The Old Order Upended

Even as some voiced concern about the future plight of Fortune's editors, a series of developments had begun to undo the post-war corporate order. The twin oil shocks of the 1970s ushered in an era of sluggish economic growth and high inflation throughout the industrial world. As national economies limped along, many observers came to question the fundamental underpinnings of the post-war order. One influential critique claimed that the combination of regulation in product markets and institutionalized collective bargaining created systemic rigidities that stifled growth and innovation (Yergin and Stanislaw 1998, chapters 4–5). Another contended that corporate management teams were insufficiently attentive to shareholders' interests. The adherents of this position argued that managers needed a greater financial stake in the firms they ran to align incentives properly (Jensen and Meckling 1976).

With the election of Margaret Thatcher as British prime minister in 1979 and Ronald Reagan as U.S. president in 1980, the first of these critiques became a guiding force behind public policy. Deregulation swept through a series of British and American industries—oil and gas, trucking, aviation, telecommunications, banking—spurring unfettered competition in some of these sectors for the first time ever. With the subsequent evolution of the common European market into a more tightly federated European Union, deregulation eventually spread across the continent (Yergin and Stanislaw, chapters 4, 11–12).

The European and Japanese economies had been fully reconstructed by this time as well and were aggressively exporting to the United States in key sectors, most notably autos and consumer electronics. U.S. firms responded in kind, which served to trigger an ever-widening spiral of global competition.

Spurred by deregulation, a series of financial and management innovations emerged, most notably leveraged buyouts and incentive compensation for managers, that more closely aligned the interests of shareholders and management. At the same time, shares increasingly came to be concentrated in the hands of a group of institutional investors—primarily pension fund and mutual fund managers—who competed fiercely to deliver the highest returns. This new class of investors was far more demanding than the shareholders of the post-war era and exerted pressure on managers to deliver financial results on a quarterly basis (Useem 1996b).

While these developments were shifting the framework within which business was run, a series of new technologies—low-cost jet travel and air transport, packetized freight shipping, cheap long-distance phone service, overnight package delivery, the fax machine and, most importantly, the PC and computer network—made it vastly easier and cheaper to move people, goods and information (Butler et al. 1997).

The combined result of these changes was twofold. The business world became far more competitive, and tools were available that allowed firms to compete in new ways. The locus of senior management attention moved away from thinking about the product divisions' positions vis- -vis the external environment. The action instead began to center inside the functional units, as managers asked questions about the arrangement of the shop floor, the R&D lab, the sales force, and about the interactions between these groups. Out of this new emphasis came a series of novel management concepts—total quality, lean manufacturing, re-engineering— that gained great currency and challenged central aspects of the traditional corporate model.

By the early 1990s, some of the leading names in the old corporate firmament had stumbled in the new, more demanding business environment. The editors of Fortune, far from struggling to find 500 candidates to fill out the their annual roster of leading firms, were documenting the travails of major U.S. companies that formerly seemed impregnable. Their May 1993 issue featured a cover story on the troubles then afflicting IBM, General Motors and Sears—among the most prominent American corporations of the twentieth century. To dramatize the plight of these companies, and the larger forces that seemed to be undermining the traditional corporation as an institution, the cover of this issue of Fortune depicted IBM, GM, and Sears as three tottering dinosaurs (Loomis 1993).

Inventing the Organizations of the 21st Century
Inventing the Organizations of the 21st Century
ISBN: 026263273X
EAN: 2147483647
Year: 2005
Pages: 214
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