Robert Avila is Managing Director of Future Crunch, and has advised companies on strategy and market environment issues for more than twenty years. FutureCrunch develops mission-critical, data-driven insights and recommendations for businesses in times of discontinuous change. Prior to founding FutureCrunch, Mr. Avila worked at a number of major consulting firms, including Deloitte, PwC and Coopers & Lybrand, where he was the chief economist for the firms’ strategy practice and director of Economics & Policy Analysis. He has also worked as chief economist at The Futures Group doing scenario-based strategy development for Fortune 100 companies and at SAGE Associates doing public policy analysis.
Corporations have long enjoyed the status of being legal persons with the right to contract and petition the government. Most recently, the Supreme Court has granted them Freedom of Speech and with that they have gained largely unlimited rights to support political candidates. It has often been noted that the world’s largest corporations have gross products greater than most of the world’s 200-plus countries. If ranked by number of employees, corporations are not nearly so large. However, a ranking that included some allowance for employee family dependants would place the likes of IBM and Siemens larger than perhaps a third of the world’s sovereign states, while a giant like Wal-Mart would be larger than 60% of the world’s countries.
Corporations are products of the Enlightenment. It was then that the role of government began to be seen as distinctly different from that of religion, commerce and the pursuit of knowledge. Churches, businesses, universities and related institutions all began to be seen as having distinctly different, largely non-political objectives and to assert their independence. Over the past 200 years, in the post-Enlightenment world, corporations have proved themselves to be a most transformative force. Their largest impact on human life has come since World War II as the ideals of the Enlightenment have been spread in one form or another to more and more countries.
Given their success, it is somewhat strange that so little thought and attention have gone into understanding the changing nature and functionality of these institutions. There is, of course, an excessive amount of financial analysis of the quarter-to-quarter performance of these institutions as money-making machines. There is also a modest amount of journalism focused on corporate heroes, battles over acquisitions, and dramatic bankruptcies. For the most part, however, the nature of life within most corporations goes unreported. Even business school case studies tend more to be pedagogical devices than serious research efforts, and the far too many books on business management tend largely to be no more than a specialized segment of the larger category of personal self-help and diet books.
Evolution or Devolution
As a result there is almost a Darwinian quality about how corporations are organized, managed and responsive to changes in their complex environment. Companies try different things; some moves seem to succeed. These are copied by other companies, often with little more analytical thought than that it seemed like a good idea at the time, with little perspective on where things have come from and where they are headed, or whether the move is a good idea.
To gain just a modicum of perspective on the current evolutionary state of these extremely important institutions, it is worth looking at a few of the changes that have taken place over the last 25 years or so.
Corporations have been pursuing an implicit model that has shed much of the internal political, social and cultural qualities that characterized past corporations and have transformed themselves more and more into purely economic institutions. As this model has advanced, corporate loyalty, a largely political concept, has been replaced by the formal or “at will” employment contract, a purely economic arrangement.
- Corporate management used to be internally generated with the climb to the top being a classic political process of successful behavior and internal constituency building. Today senior management increasingly comes from an external professional class. Executives move from organization to organization, in essence possessing an objective and theoretical rather than a subjective and experiential view of the organization they lead, and thus they are as likely to disaggregate the institution as they are to preserve it. The deciding factor is whichever action creates larger personal rewards for themselves and, it is claimed, for the stockholders.
- As the role of the professional management class has increased, the roles of corporate staff, corporate research and most other internal corporate analytic activity have been replaced by outside consultants who increasingly provide technological “solutions,” as well as strategy and even R&D and product development for the professional management.
- Employees, who were once told that they were part of a corporate “family” and recruited for a possible lifetime career with a company, are increasingly viewed not as resources but as “at will” commodities of different grades, largely interchangeable. Their treatment is largely determined by the constraints of employment law, with reviews and advancement being determined less by the objectives of long term organization building than by issues of legal liability and the resource requirements of the current product mix. As a result, an entry level position now rigidly predetermines advancement opportunities. As recently as 15 years ago, there were SVPs at major U.S. corporations who literally started “behind the counter” or as a “stewardess” serving passengers. Today such opportunities and expectations are things of the past.
In all of these changes, corporations have been pursuing an implicit model that has shed much of the internal political, social and cultural qualities that characterized past corporations and have transformed themselves more and more into purely economic institutions. As this model has advanced, corporate loyalty, a largely political concept, has been replaced by the formal or “at will” employment contract, a purely economic arrangement. Informal corporate cultures are being supplanted with formal ethics programs. As employees at all levels of the organization become more and more transitory, corporations are investing in systems to capture and retain corporate learning in the hope that these systems can replace the extensive informal, corporate-wide networks of company-specific knowledge and know-how at all levels of the organization that once characterized the day-to-day operations of corporations and their dynamic resiliency in the face of changing competitive markets.
There is almost a Darwinian quality about how corporations are organized, managed and responsive to changes in their complex environment.
Rapidly changing technology and ever shorter product life cycles are certainly a contributing factor to these changes, as is the rise of outsourcing in all its many forms and the total disaggregation of both the product and the service supply chain. Faced with these trends, it is tempting to predict that the disposable corporation may not be too far in the future: an institution created to exploit a given product or market opportunity only to be liquidated or contracted to its legal minimum once the opportunity is past, much the way that major motion pictures are now created, marketed and distributed.
All that said, corporations are still as much human institutions as they are economic or technological ones. As all corporate employees become mercenaries, there for the short term, for the task, for the current market opportunity, before being let go, issues of performance, productivity and security become paramount. As corporate loyalty has declined, there are reports of a technologically driven rise in employee surveillance, an unfortunate dead end for corporations as much as it proved to be for totalitarian states.
As employees at all levels of the corporation become temporary and expendable, the organizations that can innovate new ways to reward and motivate performance in this increasingly dynamic environment will be the Darwinian survivors. Faced with such choices, it would indeed be unfortunate if corporations used their newly gained political rights to promote laws which in one way or another only sought to perpetuate the current diminished status of at-will employees, rather than to create new institutions that will enable continued growth and innovation.