Ever since the financial crisis broke in earnest last September, history has been mined for nuggets of insight. The Great Depression, the Panic of 1907, Japan’s lost decade of the 1990s, the Swedish banking crash in the late 1990s, and so on. Each time, though, the focus has tended to be on the lessons learned for economic policy and theory.
Let’s try a different lens. How have past crises shaped management thinking and strategy? Innovation in management, after all, is adaptive. Management is not a science, like physics, with immutable laws and testable theories. Instead, management, at its best, is an intelligent response to outside forces, often disruptive ones.
Times of severe economic duress, management experts say, can serve to sharply accelerate trends already under way.
The Depression and its immediate aftermath, they say, was such a catalyst for forces already in motion. The main development, they note, was the rise of the modern multidivisional enterprise like General Electric, DuPont and General Motors. It was made possible by the mature technologies of transportation and communication — railroads, the telephone and the telegraph.
The technologies made it possible to monitor and coordinate business operations as never before. And the Depression made it imperative for managers to achieve efficient economies of scale to tap national markets, ensuring corporate survival amid a downward spiral in total demand.
A modern version of that kind of technology-aided shift in management practice and corporate organization could be in the offing, says John Hagel III, the co-director of the Deloitte Center for Edge Innovation, a research arm of the consulting firm.
The sharp downturn, according to Hagel, will force companies to go beyond simple cost-cutting to take a hard look at the economics of their businesses. Most companies, he says, are actually bundles of three different businesses: infrastructure management, product and service development and commercialization, and customer relations.
The current crisis, Hagel says, opens the door to “an unbundling of the corporation” to achieve greater efficiency and profitability. The trend, he says, is already exemplified by specialist companies that focus on particular infrastructure fields. In logistics, Hagel says, many companies farm out those chores to FedEx and UPS; in call centers, he points to Convergys; and in contract manufacturing, to Flextronics.
Of the three business areas, new product development is the one that lends itself not to size, but to small creative teams, and thus is the most difficult for large corporations. Hagel cites Procter & Gamble as a big company that understands the benefits of unbundling. It has set a goal of getting half its new-product innovations from outside the company, through licensing and collaboration with partners. And P&G, Hagel says, has invested heavily in Web technology and clever software to analyze and nurture customer relations.
To Hagel, such developments look like an Internet-era rerun of the corporate transformation of the 1930s and 1940s.
“We’re facing the potential to have that play out again — this time with digital infrastructures that allow companies to organize and manage their activities in new ways,” he said.
Manufacturing innovations and distribution patterns have been powerfully shaped by economic shifts. Japan’s just-in-time, lean manufacturing system, management experts note, was an adaptation to postwar poverty, a shortage of capital and scarce land for factories, while pro-market policies in China and India opened the door to globalization.