Features Research & Innovation
New Corporate Order: More steak and less sizzle

By the time you’re reading this, the list will likely be longer. This signals the emergence of a new corporate ethics landscape with a “forward to basics” credo for the fundamentals of business operation and strategy. A look back and forward to understand this situation can reveal lessons for the next business cycle.

What happened? First it was the dot-com implosion, then the double-whammy of the Telco meltdown and widespread corporate malfeasance. We have experienced the classic “bubble burst” at the frothy end of a business cycle, where one-dimension self-centered growth strategies coupled with corporate greed, finally “inserted the pin,” at the expense of real shareholder value. The euphoria of the boom years led to a slow, steady deterioration in professional and ethical standards. The decline of the hostile takeover as the most powerful market mechanism for displacing bad managers has also been cited as a factor [Henry Manne, Wall Street Journal]. As a NY equity fund manager notes, “The American equity market has taken on the flavor of a casino to many investors.”

There is an interesting historical parallel with the 1929 market crash where there was a technology-focused boom [automobile, radio, regional electric utility] that followed a successful war. In today’s context the technology boom is the Internet and the war, the Cold War. Back then, the post boom clean up of an open season market resulted in the creation of the SEC in the early 30s. What are the future implications for the next cycle? Some possibilities are more government scrutiny, new corporate ethics standards, more attention to and scaling of fundamental business operation and strategy and less to achieving the next quarter stock price targets, and not least of all, the demand for real shareholder value. In short, the management of reality rather than perceptions.

The demise of the flamboyant CEO is already taking place, to be replaced with a new and younger group of industry leaders that will shape the corporate world. A recent survey has found that a quarter of the CEOs of Fortune 700 companies have been in their jobs for less than a year [The Economist, May 4th 2002]. Since the average survival term for a Fortune 500 CEO is less that 4 years, there would seem to be a need for linking retirement compensation with future company performance. Together with new standards, this will hopefully restore investor confidence. In this context, the rise of the knowledge manager is also relevant. Under the old model of management, managers were viewed as a separate part of the organization’s workforce, a mere link between the executives who make the decisions and the laborers who carry out the work. In the new model, managers both make the decisions and do the work themselves.

Why is this important?

The old-fashioned skills of cautious accounting, attention to detail and a strong sense of strategy are the new priority. The new breed of analytical business leaders will need the support of modern analytical business tools if they are to prosper in the harsher world of a slow recovery. The classic review “What is Strategy” by Michael Porter [Harvard Business School] might also be required reading. Key points:

Operational effectiveness, while necessary, is not a Strategy.

Strategic Elements are the building blocks of Strategy; they can be based on customer needs, or on a variety of products or services.

The innovation in Strategy Development rests in identifying unique Activities, different from competitors, for each Strategic Element.

A sustainable strategic position requires trade-offs among the Activities; you cannot be all things to all people.

The fit of compatible Activities locks out imitators by creating a chain that is as strong as its strongest link; this is the overall Strategy Blueprint that drives both competitive advantage and sustainability.

Best in class for corporate strategy: Southwest Airlines, Wal-Mart, Ikea, Jiffy Lube, Starbucks, Dell, Neutrogena, and Home Depot.

“Strategies for taking the hill won’t necessarily hold it,” Amar Bhide, Business Professor Columbia University. Readers may also wish to review the FutureViews column from October last year “Shareholder Value at a Crossroads.”

Alan R. Procter is an international consultant helping organizations exploit the future in their business strategies. He can be reached through futureviews@alanprocter.com