There is a lot of discussion on Medium and other media platforms about how technology companies and startups are changing the way we live and work.
There is a particular interest in the “Four Horsemen of Tech”: Apple, Google, Amazon and Facebook. This is hardly surprising. After all, the economic size and cultural influence of these companies is unique.
But, as the Head of Governance of a listed company, what really interests me is:
Why do we invest in the Four Horsemen, why do we want to work for them and why do we love using their “products”?
What can we all learn from their success?
And what do they (and us) need to keep doing to remain relevant in the next five or ten years?
The Corporate Landscape in a Digital World
Everyone seems fascinated by the Four Horsemen. Apple, Google, Amazon and Facebook are the current darlings of investors, employees and consumers.
Investors seem to love the Four Horsemen.
Apple, Google, Amazon and Facebook are among the five largest publicly traded companies, replacing oil businesses and banks.
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One of the Four Horsemen will become the first “$1 trillion business”.
Apple recently passed the $800 billion “valuation” mark.
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Modern investors seem to value “big data”, “algorithms” and “software code” more than “physical assets” and “commodities”.
This is not so surprising since the emphasis on “digital assets” enables the Four Horsemen to instantly adapt and improve the consumer experience.
Consumers are attracted by the Four Horsemen.
Apple, Google, Amazon and Facebook tap into some of the most basic “needs” of consumers: marketplace (Amazon), information (Google), identity/authenticity (Apple) and relationships (Facebook).
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They also attract talented employees.
The Four Horsemen have perfected the “platform-based” business models, disrupting not only traditional industries, but also other platform companies.
By using these “innovative” business models, they are able to generate much more revenue with fewer people and few “physical assets”.
And there is more:
They own the most mobile apps.
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They dominate the world of digital advertisements.
They invest in new and cool technologies, such as artificial intelligence, robotics and autonomous cars.
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The basically “run” our lives.
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But, Will the “Four Horsemen of Tech” Soon Become Irrelevant?
And yet, in spite of this success, we can already read on Medium How Google will collapse and Why people say goodbye to Apple and Google. Youtube is awash with contributions that discuss how the biggest companies in the world will face a backlash in the next few years.
Big corporations have always been replaced by disruptors, who will again be substituted by younger companies in the future.
For instance, Amazon, which is considered by many as one of the longest survivors, will eventually disappear. Even the leaders of Amazon recognize this. Jeff Bezos, founder, CEO and Chairman of Amazon stated in a 2013 interview:
“Companies have short life spans, and Amazon will be disrupted one day. I don’t worry about it ’cause I know it’s inevitable. Companies come and go. And the companies that are the shiniest and the most important of any era, you wait a few decades, and they’re gone.”
Bezos’ job is simple:
To delay, for as long as possible, the date of being disrupted.
This sounds simple, but the continuing decline of the average lifespan of the largest companies shows that this is becoming more and more of a challenge.
Why Do Large Companies Decline?
There are several general and often-heard answers to this question. But most answers can be boiled down to one factor:
Large companies don’t innovate fast enough
New business realities and faster product life cycles mean that businesses are obliged to exist in a permanent state of innovation. This task is not easily accomplished by large, extended and complex organizations. Larger companies are in constant danger of losing the capacity of agile re-invention associated with younger or smaller firms. Global size and a capacity for agile reinvention are often mutually exclusive.
Also, previous practice and prior experience usually become dominant considerations in the decision-making processes of large companies. The result is that decision-making has a tendency to become slow, bureaucratized and overly cautious.
An obvious side-effect of a corporate environment in which static processes dominate is that it becomes harder to retain high performance employees, who find such an environment disempowering and frustrating.
A related answer to the question of why large companies decline is the disconnect between ownership and control.
As Lawrence Ellison has observed, tech moguls like Larry Page, Sergey Brin and Mark Zuckerberg run their enterprises as “private fiefdoms”.
They have structured “corporate control” in such a way that there is no way that investors or board members can unseat them. But these structures can become dictatorships in which an unhealthy complacency prevails.
Unfortunately, companies with more “democratic” ownership and control structures often also find it difficult to remain relevant. In the democratic corporate structure, the ultimate power is with the shareholders.
Issues arise when a myopic focus on “shareholder value” leads to an unhealthy emphasis on the stock price, market valuations and financial metrics. In these businesses, short-term quarterly results and the demand for dividends take over and kill the relevancy of the company.
How to Extend the Corporate Life Cycle?
An earlier generation of corporations could be viewed as “machines” for creating value, profits and jobs. Hierarchy, internal rules and procedures (“corporate lubricants”) ensured that the machine ran smoothly.
The comparison with a machine worked well in a time of relatively slow innovation cycles. Corporations were static-closed-hierarchical organizational forms. “Updates” (corporate restructuring) were only necessary to adapt to changing market needs and new regulations.
However, even regular updates are not sufficient in an innovation-driven economy. Companies have to become more agile and constant reform is necessary to remain relevant.
The “company of the future” needs to develop a different type of organizational culture that is better attuned to this new reality.
Companies need to create an open and inclusive “corporate ecosystem”, built — in part — around new type of relationships with investors, employees, entrepreneurs and startups.
It is this corporate ecosystem culture that distinguishes the Four Horsement (to a more or lesser extent) from most other businesses.
Yet. the challenge for all companies is to identify and then adopt flexible strategies that facilitate the creation of an ecosystem culture. And the challenge for policymakers is to offer an environment that facilitates companies in achieving this objective.
Ten Strategies to Build a “Corporate Ecosystem”
So what should companies be doing to become a sustainable “corporate ecosystem”?
Or, what should we (as prospective consumer, employee or investor) look for in a company?
Here is a quick check-list of 10 strategies that all companies need to adopt:
(1) They should be mission-oriented, focusing on growth and innovation (making money is a by-product).
Or, as Mark Zuckerberg, says:
“It matters to the kind of investors that we want to have, because we are really a mission-focused company. We wake up every day and make decisions because we want to help connect the world. That’s what we’re doing here.
If we were only focused on making money we might put all of our energy on just increasing ads to people in the U.S. and the other most developed countries, but that’s not the only thing that we care about here.”
(2) The leaders should communicate in an honest, open and and personalized manner (using social media to supplement traditional platforms for corporate communication).
Consider Tim Cook’s appearance on Twitter. He only follows 56 people, but has 4.9 million followers. His quotes and pictures allow him to be vulnerable and human.
(3) They should use storytelling to give “heart and soul” to the corporate ecosystem. And these corporate narratives need to focus on where the company came from and where it is going, and not simply a myopic focus on the present.
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(4) They should have mutually constructive “partnerships” with startups (to create opportunities for serendipity).
(5) They should allow acquired startup companies to retain their own identity and not subsume them in a monolithic coporate culture.
Take the example of Amazon and Zappos. Amazon acquired Zappos, an online shoe retailer in 2009 for about $847 million, its largest acquisition at the time.
The interesting thing about the Zappos example is that after the acquisition Amazon did not seek to change Zappos’ internal organizational culture. Quite the contrary, aspects of Zappos became part of the much larger Amazon ecosystem.
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(6) They should treat employees as “entrepreneurs” and give them freedom and responsibility.
(7) They should recognize the potential value of community-building and creating a social environment that makes the company more attractive to the best talent.
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(8) They should embrace a “best-idea-wins-culture” in which top-down decision-making is not the norm.
(9) They should have a diverse board of directors including particularly “product people” with substantive knowledge of product cycles, digital technology and innovation.
(10) They should act as coordinator / conductor of complex global supply chains (instead of managing vast numbers of employees and physical assets).
It seems to me that by adopting these ten strategies businesses give themselves the best opportunity to extend their lifecycle in an innovation-driven, global economy.
But this is easier said than done. As companies grow, the pressures (both economic, organizational and regulatory) increase and the first casuality of such pressures is the capacity to be honest about what is really going on inside the organization.
Many large companies would claim to be already employing the above strategies, but time and again the reality is shown to be very different.
Living in denial about the reality of a firm’s culture may be the ultimate cause of a stifling of innovation. This triggers a downward spiral that ends — inevitably — in corporate failure. Open and relentless self-criticism — particularly on the part of the corporate leaders — is the only way to ensure the creation of a “corporate ecosystem” that is capable of adapting and flourishing in a digital world.
As long as the “Four Horsemen of Tech” embrace most of these strategies, it is only to be expected that they will write history by becoming the first companies with a $1 trillion valuation.
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