Getting Bigger by Growing Smaller - PCC - ebook

Large, mature companies always become trapped at some point in the declining stages of what has become known as the corporate life cycle. Historically this barrier to continued growth has been, and is still, as unavoidable as death and taxes. In Getting Bigger by Growing Smaller, Joel Shulman, a leading researcher on entrepreneurship, teams up with Thomas T. Stallkamp, one of the world's most effective executives, to introduce a powerful new growth model for corporate America (based on 4 years of research at Babson College and Harvard University) that can enable corporations to break through this barrier to growth by utilizing a new breakthrough business model called the Strategic Entrepreneurial Unit (SEU). Shulman and Stallkamp demonstrate how to build new employee/entrepreneur-led startups within the corporation--entities that can take on new market opportunities and deliver startup-level growth. This is the first book to provide practical methods for actually identifying, creating, and implementing smaller units within large organizations to enable continued, rapid growth beyond the predictable barriers of the corporate life cycle.

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Chapter 1The Key Challenges Facing Corporate America At Present

Big companies don't seem to endure all that well. Despite all the advantages available to them(economies of scale, marketing savvy, strong channels of distribution), large corporations typically don't get bigger and stronger over time. Instead, they often become increasingly irrelevant and out of touch with the marketplace until eventually they are forced to close their doors. What's needed is a workable way to implant entrepreneurial thinking inside the corporate walls in such a way that wealth can be created on an ongoing basis.

Specifically, corporations face four key challenges:

Finding effective ways to renew the corporate spirit and stay vibrant and successful over an extended period of time.

Developing better ways to link employee compensation with the creation of long term value.

Overcoming internal resistance to change.

Generating genuine growth in revenues and profits.

Key Challenges 1  The need for corporate renewal

Loads of ideas have already been tried to extend the life cycle of large corporations:

■ In the 1960s, acquisitions were all the craze, with diversification as the main aim.

■ In the 1970s, many companies tried to generate growth internally through intrapreneurship programs.

■ During the 1980s, creating value through financial techniques(junk bonds, leveraged buyouts, financial asset repackaging)was tried.

■ In the 1990s, corporate venture groups became the fashion, with spinoffs being taken to IPO stage as rapidly as possible.

All of these fads had their moment in the sun, but none have been able to extend the corporate life cycle appreciably. More than 80-percent of today's Fortune 500 companies have been in business for less than 100 years, and more than a third of the Fortune 500 companies are less than 25-years old. With very few exceptions, older companies don't keep gaining in strength over the years, but lose out to younger, more aggressive companies with new ideas.

Key Thoughts

"What is the template for creating a long-lasting, self-sustaining organization or empire? History demonstrates that great empires can last for hundreds, even thousands of years, yet our evidence suggests that large companies in the United States don't normally last beyond 100 years. With the proper growth model, multinational companies can extend their corporate existence and push the average age well beyond 54 years. These firms need the appropriate incentive structure that attracts great talent and keeps it motivated for long periods of time. They cannot afford to lose key people to new ventures or competitors. Corporate America needs a template in which potential partners both within and outside the organization have economic incentive to drive toward a common purpose and goal. It needs a better model for growth. And it needs it now."

Joel Shulman

Key Challenges 2  Rampant compensation demands

At the present time, many organizations have executive compensation schemes which are poorly designed. Often, management is being rewarded for behavior which does not create long-term value for the shareholders. For example:

■ Dealmakers──CEOs, investment bankers, venture capitalists and even high-profile consultants──typically make unprecedented amounts of money based solely on closing an acquisition, not on how the combined entity actually performs in the marketplace. This has created many corporate acquisitions which have lost significant shareholder value.

■ Some CEOs have encouraged their organizations to take large short-term risks and then cashed out their options before the long-term problems appear.

■ Many companies have used their own inflated stock to acquire other companies. Often, these acquisitions were made in the light of bidding wars which saw the acquiring company pay many billions more than the companies were worth, causing a number of flow-on problems.

■ Some executives have traded away a better price for stockholders in an acquisition situation in exchange for more job security for themselves in the future.