Let A Thousand Flowers Bloom

Not too long ago, fortune 500 companies looked at small-scale entrepreneurial companies as fodder for acquisition -- if they were big enough to make the effort worthwhile -- and little more. The executive who dared to suggest that Goliath might learn from David was likely to be trampled by a herd of MBAs waving printouts on the economies of scale that flowed from a centralized and rationally managed organization. Talk about innovation, and you might hear John Kenneth Galbraith quoted: "There is no more pleasant fiction than that technical change is the product of the matchless ingenuity of the small man forced to employ his wits to better his neighbor. Unhappily, it is a fiction. . . . A benign providence . . . has made the industry of a few large firms an almost perfect instrument for inducing technical change."

Then something happened. IBM Corp. missed the minicomputer market and allowed Digital Equipment Corp. to become a giant in its own right. The micromillenium was born in a Cupertino, Calif., garage, and IBM executives could imagine the DEC scenario all over again. At NCR Corp., where management had a history of having to play catch-up in areas they should have dominated, the company missed the shift from electromechanical point-of-sale terminals to purely electronic machines. And a host of other entrenched companies suddenly saw competitors spring up where they had none earlier, or saw the Japanese enter their markets with better and cheaper equipment. This latest shake-up of American industry centered on the high-technology side of the market, but its reverberations rippled through American industry. An American corporate orthodoxy that was suited to mature, stable markets turned out to be ill-suited to a dynamic marketplace characterized by a tremendous pace of innovation and change. And big companies began to wonder whether their very structures inhibited their ability to adapt in a dynamic marketplace.

And so the way Fortune 500 companies do business began to change. In changing, big companies acknowledged an idea that, until recently, they had given short shrift -- entrepreneurism. Giants like IBM started to tap inventiveness outside the company and to restructure their own divisions to make them more like the entrepreneurial companies with which they were competing. NCR radically reorganized the entire company in hopes of tapping some of the virtues of smallness. Memorex Corp. entered into alliances with a host of small, entrepreneurial start-ups, and a number of other large corporations, such as Control Data, Monsanto, Lubrizol, Ing. C. Olivetti, and Xerox, have done the same, structuring the relationships so as to preserve the independence of the little company rather than incubate it as a candidate for acquisition.

This is not the first time that major companies have attempted to factor themselves into smaller units (although this is a novelty for computer companies). In the past, however, such reorganizations have served the needs of accounting and strategic planning. This time, the interest in smaller units seems to be directed toward the entrepreneurial nature of small-scale operations.

By now, the ripples of these alliances and reorganizations have perfused American industry far beyond their high-tech origins. Forecast '84, an annual symposium at the University of Tampa, devoted in previous years to economic predictions, focused on the lessons of Thomas J. Peters and Robert H. Waterman Jr.'s book, In Search of Excellence. The gathering had the flavor of a revival meeting, as speakers confessed their earlaer sins of centralized entrepreneurism and big business. As Philip "Don" Estridge, president of Entry Systems Division of IBM put it, "the pendulum has swung in the direction of the entrepreneur."

What we have is a full-fledged trend, complete with apologists in academia, monumental best-sellers, a host of newly converted chief executive officers, and predictions that these alliances and restructurings will characterize American industry through the end of the century. One observer described this movement as "the breaking of a great wave that had its origins at the dawn of the Industrial Revolution."

In the midst of this celebratory din, it is possible to overlook the extraordinary nature of these events. After all, big business and small entrepreneurial companies are not natural allies, they are more like natural enemies, and 80 years of distrust and misunderstanding cannot be easily erased. Moreover, not everyone is an entrepreneur, nor is every giant company easily rendered into small, autonomous sub-units. There is, indeed, some question about whether a major company can ever become truly entrepreneurial.

All of this argues for caution before accepting that the lion has finally lain with the lamb. Nevertheless, it seems clear that -- for the time being, at least -- American business has decided that small is beautiful.

THE CHANGE OF HEART

The reasons for the swing toward entrepeneurism can be traced to a number of factors, which began to manifest themselves in the 1970s. Against the backdrop of a steady 25-year deterioration of consumer confidence in the motives and abilities of major corporations, big business found itself under assault on several fronts:

* Owners (that is shareholders) began to discover that managers did not manage companies for the shareholders, but rather for themselves. Major shareholders began to take a hard look at the raison d'etre of conglomerates -- the sum of whose parts tended to be undervalued in the stock market, while management's control and perquisites were enhanced. This reexamination has inaugurated a period of deconglomeratization, characterized by strategic "de-accessinn" (in which unwanted businesses are sold off) equity carve-outs (in which shares of a wholly owned subsidiary are put back into the marketplace), and leveraged buyouts.

* All too often, the strategy of engulf and devour turned out to be counterproductive anyway, as the acquired company would lose its incentive and competitive edge under a new layer of management and would see its key peopIe leave for less-confining climes.