Glut check: overcapacity in Europe and beyond - B-School Brain Trust

Chief Executive, The, Jan-Feb, 1995 by Ludo Van der Heyden

The creation and rapid delivery of a new business concept - along with Canon's ability to keep costs low and quality high - is an example of what it will take to succeed in an era of overcapacity. We are moving more forcefully into a service economy, in which products increasingly will be seen as only one component of a "service system" or of a "business concept." Apple, BMW, and Boeing - additional examples of companies thriving in the new environment - are not purveyors of products; they sell "business concepts" that fundamentally alter their industries.

STRUCTURAL IMPLICATIONS

New business imperatives force new organizational structures, new managerial roles, and new mind-sets. The so-called M-form structure, conceived by Alfred Sloan at General Motors in the 1930s, was ideal in an economy with scarce resources. Business units delivered goods to customers, specialized in particular products, and provided data to group and corporate staff. Planning, budgeting, and accounting were centralized and routine - a structure perfectly suited to the invasion of mass markets in a relatively stable world.

But a careful examination of the winners of the late '80s and the early '90s - undertaken by my colleague Sumantra Ghoshal and Chris Bartlett of the Harvard Business School - reveals the genesis and maturation of a new form of organization, one in which large corporations retain the dynamism of their smaller counterparts while tapping a wider and richer resource base. Companies such as ABB, GE, Canon, Intel, and 3M structure themselves around a huge number of profit centers (4,500 in ABB; nearly as many in 3M). The main objective is to link individual employees with both results and individual customer groups.

Simply put, the logic of the multidivisional firm has been turned upside down: No longer is it essential to meet production targets within budgets. The main challenge in a world of increasing customer scarcity is the pursuit of business opportunity.

Similarly, in the organization of the '90s, the approach to management has changed. Middle managers - when they survive corporate cutbacks - need to coach rather than control. But the role of CEOs and other senior executives also must evolve. Rather than defining strategy for the whole corporation, top management's mission now is to define a global purpose with which the various corporate entities can identify and within which they can define and execute their strategy. Senior executives now focus primarily on process, rather than on structure; their key imperatives are the processes of renewal, entrepreneurship, and integration (or disassembly) that characterize the new corporation, ever in flux.

Collectively, this amounts to a radical rethinking of roles, mind-sets, and attitudes. The good news for CEOs is that in departing from the command-and-control, multidivisional paradigm, the quality of management again becomes the key to growth. Management in the '90s will be a more challenging, entrepreneurial activity, but also a much more human one, more liberating and satisfying. Or, as the French proverb goes, il faut que tout change, pour que tout reste comme avant ("everything has to change so that it can stay as it was").