Is Technology Killing The Corporation?

If you've had an uneasy feeling over the past decade or three that things are going to hell in a handbasket, there might be some empirical evidence to support you.

Michael Hickins, Contributor

July 24, 2009

4 Min Read

If you've had an uneasy feeling over the past decade or three that things are going to hell in a handbasket, there might be some empirical evidence to support you.According to a report published by former Palo Alto Research Center (PARC) guru John Seely Brown, U.S. companies have generated an ever-declining return on assets (ROA) since 1965, despite increased labor productivity. ROA is now 75 percent lower than in 1965, despite the fact that labor productivity -- the goods and services that a worker produces in a given amount of time -- is now double what it was in 1965. And in case you're wondering, this doesn't apply to poorly-managed companies:

Even the highest performing companies are struggling to maintain their ROA rates and increasingly losing market leadership positions

The report highlights a couple of interesting findings; one of them is that companies are squandering their potential gains by failing to adapt their corporate cultures to technology changes. We can share information more easily, both internally and with partners, but companies are still run hierarchically and with an old-fashioned geopolitical view of the world. ("Need-to-know basis" and Sun Tzu's The Art of War seem to be, respectively, the official motto of business school graduates and their bedside reading).

Or as Brown put it, "Changes currently manifest themselves as challenges rather than opportunities because our institutions and practices are still geared to earlier infrastructures."

The other finding I think is fascinating is what Brown and his new colleagues at Deloitte call a faster "topple rate."

[The rate] at which big companies lose their leadership positions has more than doubled, suggesting that "winners" have increasingly precarious positions.

Technology is reducing market entry barriers to rubble, which is good for insurgents, but makes it harder tougher for them to stay on top of the mountain once they get there.

I think this in turn has an impact on how companies treat employees and how employees treat each other and the communities where their companies operate. We've all observed that people, communities and the environment have increasingly treated one another like disposable commodities, probably because we're all much more transient than ever. No need to be loyal to a company that might lay off faster than you can say "business model," no need to be loyal to a community you might be leaving for a job six hundred miles away -- no need for a company to sponsor youth camps, or to be mindful of its impact on the environment or other local businesses.

How is technology responsible for this? I think it's in part because of our relative inexperience in dealing with it. Brown notes, "the adoption rate of digital infrastructure is two to five times faster than that of previous infrastructure such as electricity, railroads and telephone networks."

In short, we're like someone from the Stone Age running around an arid wood with a flaming torch. "Fire. Good. Fire. Bad." As individuals we've adapted quickly, some because we're naturally inclined, others in order to survive -- but our institutions are oddly much more attached to older ways of doing things.

So while we've learned to communicate more quickly and make good use of collaboration tools, corporations (and other institutions) have continued to grind in the same manner as before. As a result, organizations aren't gaining the benefits of digital assets, and are in many cases simply misusing it.

I find it particularly interesting that Brown is involved in this work because of his earlier involvement in thinking about how organizations learn and how they retain knowledge (you can blame him, at least partly, for any knowledge management initiatives you've had to put up with in the past decade).

All this might work itself out in the end, as Irving Wladawski-Berger, former CIO at IBM, noted:

The hierarchically organized firms of the industrial age were optimized to achieve economies of scale. Firms must now embrace knowledge-age organizational structures designed to help them reach out, absorb and integrate all the expertise and talent out there, including employees, partners and clients.

The authors also expect corporate performance to improve, "as companies learn how to effectively participate in and harness knowledge flows... companies must move from scalable efficiency to scalable learning and performance. Only then will they make the most of our new era's fast-moving digital infrastructure."

What I wonder is how we can recover a sense of community and mutual responsibility in this more fast-moving digital age.

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