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Going, Going, Gone

A CEO friend of mine not long ago postulated, “Nothing is sacred anymore!” He was referring to a recent article in the Wall Street Journal that had reported the potential downgrading of IBM’s long-term debt by Moody’s and the delay of a public offering of $1 billion in preference stock by General Motors. As we …

A CEO friend of mine not long ago postulated, “Nothing is sacred anymore!” He was referring to a recent article in the Wall Street Journal that had reported the potential downgrading of IBM’s long-term debt by Moody’s and the delay of a public offering of $1 billion in preference stock by General Motors. As we know so well, IBM has since announced a huge reorganization program and GM has instituted massive plant closings.

My CEO friend is undoubtedly right; nothing is sacred anymore in business. In fact, he can also add, “safe or secure.” It would appear that IBM and GM are two ponderous giants who simply weren’t keeping up with their faster moving competitors and are now paying the piper. These were dinosaurs of the business world, and it was inevitable that they would one day be challenged by the strong young turks.

But I think it is deeper and more complicated than that. It is probably closer to the truth to recognize that the management of business in general is undergoing radical change and that these companies are but two high-profile examples of what is happening.

I suggest that there are at least five key factors involved:

Going global. This means joint ventures, licensing, franchising, partial investments, alliances of all sorts. It includes global financing, accounting, marketing, advertising and sourcing. The purely domestic decision is gone forever. Being global is far more complicated than being international or multinational with just a few foreign subsidiaries and sales agents to supervise.

The competition is different and so are the rules. For the most part, too, there is no longer such an entity as a purely domestic business. Even if you think your business stays within national borders, your customers may be global, so perhaps you should be looking beyond your own backyard.

Restructuring. Corporate organization charts are getting flatter and corporate staffs are becoming smaller. Managers have more direct reports. Profit centers are pushed down farther. Mergers are occurring with the specific idea in mind of reducing bodies and consolidating service centers.

Fading hierarchy. Participative management and employee involvement is in. Autocratic, dictatorial, hierarchical management is out. Managers tend not to boss, but to “coordinate and empower.” (See “Getting To Team,” this month’s CE roundtable.)

Faster processing. Led by networking computers integrated into the management process, data flows faster, lead times shorten, life cycles lessen. Programs for total quality management, just-in-time inventory control, process mapping, and other time-savers abound.

Lower costs. The name of the game is to become the low-cost producer. To do so often causes the closing of inefficient plants, the dropping of unrewarding product lines, the cutback of unproductive cost centers, and-this is a bitter pill for many companies to swallow-the wipeout of a lot of executive perquisites. With this business credo in full sway, it is not surprising that old line institutions-both corporate and political-must change in order to keep up, even to the point of downsizing. The old organization, the old way of doing business, the old union, the old middle managers, and sometimes the old CEO must change or be changed.

For many years, IBM and GM were able to dominate their domestic markets and to expand vigorously and profitably on a worldwide basis. In turn, they were able to promise such things as guaranteed annual wages, lifetime careers, high wages, fully paid medical benefits, and inflation-adjusted pensions. IBM and GM were about as sacred and safe and secure as it was possible to get. But they aren’t anymore, and neither are Citibank, Caterpillar, du Pont, Equitable Life, Eastman Kodak, American Express, U.S. Steel, Texaco, Macy’s and a host of other seemingly invincible institutions. Also included among that number is the former U.S.S.R.

There are those who say that the problems of our big American companies have been brought on or compounded by our tax policies, our national deficit, our inept global commerce program, our hostile tender offer and junk bond hinge, our lack of competitiveness vs. Japan and Germany, our unions and high labor costs, our poor education system, and our minorities-or wherever else the finger points. They have all contributed, I agree, but they have not been basic factors. Nothing short of a complete overhaul of the way we do business will restore our competitive edge.

Today’s CEO is on the spot. No matter how solid his financial position or how high his market share, his company is potentially vulnerable to the same problems that have befallen IBM and GM. The best answer, it would seem, is to go global, flatten your organization chart, embrace participative management, speed up your processes, and become the low-cost producer in your industry on a worldwide basis.

That might help your longevity.


Formerly the CEO of F.& M. Schaefer (1972- 1977), Robert W. Lear teaches at Columbia Business School, where he is Executive-in-Residence. He is an independent general partner of Equitable Capital Partners and holds directorships with Cambrex Corporation Inc.; Crane Company; Scudder International and Scudder Institutional Funds; Korea Fund; Medusa Corporation; WICAT Systems Inc.; and Welsh, Carson, Anderson, Stow Venture Capital Co. His latest book is How to Turn Your MBA Into a CEO.

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