The 21st century comes with dramatic changes and the idea that, to cope with it, managers ought to strategize anew and shape and reshape their firms. To understand what vital developments are actually taking place in the 21st century, managers need to ask the questions; which current conceptions successfully capture these opportunities and threats, and the vital trends in strategizing, organizing, and managing? Or can current conceptions be extended to serve this purpose?
Over the past two decades, the world has moved from the Cold War time, when a world system was built around division and walls, and frozen in time, to a world characterized by an ongoing process of integration and interconnection of states, markets, technologies, and firms. Globalization is being driven on the one hand by the spread of economic logics centered on freeing, opening, deregulating, and privatizing economies to make them more attractive to investment, and, on the other hand, by the digitization of technologies that is revolutionizing communication.
Before 1970, investors had great difficulty buying stocks or bonds abroad. But once the system of fixed exchange rates and capital controls was relaxed, and many nations followed by reducing foreign investment and trade restrictions, investors (and later, mutual fund managers) began to move their money between companies and countries in increasingly competitive and global financial markets.
Nowhere has economic reform been more dramatic than in the former socialist nations, which have privatized vast numbers of enterprises and improvised free market systems. Jointly, these developments have resulted in unprecedented capital mobility, sharpening the market for corporate control in many countries and industries and making management more responsive to shareholders.
In this world of open markets, firms in many industries must now compete globally to survive. Given the enormous scale and technology costs involved in global competition, many large companies have reversed historical trends and has outsource thereby concentrating only on their core values or operations. As a result, many more firms have become willing to take on relational risks in order to mount competitive research and development efforts, obtain supplier commitment, and access markets worldwide. And, as firms ally horizontally and vertically in colossal constellations to compete globally, they actively interconnect the world, promoting further globalization.
The effects of open markets are catalyzed by the digitization of a wide range of technologies. Seemingly driven by "Moore
This period of rapid innovation is not unique, however. Over the past 200 years since the beginning of the industrial revolution, technological breakthroughs and "new economies" have emerged with striking regularity, every 50 years or so: steam power, iron, and textiles dominated the years 1790-1840 (approximately); railroads, coal, and iron were the signature technologies of the 1840-90 period; electricity, automobiles, and aviation characterized 1900-50; and information-processing advances and the Personal Computers became preeminent in 1950-90. The technologies of the first three periods, by increasing economies of scale and lowering the costs of moving raw material and finished products, favored the rise of large corporations, with their hierarchies of salaried managers and the associated strategies and ways of organizing, as a rule in discrete spaces. Even the fourth period, culminating in widespread use of personal computers, saw only modest geographical dispersion.
Digitization, in contrast, by radically lowering the cost and raising the speed of moving data and information, dramatically favours geographic dispersion. Digitization expands firms' capacity to monitor dispersed employees and processes, to amass and process information, and to design products and services and deliver them to consumers in ways that alter cost structures and organizational processes and designs fundamentally. The shift from rapid advances in technologies for moving inputs and products to technologies for moving information and knowledge has altered the nature of organization dramatically and shifted the basis of competition.
In their pursuit of global markets, established firms ally increasingly with other firms and engage workers in developing economies in complex production processes, either as part of their value chains or as independent suppliers. As a result, firms in developing countries now increasingly assemble technologies, materials, and capital as the producers or subcontractors of complex products and services, hastening the shift from manufacturing to service industries in developed economies. Simultaneously, digitization has accelerated the emergence of global competitors from formerly developing countries (such as China , Taiwan , and South Korea
Intensifying global competition further, digitization is also propelling myriad small and medium-sized firms across the world to join forces, expand into foreign markets, and challenge their larger rivals as never before.
In global competition, what matters most is not a firm's absolute rate of learning and innovation, but the pace of its development compared to that of its rivals. As a result, a firm may fall behind even as it undergoes rapid change and innovation. This phenomenon is labeled the "Red Queen". The Red Queen phenomenon is a co-evolutionary process that results when firms learn and innovate in response to competition, thereby intensifying competition further.
This intensification triggers further experiential learning and innovation, which fosters still stronger competition, and so on. The more rapidly firms accumulate competitive experience, the faster they learn, and the more potent they become.
A firm's ability to compete thus depends on time and history. Firms that do not have time and history-dependent capabilities in a given competitive realm face a significant disadvantage there. With the passage of time, experienced firms may gain advantages that cannot be easily competed away.
As environments change, however, the time and history-dependent capabilities developed in the past can impair firms' ability to respond to new threats and opportunities. Gains from Red Queen learning may thus be short-lived if firms encounter a series of environmental shocks that render their capabilities obsolete. Indeed, even doing extremely well what it has learned in the past, a firm might perform poorly, even fail, suffering from the so-called competency trap. Thus, Red Queen learning makes firms stronger competitors at the same time that it makes them more vulnerable to obsolescence.
The implication for corporate strategy and organization is that all competitive advantages erode, and efforts to defend and sustain them can prove fatal, leaving a firm vulnerable to more aggressive rivals seeking the next advantage. In industries as diverse as pharmaceuticals, automobiles, entertainment, and computer software, even global giants are proving vulnerable. Their success in global markets hinges increasingly on their ability to rapidly develop and deploy "blockbuster" products that yield huge revenues. But these revenue streams are short-lived as aggressive global competitors work relentlessly to erode each others' advantages and new firms, unencumbered by time and history-dependent capabilities, emerge riding the tide of a new product or technology that threatens the sources of established firms' advantage.
Globalization is reshaping the competitive landscape. It is sparking new technologies, markets, industries, and criteria for competitive success and survival. It is speeding up industry life cycles by accelerating the pace and the rhythm at which firms must develop new technologies and produce and roll out new products and services on a global scale to stay competitive. To cope, firms are focusing on fewer activities individually and competing collectively in constellations that pool the complementary assets necessary to compete globally.
Within these networks, firms are increasingly using autonomous, dislocated teams as they adopt digitally enabled organizational structures that "follow the sun." Differences in the pace and timing of globally dispersed organizational processes require these teams to be temporally responsive and adaptive, regardless of whether their members work face-to-face or have never met, making effective time pacing and synchronization critical. Differences in time zones and in the perception and value of time across cultures further confound the management challenge.
In an accelerating, globally competitive world, achieving competitive advantage would seem to require firms to learn, innovate, and maneuver ever faster. But how this speeding up is achieved and how it influences organizational processes and performance remains unclear. Although fast decision making initially helped businesses achieve their desired growth, success raised aspirations levels for the firms, challenging their business model and triggering larger financial outlays. The resulting acceleration in depletion of available resources created a need to speed up decision making even further. The start-up's early and successful focus on speed caught it in a vicious cycle, a "speed trap" in which decision makers felt increasing pressure for action, ultimately lowered the quality of decision making, and hastened the start-up's demise.
This case shows that speed may not only be exogenous (dictated by the external environment), but also that decision makers' desire for speed may, in fact, create an environment that, they believe, requires speed. Ironically, by focusing decision makers' attention on speed, advocates of the need to go faster may bring about this speed, weakening firm performance.
Additional practices that may help dampen the dynamics that lead firms into speed traps might include forcing consideration of multiple alternatives, seeking outside council, and accounting for the potential integration of multiple decisions.
As firms race to get to the future first, and the pace of innovation accelerates, so too does the speed at which new knowledge appears and existing knowledge becomes antiquated. This situation challenges firms seeking commercially viable "new combinations" for extending their knowledge bases or absorbing new technological developments. But not all organizational processes appear amenable to acceleration. Different activities have different clock speeds.
Consistent with a Red Queen effect, firms whose patents cited competitors' older ones have slower rates of new product introduction. Thus, the speed of learning matters: organizations that learn slowly from competitors may find their innovation performance rapidly deteriorating. Firms citing older extra-industry patents introduce new products at a higher rate, however. Intra-firm knowledge has a nonlinear effect, first promoting, then hampering innovation as age increases. Temporal diversity in intra-firm and extra-industry knowledge reduces the number of new product introductions but may still positively impact their innovativeness. By considering the location of knowledge in both time and space (that is, its relatedness to a firm's existing knowledge base), newer knowledge is always better for innovation an issue that is made all the more relevant as digitization hastens technology and industry dynamics.
Different organizational processes require different paces, and the management challenge is to discover and manage the optimal temporal progression of various processes. When faced with a deadline, individuals and groups tend to use time and temporal milestones to guide their work and evaluate task progress. These transitions occur when a sense of urgency emerges, prompting intensive reflection within a team on its progress and a reevaluation and reassignment of tasks for the remainder of the time span.
Perhaps one of the most critical issues of the present time, and one that is beyond the scope of this article, is the level of social responsibility the present generation feels toward future generations. Issues of sustainability and environmental accountability are being raised more often than ever before by consumers, as well as by NGOs and government agencies. This issue is often considered in the realm of environmental responsibility but is less often discussed in the context of individual- or team-level behavior within firms. The behavior of a previous generation influences the behavior of a present generation toward a future generation in regard to allocating both benefits and burdens.
The opening of markets and digitization of technologies are creating an array of new opportunities and challenges for management in the 21st century.
Management theorists have distinguished between "mechanistic" and "organic" organizations. Consistent with the idea of "minimal critical specification" put forth in the sociotechnical systems literature of the 1960s (e.g., Emory & Trist), recent research has shown that successful organic firms adopt a few semistructures in the form of general rules, priorities, and deadlines to guide adaptation and development while leaving sufficient room for improvisation. Successful firms in the fast-paced computer industry developed project priorities, responsibilities, and time intervals between projects that governed their development speed, the timing and rhythm of organizational change, and the synchronization of teams. Such practices and structures will likely increase in importance as the underlying forces of global competition and change-opening markets and digitization realize their full impact over the next decades.
Opening markets and digitization are pulling large corporations and small and medium-sized enterprises (SMEs) beyond their national borders and into a race to get to new foreign countries and regions first. In the changing and uncertain world of the 21st century, this process can usefully be conceptualized as a search process in which internationalizing firms search, identify, and probe new opportunities. In these quests to increase firm value, they often take toehold positions (or options) and withdraw or expand later, as new information about the trial or the environment entered becomes available.
The expansion experience allows internationalizing companies to update their routines and their cognitive maps on how to operate in different cultural environments and on what the interesting expansion opportunities are. Hence, internationalization can be seen as a journey through a "rugged landscape" on which firms search for, identify, and probe sequences of foreign expansion opportunities in their quests to reach ever-higher peaks of firm value.
For decades, researchers have debated whether firm performance is best served by incremental or radical change. However, it appears that many changes, including some foreign expansions through acquisition and various changes in organization structures, strategies, and technologies occur at a meso level: they are too big to be called incremental and too small to be called radical. Meso-level change appears increasingly important in an accelerating world.
Acquisitions, for example, function as a mechanism through which organizations change, reconfigure, and/or redeploy capabilities that cannot easily be exchanged on the open market. They infuse expanding firms with new ideas, insights, people, capabilities, and routines. Further, absorbing these acquisitions causes short-term frictions, tensions, and searches for solutions, processes that help firms to break unproductive inertia in their mental maps and routines.
From this perspective, "trouble is good," and successful organizations orchestrate it, provided the experience relates to what they already know and can provide learning. It is a popular belief that firms in an accelerating world need to change ever faster. Indeed, firms that develop too slowly stay behind as rivals’ race ahead. And developing too slowly may hurt firm capacity to absorb changes and to learn, while regular change may retain or increase firm capacity to absorb novel developments.
One of the main challenges for firms in the 21st century is managing diversity. On the one hand, diversity implies great opportunities in an accelerating world. Firms with sufficient diversity in managers are more likely to initiate and implement innovation and organizational change. Firms can also usefully tap diversity by locating parts of their value chains or using suppliers in remote countries.
More generally, diversity in teams, firms, and constellations of firms may help competitors to speed up in their race to get to the future first and possibly to shape it, which may imply large competitive gains, boost performance, and enhance long-term survival. At the same time, diversity may also prevent organizations from developing too quickly and from falling into a speed trap, as diversity improves awareness of different decision alternatives, the need to discuss them, and the need to reach consensus on the best solutions. From this perspective, diversity in organizations may also help them to reach an optimal pace of development in an accelerating world.
Despite claims to the contrary, distance is not dead. The dramatic geographic dispersion of firms' value chains in the wake of globalization has rendered physical space a conspicuous variable for both practitioners and researchers in management. Indeed, the rise of spatially dispersed global firms in the 21st century represent a transformation in the structure of business equal to/or perhaps greater than the rise of multidivisional firms in the 20th century. Further, the behavioral consequences of this change seem far greater than were the consequences of that earlier change. Contemporary global firms, whether multiple units of a single firm or constellations comprised of complementary firms competing together, endeavor to coordinate and synchronize their dispersed value chains and market behaviors far more than multidivisional firms did in the era of portfolio planning.
Such synchronization may be particularly difficult to achieve in groups whose members come from different national or occupational cultures and so construct and interpret time differently. Firms now routinely create and attempt to coordinate, across time zones, languages, and cultures, virtual teams whose members have never had an opportunity to meet face-to-face. Effective cross-cultural interactions require an understanding of the different ways in which time is perceived, valued, and experienced across cultures. Some scholars, for example, distinguish between cultures that run on "clock time" and those that run on "event time". Clock time is common in North America and Northern Europe , where life is paced according to schedules and agendas, and temporal preferences and expectations are closely aligned. Event time, in contrast, is common in southern Europe and Latin America , as well as in Native American cultures. Events are paced relative to other events, schedules are fluid, and events simply "take as long as they take." These, as well as other temporal understandings (including discount rates, linear versus circular conceptions of time, and emphasis on the past versus the future), vary culturally.
Although early researchers in both economics and sociology paid serious attention to the role that geographic location played in the organization of industry and firms, as these fields developed, they moved toward abstract approaches in which firms and industries were treated as if they occupied a single point in space. A surge of research within the fields of economics, sociology, strategy, organization theory, and marketing has, however, begun to reevaluate the role of geography in business.
The dramatic geographic dispersion of firms' value chains in the wake of globalization also highlights the network conception of organizational form. Networks within and between firms are conduits for the diffusion of innovations. Common ownership is a strong conduit for knowledge that can make diffusion of innovations relatively rapid among network components. Diffusion within a globally dispersed value chain may make its components prone to early adoption of innovations both because innovations spread rapidly within the value chain and because their representation in multiple geographic markets allows their early detection. The ability of dispersed global firms and constellations to accumulate competitive experience and diffuse learning quickly may make them potent competitors that energize Red Queen competition.
Reinforcing this observation, inter-firm networks are frequently characterized by uneven structures that are locally clustered cliques within which the partners of partners are also frequently partners and are also sparsely connected, with each firm having few ties relative to the number of firms in the relevant industry. These characteristics are consistent with the notion of a "small world," which implies far more order and stability than is intuitively implied by these characteristics. "Small-world structures" are notable for their great efficiency in moving information, innovations, routines, experience, and other resources that enable organizational learning, adaptation and competitive advantage.
Understanding the intra- and inter-firm networks connecting dispersed value chains of global firms and constellations requires departing from static conceptions in which networks are viewed "as given contexts for action, rather than as being subject to deliberate design…perhaps a necessary corollary of the assumption that social structure endures over time". In a dynamic conception, networks are emergent in the sense that they are produced by locally interacting firms and individuals. As emergent phenomena, their evolution can be surprising because it can be hard to anticipate the network-level consequences of even simple forms of micro-level interaction among actors.
Although having the right information acquired, for instance, through diversity within teams, firms, and constellations is likely a necessary underpinning for success in the changing and uncertain world of the 21st century, it is not likely a sufficient condition for success. Having the right incentives, from the top down, is crucial as well.
However, despite the vast amount of empirical work that has been conducted by great academia, conclusive evidence on many issues seems lacking. These issues include the relative effectiveness of various forms of corporate governance and incentives schemes and the conditions under which each is most effective.
Still less is understood about which incentive schemes induce successful organizational development and change. More insight into these issues would be particularly relevant in view of recent developments regarding managerial incentive schemes involving stock options and other derivatives. These schemes appear to have inspired top managers to make "creative use" of financial engineering and accounting rules to maintain high market valuations for their firms; in the process, they have destroyed investor trust and hurt the "real economy" through reducing consumers' wealth and spending, undermining the takeover market and leading firms into insolvency.
While top managers amassed great amounts of wealth by exercising stock options in time, private investors and pension funds lost large sums of money, a situation implying a wealth transfer reminiscent of the "corporate plundering" leading us to the present economic meltdown.
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