The business world's traditional Goliaths are not just under challenge from new forces. They have already started to lose the global game, and in spectacular fashion. The Top Ten in sales, true, are still largely the old familiar faces, led by General Motors, Daimlerchrysler and Ford. But none of the automotive veterans is among the world's ten leaders in stock market value.
The value champions, led by Microsoft, include two other upstart IT startups (Intel and Cisco Systems) which surged forward phenomenally in the 1990s. The anomalies are astounding. The IT trio have $49.2 billion of sales, only 60% of IBM's. But their combined value is $761.6 billion - a whopping three-and-a half times that of the erstwhile colossus of computing.
Market values, of course, can evaporate overnight, especially in the hyper-inflated micro-electronics sector. Even within Silicon Valley, though, size and value no longer equate. Hewlett-Packard, the grand-daddy of the Valley, has nearly six times Cisco's sales, but roughly half its market worth. H-P has fallen from grace with amazing speed when you consider its continuing strengths and wealth.
The snag is that these assets relate predominantly to the past. Behind the market froth lies hard reality. In the Age of the Internet (which Cisco supplies with vital 'routers'), the past has become a liability, an obstacle to retaining leadership deep into the millennium. Mammoth concerns are hampered by armies of employees (594,000 at GM, for instance), weighty manuals of practice, masses of plants and offices, plethoras of products.
The past is embedded in their very being. The heavy weight of history breeds conservative attachment to the existing business, which hampers radical innovation and defers response to challenge. Accumulated bureaucracy and hierarchy slow reaction and action time still more. The gigantic overheads place an uncompetitive load on costs. And the past success breeds complacency as well as conservatism.
Worst of all, paradoxically, the drawbacks are rarely fatal. The fat cash flow and market shares of fat companies keep them in business and the directors in comfort. The colossi have three choices in these circumstances. They can carry on business as usual. They can merge with large competitors. Or they can shrink, by sell-offs and lay-offs. Goliaths are doing all three, but not to any wonderful effect.
Mergers and acquisitions may even intensify their problems. The great company only adds to the difficulties described above by increasing its size; especially since the activities it must now integrate are differently organised and culturally dissimilar. Putting two giant companies together can take two years, during which, you may be sure, programmes for improving operations (as opposed to merging them) will languish.
The time lost can never be regained. Small wonder that, according to Andersen Consulting, 44% of all large mergers made between 1994 and 1997 have disappointed their makers. Oil companies, even though their businesses are relatively homogenous, appear to have done markedly worse. Mostly, the married oil couples have only marked time: the Wall Street Journal points out that merging with Mobil will lift Exxon to 4% of world oil output. That's the same tiny percentage that Exxon enjoyed in 1975.
The oil giants, comments the Journal, have 'just one course of action. They must seek one-time gains, reduce their costs and wring as much profit as possible out of every single barrel of crude' - at a time when prices and demand are outside their control. Many other industries face similar difficulties and much the same recipe, which neither sounds nor is very exciting. Nor do most giants have important businesses, outside their traditional cores, which can take up the running.
On the contrary, many are disposing of huge diversified activities with all due speed. For example, Siemens has put $10 billion of sales on the block, equivalent to a corporation the size of Gillette. Other great companies are buying their own shares in massive quantities, another form of shrinkage. Most big players, moreover, are further reducing themselves by outsourcing major activities, including some once regarded as intrinsic and essential.
Car companies used to make every part and supply every service internally; they now buy in 70% of their components, including complete sub-assemblies. Ford, the most successful of the Big Three, is even outsourcing assembly itself. But all the automakers' efforts to catch up with Japanese methods, raise quality and exploit global markets have left investors singularly unimpressed. The combined share value of GM, Daimlerchrysler and Ford, at £200.9 billion, is half that of Microsoft - which has a minuscule 3% of their sales.
The Internet, moreover, has moved outsourcing onto a whole new plane. The headlong growth of commercial exchanges through monster Websites is devaluing the power bases of corporations. Not only do their distribution systems cease to guarantee competitive advantage, as users hunt the sites for best buys: it also becomes much easier for newcomers, and smaller firms, to muscle into big company territory. Just ask Barnes & Noble, rapidly overtaken as the world's largest bookseller by the start-up Amazon.com.
Internet oil sales in the billions are already bypassing the majors. And car dealers, on whom giants rely for front-end distribution and marketing, are losing ground fast to Websites. Early in the millennium, the winner in the Web wars will almost certainly swallow the lion's share of US car sales, displacing GM. In other sectors, including computers themselves, retailers are moving into manufacture, manufacturers into retail, and endangered middlemen in both directions. All these changes threaten, and none benefit, the huge, established company.
Some Goliaths are trying to reinvent themselves to combat the threat of the new. But the very characteristics that make them vulnerable also impede their efforts to achieve radical reform. Royal Dutch-Shell, Siemens, Philips, and Unilever are just four gigantic European cases where enthusiastic reform drives patently failed, and new reforms and reformers have had to try again. Somewhat down the scale, Reckitt & Colman is another such case: its disappearance into Dutch arms is the result. Other companies, like Marks & Spencer, have yet to begin badly needed remaking.
The limits to what the remakers can achieve are defined, not just by their own inherent limitations, but by the intensity and speed of the rising stars. These formidable competitors have all the historic advantages of the giant - cheap capital (thanks to the stock market necromancy), global spread, brand recognition, low costs - but few of the drawbacks. True, the newcomers' staying powers, like their magical market valuations, have yet to be tested. But, as the Goliaths are painfully discovering, stability actually destabilises in this new, amazing age.
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