is not just the ability to make a business more efficient but also it’s potential to spark transformative change.
Much of that change will involve the company's relationship with its customers. In an era of unprecedented choice, in which prices and product specs for almost anything are only a click away, companies will have to offer a lot more than bargain prices.
DELIVERING THE GOODS.In the hands of a creative leader, even the most prosaic Industrial Age enterprises can reap quantum efficiencies by applying the new management principles of the 21st century corporation.
No company proves that better than Cemex (CX), which operates in one of the most mundane, commodity-driven businesses in the world: cement. Based in Monterrey, Mexico, Cemex was a modestly profitable business in 1985 when Lorenzo H. Zambrano, a Stanford University MBA whose grandfather founded the company, became chief executive. Cemex' biggest problem in an asset-intensive, low-efficiency business was unpredictable demand.
Roughly half of its orders were changed by customers, often just hours before delivery. Dispatchers took orders for 8,000 grades of mixed concrete and forwarded them to six plants. The phones were often jammed with calls from customers, truckers, and dispatchers, resulting in lost orders and frustrated customers.
Then Cemex went digital, vastly reducing delivery and production problems. More important, the makeover helped management refocus efforts from managing assets to managing information. ''Technology allows you to do business in a much different fashion than before,'' says Zambrano. ''We used it not only to deliver a product but to sell a service.''
CONNECTIONS. True 21st century corporations will also learn to manage an elaborate network of external relationships.
That far-reaching ecosystem of suppliers, partners, and contractors will allow them to focus on what they do best and farm everything else out. And it will let them quickly take advantage of fleeting opportunities without having to tie up vast amounts of capital.
Outsourcing and partnering, of course, are hardly new. But in the coming century, such alliances will become more crucial.
Cisco Systems has taken the concept to an extreme. It owns only two of the 34 plants that produce its products. Roughly 90% of the orders come into the company without ever being touched by human hands, and 52% of them are fulfilled without a Cisco employee being involved. ''To my customers, it looks like one big virtual plant where my suppliers and inventory systems are directly tied into an ecosystem,'' says Chambers. ''That will be the norm in the future. Everything will be completely connected, both within a company and between companies. The people who get that will have a huge competitive advantage.''
For some companies, the ecosystem represents not merely the outsourcing of a function or two to save a few bucks. It goes, instead, to the very heart of a company's ability to exist and compete. If not for its dozens of alliances and partnerships, Juno Online Services Inc. (JWEB) in New York, the Internet service provider, could not survive--at least not without hundreds of millions of dollars in additional capital and thousands of extra employees. ''If we had to do it all ourselves, it would be prohibitively expensive,'' says CEO Charles Ardai, who spends 25% of his time on alliances. ''For our customers, it's an invisible experience because of the technology. The coordination among the partners allows for real-time communication and makes it feel more like a single company.''
The 21st century corporation will require an array of new skills, all of which must be mastered for leaders to gain the upper competitive hand. Globalization has opened new markets. Deregulation has broken down industry boundaries. Venture capital has funded thousands of new tech-savvy insurgents who now threaten incumbents. And the ever-ubiquitous Web has brought the potential for remarkable gains in productivity--but also for frightening deflationary pressures. All these forces are fast propelling the creation of new business models in the 21st century, models that will look nothing like the once-healthy and seemingly invincible enterprises of an earlier age.
The New LeadershipThe growing complexity of business will force dramatic changes in the corporate hierarchy
In recent years, top corporate executives have reaped a pay bonanza without precedent in the long and sweaty history of working for a living. Is today's boss overpaid? Probably, but to whom much has been given, even more will be expected. The job of leading a company has never been more demanding, and it will only get tougher in the 21st century. The CEO will retain ultimate authority, but the corporation will depend increasingly on the specialized skills of a host of subordinate leaders.
Long live the chief of customer relations, the chief of knowledge, the Web chief! The accelerated pace and complexity of business will continue to force corporations to push authority down through increasingly horizontal management structures. In the future, every line manager will have to exercise leadership's prerogatives--and bear its burdens--to an extent unthinkable a generation ago.
Designs for the FutureIf corporate structures embody an era, what will tomorrow's office look like?
Few institutions embody their era as strikingly as the corporation. In form and function, it reflects the defining technologies and social organization of its time. This is as true of the physical manifestation as internal configuration, which is why corporations have captured the imagination of so many visionaries, especially architects.
The 1913 Woolworth Building, at 60 stories one of the first true skyscrapers, was called ''the cathedral to commerce.'' The Chrysler Building, the Pan Am Building, Rockefeller Center, all in New York, and the Sears Tower, in Chicago, symbolized the organizational hierarchy of the industrial era. Corporations lived in a vertical world.
Today, a synap- tic jump in technology is altering the way business gets done, the way companies are organized, and the way managers operate. Information is replacing physical goods and hard assets as the currency of commerce. The corporation is morphing into a horizontal, if not virtual, universe.
BUSINESS WEEK asked two award-winning architecture firms to envision the 21st century corporation. The firm of Thompson & Rose Architects in Cambridge, Mass., believes humanism, not technology, will generate the ideas and innovation needed for corporate success. New York's Asymptote Architecture thinks execs will live in the air and corporate headquarters will be airport terminals. Wow. Compare both visions to the Emerald City in The Wizard of Oz. We begin with images of things to come from the past.
The EcosystemA blurring of traditional boundaries will put a premium on creativity--and constant vigilance
The corporate ecosystem of the 21st century will be characterized by a blurring of once-distinct boundaries: between public and private, foreign and domestic, insider and outsider, friend and foe.
The effect will be liberating in many ways. Corporations will be freer to pursue opportunity wherever in the world they find it, and to exploit it according to the requirements of circumstance, not the blind dictates of tradition. Outsourcing will become ever more prevalent, transforming many corporations into superefficient, virtual facsimiles of their old selves. But success will not come easy in this brave new world. The growing fluidity of vital business relationships will require constant vigilance and improvisation by all concerned. Like it or not, corporations also will assume a larger role in education and other public-sector preserves, taking over tasks that government either is unwilling or unable to do itself.
There is no question that advances in information technology aided the cause of corporate creativity and played a central role in the business renaissance of the 1990s. The computer not only has given rise to vast new industries, but has come to pervade almost every aspect of corporate life. This has made possible not only additional decentralization but a restructuring of work itself. And just as the railroad and the telegraph made possible the fusion of local economies into a single national economy, so now new computer and telecommunications technologies are giving birth to a global economy.
That technological barriers to globalization are falling much faster than the political ones is to be expected, if only because the benefits of globalization to this point have been unevenly distributed. Economist Lester C. Thurow makes a persuasive case that large corporations operate in ways that tend to drive the distribution of income in the direction of inequality. CEO wage controls, anyone? In the U.S., there is a good deal of anticorporate sentiment roiling the political fringes, but nothing approaching a frontal challenge to the corporation's primacy. It's a different story overseas, where the legitimacy of the market remains in question across parts of the political spectrum in Europe and elsewhere.
The momentum of the market is a fearsome thing, but so is the stubborn, fixed force of nationalism. Western Europe's plodding and still incomplete struggle to create a common market suggests that a true integration of worldwide commerce will be a long time coming, if it comes at all. In the end, globalization might well be a puzzle that business is incapable of fully solving. But if the history of the last century is any guide, the corporation will endure regardless and fashion from its failures an unanticipated success.
References:
www.businessweek.com/2000/00_35/b3696001.htm
http://www.lloyds.com/News_Centre/Speeches/Can_the_21st_century_corporation_remain_secure_Lord_Levene_Chairman.htm
