The coming of the 21st century held meaning for most Western societies, serving as an opportunity for broader speculation about what ought to be done to improve the performance of businesses. In the field of management, cycles of boom and bust in Asia had called into question new ways of organizing hailed in the 1980s, and questions and concerns mounted about inadequacies of 20th century views of business firms.
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's law," computing power has roughly doubled every 18 months for the past 30 years, while the cost of computing has declined by half or more every 18 months. Cheap computing power has enabled words, numbers, documents, voices, sounds, images, movies (and practically any other form of data you can think of) to be turned into strings of ones and zeroes and moved around the world at the speed of light via telephone lines, fiber-optic cables, cellular networks, and satellites.
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), increasingly pushing new technologies, products, and designs.
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.
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