The Right and Left Brain Blog

The recent economic events ignore the complete obsolescence of our corporate models. Nowhere was this more evident than in the recent saga of the auto companies. Their original performance in front of Congress was insulting. However, even their second performance ignored when they will make money, how they will really change and what concessions they need from all constituents.

However this is a symptom of many big companies and not just the auto industry. Financial, furniture, retail, and conglomerates are all examples of entire industries that have simply ignored market realities and provided no returns for investors over the past 6-8 years. For example, here are some key realities that they refuse to address head on:

• The presumed advantages of bigness, such as economies of scale, spreading expertise, marketing synergies, etc. have simply shown little evidence of success in the last few years.

• Their tunnel vision. Organizational constraints ignore emerging technologies and opportunities.

• They lack the flexibility to respond to the needs of the project rather than using outdated solutions to new problems.

• The net disgrace is Boards of Directors continue to pay hundreds of millions of dollars and in salaries and bonuses to executives who have produced unacceptable results for shareholders, consumers and employees.

• Companies refuse to sell or liquidate divisions or product lines that have little long term prospect of success

• At the same time they are loathe to invest in long term needs that will adversely affect this quarters profits.

• In many cases, consulting firms’ and investment bankers’ advice about synergy and economies of scale has just been wrong.

• Companies are still following obsolete strategies such as product proliferation, extensions, etc., which are simply obsolete in a stagnant economy.

Most important, these companies have failed to realize that the rapid changes and crises of the past few years from 9/11, to Google, to then internet, to the emergence of China, to the recent financial recession are here to stay rather than being once in a lifetime events.

The net result of these issues is that many organizations are incapable of creating environments that support the qualities necessary to succeed in today’s changing and complex marketplace. In particular, professional cultures and decision makers need to replace hierarchies, which are the cornerstone of size.

Organizations are frequently focused on control, minimizing risk and treating everyone equally. Edward Demming is quoted in a great line about leadership: “It is the ability to drive fear out of the organization so that employees will feel comfortable to make decisions on their own.” Large organizations cannot focus on maximizing the energy, skills and motivation of its employees.