Radical Manifesto for modern times –

Part Two:  Atomisation and the new theory of the firm 

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 productivity and equity value of heritage corporations have flatlined for two decades.  In the UK today, the FTSE 100 still hovers close to pre-2000 levels. 
• An insensitivity to customer needs, which is demonstrated by the move away from  personal interactions on the high street to face-less calls centres.
• A genuine lack of product innovation, with consumer companies such as Nestlé and  Unilever maintaining obsolete product portfolios. 
• A reliance on inflexible outsourcing arrangements that hold business customers within a  commercial straitjacket, which offers little wriggle room to adjust to external changes. 

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: 

1. Smart companies that create a constant stream of innovative products and services, such  as the many biotech and FinTech start-ups that we see today. 
2. Customer managers that use data to analyse and predict the specific needs of customers  within different lifestyle experiences, such as travel and wellbeing.
3. Web-spinners that aggregate products and services to deliver customer experiences and  whose value exceeds the sum of the constituent parts. 
4. Portfolio managers that own rather than operate the tiny atoms and source venture capital  to enable these companies to hyper-scale at speed. 

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: 

1. Asset platforms, such as third-party manufacturers and global logistics companies, that  provide the heavy lifting for smart companies, web-spinners and customer managers. 
2. Service platforms that have been at the epicentre of the digital revolution, such as  Infrastructure as a Service (AWS and Azure) and Software as a Service (HR, CRM). 

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.