The first modern company was created in 1602 and was known as the Dutch East India Company. It is often considered to have been the first multinational corporation in the world and it was the first company to issue stock. It was a powerful company, possessing quasi-governmental powers, including the ability to wage war, imprison and execute convicts, negotiate treaties, strike its own coins, and establish colonies. Since the founding of the first company, the Corporation evolved to become the de facto way that humans organize to conduct business. Corporations have been the central mechanism in creating value and thus integral to the world economy.
What we’re now seeing in the past twenty-five years are some phenomenal changes that challenge the perennity of organizations. It also challenges the way that companies organize themselves.
Tectonic changes are happening beneath our feet
There are significant trends occurring that are capturing headlines and boardroom attention. Each is important in its own right but when looked at together, the implication is clear; most corporations are not organized in a way to respond to new market realities, particularly those born from a pre-information age.
Here are the most relevant drivers of this change:
- Law of accelerating returns
Scientist Ray Kurzweil known for his concept of the singularity penned this law.
It states that fundamental measures of information technology follow predictable and exponential trajectories. The exponential pace of technology is only going to continue to accelerate. In short, this is the most well known trend stemming from Moore’s law. It’s the driving force behind advances in artificial intelligence, robotics, virtual reality, etc. Capex in technology is going straight up and to the right as a result.
→ In almost every industry, exponential progress needs to be incorporated into a company’s strategy
- Data explosion
I will not use the buzzword you are probably thinking about. Behind all the hype, there is a massive movement towards quantifying everything. Lack of internal talent and measurement will be a major competitive disadvantage for companies that don’t adapt. Data is growing faster than ever before and by the year 2020, about 1.7 megabytes of new information will be created every second for every human being on the planet.
→ Data has become critical to competitive advantage
- Changing nature of work
Globalization has permitted workers to shift easily across borders and across organizations. Lifelong employment now seems like a concept from a generation long-ago. Organizations not only have to attract great talent but also empower employees to become leaders. To further complicate matter, the ‘gig economy’ is growing in importance. A gig economy is an environment in which temporary positions are common and organizations contract with independent workers for short-term engagements.
→Being profit driven is not merely enough to attract and retain great people
- Metcalfe’s law
It states that the value of a telecommunications network is proportional to the square of the number of connected users of the system. Essentially, with more people going online around the world, the value of the internet grows exponentially. As the rest of the world gets connected, opportunities for value creation are endless.
In terms of go to market realities, most companies operate locally but need to think beyond their borders.
→ The possibility to identify and learn from like minded organizations has never been easier
- Power law distribution
Simplistically, the best investment returns more money than the rest of the investments combined. It is demonstrated with the chart below.
Most venture capital funds live in a world of power laws, where the best investment returns more money than the rest of fund combined, the second best returns more than the rest combined, and so on. Venture capital is one obvious manifestation of power law distributions. As an early stage investor, seizing upon these opportunities can dramatically impact your return.
A common misconception is that only technology firms need to worry about the power law. In the not so distant future, technology-focused organizations will dominate most industries. This has been underway for quite some time.
→ Most companies will need to think and move like technology players. The core advantage of these companies is essentially velocity.
By examining the above trends, the implication is quite clear; we are currently living in a rapid evolution of how organizations and ultimately societies will organize themselves. The time scale of this change will not be measured in decades but rather in years.
Preparing for the future
How can organizations adapt to these new realities? Is technology the only factor? How can companies chart their course while maintaining flexibility? I’ll explore that and more in the next post.
Your feedback and comments are most welcome. Please share your thoughts and experience in the comments below.