Return of the dinosaurs

From Exxon to Tata, the last two decades have seen the largest and longest-established corporations in the world face a constant stream of criticism and questioning. As bright, high-tech upstarts such as Google and Amazon have seized the day, the greats of yesteryear have appeared to be overly large behemoths, out of sync with the times. Their sprawling empires seem to make less and less commercial sense, sitting targets for the next disruptive innovator to attack.

To this litany may be added questions about the governance standards of the ageing giants: see the travails of Tata earlier this year. Not to mention their perceived unattractiveness as places to work. Why would the most talented people in the world beat a path to a corporate mausoleum when they could be heading into the Valley to work at a place with unlimited food and table football rather than a marble bust of the founder in the atrium?

In the current environment, the fate of the corporate dinosaurs appears inevitable: they are doomed to extinction. Measures of uncertainty are at an all-time high. In 11 months in 2016, the Global Economic Policy Uncertainty Index rose by 149 percent, and reached a two-decade high at the beginning of 2017. The forces opposing economic globalisation have been gathering around the banner of protectionism. Institutions are being dismantled rather than assembled.

So should leaders of the corporate establishment quietly reach for a bottle of whisky and a revolver? No. They should pause and take stock. Looking around, they might actually conclude that the environment favours them. After years of questions about how they can survive, they may have some answers of their own.

In truth, the world of 2017 is potentially fertile commercial ground for large established corporations. Old truths are being re-asserted. In uncertain times, trusted old assets are attractive.

Many large organizations have been able to reorient themselves successfully by finding new ways to exploit their core capabilities. Three examples from different industries will illustrate this.

Look first at Motorola. Back in 2010, the company’s downward spiral in the wake of the advent of touchscreen-enabled smartphones led it to be split into two separate entities, one of which was acquired by Google. Under Google’s umbrella, Motorola Mobility continued to work on engineering and R&D capabilities, which were well established and already deep. After a further transfer of ownership - to Lenovo in 2014 - Motorola Mobility saw a resurgence, especially in Asian markets, boosted by the success of its Moto G range geared primarily towards the entry-to-middle level of the market.

Second, take Fujifilm. The rapid decline of film photography at the turn of the century led to a decline in the company’s fortunes. However, Fujifilm had deep expertise in imaging technology, which it exploited to metamorphose into an “imaging and information technology” company. On the back of 54,000-plus patents, Fujifilm has today emerged as a global leader in healthcare imaging.

Finally, look at the example of India-based Satyam Computer Services. It suffered a significant blow to its operations in 2009 when its chairman was embroiled in a controversy involving the falsification of company accounts. A controlling stake in the faltering business was acquired by Tech Mahindra. Under new leadership, the business has recovered, making the most of its proven ability to provide cost-effective solutions to US and UK based clients.

Global ecosystems and business platforms require the skills and deep pockets that big companies can offer. Integration is back in fashion. According to the EY Global Capital Confidence Barometer, the proportion of managers expecting their organisation to go in active pursuit of M&A opportunities has been rising consistently since October, 2014. Supportive market factors such as low interest rates and big cash reserves are likely to propel M&A. Furthermore, the era of a buy-and-dismantle financial portfolio approach to diversification seems to be behind us. M&A is increasingly seen as central to the strategy of many corporations. Some 23% of respondent firms to the EY survey said that having a window into new technologies - in R&D as well as manufacturing - was the main strategic driver of pursuing M&A opportunities.

Highly innovative companies are often not the best at scaling up their activities or providing the administrative and logistical infrastructure required to grow.
And, with the political world in a state of constant flux, the corporate dinosaurs are often best-placed to keep abreast of changes in the legislative and regulatory environment in which they will have to operate. They virtually invented corporate lobbying.