Category: Management

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Finance Global economy Management

Toward cooperative capitalism

Corporation are beginning to be redefined in France, and with it, governance is as well. Shareholders remain at the centre of governance. Proper compensation for risks requires acknowledging their essential role. The question is knowing how to better integrate the interests of the other stakeholders in the company alongside them.

For a long time, this question was not raised. At Wendel, Renault, Michelin, etc. shareholders and board members were the same people, and often families. The original family capitalism did not have problems with governance by construction. But, to help them grow, companies opened up their capital, and through the stock market, offered shareholders the ability to sell their shares for liquid assets. The shareholder base became disparate, and its power over board members became diluted.

In the post-war era, managerial capitalism became the most prevalent practice. Board members were emancipated from shareholders and controlled the company on the basis of their “technical” knowledge. This created a technocracy. The interests of the two parties were no longer aligned. Board members sought corporate growth and continuity, inserting employees into organisational pyramids. But this configuration did not always lead to the best efficiency or profitability, creating conglomerates that were often heavy and lacking in agility, which too often neglected shareholder interests.

In the 1980s, alongside financial globalisation, shareholders reminded board members of their existence and of the priority of maximising wealth. This change translated into the creation of committees (audit, compensation and appointment, strategy, etc.) and the development of incentive mechanisms (bonuses, stock options, etc.), to align the interests of the board members with those of the shareholders. A whole series of indicators was imposed (return on equity, distribution rate, etc.), in the same way the doctrine of value creation was developed. And if results were not achieved, shareholders allowed “raids” that organised offensive power takeovers to optimise value, sometimes by cutting out previously established groups. In parallel, these various compensation tools based on the growth of corporate value promoted innovation by allowing “start-ups” to recruit talent that shared in the company’s risks when salaries alone were not enough to tempt them.

But shareholder capitalism rapidly reached its limits. Because expected financial yields seemed guaranteed, speculation often outweighed reasonable gambles. To meet minimum short-term profitability standards (15%, regardless of the activity sector and risk-free interest rate, in the 1990s and 2000s), many companies bought back their shares to strengthen their securities and/or increase their leverage ratio. Board member income experienced growth that was difficult to justify. In 1965, the average income of a CEO of a major American group was 44 times that of a worker. In 2000, it was 300 times the lowest salaries. Even more serious, in the face of expected yields that were disconnected from reality, we saw the appearance of unethical creative accounting: Enron, WorldCom, Parmalat and others even more recently. In some respects, subprimes and their consequences stem from the same phenomenon.

The crises of 2000-2003 and 2007-2009 resulted directly or indirectly from this, along with their shares of very significant economic and social costs.

Hence the need to address a new age in governance, that of true cooperative capitalism that is able to put the company’s clients, employees, and the environment, in particular, back alongside shareholders, in a model better adapted to ongoing commercial, behavioural, ethical, managerial, and technological revolutions.

Shareholders must always hold a central place as principals for board members. This is because, in theory, they assume the risk without any certainty of future yield. The practice has made shareholders partly protected against negative changes in the business context by partially spreading the risk to other corporate stakeholders: to employees, for whom variability of compensation or employment has increased; and to sub-contractors, whose margins for negotiation with their ordering customers have significantly weakened. Sometimes clients are also balancing items, through the lower product safety or accelerated obsolescence imposed on them. The climate is also affected by corporate choices.

Therefore, it must be possible to take better consideration of these stakeholders within a balanced governance framework, as they also share in the company’s risk, and because over the long term a company is responsible to all of them. Regulatory methods that help achieve the best compromises among them must guarantee sustainable and profitable development for the company.

For this reason, by the fact that their clients are owners and elected members of the boards of administration, by their decentralised model that strengthens close relationships not only with the clients they serve, but also with the territories in which they operate in symbiosis, and lastly by the attention and role they give to employees without sacrificing any of efficiency, cooperative or mutual banks represent an interesting possible form for redefining the company with expanded governance. It is up to them to take advantage of new technologies that would help further strengthen the validity of their model and modernity.

It is up to each type of company, listed, private, or cooperative, large or small, to reinvent the definition of the company and its governance, to make it a real cooperative organisation. The future of our open economies and democratic societies also depends upon this

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Management

Digital revolution, managerial mutation

The opinion of Olivier Klein, published in Les Echos. 28th july 2016.

Beyond the customer relationship, the digital revolution has positively disrupted the organisation and managerial system in companies. However this will not lead to their disappearance, quite the contrary.

The traditional company organisation, with its top-down information circuit, its centralised decision-making process and very hierarchical relationships, has long demonstrated its effectiveness. The need for innovation and agility, combined with the influence of digital technology on behaviours, challenges this organisation, which now appears too restrictive to quickly adapt to changing customer and market dynamics, as well as changing dynamics among employees themselves.

New organisational models based more on collaboration, are emerging, induced and facilitated by the development of digital technology. A more “horizontal” mode has taken over, which favours project type work and direct lateral relations between employees without systematically going through the top of the pyramid. A manager’s power is no longer based on holding information, which flows freely. His mission is now to convince and unite a community of actors, who seek more autonomy, around issues relevant to the company. His job is no longer to be behind employees to supervise them, but to be in front of them, to orchestrate and energize teams. These developments are favourable to employees, for their interest and pleasure at work, and businesses to ensure better responsiveness and adaptability in an ever changing and uncertain world.

But some go further. They imagine that the company will fully transform, thanks to digital technology, into a form of community cooperation, which requires building a relational model open to a host of contributors, internally and externally. This is evidenced by the fact that we are working increasingly on the move, from home, in “co-working” spaces as freelancers or outside, for example during hackathon events. Some models, even more pure, are already appearing, where freelancers coordinate remotely; a way of “Uberizing” the organisation of work. The dominant model in the future, they say, will no longer be the wage system. The company as we know it today will give way to a more nebulous form of organising, temporarily associating individuals free of subordinate ties, as there are projects to be carried out.

To me, this vision does not reflect reality. The future, in my opinion, should not side-line the company as a form of organisation for at least three reasons. First, the development of the virtual company collides with the need for social contact that particularly enables work. Each of us feels the need to belong to a community of people, to a team in which one occupies a specific place to carry out a collective project. Purely collaborative forms of work respond poorly or not at all to this need for social contact. The second reason is that “uberisation” can only work in certain contexts. Many activities require a stronger structure, material and technical infrastructure, supervision, and a division and of tasks that are incompatible with only temporary collaboration. Last reason: The increased need for individual autonomy linked to the development of digital technology still requires training throughout one’s professional life. The company can ensure this training is provided. It is doubtful that virtual forms of organisation can do so. For all these reasons, the company is unlikely to lose its prominent place.

If this is the case, the future of the company will depend on its ability to change the balance between its two organising principles. First principle: the necessary order and hierarchy between its different parts to ensure its continuity, by compliance with standards and rules and the flawless operation of its management routines. The second: autonomy of its parts, their empowerment and their entrepreneurial capacity needed to survive serious disruptions. They provide the necessary adaptability of the organisation. The right combination of these two elements enables the company to be neither self-dissipative like smoke nor breakable like crystal during large shocks, as Henri Atlan says of living organisms. Proper management of these two principles should, in the digital world, move the cursor to more autonomy, of working as a network – rather than vertically,-and more empowerment.

If it makes these organisational and managerial changes well, the company thus challenged and forced to move by digital technology, will certainly have more bright days ahead, and be more motivating for its employees and more resilient to shocks.

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Global economy Management

“Is human capital the future?”

To re-establish sustainable growth, investing in people now appears to be imperative. Three major economic developments lead me to this conviction.

The innovation economy places knowledge at the heart of competitiveness

The first, as stated by Philippe Aghion in his excellent work on growth theory, is that we are no longer in a catch-up economy, as was the case after World War II. An economy in which we needed to re-establish demand levels, standards of living and, more generally, to catch up on those countries not affected by the war in the same way as us and therefore lagging behind much less.

In the 1980s our economy entered an innovation phase. Growth is clearly still a function of the dynamics of demand but, today, it is at least as much dependent on those of supply. The dynamics of supply are a direct result of innovation and R&D capacity. These are the decisive growth factors in the modern world. Technical progress, creative capacity and the creation and development of new technologies, and even the creation of new markets, are of critical importance.

This being the case, new growth will only be attained through significant investment in human capital.

The search for added value requires higher qualifications

The second point I would like to discuss links into and concludes the first: globalisation. The emerging countries are progressing and rapidly catching up on the developed world. They have no other choice but to innovate if they wish to remain on the path of high growth.

Put simply, faced with globalisation, developed economies can adopt two different differentiation models.

Firstly, an economy with a medium level of added value, producing mid-range products, which demands low levels of labour costs and social benefits in order to remain competitive with the emerging economies.

Secondly, a route which can justify the retention of high salaries and benefits, by seeking out high added value through high-end market positioning. We’re not talking about luxury here, but of production located on the high side of the technology curve generating higher added value, which can only be attained through reforms that encourage research and development alongside significant investment in human capital.

And we have two such characteristic examples in the eurozone. On the one side there is Germany, which has enjoyed a globally satisfactory growth rate with low unemployment, a very high current account surplus and zero budget deficit. On the other side we have Spain, which has been forced to reduce labour costs to “pull through” as its output lies in the middle of the range. For all that, its major efforts have borne fruit in economic terms, but have had the all-too-familiar socio-political effects.

For its part, France lies somewhere in the middle. In reality, its added value is somewhat average and has not reformed sufficiently to move up-range, or made much effort in the area of labour costs. It therefore has an unemployment rate twice that of Germany, lower average growth and high public and current account deficits.

The search for high added value production unavoidably calls for positioning at the frontier of technology, which requires investment in training, education and, more generally, in human capital.

In this light, it is important to stress that France has not been on the right path in this regard for some fifteen years. If we take the PISA comparisons from the OECD, which measure educational attainment at the age of fifteen in writing, maths, sciences and problem solving, France, which was already only in 13th place in 2000 with 511 within the OECD, was 25th in 2012 with 495 points. It has both fewer points and a lower ranking. This says nothing for the fact that over 20% of 11-year-olds are unable to master the basic skills.

The second OECD study, the PIAAC, places competence levels of French workers vis-à-vis company requirements in just 22nd place within the OECD.

Organisational structure and management generating higher company resilience and greater employee autonomy

The third main reason, both economic and entrepreneurial, is the introduction of digital. The digital revolution facing us not only changes customer behaviour, but clearly also that of employees.

The management and organisation of today’s company has fundamentally changed. A high performing company must now meet a growing demand for autonomy expressed on a daily basis just as much by the customer as by the employee. These developments call for a world that is much more horizontal than vertical. Employees need to understand, participate and feel more involved with less strict hierarchies. We must therefore expand collaborative working environments and give more meaning to the work of the individual.

And this is why management itself must change. Managers can no longer base their legitimacy on the control of access to information but on their ability to lead their teams, by positioning themselves in front of them and not behind, happy simply to supervise. They must provide direction by explaining and involving, such that employees feel fully motivated and committed.

Here, the clear objective is to have an attractive company with loyal employees fully signed up to the corporate mission. But it is at least as important to promote a competitive model, as this offers greater autonomy to employees and all other parties. This increased autonomy is essential if companies are to maintain flexibility in the face of all the challenges of the modern world, capable of adapting quickly and easily to ensure continued survival. Structures organised more into networks, leaving greater autonomy to their constituent parts, closer to both the customer and employees, are less rigid, less fragile. Conversely, vertical and more centralised hierarchies are less able to confront rapid and continuous change. So by introducing greater autonomy into the system – clearly while maintaining overall cohesion – companies are capable of absorbing exterior shocks, becoming more responsive, more agile and globally more resilient.

In this context, investing in human capital is vital in order to anchor the individual’s capacity to exert their autonomy. It requires continuous investment in training. It cannot be imposed from above.

Counting on intelligence to “come out on top”

Fundamentally, confronting incessant competitive change means relying on intelligence. To be an innovator, a creator and not a follower, at both the company and national level, to be competitive, to find solutions to “come out on top” in the crises we know all too well, to seek out added value, to be effective, to motivate employees, to be able to tackle incessant change – all of these challenges require investment in human capital.

In all modesty, we are continually seeking to “come out on top” at BRED. The banks are going through a very difficult period confronting the threat to their revenues, notably due to interest rate developments and over-regulation. We are seeking to offer our customers higher added value. This path requires investment in our men and women. And this is precisely what we are doing by making significant investment in digitalisation, by improving our tools and services for our customers and employees, but also by investing heavily in our staff to ensure that they are fully able to understand, share and co-construct the strategy and corresponding organisational structure at every level. In partnership with HEC, we have also created an internal management school at BRED which is working remarkably well, where we notably push managers to reflect on the very nature of the role of manager in the world of today and tomorrow.

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Bank Management

How are new technologies transforming customer relations?

It’s a sociological fact that new technologies have changed our lives. What has been the impact on companies?

Olivier KLEIN: It cannot be denied that new technologies have redefined the world order. They have given rise to a series of revolutionary chain reactions in our day-to-day existence, and especially for companies. The first is a commercial revolution, one which has transformed the balance of power between producers, sellers and consumers. It comes from power being transferred to the consumer as a direct result of new technologies: more aware and better informed, consumers enjoy a far greater freedom of choice.

Sellers can emerge stronger than ever if they are able to understand their customers and earn their loyalty. Supported by the effective management of the data they have about each customer’s behaviour and by the long-term relationships they are able to establish, sellers must find the right product-service combination in terms of both price and quality that best meets individual customer needs, creating solutions with each and every one of them.

What must be stressed in this new balance of power is that any absence of added value in the consumer’s eyes, namely any lack of quality in the advice provided or of offers for improved and customised product-service combinations will lead directly to the complete digitalisation of the customer-supplier relationship. This means the disappearance of the seller’s economic role, with the emergence of a direct producer-consumer relationship or the emergence of pure players based on the internet, a low-cost channel for establishing customer relationships.

The behaviour of producers, sellers and consumers is changing. What about employees?

O.K.: That’s right. Another consequence for companies is the change in employee behaviour. The technological revolution places employees at the heart of the company, which has an impact on the organisation. Nowadays, for example, managers are no longer credible – and are unable to lead their staff – if they do not base their authority on the added value they bring to their teams, as opposed being a repository for information which, in today’s world, circulates freely and unhindered throughout the company.
All the more so as employees are increasingly demanding greater autonomy, sustained and driven by the very same technological revolution. Developing an entrepreneurial spirit has become a major challenge for large companies. Nowadays individuals – and especially company employees – aspire to understand their contribution to the company: they wish to buy in to the strategy and the organisational structure in order to feel that they belong.

Does this mean that traditional organisational structures will have to change?

Clearly, and unless they have been able to modernise, the highly hierarchical and vertical structures born in the 50s and 60s have become less effective and more difficult to manage as the lack of managerial proximity makes it harder to motivate employees. Such structures are more rigid and less flexible and are no longer in sync with a world and business environment that have become ever more complex and fluid. Conversely, companies organised in a network structure, one linking different parts of the company or even between different companies, are more adaptable and more agile, better able to absorb shocks and to manage complexity.
And then there is the social factor. This has to be taken very seriously, as society has become a real stakeholder for the company, thanks to the impact of the internet and social networks. CSR, involvement in wider society and corporate reputation have become key success factors.

In short, to be heard in this new world we have to follow, and even anticipate, how people use technology. This is the very crux of the matter: we are not talking about two different worlds, namely those of the digital and the pre-digital. New technologies have fundamentally changed the way we act and our relations with the outside world.

Greater managerial proximity, a better understanding of customer needs, receptiveness to the entrepreneurial world and an enhanced capacity to absorb shocks, upheaval and complexity; these are the essential ingredients for the modern company. And how do banks feature in all this?

O.K.: Banks are also companies… and, what’s more, the driving force behind the economy. The bank as a company, and more specifically the commercial bank, is not immune to such upheaval, in fact quite the opposite, due to its place at the heart of economic activity.

Whether it’s online banking, mobile banking, payment methods and, more generally, the relationship between the bank and its retail customers, the acceleration of the digital revolution begs the question whether there is still a place for the high street branch. For me, the answer is in the affirmative.

But we must examine the evidence: new digital tools have changed two parameters, namely the time factor and the distance factor. The relationship between the customer and the bank has become direct and the purchase of bank products and services is now performed remotely. The customer is visiting the branch less and less, now typically only to deal with significant projects. And this is the central issue.

The bank has to reinvent itself, and without delay. But the distinction must be made between outdated practices and those that remain indispensable through constituting the very essence of the profession. Two invariables are the pillars on which commercial banking is based. Firstly, demand for banking services is not reducing in volume: it is being expressed differently with new requirements. People do not need banks any less.

Secondly, the personal relationship remains a fundamental element of the role of the high street bank. Banking is not a business that produces products as such, it is all about human relationships based on the ability to offer good advice and good service at the right time, irrespective of which channel is being used. Banks deal with long-term personal and corporate projects, which presupposes a personalised and sustained relationship with the relevant bank advisor. This is precisely what our customers are telling us.

So what is to be done? Should online banking services be set up, without human contact and to the detriment of the branches?

O.K.: Our goal must be to reinvent the high street bank. I stress that the personal relationship between the advisor and the customer is non-negotiable, especially for a banking group composed of regional high street banks.

Our strength lies in our ability to promote what I call “non-remote” banking, as opposed to remote banking which assumes that a complete range of banking services can be provided without a branch network.

What is the basis of this concept? Quite naturally, what customers are demanding with the technological revolution but without curtailing a strong personalised relationship: greater convenience. Maintaining strong relationships with their banking advisor but via the channel of their choice, whether by phone, e-mail or physical appointment, depending on the matter at hand and the time of day… But this also demands a better response to the need for advice that is better thought through, more relevant and more appropriate. It’s the end for products that banks have wanted to sell via a succession of poorly differentiated campaigns.

Provided that it is more agile, more interconnected and more proactive, the branch network has everything it needs to maintain its fundamental relationship with the customer by combining its strength – proximity – with new tools, such as the internet, tablet and smartphone. This means combining the best the traditional bank has to offer with the best of the online bank.

In practice, in each branch each advisor must therefore become a multi-channel agent. As I have already said, this means offering customers the possibility of approaching their regular advisor in order to deal with their important issues in the manner of their choosing, whether face-to-face, by phone or by e-mail, without having to change location. And above all, this must be always with the same advisor. As for the rest, namely day-to-day banking, this can obviously be conducted by mobile phone. Of course we can also develop online banking alongside the branches, with named advisors for highly mobile customers or those with little availability.

What are the risks of developing such a corporate strategy?

O.K.: The greatest risk of all would be not to admit that change is vital. But it must be done in harmony with certain basic and unchanging principles. We must also mention the amount of investment required. Such a model of “non-remote banking” automatically means higher wage costs than those associated with low-cost remote banking. This will require the bank to focus its resources – beginning with its employees – on providing added value in order to justify the costs of the services offered. And, consequently, to exploit our human capital, the bank’s only real differentiation factor. Competence, reactivity and proactivity are all key. As is the intelligent and non-intrusive use of pertinent CRM (“big data”) in order to best anticipate individual customer needs. But also, and above all, we need to profile the networks to make them more agile, distribute expertise better and optimise physical and digital structures. The branch is not dead, far from it. But in the future it must combine two concepts: the e-branch and the physical branch, i.e. the best of modernity and the best of tradition. It has to be more mobile, more alert.

The point is to ensure that we come out on top. This can also be achieved through new technologies. They do not simply a threat. In an environment where banking revenue is showing a clear downward trend in macro-economic terms, the major challenge of such a model is strategic. Should we fail to meet customers’ expectations, they will naturally move to the cheaper pure-player banks online, without a qualm.

So the issue is internal transformation, namely to increase each advisor’s added value and our ability to make our network more responsive. New technologies will be able to help us in return.
But we cannot bury our heads in the sand: this new direction implies a number of long-term development projects. In broad terms, we need to redesign systems to support sales staff and review processes using digital to redefine the customer experience, extending from front to back office. This means, for example, that the lives of our customers and of our employees must be made easier while keeping a lid on costs, that customers must be included in and must be able to benefit from the development of new product contracts, that we must be able to offer e-signature, etc. A genuine process of organisational reform is underway.

Which element would you like to stress in order to gain the commitment of your employees to the project?

O.K.: Our employees understand that, more than any other bank, we must be receptive to the new modes of behaviour and new technologies used by our customers and in wider society, all the more so as, once again, it is our focus on the relationship and the quality of the service provided that set our bank apart from the competition. So this is vital.

But the reforms will also enable each advisor to develop a role as the manager of their own portfolio. In practice, this technological revolution will offer a level of freedom that will empower our sales personnel. A career in banking is becoming more and more exciting. And the position of branch manager will regain a real sense of purpose. Could there be any greater motivation? We must bear in mind that the bigger the institution, the more it needs proximity – in terms of both customer relationships and the management of its employees.

November 2015

Categories
Global economy Management

“The company of the 21st century”

Throughout the ages, developments in capitalism have brought about a number of different forms of corporate governance and structure which have overlapped and coexisted in the past, and continue to do so. But at each stage, certain forms have always been able to dominate. During the 19th and early 20th centuries, the countries of the West were dominated by so-called “family” capitalism, through which capital-owning families held power.

From the middle of the 20th century to the 1980s, this was succeeded by “managerial” capitalism, characterised by power being taken over by the corporate technostructure. The power of shareholding families was diluted, their shares having been partly or wholly sold off by successive generations, or the capital increased in order to deal with business development challenges by making use of “anonymous” shareholders.

In exchange for the liquidity of their capital and the possibility of increasing the value of their shares over the long term, such shareholders more or less willingly ceded their decision-making power to professional managers without any capital interest. The 80s marked the return of shareholder power within companies, although not specifically family-held, which once again aligned managers’ interests with those of the shareholders. Accordingly, to counteract the trend during the preceding period which paid too little attention to shareholders’ interests, various methods were employed to ensure that managers’ real objective was not to increase their own power and/or security, but shareholder return. Since the 2000s and their repeated crises, the question arises as to whether the 21st century will see the birth of a capitalism based on partnership capable of acting in the interests of shareholders, customers, employees and society as a whole.

These successive forms of capitalism, each replaced in turn for objective reasons, are associated with specific corporate structures. They provide an appropriate prism through which the company of the 21st century may be viewed.

Two questions must be answered:

  • Which forces drive the transition from shareholder capitalism to partnership capitalism?
  • To the extent that each form of capitalism results in a specific structure, which new corporate structures will lead to partnership capitalism?

By virtue of its excesses, notably during the 1990s and 2000s, shareholder capitalism helped lead to upheaval accompanied by major financial and economic crises as the excessive demands of ROE (Return On Equity) became unsustainable. Questionable creative accounting practices arose alongside high levels of both household and corporate debt, an accelerated pace of construction and deconstruction of groups of companies or of individual companies, LBOs, LBOs of LBOs… But also an ever higher proportion of profits to dividends to ensure shareholder return. And frequently transferring risk to employees.

The partial failure of shareholder capitalism is obviously the first force likely to lead to partnership capitalism. But public opinion in favour of greater morality in the economy remains an insufficient argument on which to base the transition to partnership capitalism which places greater emphasis on the interests of customers, employees and the company, alongside those of the shareholder. Each major crisis is accompanied by a resurgence in morality. Yet the crisis phase is followed by a sort of blindness to the disaster and the progressive repression of its causes. And events once again take up their previous course. The fact alone of the occurrence of a crisis in shareholder capitalism does not seem to be sufficient to explain and understand the appearance of partnership capitalism, although it constitutes an undeniable factor.

A number of fundamental and enduring forces appear to me to lay behind the transition. The first of these, which gives rise to the others, is the technological revolution.

It has first of all brought about a commercial revolution which is transforming relationships between producers, distributors and customers. Customers have seen their power increase significantly as they enjoy greater freedom of action, are better informed, have more data, are able to compare prices and therefore have greater freedom of choice. The customer therefore obviously becomes the focus of interest for companies. This is why many companies have for some time been developing a customeroriented approach, as though it is a completely new idea.

Power relationships have accordingly been turned around in favour of the customer. Yet in many economic sectors, this phenomenon is also perceptible between producers and distributors, whose position has been strengthened. The transfer of power to the customer has put an end to the traditional hierarchy born in the 20th century based on the ability of the producer to impose its products on selected distributors and on that of the distributor to impose the very same products on consumers.

It is now the customer who holds the power. Accordingly, if the distributor has a good understanding of their customer, if they know how to use their “big data”, if they develop effective CRM (Customer Relationship Management), if they are therefore able to anticipate and fulfil individual customer needs, if they finally consider the customer to be an “active consumer” capable of joining in the process of researching the right combination of products and services, then the distributor will be able to find the right solutions for each individual customer and retain their loyalty. Service even takes precedence over the product itself. We are no longer in an economy centred primarily on the product, but a world in which utilisation and service are becoming more important than ownership of the product itself.

For example, applications are more important than the telephone itself. Bicycles can be hired for individual journeys and even the car is going down the same route. The Cloud is progressively rendering ownership of large computers obsolete… The quality of the relationship with the salesperson or advisor and the ability to find individually tailored solutions, in other words good service, are taking the place of the product as such. This being the case, the distributor is therefore able to hold power over the producer by introducing competition from other producers to find the right combination in terms of both price and quality of products and services which best meet the needs of the individual customer.

A transformation of the historical forces is therefore currently emerging in numerous sectors between producers, distributors and consumers. This evidently requires excellent customer management on the part of the distributor. But the distributor will be severely undermined if it is not able to understand customers and obtain their loyalty, all the more as it is now possible for the producer to sell directly. Poor quality of advice and the inability to offer better combinations of products and services tailored to the individual will directly lead to the complete automation of the customer-supplier relationship and the disappearance of the economic role of the distributor. With the emergence of a direct producer-client relationship, wherever this is feasible, or with the emergence of web-based pure-play distributors, low-cost customer relations are formed.

The technological revolution also brings changes in employee behaviour which place them at the centre of the company, with organisational implications. Vertical hierarchies are now increasingly less acceptable and much less relevant. Today managers can no longer be credible and lead their employees if their authority is not based on the value they bring to their teams, as opposed to being a repository for information which is nowadays freely available, circulating throughout the company. It is therefore no longer possible to be a manager by exclusively relying on your position within the hierarchy.

At the same time employees expect greater autonomy, sustained and enhanced by the technological revolution, which poses the question of entrepreneurship within the confines of the company itself. Developing the spirit of initiative has become a major issue for large companies, even though in essence they reduce it to a bare minimum by virtue of the organisational structure itself. Today individual employees aspire to understand the nature of their contribution to the company, they want to buy into the strategy and the chosen organisational structure in order to be able to share the corporate vision. It is vital that management takes account of such aspirations.

Moreover, very hierarchical and vertical organisations which emerged during the managerial capitalism and dominant technostructure phase have become much less effective and much more difficult to manage:

  • They are less effective at mobilising employee resources as managerial proximity is now more crucial than ever;
  • They are more rigid and less flexible, no longer in step with an increasingly complex world and environment. Increasing complexity and more numerous and more intense exterior shocks demand greater flexibility from organisations, just as with individual and team autonomy, in order to be able to react promptly and to skilfully manage dysfunctionality and effectively adapt to the new reality.

Nowadays, size and centralisation result in entropy. Conversely, companies organised in networks spanning the various parts of the company or different companies are more adaptable, more effective. The centralisation/decentralisation equation is now increasingly tipping in favour of decentralisation.

Furthermore, with the commercial relationship becoming of central importance, the organisation must be fully oriented towards the customer, from production to sales, from front office to back office. The development of sales staff skills in order to enhance their ability to manage customer relationships and to provide them with greater autonomy, enabling them to be proactive with each and every customer, is now becoming imperative, the objective being that all sales employees should find themselves in an entrepreneurial situation, managing and enhancing the value of the assets entrusted to them, and with the necessary tools and responsibilities. And consequently with greater job satisfaction and the ability to get results.

Greater managerial proximity, a better understanding of customer expectations, openness to an entrepreneurial working mode, a high capacity to absorb shocks, changes and complexity; such are the ingredients for the company of tomorrow.

Should greater emphasis be placed on the technological revolution which now more than ever requires managers to consider their company’s reputation, and the aspirations of society as a whole, as it has become impossible to operate without comments permanently appearing on the Internet about what the company is and does? Or about its environmental impact, or the quality of its products and services…? The social factor must therefore be treated very seriously with society becoming a genuine stakeholder in the company.

Effectively, all companies are biological organisms and, like all biological organisms, live in a state of permanent compromise, striking an unstable balance between order, verticality, uniform management routines and, on the other side of the equation, individual autonomy, initiative, the need for entrepreneurship…  The balance is currently tipping clearly in favour of the second part of the equation, to the detriment of the first, even though elements of both are indispensable.

In conclusion, the transition to partnership capitalism requires the modification of corporate structure and reserves a place of honour alongside shareholders for customers, employees and society. Happily this is not only due to the failure of the previous mode of governance and corporate structure and to a temporary resurgence of morality, but to a commercial, behavioural and managerial revolution, itself based on technological developments. These are very powerful, enduring and dispassionate forces which, it can only be hoped, will lead to this new form of capitalism.

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Read in french «L’entreprise du XXIe siècle»