A corporation has a strange life. It is founded in the spirit of change, with key people leading a messy, tenuous advance toward new adventures. If lucky, the corporation achieves some success in the forms of profit, market share, and notoriety. Then, it starts to shift its attitude. It wants to replicate its successes, so it starts to move toward replication and defense. The corporation changes from upstart to adult, eventually resulting in old grey men in old grey suits whose goals are to command and control.
Of course, not all corporations experience this pattern of ossification. [The ones you can name right away are the outliers.] But if you asked the youngest employees of the Fortune 500, they would probably candidly tell you about the inflexible internal processes, the difficulty of testing out new ideas, and the layers of approval needed to make a seemingly simple change. A friend who negotiated the ability to work from home occasionally was told to keep it under wraps because “the whole sixth floor” would want the same opportunity if word got out. The machine resists change.
And that’s a pity. Organizations that were started in the spirit of change can easily grow into entities that defend against change. Why does it happen? A corporation becomes systematized. If x happens, do y. Stimulus, response. Systems thinking recognizes that if a change is made to one part of the system, that change has a ripple effect that impacts other parts of the system. In small doses, it annoys the accounting department. Taken to the extreme, change is chaotic for an organization.
One of my favorite thinkers on this topic is Michael Capellas, former CEO of Compaq, WorldCom/MCI, First Data Corporation, and other large corporations. At a conference in 2014, he said one thing that I memorized immediately:
“When you really solve a big problem, something breaks.”
That is the ultimate fear of the ossified corporation: breakage. This unwillingness to change means that upstarts — new corporations — get the advantage of throwing themselves at big problems. They don’t have to play by the same old rules, either. Corporate giants have major infrastructure concerns that small organizations actively avoid. Corporate giants have systems in place that prevent a much-loved startup advantage, the pivot. Corporate giants influence the law, while small organizations operate in the margins. Example: Uber owns no cars [infrastructure], changed the delivery system [from “black car service” to contract driver model], and broke transportation laws in every market they entered.
Clearly, a large legacy corporation has greater theoretical capacity to affect the marketplace. They have recognition, relationships, and resources to spare. An organization like Ford, with $53B in market capitalization,* has the potential to make bigger waves than Tesla Motors, with $28B in cap. But can they execute? Consider that Tesla developed 52% of Ford’s market capitalization in just 13 years. Uber, whose cap is $62.5B, has already surpassed Ford handily. Change — or breakage — is the language of Tesla Motors and Uber. They are solving big problems in transportation, just like Ford did a century earlier. Ford got stuck in a different operating model, making incremental change instead of leaps forward.
Like it or not, the word “disruptive” is here for a reason: the groups who do things differently are changing the environment for everyone. They actively fight the continuation of the status quo, and they create chaos in the system. The mindset of Michael Capellas is important. If an organization can say, “When you really solve a big problem, something breaks,” it can assume the mindset as their challengers. The mindset of the company’s founders. The mindset of the people who started something new to create a messy, tenuous advance toward new adventures.
Every business environment is constantly shifting. The great challenge each company faces is to risk, rinse, repeat.
*Public figures available via Google Finance at time of writing
UPDATE: video of Michael Capellas interview with Katty Kay, Turbulent Global Economics : Business Survival