ROBERT HELLER - MANAGING REVOLUTION - UNITED WE STAND, DIVIDED WE SOAR/By floating Freeserve so successfully Stanley Kalms has made other bosses anxious to exploit e-commerce spin-offs.
Once, companies needed fabulous growth in earnings to win fabulous stock market ratings. But, in floating Freeserve so spectacularly, Dixons has proved that it is much easier to create £2 billion-plus by spinning off paper to which no earnings, present or prospective, are attached. Other bosses are equally anxious to exploit this brilliant wheeze and print money via an internet rating or spin-off.
There's management logic behind this apparent madness. Share of market, crucial in the internet wars, hinges on 'share of mind', meaning the spoils go to whoever dominates public awareness. Independence gives spin-offs more chance to dominate by pursuing and publicising a destiny separate from their erstwhile parent's.
Nobody has seriously disputed Clayton M Christensen's argument in The Innovators' Dilemma that great companies are hopeless at combating, still less launching, new 'disruptive' technologies. The internet is disruptive technology at its most extreme.
A recent survey found UK banks coping feebly with cyberspace, despite a tidal wave of internet banking threatening to flood them, much as the mainframe and mini-computer threatened firms in the 1980s.
Then the mighty victims eventually included IBM, whose first PC wondrously reinvented the industry. IBM had seemed to make a management breakthrough that matched any of its technological advances. A giant among giants had created a new entrepreneurial triumph by simple means: set up the pioneer, give it independent management and let it rip.
The later (and great) relative failure of the PC operation as an over-managed, under-stimulated province of the IBM empire only proved the value of the earlier recipe. All other evidence indicates that great corporations are better advised not to develop disruptive technologies within the existing organisation. Setting up First Direct as an independent direct banking arm of Midland was thus wise. But a big question remains.
Would First Direct's penetration of the UK market be greater or smaller if the operation was not only independently managed, but independently owned and quoted? There's no inherent reason why total ownership should stultify growth. But the soaring performance of Zeneca after escaping from ICI is an example of how upper management unintentionally applies a deadening hand to the tiller.
One strong motive for liberating Zeneca was that market ratings for pharmaceutical companies - feeble compared to today's internet miracles - were exalted way above those of chemical conglomerates. Demerging a Freeserve or Zeneca is an obvious way of enhancing 'shareholder value' at a stroke. But Zeneca's operations also improved sharply after the demerger. If a business can stand, or rather run, on its own two feet, it will also run faster.
So these mouthwatering share valuations are tempting managers in the right direction, even if it is for the wrong reason. E-ventures are more likely to speed ahead if managers are free to manage, without being over-supervised and under-resourced.
This stultifying fate is not limited to e-business. Most managers probably under-perform because of board-level efforts to exercise strategic and operational control. Even a high-technology supernova such as Microsoft has been seriously inhibited by this top-down supremacy. That's why Bill Gates is trying to push responsibility down to managers and kill the 'Bill says' culture.
But Microsoft's new structure of customer-focused operating divisions belongs to an earlier era of organisational technology. The new age is symbolised by Freeserve-type spin-offs. The creation of shareholder value will not be dominated by market monoliths such as Microsoft, Gillette or Coca-Cola, which investors already seem to find less attractive. The new creators of value will act and think much more like venture capitalists, working with independent operating managements and given heavy incentives.
The holding company must still decide whether value is best realised within the corporation or outside. If one offspring does leave the nest, others will join. The core directors will still manage nothing. Their prime role will be to see that others manage brilliantly, and are free to do so. This recipe helped Warren Buffett to become the richest investor in history - even though he shuns high technology, avoiding businesses (even that of his young friend Gates) that he can't understand.
But you don't have to understand internet protocol (IP) to see what its applications must have on industrial purchasing, internal management and costs, consumer behaviour, global competition - the lot. It takes even less insight to see that the effort to defend existing businesses and create new ones can't be pursued successfully within establishment structures.
And who knows? Set the managers free, and you might find a Freeserve in your pocket.