Turned upside down

When the American colonies fought the British for independence in the 18th century, the latter’s army played a marching tune, The World Turned Upside Down. That era pales in comparison to current economic conditions, particularly as it pertains to corporations at the present time.

The theory underlying the development of corporations is nothing new. John D. Rockefeller 90 years ago was the first to realize that putting explorations, production, transportation, refining, and the like into one corporate structure resulted in the most efficient enterprise imaginable.

Similar corporation-type facilities began to flourish after that. To cite one example, the Ford Motor Company made its own steel, glass, its own tires, and even owned the plantations in the Amazon that grew the rubber trees as well as the railroad that carried all the material to its production sites.

There was the belief that bringing together activities into one company lowered the cost of communications and all manner of business dealings.

That involved many assumptions. Thus, for every product or service there was a specific product or material: car bodies were made only from steel, milk was packaged only in glass bottles, and capital for running a business came from a commercial bank, thereby ignoring all financial markets. Suppliers would have market know-how and power because they had information about a product that was unique.

Nowadays, many of those notions are being turned upside down. First of all, the means of production increasingly is knowledge. Knowledge workers provide the wherewithal, the “capital,” for an operation.

Of course, knowledge workers can and do move around and are not wedded to one company. Then too, while still a majority of employees have full-time jobs, there are a growing number who are not full-time employees, but part-timers who are consultants, contractors, or specialists.

It has become apparent that there is a limit to the cutting of costs by having everything “under one roof.” It has become more economical if certain operations are farmed out to established suppliers. For example, if one company made only door knobs, their focus on a special item and longer production runs would entail lower costs than if one giant corporation made them alongside other activities.

Manufacturers also have discovered that economically it makes a lot of sense to integrate production into the economy of another nation, with its own less-expensive labour costs and familiarity with the working conditions, needs and desires, and product designs of that particular region.

In a word, size does matter: bigness is not necessarily a virtue. A very large organization cannot possibly know everything that it should about its operations. Also, very large corporations arouse resentment and often lead to political repercussions and control. Quite possibly, the era of mammoth corporations may be drawing to a close.


Bruce Whitestone