The coming corporate mass-extinction event
I am doubtful the standard 20th century operating model of most organizations will see them survive the 21st century. Here's why.
Here is an unpopular opinion I hold as a self-evident truth: the top-down, hierarchical, rigid operating models of the 20th century are unfit for the 21st century.
Those same models of organizing an economy failed in the 20th century with the death of the planned economies of failed Communist states. Yet somehow, they persist as means to organize modern corporations internally.
The results are as predictable as they could be avoidable: once a company reaches a certain size, sclerosis sets in. Bureaucracy starts dominating and stamping out internal innovation. Slowness to react to internal and external changes and threats takes hold. Eventually, a smaller upstart will start chipping away at their market. Incumbent disrupted, displaced by a nimbler startup. Until the cycle resets and starts again.
This is evidenced by the fact that the average lifespan of a company in the S&P 500 in 2020 was 21 years. Down from 35 years in 1965. The cycle of creative destruction is only accelerating.
The reasons are simple: Taylorism might have worked 100 years ago, but it is wholly unfit to meet the challenges of today. Hierarchy & bureaucracy requires a stable environment to operate effectively. Today’s competitive landscape is anything but stable.
To stay competitive, the corporate OODA-loop (“Observe, Orient, Decide, Act”) must be as short and quick as possible. To be short and quick, the path from observation to decision must be as short as possible. For decisions to be as good as possible, the path must also be as short as possible. Being slow kills your business. Being slow and wrong kills it even quicker.
Rigid hierarchy, layers of management, top-down decision-making—these are all assumptions and corporate habits that will slowly strangle an organization’s ability to innovate and compete, leading to eventual obsolescence.
OK, so what are the alternatives?
That, will be the subject of one, probably more follow-up posts to this. Stay tuned!