We have been discussing the ailments and aberrations of the current form of capitalism – the rise and fall of giants, grossly unfair CEO compensation, and changing global scenarios. Please do not mistake my motives – I am a passionate capitalist, pointing out new economic realities that are bringing change. Capitalism’s capacity to evolve, its incredible versatility, has proven to be the single most important source of its robustness and success. In fact, capitalism thrives, not because it is permanent, but because it changes.
Let us revue how the current, century-old form of capitalism came about, and what will emerge from its decline.
First there was ‘proprietary’ capitalism – capital ownership and control in the hands of one owner (the proprietor) or a small group.
As businesses got larger, ownership was dispersed to larger groups of stockholders (typically not directly involved), with control in the hands of professional managers. This became current-day ‘managerial’ capitalism, which was invented more than a century ago and is now in decline. Let us understand why.
When mass consumption was on the rise, the answer was mass production at ever lower cost, demanding huge capital investments. Corporations began to be organised around management hierarchy, with a tight inward focus on the increasingly complex investments in production and distribution.
When ownership became widely dispersed, a board of directors replaced the major proprietor, supposedly to control the company. The board appointed a chief executive, which required employment contracts, performance bonuses and golden-handshakes upon termination. The simplistic idea that higher pay buys better managers caused a major blind-spot for managerial capitalism.
This blind-spot is compounded by the involvement of the CEO with selection of new board members. A strong-willed CEO tends to dominate a weak board, and can pad the board with buddies who excuse and prolong bad performance. The shareholders lose control. They become increasingly remote and frustrated as performance declines.
Fortune, Forbes and Business Week regularly track the highest paid CEOs against corporate performance, clearly identifying the failures. But it is too late – they are contractually bound, and upon termination can walk away with cool millions. Enron, Tyco and several other recent major corporate collapses are examples of abuse and the increasing failures of managerial capitalism.
But today, global markets have stopped being production-limited – they are now consumption limited. Large corporations have remained distant and indifferent to the true nature of these changes. Their narcissistic inward focus has insulated many top managers in large corporations from their stakeholders – shareholders, employees, customers and suppliers. The self-interested and primarily ‘macho’, male-dominated culture of managerial capitalism has become a liability.
People’s desires, needs and wants have radically changed. Large organisations are no longer trusted. On every level there is a divisive ‘us vs. them’ mentality. The chasm that now separates large organisations and their stakeholders is marked by frustration, mistrust, disappointment, and sometimes even rage.
After decades of being forced to put up with the consequences of corporate indifference or inability to change, individuals and consumers are striking out on their own to blaze new trails in a new approach to business. This is pointing toward the next leap forward in wealth creation – the rise of collaborative small businesses that make their entrepreneur-owners and employees rich.
As markets and technologies undergo drastic and even cataclysmic changes, so too will the current model of capitalism. The failures are intrinsic and deep-rooted in large companies, and giving birth to a new era of wealth creation.
Watch how good people, the best employees and managers are leaving large companies in droves. They form their own collaborative businesses, tuned to the fast-changing needs of global markets. And they make their stakeholders rich.
This is ‘distributed capitalism’.
Operational excellence in manufacturing
The future manufacturing operation will not be just a ‘factory’, but rather a completely integrated business enterprise using the methods of operational excellence (OE). This is a discipline of leadership, teamwork and problem solving that achieves continuous improvement through empowering all employees and optimising all activities in the business process.
OE is an holistic approach to realising efficiencies in all parts of a business, adding value at every step – from innovation, to design and development, to testing, manufacturing, logistics and services.
Toyota has turned OE into a strategic weapon, based on quality improvement methods made famous in the manufacturing world – just-in-time, kaizen, one-piece flow and similar disciplines. OE also changes management for every part of the enterprise.
To succeed, top management must have an intimate understanding of the human side of change management – alignment of the company’s culture, values, people and behaviours that bring desired results on a continuing basis. Planning does not capture value; value is realised only through the sustained, collective actions of all employees who are responsible for designing, executing and working within the changed environment.
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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