Concepts the West has taken for granted are now being openly questioned, such as, is liberalism bad, is capitalism flawed, and does the company deliver what it set out to do?
These are valid questions and we should re-evaluate these concepts, particularly the role of the company.
What the company does
Over the past few centuries, Western ideas have globally been the most successful and have resulted in Western dominance. One of the key facets of this success has been the company.
It has proved a unique way of achieving great prosperity as:
- Limited liability has seen companies prepared to take risks which has been the key driver in innovation (without innovation economies will stagnate).
- Companies are organisationally efficient and have fostered good leaders, built up working skills and implemented good practices.
- Through the market, companies are the most efficient allocators of resources and can raise large amounts of capital to achieve their objectives
- Companies have thrived in the competitive environment of a market economy.
Examples abound such as Bill Gates setting up Microsoft to be highly effective in using existing technology to improve company operations.
So what’s the problem?
The first is a fall off in competition which leads to poor decision making and can stifle innovation. Facebook, for example, in a little over fifteen years has become monolithic and has now been shown to sell people’s private information.
Secondly, companies have become focussed on making money to the detriment of what they actually do – e.g. delivering a banking service. In the long term this leads to lower performance.
Thirdly, companies need to be continually vigilant in maintaining strong governance and ethical values. The current malaise in South Africa has seen many once-respected large businesses being ruined by assisting with state capture or allowing corrupt executives to enrich themselves at great cost to the company.
In a nutshell, we need to fix the company and make markets competitive again.
Time for renewal and experimentation
Today’s questions have happened in the past. At the turn of the twentieth century, many of the large conglomerates were broken into smaller more manageable pieces to bring competition back into these industries. This was highly successful.
In South Africa, the Competition Commission has been effective in curbing anti-competitive behaviour.
The King Commission has led to improved governance practices and has laid down a strong template for companies to follow.
Many new businesses have experimented with new approaches in organisational structure – at Spotify, for example, managers serve and report to their teams.
Companies have led the way in business for a long time and already we are seeing new shoots appearing as part of their renewal. This along with experimentation will almost certainly unleash a new wave of growth.
Catch that wave of growth! Look at your business and see how it can be made more effective.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)