Leave it to your mildly deluded host to write a post about a topic on which he has almost no specific information. Nevertheless, if I can’t brainstorm at tumbledry, where can I brainstorm? (“In your own head, you’re saying” I know, but that’s not the point we’re debating.) The topic today: business. My qualifications: slim. Forecast: stormy, with a chance of incorrect conclusions.
I’ll begin with an analogy of stars… many stars burn happily throughout their lives, and then expand to a giant blob that is lower in density: a red giant. As the cycle continues:
The star then evolves into a degenerate form, recycling a portion of the matter into the interstellar environment, where it will form a new generation of stars with a higher proportion of heavy elements.
I think this is the life-cycle companies should follow. Join me down this crazy theoretical road, won’t you?
Consider a large multinational corporation: like a star, it had to begin somewhere… usually with a great product (a star makes light, but can not sell it… this is the biggest joke on the star ever). Great products: Sandpaper. Model-T. Television broadcasting. Light bulbs. Selling a product rapidly, the business expands and goes through a growth period. Quality of management then becomes crucial, and the business can be grown another couple orders of magnitude beyond its successful start. Like the star, the company burns brightly. Cash on hand then funds new business units, and the array of products grows and grows and grows. The multinational corporation ends up with huge number of OK products. Suddenly, General Electric owns NBC, and you’ve got a red giant — it’s a gargantuan obstreperously bright object in the sky, but it doesn’t burn very brightly.
Clearly, this is a problem. You have a lumbering giant of a company that pushes on sheerly due to inertia — the numbers are bigger, but the innovations are smaller. The truth is (and just ask why giant IBM was beaten by tiny Microsoft), true innovation must be coupled with an agile business environment (easily moved, cheap to run, limits on formal training, with highly qualified individuals), which is antithetical to many (most?) corporate environments. What’s the solution?
As stars do: Expand, then contract. I think that’s the path for a giant of a business to remain successful, yet this does take some accepted practices and tosses them out. I’ll explain: consider Ford Motor Company. Beaten into the pavement for years by fierce competition from companies producing a higher quality product, Ford is struggling to get back to profitability. They’ve expanded, that’s true. I think that now they need to contract. I don’t mean layoffs and meaningless restructuring. No…
I mean dismantle. No “spin-offs,” segmented acquisitions, unfair lay-offs. Dismantle.
What are you left with? The agile business I cited before. You’ve got an R&D lab or two, folks with years and years of experience, and no shareholders to answer to. You’ve got all the pieces of a successful start-up. Oh, and billions of dollars in cash. See, there’s this idea that businesses should grow, grow, grow… and then just keep right on growing until they collapse under their own weight. This is unsustainable. Sell it off, fund the pensions of the good people who put in the years, and break the thing up. Instead of paring down the enormity just to allow the business to crutch on for a few more decades, the business could radically constrict just as a star does, thereby seeding future enterprises.
So you’ve got this enormously well-funded laboratory in the shell of an old Ford building — and they say “what’s the future of transportation?” They’ve got a good shot at figuring it out. If they think it’s electric, well then they can innovate like crazy people and push out a product ASAP. There’s no “core business” crap to fall back on — sink or swim.
I don’t know, there are some big holes here and this technique wouldn’t work everywhere (perhaps not even in the example given), but the part of the message I am confident in is the need for a paradigm shift in philosophies about large businesses — they needn’t go on forever, and crashing into the floor of the market isn’t the only way for them to disband.
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