In 1990, a respected business writer asserted confidently that, `We have learned more about the right way to run a business in the 1980s than in the previous half century.' Ironically, it has taken the fall of communism to qualify that optimism. As long as the battle of the world systems raged, the role and purpose of `business' as champion and principal agent of capitalism seemed obvious. But now that the battle has been decisively settled in favour of markets - now that business has to walk the talk - a strange paradox reveals itself. there is nothing inside the champion's imposing suit of armour. We don't know how companies work, we don't even know what they should be doing. The most important institution of the capitalist West is an emperor without any clothes.
Consider: at a practical level our new insights aren't preventing companies from going bust. The corporate heroes from whom we are supposed to be learning the new lessons disconcertingly turn into dunces overnight. Nor are our new streamlined corporations making our economies any more robust. Rather the reverse: far from contributing to solutions for the great social issues, most companies today are part of the problem, obsessively pursuing an Alice-in-Wonderland logic of self-reinforcing retrenchment which improves profitability ratios at the expense of the collectivity. What's good for General Motors is definitely not good for capitalism.
With hindsight, the gains of the 1980s quality, customer focus, responsiveness - represented quantitative rather than qualitative change. They may have speeded up the mechanics of corporate activity, but they didn't lead to better destinations. We have failed to notice how the role of the corporation changes in relation to the state in the world of markets. This failure is in danger of sending us up a dead end, generating agendas which are surreally different from the ones we ought to be addressing. The job now is to identify and activate that wider role of the corporation. As the pivotal institution of the marketised world which it has done most to bring into being, the company must assume the responsibilities it has wished on itself.
Look more closely at what has happened in the last decade. We may have learned a lot about business - but the more we know, the more we don't know. For example, we have learned that the essence of corporate activity has nothing to do with size. To be sure, it is now a truism that big is unbeautiful; economies of scale apply to production, not people. But don't applaud the end of the great bureaucracies yet: the small company is no replacement. Recent studies on both sides of the Atlantic show that small firms are fragile, pay their staff less and treat them worse than larger ones, and can't afford new technology. Moreover, their employment record is overstated. Guess what: both large and small gods having been dethroned, it is now the middle-sized company which is attracting the prayers of the faithful at the altar of economic hope.
Nor, another irony, is the heart of the company to be found in the market itself. There are two ways of coordinating economic activity. One is at `arm's length', by the market; the other is by people combining in a company to do something different from, and better than the market. In other words, the essential character of a company is that those within it have been removed from normal market interactions. Beating the market is difficult, though: Andrew Campbell, of the Ashridge Strategic Management Centre in London, has shown that in most multi-business companies, the corporate centre actually destroys much of the value (however accounted) which the individual units are creating. Guru-approved focus doesn't seem to be a reliable guide to co-ordination, either. Focused companies (IBM, the airlines) aren't immune from making faulty decisions which destroy value; successful conglomerates such as BTR and Hanson mysteriously go on being successful. …