The Evolution of Capitalism

Dinosaurs fightingIn 1986, I attended my 10th MBA reunion. I sat in a class taught by Joseph Bower, along with the classes of various years ending in a “6” or a “1.”

Bower talked about global over-capacity in the chemical industry and what could be done about it: “co-opetition” was his solution. The 5-year people looked somewhat bored by it. I found it quite fascinating, as did others in my year.

But the old guys were apoplectic. They spluttered and muttered things like ‘what has this school come to, don’t they know it’s a business school,’ and the like. To them, it was but a short hop to socialism.

It was never that simple. At that time there were already newspaper company joint operating agreements, which amounted to co-opetition in the very newsprint these old gents held in their hands at the Club in the evening. But no matter, ideology dies hard.

Their form of ideology—competition to the death, but in a gentlemanly kind of way—went through a resurgence in the 1980s with the advent of competitive strategy. We heard some about strategic alliances, but as far as I was concerned, co-opetition didn’t get back to the front page.

New Assaults on Old Business Ideologies

But as Michael Jackson once said, that was then: this is now. Now there is some serious re-examination going on about the nature of capitalism.

Umair Haque, who’s based in London, is burning up the Harvard Business Review blog scene by writing about constructive capitalism and about the economics of good and evil

At Harvard itself, Bruce R. Scott  writes with great perspective and wisdom about the complex relationship between democracy and capitalism. Sorry, die-hard fans of Adam Smith’s invisible hand; it just ain’t that simple.

And speaking of the Invisible Hand, Adam Smith first used that metaphor in his earlier book, the Theory of Moral Sentiments. He used it to describe the natural working of human sympathies for each other. Over a decade later he resurrected the metaphor to do double duty in Wealth of Nations, where he used it to describe the workings of a competitive market.

At the Boston Consulting Group, Philip Evans and team have done great research into just how it is that Toyota is so much more cost-effective than Detroit at building cars. It’s not pension and health care costs—it’s more effective process innovation, which in turn comes from—omigosh, collaboration. I imagine the old-timers from my reunion popping a blood vessel over that one.

I’m currently reading Winner Take All: How Competitiveness Shapes the Fate of Nations,  by Richard Elkus. Elkus was present at the creation—and destruction—of the US consumer electronics industry, working for Ampex.

Ampex coulda been Sony, or Toshiba. The reason it wasn’t is excruciatingly obvious as Elkus tells the tale of US management doing its best: valuing the transaction over the relationship, focusing on competition not collaboration, channel-loading and fudging costs, and converting all business issues into present value financial calculations.

Up against an Akio Morita, who actually believed in alliances and collaboration, who understood interconnection in technologies, and who worked for the long term, Ampex didn’t stand a chance. Nor Zenith. Nor, I would add, Detroit. The colossal disadvantage of our national economy at this point, he argues, is that we have sold all our technology for licensing fees, outsourced all our manufacturing for low input costs for quarterly earnings, and made ourselves little else but master marketers and consumers.  We exited what BCG called ‘dog’ businesses, and ended up dog food.

The Coming of Collaborative Capitalism

I’ve played around with various terms for it, but I’m liking “collaborative capitalism.” It’s light-years beyond 1986’s co-opetition, because it’s not just capacity-sharing.  It’s true collaboration and trust, working beyond corporate walls and across companies.  Many of us are seeing this trend at the same time.

Way back in 2002—a couple recessions or so ago—I wrote a little article called The Death of Corporations.  It basically said companies who competed against each other were, to use Robert Frost’s metaphor, disappearing not with a bang, but a whimper, as commerce gradually begins to operate across and through companies, rather than in the form of mega-goliath companies clumsily "competing" against each other, spouting their platitudes.

I still think that article’s going to be an overnight sensation, it just needs a little more time…


Collaboration is the New Competition: Isn’t It?

On the one hand:

  • This year a main theme of the Davos conference, where the worlds elites meet, was collaboration;
  • The buzz du jour—actually, for quite a few jours now—has been networking;

And yet—the lesson doesn’t seem learned just yet. In fact, business is positively schizophrenic these days. Three examples:

1. In Fortune’s March 17 issue, A.G. Lafley, CEO of P&G, talks about the major change he implemented. At one point he says, “I encouraged [managers] to compete like hell externally but to collaborate like family internally.”

A few paragraphs later, he says “we began to seek out innovation. Innovation is all about connections, so we get everyone we can involved: P&Gers past and present, customers, suppliers, even competitors.”

So, which is it? Do you compete with your competitors, or collaborate with them? Yes.

2. I wanted to hire my good friend John, a lawyer, to do some legal work for me. I told him I wanted him to be practical, not theoretical—and I needed good value for money. He replied, “I will focus on practical, and will be careful with funds, while also balancing the need to protect myself.”

Protect yourself? From whom, John? I’m the only threat he can possibly be talking about. So, what am I? A client, or a competitor?

3. The Wise Marketer , a group that focuses on loyalty programs, says in its newsletter of March 6:

“…by retaining 5% more of its customers, a company can almost double its profits… In other words, it pays to engender loyalty. So that’s WHY we need loyalty programmes – or more specifically, the data that we can gather from them."

Their words, not mine: the reason we have loyalty programs is for us to make more money. Loyalty—as in semper fi, or ’til death do us part—is engendered by business in order to make money—not for its own sake. Means, not ends.

Like Hugh Lofting’s Pushmi-pullyu, business has become of two minds.

On the one hand, the reigning strategist of our time, Michael Porter, teaches that business is about competition, that there are Five Forces of Competiton, and that two of them are about a company’s rivalry with customers and with suppliers.

By this view, the natural state of business affairs is a Hobbesian state of nature, where we fight with others in our supply chain. Made a lot of sense 20-30 years ago. So Detroit competed with its union, its dealers, and its suppliers.

Meanwhile, Toyota collaborated with its suppliers, and today enjoys a huge cost advantage because of it.

On the other hand, in a world where increasingly you have to get world class at one thing and outsource the rest, you had better get really good at collaborating with your supply chain—not suing them and having them sign NDAs. Collaboration is the new competition.

What is happening here, Mr. Jones, is that a Brave New World is colliding with a rapidly obsolescing business ideology. As always happens, the New World will eventually win. The only question is, how much damage will be sustained along the way. Because old ideologies die slowly, like old ideologues.

Business will have to re-learn the lesson of the human race. Survival does not depend on Darwinian strength—it depends on co-existence, co-location, collaboration. Darwin himself stated, if I’m not wrong, that survival depended more on adaptation than on overcoming.

We’re going to have to root out an awful lot of knee-jerk beliefs and behaviors based on the old-think of competition, in order to get to a more universally efficient and value-producing world of collaboration. It’s not so much an issue of moral illness, as it is of mental illness. We need to think anew, and aright.

Oh, and I’m still hiring John. It was his training, not his heart, doing that bad talking. It’s his heart I trust.