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Foreword vii Preface xiii Acknowledgements xvii

Part 4 Changes 139

by Chris Meyer, author of Blur and It’s Alive

For the past hundred years or so, the fastest growing economies have chosen

to organize themselves into corporations as the most effi cient means of production And since most of us reading this book have grown up in that context, it’s easy for us to think it will always be so, just as feudal serfs, guild members and farmers did in their respective times The technologies that have transformed value creation will likewise revolutionize economic org anization, thereby shifting power from institutions to the talent they rely on

The most important innovation of the Industrial Revolution was not

a technology such as the Bessemer steel-making process or the Newcomen steam engine – it was the legal creation of limited liability enterprises – corporations Why? Because it mobilized the fl ow of capital, which was a scarce resource in the late nineteenth century

A blacksmith might have started a business based on his family’s savings,

or on what could be borrowed from the village he would serve However, Andrew Carnegie needed fi nancial capital on a different scale and it’s no accident that his name is connected to that of Paul Mellon, the founder of

the bank that funded US Steel The growth of the banking system and the

ability to fund industrial-scale projects were enabled by the development

of the corporate form of organization

The power of this new economic species proved almost too great The

industrial technologies that corporations developed on a mass scale – such

as chemistry, electricity and mass production – created so much value and

required so much capital that they eventually acquired enormous leverage

In fact, they accumulated power so rapidly that democratic societies had

to create new institutions to curb it First came the antitrust laws, then the

labour movement and associated legal frameworks Most recently, it has been

consumerism that has again reduced the corporations’ room for manoeuvre

Even so, the corporation seems to be gaining ground as global enterprises take on capabilities that used to belong to governments Few central banks,

for example, can compete with Citicorp in currency markets What could

change this picture of growing corporate dominance?

The traditional corporation got a bit of a frisson from the dot-com boom

Right now, of course, that fear has become a sneer as Aeron chairs, the

em-blematic furniture of Silicon Valley, can be picked up for next to nothing at

auctions and individual ‘free agency’ looks more scary than liberating But

this does not mean the corporation is safe

Clayton Christensen1 has recently driven home a forceful point: when a

technology with truly disruptive potential fi rst emerges, it doesn’t work very

well It gets used only in niches where its specifi c advantages are strongest

The existing technology is generally too well developed and entrenched in

the better-established applications to give way to the interloper in its early,

crude state Thus transistors were fi rst popularized in tinny radios because,

without the transistor’s low weight and power consumption, a portable radio

wasn’t possible at all, never mind that the radio sounded horrible! But the

new technology learns from its niche, improves and pretty soon names like

DuMont, RCA, Philco and the other vacuum-tube dependent companies

have disappeared Christensen’s conclusion is this: successful corporations

are generally managed according to the sort of rules that militate against investing in new and risky technology.

The foregoing argument relates to product technologies but it applies equally to new forms of organization The dot-com economy, comprising small companies and free agents, bound together by their shared mastery

of new networking technology and an equally shared set of values about knowledge, relationships and competition, invented an economy perfect for the rapid proliferation of information-based, non-capital-intensive businesses – this was the early niche The collapse of many of these businesses has not wiped out this way of working, only the recent approach to getting such companies funded And ultimately the experiences of the dot-com cohort will lead to even more startling organizational innovation, as the transistor led to the microprocessor

The connected and fl uid labour markets that bred the dot-coms still exist, just as Internet-based communication still exists among the Chinese intelligentsia even after Tiananmen Square In fact this is the disruptive technology that will eventually weaken the corporation The corporation’s last remaining monopoly power is created by the ineffi ciency of the labour market, which prevents individuals from seeking new jobs as easily as they do new cars The Net is changing this rapidly, to the benefi t of the most talented individuals As Charles Handy says, ‘the big challenge for the elephants is that they don’t end up as the home for the second rate’

The corporation as we know it is now in trouble There is nothing to prevent its demise given that what had previously been its advantages are becoming less and less important In fact, its accumulation of power will come

to be seen as a kind of historical aberration, like centrally planned economies This is the big story for the next decade and it should already be capturing our attention The technologies of communication and collaboration will drive economic power from the institution to the individual, and the deci-sions about how our resources fulfi l our desires will be revolutionized

How?

Roger Camrass and Martin Farncombe have done a courageous thing, and the right one They have broken the corporation into its constituent elements, identifi ed the forces that determine how these elements can and

will be put back together, and predicted the combinations that will thrive

over the next ten years

Rather than picking this or that trend, declaring it universal and

ex-trapolating it, they have created a chemistry of enterprise, allowing atomic

engineers all over the economy to start making their own new compounds,

testing them, and determining those that are the most promising They have

got the crucial drivers absolutely right: connectivity replacing many of the

advantages of scale; fi nancial capital giving way to human and intellectual

capital; the emergence of new types of entities But, above all, they have signalled a critical change in perspective, from an economy of monolithic and self-contained institutions looking at life from the top down, to a net-

work of atomic entities constantly forming new relationships and creating

value from the bottom up

In this their latest book, they lay out both the periodic table of

ele-ments and rules for this chemistry, and describe some of the new things that can be fashioned with it No doubt, many more things will be created

than anyone can foresee But the process is essential: deconstruct the ways

that value is added in corporations today, examine the forces that will alter

this picture, and analyse the components that will support value creation

in the future

This networked, bottom-up perspective parallels powerful currents

in today’s economy (such as individual-based data mining and mass customization) as well as tomorrow’s, the focus being on value created at the molecular level through biotechnology, nanotechnology and advances

in materials The bottom-up view will prevail, and will up-end our views

of resource management

Corporate power and its pathological cousin, the infl uence of fi nancial

analysts, will be eroded As we fi nd new ways to organize around our desires,

including how we want to work and manage our own professional lives, we

will create the kind of economic chemistry that Camrass and Farncombe describe In the process, an economy of the people, by the people, and for

the people will reappear

The corporation looks to be in full cry, with corporate executives not only highly paid but also lionized – Jack Welch got an $8 million book advance! But the bubble will burst as surely as it did for the dot-coms and,

if corporations are to extract value from the assets they have built, they must understand the source of the power of the insurgents and the forms the alternatives may take This book is a guide to transforming the value locked within the corporation into a new form, adapted to the connected economy and able to continue adapting on its own It illustrates a challenge that will face every corporate leader in the decade to come.

Endnotes

1 Clayton Christensen, 1997, The Innovator’s Dilemma, Harvard Business

School Press, ISBN 0875845851

The fundamental message of this book is that you are about to become more important than you can possibly imagine.

In a few years from now, chances are that you will still be doing what you do today You are, after all, presumably an expert in whatever your chosen career is Whether you’re a lawyer or an accountant or a human resources manager, the odds are you will still be a lawyer, an accountant or a human resources manager

in ten years’ time.

It is quite possible (even likely) that the way you do your job (the tools you use, the methodology you employ) will not have changed either After all, accounting, for instance, is not a fi eld given to radical innovation or theoretical shake-ups! You may even be doing this same work in the same way for the self-same employer.

Yet, in spite of all this, we predict that everything in your life (that’s right; and

not just your professional life either) is about to change Why?

Let’s put it this way: for the better part of the two centuries since the Industrial

Revolution, the business world has been governed by the underlying notion that

‘the sum is greater than the parts’ This has led to a theory of the fi rm that says

that power and infl uence will concentrate in an ever-smaller roster of bigger and

exponentially more infl uential companies, super-companies that would do it all, for whom scale would be everything Cogs would have an identity only as invisible

parts of the machine.

Sea changes in the world of communications over the last half-dozen years (which, indeed, continue to take place as we write this book) are reshaping the world in which we live and work In fact, they are revolutionizing it The outcome

of this fact is that the balance of power in the business world is shifting In very

short order, the theory of the fi rm is going to be turned on its head.

The parts are about to become greater than the sum.

And you are one of the parts.

In the new corporate world, every part will be seen to have value and identity

and, because each part can and will exist in its own independent orbit (connectivity

being both the enabler and the inspiration behind this fact), each part will have a

new relationship with the sum.

We are not saying that all parts in the new world will be equal, or that the value of some of these newly empowered or respected parts will fundamentally improve their economic lot But we are saying that all the parts will be valued and recognized for what they are There will be no more ‘cogs’ (a description that

damns by faint praise) because there will be no more ‘machine’.

We call these parts ‘atoms’, and the seeds of the ‘atomic’ corporation are already growing The huge, unwieldy companies of today are composed of atoms,

just as companies in the future will be But today, the atoms are aggregated in a

complex corporate environment that serves to stifl e their effectiveness and ability

Furthermore, even though the parts are the important thing, the atoms of the future do form a whole What is important here is that the value of the whole will amount to more than it does today The atomic economy will function more effectively and more cost-effi ciently, and it will be more responsive to changes, precisely because the focus will be on the parts.

As mergers such as AOL-Time Warner have surely proved, we are reaching the point where increasing corporate size seems an end in itself, regardless of the consequences Something has to give It will The atomic corporation will be the result.

And you will be the winner.

You will be the winner because the atomic world will be one in which quality overrides quantity, in which achievement is held in higher regard than paper-push- ing, and in which you are valued for what you can deliver and nothing else Today, work contracts and employee handbooks mostly amount to pointless collections

of rules and regulations few of which have any direct relationship to the quality

of work output In future, employee/employer relationships will be defi ned simply through deliverables Lithe, responsive and expert atoms (whether individuals or small companies) will focus on productivity and productivity alone ‘Punching the clock’ will, not before time, be consigned to history Ironically, most of us will achieve more in our professional lives while simultaneously having more to give

to our families.

This book is about the change, and the road on which we have already barked to the ‘Atomic World’.

em-Background and research

Although the writing of this book was a compressed six-month project, it

is the culmination of a thirty-year journey for the two authors The ney starts in 1974, which, according to the Intel Museum in Santa Clara, California, is the dawn of the digital age – at which time the world’s fi rst microprocessor was manufactured!

jour-To present a comprehensive snapshot of today’s digital revolution and

to be bold enough to describe some order within the ensuing chaos requires more than a mere point of view It calls for credible research and experience that goes well beyond the combined authority of just two individuals To that extent, this book has its origins partially in a moment of inspired vision, but also in an extensive research project

With regard to the latter – our research – the foundations of this book

are varied and all equally critical They include the outcome of various

stud-ies that the authors have been involved with over a number of years with a

variety of partners They also include a study of the works of a number of our

peers (such as the books/articles Blown to Bits; Unbundling the Corporation;

and Break-up!) that have at once enriched and informed our own work and

have thereby advanced our theory of the ‘Atomic Corporation’ Also, we are

particularly indebted to several institutions and related individuals through

which we have gained personal access to the knowledge and collective

wis-dom that provides reliable commentary on today’s profound events

We acknowledge in particular and with enormous gratitude the following

people and organizations that have contributed the intellectual

underpin-nings to this book

The Center for Business Innovation in Cambridge, Massachusetts, and the associated work of its director Chris Meyer and his colleague Stan

Davis have contributed much to our understanding of both the connected

economy and the underlying fi nancial metrics that determine corporate success in this new era

Two infl uential studies of the future have provided detailed research and evidence for our fi ndings:

• ‘Business in the Third Millennium’, undertaken from 1992–1998, brought together twelve global sponsors to navigate the new digital landscape These included organizations such as Chevron, EPRI, GRI

and the US Postal Service in the USA; BP, BT, Fujitsu/ICL and Barclays

in the UK; The European Commission; NTT, DoCoMo and the Fujitsu

Research Institute in Japan The study was managed and supported by

the Stanford Research Institute (SRI)

• ‘Management in the Nineties’, undertaken by the Massachusetts

Insti-tute of Technology on behalf of twelve industrial sponsors, and the direct

predecessor of ‘Business in the Third Millennium’ This programme led

to the development of business re-engineering that was commercialized

by consulting fi rms such as CSC Index and Gemini Consulting in the

early 1990s The authors acknowledge the particular work of colleagues

such as James Champy, Michael Hammer and Fried Wiersema of CSC

Index in the intellectual development of atomization

Prior to these two programmes, Roger Camrass was intimately involved in one of the world’s leading CIO programmes The Butler Cox Foundation undertook extensive research on behalf of over 500 major corporations across Europe Projects covering every aspect of information technology from database design and distributed processing to IS effi ciency and effectiveness were meticulously chartered through the 1980s and 1990s on behalf of the member organizations The Foundation became one of Europe’s leading IT forums and is fondly remembered by its charter members.

Acknowledgements and thanks

We do not claim to be the fi rst or only exponents of atomization Indeed, several other distinguished authors have described similar concepts over recent years We stand on the shoulders of Chris Meyer and Stan Davis,

authors of Blur We also acknowledge the work of John Hagel III, author of Harvard Business Review article Unbundling the Corporation; Philip Evans and Thomas Wurster, authors of Blown to Bits; James Champy, author of

Re-engineering the Corporation and David Sadtler, author of Break-up! and

their respective co-authors

In researching new topics for this volume, we interviewed specialists from leading consulting fi rms and public institutions We would like to acknowl-edge the help of the following individuals: Ian Brinkley, Chief Economist of the Trades Union Congress; Andy Mulholland, Chief Technology Offi cer

of Cap Gemini Ernst & Young; Angus Knowles-Cutler, Partner of Deloitte and Touche; Jason Rabinowitz, Director, McKinsey & Company; Jacky Ross, Vice-President of IBM Global Services; Charles Snodgrass, Managing Di-rector of Outsourcing Advisors Ltd; and David Sadtler, Fellow of Ashridge Strategic Management Centre

We are also grateful for the help and encouragement of our original publisher, Mark Allin, for being an instant believer, and his successor, John Moseley Our editors, Sancha Dunstan and Keith Brody, brought our words

to life in this new edition

And fi nally, we could not have produced this work without the active support of our wives and families Thank you, Susi Camrass and Judy Farn-combe, and sorry about the missed vacations!

The Countdown Begins

We all recognize that the world that we are used to is not, in its iar form, going to be around for much longer Most of us have yet to really grasp the nature and the true extent of the changes that we are about to experience, and that’s because we can only see a few pieces of the jigsaw – the picture is hidden from us

famil-Moore’s Law, for instance, is one piece of this jigsaw of delta It

estab-lishes the principle that the price/performance ratio of computer chips will

roughly double every eighteen months That’s a one thousandfold increase

in power every ten years Look at it another way: the $1000 laptop you use

today is equivalent to the billion-dollar brain of thirty years ago

Big deal It still just does email, right? Wrong Moore’s Law (and its bastard child, the Internet) doesn’t just mean faster word processing It means the downfall of the corporation you work for

Don’t believe us? The printing press nearly killed off one of the largest

corporations in history – the Catholic Church At the start of the sixteenth

century, Martin Luther nailed his colours to his church door, fuelled by his

revulsion at a money-raising scheme This initiated a torrent of reform – the

virtual atomization of the Church – not because of Luther’s zeal but because

the printing press had made the Bible available to anyone who could read

The power of the priests had been broken (more on this in Chapter 13)

In today’s world, the corporation and not the Church is the institution

at the centre of most of our lives And the corporate world is now embarking

on a reformation of its own Just like poor Pope Leo X back in 1517, today’s

CEOs have little real grasp of the magnitude of the threat they face and the

extent of the changes to come

This corporate reformation – like all radical changes – is not 100% predictable, but we can offer you a chance to adapt to the future before it

buries you This reformation also has a name: atomization

Our fi rst book, The Atomic Corporation, was published during the fi rst

week of September 2001 The horror of the Twin Towers changed our outlook

to an even greater extent than we could have ever predicted Even apart from

its geopolitical consequences – increasingly nasty and still unclear – we have

seen a crisis of trust along with some of the largest bankruptcies in history

Enron (one of our previous case studies), Arthur Andersen, WorldCom, Marconi and a whole fl eet of airlines have all hit the wall

Since then, we’ve taken our message to leading corporations and opinion formers all over the world – from BP, Henkel and Prudential in Europe to Coca-Cola, AT&T and American Express in the USA We have

experienced events fi rst-hand that have shaken global confi dence and

chal-lenged established wisdom We are more convinced than ever that bloated

and unresponsive corporate structures must be taken apart and rebuilt, and that our new atomic framework is the most plausible and compelling future scenario.

This new book is not about theory, atomic or otherwise Our fi rst book was amply equipped in that department (although we do cover the main points once again in Chapter 4) This book is about outcomes It’s time to look at the possible consequences for us as individuals and for the corporate and social structures we work in And it’s time to ask what we have to do when the plane lands (see Chapter 13)

First, let’s talk consequences We will start this chapter by laying out some predictions on what we think might happen in the next twelve weeks, twelve months and twelve years.1 By the end of this book we hope you can anticipate the many changes that will affect your personal and working lives, and that you will be helping to make our predictions come true

Don’t fear the future Be a part of it After all, it’s not like you have a choice

The next twelve weeks

• Through a chance encounter on the World Wide Web you connect with someone you have not heard of or spoken to in twenty years Despite the passage of time a new level of intimacy emerges between you both, and exciting business possibilities evolve

• Your son declines a graduate job offer with IBM in preference to a year of world travel The staff at IBM are not surprised – despite the depressed employment market, even the best corporations fi nd it diffi cult to recruit the best graduates

• Your father realizes that falls in the stock market means that retirement

in his fi fties is no longer an option Instead, he invests all his surplus funds in bricks and mortar, bypassing traditional savings channels

• An old friend’s business unit is demerged from its parent company He feels energized by the smaller management team and closer contact with customers and suppliers, and clocks up an eighty-hour week for the fi rst time in his life

• A leading pharmaceuticals giant announces that it intends to withdraw

entirely from R&D activities, currently exceeding $2 billion of

invest-ment a year Its CEO stresses the need to focus on global marketing and sales in its drive to retain its number one position in the sector It

announces alliances with over eighty biotech and drug discovery

com-panies to fi ll the R&D gap

• General Electric (GE) opens up its own stock market to trade over one

hundred separately quoted companies within its own corporate portfolio

Investors, both institutions and individuals, are encouraged to swap their GE shares for a portfolio of GE securities ranging from power and

lighting to fi nance and professional services

• AOL-Time Warner, one of the largest mergers in history, throws in the

towel and announces its intention to break apart into fi ve separate

companies This ends what many regard as the largest destruction of shareholder value in modern times

The next twelve months

• You are told that, due to the continuing harsh economic climate, your

services to a Global 2000 fi rm are no longer required You receive a

hand-some pay-off and the promise of part-time work that never transpires

After a few weeks of personal doubt and uncertainty, you fall into a new

and more enjoyable pattern of portfolio employment by deciding what

your real competencies are and applying them to the marketplace

• Ford sells off its premium brand car companies, including Aston Martin,

Jaguar, Range Rover and Volvo to the French fashion and perfumes company LVMH In an unprecedented bid to return to its core business,

it continues to provide manufacturing and logistics services to LVMH,

encouraging the new owner to concentrate on brand extensions and product innovation

• HP completes the world’s largest outsourcing deal with a Taiwan

in-dustrial consortium It transfers all manufacturing and supply chain tasks to its Eastern partner in return for a 25% share of the new global

manufacturing platform and a sign-on bonus of $5 billion cash to cover

the asset value Its workforce is reduced from 140,000 to less than 40,000 worldwide.

• Affected by the downturn in merger and acquisition (M&A) activity, Goldman Sachs decides to spin off all activities in this area and forms

a joint venture with leading accountants Deloitte & Touche The new entity takes equity positions in each of its M&A activities and draws

on capital funds from a variety of investment banks

• Nedcor, a relatively unknown South African bank, bids for and wins the outsourcing of Lloyds TSB’s core transaction processing platform, effectively gutting its retail operations The deal takes the form of a new global vehicle based in South Africa’s low-wage economy that is soon touting for similar business from the leading retail banks in Europe and the USA

• After almost fi fteen years of relocation planning and deliberation, HSBC decides to abandon its new thirty-storey building in Canary Wharf in favour of smaller offi ces co-located with its business interests As well as creating better connections to customers, this avoids the vulnerability

of thousands of workers concentrated in one building

• Shell makes an unprecedented announcement – it intends to spin off its global retail operations and to concentrate on oil exploration and production McDonald’s registers interest in acquiring more than 30,000

fi lling stations – expanding its own footprint by a factor of two

• Private equity house KKR is launched on to the New York stock change and becomes the second most valued stock after Microsoft Its principals each become wealthier than Bill Gates and Larry Ellison put together

ex-And the next twelve years?

• The average employment contract for staff working in California will come down from its current duration of eighteen months to less than thirty days – or one working month The concept of permanent employ-ment will be consigned to the annals of history

• Upwardly mobile professionals appoint personal agents to manage their

careers In return, agents take a share of annual wages and stock options

as their fee Other service companies step in to take charge of domestic

obligations such as house cleaning, fi nancial administration and holiday

planning

• The fi rst trillionaire is crowned He has amassed his fortune in just under ten years as a result of applying intelligent agent technology to web-based search engines – his corporation fi nds what you need on the Internet A PhD from Stanford University in 2003, he had no im-

mediate expectations of making money from his research thesis He is

rapidly overtaken by the main investor of a biotech company that is the fi rst to gain approval for a drug that arrests ageing Neither of these

corporations employs more than fi fty people

• Will Smith, fi lm star and singer, becomes the fi rst black president of the

United States, where public appeal and charisma are recognized as the

essential differentiating qualities of a successful politician In the UK the

Conservative Party, bereft of personalities, slips into quiet obscurity

• Educationalists abandon fact-based learning in favour of discovery and

experience Virtual reality becomes as commonplace as personal

com-puters in classrooms all over the USA and Europe

• The most eminent consultancy fi rm in the world (you know who we mean) closes after the partners refuse to provide any more working capital to keep the fi rm alive The only saleable asset will be the research

institute that generates more than suffi cient equity funds to fi nance all

existing partner pensions

• A global account team working for IBM undertakes a leveraged

buy-out, raising over $1 billion to purchase its profi table current customer

relationship This team consists of no more than twenty staff and exploits

its new asset by forming multiple relationships with IT, HR and fi nance

service providers

• Device-to-device traffi c exceeds for the fi rst time all other traffi c across

the World Wide Web Much of our personal communication is delegated

to software agents embedded in our hand-held terminals, laptops, clothes

and other intelligent devices

• Governments impose crippling taxes on organizations of fi ve hundred

or more people to discourage ineffi ciencies in their economic systems They will also consider introducing laws to limit the size of government departments to fewer than two hundred staff as a means of convincing the electorate that they are serious about delivering value-for-money services

• Of all the professions and degree courses, Digital Arts becomes the most popular and highly remunerated of all careers in the Western world Universities such as Cambridge and Harvard vie with each other to offer such training, but Thames Valley – once rated the worst UK university2– excels above all of these worthy institutions, having been fi rst in the

fi eld

Within our atomic view of the world, these predictions are all entirely sible But hold on, here That kind of change requires nothing less than the

plau-rethinking of management science Where did that delta come from?

Welcome to the 2% world

Consider the economic pressures acting on your corporation With infl ation

at its lowest point in fi fty years (under 2% in many developed economies) and interest rates approaching zero, corporations are really under the mi-croscope Stocks should be more attractive than fi xed-interest investments, but stock markets everywhere are down the pan Many of the world’s largest corporations have seen their share prices halved and halved again

Why? According to the doyenne of the UK fund management munity, Nicola Horlick, in such a low infl ation world corporations have nowhere to hide And even Warren Buffett said recently, ‘You don’t know who’s swimming naked until the tide goes out.’

com-The usual cures for stagnation are clearly not working Traditional corporate

restructuring programmes are as effective as rearranging the deckchairs on

the Titanic Acquisitions, once a popular mechanism to provide the

illu-sion of growth, are increasingly seen as a very bad idea (we’ll have more to say on that in Chapter 10) and ambitious IT programmes look like spent

measures Firms that make their living supporting these remedies –

consul-tancies, investment banks and IT service organizations – are slashing their

workforces

In the 2% world, there’s nowhere to hide To improve margins,

corpo-rations are undertaking ever more ruthless cost reduction exercises Some

have adopted strenuous outsourcing regimes to rid themselves of excess corporate fat, and in return are receiving generous pay-outs from business-

hungry IT service organizations And in lame-duck sectors, such as media

and telecommunications, even more extreme measures are underway Here,

CEOs have run up huge debts to buy (comparatively) worthless assets and

corporations are preparing to conduct ‘fi re’ sales to meet their stringent debt

repayments And that’s your money they’ve thrown away

For the large majority of remaining corporate giants, the task of balancing

the needs of all stakeholders has never been more diffi cult Bloated

market-ing departments make a last-ditch attempt to create consumer demand for

their products Employees are tired of being abused and deceived by false promises, and shareholders are voting daily with their feet as they move the

majority of their savings out of the equities market

The changing customer

The failing corporation has yet to take account of a much more powerful change taking place around it – in the nature of its customers Consumers

and business customers are entirely comfortable with using Internet-based

portals to compare prices for goods and services from thousands of suppliers

across the world Already nearly a billion individuals are connected to the

World Wide Web, comparing products and sharing new experiences If you’re not the best, we already know about it If your profi tability is based

on information asymmetry – you know something we do not – you can kiss

it goodbye We know what the other guy is paying!

At the same time, there is no longer a corporate safety net to protect

us through our careers We are reaching a transactional economy where jobs will last for months rather than years Nor can governments any longer

afford to guarantee employment, welfare, pensions or lifelong learning Each

one of us has to take on absolute responsibility for our livelihoods and sonal situations, leaving countless opportunities for new forms of personal services – from fi nancial and career counselling to the basic outsourcing of domestic tasks.

per-Even more dramatic events are unfolding as the millennium generation leaves school and sets out into the world According to Malcolm Gladwell,

author of The Tipping Point, this community has broken apart from its

par-ents’ generation to become infi nitely more diverse and independent.3 It connects together to form an almost indivisible network of consciousness through constant waves of text messages and mobile calls, and can create new fashions and fads at lightening speed Comprehending and exploiting this affl uent segment of consumer activity has never been more diffi cult for global companies run by forty- and fi fty-year-olds

Those forty- and fi fty-year-olds think that a computer is just a better sort of typewriter (does anybody still make typewriters?) They think that

advertising is worthwhile They just don’t get it.

In little over a quarter of a century since the dawn of the digital tion – which according to the Intel Museum in Santa Clara began in 1974 with the invention of the fi rst microprocessor – nearly 6 billion micro-processors have been built That’s one for every member of the human race We can comfortably predict that by 2020 there will be almost a trillion intelligent devices connecting every element of our day-to-day existence, from cars and personal computers to refrigerators and hearing aids

revolu-Embedded intelligence and a corresponding rise in powerful tion systems that connect us together (humans and machines) will have a transformational effect on the way we live our lives Interaction will become infi nitely more important than the ‘stuff’ that dominates most of our lives today In the next fi ve to ten years we will enter a new world of information intimacy that is interdependent and ephemeral In Chapter 2 we talk about the move beyond today’s verbal exchanges to the more visual and virtual realities of tomorrow (a picture is, after all, worth a thousand words)

communica-Do you remember your last visit to an electrical retailer to buy a digital camera or music centre? The breadth of choice has never appeared more extensive or dynamic What Sony brings out this week, Canon, JVC and Philips will improve on the next In essence the world has become a giant

copying machine, producing ever more intricate and attractive products to

tempt us into buying But have these suppliers really understood our latent

needs?

It’s not just the death of information asymmetry The nature of what we

want is undergoing radical change Many of us have acquired as much ‘stuff’

as we could ever need The next generation is more interested in life

ex-periences than product – knowing, doing and being, rather than buying

The unchanging corporation

Faced with the onslaught of improved connectivity, powerful new economic

winds and the changing desires of the consumer, are corporations scrambling

to respond?

No, of course not Most large corporations are caught in a spiral of inward-facing programmes aimed at staying alive rather than moving forward True, they are trying to get sleeker and slimmer They have re-

engineered themselves, they’ve installed massive enterprise-wide computer

systems, and they’ve paid fortunes to management consultants to stay ahead

of the pack But all they have managed to achieve is equality with their major

competitors – it’s a zero sum game They have missed the big prize because

they have been focusing on internal processes and information instead of grasping the prizes across the entire supply chain, from raw materials out

to the end consumer

The external prizes are not just about increased intimacy with the customer New trading mechanisms such as electronic marketplaces and portals mean radical reductions in the cost of doing business, and that neces-

sarily undermines the need to be big (more on this in Chapter 3) Like most

revolutions, the effects of the Internet will be greater than we expected, but will take longer to appear We used to believe that the clarion calls of e-business would bring down the walls of the corporation on their own, but

something got there fi rst: outsourcing

The business of ‘transformational’ outsourcing is exploding The IT service sector, deprived of lucrative systems integration and consulting contracts, has seized on radical corporate restructuring as its salvation

Companies in this sector offer to buy non-core assets such as fi nance, HR and IT from traditional corporations and perform an accelerated slimming regime on the body parts – a sort of corporate liposuction Billion dollar cash advances have been offered by the services sector, to the delight of the soon-to-be former owners This is a vast transfer of assets from the ‘old’

to the ‘new’ economy, with many surprising effects As we will tell you in Chapter 9, the outcome is a dis-integration of the corporation, as so aptly described by John Hagel in his Harvard Business Review article ‘Unbundling the Corporation’,4 leaving behind a much-diminished set of core activities and piles of much-needed cash

Checkpoint – a combination of causes

These are some of the dramatic forces challenging today’s corporations These cumbersome entities are facing a huge delta and it’s time for them

to respond, but most are still too centred on their products and internal functions They cannot recognize how the needs of all their stakeholders are changing – from the consumer who is being empowered by the effect

of greater choice and price transparency, to the investor and the employee who want improved returns on their fi nancial and intellectual capital

First and foremost, large corporations need to become more agile But you can’t be big and agile at the same time – the internal cost of movement

is too high – so fragmentation is looking more and more attractive Smaller corporations are more responsive to consumer needs as well as being more innovative Increasing connectivity means that the old economies of scale are disappearing fast And let’s not overlook the force of the push from inside – from the CEO who needs to do something, no matter how radical,

to deliver results to institutional shareholders We have some ideas for him

in Chapter 8

Taken together, these forces present a fundamental challenge to the structures of today’s mega-corporations It’s not the fi rst time the business world has undergone major upheaval – after all, the only corporation in the top one hundred list of 1900 that would see in the new millennium

was General Electric – but we think this revolutionary cycle will be nasty,

brutal and short

Consequences – the atomic view

Businesses have to make a fundamental choice between scale and agility Already companies as diverse as General Electric and Nike have made this

choice, as we will see in Chapter 5

In essence, we believe the businesses of today will explode into

dif-ferent atomic components Some will be extremely small and adaptive Others will continue to strive for scale and scope advantage, but often at

an unacceptable price We will see a polarization of structures into what Gill Ringland describes as ‘the Coral Reef populated by brightly coloured and diverse aquatic life, and the Deep Blue Sea populated by large creatures

of the deep’.5

Let’s look more closely at the new atomic types that will emerge

The engines of the new economy will be small, knowledge-intensive

‘smart companies’ that create a constant stream of innovative new offerings

In the pharmaceutical sector we already see several thousand

research-driven biotech companies exclusively pursuing product innovation The

‘smart companies’ will connect to the market through other distinct entities

– ‘customer managers’, who understand the particular desires of the

con-sumer, and ‘webspinners’, who create new types of business-to-business networks and derive value from their peer-to-peer interactions Together such atoms will assemble the bundles of goods and services required to meet

each customer’s individual needs

Most of these atoms will consist of tens or hundreds, rather than

thou-sands, of employees and they will resemble the sorts of hi-tech boutiques

to be found in the world’s most developed economies, such as California’s

Silicon Valley They may be biotech companies or specialist retailers but,

in all cases, speed and agility will be their passport to successful survival The analogy with the brightly coloured fi sh in Gill Ringland’s ‘Coral Reef’

scenario is an appropriate metaphor to describe such entities

At the other end of the scale, we have the global platforms that enable these small and innovative atoms to serve world markets Someone still needs to manufacture detergents, grow the food and refi ne the crude oil

‘Asset platforms’ will deliver global economies of scope and scale in areas such as manufacturing and transport, while ‘service platforms’ will manage process-related activities such as human resource management, informa-tion systems, procurement and fi nancial control across a variety of sectors

We liken these to the whales and other enormous fi sh to be found at the bottom of the ‘Deep Blue Sea’

In a truly global economy specifi c regions of the world will take on particular platform activities – refl ecting local skills and wage levels Taiwan has already become the global manufacturing hub for electronics production China is rapidly emerging as a multi-purpose manufacturing platform Now India is on course to be the world’s largest hub for IT and related business process activities – making it a global service platform The West will increas-ingly ‘offshore’ its manufacturing and back offi ce activities to such hubs

The recent boom in business process outsourcing and third-party manufacturing and logistics confirms the trend towards a separation between design and operation Those companies that excel in design must

be ‘smart’ – small, agile and innovative – while those that wish to excel in operations must be large, stable and effi cient As the speed and intensity of economic and technological development continues to accelerate, so will this separation increase – a message that many of the integrated IT service organizations appear to have missed

Holding all these atomic entities together into a virtual corporation is the ‘portfolio owner’ – an atom that acts on behalf of the investor, hold-ing equity in the atomic corporations that it has spawned or bought The global corporations of the future will be small but powerful portfolio owners with elaborate sets of cross holdings, where access rather than ownership becomes the operating paradigm Private equity companies such as KKR

in the USA already adopt this approach, acting as investment banks rather than operators As the hundred top executives of one of the world’s most successful companies, BP, decamp from their corporate head offi ce in the City

of London to a smaller venue in the West End, we see a real-life example of the portfolio owner mentality

These atoms may be individually small and incomplete, but they can combine together into value networks, or molecules, that are powerful, fast and immensely fl exible, and still manage to fully meet their customer expectations Value networks rather than mega-corps will compete together

in the future for customer attention The small particles comprising these

networks will be our atomic entities, each fl ourishing in the more dynamic

and richly connected environment In later chapters we will see exactly how

and from where these atomic entities emerge, but for now you may just have

to take it on trust – the atomic economy will work

The structure of the book

Part 1 Causes

In the next two chapters we explain why atomization is not only desirable

but also inevitable We look at the forces that are reshaping corporate structures and corporations’ relationships with their armies of stakeholders

– from customers and shareholders to employees and suppliers

Part 2 Collapse

Chapter 4 sets out the core of our atomic theory – what corporations will look like in a truly connected economy and how they will coexist As well

as describing and giving examples of the atoms, we look at how they form

the economic units of tomorrow – molecules

Part 3 Consequences

Having laid out the underlying theory, we progress to the principal

conse-quences in Chapters 5, 6 and 7 We look then at how the individual – you

the reader – will be able to adapt and fl ourish in this new environment and

what options are open to today’s oversized corporations We also describe

how entire industries will evolve to cope with corporate atomization and how traditional sector boundaries might blur and eventually collapse

Part 4 Changes

The broad consequences are interesting to understand, but most of us want

to know how these will affect our day-to-day jobs and responsibilities, as well as our domestic and social environments This is the section where we describe the impact of our atomic theory on the key elements of corporate life, from wealth creation, to mergers and acquisitions to outsourcing and organizational design We also take a look at the IT services sector, where many of our readers are working today Finally, we provide a fi eld guide to atomization with two methods for spotting hidden atoms

Part 5 Corporate Re-formation

Atomization is not entirely new The sixteenth century saw the break-up

of the largest multinational corporation of the day – the Catholic Church, caused by drivers similar to many of those we have talked about in this fi rst chapter We end our journey with a call to arms for those in large corpora-tions and for those who are thinking about their careers Interesting times are ahead for us all

Now read on …

Endnotes

1 These are all hypothetical, by the way, and should not be taken as direct criticism of the fi rms concerned

2 Thames Valley University was rated 123rd out of 123 entries in the

Sunday Times University League Table, 15 September 2002.

3 Malcolm Gladwell, 2002, The Tipping Point: How Little Things Can Make

a Big Difference, Abacus Press, ISBN 0349113467.

4 John Hagel III and Marc Singer, 1999, ‘Unbundling the Corporation’,

Harvard Business Review, March–April 1999, p 133 et seq.

5 Gill Ringland, 1997, Scenario Planning: Managing for the Future, John

Wiley, ISBN 047197790X

Causes