Prosper In This RecessionThe old bag of tricks won't work this time aroundBy Don Tapscott Companies looking to survive this economic downturn are reaching into a bag of familiar tricks. As revenues shrink and profits plunge, they shelve new projects, hunker down, cut costs, shed employees, and stick to basics. Unfortunately for them, the survival techniques honed in yesterday's recessions won't work in today's. This recession is unlike any before it. It comes during a period of unprecedented turmoil in corporate architecture. While cost cutting is still key, business plans emphasizing "back to basics" will actually accelerate failure. The classic vertically integrated corporation is being eclipsed as the most effective vehicle for value creation. Because the Internet slashes the cost of sharing knowledge, collaborating, and meshing business processes among corporations, smart companies focus on their core competencies and partner or outsource to do the rest. Together, in industry after industry, teams of specialized firms working together — business webs — are proving more supple, innovative, cost-efficient, and profitable than their traditional, vertically integrated competitors. Often, companies are able to use the Internet to draw their customers into the production process, increasing the value of their goods or services and enhancing customer loyalty. But many managers championing innovation and fresh thinking are being met with hostility. Boardrooms are still recovering from the dot-com debacle. During the Nasdaq's ascendancy, myriad pundits offered theories as to why stock prices were soaring. With 20/20 hindsight, we can see most of those theories were nonsense. A lot of people made a lot of money giving advice when they hadn't a clue what they were talking about. Corporate executives feel duped. Consequently, much of corporate America isn't listening to new ideas. Business books with provocative thoughts aren't selling. Anything with a prefix of "e" is dead. The only management books selling deal with traditional topics such as accounting or human resources. Conferences to discuss business trends aren't attracting registrants. Danny Stern, president of the Leigh Bureau, the country's largest booking agency of management speakers, says, "There has been an unprecedented decline in support for corporate conferences the like of which I have not seen in my 25 years in this business." Company managers want to return to ideas with proven track records. And the nascent recession makes a retreat to corporate conservatism doubly appealing. But, by donning blinders and pretending the business environment is not undergoing technology-induced turmoil, they are ensuring that the damage inflicted by the dot-com binge is compounded. Business strategists need to understand that because of the Internet, many new business models have emerged that are different from the industrial-age template. Reading business school case studies from 10 or 15 years ago will not help corporate strategists understand why the CEO of The Boeing Co. says the company is no longer an aircraft manufacturer but has become a systems integrator, why Mercedes Benz doesn't build its own E-series cars (Magna Corp. does the work, including final assembly), or how IBM has become a computer company that really doesn't make its computers — its partner network does. Despite the economic downturn, new business models are flourishing. Companies such as Herman Miller Inc., Charles Schwab & Co. Inc., and General Electric Co. are doing very well by rejecting the retreat to yesterday's conventional wisdom. They apply new thinking to their operations. Siebel Systems Inc. is one of the fastest growing companies in America, with revenue soaring more than 1,400 percent in just three years. The relatively small core company creates software products and orchestrates an extensive network of consultants, technology providers, implementers, suppliers, and vendors that take its products to the global marketplace. Tom Siebel says, "We only have 8,000 people on our payroll, but more than 30,000 people work for us." That's a smart business strategy for these tough times. 1997 to 2000 were the dog days of business strategy. A get-rich-quick mentality distorted the assertion that "the Internet changes everything" (which is true) into the hope that "all things done on the Internet will prove lucrative" (which is rubbish). We saw egregious excesses and spectacular market capitalizations based on absurd or nonexistent business models. Momentum investing set in and massive damage was inevitable. I'm thankful those times are past and sanity is returning. But what's important to understand is that the headline-grabbing dot-com machinations, be they startups or spinoffs, were largely a distraction and represented only a thin sliver of the businesses trying to harness the power of the Internet. Today, in the gap between yesterday's irrational exuberance and today's corporate pessimism, there is a new frontier of business strategy. There are great new possibilities for creating economic value, customer value, shareholder value, and community value. Indeed, business strategy is an idea whose time has come once again. But, new rules for competing require fresh thinking, and a recession makes creativity even more important. Don Tapscott [dtapscott@digital4sight.com] cofounded Digital 4Sight (www.digital4sight.com) and is coauthor of Digital Capital (Harvard Business School Press, 2000). |
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