The Future of Wealth: Wither The Megacorporations?

28 Jul

The Future of Wealth: Wither The Megacorporations?

Posted in Future of Wealth by Roger 1 Comment

One of the (arguably) biggest changes brought about by the rise of the Internet is the spread of entrepreneurial assets and opportunities. It’s now possible to start a business from the comfort of your pajamas (as I’m doing while writing this article), work with employees, contractors, or other business contacts from around the world, and build a sizable company presence, all from behind your computer.

At the same time, many of the services needed to run a company are increasingly available through independent agents. Where at one time you would need in-house groups for legal, marketing, or sales work, it’s increasingly possible to find outside firms that will provide such services, making you a client rather than them your employees.

Smaller, Faster, and More Agile

Welcome to the new business model, where just about anyone can become a business owner. Barriers to entry are decreasing (particularly when it comes to online businesses; as long as you have a personal computer, or even just access to one, you can become a business owner), supporting services are easier and cheaper to access, and groups, magazines, and online resources are helping the confused would-be business owner to get the information he or she needs to run their company. These are just some of the reasons that over 99% of current companies qualify as small businesses.

This process is only going to continue in the future. Besides the ever increasing technology base continuing to lower the bar on what can be done via the Internet, there’s the tendency for companies to beget companies to provide needed services. As more small companies look to incorporate or deal with other legal matters, legal groups catering to small companies arise. As small businesses develop the need to increase their sales force, sales companies arise or other selling opportunities develop (just look at the rise of affiliate marketing online). Increasingly, the key services required to start or grow a business are available without having to devote part of your business itself to running them.

It’s even becoming easier to outsource manufacturing and other primary business activities (so called contract manufacturing). Soon, it could be possible to have a business that produces something (let’s call it widgets), creates a legal structure to support it, and sells it, all in different countries. And it need not be a globe bestriding megacorporation in order to do so.

Dividing and Conquering

That brings us to the large companies, the ones who are big enough to have multiple departments handling a variety of different functions. If the writers of Future Wealth are correct, they’re going to be under increasing pressure to split their businesses into component pieces. So, the legal team from Ford might be separated into its own law company, providing legal services to a variety of other corporations (which may or may not include Ford itself, depending on Ford’s needs).

Increasingly, businesses will bring in outside corporations to fulfill the functions that the business needs. By doing so, they can focus more of their energies on their main money-making activities. If it’s possible to get legal, marketing, sales, or even janitorial services less expensively from outside corporations than from internal divisions, why not opt for the former option, and allow the division in your company that provides the service to go its separate way, succeeding or failing on its own merits.

The Future of Corporations

So, what does the future look like if these trends hold? First, the nature of corporations will change greatly. Instead of mammoth organizations designed to provide all the corporations needs, there will be smaller ‘business units’ that focus on one aspect of the business’s overall mission (or a small number of related functions). Most companies will stick with a relatively small number of these business units, to save on complexity and the inevitable layers of management that come from having disparate groups all operating under one roof.

Second, those corporations that do grow large and take on many different business units will be less likely to feel compelled to build a ‘whole’ business out of the parts. If there is an economic advantage to having your own legal department (either one that you acquired or one that you built from scratch), companies will do so, but otherwise, why not hire an outside firm? On the other hand, if there is an advantage to acquiring another business or business unit, regardless of its current purpose, why not acquire it? As long as adding it to your empire doesn’t unduly increase the difficulty in managing your company, there’s little downside in doing so.

Finally, there’s going to be an ever-increasing market for services marketed toward other companies. While there may have been a need in the past to have at least some utility to the average consumer in the products that your company made, it’s increasingly possible to market your services entirely to other companies. As more companies try to streamline their businesses, it’s more and more possible to make good by marketing your services to cover the functions that they need, but don’t want (or can’t) provide themselves.

None of these changes are new, really; corporate raiders have been breaking up companies into component parts to find some that are profitable since the eighties, outsourcing was big in the nineties (and continues to be), and business to business transactions have been important pretty much since businesses began. The difference now is the increasing trend toward these traits for all companies, at all levels, from huge companies to lowly start ups. Who benefits the most from these trends will remain to be seen.

Note: as always, I’m not a professional, and these are just my opinions on the future of the corporate structure. If you need to know more about where the future will lay, a consulting company is a better source of guidance (as well as a good example of a specialized business unit like the ones discussed in this article).