Dis­rup­tions have re­shaped the cor­po­rate sec­tor

Prairie Post (West Edition) - - Opinion - BY ANUP SRIVASTAVA, UNI­VER­SITY OF CAL­GARY

Cor­po­ra­tions evolve a lot dif­fer­ently to­day than the world's most valu­able com­pa­nies did 50 years ago. The changes are a re­sult of wide­spread dis­rup­tion.

Ap­ple be­came the first com­pany to reach a mar­ket cap­i­tal­iza­tion of US$1 tril­lion. The other three most valu­able com­pa­nies to­day are Ama­zon, Al­pha­bet (Google) and Mi­crosoft. Their prin­ci­pal as­sets are patents, knowl­edge, ideas and strat­egy.

The most valu­able com­pa­nies in 1970 were Gen­eral Mo­tors, Exxon Mo­bil and Ford Mo­tor. Their prin­ci­pal as­sets were fac­to­ries, oil­fields, in­fras­truc­ture and in­ven­to­ries.

What's changed? Why is a ma­jor cor­po­ra­tion evolv­ing to­day more likely to be a Face­book, Net­flix, Google, Twit­ter, Alibaba, LinkedIn, Groupon, We­bMD, Spo­tify, Shopify or Yelp, than a Wal­mart or Al­can?

First, there has been a dra­matic in­crease in the pace of value cre­ation and de­struc­tion in the cor­po­rate sec­tor. A new com­pany can achieve dra­matic growth much quicker than a 20th cen­tury cor­po­ra­tion, which op­er­ated with fac­to­ries, prod­ucts and sup­ply chains, and took years or even decades to build.

A 21st cen­tury com­pany can sell idea-based prod­ucts and reach global mar­kets on the In­ter­net al­most in­stan­ta­neously. For ex­am­ple, when Google's co-founders cre­ated a bet­ter search for­mula in their garage in Cal­i­for­nia, they quickly dis­placed the pop­u­lar search en­gines of Ya­hoo, Al­tavista and Ex­cite.

A 21st cen­tury com­pany, how­ever, is also highly vul­ner­a­ble to loss of mar­ket lead­er­ship as new play­ers come along with bet­ter ideas and prod­ucts. Black­Berry and Nokia, the world's most de­sir­able phone equip­ment sup­pli­ers as re­cently as 2010, prac­ti­cally dropped out of the tele­com mar­ket as Ap­ple and Sam­sung came up with ad­vanced prod­ucts.

As mod­ern cor­po­ra­tions com­pete with ideas and strat­egy in­stead of phys­i­cal cap­i­tal, the pace of cre­ative de­struc­tion in the cor­po­rate sec­tor ac­cel­er­ates. No com­pany is im­mune to dis­rup­tion, whether it's Ra­dioShack, Macy's, Gen­eral Elec­tric or Wal­mart. As a re­sult, com­pa­nies have no choice but to in­no­vate ev­ery day if they hope to see the light the next day.

The roles of em­ploy­ees and their re­quired skills are also chang­ing. Fifty years ago, a high school dropout could start as an ap­pren­tice in Gen­eral Mo­tors, be as­sured of life­time em­ploy­ment, and hope to rise to a gen­eral man­ager or vice-pres­i­dent po­si­tion by the end of his ca­reer. His com­pen­sa­tion was largely a fee for de­vot­ing his hours to the com­pany, and he was as­sured of pen­sion in his post-re­tire­ment life.

A 21st cen­tury cor­po­ra­tion em­ployee, in con­trast, brings her con­tri­bu­tion of in­tel­lec­tual cap­i­tal as a build­ing block of the com­pany. This is akin to a shareholder con­tribut­ing ini­tial dol­lar cap­i­tal to the com­pany. Dur­ing her em­ploy­ment, she en­hances her knowl­edge, which she can then use at an­other com­pany or to start her own ven­ture.

Thus, in both con­tri­bu­tion to and re­ward from the com­pany, a 21st cen­tury em­ployee has be­come more like a shareholder or part­ner than a ma­chine, sell­ing pro­duc­tive hours. To be a valu­able part­ner in a new cor­po­ra­tion, an em­ployee must ob­tain an ad­vanced de­gree in a science, tech­nol­ogy and math (STEM) field, which in­creases the de­mand for STEM grad­u­ates but widens the wage gap be­tween those with and with­out col­lege de­grees.

A 21st cen­tury em­ployee must keep up­dat­ing her knowl­edge and skills to re­main em­ploy­able.

These de­vel­op­ments pose large chal­lenges but also cre­ate new op­por­tu­ni­ties for pol­icy-mak­ers. Lo­cal gov­ern­ments must com­pete to at­tract an up­com­ing 21st cen­tury cor­po­ra­tion and can no longer rely on their nat­u­ral re­sources. For ex­am­ple, cities com­peted fiercely to be cho­sen as the home for Ama­zon's sec­ond head­quar­ters.

The most es­sen­tial pre­req­ui­site to at­tract these 21st cor­po­ra­tions is the ready abil­ity of STEM grad­u­ates with a pas­sion for in­no­va­tion and crit­i­cal think­ing. That need is met from the pool of tal­ented lo­cals and well-ed­u­cated im­mi­grants. This means we need to re­think the amount of re­sources de­voted to pub­lic uni­ver­si­ties, so we can pro­duce more STEM grad­u­ates. And we must al­ter poli­cies in or­der to in­vite more grad­u­ate im­mi­grants and cre­ate a vi­brant cul­ture to at­tract mil­len­ni­als.

In ad­di­tion, newer busi­nesses re­quire ad­vanced com­mu­ni­ca­tion net­works and tech­nol­ogy parks, in­stead of the ware­houses, roads, power and ports re­quired by a 20th cen­tury cor­po­ra­tion.

Gov­ern­ments must also re­design tax poli­cies to de­rive a fair share from the value cre­ated by mod­ern cor­po­ra­tions. Pre­vi­ously, a gov­ern­ment could track, mon­i­tor and tax busi­ness ac­tiv­i­ties based on the move­ment and trans­for­ma­tion of phys­i­cal goods. A mod­ern cor­po­ra­tion has no phys­i­cal goods and can eas­ily set up a phoney head of­fice in a tax haven, de­liver its goods from a re­mote server, and avoid pay­ing taxes by trans­fer pric­ing schemes.

The cor­po­rate sec­tor re­mains the sin­gle largest source of wealth cre­ation and em­ploy­ment gen­er­a­tion, but it's un­der­go­ing seis­mic shifts. Banks, in­vestors, lo­cal sup­pli­ers, stu­dents, pol­icy-mak­ers and lo­cal gov­ern­ments will all ben­e­fit from a bet­ter un­der­stand­ing of these changes. That un­der­stand­ing will help them ward off threats and cap­i­tal­ize on new op­por­tu­ni­ties.

Anup Srivastava is an As­so­ciate Pro­fes­sor at the Haskayne School of Busi­ness at the Uni­ver­sity of Cal­gary.The Haskayne School of Busi­ness at the Uni­ver­sity of Cal­gary is one of the lead­ing busi­ness ed­u­ca­tion in­sti­tu­tions in Canada.

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.