The end of old-style management
A recent article by Alan Murray is adapted from his book ‘The Wall Street Journal Essential Guide to Management’. This resonated with some of my own thinking and recent writings on the lack of innovation in large companies.
Some 60 years ago, the famed management guru Peter Drucker’s books launched the ‘practice of management’ as we know it today. Drucker was the first to preach the techniques for running large corporations like General Motors which became a prime example of corporate discipline. Drucker’s ideas were promoted by elite business schools like Harvard, which helped America progress through generations of global prosperity.
Interestingly, Drucker’s ideas are not thriving in the new century. GM still survives, but only with a government bailout. Where are the old giants like RCA and Westinghouse? Today, less than 100 companies in the S&P-500 stock index were there when the index started in 1957. Huge, supposedly indestructible institutions like Lehman Brothers and Bear Stearns have crashed, while new businesses like Google and Facebook have come out of nowhere.
Big companies tend to be very hierarchical and myopically self-reinforcing, organised to minimise new threats to existing order. Management is focused inward, and resources are directed toward preserving structures based on past successes, rather than future opportunities. They develop barriers to innovation by allocating resources based on what has worked in the past instead of on what could determine the future.
By contrast, small companies use radically different mechanisms – fast-acting and much more effective. Today, the fundamental value of an organisation (large or small) is information bandwidth – capacity and speed. Failure in these aspects is a severe restriction. In the information economy, success comes through agility; most big companies just cannot be agile.
The large, managed corporation is becoming outdated. Much of today’s business success has come through bypassing corporate hierarchies, or using revolutionary tactics to ‘make the elephants dance’. Today’s biggest winners are the enemies of corporate bureaucracy.
Old style hierarchical management is obsolete.
Third world innovations on the horizon
Today, almost the entire world has opened up to consumer markets, which is bringing an avalanche of new entrepreneurs and innovations.
Soon, there will be Chinese autos and cellphones, Indian games and consumer gadgets, Brazilian foods, fashions and fads, and a bunch of new money-making toys and trends. We will be seeing many more foreign brands become American household names, competing for our money and attention.
Once the Chinese and Indians expand beyond their own burgeoning markets, at price/performance ratios that are vastly different from American and European equivalents, we will see them moving into ‘First World’ markets. Like Korea’s Hyundai and Samsung, there will be lots more consumer products from countries that we did not quite expect to be here grabbing market share, competing and beating the established leaders. And like the IBM PC became Chinese, and the Jaguar auto got a new Indian owner, there will be more and more foreign competitors vying for market-share.
What is happening to drives these changes?
* Consumers in emerging markets are rapidly becoming wealthier, more sophisticated, mobile, and educated, generating confidence, enthusiasm and creativity.
* Emerging countries have younger populations, which generates young entrepreneurs to compete with the ageing populations of Japan, Europe and Russia.
* New brands are not burdened by old expectations and price structures. They can introduce new products at price/volume ratios that will upset entrenched leaders.
* Because of their vastly bigger populations, emerging markets will have the biggest markets for everything. They’ll shatter all traditional pricing structures, wreaking havoc on old pricing paradigms.
Here are some numbers to chew on:
* Developing economies accounted for nearly 70% of world growth over the past five years.
* The GDP of emerging and developing economies accounted for 20% of world GDP in 2000, 34% in 2010, and an estimated 39% by 2015.
* The global emerging middle class now stands at two billion, spending $6,9 trillion a year, expected to rise to $20 trillion by 2020 (that is twice current US consumption).
* Developing countries will account for 2/3 of world trade in 2050.
* The GDP of emerging markets will grow to be about 1,3 times the size of advanced economies in 2050. China will be approximately twice the size of the United States in purchasing power.
* India now has more rich households than poor, with 46,7 million high income households as compared to 41 million low income. In addition, 62% of Indian households are middle class.
* 700 million will be using the Internet in Asia within five years.
Established leaders that can adapt to the coming consumer-products onslaught will thrive. Those who cannot adapt will die.
This discussion was adapted from the Trendwatching briefing for Nov. 2010, with extensions from other sources. www.trendwatching.com/briefing/
Jim Pinto is an industry analyst and commentator, writer, technology futurist and angel investor. His popular e-mail newsletter, JimPinto.com eNews, is widely read (with direct circulation of about 7000 and web-readership of two to three times that number). His areas of interest are technology futures, marketing and business strategies for a fast-changing environment, and industrial automation with a slant towards technology trends.
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