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Student Publications
Author: Jonathan Dodoo
Title:
Practical Approach Towards International Business
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INTRODUCTION
International business is a term used to collectively describe
topics relating to the operations of firms
with interests in several countries. Such firms are sometimes called
Multinational corporations. Points of
discussion with this topic may include cultural considerations,
which itself may include differences in
law and legal systems, language barriers, living standards, climate
and more. These have to be overcome
for a MNC to be successful in an overseas venture. A form of company
in international business is an
IBC. An IBC (international business corporation) is a form of
offshore company. IBCs include banks,
insurance companies, and trading firms.
In economics, a business is a legally-recognized organizational
entity existing within an economically
free country designed to sell goods and/or services to consumers,
usually in an effort to generate profit.
In predominantly capitalist economies, where most businesses are
privately owned, businesses are
typically formed to earn profit and grow the personal wealth of
their owners. The owners and operators
of a business have as one of their main objectives the receipt or
generation of a financial return in
exchange for their work that is, the expense of time and energy and
for their acceptance of risk investing
work and money without certainty of success.
Notable exceptions to this rule include cooperative businesses and
government institutions. This model
of business functioning is opposed by socialists, who advocate
either government, public, or worker
ownership of most sizable businesses; and to a lesser extent by
individuals advocating for a mixed
economy of private and state-owned enterprises.
The etymology of "business" refers to the state of being busy in the
context of the individual as well as
the community or society. In other words, to be busy is to be doing
commercially viable and profitable
work. The term "business" has at least three usages, depending on
the scope the general usage of the
singular usage to refer to a particular company or corporation, and
the generalized usage to refer to a
particular market sector, such as "the record business, the computer
business or the business community
the community of suppliers of goods and services.
However, the exact definition of business, like much else in the
philosophy of business, is disputable;
for example, some Marxists use "means of production" as a rough
synonym for "business". However, a
more accurate definition of "means of production" would be the
resources and apparatus by which
products and services are created. Control of these resources and
apparatus results in control of business
activity, and so, while they are very closely related, they are not
the same thing.
Some would argue that the main purpose of a business is to maximize
profits for its owners, or in the
case of a publicly-traded company, its stockholders. The late
economist Milton Friedman was a
proponent of this view and many bottom-line fundamentalists used his
1970 historic statement to this
effect to justify a Darwinomics" approach to doing business. Others
would say that its principal purpose
is to serve the interests of a larger group of stakeholders,
including employees, customers, and even
society as a whole.
Most philosophers would agree, however, that business activities
ought to comport with legal and moral
strictures. One proponent of this philosophy has been U.S.
businessman-turned-futurist John Renesch
who writes, "Corporations are human-made organisms, associations of
human beings. To see this
association as having one solitary purpose and responsibility, to
grow only in economic terms, is such an
extreme view that implosions like what happened to Enron, WorldCom
and other corporate collapses
will become more and more commonplace.
3
INTRODUCTION
Anu Agha, ex-chairperson of Thermax Limited, once said, "We survive
by breathing but we can't say we
live to breathe. Likewise, making money is very important for a
business to survive, but money alone
cannot be the reason for business to exist". Profit maximization is
extremely relevant when top
management is mandated with the job of selecting the right strategy
for the business. According to
Michael Porter, the primary goal for any business strategy exercise
must be that of maximizing
profitability.
Peter Drucker defined the very purpose of business as creating a
satisfied customer. This definition is
also useful in evaluating to what extent a business is succeeding in
fulfilling its stated purpose.
Many observers would hold that concepts such as economic value added
(EVA) are useful in balancing
profit-making objectives with other ends. They argue that
sustainable financial returns are not possible
without taking into account the aspirations and interests of other
stakeholders (customers, employees,
society, environment). This conception suggests that a principal
challenge for a business is to balance
the interests of parties affected by the business, interests that
are sometimes in conflict with one another.
4
DISCRIPTION
Although forms of business ownership vary by country and local
government, there are several generic
forms of business ownership.
A sole proprietorship is a business owned by one person the owner
may operate on their own or may
employ others. The owner of the business has total and unlimited
personal liability of the debts incurred
by the business.
A partnership is a form of business in which two or more people
operate for the common goal of making
profit. Each partner has total and unlimited personal liability of
the debts incurred by the partnership.
There are three types of partnerships general partnerships, limited
partnerships, and limited liability
partnerships.
A business corporation is a for-profit, limited liability entity
that has a separate legal personality from its
members. A corporation is owned by multiple shareholders and is
overseen by a board of directors,
which hires the business's managerial staff.
Often referred to as a Co-Op business or Co-Op, a cooperative is a
for-profit, limited liability entity that
differs from corporations in that it has members, as opposed to
shareholders, who share decision-making
authority. Cooperatives typically fall into three types: consumer
cooperatives, producer cooperatives and
worker cooperatives. Cooperatives are fundamental to the ideology of
economic democracy.
Business is the social science of managing people to organize and
maintain collective productivity
toward accomplishing particular creative and productive goals,
usually to generate revenue. The social
sciences are a group of academic disciplines that study human
aspects of the world. They diverge from
the arts and humanities in that the social sciences tend to
emphasize the use of the scientific method in
the study of humanity, including quantitative and qualitative
methods.
The social sciences in studying subjective, inter-subjective and
objective or structural aspects of society
were traditionally referred to as soft sciences. This is in contrast
to hard sciences, such as the natural
science, which may focus exclusively on objective aspects of nature.
Nowadays, however, the
distinction between the so-called soft and hard sciences is blurred.
Some social science subfields have
become very quantitative in methodology or behavioral in approach.
Conversely, the interdisciplinary and cross-disciplinary nature of
scientific inquiry into human behavior
and social and environmental factors affecting it have made many of
the so-called hard sciences
dependent on social science methodology. Examples of boundary
blurring include emerging disciplines
like social studies of medicine, neuropsychology, and bioeconomics
and the history and sociology of
science. Increasingly, quantitative and qualitative methods are
being integrated in the study of human
action and its implications and consequences.
There are many types of businesses, and, as a result, businesses can
be classified in many ways. One of
the most common focuses on the primary profit-generating activities
of a business:
5
DISCRIPTION
a. Manufactures Business
Manufacturing from Latin manu factura, making by hand is the
use of tools and labor to make things for
use or sale. The term may refer to a vast range of human activity,
from handicraft to high tech, but is
most commonly applied to industrial production, in which raw
materials are transformed into finished
goods on a large scale.
Manufacturing takes place under all types of economic system. In a
capitalist economy, manufacturing
is usually directed toward the mass production of products for sale
to consumers at a profit. In a
collectivist economy, manufacturing is more frequently directed by a
state agency to supply perceived
needs. In modern economies, manufacturing occurs under some degree
of government regulation.
Modern manufacturing includes all intermediate processes required
for the production and integration of
a product's components. Some industries, such as semiconductor and
steel manufacturers use the term
fabrication instead.
The manufacturing sector is closely connected with engineering and
industrial design. Examples of
major manufacturers in the United States include General Motors
Corporation, Ford Motor Company,
Chrysler, Boeing, Gates Rubber Company and Pfizer. Examples in
Europe include France's Airbus and
Michelin Tire. Modern proponents of Fair Trade policy and a strong
manufacturing base for the U.S.
economy include economists Paul Craig Roberts and Ravi Batra, and
commentator Lou Dobbs.
b. Service Business
In economics and marketing, a service is the non-material equivalent
of a good. Service provision has
been defined as an economic activity that does not result in
ownership, and this is what differentiates it
from providing physical goods. It is claimed to be a process that
creates benefits by facilitating a change
in customers, a change in their physical possessions, or a change in
their intangible assets.
By supplying some level of skill, ingenuity, and experience,
providers of a service participate in an
economy without the restrictions of carrying stock (inventory) or
the need to concern themselves with
bulky raw materials. On the other hand, their investment in
expertise does require marketing and
upgrading in the face of competition which has equally few physical
restrictions.
Providers of services make up the Tertiary sector of industry.
c. Retailers Business
Retailing consists of the sale of goods or merchandise, from a fixed
location such as a department store
or kiosk, in small or individual lots for direct consumption by the
purchaser. Retailing may include
subordinated services, such as delivery. Purchasers may be
individuals or businesses. In commerce, a
retailer buys goods or products in large quantities from
manufacturers or importers, either directly or
through a wholesaler, and then sells smaller quantities to the
end-user. Retail establishments are often
called shops or stores. Retailers are at the end of the supply
chain. Manufacturing marketers see the
process of retailing as a necessary part of their overall
distribution strategy.
Shops may be on residential streets, or in shopping streets with few
or no houses, or in a shopping center
or mall, but mostly found in the central business district.
6
DISCRIPTION
Shopping streets may or may not be for pedestrians only. Sometimes a
shopping street has a partial or
full roof to protect customers from precipitation. Retailers often
provided boardwalks in front of their
stores to protect customers from the mud.
Online retailing, also known as e-commerce is the latest form of
non-shop retailing shopping generally
refers to the act of buying products. Sometimes this is done to
obtain necessities such as food and
clothing; sometimes it is done as a recreational activity.
Recreational shopping often involves window
shopping (just looking, not buying) and browsing and does not always
result in a purchase.
d. Financial Business
Finance is a field that studies and addresses the ways in which
individuals, businesses and organizations
raise, allocate, and use monetary resources over time, taking into
account the risks entailed in their
projects. The term finance may thus incorporate any of the
following:
The activity of finance is the application of a set of techniques
that individuals and organizations entities
use to manage their financial affairs, particularly the differences
between income and expenditure and
the risks of their investments. An entity whose income exceeds its
expenditure can lend or invest the
excess income. On the other hand, an entity whose income is less
than its expenditure can raise capital
by borrowing or selling equity claims, decreasing its expenses, or
increasing its income.
The lender can find a borrower, a financial intermediary, such as a
bank or buy notes or bonds in the
bond market. The lender receives interest, the borrower pays a
higher interest than the lender receives,
and the financial intermediary pockets the difference. A bank
aggregates the activities of many
borrowers and lenders. A bank accepts deposits from lenders, on
which it pays the interest. The bank
then lends these deposits to borrowers. Banks allow borrowers and
lenders, of different sizes, to
coordinate their activity. Banks are thus compensators of money
flows in space.
A specific example of corporate finance is the sale of stock by a
company to institutional investors like
investment banks, who in turn generally sell it to the public. The
stock gives whoever owns it part
ownership in that company. If you buy one share of XYZ Inc, and they
have 100 shares outstanding held
by investors, you are 1/100 owner of that company. Of course, in
return for the stock, the company
receives cash, which it uses to expand its business in a process
called "equity financing". Equity
financing mixed with the sale of bonds or any other debt financing
is called the company's capital
structure.
Finance is used by individuals' personal finance by governments
(public finance), by businesses
corporate finance etc, as well as by a wide variety of organizations
including schools and non-profit
organizations. In general, the goals of each of the above activities
are achieved through the use of
appropriate financial instruments, with consideration to their
institutional setting. Finance is one of the
most important aspects of business management. Without proper
financial planning a new enterprise is
unlikely to be successful. Managing money a liquid asset is
essential to ensure a secure future, both for
the individual and an organization.
7
DISCRIPTION
e. Utilities Business
A public utility usually just utility in British English is a
company that maintains the infrastructure for a
public service often also providing a service using that
infrastructure. Public utilities often involve
natural monopolies, and as a result are often government monopolies,
or if privately owned, the sectors
are specially regulated by a Public Utilities Commission. Public
utilities can be privately owned or
publicly owned. Publicly owned utilities include cooperative and
municipal utilities. Municipal utilities
may actually include territories outside of city limits or may not
even serve the entire city. Cooperative
utilities are owned by the customers they serve.
They are usually found in rural areas. Private utilities, also
called investor owned utilities, are owned by
investors. Unlike public companies, private utilities may be listed
on the stock exchange. Private, in this
context, means not owned by the public or the government. In poorer
developing countries, public
utilities are often limited to wealthier parts of major cities, as
used to be the case in developed countries
in the nineteenth century. However, in some developing countries
utilities do provide services to a large
share of the urban population, such as in the case of water and
sanitation in Latin America.
f. Real Estate Business
Real estate or immovable property is a legal term in some
jurisdictions that encompasses land along with
anything permanently affixed to the land, such as buildings. Real
estate immovable property is often
considered synonymous with real property also sometimes called
realty, in contrast with personal
property also sometimes called chattel or personality. However, for
technical purposes, some people
prefer to distinguish real estate, referring to the land and
fixtures themselves, from real property,
referring to ownership rights over real estate.
The terms real estate and real property are used
primarily in common law, while civil law jurisdictions
refer instead to immovable property. In law, the word real
means relating to a thing from Latin res/rei,
thing, as distinguished from a person. Thus the law broadly
distinguishes between "real" property land
and anything affixed to it and "personal" property everything else,
e.g., clothing, furniture, money. The
conceptual difference was between immovable property, which would
transfer title along with the land,
and movable property, which a person would retain title to. The word
is not derived from the notion of
land having historically been "royal" property. The word royal
and its Portuguese cognate real come
from the related Latin word rex-regis, meaning king.
g. Transportation Business
Transport or transportation is the movement of people and goods from
one place to another. The term is
derived from the Latin trans across and portare to carry.
Industries which have the business of providing
equipment, actual transport, transport of people or goods and
services used in transport of goods or
people make up a large broad and important sector of most national
economies, and are collectively
referred to as transport industries.
The field of transport has several aspects: loosely they can be
divided into a triad of infrastructure,
vehicles, and operations. Infrastructure includes the transport
networks roads, railways, airways,
waterways, canals, pipelines, etc. that are used, as well as the
nodes or terminals such as airports,
railway stations, bus stations and seaports).
8
DISCRIPTION
The vehicles generally ride on the networks, such as automobiles,
bicycles, buses, trains, and aircrafts.
The operations deal with the way the vehicles are operated on the
network and the procedures set for this
purpose including the legal environment Laws, Codes, Regulations,
etc. Policies, such as how to finance
the system for example, the use of tolls or gasoline taxes may be
considered part of the operations.
Broadly speaking, the design of networks are the domain of civil
engineering and urban planning, the
design of vehicles of mechanical engineering and specialized
subfields such as nautical engineering and
aerospace engineering, and the operations are usually specialized,
though might appropriately belong to
operations research or systems engineering.
h. Agricultural Business
Agriculture encompassing farming, grazing, and the tending of
orchards, vineyards and timberland is the
production of food, feed, fiber and other goods by the systematic
raising of plants and animals.
Agri is from the Latin ager a field and culture from the Latin
cultura cultivation in the strict sense of
tillage of the soil. A literal reading of the English word yields
"tillage of the soil of a field". In modern
usage, the word agriculture covers all activities essential to
food/feed/fiber production, including all
techniques for raising and "processing" livestock. Agriculture is
also short for the study of the practice
of agriculture more formally known as agricultural science.
The history of agriculture is a central element of human history, as
agricultural progress has been a
crucial factor in worldwide socio-economic change. Wealth-building
and militaristic specializations
rarely seen in hunter-gatherer cultures are commonplace in
agricultural and agro-industrial societies
when farmers became capable of producing food beyond the needs of
their own families, others in the
tribe/nation/empire were freed to devote themselves to projects
other than food acquisition.
An estimated 42 percent of the world's workers are employed in
agriculture, making it by far the most
common occupation. However, agricultural production accounts for
less than five percent of the gross
world product an aggregate of all gross domestic products.
9
GENERAL ANALYSIS
A multinational corporation is a corporation or enterprise that
manages production establishments or
delivers services in at least two countries. Very large
multinationals have budgets that exceed those of
many countries. Multinational corporations can have a powerful
influence in international relations and
local economies. Multinational corporations play an important role
in globalization; some argue that a
new form of MNC is evolving in response to globalization the
globally integrated enterprise.
Large multinational corporations can have a powerful influence in
international relations, given their
large economic influence in politicians' representative districts,
as well as their extensive financial
resources available for public relations and political lobbying.
Multinationals have played an important
role in globalization. Prospective country locations for MNC
production establishments, and sometimes
regions within countries, must compete with each other to have MNCs
locate their facilities and
subsequent tax revenue, employment, and economic activity within a
region. To compete, countries and
regional political districts offer incentives to MNCs such as tax
breaks, pledges of governmental
assistance or improved infrastructure, or lax environmental and
labor standards.
This process of becoming more attractive to foreign investment can
be characterized as a race to the
bottom, a push towards greater freedom for corporate bodies, or
both. An inaccurate claim is that out of
the 100 largest economies in the world, are multinational
corporations. This claim is based on a
miscalculation, where two numbers describing totally different
things are compared: the GDP of nations
to gross sales of corporations. The problem with the comparison is
that GDP takes into account only the
final value, whereas gross sales don't measure how much was produced
outside the company.
According to Swedish economist Johan Norberg, if we were to compare
nations and corporations, we
should be comparing GDP to goods only produced within the particular
company gross sales do not take
into account goods purchased from 3rd party vendors and resold, just
as GDP does not take into account
imported goods. That correction would make only 37 of 100 largest
economies corporations and all of
them would be in bottom box: only 5 corporations would be in top 50.
Because of their size,
multinationals can have a significant impact on government policy,
primarily through the threat of
market withdrawal. For example, in an effort to reduce health care
costs, some countries have tried to
force pharmaceutical companies to license their patented drugs to
local competitors for a very low fee,
thereby artificially lowering the price.
When faced with that threat, multinational pharmaceuticals firms
have simply withdrawn from the
market, which often leads to limited availability of advanced drugs.
In those cases, governments have
been forced to back down from their efforts. Similar corporate and
government confrontations have
occurred when governments tried to force companies to make their
intellectual property public in an
effort to gain technology for local entrepreneurs. When companies
are faced with the option of losing
their core competitive advantage technology and losing a national
market, they may choose to withdraw
from the national market. This withdrawal often causes governments
to change policy. Countries that
have been most successful in this type of confrontation with
multinational corporations are large
countries such as India and Brazil, which have viable indigenous
market competitors.
Multinational corporate lobbying is directed at a range of business
concerns, from tariff structures to
environmental regulations. There is no unified multinational
perspective on any of these issues.
Companies that have invested heavily in pollution control mechanisms
may lobby for very tough
environmental standards in an effort to force non-compliant
competitors into a weaker position.
10
GENERAL ANALYSIS
For every tariff category that one multinational wants to have
reduced, there is another multinational that
wants the tariff raised.
Even within the U.S. auto industry, the fraction of a company's
imported components will vary, so some
firms favor tighter import restrictions, while others favor looser
ones.
In addition to efforts by multinational corporations to affect
governments, there are many actions taken
by governments to affect corporate behavior. The threat of
nationalization forcing a company to sell its
local assets to the government or to other local nationals or
changes in local business laws and
regulations limit a multinational's power.
The mobility of capital brought by multinational corporations can
create a race to the bottom. This refers
to efforts by governments to change their laws and regulations to
become more corporate friendly in
order to attract multinational investment. As they become more
responsive to the interests of
multinational corporations, there is the risk that governments can
become less responsive to local
constituents. Examples of this are laws that bar unionization or
permit lax environmental standards.
Those laws are often chosen because governments also find the
corporate-friendly rules comfortable.
China, for example, bars unionization in most cases, but it also
bars almost every other civil society
organization above the very local level that is not government
controlled.
An international business company or international business
corporation (IBC) is an offshore company
formed under the laws some jurisdictions as a tax-free company which
is not permitted to engage in
business within the jurisdiction it is incorporated in. Offshore
Financial Centres which have allowed the
formation of IBCs include Antigua, Anguilla, the British Virgin
Islands, the Bahamas, Gibraltar and
Nevis.
Characteristics of an IBC vary by jurisdiction, but will usually
include exemption from local corporate
taxation and stamp duty, provided that the company engages in no
local business annual agent's fees and
company registration taxes are still payable, which are normally a
few hundred U.S. dollars per year
preservation of confidentiality of the beneficial owner of the
company wide corporate powers to engage
in different businesses and activities abrogation or restriction of
the requirement to demonstrate
corporate benefit the ability to issue shares in either registered
or bearer form an abrogation of any
requirements to appoint local directors or officers provision for a
local registered agent However, under
pressure from the OECD and the FATF, most offshore jurisdictions
have removed or are removing the
"ring fencing" of IBCs from local taxation. In most of the
jurisdictions, this has been accompanied by
reductions of levels of corporate tax to zero to avoid damaging the
offshore finance industry.
An IBC is a legal entity incorporated in a tax haven which is free
from all local taxes except small fixed
annual fees. Typically the IBC cannot conduct business in the
country of incorporation. Dominica,
Panama Corporation and Gibraltar Non-resident Company. IBCs are
offshore companies that are most
commonly used for offshore banking to conduct international trade,
investment activities, by
professionals and for asset protection. Offshore companies can be
involved in buying and selling goods
and services hold bank accounts and operate businesses. IBCs are
also commonly used for the
ownership of real property and land; for ownership of intellectual
property, licensing and franchising;
personal service by individuals working overseas and offshore
e-business among other things.
11
GENERAL ANALYSIS
An IBC can hold assets in a safe, secure financial center. At the
same time, an IBC also allows the
owner to retain 100% control of assets. An IBC's assets are
extremely private. In the offshore
jurisdictions, there is no ITIN required in order to open an IBC
bank account. It is a crime for a banker
to reveal your association with a bank account to an individual
outside of the bank. IBC ownership
records are not available in any public record.
There are countries with IBC laws that take privacy very seriously.
The asset protection provisions in
some countries are extremely strong. Many of these countries are
island nations that have become
financially strong by offering a safe-haven in which to store one's
money. One of the strongest IBC
asset protection laws found is on the Island of Nevis. Nevis is
located in the Caribbean Sea and is about
a one-hour flight East of Puerto Rico.
Business International Corporation was a publishing and advisory
firm dedicated to assisting American
companies in operating abroad. In 1986, Business International was
acquired by The Economist Group
in London, and eventually merged with The Economist Intelligence
Unit. Founded in 1953 by Eldridge
Haynes, BI initially focused on American companies and started out
with a weekly newsletter and a
group of key corporate clients. BI eventually became the premier
information source on global business
with research, advisory functions, conferences and government
roundtables in addition to its
publications. It was headquartered in New York City, with major
offices in Geneva, London, Vienna,
Hong Kong and Tokyo, and a network of correspondents across the
globe.
12
ACTUALISATION
i. Organizing a vehicle
The major factors affecting how a business is organized are usually
the size and scope of the business,
and its anticipated management and ownership. A smaller business is
more flexible, larger businesses or
those with wider ownership or more formal structures will usually
tend to be organized as partnerships
or more commonly corporations. In addition a business which wishes
to raise money on a stock market
or to be owned by a wide range of people will often be required to
adopt a specific legal form to do so.
The sector and country private profit making businesses are
different from government owned bodies. In
some countries, certain businesses are legally obliged to be
organized certain ways.
Limited liability corporations, and limited liability partnerships,
protect their owners from business
failure, and are treated as separate entities, whereas an
unincorporated business or person working on
their own is usually not so protected. Tax advantages different
structures are treated differently in tax
law, and may have advantages for this reason.
Disclosure and compliance requirements different business structures
may be required to make more or
less information public or reported to relevant authorities and may
be bound to comply with different
rules and regulations. Many businesses are operated through a
separate entity such as a corporation,
limited partnership or limited liability company. Most legal
jurisdictions allow people to organize such
an entity by filing certain charter documents with the relevant
Secretary of State or equivalent and
complying with certain other ongoing obligations. The relationships
and legal rights of shareholders,
limited partners, or members, as the case may be, are governed
partly by the charter documents and
partly by the law of the jurisdiction where the entity is organized.
Generally speaking, shareholders in a corporation, limited partners
in a limited partnership, and
members in a limited liability company are shielded from personal
liability for the debts and obligations
of the entity, which is legally treated as a separate person. This
means that unless there is misconduct,
the owner's own possessions are strongly protected in law, if the
business does not succeed.
Where two or more individuals own a business together but have
failed to organize a more specialized
form of vehicle, they will be treated as a general partnership. The
terms of a partnership will be partly
governed by a partnership agreement if one is created and partly by
the law of the jurisdiction where the
partnership is located. No paperwork or filing is necessary to
create a partnership, and without an
agreement, the relationships and legal rights of the partners will
be entirely governed by the law of the
jurisdiction where the partnership is located.
A single person who owns and runs a business is commonly known as a
sole proprietor, whether he or
she owns it directly or through a formally organized entity. A few
relevant factors to consider in
deciding how to operate a business include General partners in a
partnership other than a limited liability
partnership plus anyone who personally owns and operates a business
without creating a separate legal
entity, are personally liable for the debts and obligations of the
business.
Generally, corporations are required to pay tax just like "real"
people. In some tax systems, this can give
rise to so-called double taxation, because first the corporation
pays tax on the profit, and then when the
corporation distributes its profits to its owners, individuals have
to include dividends in their income
when they complete their personal tax returns, at which point a
second layer of income tax is imposed.
In most countries, there are laws which treat small corporations
differently than large ones.
13
ACTUALISATION
They may be exempt from certain legal filing requirements or labor
laws, have simplified procedures in
specialized areas, and have simplified, advantageous, or slightly
different tax treatment. In order to "go
public sometimes called IPO which basically means to allow a part of
the business to be owned by a
wider range of investors or the public in general you must organize
a separate entity, which is usually
required to comply with a tighter set of laws and procedures. Most
public entities are corporations that
have sold shares, but increasingly there are also public LLCs that
sell units sometimes also called shares,
and other more exotic entities as well for example, REITs in the
USA, Unit Trusts in the UK. However,
you cannot take a general partnership public.
ii. Commercial law
Most commercial transactions are governed by a very detailed and
well-established body of rules that
have evolved over a very long period of time, it being the case that
governing trade and commerce was a
strong driving force in the creation of law and courts in Western
civilization. As for other laws that
regulate or impact businesses, in many countries it is all but
impossible to chronicle them all in a single
reference source. There are laws governing treatment of labor and
generally relations with employees,
safety and protection issues OSHA or Health and Safety,
anti-discrimination laws age, gender,
disabilities, race, and in some jurisdictions, sexual orientation,
minimum wage laws, union laws,
workers compensation laws, and annual vacation or working hours
time.
In some specialized businesses, there may also be licenses required,
either due to special laws that
govern entry into certain trades, occupations or professions, which
may require special education, or by
local governments who just want your money. Professions that require
special licenses run the gamut
from law and medicine to flying airplanes to selling liquor to radio
broadcasting to selling investment
securities to selling used cars to roofing. Local jurisdictions may
also require special licenses and taxes
just to operate a business without regard to the type of business
involved. Some businesses are subject to
ongoing special regulation. These industries include, for example,
public utilities, investment securities,
banking, insurance, broadcasting, aviation, and health care
providers. Environmental regulations are also
very complex and can impact many kinds of businesses in unexpected
ways.
iii. Capital
When businesses need to raise money called capital, more laws come
into play. A highly complex set of
laws and regulations govern the offer and sale of investment
securities the means of raising money in
most Western countries. These regulations can require disclosure of
a lot of specific financial and other
information about the business and give buyers certain remedies.
Because "securities" is a very broad
term, most investment transactions will be potentially subject to
these laws, unless a special exemption
is available.
Capital may be raised through private means, by public offer IPO on
a stock exchange, or in many other
ways. Major stock exchanges include the New York Stock Exchange and
Nasdaq USA, the London
Stock Exchange UK, the Tokyo Stock Exchange Japan, and so on. Most
countries with capital markets
have at least one. Businesses that have gone "public" are subject to
extremely detailed and complicated
regulation about their internal governance such as how executive
officers' compensation is determined
and when and how information is disclosed to the public and their
shareholders. In the United States,
these regulations are primarily implemented and enforced by the
United States Securities and Exchange
Commission SEC.
14
ACTUALISATION
As noted at the beginning, it is impossible to enumerate all of the
types of laws and regulations that
impact on business today. In fact, these laws have become so
numerous and complex, that no business
lawyer can learn them all, forcing increasing specialization among
corporate attorneys. It is not unheard
of for teams of 5 to 10 attorneys to be required to handle certain
kinds of corporate transactions, due to
the sprawling nature of modern regulation. Commercial law spans
general corporate law, employment
and labor law, healthcare law, securities law, M&A law who
specialize in acquisitions, tax law, ERISA
law ERISA in the United States governs employee benefit plans, food
and drug regulatory law,
intellectual property law specializing in copyrights, patents,
trademarks and such, telecommunications
law, and more.
In Thailand, for example, it is necessary to register a particular
amount of capital for each employee, and
pay a fee to the government for the amount of capital registered.
There is no legal requirement to prove
that this capital actually exists, the only requirement is to pay
the fee. This is a typical example of a
corrupt government using its power to create laws in order to steal
money. Overall, processes like this
are detrimental to the development and GDP of a country, but often
exist in "feudal" developing
countries.
iv. Intellectual property
Businesses often have important intellectual property that needs
protection from competitors in order to
stay profitable. This could require patents or copyrights or
preservation of trade secrets. Most businesses
have names, logos and similar branding techniques that could benefit
from trade marking. Patents and
copyrights in the United States are largely governed by federal law,
while trade secrets and trade
marking are mostly a matter of state law. Because of the nature of
intellectual property, a business needs
protection in every jurisdiction in which they are concerned about
competitors. Many countries are
signatories to international treaties concerning intellectual
property.
Business ethics is a form of the art of applied ethics that examines
ethical rules and principles within a
commercial context, the various moral or ethical problems that can
arise in a business setting and any
special duties or obligations that apply to persons who are engaged
in commerce. In the increasingly
conscience-focused marketplaces of the 21st century, the demand for
more ethical business processes
and actions known as ethicis is increasing. Simultaneously, pressure
is applied on industry to improve
business ethics through new public initiatives and laws e.g. higher
UK road tax for higher-emission
vehicles.
Business ethics can be both a normative and a descriptive
discipline. As a corporate practice and a career
specialization, the field is primarily normative. In academia
descriptive approaches are also taken. The
range and quantity of business ethical issues reflects the degree to
which business is perceived to be at
odds with non-economic social values. Historically, interest in
business ethics accelerated dramatically
during the 1980s and 1990s, both within major corporations and
within academia. For example, today
most major corporate websites lay emphasis on commitment to
promoting non-economic social values
under a variety of headings e.g. ethics codes, social responsibility
charters. In some cases, corporations
have redefined their core values in the light of business ethical
considerations e.g. BP's beyond
petroleum environmental tilt.
As part of more comprehensive compliance and ethics programs, many
companies have formulated
internal policies pertaining to the ethical conduct of employees.
15
ACTUALISATION
These policies can be simple exhortations in broad,
highly-generalized language typically called a
corporate ethics statement, or they can be more detailed policies,
containing specific behavioral
requirements typically called corporate ethics codes. They are
generally meant to identify the company's
expectations of workers and to offer guidance on handling some of
the more common ethical problems
that might arise in the course of doing business.
It is hoped that having such a policy will lead to greater ethical
awareness, consistency in application,
and the avoidance of ethical disasters. An increasing number of
companies also require employees to
attend seminars regarding business conduct, which often include
discussion of the company's policies,
specific case studies, and legal requirements. Some companies even
require their employees to sign
agreements stating that they will abide by the company's rules of
conduct.
Many companies are assessing the environmental factors that can lead
employees to engage in unethical
conduct. Not everyone supports corporate policies that govern
ethical conduct. Some claim that ethical
problems are better dealt with by depending upon employees to use
their own judgment.
Others believe that corporate ethics policies are primarily rooted
in utilitarian concerns, and that they are
mainly to limit the company's legal liability, or to curry public
favor by giving the appearance of being a
good corporate citizen. Ideally, the company will avoid a lawsuit
because its employees will follow the
rules. Should a lawsuit occur, the company can claim that the
problem would not have arisen if the
employee had only followed the code properly?
Sometimes there is disconnection between the company's code of
ethics and the company's actual
practices. Thus, whether or not such conduct is explicitly
sanctioned by management, at worst, this
makes the policy duplicitous, and, at best, it is merely a marketing
tool. To be successful, most ethicists
would suggest that an ethics policy should be given the unequivocal
support of top management, by both
word and example. Explained in writing and orally, with periodic
reinforcement doable something
employees can both understand and perform, monitored by top
management, with routine inspections
for compliance and improvement, and backed up by clearly stated
consequences in the case of
disobedience remain neutral and nonsexist.
16
DISCUSSION
Benefits
Taxation - business may be structured so that profits are realized
in ways that minimize their overall tax
liability.
Simplicity - except for regulated businesses, such as banks or other
financial institutions, some
jurisdictions make it relatively simple to set up and maintain
companies.
Reporting - the level of information required by the registrar of
companies varies from jurisdiction to
jurisdiction.
Asset protection - it is possible to organize assets and
transactions in such a way that assets are shielded
from future liabilities.
Anonymity - by carrying out transactions in the name of a private
company, the name of the underlying
principal may be kept out of documentation having said that, current
anti-money laundering regulations
often require banks and other professionals to look through
structures.
Thin capitalisation - offshore jurisdictions tend not to impose thin
capitalisation rules on companies
except for regulated entities such as banks and insurance companies,
allowing them to be formed with a
purely nominal equity investment.
Financial assistance - offshore companies are usually not prohibited
from providing financial assistance
for the acquisition of their own shares, which avoids the needs for
"whitewash" procedure in certain
financial transactions.
Disadvantages
Offshore companies are usually prohibited from conducting business
or retaining employees in their
jurisdiction of incorporation. For regulatory reasons, there are
often certain restrictions on the type of
business which an offshore company can engage in. For example, it is
quite common for there to be
general prohibitions against offshore companies engaging in banking
business, insurance business or
operating as a trust company.
Because of the limited amount of publicly available information in
connection with offshore companies,
there is usually a high level of hidden costs at the administrative
level. For example, to open a bank
account in the name of an offshore company, to comply with relevant
anti-money laundering
regulations, the bank will normally require large quantities of
corporate documentation to be notarised
and apostilled in the jurisdiction of incorporation, and may require
opinions from local lawyers in that
jurisdiction as to the capacity and power of the company to open and
operate a bank account.
Certain countries have anti-tax haven legislation which makes it
difficult to conduct business in those
countries using an offshore company. For example, capital markets
regulations in France prohibit using
offshore companies as bond issuing vehicles. Where a shareholder of
an offshore company dies, it is
usually necessary to have the will admitted to probate in the
offshore jurisdiction as well or, if intestate,
to have the letters of administration re-sealed in that
jurisdiction, which can add to cost, delay and
inconvenience in administering the deceased's estate.
17
DISCUSSION
Ethical issues and approaches
Philosophers and others disagree about the purpose of a business in
society. For example, some suggest
that the principal purpose of a business is to maximize returns to
its owners, or in the case of a publicly-
traded concern, its shareholders. Thus, under this view, only those
activities that increase profitability
and shareholder value should be encouraged. Some believe that the
only companies that are likely to
survive in a competitive marketplace are those that place profit
maximization above everything else.
However, some point out that self interest would still require a
business to obey the law and adhere to
basic moral rules, because the consequences of failing to do so
could be very costly in fines, loss of
licensure, or company reputation.
The economist Milton Friedman was a leading proponent of this view
other theorists contend that a
business has moral duties that extend well beyond serving the
interests of its owners or stockholders,
and that these duties consist of more than simply obeying the law.
They believe a business has moral
responsibilities to so-called stakeholders, people who have an
interest in the conduct of the business,
which might include employees, customers, vendors, the local
community, or even society as a whole.
They would say that stakeholders have certain rights with regard to
how the business operates, and some
would even suggest that this even includes rights of governance.
Some theorists have adapted social contract theory to business,
whereby companies become quasi-
democratic associations, and employees and other stakeholders are
given voice over a company's
operations. This approach has become especially popular subsequent
to the revival of contract theory in
political philosophy, which is largely due to John Rawls A
Theory of Justice, and the advent of the
consensus-oriented approach to solving business problems, an aspect
of the quality movement" that
emerged in the 1980s. Professors Thomas Donaldson and Thomas Dunfee
proposed a version of
contract theory for business, which they call Integrative Social
Contracts Theory.
They posit that conflicting interests are best resolved by
formulating a "fair agreement" between the
parties, using a combination of i macro-principles that all rational
people would agree upon as universal
principles, and, ii) micro-principles formulated by actual
agreements among the interested parties.
Critics say the proponents of contract theories miss a central
point, namely, that a business is someone's
property and not a mini-state or a means of distributing social
justice.
Ethical issues can arise when companies must comply with multiple
and sometimes conflicting legal or
cultural standards, as in the case of multinational companies that
operate in countries with varying
practices. The question arises, for example, ought a company to obey
the laws of its home country, or
should it follow the less stringent laws of the developing country
in which it does business? To illustrate,
United States law forbids companies from paying bribes either
domestically or overseas; however, in
other parts of the world, bribery is a customary, accepted way of
doing business. Similar problems can
occur with regard to child labor, employee safety, work hours,
wages, discrimination, and environmental
protection laws.
It is sometimes claimed that a Gresham's law of ethics applies in
which bad ethical practices drive out
good ethical practices. It is claimed that in a competitive business
environment, those companies that
survive are the ones that recognize that their only role is to
maximize profits. On this view, the
competitive system fosters a downward ethical spiral.
18
DISCUSSION
The major factors affecting how a business is organized are usually
the size and scope of the business,
and its anticipated management and ownership. A smaller business is
more flexible, larger businesses or
those with wider ownership or more formal structures will usually
tend to be organized as partnerships
or more commonly corporations. In addition a business which wishes
to raise money on a stock market
or to be owned by a wide range of people will often be required to
adopt a specific legal form to do so.
The sector and country private profit making businesses are
different from government owned bodies. In
some countries, certain businesses are legally obliged to be
organized certain ways. Limited
liability corporations, and limited liability partnerships, protect
their owners from business failure, and
are treated as separate entities, whereas an unincorporated business
or person working on their own is
usually not so protected. Tax advantages different structures are
treated differently in tax law, and may
have advantages for this reason.
Disclosure and compliance requirements different business structures
may be required to make more or
less information public or reported to relevant authorities, and may
be bound to comply with different
rules and regulations. Many businesses are operated through a
separate entity such as a corporation,
limited partnership or limited liability company. Most legal
jurisdictions allow people to organize such
an entity by filing certain charter documents with the relevant
Secretary of State or equivalent and
complying with certain other ongoing obligations. The relationships
and legal rights of shareholders,
limited partners, or members, as the case may be, are governed
partly by the charter documents and
partly by the law of the jurisdiction where the entity is organized.
Generally speaking, shareholders in a corporation, limited partners
in a limited partnership, and
members in a limited liability company are shielded from personal
liability for the debts and obligations
of the entity, which is legally treated as a separate "person." This
means that unless there is misconduct,
the owner's own possessions are strongly protected in law, if the
business does not succeed.
Where two or more individuals own a business together but have
failed to organize a more specialized
form of vehicle, they will be treated as a general partnership. The
terms of a partnership will be partly
governed by a partnership agreement if one is created and partly by
the law of the jurisdiction where the
partnership is located. No paperwork or filing is necessary to
create a partnership, and without an
agreement, the relationships and legal rights of the partners will
be entirely governed by the law of the
jurisdiction where the partnership is located.
A single person who owns and runs a business is commonly known as a
sole proprietor, whether he or
she owns it directly or through a formally organized entity. A few
relevant factors to consider in
deciding how to operate a business include general partners in a
partnership other than a limited liability
partnership, plus anyone who personally owns and operates a business
without creating a separate legal
entity, are personally liable for the debts and obligations of the
business. Generally, corporations are
required to pay tax just like "real" people. In some tax systems,
this can give rise to so-called double
taxation, because first the corporation pays tax on the profit, and
then when the corporation distributes
its profits to its owners, individuals have to include dividends in
their income when they complete their
personal tax returns, at which point a second layer of income tax is
imposed.
In most countries, there are laws which treat small corporations
differently than large ones they may be
exempt from certain legal filing requirements or labor laws, have
simplified procedures in specialized
areas, and have simplified, advantageous, or slightly different tax
treatment.
19
DISCUSSION
In order to go public sometimes called IPO which basically means to
allow a part of the business to be
owned by a wider range of investors or the public in general -- you
must organize a separate entity,
which is usually required to comply with a tighter set of laws and
procedures.
Most public entities are corporations that have sold shares, but
increasingly there are also public LLCs
that sell units sometimes also called shares, and other more exotic
entities as well for example, REITs in
the USA, Unit Trusts in the UK. However, you cannot take a general
partnership public.
Commercial law
Most commercial transactions are governed by a very detailed and
well-established body of rules that
have evolved over a very long period of time, it being the case that
governing trade and commerce was a
strong driving force in the creation of law and courts in Western
civilization. As for other laws that
regulate or impact businesses, in many countries it is all but
impossible to chronicle them all in a single
reference source. There are laws governing treatment of labor and
generally relations with employees,
safety and protection issues OSHA or Health and Safety,
anti-discrimination laws age, gender,
disabilities, race, and in some jurisdictions, sexual orientation,
minimum wage laws, union laws,
workers compensation laws, and annual vacation or working hours
time.
In some specialized businesses, there may also be licenses required,
either due to special laws that
govern entry into certain trades, occupations or professions, which
may require special education, or by
local governments who just want your money. Professions that require
special licenses run the gamut
from law and medicine to flying airplanes to selling liquor to radio
broadcasting to selling investment
securities to selling used cars to roofing. Local jurisdictions may
also require special licenses and taxes
just to operate a business without regard to the type of business
involved.
Some businesses are subject to ongoing special regulation. These
industries include, for example, public
utilities, investment securities, banking, insurance, broadcasting,
aviation, and health care providers.
Environmental regulations are also very complex and can impact many
kinds of businesses in
unexpected ways.
Capital
When businesses need to raise money called capital, more laws come
into play. A highly complex set of
laws and regulations govern the offer and sale of investment
securities the means of raising money in
most Western countries. These regulations can require disclosure of
a lot of specific financial and other
information about the business and give buyers certain remedies.
Because "securities" is a very broad
term, most investment transactions will be potentially subject to
these laws, unless a special exemption
is available.
Capital may be raised through private means, by public offer IPO on
a stock exchange, or in many other
ways. Major stock exchanges include the New York Stock Exchange and
Nasdaq USA, the London
Stock Exchange UK, the Tokyo Stock Exchange Japan, and so on. Most
countries with capital markets
have at least one. Businesses that have gone "public" are subject to
extremely detailed and complicated
regulation about their internal governance (such as how executive
officers' compensation is determined)
and when and how information is disclosed to the public and their
shareholders.
20
DISCUSSION
In the United States, these regulations are primarily implemented
and enforced by the United States
Securities and Exchange Commission (SEC). Other Western nations have
comparable regulatory bodies.
As noted at the beginning, it is impossible to enumerate all of the
types of laws and regulations that
impact on business today. In fact, these laws have become so
numerous and complex, that no business
lawyer can learn them all, forcing increasing specialization among
corporate attorneys. It is not unheard
of for teams of 5 to 10 attorneys to be required to handle certain
kinds of corporate transactions, due to
the sprawling nature of modern regulation.
Commercial law spans general corporate law, employment and labor
law, healthcare law, securities law,
M&A law who specialize in acquisitions, tax law, ERISA law ERISA in
the United States governs
employee benefit plans, food and drug regulatory law, intellectual
property law specializing in
copyrights, patents, trademarks and such, telecommunications law,
and more. In Thailand, for example,
it is necessary to register a particular amount of capital
for each employee, and pay a fee to the
government for the amount of capital registered.
There is no legal requirement to prove that this capital actually
exists, the only requirement is to pay the
fee. This is a typical example of a corrupt government using its
power to create laws in order to steal
money. Overall, processes like this are detrimental to the
development and GDP of a country, but often
exist in "feudal" developing countries.
Intellectual property
Businesses often have important intellectual property" that needs
protection from competitors in order to
stay profitable. This could require patents or copyrights or
preservation of trade secrets. Most businesses
have names, logos and similar branding techniques that could benefit
from trade marking. Patents and
copyrights in the United States are largely governed by federal law,
while trade secrets and trade
marking are mostly a matter of state law. Because of the nature of
intellectual property, a business needs
protection in every jurisdiction in which they are concerned about
competitors. Many countries are
signatories to international treaties concerning intellectual
property.
21
GENERAL RECOMMENDATION
Business analysis helps an organization to improve how it conducts
its functions and activities in order
to reduce overall costs, provide more efficient use of resources,
and better support customers. It
introduces the notion of process orientation, of concentrating on
and rethinking end-to-end activities that
create value for customers, while removing unnecessary, non-value
added work. The person who carries
out this task is called a business analyst
There should be Improve project efficiency can be achieved in two
somewhat related dimensions by
reducing rework or extra work needed in a project to fix errors due
to incomplete or missing
requirements and by shortening project length. Rework is one of the
largest headaches facing CIOs and
it has become so common at many organizations that it is actually
built into the project budget and
timeline.
Estimates of rework on typical projects ranges between 20% and 30%
of total project budget rework
impacts the entire software development process from definition to
coding and testing. One of the
reasons for rework is that the requirements gathering and definition
process is broken in most
organizations and there is a huge disconnect between the business
and technical sides of a project. While
various technical solutions have helped make developers, coders and
testers more efficient, very few
solutions have been targeted at the business analysts who are tasked
with delivering the requirements.
Shortening project length produces two outcomes.
For every month that a project can be shortened, the cost of the
project resources can be avoided and
released to work on other projects. This actually produces a
double-whammy effect savings on the
current project and accelerating the start of future projects
resulting in more project output. The other
side of this equation is to achieve project benefits faster. It does
not matter whether the project benefits
are based on revenue enhancements or cost reductions; shorter
projects mean benefits will be reached
faster. Similar to what was already discussed earlier for the line
of business executives, being able to
reap the project benefits earlier can produce very large returns.
The process of decision making is of the utmost importance for
effective management. As a manager,
your decision making must be informed by expert knowledge and
experience. To that end, the articles
below on decision making can help. The Business Control Model
represents the primary processes of the
organization and their control, grouped in business functions. The
DEM reference model exists of one
main Business Control Model, resulting in several other Business
Control Models per function area of
the organization. The Business Organization Model focuses less on
the processes and more on the
organizational aspects such as roles and responsibilities. Together
these models are capable of depicting
the total organizational structure and aspects that are necessary
during the implementation of the Baan
product. The models can have differentiations, which are based on
the typology of the organization (i.e.:
engineer-to-order organizations require different model structures
than assemble-to-order organizations.
In order to elaborate on the way that the reference model is used to
implement the Baan software and to
keep track of the scope of implementation methods, the Business
Control Model and the Business
Process Model will be explained in detail.
The history of international relations is often traced back to the
Peace of Westphalia of 1648, where the
modern state system was developed. Prior to this, the European
medieval organization of political
authority was based on a vaguely hierarchical religious order.
22
GENERAL RECOMMENDATION
Westphalia instituted the legal concept of sovereignty, which
essentially meant that rulers, or the
legitimate sovereigns, would recognize no internal equals within a
defined territory and no external
superiors as the ultimate authority within the territory's sovereign
borders. Classical Greek and Roman
authority at times resembled the Westphalia system, but both lacked
the notion of sovereignty.
Westphalia encouraged the rise of independent nation-state, the
institutionalization of diplomacy and
armies. This particular European system was exported to the
Americas, Africa, and Asia via colonialism
and the standards of civilization. The contemporary international
system was finally established through
decolonization during the Cold War. However, this is somewhat
over-simplified. While the nation-state
system is considered modern, many states have not incorporated the
system and are termed pre-modern.
Further, a handful of states have moved beyond the nation-state
system and can be considered "post-
modern". The ability of contemporary IR discourse to explain the
relations of these different types of
states is disputed. "Levels of analysis" is a way of looking at the
international system, which includes
the individual level, the domestic nation-state as a unit, the
international level of transnational and
intergovernmental affairs, and the global level.
What is explicitly recognized as International Relations theory was
not developed until after World War
I, and is dealt with in more detail below. IR theory, however, has a
long tradition of drawing on the work
of other social sciences. The use of capitalizations of the 'I' and
'R' in International Relations aims to
distinguish the academic discipline of International Relations from
the phenomena of international
relations. Many cite Thucydides' "History of the Peloponnesian War"
as the inspiration for realist theory,
with Hobbes' Leviathan" and Machiavelli's "The Prince" providing
further elaboration. Similarly,
liberalism draws upon the work of Kant and Rousseau, with the work
of the former often being cited as
the first elaboration of Democratic Peace Theory. Though
contemporary human rights is considerably
different than the type of rights envisioned under natural law,
Francisco de Vitoria, Hugo Grotius and
John Locke offered the first accounts of universal entitlement to
certain rights on the basis of common
humanity. In the twentieth century, in addition to contemporary
theories of liberal internationalism,
Marxism has been a foundation of international relations.
Modern communication systems and information technology make
international business an achievable
goal for all managers. International business opportunities can
increase revenue and profits but require
sound management techniques. Global' and 'world-class' sound like
big words for big companies. But a
small business can think as globally as anybody and, what's more,
achieve world-class rank in its niche:
witness the Green Tyre Company of Middlesbrough. It produced its
first bicycle tyre only three years
ago, employs 19 people and has a profitable turnover just in seven
figures. But those sales are made in
22 countries, because founder Colin Scarsi, never thought of it as
anything but a world company.'
His attitude sprang from the frustration of an 'awful lot of work
trying to promote UK exports.' Scarsi
used to work for the financial services arm of bankers Citicorp, but
had 'always fancied manufacturing.'
He saw businesses that had difficulty competing. 'Was it really all
that difficult?'
Today he says it is that difficult although you wouldn't think so
from Green Tyre's phenomenal pace of
development. It all began with an article in the Daily Mail,
reporting on the Goodyear giant's work on a
puncture-proof tyre. That sounded like a wonderful idea to Scarsi,
and in May 1991 he launched into his
tubeless tyre project, using microcellular polyurethane.
23
GENERAL RECOMMENDATION
Three introductions were invaluable. One brought in a business
angel, a private investor who provided
funds and owns the other half of Green Tyre. Second, visiting the US
in August 1991, Scarsi found the
'mad scientists' who could turn the technology Goodyear had only
'pottered' about with the idea into a
commercial product.
Third, the Development Corporation on Teesside did an absolutely
incredible job in easing the passage.
Scarsi rang one day, and the next, even though the project was still
pie-in-the-sky, people from the
Corporation came to see him in London. 'These boys', he said to
himself, 'are keen. Scarsi fell keenly in
love with Teesside himself, not least because, with 'ICI on the
doorstep, it wasn't frightened of
chemicals.' The financial aid packages were a help, though not very
substantial in relation to the half-
million pounds of capital required. And by October 1991, Scarsi was
'fairly confident' that he had a
business.
Seven months later, the first tyre was made. Scarsi waxes eloquent
about the 'fairly unique' and
'fantastic' properties of his chemicals, which happen to be
environmentally virtuous. Hence the name:
although the 'green' qualities are actually the weaker of Scarsi's
two marketing cards. The strongest, the
one which earns the tyres their premium prices starting at double
that for a pneumatic product, is the
'never goes flat' argument. But the green issue is 'very important'
in markets like Germany and Austria,
and is the easier way to create a unique market identity.
To achieve Scarsi's world ambitions, that identity had to be global:
'You've got to present your company
as international' - even though at first that may well mean
stretching the reality. For a start, Green Tyre
operates in six languages, and every person in administration must
speak two tongues. Scarsi also put a
great deal of effort into product profiles, a four-minute video made
in nine lanuages, visiting cards, etc.
As he says, the material you take abroad is 'all they're seeing.'
The potential customers are unlikely to
travel to Middlesbrough: so they have to be impressed on the foreign
spot.
The second global necessity is to have a world pricing policy.
Pricing must be fairly consistent, and you
need to think of the world as a single market. Since Green Tyre
faces no domestic competition, that
thought comes naturally - Scarsi says that 5.5 million bike tyres
are imported into Britain annually.
In relaunching Britain's bike tyre production, Scarsi had his
setbacks. While the first year made a profit,
it was precisely �515, and the second year made a small loss. In the
third year, though profits began to
flow at around �150,000, Green Tyre ran into capacity problems: at
the end of this month, however, a
new automated line comes on stream.
24
CONCLUSION
A new breed of company is emerging to lead the Triple Revolution.
These businesses are customer-
driven in a new sense: they not only respond to customers' wants,
but they place the customer in the
driver's seat by, paradoxically, leading the customer in directions
chosen by management. That paradox
springs from innovation. These companies are dynamited by brilliant
ideas, conceived in quantity,
realized at speed, and all aimed at both creating and serving the
market.
These new leaders are inevitably steeped in state-of-the-art
information and communication technology,
either as its suppliers, its users and/or as both. They have emerged
and are emerging in all countries, all
markets, and all industries. They have shattered the mould of the
world economy. According to a
famous 1960s projection, that was supposed to fall into the hands of
300 mega-multinationals. Instead, it
is the mighty who are in danger of falling - and many have.
They have tried to avoid their apparent fate. But whether it is
shattered profits (Shell), achieving turmoil
by takeover (BMW), inability to grow businesses (Siemens) - the list
of giant victims rumbles on and
on. Some of the shambles represents passing affliction, like
slumping oil prices. But chronic disease is
also rampant. Many companies are living in the past when the future
is rushing upon them at
breathtaking pace. In that future, size is less relevant than speed,
and muscle less important than
litheness.
The continuing orgy of mega-mergers as the Millennium approached
reflects a dangerously different
view. Management after management is still betting billions of
shareholder wealth on the proposition
that the battle goes to the biggest. In the real world, lumbering
elephants are exposed by the aggression
of speeding midgets. No matter how hard they try witnessing IBM the
old-line companies, even those
that have pioneered the new technology, cannot win the sprint
championship - and that is increasingly
the only race in town.
That places unprecedented pressure on the mighty. The Internet and
its entire works affect them in two
painful ways. First, cyberspace has brought global competitiveness
within the reach of any
entrepreneurial spirit, even with modest resources. Second, the same
technology has become a decisive
weapon for revolutionary companies, strong on people policies, low
on hierarchy, fluid, flexible and
fleet. Often created by the entrepreneurial spirits mentioned above,
these new competitors have decisive
advantages over the mighty and muscle bound.
25
CONCLUSION
They even have money, in millions and billions. The apparently
insane boom in Internet stocks in 1999
had an eminently sane side. It enabled the new entrepreneurs to lay
their hands on super-abundant
capital, priced with wonderful cheapness.
The cash hoards of new heavyweights like Microsoft, moreover, rival
or surpass those of the old-line
leaders. Well-financed, well-staffed, and well-managed, the
revolutionaries have nothing to fear from
corporations which were once cushioned by their wealth and fixed
assets.
Financial services show vividly what must happen on a widening
front. Virtually every company in
banking, or insurance, or home loans follows the same strategy.
Nobody has genuinely new ideas.
Nobody mobilises human assets to win growth: sackings a.k.a
'down-sizing' and 'restructuring are the
favoured, wrong-headed strategy. Piece by piece, the profitable
business is being chewed away by
newcomers like First Direct, which pioneered telephone banking in
Britain, and Charles Schwab, the
investment king of cyberspace.
Schwab's venture into online broking has been a stunning success:
online banking is bound to follow in
these rapid footsteps. In every industry, many more upstarts are
starting up every month, every week,
probably every day. Whole sectors will fragment and reform, much
like computers itself. As that
industry churned, IBM lost its stronghold in hardware which none of
its bigtime rivals had been able to
dislodge to little PC and workstation rivals. It fell behind in
third-party software, too, losing out to
Microsoft and swarms of other midgets.
In services, beaten to the punch by upstart EDS and another tiny
crowd, IBM is also confronted by
converted accountancy practices. In microcircuits, start-up Intel
has left IBM in the dust - and so on.
Each of the King's challengers seemed insignificant on entry, only
for the fastest to emerge as new
giants, billionaire companies whose wealth is created by equity
markets and predicated on the ability to
mine still more paper gold.
INTERNET OVER-VALUATIONS
Microsoft's Bill Gates regards this boom with misgiving, deploring
the over-valuation of Internet stocks.
When Gates spoke, the price/earnings ratios of 350 on America
Online, let alone the 1700 on Yahoo!,
did indeed look lunatic. But Gates was threatened by what the
lunatic ratings represent. He may be
yesterday's man, 'the old-timer in a kid's game', to quote Fortune.
26
CONCLUSION
Microsoft's near-monopolies in PC operating systems and office
software are threatened on several
fronts. The magazine lists five threats. (1) tiny computers that do
not use Microsoft software; (2) the
best-selling debut of the Apple iMac (also non-Microsoft); (3) Sun
Microsystems and Java (the language
that bypasses Windows); (4) direct Internet access to software
programmes (5) the free operating system
named Linux.
Each of these challenges is linked with a new array of upstarts. All
of them represent a turning of the
tide away from the Wintel proprietary dominance for Intel is also
challenged by cheaper
microprocessors and towards open competition: the same kind of flood
that drowned IBM's monopoly.
Nature abhors a monopoly, and so does technology. It is many-sided
and no respecter of persons or the
past. Both economics and applied science work against industrial
establishments.
History tells that it is desperately difficult, anyway, to reverse
such rolling tides. Companies of historic
success, buttressed by stupendous cash flows Shell's was $15 billion
in 1998 are staffed at the top by
well-heeled managers with vested interests in the past. That makes
it hard to contemplate, let alone
create, a future these men no women will only see as retirees. In
contrast, the revolutionaries, led by the
Silicon Valley Guevaras, are much younger people, who carry no
baggage, make up their traditions as
they go along, and discard them just as rapidly.
Netscape and AOL, now joined in wedlock, have metamorphosed
continually. The established
companies in the establishment industries have great difficulty in
changing at all: metamorphosis is
beyond their capability. Shell was deep into a long programme,
unrolled over years rather than months,
and designed to change its culture, when it was struck amidships by
the blows to its profits. Ironically,
the culture change was supposed to raise its profitability. Top-down
change, yet again, had proved
counter-productive.
Just embracing the new technology of marketing and selling will not
avert nemesis. The technology is
essential, and most companies have been abysmally slow in adopting
e-commerce breakthroughs. But
management processes also need revolution. Today you cannot afford
to delay decisions for months
while committees deliberate, back-burners get overloaded, and
defensive people cover their backs. Nor
dare you frustrate the young, bright and ambitious by resisting,
second-guessing and eventually killing
their ideas.
27
CONCLUSION
Do that and they will react like today's promiscuous customers? They
will vote with their well-shod feet.
The troubled giants face a dual retention problem. They stand to
lose both their best clients and their
best employees, very possibly to existing upstarts, or to start-ups
of the employees' own. The initials
SAP should be engraved on every mega-company's heart. They are
already more than likely to be
engraved on its mind, for SAP's enterprise-wide software systems
have been installed by blue-chip after
blue-chip.
SAP has (or had, for competition is rising) a hold over this
top-level market that is reminiscent of IBM's
prowess with mainframes. The analogy is appropriate, since the
German company was founded by four
engineers who broke away from IBM when its management frustrated
their project.
The enormously expensive contracts which SAP now fulfills have taken
its sales to $5 billion and its
market value to $xxxx billion, compared to IBM's $98.3 billion.
Every one of SAP's contracts represents
business which might have been IBM's.
THE DOUBLE LOSS
The double loss of clients and people is today's problem as well as
tomorrows. You can readily find
companies which, right now, are losing more (and more profitable)
customers than they can recruit.
The law of nature would suggest nothing different. If companies,
however large, have outlived their
usefulness, so what? But the braver and far better course for larger
corporations is to embrace and
manage change: to ride the revolution.
No blue-chip behemoth has attempted this. Shell's much-trumpeted
culture change, for instance,
merely nibbled at the edges, with the afore-mentioned awful results.
But the failures provide no reason
for not trying: quite the reverse. Otherwise the survivors risk the
same fate as more than half the
original British companies in the Footsie 500, who have simply
dropped out of the list, after only 15
years. The next 15 will be even deadlier for would-be dinosaurs,
richer still for their young and thrusting
predators. On one prediction, 80% of the Fortune 500 are faced with
dwindling or disappearance over
the next few years.
Bizarrely, their managements may be congratulating themselves on
having raised 'shareholder value'
even as their companies head for a great fall. When the stock market
creates billions of paper profits in
a day, it generates huge advances in 'SHV'. True believers in the
SHV cult, however, don't regard their
idol in this light, as a mere euphemism for boosting share prices -
which, in raging bull markets, is no
hard trick. It sounds much harder just to calculate, let alone
increase, the 'present value of future cash
flows discounted at its weighted average cost of capital less the
value of debt'.
28
CONCLUSION
The Price Waterhouse tome which thus defines SHV inadvertently
reveals that many cultist
managements have no such calculations - or anything else - in mind.
'Perhaps your company has
declared a commitment to shareholder value', begin the three
authors, 'and you want an explanation'.
What kind of management commits itself to a prime directive that it
can't even explain? Commentators,
however, dispense with explanations. Thus, CEO Lou Gerstner was
praised by one magazine for raising
IBM's value 'more than $40 billion in four years': and that meant
simply in the stock market.
Writing in the Financial Times, business professor Henry Mintzberg
neatly skewered such claims with
three well-chosen words: 'All by himself'. If Gerstner truly were
the unique hero, he would also be the
villain of every share fall. He would certainly own all the credit,
or discredit, for IBM's dismal sales
growth in a dynamic industry: 3% in 1997, 4% in 1998. Harshly
enough, Business Week calculated that
IBM would enhance SHV by selling no less than five major businesses
- including PCs - to focus on
services, etc.
That analysis doubtless referred to the crude SHV, hinging only on
the share price, which is what
managers also really pursue. It is a wildly inappropriate choice for
the prime objective of corporate
strategy. All that happens is that managements twist and turn as
they search for a new story that will
galvanise the analysts and elevate the price-earnings ratio: like
the sale of assets as advised for IBM to
concentrate on a new 'core'.
But sell-off exercises merely repair the devaluation wrought by past
neglect of the real, intrinsic worth
of businesses. IBM's PCs once had an Intel-like quasi-monopoly.
Successive PC managements changed
far too often devalued the strategic strength of a marvellous brand.
Sold off, the PC business, along with
IBM's other suggested discards, might have remade itself into a
revolutionary operation - a real
challenger to the upstarts (notably Compaq and Dell) who were
allowed by IBM to seize advantage after
advantage.
Michael Dell is by no means indifferent to the share price which has
given him a multi-billion dollar
fortune. But his true success lies in the design and creation of
business systems that achieve non-
financial prodigies of performance. For instance, Dell has brought
inventory down to eight days, a third
of Compaq's. The proper target for management is optimisation of the
system to achieve best-of-breed
performance on all significant measures, internal and external. The
SHV thus created lies in the ability
to generate superior revenue and profit growth over time.
29
CONCLUSION
THE KNOWLEDGE POWERHOUSE
Taking the share price as objective puts the cart far ahead of the
horse. And if putting the business
unequivocally first also does wonders for the 'discounted present
value of future cash flows', so much
the better for everybody - including shareholders. Giving such
priority to the business means priority for
information and communications technology, for the simple reason
that moving the organisation from
conservative to visionary demands reconstructing all its processes
around the knowledge powerhouse.
If those leading the organisation cannot grasp that truth, they are
not visionaries, and the outlook for any
reform plans is worse than uncertain. That acid test is whether
those at the top, the seniors, are ready and
able to move into the strategy zone or out altogether. In that zone
they look ahead, they oversee, they
inspire. But they don't even try to 'manage' in an operational
sense. They entrust younger men and many
more women with the task of remaking the corporation, by removing
hierarchical levels and customs,
slaughtering sacred cows, and speeding up all processes.
The operators will move towards the virtual ideal, in which
customer, corporation and supplier are
indivisible. That sounds complex, but is actually based on simple
principles and activated by
approachable and readily available technology. After all, what is
more natural than sharing information
with your business partners and your own colleagues? And what is
more sensible than acting on that
information to achieve the optimal results for everybody engaged in
the business system?
Riding the Revolution is most difficult psychologically: the
technological, financial and economic
inhibitions are as nothing compared to the fear of the unknown, the
clinging to the past and the worries
over risk that stop managements from taking this plain, ten-step
route to the future - and to prosperity:
1. Always put the human factor first. Technology is useless unless
it fulfills the requirements of human
beings.
2. Always use the technology to simplify. Reduce complex issues to
simple, commonsense principles.
3. Work towards clear, significant objectives. Form aims that will
inform and guide, not only the
technologists, but everybody else.
4. Spend money to defend money. Lagging behind on the technology
will boost profits at the cost of the
business.
5. Spend as long as necessary on the preliminary work of creating
the set-up. Build a system in which
people can operate effectively.
30
CONCLUSION
6. Expect the investment to make an 'economic profit'. That is, a
handsome return over and above the
cost of capital.
7. Use the system to delegate responsibility. Make people
responsible for what they personally
influence.
8. Only invest in technologies whose business economics are sound.
Keep commercial purpose
constantly in mind.
9. Always aim to produce the best long-term results. But also seek
to optimise short-term performance.
10. Know that mistakes made in the cause of progress are no mistake
- if you learn and apply their
lessons. Be prepared to experiment.
These principles animate a truly Millennial management. But they are
only a beginning. Faced with
inescapable complexity and constant, managers have always sought for
immutable guidelines (like
Hewlett-Packard's 'The H-P Way') and for permanent business systems
(like the innovation processes at
3M). In both companies immutability and permanence eventually
produced unresponsiveness and
conservatism: the length of 'eventually' depended on the personal
strengths of the leadership. In the Age
of the Triple Revolution, that is no longer enough.
Mutable, transient, responsive and revolutionary organisations are
paradoxically the only corporate life-
forms that promise to be lasting.
They depend on an excellent infrastructure of information and
communications, working in combination
with killer apps that use the infrastructure to transform processes
and businesses. There are no certainties
in this formula. But an uncertain world provides limitless
opportunities for internal and external
breakthroughs, for phenomenal payoffs at fractional costs. The
winning strategy is just three words long.
Ride the Revolution!
The Swatch is an excellent example of a powerful idea. The
development of the quartz movement meant
that Japanese watches using it were as accurate as - or more
accurate than - the Swiss watches with their
expensive mechanical movements. Accuracy could no longer be the
selling point. The expensive Swiss
watch industry has indeed survived because it is no longer a 'watch
industry' but is now a jewellery
business. How else can men show how rich they are? They need to show
this to themselves as well as to
others. I once bought a watch in Australia for about $1.50. The
time-keeping was as accurate as any
other more expensive watch. It looked quite good, but I knew that
this watch was not jewellery.
31
CONCLUSION
CREATIVE CONCEPT
The creative concept of Swatch's Nicholas Hayek was to say that, if
time-keeping was no longer
expensive, it now became possible to sell cheaper watches. This was
only half the concept. If the cheap
watches were cheap and ugly, there would be no market so the cheap
watches had to be cheap, but also
cheerful and attractive. In a way, that was the key element of
success.
If the watches had a large 'design' element and were still cheap,
then a person might buy several
Swatches one after the other, if a new design appealed. This opened
the way to repeat business. In the
traditional watch industry an expensive watch used to last at least
a lifetime.
STRONG BRANDING
There was still another value to the Swatch concept. This was part
of the strong branding. If Swatches
were known to have a strong design element, then this became part of
the 'branding'. Swatches were
recognisable both on the wrists and in stores. Others have tried to
imitate the concept, but with less
success. The idea has proved to be a powerful one. But how much of
that success could have been
predicted? There was no model for cheap watches as great sellers.
Perhaps someone would come along
and make cheap watches which looked very similar to the expensive
ones and so take over the cheap
watch market.
There was a considerable risk: the fact that things turned out very
well does not mean that the idea was
an obvious winner from the start. As important as the 'concept' was
the very thorough implementation of
the idea. The Swatch logo was visible everywhere. At this point in
time, it is difficult to say which came
first.
Did the highly efficient distribution system lead to the high sales?
Or did the initial high sales lead to an
effective distribution system, because everyone, sensing success,
wanted to be in on the act?
SWISS COMBINATION
Could the Swatch have succeeded if it had not been known to be
Swiss? This answer to this question is
not at all obvious. If a Korean company had started to produce
'Swatch-type' watches, would there have
been the same success? I very much doubt it. The combination of
esteemed 'Swiss watch-manship' and
the low price was needed for success.
For exactly the sme reason, the idea could have faced opposition in
Switzerland. Why debase the great
reputation of the Swiss watch industry with cheap watches? So it is
even more to the credit of Nicholas
Hayek that the idea was implemented. This example illustrates the
four stages of a creative idea.
32
CONCLUSION
1. The generation of the idea
2. The designed value of the idea
3. The acceptance of the idea
4. The implementation of the idea
The acceptance stage is not easy. If you are in a position to
manufacture the item, then acceptance is at
the level of wholesale and retail. Then there is also acceptance by
the customer. When McDonald's
started to serve breakfasts, the operation lost money for four
years. Customers were not used to having
breakfast outside the home. Then the idea caught on and it became
the most profitable part of the
operation. But you need to have courage and considerable resources
to stay with a loss-making idea for
four years. Of course, it might have been predicted that the
'take-up' of the idea would be slow.
Normally, it is part of the creative design process that the new
idea should be designed to be acceptable
at all the needed levels. It is not much use having a wonderful new
idea that no one wants to try.
The difficulty arises when the 'acceptance value' and the ultimate
'consumer value' are in opposition to
each other. To change the idea so that it becomes more acceptable to
the implementers may mean that
the idea is so weakened that it is not of much value to ultimate
consumer.
The consumer does not have to take risks. If there is no obvious
value you do not buy. It is the
implementers who have to take the risk. Will the expected value
actually materialise in the market
place? Experience is the usual judgment base for taking risks. But
what if there is no experience? What
if the experience is contrary? With the Swatch, the experience of
the Swiss watch industry was with
precision-made expensive watches. The 'cheap' notion was indeed
contrary. The industry could have sat
back and stayed with the expensive watches, leaving the cheaper
watches to the Japanese. Most watch-
makers probably did just this.
CONFIDENCE
If there is confidence at the value level then the other risks are
reduced. Can values, as such, be pre-
tested? This is not usually easy. There can be comparisons with
similar values in other fields (like cheap
airline flights) but the comparison may not be valid. You may want a
cheaper holiday, but not a cheaper
watch. With the Swatch the key point was 'the quartz' accuracy.
Without this high-tech ingredient, the
cheap concept would never have worked.
33
CONCLUSION
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.
34
CONCLUSION
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.
35
CONCLUSION
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.
36
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