Conexiones NEBA FTTH

of choice. They all have access

to international markets.

In a society where money flows freely across borders, the shareholder will accept nothing less than continuous and fantastic value-creation. Increasingly perfected markets and total transparency prevent the pursuit of “unnatural” synergies. The management team of any diversified organi- zation is basically saying that it is better than the market at balancing risk and creating value. But, actors in the market can now evaluate each business separately. If they come to the conclusion that the sum of the parts is actually greater than the present whole, they will step in and dismantle the company. Why should some overpaid president manage my investments? If I want a diversified portfolio, I will put it together on my own or turn to an expert on such matters.

As an effect of increasing customer, employer and share- holder pressure, more and more hierarchies are being engulfed by markets. Perfected markets hate inefficiencies so inefficiencies disappear. Inept organizations are dismem- bered or they die. So, funky organizations do not aspire to be everything for everyone. Instead, they try to become something for someone. This focus has three elements.

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Hollow

Focused

Narrow focus

Funky Inc. is narrow, focused on one or just a handful of core businesses. One of the reasons for the popularity of conglom- erates, among theorists as well as practicing managers, was the idea of synergy. This was – and depressingly, still is – the ugly stepchild of corporate strategy. The management guru Igor Ansoff first proposed synergy in the 1960s.8_{It is a saddening}

thought that while the rest of the world enjoyed the over- flowing excess of the Summer of Love, managers got down to synergy. Igor Ansoff was no Jimi Hendrix or Jim Morrison, but his message lives on. Managers fell in love with the potent simplicity of his concept. In their minds 2 + 2 really could equal 5. Managers had no need for hallucinogenics.

In retrospect, synergy cast a haze over rational managerial thought. This lingered for quite a while. Synergy gave man- agers an excuse to manage bigger and bigger companies. Indeed, during the mid-1980s, top management at Volvo developed the brilliant idea that there were synergies between beer, sports equipment, aspirin, hot dogs, cars, trucks, and buses. While there are certain synergies between beer and aspirin, they are difficult to exploit other than at an individual level.

Others have followed similarly irrational routes, pro- claiming that owning a whisky distillery in Scotland will add value to the performance of the locomotive-making subsidiary in Nairobi. Next time you hear the word syn- ergy, cock your guns. Often 2+2=3.5 instead of 5. Synergy is an expression of the managerial belief that it is much more fun to manage a large company than a small one. After all, you get to make speeches, meet kings and queens, smoke cigars and drink cognac, while presidents of small, excellent companies are left out in the cold – no matter how profitable they are. At a time of local and limited competi- tion, this logic might just have worked – many Third World conglomerates are still successful in their protected home

markets. In the kingdom of the blind, the one-eyed man could still be CEO. Today, it will not work. In the face of oversupplied international markets with total competition, we all have to realize that only the best is good enough. If you have stopped believing in Santa Claus, you may as well give up believing in synergies too.

The other classical argument for conglomerates was that of spreading risk – not placing all your eggs in one basket. But in a world characterized by genuine uncertainty and total unpredictability, we can no longer believe in minimiz- ing risk. Indeed, we now need to embrace risk rather than try to eliminate it. Contemplating the fact that TetraPak, Swedish packaging giant, had bet its future on one product, former owner Hans Rausing once claimed, “We minimize risk by maximizing risk.”

Put all this together and the message must be that the days of the large and diversified conglomerate are over. In an age of abundance, sharp is beautiful; being sharp and narrow is ravishingly beautiful. The antidote to mindless pursuit of synergies is to become intensely focused on those businesses where you clearly have a global competitive edge. Companies have to be turned from blunt instruments into sharpened precision tools.

Organizations are already honing themselves. How narrow a company is can be measured in terms of Standard Industry Codes (SICs), the number of different industries in which the firm is active. In the late 1970s, the average American firm scored a little more than four SIC, a few years back this measure was down to a little more than two.9_{Translation: the typical US company has lost some 50}

percent of its body parts in less than 20 years. The excess economy is a pretty demanding weight watcher prescribing tough diet programs. The perfected market functions as a modern age Dr Frankenstein, cutting off and collecting spare body parts wherever and whosoever they may be.

Hollow focus

The second characteristic of focused Funky Inc. is that it is hollow. Focusing on only a few businesses just isn’t enough. As strategy guru Gary Hamel sometimes puts it, you can take a fat man and cut off one of his legs, but that won’t really make him any thinner. Every little process and activ- ity in the firm must be exposed to the question: are we really world class? If not, outsource it. Buy it from someone else – someone who is better. Funky Inc. competes on the basis of its core competence and competents, the people who make competences happen.10

In an economy where you can buy most of what the typical company is doing just by searching the Internet or by flicking through the Yellow Pages, the “un-hollow” are doomed. In most large cities the Yellow Pages now covers 1600 rather than 160 pages and new websites with product offerings are added by the hour and by the minute. Surplus again. As noted ear- lier, globalization and digitization combined have dramatically changed the outcome of the classical fight between markets and hierarchies – make or buy. Over time, the odds change. Today, markets rule more than ever. What was logical and sound a few years back is now ludicrous and stupid. What makes sense today will probably not do so tomorrow. It’s a never-ending story. Change, then change again.

Imagine that your company is built of Lego. Pick up a piece and ask yourself – are we the best company in the world at information systems – no that is Andersen Consulting or Cap Gemini – so let them take care of it. Are we the best company in the world at cleaning offices – no that is ISS – so let them take care of it. Are we the best company in the world at accounting – no that is Ernst & Young – so let them take care of that stuff. It is a simple principle. The logic is even sim- pler. Sooner or later, and in most cases sooner rather than later, all processes will be exposed to global competition.

The principle of aiming for top standards can be applied to all aspects of life. For instance, one of the authors admits that he is not the best chef in the world, so he often goes to restau- rants. Nor is he the best window-cleaner in the world, so a window-cleaner visits his home every month. Unfortunately, he also has to admit that he is not the best lover in the world, so he and his wife have decided that once a week there is this guy who comes to their house and … We’re just kidding. They watch a lot of TV. They saw the woman in the commercial, changed their minds and bought her a Mercedes-Benz.11

Identifying core competences is navel-gazing. Look inside and discover yourself. Soul-searching. What are you really good at? What are you better than everyone else at doing? In what ways do these competences add value, and to which customers? How many of your employees share these com- petences? How difficult would it be for your competitors to copy them?12 _{These are simple questions but the answers}

can reshape entire businesses.

Once organizations really start trying to identify their core competences, many of them realize that these are not always

in the areas they thought they would be in. American Airlines, for example, realized that its real strengths were tied to SABRE, the booking system, rather than operating airplanes. In 1995, SABRE alone accounted for 44 percent of the company’s pre-tax profits.13_{Sears discovered that its crit-}

ical skills were in the fields of logistics and branding, rather than in running department stores. GE, IBM, and Xerox are all experts in the area of consulting. Their products have become nothing more than byproducts, a sideshow to the main action. Again, we can see the shift from atoms to bits.

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