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The Jim Pinto Column: Large companies in decline

September 2009 News

Schumacher’s 1973 book, ‘Small is Beautiful’ was prescient. He sounded the alarm regarding globalisation, asking how much further growth was possible. He was critical of a society that generates unbounded materialism, motivated primarily by greed and envy.

The old model, ‘Bigger is better’ is starting to collapse. Huge vertically integrated conglomerates were created to minimise transaction costs up and down the supply chain. Now distributed information networks do the same, more effectively, outside any single company. The Web is globalisation taken to the extreme. Projects can be open to the best of breed anywhere, creating virtual suppliers and workers that come together for one product, and then re-form for another.

In the old world, the opposite kept on happening. Corporations kept getting bigger. Wall Street giants kept doubling and tripling revenues in a decade. The pharmaceutical industry consolidated through hundreds of mergers and acquisitions. The Fortune 10, which includes Wal-Mart and GE, more than tripled in size since 1990.

And then in 2008 it all came toppling down. The big financial firms were inflated by toxic debt. The big car companies crashed head-on into skyrocketing oil prices and plummeting consumer demand. Big Pharma ran out of blockbuster drugs. Wal-Mart kept closing stores, while GE tried to sell off divisions.

The large and disciplined organisations were powerful only when the game changed slowly. With today’s accelerating change, they become vulnerable. They are becoming dead meat. The new economy, rising from the ashes of the latest meltdown, favours the small.

Take another facet of big business which has outlived its usefulness – executive salaries. The bigger the company, the higher its CEO got paid. But, that does not extrapolate – the Exxon CEO really did not ‘earn’ his $500M salary+bonus. The distributed ecosystem of small companies dispenses with the need to pay anything beyond what is earned by pure performance, measured largely by ownership.

‘Involuntary entrepreneurship’ is now creating tens of thousands of small businesses and a huge market of contract and freelance labour. Many will choose not to take full-time jobs again, even if they become available. The crisis may have turned our economy into small pieces, loosely joined, but it will be the collective action of millions of workers hungry for change that keeps it that way.

So now, in the graveyard of giants, we are witnessing the final march of corporate dinosaurs into the tar pits. This is not just the trough of a cycle, but the end of an era.

The future of reading

Perhaps the best ‘invention’ of the past several hundred years is the book. It is a more reliable storage device than a hard disk drive, and has a slick user interface, with no instruction manual needed, is instant-on and requires no batteries. Many people think it is so perfect an invention that it cannot be improved upon. But, Amazon is trying to do that with the Kindle.

An average novel has about 80 000 words; an average adult reads at about 300 words per minute – which means that it takes 80 000/300 = 267 minutes, or 4 hours 30 minutes, to read the average book. Of course, this may be spread out over a week or longer.

Publishers and authors generally refuse to put books online for fear the content will be copied and stolen. So, can books survive in the multitasking environment of Facebook, Twitter and attention deficit disorder? They can, if we stop thinking about the future of publishing and think instead about the future of reading.

Every other form of media that has gone digital has been transformed by its audience. Books have a centuries-old tradition of annotation and commentary, with book clubs and margin-notes. When books go online, readers begin commenting in blogs, snipping and sharing their favourite sections. This cannot happen with old-fashioned books because they are locked into paper. Release them, and you release the crowd.

Students buy used textbooks, studying the margins because they want to acquire the best notes. If books were set free digitally, it would produce a class of readers so insightful that you would pay extra to read their footnotes.

The technology is here. There are web-based XML-like mark-up languages that allow for really terrific linking and mash-ups. Imagine a world where there is a URL for every chapter, paragraph and sentence in a book. Readers could point to their favourite sections and write comments on Facebook, MySpace and Twitter, responding by linking to something in a book. If you read about a book, you are far more likely to buy it. The few authors who have experimented with giving away digital copies have found that they end up selling more print copies, because their books are discovered by more people.

Of course, books need not always be social links. One of the primary pleasures of a book is mental solitude; the deep, quiet focus on the author’s thoughts and your own. That is not going away.

But books have been held hostage offline for too long. Taking them digital will unlock their real hidden value.

Jim Pinto
Jim Pinto

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.

www.jimpinto.com





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