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The prevailing paradigm that has underpinned business for the past 50 years is beginning to shift. Over the next 10 years, we will see the nature of the firm reshaped by the cumulative impact of external and internal forces.
But this change has happened many times before.
In fact, the idea of what a business is has evolved slowly but profoundly through a series of what we can now see as definable eras, which in past two centuries have typically lasted about 40 to 50 years. They’re marked by a set of unifying characteristics and a quintessential company that comes to symbolize the era, such as Standard Oil of the trust era at the turn of the last century.
Transitions between eras play out over decades. The edges are fuzzy and often become clear only in hindsight. Some elements of the previous era remain in place, while others evolve into something quite different. But recognizing the pattern of evolution can help businesses adapt to win in the coming era.
More: A Brief History of Business > | Learn more about the Firm of the Future >
Read the transcript below.
Something fundamental is changing in business. And companies that anticipate and adapt to these profound shifts will have the best chance to succeed in the new era. So what will the firm of the future look like? Before we go forward, let's go back, 3,000 years back, and take a quick look at the history of business to remind ourselves just how much the nature of the firm can change over time.
Let's start in the eighth century BC In India, where early organizations, called shreni, were the first firms that could independently enter into contracts or own property, which also meant they could sue and be sued. Some things in business never change.
By 960 AD, China's Song dynasty saw the advent of gunpowder, printing presses, the first paper money, and the first partnerships and joint stock companies to resemble our own modern capital structures. Things were booming. Beginning in 1500 AD, government-backed firms, like the Dutch East India Company and British East India Company, began building global trading empires, floating stocks and bonds on new exchanges as their goods floated around the world. Their tea trade alone reshaped the world map.
By about 1790, the Industrial Revolution was underway. And with all that tea to brew, firms like Wedgwood found ways to standardize processes once done by hand. Artisans who used to make one whole teapot at a time now focused on making parts of it. It was the company, not one person, that actually made the pot. Lots and lots of pots, in fact, and the branding and marketing that they needed to sell them to an emerging breed of consumers.
And business continued to evolve with a new era emerging roughly every 50 years. In the 1830s, US railroad companies became the first truly modern management organizations, with ranks of salaried middle managers expanding almost as quickly as the tracks themselves. By 1870, as those early superhighways lowered the cost of moving goods and information, a new type of company, founder-led trusts, emerged, spawning monopolies in so many industries that the booming needed a little busting. With trusts outlawed by the 1920s, those founder-led firms were replaced by professionally managed corporations, owned by retail investors and run by powerful executives.
Management became a career. And by the 1960s, those managers were running a rapidly expanding universe of sprawling conglomerates. With the turmoil of the 1970s came a new way of thinking. People thought bell bottoms looked good. And then there was disco ... But they also wanted to unlock the value trapped in companies by making sure investors and managers shared the same interests. This launched a wave of leveraged buyouts. It also created a focus on short-term results that remains a problem.
Which brings us to today. Since the dawn of the Industrial Revolution, businesses entered a new era roughly every 50 years. But if you're an executive today, you don't need numbers to tell you that a new era is beginning again, because you feel it.
So what will the firm of the future look like? No one can say for sure. But at Bain, we believe some trends are clear. Technology will allow companies to achieve scale and retain customer intimacy. Power will shift from professional managers to the experts who deliver to those customers. Companies will own only those assets critical to their mission and rely on external ecosystems to manage the rest. Investors won't just invest in companies, they'll also invest in projects. And every company will have two engines, the one that powers today's profits, and the one that will generate the profits of tomorrow.
It is the dawn of a new era. Is your company ready to be a firm of the future?
More: A Brief History of Business > | Learn more about the Firm of the Future >
First published in juin 2017