Last time, we began a discussion prompted by a recent article by Alan Murray in theWSJtitled “The End of Management.” We left off with the discussion of how rapid change impacts the very existence of technologies and the companies that are built around that technology. Murray goes on to discuss how there are fewer than 100 companies of the original S&P 500 companies left from the original S&P starting date in 1957 – 75% have either failed or been merged!

One of the classic examples that has historically been used to discuss the impact of change has always been the “buggy whip.” Well, today, we have many more up-to-date examples of how some very successful corporations under very competent management have seen their markets destroyed by change they did not see or prepare for. One classic is IBM not seeing the emergence of the PC replacing their big main-frame computers. Nor did they see the importance of the underlying software running these PCs when they subcontracted all their PC operating systems to Microsoft.

The giant mainstay that practically invented modern photography, Kodak, has struggled enormously with extracting itself from the chemical business with the advent of digital photography, which they never saw coming. Then there’s that old reliable “Ma Bell,” which today exist in name only having never seen the transformation from land lines to mobile telecommunications. And even one of the leaders in that early transformation, Motorola, today struggles with the newest innovations in mobile communications having been outdone by newer start-ups with better ideas.

The leaders of these companies were not bad managers because they followed the 20th century dictates of “good management”. They listened to their customers, they provided good returns to their stock holders, they studied the market trends and they allocated capital to improve their performance. However, they totally missed the step change in technology that opened up markets for blockbuster new products.

Murray goes on to explain how their weakness to see these accelerating changes is only half the problem. The other half of the attack on modern management practice comes from the very fundamental justification of the corporation in the first place.

We’ll discuss this problem next time.