What s Happening Now?

What's Happening Now?

Today, the changes that began in the 1980s and 1990s are in full swing, working their way through business after business and industry after industry. New IT tools are constantly enabling new ways for firms to compete, and the notched up-competitive environment creates the pressure that pushes companies to adopt new practices.

Start-up firms and the new venture sector, for example, are vastly more important than in the past. This phenomenon emerged first in Silicon Valley and along Boston's Route 128, and subsequently took root in high-tech districts in other parts of the United States and the world. The new venture sector represents a novel way of doing business that in its leanness and agility departs in significant ways from the traditional hierarchical approaches (Saxenian 1994). The spectacular success of firms like Apple and Microsoft in the 1980s and early 1990s only made the organizational model embodied by the new venture sector more prominent and influential. Not all startups survive. Many of the new firms launched during the dot-com craze, for instance, did not have the attributes needed to compete over the long term. But others were successful and carried on the legacy of the PC-era startups— eBay is one of the most prominent examples.

An even more extreme development than the rising profile of startups has been e-lancing—electronically connected freelancing—in which individuals or small teams link up over the Internet to collaborate on a project basis (Malone and Laubacher 1998). The techniques of e-lancing were used by the programmers who created Linux and other open-source software applications. And a group of recent startups—guru.com, elance.com and freeagent.com—have created global Internet marketplaces where talent is bought and sold on a project basis.

At the same time, large organizations, in many cases responding to the setbacks they faced in the 1980s and 1990s, have been decentralizing and doing less internally. Inspired by the example of ABB and GE (Taylor 1991, Bartlett and Ghoshal 1993), many global companies underwent major restructurings in the 1990s, breaking up unwieldy product divisions into a series of small, relatively autonomous units, each with responsibility for its own profit-and-loss statement. Inside business units, there has been a move to team-based work, with many of the teams operating across, and in the process undermining, the old functional hierarchies. In addition, there has been growing reliance on temporary project teams inside large firms. The overall result has been to push decision-making and accountability to lower levels in the organizations. At the same time, large firms have focused on what they do exceptionally well and have shed activities they cannot perform better than their competitors (Prahalad and Hamel 1990). As a result, big companies are relying on contractors and outsourcing relationships to do much work that was formerly undertaken inside the firm.

Given the growing prominence of small startups and large companies' increasing reliance on contracting and outsourcing, inter-firm relationships have become much more important than in the past. The most prominent such relationships are not the short-term, opportunistic buyer-seller ties that tended to characterize component markets in the industrial era, but rather, longer-standing links driven by a desire to pursue mutual interests over years or even decades. This has led to a move away from oligopolistic competition among stand-alone firms selling individual products and toward new kinds of networked industry structures (Powell 1990). These structures are called "supply chains" in established sectors like autos. To Silicon Valley insiders they're known as industry "ecosystems". Such webs often develop around a lead firm, a company with a strong position or one that has established an industry-wide technical standard. Around these lead firms are clustered groups of suppliers and "complementors", companies that buy or sell complementary products and services (Brandenburger and Nalebuff 1996). Similar clusters can develop when a group of firms collaborate to provide customers with tailored solutions comprised of bundles of related products and services (Foote et al. 2001).

In all, the late twentieth century has seen a trend toward the externalization of functions by large firms and decentralization of activities still undertaken internally. Functions formerly administered bureaucratically inside the walls of the firm are now contracted out or handled through long-term partnership arrangements. Matters decided in the past by the senior leadership of large business units are now the province of managers inside smaller, autonomous units; formerly monolithic factory floors are now run by independent work teams.

This movement toward externalization and decentralization has been pronounced; but the same factors that have driven that trend—advances in technology, more stringent competition—also drive the business systems of today to operate at previously unimaginable scale. Global mergers are creating huge firms selling into global product markets. Yet even these massive firms are subject to the organizational innovations of the time: internal disaggregation, partnerships with members of industry ecosystems or supply chains, reliance on the new venture sector to develop new products or technologies. In sectors like technology and pharmaceuticals, feverish merger activity has been accompanied by continued close ties with partners and innovative startups. The extreme embodiment of these new organizational principles is the so-called "virtual company", where a small core is linked by technology to a web of partners. The much-examined tech firms Dell and Cisco embody this concept in scaled-up form. New startups and e-lancing represent the most granular versions.

So as the twenty-first century begins, business organizations, paradoxically, appear simultaneously large and small, global in overall reach, but with that reach often achieved through a stitching together of small pieces—either business units under a corporate umbrella or a group of value chain partners—working together in a patchwork, linked manner.