UK: Managing revolution - Jumping ship in cyberspace - While hurtling ahead in dizzying growth, web winners ...

UK: Managing revolution - Jumping ship in cyberspace - While hurtling ahead in dizzying growth, web winners ... - Managing revolution - Jumping ship in cyberspace - While hurtling ahead in dizzying growth, web winners must also be quick-change artists if

Last Updated: 31 Aug 2010

Managing revolution - Jumping ship in cyberspace - While hurtling ahead in dizzying growth, web winners must also be quick-change artists if they are to keep their crews from cashing in and flying off alone.

Cyberspace has not rewritten the laws of economics: witness the internet share slump. There is no 'new economy' that can endlessly and effortlessly create great wealth out of nothing. Yet the valuations engendered by the world wide web remain stratospheric. Stocks that halve from a p/e ratio of 1,500 have some miserable investors. But 750 times earnings is still fantasy-land by all sensible criteria - save one.

The hordes enrolled by the web winners constitute real value. If it costs $2,000 to corral a customer (as conventional counting says), 10 million clients are worth $20 billion, quite near its fabulous market capitalisation.

The billions are hollow, however, until the customers start yielding significant profits - and internet investors could tire of waiting.

That is doubly serious, because the companies' best managers - all deep into the stocks - will feel the same way. As their paper billions shrink, they will be tempted to convert what's left into real money, and move on to a new honey pot. Managerial volatility has been a nagging problem in Silicon Valley for some time. It can only get worse. Even Microsoft has been suffering an exodus of management heavies.

Previously, the paper gold of the 'Microsofties' was supposed to handcuff them to its source. Now even people like Bill Gates' top research guru Nathan Myhrvold see no reason to hang about, making Gates wealthier, when they have their own millions stashed away.

Good old-fashioned job satisfaction, it seems, is the only way to retain good, new-technology managers. The better they are, however, the greater their opportunity to make more moolah outside Microsoft. The dilemma is even greater at established companies below the high-tech stratosphere.

According to the Wall Street Journal, 'dozens ... of managers at Disney and its internet units and partners have left to run their own online companies'.

To retain such footloose people, Disney's top management has to close a yawning culture gap, take risks more readily, free its mind-set from the entertainment industry, and stop interfering. That's a very tall order - and it may still not be enough. The corporate oldsters simply can't match the web lucre: one little-known member of a clutch of Disney refugees at eToys, which went public in June, now has shares valued at $573 million.

True, as the net sell-off shows, such loot may not last. But hopping from start-up to start-up may look more lucrative than staying put - either in web businesses or established companies. The contagion is spreading far afield - Wal-Mart, for example, has lost several executives to Amazon. The webworlders need to attract and retain experienced and senior executives, given that super-fast growth is so precarious and demanding.

Recent annual growth rates in the revenues of internet leaders boggle the mind: 1,031% for eBay, 328% for Amazon, 192% for Yahoo!, and 66% for America OnLine, the new owner of Netscape. The latter's humbling sell-out demonstrates how high-speed companies can outpace themselves, especially in management capability. The wondrous Netscape breakthrough with browsers actually had Microsoft cornered. A better managed company might have taken over the market.

Gates observes that: 'In 25 years in this industry, I have never seen so much competition in every single area.' As he says, 'new competitors are constantly emerging and growing amazingly fast'. These newcomers don't only threaten old-fashioned competitors (as, for example, web sites threaten travel agents). Just as the free Linux operating system threatens Microsoft, so the newest comers threaten their immediate high-tech predecessors.

Amid this turbulence, many job-hoppers may be taking the wrong track.

The best long-term bet, for shareholders and employees alike, must be the companies that promise a long-term future. For a start that means recruiting seasoned talent from outside Silicon Valley. It also means putting in the structure today for the vastly bigger business you expect to have tomorrow. Web billionaires must learn to be quick-change artists.

In other words, the internet hot-shots are being asked to accomplish two gigantic tasks at once. First, to build new commercial empires in markets whose only established characteristic is rapid growth in revenues: second, to construct a new kind of management, one that can simultaneously control growth by conventional means, engender constant innovation in unconventional ways, and radically change things on very short timescales.

If they can pull off this double whammy, a benevolent circle should evolve.

The likelihood is that, in the best internet companies, the excitement, achievement and fast pace alone will keep the best talent. Many of the escapees from Microsoft, Disney et al are voting with their feet out of boredom and frustration as much as greed. Boring and frustrating top managements will not keep their high-flyers - or even their businesses.

Robert Heller was founding editor of Management Today.

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