The size of things to come

When it comes to companies, big is usually better. Or is it? While different models prevail, economies of scale are one of the favourite reasons for making a business bigger. Towards the end of the eighties large companies seemed untouchable and predictions were widespread that by the end of the century, industries such as electronics, banking, publishing and advertising, would be controlled by a few very large companies. This prediction is rapidly being turned on its head. Let’s look at some of the trends.

Downsizing, upsizing, rightsizing

Corporate America and Europe have spent the last ten years re-engineering their companies. Management consultants have made a tidy fortune advising companies on strategies that will make them leaner, meaner and more manageable.

The basic problem seems to be that as organisations mature, just like their human counterparts, they tend to acquire layers of fat. Growing companies continually struggle with this phenomenon and it is not uncommon for an organisation to break itself into pieces in order to manage itself better.

AT&T, the international telecommunications giant, is in the process of splitting its business into three autonomous operating units. In South Africa Gencor started an unbundling exercise 2 years ago by selling off their interests in subsidiaries so that it could focus on core business.

Technology and the internet

Sheer size made it possible for large organisations to dominate their markets. With the advent of more sophisticated technology this domination has become increasingly more difficult. Small lean organisations are able to compete effectively by deploying ever-improving technology quicker and more effectively than their larger counterparts. Big companies seem to get bogged down in project teams and documentation while small companies are following Nike’s advice and “Just doing it!”.

The internet is now also playing a notable role in this David and Goliath battle. Because barriers to entry are very low, small companies are able to utilise the internet just as effectively as companies with major budgets.

It is often the small companies that seize the opportunities while the more conservative corporates are still making up their mind. Small companies, while lacking the benefits of economies of scale and the muscle provided by large amounts of capital, are able to compete by being innovative and keeping overheads down to a minimum. Technology, it seems, is the great equaliser.

Many small businesses are started by executives who leave their corporate environments with large severance packages, loads of experience and a determination to succeed on their own. Having been exposed to the benefits of technology, these entrepreneurs spend their money on the hardware and software with which they are familiar.

Robin Sternbergh, head of IBM’s worldwide small and mid-size sales and service, observes that companies with fewer than 50 employees comprise the fastest-growing market segment. Annual sales to this segment are increasing at 14% a year.

The small business community is growing at unprecedented rates and some major companies are sitting up and taking notice. American Express recently announced a new credit card with a $20,000 limit, which is the centrepiece of a focus on businesses with fewer than 100 employees. Other services will include new credit options, lease financing, and financial management services.

Why are corporations taking small business seriously? “Small business is the third-largest economy in the world, after the US and Japan” says Steve Alesio, president of American Express Small Business Services.

The Future

As the global market place grows in size and complexity, it has become increasingly important to find a niche and focus on it to succeed. Large companies spread into numerous business areas will find it difficult to compete with small companies focusing on just one niche market. The need to offer a one-stop solution is, however, still a big selling point for any business.

In the past, this was the domain of the large diversified company but going forward the “one-stop shop” may well be networks of small companies who run autonomously but work in alliance with partners offering complimentary services.

Internet Communities – governments of the future

Governments around the world are struggling for a meaningful role in the information age. Until recently it was clear-cut.

Individuals and companies paid taxes to the government, who used the money to look after the country, its people and national resources. In democratic countries decisions are mostly made by elected officials.

The internet undermines this role by allowing individuals access to large amounts of information enabling them to make decisions previously reserved for government bureaucrats.

The 1989 “Velvet Revolution” that swept through the former Czechoslovakia and eastern Europe was driven by students with an ability to communicate. The students used modems to establish electronic bulletin boards where messages were posted to co-ordinate activities throughout the country.

This informal communication network was used to circulate manifestos, declarations of solidarity, rumours, and riot news. Unrest grew steadily and by mid-November, the communist regime was displaced from government by, among others, an online community.

In a similar way the internet now makes it possible to create virtual communities that have no particular geographic location but stand together as a force to be reckoned with.

The Harvard Business Review is one of numerous publications that proposes the online community as the route to commercial success on the internet. The internet however, has much more going for it than commercial success.

Individuals around the globe are using the internet to group together and improve aspects of their lives which their governments have been ineffective in addressing.

Environmental activists on five continents work together in online communities to combat industrialists flouting environmental laws. Teachers exchange lesson plans with colleagues rather than waiting for new ideas to be fed down from government education departments and parents debate the best way to raise their children.

One of the best examples of an online community is the WELL. The pioneering work of Stewart Brand and Larry Brilliant resulted in the foundation of the Whole Earth Lectronic Link or WELL in 1985. Initially the WELL started as a dialogue between the fiercely creative and independent writers and readers of the Whole Earth Review, but has in recent years grown into numerous communities and interest groups.

Founded in San Francisco and now scattered around the world on internet servers, the WELL, with in excess of 10 000 members from all parts of the globe, is a valuable role model for internet communities.

On Monday, 26 June 1995, Time magazine published a cover story about the proliferation of pornography on the internet. The story was based on the unpublished research of Martin Rimm, a 30 year old electrical engineering undergraduate at Carnegie-Mellon University.

Members of the WELL community heard about the story before it was published and being concerned that the research had not been exposed to the necessary amount of academic peer review, decided to do something about it.

The community conducted their own research which disputed Rimm’s and eventually led to Philip Elmer-DeWitt, senior editor at Time Magazine and author of the story, admitting that he did not conduct sufficient “journalistic due diligence” before publishing the article.

The online community at the WELL were instrumental in highlighting the inaccuracies of the article. This in turn has affected the internet censorship debate in the United States.

The internet allows us to create communities such as the WELL with relative ease. Improved communications allow us to be in contact with like-minded persons anywhere in the world.

As individuals grouped together in virtual communities, we have more power over our destinies than ever before. It is up to us to exercise this power and govern our own lives rather than wait for someone to do it for us.

The web-why-bother factor

Old-fashioned media such as newspapers are reporting widely that South African companies are embracing the web. I would suggest that some of these companies should hold back on that embrace until they have thought about why they are climbing on the bandwagon.

If you spend some time browsing South African corporate web sites – and I’m talking about large companies with big names and brands – then you will see a remarkable phenomenon. Companies with huge advertising and PR budgets have sites that look like they were built by the CEO’s pimply teenager.

To set the scene and with apologies to Yahoo, I would like to introduce my very simple system for categorising web sites in South Africa. There are only 4 categories:

  • There – great content, looks great
  • Getting there – great content, looks lousy
  • Somewhere – no content and looks great
  • Nowhere – no content and looks lousy

Unfortunately a lot of very prominent companies have sites that drop them into the “Somewhere / Nowhere” class. I think that because the web is not seen every day by the decision-makers it is not taken seriously.

Can you imagine a major travel group publishing a paper brochure that has an inaccurate reproduction of their logo, offers poor, ineffectual information and doesn’t match the corporate identity. In cyberspace it is happening all the time.

The web has achieved popularity because the barriers to entry are very low. Most service providers throw in a few megabytes of hard disk space for web publishing when you sign up for a dial-in account. Just like the pc and laser printer enabled the desk top publishing industry in the eighties to take off, so the web publishing industry has been spawned by inexpensive access to the internet in the late nineties.

The trouble is that like poker, authoring of web documents is really easy, but it can take a lifetime to do it properly. Many companies pop up a web site which has the same information as contained in their paper brochures. In fact in some cases the information isn’t even accurate and is quickly out of date. What a waste of a fantastic medium.

You may be thinking that money is the differentiating factor. I would disagree. Many companies, such as SAA, who have spent serious amounts of money (rumoured in excess of
R500 000) end up with a web site that is good-looking, fun and has loads of graphics, but let’s face it, it’s pretty slow and once you’ve seen it you don’t really need to go back.

If I had to design the ideal web site for SAA it would contain a home page that has their logo and an updated screen showing departure times (including delays) at all the airports around the country.

Maybe I’m unusual but somehow a real time flight schedule ranks above adventure games on an airlines web site. At this stage I would place the SAA site in my “Somewhere” class and they can feel free to use my advice when looking for new functionality for the SAA Virtual Traveller site.

So what type of sites are going to be successful? The people who are going to win in this internet race are those who understand the concept of communities. We can take a lesson from companies that are successful in the real world.

These companies build up loyal supporters (read community), and evangelise about their products. Some of the most successful companies in the world spend little on advertising but spend a lot on customers.

The internet gives an opportunity to be in touch with your customer like never before. CDNow, an internet success story, prides is able to implement suggestions coming from its users (again read community) within days and sometimes hours of receiving them.

This is another reason why small companies can compete well with large companies on the internet. The South African corporations who pop up a few pages from their marketing department without allowing interaction from their community stand to lose ground as more people look to the web for up-to-date information.

The web site consultants who make their money talking about the internet will put the problem down to the wrong people creating the web site. “Don’t let the IS department do it,” is the rhetoric heard. I would say the problem goes deeper than that.

I think the IS department might be well qualified to do it, if only management had a strategy for the web site. Even the big spenders don’t always have a strategy and the web site becomes a showpiece rather than an opportunity to interact.

All is not lost, however, and some good examples of innovation are starting to creep out of the woodwork. Take a look at ABSA or Sanlam who are both on the right track by extending their real world services to the net. They might not be perfect yet but improvements are incremental.

Perhaps the SA web is immature and once some more water has washed under the bridge corporations will realise the potential, like some of our international counterparts have. If you’re developing a site or wondering what you’re going to do with your current site then aim for the “There” class. If it’s not worth doing properly, then why bother?