SOURCE: Bain & Company Inc

Bain & Company

May 22, 2017 09:00 ET

Big Changes Ahead: Companies Face the Most Sweeping Change in the Last 50 Years in the Way They Are Organized, Managed and Financed

Bain & Company suggests businesses as we know them are approaching the end of an era and identifies five themes the "firm of the future" must adopt to be successful in the next 10 years

NEW YORK, NY--(Marketwired - May 22, 2017) - The biggest change in the last half-century is coming to the way firms are organized, managed, and financed. Four converging forces -- the 4th industrial revolution, breakdowns in the post-Cold War global system, shifts in workforce structure and motivations, and business complexity -- will significantly reshape how firms are managed, operated and financed. In new, breakthrough analysis, The Firm of the Future, Bain & Company suggests that the next generation of successful companies will look vastly different than those of today. Firms that ignore the disruption or choose to take a 'wait and see' attitude in their approach to addressing and adapting to these changes will find themselves at a disadvantage when it comes to attracting and retaining talent, capital, and a competitive edge.

Bain conducted a historical review of business trends over time and found that dominant ideas about the firm evolve every 50 years or so.

"The current era has celebrated the primacy of the shareholder, with leaders focusing on their core businesses, emphasizing efficiency and return on capital, and tending to share prices with an increasingly short-term bias," said James Root, a leader within the Bain Insights Forum and lead author of the research. "While this model performed well for many years, it is insufficient to meet the current set of changes facing business."

The characteristics of the firm of the future are still emerging. However, Bain has identified a common set of trends that will change how we think about and define a corporate entity:

  1. Scale and customer intimacy. Thanks to technology, firms will no longer need to choose between scale benefits and customer intimacy. They can do both. Firms will be able to "rent" scale from external partners.
  2. More focus on mission-critical roles; less on professional management. Focus is shifting to the talent that is most critical to delivering the firm's promise to customers, whether that is product designers, supply chain teams, front-line customer service representatives, or some other group; others will be outsourced or automated. This will dilute the role of professional managers, which have been at the center of the corporation for nearly 100 years.
  3. Assets vs. ecosystems. Traditionally, firms grew by owning assets and hiring people. In the future, winning firms will make much greater use of external partners across an ecosystem to maximize value for their customers. Many people in the firm will be engaged with managing partners, who might also be competitors, customers, or suppliers.
  4. Capital gets a reset. The line between public and private ownership is blurring. New ownership and investment models are evolving to better match the time horizons of the firm with the risk-and-return needs of the investor. Capital will become more flexible, and the firm of the future will rely on different types of investors for different types of investments, including "projects" or parts of firms.
  5. Engine 1 and Engine 2. The firm of the future will simultaneously manage "Engine 1," its core business, and "Engine 2," the new businesses with a start-up mentality or venture capital approach that may eventually replace Engine 1. The two engines demand different leadership approaches.

"Steering a company through these shifts presents a profound leadership challenge," said Andrew Schwedel, a leader of the Bain Insights Forum and in the firm's Bain's Macro Trends Group. "There are many companies that have done it once or twice; a few as many as three times, but these seismic changes are rare enough that most leaders have no direct experience with them. This is why we've seen more failures to adapt than success stories of navigating the transition."

As firms start to think about the challenges ahead and how to address them Bain offers five no-regret moves:

  • Translate your strategy into 25 to 50 specific market engagements (micro battles), and deploy fast-moving teams that include the people who deliver the benefits of scale and intimacy to prosecute these battles
  • Identify your mission-critical roles, and develop a plan to put your best talent in them. Establish a council to connect and build engagement within this group, and install rapid market and internal feedback systems to drive peer-to-peer learning.
  • Map your entire ecosystem by activity, and assess your degree of capability in each activity as compared with external options.
  • Segment your investor base by degree of alignment with your strategy along two dimensions -- time horizon and risk appetite.
  • Establish an Engine 2 incubator, and segment the company into Engine 1 and Engine 2, with clear guardrails and operating models for each, and clear rules of engagement between them.

"These actions merely scratch the surface of the retooling that many companies will need for the new era," said James Allen, one of the leaders of the Bain Insights Forum and head of the firm's global Strategy Practice. "To some firms, they may seem premature, aggressive or even excessive, but in this environment, it will pay to be bold, to think long term and to act quickly."

Editor's note: To request an interview with Mr. Root, Mr. Schwedel and Mr. Allen, please contact Dan Pinkney at dan.pinkney@bain.com or +1 646 562 8102.

About Bain & Company

Bain & Company is the management consulting firm that the world's business leaders come to when they want results. Bain advises clients on strategy, operations, technology, organization, private equity and mergers and acquisition, developing practical insights that clients act on and transferring skills that make change stick. The firm aligns its incentives with clients by linking its fees to their results. Bain clients have outperformed the stock market 4 to 1. Founded in 1973, Bain has 53 offices in 34 countries, and its deep expertise and client roster cross every industry and economic sector. For more information visit: www.bain.com. Follow us on Twitter @BainAlerts.

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