First person: Technology could kill the ‘company’
It may be time for traditional companies to rethink their structure if they are to survive the competitive onslaught from technology-driven rivals, says Review columnist Anthony Hilton
The world’s biggest taxi company does not own any taxis. That’s Uber. The world’s biggest retailer, Alibaba (not Amazon), does not own any shops. The world’s biggest media company, Facebook, does not generate any content. The world’s biggest hotel company, Airbnb, does not own any hotels. What’s more, none of these businesses existed 20 years ago. Meanwhile, the management consultancy firm McKinsey has suggested that such is the pace of change that 35% of the business models currently in use in today’s companies will be obsolete within five years.
Technology companies look at the world differently and that is why it is so hard for established businesses to compete with them. Company boards say they want to innovate but in truth, while senior management does, and a few young ambitious individuals anxious to make their name certainly do, the vast majority of employees in an organisation are usually quite comfortable with the status quo. They understand it, they are on top of what is expected of them, they are not threatened by it and they know how to turn it to their advantage. So as long as the business is not visibly collapsing around them, why would they want to change?
Innovation to them is a threat, however much others in the business may think of it as an opportunity, and as a result, middle-ranking employees resist change, not with overt challenge because that might get them fired, but with minimal co-operation, which amounts to passive resistance. This gradually saps the will of the would-be innovators who are normally vastly outnumbered by the incumbents. The project stalls, the glamour fades and the limited attention span of the chief executive means the organisation moves on to something else.
It is an exaggeration to say that an existing company is more likely to go to the wall than to evolve, but that is the way things are moving. The FTSE 100, which represents the largest companies listed on the London Stock Exchange, has lost 90% of its founding members in 30 years.
35% of the business models currently in use in today’s companies will be obsolete within five years
Even if today’s businesses are not universally doomed to fail, it seems not unreasonable to suggest that we will have to rethink the way they are run. There are two issues. First, the need to capture and evaluate even the smallest but potentially crucial piece of market information seems to demand a flat, networked structure where information flows freely in all directions. The traditional command-and-control hierarchy, where information goes only up or down and frequently gets stuck, will simply not be responsive enough.
Second, human resource experts say we are moving towards a world where there are few full-time employees, but people come together to execute specific projects. The usefulness of tomorrow’s human resources manager lies in knowing what skills are going to be needed to execute a strategy and knowing where they might be found.
The point is that we are entering a world where the scarce resource is labour, not capital. There is more than enough money around to back new ideas; more so because today’s businesses require a tiny fraction of the capital demanded by yesterday’s corporate giants. It is people who are in short supply – and specifically people with the skills and understanding to harness the power and opportunity of today’s technology.
But this raises questions about the purpose of the corporate structure. The modern limited liability company is a capital preservation device; a legal structure designed almost exclusively to protect the interests of those who provided the capital. It reflects an age when capital was the scarce resource. But if capital is no longer the scarce resource, why persist with a business structure that still assumes that it is?
The traditional model for a business that needed talent but no capital was the partnership and it may be that it will experience a renaissance. Alternatively, something akin to a legal chambers might have other applications – umbrella organisations where people who are virtually sole practitioners come together to share a few overheads and clerical services but keep the bulk of what they earn.
Perhaps the biggest victim of the coming technology storm will be the company itself.
Anthony Hilton is the award-winning former City editor of The Times and the London Evening Standard. This article was originally published in the January print edition of The Review. The print edition is available to all members who opt in to receive it, except student members. All eligible members who would like to receive future editions in the post should log in to MyCISI, click on My Account/Communications and set their preference to 'Yes'.