THE MOST IMPORTANT IDEAS OF 2003 – PART THREE

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.

1. 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.
2. 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’.
3. 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 Innovatorís 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.