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Monday, December 21, 2009
THE WALL STREET JOURNAL.
BUSINESS
Creativity, Meet Destruction
The Decade Rewrote the Corporate Handbook, Thanks to the Web, Globalization and the Collapse of Two Bubbles
The decade began amid euphoria that the Internet would
A Lehman employee carries a box while another walks with him out of the
New York headquarters on Sept. 15, 2008, after rescue attempts failed.
change the world. It did—but
not always in the ways expected.
On the decade’s 11th day,
Time Warner Inc. and America
Online Inc., two icons in their industries, said they would merge,
in a deal then valued at $156 billion that was seen as the herald
of new era. But the marriage of
old media and new media
quickly foundered. The companies,
each
substantially
shrunken, completed a divorce
this year.
Other tech and telecom titans
suffered even more. Lucent Technologies Inc., the world’s ninthmost-valuable company at the
decade’s start, was swallowed
by France’s Alcatel SA in 2006.
WorldCom Inc., also in the top
25, collapsed in an accounting
scandal.
As the decade rolled on, the
Internet came to be known for destroying businesses. It upended
decades-old business models in
fields such as media, advertising, travel and entertainment, as
consumers and advertisers migrated to the digital world.
But that same shift created
opportunity. No one epitomized
that better than Google Inc. A
mere 15 months old at the beginning of the decade, it morphed
from a startup technology company into an advertising and media powerhouse and is now plotting a move into communications. There, it will clash with Apple Inc., which was reborn following the return of co-founder
Steve Jobs in 1997. Apple’s iPod
This was also the decade
when the U.S. saw its singular
pre-eminence on the world business stage substantially lessen.
Ten years ago, seven of the
world’s 10 most valuable companies were based in the U.S. Today, only four are; three are
based in China, and one each in
Brazil, Australia and the U.K.
Robert Bruner,
Darden’s dean
Associated Press
This decade was a real test for
leaders. It was extremely challenging in a number of ways: obviously, a severe financial crisis, a
global recession arguably the
worst since 1981-1982, continued
fast change in globalization, in
competition and in technology.
There were probably more
failed corporations in this decade
than any I can remember. I cannot
think of a decade when there was more creative destruction. You have
to go back to the Depression. In a decade like that, the leaders that
made a difference stood out and delivered.
A simple way to look at the last decade is that we had change accelerating, we had change across more fronts, and we had change that
was more unpredictable and more volatile. One of the keys to success
has been the ability to lead change and the ability to lead and manage in
a world that is moving faster and is way more unpredictable.
—Mr. Lafley is chairman and former CEO, Procter & Gamble Co.
William George,
professor, ex-CEO
The biggest change over the
past decade has been the growing
realization of sustainability and
its impact on world growth into
the future. Concerns raised by the
financial crisis, the sustainability
of energy consumption and trading imbalances between the U.S.
and China—all of these are a very
different mood from that which
prevailed in 1999.
If you are a business executive today, you have to anticipate these
destabilizing influences; the increasingly greater rates of technological
innovation and globalization.
Back in 1999, growing international trade was an opportunity, and no
one yet thought of it as a challenge and threat in the U.S. The world back
then seemed pretty stable by comparison; that stability was able to sustain greater confidence about the future of business and greater trade.
—Mr. Bruner is dean of the Darden School of Business
at the University of Virginia.
The continuing trend that concerns me is the trend of short-termism. The real wealth creators require long-term investment, market development and research. I
am concerned that we feel continuous pressure for short-term results when the real job is building
things for the long term, such as
energy and health care. We need
a refocus on building for the long
term. That’s how the economy gets built, that’s how jobs get created,
and that’s where the strength of the U.S. comes from.
We need to recognize we are operating in a global labor market.
The competitive niche we have is in our strength in innovation and
high-tech manufacturing. I still think the U.S. is clearly a leader in innovation, creativity and entrepreneurship. That is what the focus needs
to be.
—Mr. George, a professor at Harvard Business School,
was CEO of Medtronic Inc.
New sectors and regions
g
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p 25 companies
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OF THE TOP 25
WHO’S IN CHARGE?
’99
’09
’99
’09
’99
’09
Carly Fiorina
CEO of Hewlett- Packard Co.
Became the first woman to
lead a Fortune 20 company.
(HP is not one of the world’s
top 25 companies).
= CEO is
less than 55
years old.
Sources: Capital IQ; Standard & Poor's; company filings; WSJ Research
= CEO is
not American.
= CEO
is male.
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indicate sectors:
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search-engine company
into the dominant
Internet power.
2.2
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Exxon Mobil
#1
Microsoft
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Only 8 of
1999’s top
25 remain
on the list
in 2009.
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Jack Welch
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ICONIC CEOS
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China now has 4 of
the top 25. It had
none in 1999.
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CEO of General
Electric Co. Preached
cost-cutting, a
bottom-line focus,
world-wide growth
and rapid adaptation
to a constantly
changing world.
pon
BP
Co-founder and CEO of
Microsoft. Turned Microsoft
into one of the world's
largest companies and led
the personal-computer
revolution.
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Shown are the 25
global companies
with the largest
market
capitalization
(noted in billions
of U.S. dollars).
BHP Billiton*
ICONIC CEOS
Energy (in red) and finance companies
(in green) led the group by 2009.
The total market cap of the group
shrank by 20% in the decade.
Petrole
o
1999
Technology companies (shown in dark
blue) dominated the top 25 in 1999.
8.4
Ratan Tata
Chairman of Tata Group.
Pioneered the
international expansion
of India's largest
conglomerate.
9.9
.9
.8
* Companies with low
free-float ratios (below
70%), meaning the
company's publicly held
stake is smaller than its
market cap suggests.
COMPANIES REMOVED
FROM THE S&P 500 THIS DECADE:
Anheuser-Busch Companies ● AT&T Corp. (New) ● Bear Stearns Cos. ● Seagram
Co. ● Alcan Inc. ● BellSouth Corp. ● Circuit City ● Countrywide Financial Corp. ●
COMPAQ Computer ● Dow Jones & Co. ● Enron Corp. ● Global Crossing ● Lehman
Brothers ● Lucent Technologies ● Merrill Lynch ● Maytag ● Nortel Networks ●
Bank One ● Reebok International ● Adolph Coors Company ● Rohm & Haas Co. ●
Schering-Plough Corp. ● Times Mirror ● Tribune Co. ● Unocal Corp. ● Wachovia
Corp. ● WorldCom Inc. - WorldCom ● Wyeth
Steve Jobs
CEO of Apple Inc.
Redefined the music,
computer and
mobile-phone
industries with
innovation and design.
Andrew Garcia Phillips and Carolyn Cui /The Wall Street Journal
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Associated Press
A.G. Lafley,
Procter & Gamble
Sharing the Spotlight
by China’s Cnooc Ltd. to buy Unocal Corp., and by a Dubai company to manage U.S. ports. A
sweeping effort to lower global
trade barriers—known as the
Doha round of talks—has stalled.
Resistance grew as the economy soured. The U.S. economicstimulus package included several “Buy American” provisions; numerous countries restricted immigration and sent
once-welcome foreigners packing. The World Trade Organization projects global trade will
fall 9% this year, the biggest
drop since World War II.
Strengthened
national
boundaries mirrored the growing role of government in the
economy, in the wake of the financial crisis. For three decades, government had been in
retreat, disassembling regulatory structures perceived as stifling innovation and growth.
But the financial crisis and recession often made the government the lender, and investor, of
first and last resort. At decade’s
close, the U.S. government owns
about 60% of GM, 38% of Citigroup Inc. and 80% of American
International Group Inc.
In that light, Edward Whitacre Jr. may just be the executive
of the decade. Ten years ago, Mr.
Whitacre was smashing government barriers to reassemble
much of the old AT&T Corp. Today, he is effectively a government servant, as chairman and
interim chief executive of GM.
—Erin White contributed
to this article.
Reuters
Rise and Collapse
Getty Images
To understand the challenges
that faced businesses the past 10
years, consider the household
names that didn’t make it
through the decade: AnheuserBusch, Compaq, Gillette, Enron,
Lehman Brothers, Merrill Lynch,
WorldCom.
Companies always fail or get
acquired. But the past decade
was unusually tumultuous: Two
investment bubbles grew, then
burst, each followed by a recession. The Internet matured into
a crucial cog of commerce and
spawned innovative upstarts
while ravaging one traditional industry after another. Global players from emerging economies
muscled their way into business’s top ranks. Wall Street was
remade almost overnight by the
financial crisis. And governments reversed a decades-long
retreat to lay a more forceful
hand on the global economy.
Companies found themselves
in a wired, instantaneous, hypercompetitive and shrinking
world, where a single misstep
can be fatal and executives can
plunge from heroes to outcasts
in weeks.
“Both the exuberance and the
depression—the rise and the fall—
seem bigger and more widespread,” says Rosabeth Moss
Kanter, a professor at Harvard
Business School.
Both small retailers and industrial behemoths such as General Electric Co. now view their
suppliers, their markets and
their rivals globally. GE in 2007
for the first time recorded more
revenue from outside the U.S.
than inside, joining consumer
brands such as Coca-Cola Co.
and Procter & Gamble Co.
Other U.S. mainstays succumbed to international rivals,
most notably in the auto industry. In 2008, Japan’s Toyota Motor Corp. knocked General Motors Corp. from its 77-year reign
as the world’s leading auto
maker by units sold. This year,
there will be more cars sold in
China than in the U.S.
The financial crisis and recession forced GM into a government-supervised bankruptcy
and aid package. Among the prospective buyers for its parts are
several Chinese companies.
U.S. companies that had
viewed emerging countries as
markets now “also have to look at
them as competitors,” says Ms.
Kanter, the Harvard professor.
Surging demand from emerging economies contributed to an
upward trend in commodity
prices. Oil, selling for $25 a barrel 10 years ago, topped $140 in
mid-2008, before retreating.
That propelled seven oil companies into the ranks of the world’s
25 most valuable companies, up
from two a decade ago.
The march to an integrated
global economy has not been
smooth. Post-9/11 political opposition in the U.S. stymied plans
and iTunes reshaped the music
industry; its iPhone revolutionized communications by opening itself to independent innovators.
“This is what [Austrian economist Joseph] Schumpeter had
in mind with his term ‘creative
destruction,’ ” says Paul David,
an economic historian at Stanford University. Industrial collapse is a “messy, messy process,” Mr. David says. “It’s a
great drama, and watching it
play out in this decade has been
very interesting.”
The pace of business accelerated as well, with whipsaw
changes in strategic fashion. Ten
years ago, business stalwarts
raced to develop dot-com strategies, until the dot-coms themselves went bust. From the rubble emerged a credit bubble, symbolized by the private-equity
shops that took companies such
as Chrysler and utility TXU
Corp. private, loaded with debt.
When funding evaporated during the credit crisis, cash became king and conservative
stewardship was again rewarded.
7019004
By Scott Thurm