How has the way companies are managed changed over the last 30 years?

<a href="http://www.ie.edu/IE/php/en/profesores_medios_detalle.php?id=272">Joaquín Garralda. Professor. IE Business School</a>

29 May 2008

The world has changed drastically over the last three decades. Companies must remember that they are not immune to this transformation, and adapt their strategies accordingly.

When comparisons are made of things that took place in different places in time, it is important to remember that our memory tends to attach greater importance to recent events than to what happened in the past, since we tend to read the past from a present perspective, altering it in some way. Hence I have tried to address the question posed in the title in an objective way. I consider the most appropriate indicator to be the Harvard Business Review, since I look on it as a reliable source of information on management issues at any given time. I have reviewed the titles of articles from 30 years ago (1978), comparing them with those of this year (2008) to see whether there are any substantial differences between past and present priorities and concerns.

After analysing the titles of the articles, I found several differences:

• Thirty years ago, the magazine spoke of planning and zero-based budgets, as well as the (occasional) mention of leadership; today, no mention is made of anything related to planning and the subject of leadership is highly relevant.

• The model to be followed (or at least analysed in depth) was the Japanese model. The multinationals faced the problem of matrix structures and only one article mentioned the risk of "having an office open in Moscow". Today, we speak of many Asian countries other than Japan and comments come from multiple angles (politics, business, the environment and society) on subjects related to the "supply chain".

• Social and environmental issues have now assumed an importance they did not have 30 years ago.

From the strategic point of view, in this year´s January issue of the HBR, Michael Porter reviews an article that was published in the same magazine in 1979 (interestingly, it almost coincides with the 30-year period) - How competitive forces shape strategy - which marked a milestone in the study of the subject. In the opinion of the now very famous Professor Porter (an associate professor at the time) of Harvard Business School, what has changed with regard to what he proposed in his article? What are the new issues?

Despite the fact that he refers to current issues as "other factors" in some of his five forces (suggesting that his article remains current almost as is), I consider that, on the basis of relevance, more emphasis has to be placed on some of these new issues, including them as a different force or at least as a key factor that determines the results sought by this analysis of the five forces: the company strategy.

There are three new issues worthy of particular mention:

• The network effect. This concept is more relevant now due to the increased power and reduced cost of digital communication systems. Many businesses are interlinked on a "network" of sectors and if they are considered separately, the strategic vision is not accurate and can lead to error. There are products and services that are "complementary" and must be considered as part of the strategic analysis of the sector. For example, without this vision, it would be very difficult to understand the struggle between Toshiba and Sony for the high-definition DVD player standard through the strategic use of PlayStation 3 and Microsoft´s Xbox 360 video game consoles.

• The dynamics of collaboration. In comparison with the emphasis on competition as a zero-sum game (in order to win, someone has to lose) and the only strategic way of proceeding, win-win solutions (positive-sum game) currently play an important role in CSR as do strategic alliances with all kinds of players: enterprise, public sector and NGOs. Porter himself has studied this change in recent articles, but it is not clearly identified in his five-force scheme.

• The role of the state. Although in the liberal American environment the role of the state is still seen as residual, since its responsibility is only to ensure that competition is fair (which explains its scant weight in the analysis of the five forces), in Europe this player determines the strategic options open to companies in many sectors. In addition, the overlapping of public-private activities and the influence of politics on large corporations give rise to a scenario on which management is now subject to greater "political" influence than that described in the five-force analysis.

Finally, I would like to point out one interesting difference: which sector was more "attractive" then and which is more "attractive" now? By "more attractive" I mean companies which, from a mid-term perspective, have a higher average profits than those of companies in other sectors. Between 1985 and 1995, on average, the most attractive sector on the list was the pharmaceutical sector; between 1992 and 2006 (using the figures included in Porter´s 2008 article), the most attractive by far is the "Security brokers and dealers" sector. Could this change have anything to do with the current crisis of confidence in the financial system?

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