Is Corporate Convergence Fueling a Decline of Differentiation?

We tend to use one of two operating systems, on one of two families of hardware and when it comes to phones, we again seem fated - or inclined - to limit ourselves to a binary choice.

To the extent that our leaders seek higher education, they get it from a handful of schools whose faculty, students and alumni are well known to each other.

Biology tells us that lack of diversity leads, inevitably, to extinction. Of course we have tended to ignore such advice whenever it interferes with whatever serves our purpose. And we tend to get away with it in the corporate realm because the consequences are paid for by shareholders or taxpayers.

There was a time when our lack of adaptability was seen as a positive, a reflection of our innate concern about the co-evolutionary implications of our actions and our belief in the benefits of predictability. But given the short-termism that dominates most institutional thinking, the impetus for this behavior appears to be co-reactionary more than forward thinking.

Global companies are becoming more and more alike, as the following article explains, because the forces that drive and shape their choices dictate that certain behaviors are required in order to achieve the financing, professional attainment and growth sought both by the organizations and by the people who run them. There are some positives associated with this based on common values, transparency and managerial behavior. But with a reduction in choices comes a decline in differentiation and a resultant aversion to opportunity, since that, almost by definition, entails risk.

We are seeing some evidence of this already in the hording of cash and the hesitancy to invest in any 'cost' that does not guarantee a return. But history teaches us that only by reaching beyond our comfort zones will we prosper. JL

Rosabeth Moss Kantor comments in the Wall Street Journal:

More companies will be shape-shifting bundles of activities, designed for flexibility rather than stability and predictability.

Be prepared for a future in which the concept of a corporation—how it's structured, how it's governed—will vary widely. But the conduct of corporations will converge on a few universal standards and norms.

Consider this example. For a recent Harvard program about business leadership in China, I convened a panel of chief executives from four very different companies: China Mobile, a state-owned enterprise and the largest mobile-telephone operator in the world; Esquel Group, a family apparel company that had left China for Hong Kong, then returned; IBM  IBM in Your Value Your Change Short position Greater China, the multinational IBM business unit on the ground in China; and a software startup that at the time was operating in Shanghai, incorporated in Delaware, had investors in Asia and the U.S., and used a bank in Silicon Valley.

The types of ownership and governance of the companies ranged over a wide spectrum. But as the panel discussion progressed, it became clear that each business was strikingly similar in its imperatives and aspirations. Each CEO talked about competing for talent from a new generation whose members value meaningful work in addition to a good salary, creating a culture for constant innovation, striving for more open communication, considering longer time horizons and serving local communities.

Next Year's Models

The fact that this conversation took place in China is itself a harbinger of the future. Nearly 100 Chinese companies are now among the world's 500 largest, ranked by revenue, closing in on the number of U.S.-based giants. Emerging-country powerhouses have been acquiring Western icons (India's Mittal has bought France's Arcelor, Tata Motors bought Jaguar and Land Rover, and Brazil's AmBev acquired Anheuser-Busch and Belgium's InBev). This promises further proliferation of corporate forms, especially when U.S. concepts are no longer held up as the dominant models.

New forms of ownership and governance will include Asian-style state-owned or government-linked enterprises, such as Singapore's Temasek; German-style dual supervisory and management boards; customer or employee-owned financial, retail and producer cooperatives, such as France's Crédit Agricole or Canada's Desjardins; "B" corporations established for profits plus social benefit; alliances and consortia such as Visa and MasterCard; charities that run businesses, like Germany's Robert Bosch Foundation; family-owned, private-equity-held or venture-capital-funded enterprises; and the X Factor of partnerships still to be invented.

Quiet Revolution

Yet, corporations of all types will have some things in common wherever they originate or operate. They will be globally connected, technologically enabled, humanly diverse and socially accountable. They will have to be. Customers, the media and the public will increasingly demand it.

While inevitable battles will rage, for example, over which government sets food-safety standards, or agrees to a global environmental-protection treaty, many large companies will engineer a quiet convergence of standards that will gradually affect every business.

Cemex, for example, the global concrete company with headquarters in Mexico, decided after its first entry into Spain to be "one Cemex" and to operate by a single set of standards everywhere, making possible dramatic growth through acquisitions in the U.S., Egypt, Europe and Australia.

When Shinhan Financial Group in South Korea sought a listing on the New York Stock Exchange soon after a merger, it was seeking legitimacy, not just capital, by showing compliance with Sarbanes-Oxley, which it considered the world's highest standard. Internet governance will be globalized, as will continuing efforts at interoperability among mobile-telecom operators.

Convergence will increase because companies compare themselves with one another across wide territories, and so will their smartphone-using, Web-empowered customers. Being determinedly local will be a choice, not an unconscious default position. A neighborhood grocer serving local produce must compete with nearby international chain supermarkets offering goods flown in from the opposite ends of the Earth.

At the same time, large corporations must watch disruptive startups and small businesses with innovative products; Coca-Cola bought Honest Tea, making the upstart beverage brewer its entree into healthy-bottled-drinks markets of the future. As technology evolves and cloud computing hovers everywhere, small businesses will have access to the same inputs as large ones.

The Values Imperative

If companies didn't begin with a culture of purpose and principles, an internationally, ethnically diverse membership will demand it, as universal values and ethical codes facilitate communication, coordination and cooperation. More companies will be shape-shifting bundles of activities, designed for flexibility rather than stability and predictability.

To deal with a rapidly changing environment and the fluid boundaries of business units that come and go, more work will be done by crosscutting project teams, and there will be more bottom-up self-organizing—a matrix on steroids. Companies will embrace the always-on, always-accessible, democratizing communication of social media, or fall behind.

They will be less headquarters-centric, because all wisdom no longer emanates from Armonk, Cincinnati, Bangalore or Beijing. Like Google and Facebook, their power will come not from their number of employees but from the size of their partnership network. A small core with a wide set of loosely affiliated partners is itself a new organizational form.

Dark Side

There is a dark side. Being globally integrated can slide into being globally manipulative. "Corporate greed" won't disappear by itself. Large companies can play one country off against another, looking for tax shelters or tax breaks, ready to move and leave scorched earth behind.

But the spotlight of transparency will shine, like it or not. Media activism is likely to grow along with "triple bottom lines." In addition to financial statements, requirements for environmental and social reporting are emerging in the European Union, Brazil and Australia, among other places.

Thus, corporations of the future will have to forge a new social contract with society. Their conduct will matter more than their legal form.

Stakeholders, including financial shareholders, are watching. To gain trust and legitimacy, companies must be responsible citizens wherever they operate. That includes more than employee volunteerism in community-service projects; it means paying their taxes and paying their way, including the price of "externalities" such as carbon emissions.

And they must figure out, maybe before nations do, how to find universal values that help them work cooperatively across borders. After all, world peace and prosperity is also good for business.