Throwing Rocks at the Google Bus: How Growth Became the Enemy of Prosperity (15 page)

Instead, look to maximize ongoing revenue, stable profits, a healthy workforce, and a satisfied customer base. If anything, CEOs should be suspicious of sudden spikes in business activity and see them as potentially unsustainable growth trajectories. Rather than building a new factory to meet rapidly rising demand, the steady-state CEO rents temporary facilities to increase capacity while testing a new market’s sustainability. Instead of using a temporary fad as an excuse to “grow the company,” the CEO uses it as an exercise in resilience and scaling. The company should be equally ready to return to the previous size as to scale up even more—or take on some partners.

If a company can exist perpetually on a particular scale—be it a single shop, Web site, or factory—where is the obligation for it to continue to
grow? For a business to find its appropriate size—even if this means scaling
down
—is not a Communist plot. Neither is creating a four-day workweek at full pay for the employees who got the company to sustainability in the first place. It may be counterintuitive in an age when CEOs are incentivized to grow now and pay later, but it is entirely more consonant with the efficiencies that digital technology brings to business.

The more Darwinian libertarians among us may feel compelled to reject a steady state as an affront to nature. True enough, nature is highly competitive, and species continue to adapt over time. On an evolutionary level, if you snooze, you lose. But this doesn’t mean species have to keep growing, either in size or in population, to remain competitive. The ratio of owls to mice in a forest finds an optimal range, beneficial to both species. If the owls are too successful, they will run out of food. Likewise, an individual life form is allowed to become “full grown.” Growth is part of an individual’s childhood, not its adult phase. A world where everything is required to keep growing in order to stay alive makes no sense.

Instead, we must assemble businesses more in the fashion of ecosystems, such as a coral reef. Species can still iterate and adapt new approaches—evolve—but they are doing so within a greater stable matrix. Likewise, a steady-state business still makes progress. It still has research and development, but it is motivated by a need to serve better and more efficiently, not to fuel some artificially imposed growth target. The equivalence between growth and progress is not only artificial and unproductive but also unsustainable in a contracting marketplace and on a planet with limited resources.

In 2014, Toyota Motor Corporation publicly shrugged off a year of record growth and a $10 billion surge in operating profit because it saw overexpansion as a greater risk than slow or even negative growth. “If we make plans based on the pace of growth we have experienced over the last few years, things will not turn out well,” one executive told Reuters.
41
Toyota’s president, Akio Toyoda, went so far as to blame the company’s aggressive expansion for both expensive product recalls (fittingly, cars accelerated by themselves) and its vulnerability to the economic crisis of
the past decade. While competitor Volkswagen continues to pursue aggressive growth targets (ten million cars a year by 2018), Toyoda remains calm. “If a tree suddenly grows very fast,” he explains, “the rings of the trunk will be unstable and the tree will be weak.”
42

2. Take a Hybrid Approach

Even CEOs willing to challenge the growth imperative can’t turn their corporations on a dime without angering shareholders or violating their fiduciary responsibilities under their corporate constitutions. But they can begin testing new, sustainable strategies for a more distributed landscape by dedicating limited resources to them while still running their main businesses the old, extractive way. Such hybrid approaches give businesses the ability to feel more like they’re merely hedging their bets on the future of the digital economy.

So, for example, one ingrained corporate behavior that might prove self-destructive in a digital climate is secrecy. Sometimes secrecy fails because of explicitly digital factors. For instance, proprietary security software for corporations and banks is proving less secure in the long term than open-source solutions. Why? Because secretly developed software is built and tested by fewer people in fewer scenarios. Open-source software has the benefit of hundreds or even thousands of developers, banging on it from all imaginable directions. Its openness is not a weakness but a strength. If a firewall’s impenetrability is based on keeping how it works a secret, it’s not a firewall at all; it’s a security leak waiting to happen.

We can generalize on this principle to the greater business environment in a digital age. Today, open sharing and collaboration are proving better long-term corporate strategies than sequestering research and development. Hiding one’s secret formulas suggests to the public—and to investors—that the company is depending on the innovations of the past and fears it won’t continue to develop new ideas into the future. Its best days are behind it, and now all the company can do is play defense. In contrast, the confidently innovating company shares its developments in the hope of incorporating the insights of others. It welcomes contributions
from the outside. People with great ideas can be hired. Companies that can identify areas for improvement can become new partners. If nothing else, demonstrating such openness expresses a company’s expertise, leadership, and commitment to the culture it’s supposed to be serving. Making better stuff is more important than who gets the credit.

But a company can’t just open everything up at once, particularly when shareholders and others believe its best assets are its proprietary solutions. That’s why some very established companies are developing quasi-open-source practices to connect internal R & D with outside technologists, universities, and, yes, even other corporations.

For instance, Procter & Gamble launched its “Connect+Develop” program
43
in 2004, with the goal of producing 50 percent of the company’s total research and development output through collaborative innovation.
44
The C+D initiative presents outsiders with an easy path to partnership: P&G publicizes its innovation goals online and openly solicits solutions from anyone, large or small, who wants to collaborate. Connect+Develop maintains a “Needs” list on its Web site, where detailed project specs are visible to anyone with an Internet connection. Clearly, the company is hardly embarrassed by its openness to outside help; if anything, it treats its willingness to engage with outsiders as partners in problem solving as a demonstration of confidence.
45

Over the last decade, the open approach has paid off. C+D’s most famous win to date has been the Mr. Clean Magic Eraser, really just a block of melamine foam—a polymer invented by the German chemical company BASF. Originally branded as Basotect, the foam was intended for use as a soundproofer and, later, as insulation in automobiles. But when P&G technologists discovered that the foam also functioned as a cleaning sponge, they moved to partner with BASF. The two companies quickly packaged the foam as is, under the Mr. Clean Magic Eraser brand, and released it in 2003.
46
P&G and BASF then pooled their R & D teams to continue work on the product and released a wildly successful follow-up, Magic Eraser Duo, in 2004.
47

Likewise, when P&G sought to create a long-term air freshener under
its Febreze brand, it partnered with Zobele, an Italian firm with only five thousand employees and extensive, niche expertise in the peculiarities of manufacturing air fresheners. P&G had a winning concept for a slow-release air freshener that didn’t require electricity. The company also had the supply and distribution chains to sell the innovation on a massive scale, but it lacked the expertise to engineer the idea into existence. Working with Zobele, P&G actually broke new ground and invented a no-energy automatic air freshener called Febreze Set & Refresh. The product went to market two years ahead of schedule, and the partnership continues to this day.
48

In both cases, partner companies found new applications for their engineering while gaining access to the considerable branding and marketing power of Procter & Gamble. P&G, for its part, saved years of research and millions of dollars in development costs while annexing expert out-of-house think tanks in the chemical industry. Instead of acquiring outside companies in order to monopolize their research, P&G sought to partner with these companies and develop long-term relationships. Like a nation discovering the theory of comparative advantage, P&G did better by trading its branding and distribution expertise for these companies’ particular skills. By letting them retain their independence, P&G also permits them to preserve their own innovative cultures—which can be called upon again in the future.

By edging into this strategy, Procter & Gamble avoids both risk and shareholder wrath. It is not completely abandoning its extractive and competitive corporate tactics all at once but merely “experimenting” with the more open-source development style of our decidedly more digital landscape. The company dedicates only a portion of its research and development efforts to agile, experimental processes while keeping the rest safely in the sphere of traditionally closed corporate practices.

Insulating legacy methodologies while simultaneously encouraging participation in newer approaches is called “dual transformation.” As
Harvard Business Review
advises, innovation of institutional processes can take years to produce benefits. If an established company dedicates itself
entirely to the emerging digital economy and its more open, peer-to-peer methodologies, “it throws away any advantage it still has.” Its CEO also risks a shareholder revolt, or even civil action. To innovate safely, companies should conservatively reposition the core business while creating “a separate, disruptive business to develop the innovations that will become the source of future growth.”
49

Hybrid strategies can also give larger companies a way to contend with slowdowns or even a contraction in earnings. Instead of selling off assets, and doing so under pressure during a recession, companies can repurpose their unused facilities toward the very forces costing them business. This expands capabilities, develops competence in the new landscape, publicizes that competence, attracts new kinds of employees, and generates goodwill. Instead of simply resisting disruption, the hybrid company embraces it while also staking a real but limited claim on that disruption’s becoming the new normal.

What might some of these strategies look like moving forward?

Consider supermarket chains, which are increasingly threatened by local food shares, community-supported agriculture (CSA), and growing discontent with Big Agra. The traditional corporate response to this conundrum is Whole Foods: a large, publicly traded company that attempts to provide consumers with organic products at scale. Problem is, “certified organic”—an appellation itself corrupted by corporate agriculture’s lobbying of the Department of Agriculture—rarely means food from small or local farms. Six large California farms account for the vast majority of officially organic produce.
50
In spite of large posters throughout the stores featuring wholesome local farmers, locally grown food is still hard to find on the Whole Foods sales floor. That’s because it doesn’t make sense for a company of its size to sacrifice the efficiencies of scale to the minutiae of local sourcing and distribution. Whole Foods isn’t a hybrid strategy at all but an industrial response to a new consumer trend.

Regular supermarkets might actually be in a better position to adopt a hybrid strategy toward local agriculture. Instead of seeing the growing CSA and farmers’ market constituencies as competitors, they could embrace
them as partners. If a supermarket were to encourage, or even provide the space for, a weekend farmers’ market, it might make up for lost produce revenue with sales of condiments and dry goods—both of which sell at higher margins and with less waste than fresh goods. In terms of specialization, supermarkets are better at the distribution of long-distance packaged goods, while local farmers and CSAs are better at farm-to-table freshness.

Supermarkets are also better at cash management, electricity generation, parking, insurance, and a host of other things that vendors and consumers would be willing to pay for. There’s no reason why farmers wouldn’t pay for stall space, the same way they do at a municipal marketplace. Meanwhile, produce unsold by the end of the day could be stored in supermarket refrigerators or even sold wholesale to the supermarket for it to sell over the coming week. If local agriculture marketed in a more peer-to-peer fashion ends up replacing a significant portion of the produce and meat industry, such a supermarket will be positioned to prosper—without having surrendered its core business in the meantime.

Even a store such as Walmart can hedge against its own scorched-earth corporate policies by fulfilling the emerging need for more local, peer-to-peer marketplaces. Importing inexpensive goods from China and selling them to middle-class Americans is not a good long-term strategy, anyway—not when America’s middle class is descending into poverty and the Chinese are becoming a middle class themselves. That’s an arbitrage that has run its course, as the company’s own numbers are indicating more clearly every quarter. If the resurrection of a middle class in America is going to depend largely on less extractive and more lateral economic activity, a company such as Walmart can ensure its own ongoing prosperity by finding a way to participate.

Instead of resisting the future with more aggressive tactics, Walmart must accept the impending contraction of its consumer base. This doesn’t mean closing up shop or selling off real estate under pressure; it means repurposing at least some of its assets and expertise to the new environment. The company could try supporting the growth of peer-to-peer digital
marketplaces such as Etsy by creating real-world analogues for them. The sales floor could become a hybrid of local crafts and boutiques alongside Walmart’s own offerings, all funneled through its own checkout and inventory systems. Popular, locally produced items in one location could be quickly identified and then ordered for distribution to the most probable markets, using Walmart’s vast trucking and fulfillment operations as well as its globally connected network of stores. Instead of simply extracting cash from communities, it would put itself in a position to foster local enterprise as well as peer-to-peer activity between communities that could not otherwise easily reach one another. The company could leverage a portion of its real estate, expertise, and logistics to enable and participate in the economy that may just replace it anyway.