“They say it’s hard to see history when it’s happening around you. And so it was at the end of 2010, with Sydney’s New Year fireworks, followed by those in Berlin, London, New York and LA, providing a welcome distraction from the deepest financial crisis for three-quarters of a century.
The start of it had been marked, nearly 29 months before, by the retreat of financial services firm, BNP Paribas, from three US mortgage debt specialist hedge funds. This had exposed a previously unimagined black hole of ‘dodgy derivatives’, the consequences of which, as we all now know, would ripple out for years to come.
At the time we did not yet know that we were actually at a ‘watershed’ that would divide businesses and organizations forever.
On one side of this watershed were those willing to let go of the past and adapt to an unforgiving, ever-changing landscape.
On the other were those who chose the safety of what they knew over the need for change. Focused purely on survival, they weren’t looking ahead, so were largely oblivious to the challenges waiting for them, their organizations, their markets and their sectors, just around the corner. For them, the future was about to become perilous.
Unlike the geology of the natural world, this watershed had been created primarily by one event technology. Connectivity and digitization were, and still are, rewriting the rules of how the world works and businesses operate.
Cloud computing. Mobile internet. Social media. Digital content. Smart phones. Tablets. All have become part of an all-powerful, unstoppable and ubiquitous force that is penetrating deeper and ever faster into every corner of our lives.
Back in 2006, just 2.7 billion internet searches were made every month. Just 4 years later, in 2010, at the end of our ‘watershed year’, there were 31 billion. Over 11 times more.
And it was only in December 1992 that the first ever commercial text message was sent. Now the number sent and received every day is greater than our planet’s population.
In less than three decades, the World Wide Web – what’s generally thought of as the internet – has fundamentally and irrevocably altered the way we communicate, buy goods and sell services.
The genie is well and truly out of the bottle.
Technology has helped create a global market where geographic boundaries are erased, and lower costs, together with immediacy of response, have changed the rules of how we live.
This is far more than evolution. This is a revolution, though it will still involve a Darwinesque ‘survival of the fittest’.
For businesses, the impact has been transformational. Companies and organizations the world over, from America, Europe and the UK, through to Asia, Australasia and Africa, are suddenly having to find new ways of dealing with such rapidity of change.
As one small indicator of this upheaval, consider that in just 5 years’ time some 30–50% of your employees, your competitors and your customers will be different from those of today.
In the past, such speed and degree of change didn’t have to be factored in. Then – and we are only talking a matter of decades – change occurred far more slowly and in a much more predictable, organic manner that could be comfortably accommodated.
So, while often life enhancing, the constant ebb and flow of technology as each spawns another, only to be replaced by the next, inevitably creates uncertainty. We can no longer rely on the status quo for even the shortest length of time.
“To reach an audience of 50 million,
radio took 38 years, television 13
and the web … just 4!”
The commercial and political dimensions of such a rapid rate of change are yet to fully play out. And of course, we cannot take into account the potential effects of disruptive events that aren’t even on our radar yet.
We can no longer assume that what worked once, will still work now, and we must continually prepare to embrace new realities.
The reverberations will be significant, as people’s expectations of how the world should work are increasingly turned on their head.
But here’s a paradox.
Despite an ongoing investment in technology pretty much everywhere around the globe, the productivity gains achieved in the twentieth century haven’t carried through to the twenty-first. So while for 120 years average growth stood at 2%, since 2000 it has been on the decline, says the US Federal Reserve. In Europe the situation is even worse.
It seems that what we believe ought to work, no longer does in the way we think it should. In other words, the long-established business models we once relied on, are no longer scaling in the way they did.
Overwhelmed by information. Unable to respond to the needs of the market. The traditional hierarchical organization is beginning to struggle, increasingly susceptible to innovation that can disrupt – even destroy – an industry overnight.
The processes, practices and activities that were successful pre-2010 are no longer a formula for success in the future. Enterprises that want to survive, let alone thrive, need to fundamentally rethink the way they produce and deliver their products or services.
As entrepreneur and now philanthropist Bill Gates has declared: “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.”
“2010 was a watershed year. The moment when recession
and technology came together. One forcing change,
the other enabling it to happen.”
Unfortunately, when you are accustomed to old ways of working, it’s not easy to fully grasp the magnitude of the seismic shifts that are taking place around you.
Most particularly, 2010 marked a turning point when one long entrenched truism was finally proven to be wrong. Being bigger wasn’t necessarily better. In fact, many large organizations that were said to be ‘too big to fail’ … were proving everyone wrong by doing just that.
Suddenly, the organizational size that protected you from market forces and allowed you to block potentially disruptive competitors through overwhelming force … offered little if any protection at all. Worse still, ‘bigness’ was actually becoming a hindrance.
Yet many organizations are still not yet in tune with this new zeitgeist. When you are a ‘big business’ it’s easier to imagine that size will inoculate you against the unexpected. As a result, you may be too ready to dismiss disruptive events as inconsequential. Or not see them as threats at all. Or not recognize the imperative for change … until it’s too late.
Trying to steer in a different direction with all this baggage is like turning the proverbial oil tanker. Possible, but slow.
Just when rapidity of response is required, larger organizations can’t deliver. In such a fast changing environment, even corporate giants with long pedigrees can suddenly find themselves at a major disadvantage. Like photography pioneers Kodak, who in 2012 snapped and had to seek Chapter 11 protection from creditors. Or General Motors, who had to ask the US government for cash in order to escape bankruptcy. A far cry from its heyday when its one-time chief, Harlow H Curtice was able to say: “General Motors has no bad years, only good years and better years.”
Size it seems now comes at a price, and a new model is needed by those organizations who are ready and willing to think differently about the future.
For while the Goliaths of the corporate world were tumbling, smaller ‘upstart’ start-ups who did things differently, were on the rise. To see how this played out, all you need do is take a look at the US stock market. Of the top companies listed on the Fortune 500 in 2000, 40% were no longer there ten years later. While the percentage of companies new to the Fortune 1000 stood at 35% in the decade from 1973 to 1983, in the ten years from 2004 to 2013 it had doubled to over 70%.
According to Professor Richard Foster of Yale University, the average lifespan of a S&P 500 listed company is now just 15 years. That’s more than a half century less than the 67 year lifespan you would have expected them to have in the 1920s. By 2020, Professor Foster estimates that over three-quarters of S&P 500 companies will not have been heard of just 8 years previously.
Nearly three decades ago, in his book Chaos, author and science historian James Gleick wrote of ‘chaotic markets’ and the need for organizations to be able to respond instantly. How prescient those words now seems.
“If the story of the twentieth century was about ‘being big’, what will be the story of the next? We believe it will be about being just the ‘right size’.”
Small Is Beautiful: A Study of Economics As If People Mattered is a collection of essays by British economist Ernst Friedrich “Fritz” Schumacher. First published in 1973, The Times Literary Supplement ranked it as one of the 100 most influential books published since the Second World War. Schumacher’s philosophy is also one of “enoughness”, and that bigger is not better.
We are entering an era of leaner, smarter organizations, typified by what we call the Size Zero enterprise … ‘just big enough’ to do what it needs to, and no more.
Unlike traditional organizations, Size Zeros won’t be bloated by unnecessary bureaucracy or layers of management. They won’t be delayed by convoluted decision-making processes, or infected by inefficient team working, or plagued by internal politicking. Neither will an accumulation of inessential assets weigh them down.
Instead, they will be light on their feet. Unencumbered by ‘excess fat’, they will be able to react quickly to disruptive events, taking the decisive action necessary, with the minimum of effort.
Company structures will become flatter. Employees will become leaders within their organizations. Acquisition will become rarer or take a different form. Yahoo’s purchase of Tumblr, which came with a promise not to interfere, but to allow the company to retain and maintain its culture, shines a light into the future.
The traditional boundaries between individual companies will become more ‘porous’ as they temporarily join and coalesce to create strategic partnerships and even far reaching ‘ecosystems’, all with the explicit purpose of solving problems. Growth will now come from togetherness and connectedness rather than hierarchy and bureaucracy.
For these organizations, success won’t be measured by outdated metrics such as employee headcount. Or the opulence of their headquarters. Or the size of the perks and pensions on offer. Instead, other performance indicators – such as revenue per employee – will become much more relevant.
Size Zeros will grow and sustain themselves by employing technology to bring about rapid and fundamental change in the way their organization produces and connects with its markets and stakeholders.
“It’s becoming harder to spot a successful business.
A couple of decades ago you could tell from the company car park
and the size of the pension fund, but today the number
of employees is no longer a valued metric for success.”
Take Amazon. By understanding that the value of a retail business is no longer in the stores that you own but in the ability to manage the inventory that you possess, this global ecommerce company has transformed the way products are bought and sold. As a result, its 2014 revenue per employee hit $855,000 compared to the mere $108,403 of store-based operation Gap.
Similarly, electric car company Tesla has ‘rethought’ the automotive industry so as to produce more from less. As a result, it’s achieved even more impressive revenues of $2.7m per employee. Contrast that with GM. Reborn after near bankruptcy, this car giant can only manage $750,000 per member of staff.
And while technology has transformed supply-side thinking, it has also helped create and encourage a corresponding shift in demand.
“The recent global downturn caused
many to question and rethink what they value.”
Financial mismanagement by banks, a general sense that large businesses aren’t in tune with what we want ,and frustration with the faceless bureaucracy of large organizations, have led to a growing mistrust of big names, and caused many to question their brand loyalty.
So much so that in a survey by Co.Exist, a non-profit promoting social cohesion through education and innovation, nearly three-quarters of those asked said they wouldn’t care if the brands they use disappeared from their life altogether. While according to American Express’ ‘barometer of customer service’, a similar percentage thought small businesses understand their customers better and provide a more personal customer service experience than large companies.
Consequently, more and more consumers are changing what they buy … and who they buy it from. Not finding what they want from the usual suspects, consumers are getting more and more used to trying and using innovative services.
Now there is an expectation that we will receive much higher levels of service from those who supply us. And that we will have the opportunity, if we choose, to develop our relationship with suppliers in the way that we want. And that we will have sufficient choice to be able to match our needs most closely.
It seems we have entered what technology and market research firm Forrester has called the ‘age of the customer’.
And it will be the ability of a business or an organization to meet often very specific needs in the best way, that will be the source of competitive advantage from now on.
This leaves hard-earned brand equity in danger of being flushed down the pan, as new products and services from smaller, unknown companies, better aligned with consumer values, disrupt the status quo.
Size Zero is not just confined to the corporate side of the equation, it’s a concept that’s being increasingly embraced by consumers, who in many ways are already leading the charge towards a fundamental shift in our relationship with stuff, the things in our lives, where access to goods and services is trumping outright ownership of them.
People were starting to do things differently, forced into it by circumstances that are often the consequence of ‘recessionary thinking’.
In her book ‘The Mesh’, entrepreneur Lisa Gansky talks of companies
that through the power of social media and peer-to-peer networks are able
to provide a new generation of consumers with goods and services
exactly when they need them …
all without the burden and expense of owning them outright.
Even companies and organizations once seen as bulletproof, may not be as safe as they or we generally think. Using an algorithm on 850 data points taken across the web from digital, social and mobile marketing, Clinical Professor of Marketing at NYU Stern, Scott Galloway, has analyzed major companies for weaknesses, and has identified the Achilles heel of one of the biggest – shipping costs that are spiraling upwards at an unsustainable 40% per year. The company? One that we have already touched on … Amazon.
“You might think Amazon’s the most innovative company in retail,’ says Galloway. “Over the last 10 years that might be true, but if you look at the last 5 years, it’s been Macy’s from a shareholder’s standpoint. Amazon is at the lowest return of almost any major retailer in the U.S. over the last year.”
Galloway describes Amazon’s strategy as one of ‘last man standing’. In other words, it believes that thanks to the power and robustness of its incredible fulfilment infrastructure, it will be able to keep going longer than others, who will give up before it.
And Galloway’s tip for the company that will prove to be the most disruptive influence of all on Amazon? Car sharing phenomenon Uber.
So what characteristics does an organization need in this brave new world? How must it become better equipped to deal with a different business landscape? What will it look like and how should it behave? In what ways does it need to be different from the traditional corporate bodies that have gone before? What impact will Size Zero organizations have on the world and those who work for them? And, if you are an entrepreneur, CEO or executive, how can you chart a strategic course to becoming one?
To start answering these questions, we need to start thinking a little more deeply about the problem of size.