European companies face a grave risk of losing the global wars before battle has been fully joined. Too many of Europe's leading businesses don't actually lead. They don't compete on all fronts; don't lead their markets on every aspect valued by customers; don't think big enough; are not totally professional; innovate too little; and are falling behind in their base businesses.
Running through that catalogue of leadership failure is a seventh deadly sin: reluctance to change radically enough or fast enough. The exceptions only prove the rule. Nokia has won world leadership in mobile phones by changing full speed from a sprawling conglomerate to concentrated powerhouse. In semiconductors STMicroelectronics has kept the European flag flying by adopting continuous change as its way of life: like Nokia, it exemplifies the seven virtuous opposites to the deadly sins.
Both those stars are rare European winners in the high-tech markets. The rarity is even greater in the newest and most epochal of these: e-commerce. Fortune magazine lists eight companies which are generating super-wealth from the World Wide Web: Dell, @Home, Amazon, Intuit, Cisco, Double Click, Yahoo and CNET - Americans all. You will be hard-pressed to find many European equivalents, and still harder pressed to find CEOs running their companies along the dynamic, quick-draw, quick-change lines of the 'e-CEOs'.
Their staid contemporaries in Britain and on the Continent are not blind to what's going on. They know their companies have to change. They know that top management has to devolve work to cross-functional, multi-disciplinary, inter-departmental teams, which cut across boundaries of seniority, experience and geography. They may even know that evolution is no longer enough. But these people are not remotely revolutionary by the exacting standards of cyberspace.
When the traditional autocratic corporate hierarchy tries to embrace the new IT, what you get is sadly shown by a typical multinational giant. Deciding (rightly) to connect all its people and businesses worldwide, it spilt forth documents and presentations about going on 'a transformation journey which will require each and everyone of us, (you), to commit to and take individual ownership for the Business Principles and the Values in order to achieve the breakthrough performance that will be required'.
The flood of unfocussed verbiage was inspired by nothing more radical, in essence, than installing a badly overdue common desktop platform. The company had itself identified five defects in the 'current reality'. Each fault was serious enough to demand, not a leisurely journey, but a flat-out sprint for salvation. On its own admission, it suffered from excessive internal focus and bureaucracy. Instead of sharing information, people clung to it as a power source. Instead of sharing resources, they settled for expensive overlaps and extensive loss of business.
This constipated colossus was supposed to move to a 'future reality' of sharing best practices through 'virtual distributed teams' in a 'culture committed to learning' in which 'partnering with customers and suppliers' would thrive. The company (or its directors) definitely wanted to move in the right directions. Yet the apparatus being asked to mastermind the transformation was the very machine exhibiting those alarming faults.
A lumbering process is no way to speed up and reform a lumbering giant. Its subsequent financial results have in fact been terrible. The leaders had not understood that an information and communication system which, like the Web, is shared around the world demands wholly new norms. The ground rules have altered so severely that even a brilliant high-tech leader like Compaq can be stranded by the pace of change. Europe's large laggards hardly have a better chance of avoiding the same fate.
The longer you leave failures to fester, the greater the probability of corporate upheaval. Compaq's Eckhard Pfeiffer lost his job through taking too long over closing the performance gap opened by Michael Dell, too long over finding some way to combat Dell's direct sales, too long over making sense of the muddled mega-merger with Digital Equipment. Many European companies are in a similar fix: lagging on performance, wrestling with obsolete business models - and in many cases depending, often forlornly, on giant mergers for their global chances.
Such colossal unions as Daimler-Benz/Chrysler, or British Petroleum/Amoco, may work: but the wise money is holding back on this bet. Earlier, BP was an outstanding example of radical change fired by a simple ambition: to be the best. Top management slashed the bureaucracy and set simple targets, and linked overall aims with objectives for every unit and team. While BP's pay-off came speedily, arch-rival Royal Dutch-Shell lagged behind - until its directors applied much the same formula.
The board ordained a higher return on capital, cut down on head office, and linked individual pay to performance. The reforms flopped as spectacularly as BP's had succeeded. In the latest financial year, Shell's profits slumped by 95% and return on capital was negligible. The root cause is lack of BP-style dynamism: thus, former chairman Cor Herkströter spoke about the change process being 'far from complete' after two years and needing a 'few more' before reaching the promised land.
Radical change can only be successfully pursued on a radical timescale. That truth has become an imperative as the pace of business change has speeded up. You can't afford the luxury of 'a few more years' when Internet use is doubling every 100 days. You dare not be a follower when even the leaders can hit real difficulty. Industry insiders are openly speculating over whether even Microsoft (and Bill Gates) will go the way of IBM, locked into an obsolete business model, cordially detested by customers, and running out of growth in saturated markets.
In this kill-or-be-killed era, the assassins are 'Unleashing the Killer App' - the title of a book by Larry Downes and Chunka Mui on 'digital strategies for market dominance'. The killers know how to 'reshape the landscape, build new connections, redefine the interior, destroy the value chain'. That means radicalism like cannibalising your own products, majoring on Website sales, abandoning High Street assets for cyberspace branches, joining with suppliers in intimate, 'virtual' union.
Most threatening of all, the killers don't just know what to do. They do it, and at breakneck speed. The challenge for Europe goes far beyond developing killer apps in the external market, where they lag one or two years behind the US. The lag is at least as long internally. You can't hope to dominate dramatically changing markets with an out-of-date, fundamentally unchanged internal order. It's do or die.
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