UK: MANAGING REVOLUTION - PROFIT GOES TO THE SWIFT AND LITHE. - MANAGING REVOLUTION - PROFIT GOES TO THE SWIFT AND LITHE - Blue-chip giants are exposed as the dinosaurs of cyberspace while young predatory rivals embrace change and chip away at clients an

by ROBERT HELLER, who was founding editor of Management Today.
Last Updated: 31 Aug 2010

MANAGING REVOLUTION - PROFIT GOES TO THE SWIFT AND LITHE - Blue-chip giants are exposed as the dinosaurs of cyberspace while young predatory rivals embrace change and chip away at clients and business.

How the mighty are falling. Drooping sales at M&S, massive mismarketing at Sainsbury, wobbling strategy at ICI, shattered profits at Shell, a disastrous takeover for BMW - the list of giant victims rumbles on.

Some of the shambles represents passing affliction. The rest is symptomatic of rampant and chronic disease. Companies are living in the past when a future is rushing upon them, at a breathtaking pace, in which size is less relevant than speed, and muscle less important than litheness.

The continuing orgy of mega-mergers reflects a dangerously different view. Management after management bet billions on the proposition that the battle goes to the biggest. In the real world, the race is won by the swift. Lumbering elephants are exposed by the aggression of speeding midgets.

Competition from upstarts is one development placing unprecedented pressure on the mighty. The other is the internet and all its works. Cyberspace has brought global competitiveness within the reach of any entrepreneurial spirit with modest resources. The same technol-ogy has become a decisive weapon for revolutionary companies that are strong on people policies and low on hierarchy.

The financial services sector shows what must happen on a widening front.

Virtually everybody follows the same strategy. Nobody has new ideas. Nobody mobilises human assets to win growth: sackings are the favoured strategy.

Piece by piece, the profitable business gets chewed away by newcomers such as Direct Line and Charles Schwab, the cyberspace investment king.

Many more upstarts will start up. Whole industries will fragment and reform. As the computer industry churned, IBM lost its stronghold in hardware to small PC and workstation rivals; in software to Microsoft and other midgets; in services to upstart EDS; in microcircuits to start-up Intel; and so on. Each challenger seemed insignificant on entry but, soon, the fastest emerged as new giants, billionaire companies with wealth measured by equity markets and predicated on their ability to mine more paper gold.

Small wonder that such unlikely bedfellows as Microsoft's Bill Gates and Rupert Murdoch have united in deploring the overvaluation of internet stocks. The p/e ratios of 350 on America Online and 700 on Yahoo! are insane. But young Mr Gates and old Mr Murdoch are equally threatened by what these lunatic ratings represent.

Both may be yesterday's men. Microsoft's near-monopolies in PC operating systems and office software are threatened on all sides. Murdoch's newspapers, magazines and broadcasting are likewise vulnerable to the cyberspatial onslaught.

At this level of internet valuations, even a Murdoch cannot buy himself out of trouble.

History tells that it is desperately difficult to reverse such thundering tides. Companies of historic success, buttressed by stupendous cash flows (Shell has a cash flow of $15 billion) are staffed by well-fixed managers with vested interests in the past.

In contrast, the revolutionaries, led by the Silicon Valley Guevaras, are younger people who carry no baggage, make up their traditions as they go along and discard them just as rapidly. Netscape and AOL, now joined in wedlock, have metamorphosed continually. Established companies in establishment industries have great difficulty in changing at all (viz Shell).

The consequences for retailers, as another example, are already looming. Their potential loss of trade is much more alarming than most seem to believe. In his book, E-Shock, Michael de Kare Silver notes that 15% to 20% of customers already express a preference for electronic shopping.

Most companies are still abysmally slow to adopt breakthroughs in e-commerce.

But just embracing the new technology of marketing and selling will not avert nemesis. Today, no company can afford to delay decisions while committees deliberate, back-burners get overloaded and defensive people cover their backs. Nor can they afford to frustrate the young, bright and ambitious by resisting, second-guessing and, eventually, killing their ideas.

Do that and the bright, young things will react like today's promiscuous customer. They will vote with their well-shod feet. The troubled giants face a dual retention problem. They stand to lose both their best clients and their best employees.

This is the law of nature. If companies have outlived their utility, so what? The braver course is to embrace and manage revolution. Move seniors into the strategy zone or out altogether. Entrust younger men, and many more women, with the task of remaking the corporation, by removing hierarchical levels, slaughtering sacred cows. Move towards the virtual ideal, in which customer, corporation and supplier are indivisible.

No blue-chip behemoth has attempted to do this. After only 15 years, more than half the original members of the FTSE-500 have dropped out.

The next 15 years will be deadlier for would-be dinosaurs and richer still for their young and thrusting predators.

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