Time - Man of the Year/Time_Man_of_the_Year_Compact_Publishing_3YX-Disc-1_Compact_Publishing_1993.iso/moy/122892/1228201.000

Text File | 1993-04-08 | 5KB | 99 lines

                                                                                BUSINESS, Page 28

Are America's Corporate Giants a Dying Breed?


    The bigger they come, the harder they fall. Such corporate
Goliaths as IBM and General Motors once dominated American
industry. Now they hemorrhage billions of dollars in a single
year. What happened? Like the dinosaurs that once roamed the
earth, they failed to keep up with the times. "Nothing is
forever," says Louis Lataif, dean of the Boston University
School of Management. "None of us today could name the 50
largest companies in America in 1900, but everyone alive at the
time thought they would all go on forever."

    Yet the turmoil that grips GM, IBM and other behemoths
including Sears and American Express, is more than a matter of
size and the inevitable cycles of change. Many giants manage to
avoid hardening of the arteries. Du Pont, which is nearly 200
years old, remains an industry leader in synthetic materials.
Philip Morris started as a tobacco shop in 1847 but is now a $55
billion-a-year company that sells everything from beer to
breakfast cereal. General Electric managed to grow from light
bulbs to jet engines, and Motorola from car radios to
microchips.

    Giants begin to falter when their managers, swollen with
arrogance and complacency, allow themselves to lose touch with
their customers. This happens most often at firms that maintain
a rigid, top-down management style. "Big companies find that the
challenges of keeping up with what's going on in the marketplace
become infinitely greater as the companies get larger," says
Walter Scott, a professor at Northwestern University's Kellogg
Graduate School of Management. "The layers of management and
perks isolate executives too much."

    GM is an example of a firm that grew so rich and powerful
that it became oblivious to the signals of changing times.
Despite the oil crises of the 1970s and the Japanese challenge
of the '80s, GM never put its heart into developing smaller,
high-quality cars. It took a new division, Saturn, to develop
GM's first winning U.S. small car. "When you're on top of the
heap, there's a disdain for change, a disdain for new ideas,"
says Lawrence Hrebiniak, a professor at the Wharton School. "It
just goes with the territory, because you are No. 1."

    Some Goliaths have stumbled by getting hooked on growth
and expanding far afield from their core business. Sears took
its eye off retailing in the 1980s to venture into stocks and
bonds and real estate. As Sears diversified, highly focused
retailers ate its bread and butter. Wal-Mart offered low prices,
while Nordstrom boasted personal service. Now, with its flagship
Sears stores in trouble, the company is getting back to basics
by selling its Dean Witter brokerage house and most of its
Coldwell Banker real estate firm. Sears is not the only
respected name to get burned in the financial-services business;
Westinghouse is painfully extricating itself from a fling in
that industry that has cost it about $3 billion in losses.

    Sometimes big companies need full-scale crises to force
changes in their old habits. Ford came back from near bankruptcy
in the 1980s by cutting costs and creating teams of workers and
managers to design and build new cars. Such teamwork produced
the Ford Taurus, which now vies with the Honda Accord for the
title of best-selling car in the U.S.

    To remain atop their industries, some large companies are
trying to act more like flexible, small firms. GE holds regular
sessions in which employees are invited to make suggestions for
improving everything from products to packaging. It's not just
talk; the bosses are expected to respond. Today's management
buzz word is "horizontal structure," meaning that power is
spread across a company rather than held by a few top managers
in the traditional, vertical style. "The large companies in this
country were built on a model that copied the military," says
Margaret Blair, a Brookings Institution economist. But today,
with global competition transforming the marketplace almost
daily, Blair says, the old structures are too ponderous to work.

    The real task for giant companies is to make change a
welcome aspect of corporate life. "Doing well means continually
challenging the premises of your business," says Kellogg's
Scott. "It means having a vision and being restless and
discontented with the status quo." If those guidelines sound
daunting, the dangers of standing pat are painfully clear. Says
Raymond Miles, a business professor at the University of
California, Berkeley: "The world used to wait for the next IBM
computer or the next Chevy. But no one is waiting now."

    By John Greenwald. Reported by Kathryn Jackson Fallon and
Jane Van Tassel/New York