Through the years, I have watched with a kind of morbid fascination the number of once powerful companies that are no longer around. It would appear that Darwinian principles apply to companies as much as to organisms. There seems to be a kind of life cycle to a business, and beyond a certain number of years, the invisible hand of the marketplace lets you know that your time is up. And every so often, a kind of near-mass-extinction event seems to afflict a whole industry, such as is currently happening in the financial sector around the world.
How I came to my fatalistic view of business is not hard to understand. IBM's near-death experience in the 1990s was very painful for me personally and for all us in the company. Even though we managed to survive, as well as to recover and regain a position of leadership in the IT industry, the traumatic experience has definitely left its imprint and colors my views of the world.
Then there are the facts. In her book Let Go to Grow, my IBM colleague Linda Sanford cites a number of ominous statistics. For example, of more than 1,000 companies tracked by the Fortune 500 since 1960, less than one sixth of them are still around.
Over the years, I have personally seen many mighty companies in the IT industry disappear altogether, such as Digital, Compaq and Wang, while others like Cray, Fujitsu and SGI are but shadows of their former selves. Just before sitting down to write this post, I was reading about Sun Microsystems, one of the most successful computer companies in the last 20 years, at the top of the world during the dot-com days, being pushed to the brink by the present economic downturn.
While the carnage might arguably be more pronounced in the IT industry due to the fast-changing nature of information technologies, no industry is immune. As we know, the banking industry is going through the worst global financial crisis since the Great Depression. Digital technologies and the Internet are transforming the music industry right in front of our eyes. Similar transformations are occurring in just about all mass media industries, from newspapers to television. The list goes on. Indeed, “immunity” is probably the wrong metaphor. There is no industry or area of human activity any longer that remains "uninfected".
There is little question that we are truly undergoing a technology-driven transition of historic proportions, from the industrial to the knowledge economy. If you examine similar past major transitions, the revolutionary technology in question - IT in our case - acts as an engine of growth, rejuvenating and transforming whole industries and the whole economy, as well as re-shaping social behavior and the institutions of society. For one reason or another, many companies will not be able to adapt to the new environments. When that is the case, their fate is sealed.
What can a business do to maximize its chances of survival? Foremost is to embrace a culture of innovation. If the environment is going to change, you want to be among the first to anticipate the changes and start preparing for them. A commitment to innovation may not always help your business stay out of serious trouble, but having a good strategy and understanding of your options will help you transform the business and survive.
What is the role of senior management in all this? We know that the management of all companies is subject to all kinds of short-term pressures, - improving the competitiveness of the operating units, achieving solid financial results, attracting and retaining customers, and so on. But isn't the key responsibility of the senior management team - including the CEO and top executives, as well as the board of directors - to manage strategic uncertainty and create strategic options for the business?
You would expect that in today's environment, with such an uncertain future, this would be how the senior management of a company spends a significant portion of its time. But, we know that is not the case. Executives typically rise up in the organization by being very good operational managers. These management jobs are very tough and getting tougher. Being a good manager takes very hard work, attention to detail and organizational discipline.
People who do well in such operational jobs will tend to be the ones promoted to senior management positions. But as executives rise up in the organization, other skills become increasingly important. In particular, executives have to make the transition from managing the present to managing both the present and the future - that is, they now have to be good at both operations and strategy. They also have to make the transition from being good at delivering business results and running processes to being both good managers and good leaders.
This transition represents a kind of phase shift for the individual. The criteria for success early in a person’s career are always going to be more operational than strategic – if only because lower-level employees don’t get the opportunity to make large strategic decisions. Nonetheless, even if they are not primarily getting rewarded for having a vision of the future of the company or the ability to inspire people to buy into the vision and help make it a reality, they had better develop those skills along the way, because they will need them if and when they reach senior positions in their organization.
Of course, when skies are blue, a company might be able to cruise along with top operational managers who are indifferent strategists and leaders. But once the skies begin to darken, as they inevitably do, such managers will get into deep trouble, and often end up taking the business down with them. They have no one to rely on, because in all likelihood their most talented innovators and strategists, those whose skills are now badly needed to help set the business on the proper course, have either long departed or become so disenchanted that they have nothing left to give.
Most top managers hold advanced degrees from very good universities. So, it is reasonable to ask the question whether the business, management and engineering schools at such universities are doing a good job of preparing their students for the kind of market environment they will face once they graduate. Just about all indications are that universities, even the very top ones, are not properly preparing their students for the brave new world out there, especially as those students rise up in their companies and become senior executives.
Universities do an excellent job in teaching hard, quantitative, discrete skills - engineering methods, analytical tools, finance, marketing, etc. But they fall behind when it comes to preparing the students with so-called soft skills, which are more people-oriented and systemic in nature - human capital, decision making, strategy and innovation. Everyone is aware of the need to re-invent engineering and management education, and emphasize soft as well as hard skills. But changes come slowly, especially in academia.
We are living in a fast-changing, complex, fiercely competitive global world. Many companies have not yet adjusted to these market realities, and continue to promote and rely on executives who grew up and became successful in a kinder, gentler world. Universities are not helping enough, as they seemingly continue to prepare students for the industrial economy of the past, not the knowledge-based, global economy we are entering.
Re-inventing management is one of the most important responsibilities any company needs to undertake to maximize its chances of survival into this future. Re-inventing management education is one of the most important responsibilities of universities to help better prepare future managers for the kind of world they will encounter. These tough challenges will require us to open our minds to new ways of thinking. In the end, that is what innovation is all about.