A radical manifesto was contained in two books published at the start of the new millennium: ‘The Atomic Corporation – a rational proposal for modern times’ (2001)8; and ‘Atomic – reforming the industrial landscape into the new structures of tomorrow’9(2003) .
This trilogy of three short papers examines the confluence of disruptive forces that led to: the requirement for a new theory of the firm (Part One); the radical predictions that preceded the dotcom revolution of the past two decades (Part Two); the need for a fresh vision of the future up to 2040 (Part Three).
2001 to 2020: Two decades of economic stagnation
Around the start of the new millennium, experts wrote extensively about how corporations would need to reinvent themselves to compete effectively in the digital economy. Hagel talked about Unbundling the Corporation in 199910, and Phil Evans and Tom Wurster wrote Blown to Bits in 200011. Both seminal documents heralded the break-up of the old order, but neither presented a convincing picture of a new digital landscape. This was the space that Atomic hoped to fill.
So, what has transpired over the past two decades since the publication of these texts? Despite the promise of digital technologies, accelerated by Moore’s Law, the West has experienced stagnation both in productivity and equity growth amongst the corporate
dinosaurs that have managed to persist. Clayton Christensen describes this effect in his book The Innovator’s Dilemma12, where successful corporations generally run according to short term rules that militate against investing in new and risky technologies
The dotcom bust in 2001 combined with the global financial crash in 2008 removed much of the trust in, or appetite for, new economic models. Risk capital to fuel start-ups was hard to find when financial institutions were gasping for oxygen.
What needed to be fixed?
Even after a decade of reengineering and downsizing during the 1990s, we continue to watch the dinosaurs dancing slowly towards extinction.
This continuation is explained by the scale and rigidity of bloated corporate structures that have lost any sense of innovation or agility. Nobel prize-winning economist Ronal Coase referred to a similar situation in the 1930s. He anticipated corporate break-ups taking place when the cost of internal transactions exceeded external ones due to the increasing layers of corporate bureaucracy needed to coordinate complex operations.
The forces sponsoring a much-needed corporate reformation began to mount as new players such as Amazon and Tesla took to the stage. These forces for change included:
The first moments of atomic fission
Something momentous occurred in 2000. The CEO of BP received a call from his peer at Shell inviting him to join an e-procurement (or business to business) marketplace based on an internet-based information exchange. The proposed business platform offered the prospect of large cost savings through the aggregation of procurement systems across 10 oil majors. These behemoths had combined spending power of $250 billion. Just 3% savings would more than justify the cost of setting up an e-procurement market. Other sectors were following a similar course.
I was a senior partner at consultant EY at the time. EY was called in by BP’s group CIO to establish the merits of a joint procurement market. Our conclusion was that, if the individual processes could be aligned, then the savings would help transform the energy sector. However, we added a separate note about equity shares in our final report. The market operator, Accenture, wanted 90% of the equity of the new e-market. We suggested that the 10 oil majors should own 90%, leaving the operator with just 10%. Our argument was that the majors should monetise their combined spend and create a powerful new IPO vehicle that would enjoy high economy multiples.
Convening 12 of the world’s largest companies at Coca Cola’s headquarters in Atlanta in early 2001, EY proposed that a range of e-marketplaces could be established to operate all back-office corporate functions, such as finance, human resources (HR), customer relationship management (CRM) and supply chain. The vision of the proposal was to incubate a portfolio of business platforms, each of which could exceed the equity value of the collaborators – the ISVV or Internet Services Venture Vehicle13. Despite the excitement that this proposal generated, barriers – such as process integration and the collapse of the NASDAQ – halted the initiative in its tracks.
Unbundling of back-office functions onto external platforms created a more fundamental question: what would be left at the centre if most of the corporate limbs are removed?
A new theory of the firm
The Atomic thesis first advanced in 2001 by Martin Farncombe and I envisioned a new chemistry of business. It included a periodic table consisting of small, agile atoms that would generate vast new sources of wealth, complemented by global platforms that would provide scale and scope. It mirrored the image of the ‘coral reef and deep blue sea’ proposed by Gill Ringland in her book Scenario Planning14.
The atomic particles were divided into four mains categories:
Some of today’s digital leaders such as Facebook (web-spinner), Apple and Netflix (smart companies) fit into this atomic universe. Google and Facebook have created holding companies, Alphabet and Meta, that are essentially portfolio managers.
Additional molecules are arranged into two categories that we refer to as business platforms:
It is the service platforms that are now driving the most profound changes within the global economy. In addition to transforming heritage organisations, they have become the birthplace for software-driven enterprises in virtually every sector and the experiences these businesses provide.
How accurate were our atomic predictions?
The underlying thesis in Atomic was that hyper-connectivity would be the primary catalyst for industrial atomisation. With two-thirds of the world’s population (4.6 billion) now connected to the internet, this predication has been borne out over time. The launch of the iPhone by Apple in 2007 added an additional spurt to this trend.
The development of cloud platforms during the past decade has added credibility to our ‘service platform’ category. These cloud platforms initially provided basic connectivity and compute power, such as Amazon’s AWS and Microsoft’s Azure. Today, many platforms offer a full range of business services, including Microsoft 365 and Office, Salesforce and CRM, and Workday and HR. These full-range services are helping to unbundle legacy back-office systems within heritage organisations. In this arrangement, cloud is a global utility that favours large-scale capital investment and stable operating processes.
The rise of venture capital in the wake of the 2008 financial crash has stimulated the proliferation of smart, innovative companies in virtually every sector. Look, for example, at the success of Tesla in automotive. Biotech partnerships, such as Oxford University’s work with AstraZeneca on the coronavirus vaccine, have demonstrated the power and influence of small, knowledge-rich companies in the pharmaceuticals sector. Small and agile has become the new operating paradigm for corporate innovation.
Overall, digital winners – such as Alibaba, Alphabet and Meta, and early-stage start-ups – are becoming the primary source of value creation in today’s global economy in the east and the west. These digital winners already account for more than 25% of global equity value. This proportion could double during the current decade. Much of this value comes through digital winners’ ownership of ‘your data’. While this data holds future net value, it remains relatively unmonetized.
At the same time, consumers have become more influential in deciding digital winners. Online interactions of all kinds give the consumer more choice and greater knowledge in every area of social, economic and political activity. The recent move to hybrid working has brought
with it the ‘great resignation’ that encourages millions of workers to leave large, insensitive corporations in search of more creative environments, such as digital start-ups. Global talent sourcing, enabled by hyper-connectivity, is also shifting employment patterns.
What did we not predict?
The main omission from Atomic in 2000 was the realisation that ‘the winner takes all’ in a digital world. It’s possible to identify the individual atoms in a company such as Amazon or Alphabet, but digital winners combine agility, innovation, scale and customer intimacy under one corporate umbrella. This ability is due to an organisational design that takes advantage of a unique combination of two-pizza teams, microservices and global platforms – and that combination allows digital winners to achieve dominance in a sector.
In Part Three of this trilogy, we examine how a second wave of technologies and organisational design might help to atomise the economic landscape further as we move towards 2040, creating entirely new scenarios.