A smaller company is a smarter company

The Internet bubble may have come and gone, but its true effects have not yet begun to be felt. An increasing number of commentators think large corporations have been undermined by it. Their break up into much smaller units may be a mixed blessing for them, but it will provide rich sources of revenue for the small and swift consulting group.

In this article, I want to explore the hows and whys of this corporate break-up, and look at what it might mean for you.

Breaking up the Corporation

The principal point about the Internet is not ubiquity, but interactiveness. Previous media (press, radio, television) existed to push information at consumers in an attempt to stimulate demand for products. For the first time, every consumer has a channel to express his or her desires.

Those desires centre around their emotional needs (education, employment, entertainment and so on), not around someone else’s products. Most of today’s industrial powerhouses have not spotted this. They are bloated and introspective, populated by executives more concerned with internal organisation structures and product lines than with customers. Corporations that continue to ignore the new voices of customers will soon be ignored themselves.

But the Internet’s effects on how businesses work together will be even more profound than how they work with customers. The past five years has seen incredible growth of electronic links between businesses, particularly with the introduction of marketplaces that reduce the cost of doing business with other corporations. So what? Well, according to 1991 Nobel Laureate in Economics Ronald Coase, the size of corporations is the result of a balancing act – they exist at a point where the cost of doing business with someone else is exactly equal to the pain of coping with internal politics and bureaucracy. So if the cost of doing business is radically reduced, so is the natural size for organisations.

An Economy of Atoms

The Internet is undermining corporate foundations just as newly-empowered consumers are pulling them apart. The result will be fragmentation into much smaller units, which we will call ‘atoms’, which can operate at maximum efficiency. They will self-organise, using the new electronic channels, into ‘molecules’ that deliver every customer’s individual desires.

So if size no longer matters, what will drive success in tomorrow’s economy? The answer is specialism. Atoms will concentrate on one of three things – process excellence, relationship management, or knowledge and innovation.

The bulk of the large corporations will end up in atoms that concentrate either on generic processes (finance, human resources, information technology) or on production processes (refining, manufacturing, agriculture). Of course, someone has to mine consumer demand for these products and build molecules that meet each individual customer’s needs, and specialist relationship manager atoms will emerge to fill those roles.

But the engines of the new economy will be the knowledge and innovation specialists, which we call ‘smart companies’. In a world where customer tailoring rather than mass production is the key to profits, design and innovation becomes vastly more important to this mix.

The Smart Company

These smart companies may concentrate on science and technology (drug research, specialist software, equipment design) or on more creative fields (product design, graphics, advertising, journalism etc). We would expect them to conduct custom design projects for other atoms and to own a portfolio of designs and patents.

Where will these atoms come from? Many of them are out there already in the form of small design shops, consulting engineers, architects, and so on. Innovation is an art that is too often crushed by size, but we do see some atoms emerging from elements of large corporations.

The reason for this emergence is the need to please shareholders: if one of these hidden atoms knows how to build a better mousetrap, or has a better mousetrap-construction process, then the chances are that the market can find more to do with this piece of intellectual property than can one corporation. The portfolio of ideas can therefore be securitised and thus bring capital wealth to its parent corporation.

How to Succeed in the Atomised Economy

The value of these smart companies will be determined by their innovation and knowledge reuse processes, the worth of their patents, and the relationships they can exploit to realise value from the ideas.

As with many research and development operations (where for every successful drug there are a hundred unsuccessful ones) their profits may depend on only one or two positive outcomes. Intangible worth will make up the principal element of their share price, and it is likely that smart companies will form the next stock market bubble.

Whether you work in a small consultancy or in a large multinational conglomerate, there are things you can do now to position yourself for the new economy:

Think small – size is the enemy of agility

Look for opportunities to take specialist design units out of today’s large corporations

Be aggressive about using electronic media (e-mail, collaborative design environments and marketplaces) to lower your costs

Find out what electronic media your target clients use and embrace them today

The combination of changing customer demand, a shake-up of business economics and the need to beat the flagging stock markets (especially in the light of events in the US last month) will undoubtedly change the shape of the corporate landscape.

What that landscape will look like five or ten years from now is still being debated (see www. atomiccorp.com), but being small, agile and specialised today, will be essential to survive in the economy of tomorrow.