The sun may be setting for America's corporate giants

GOLIATH ON HIS LAST LEGS

July 06, 1992|By TOM PETERS | TOM PETERS,1992 TPG Communications

"Hey, size works against excellence," Microsoft founder Bill Gates said in an April 1992 interview in Upside magazine. For his sake and the economy's, I hope he's wrong. But I fear he's right.

The embers of fear were most recently stoked during a stop at a new McDonald's in Granville, N.Y., near my Vermont farm. It was about 8:30 p.m., and the shop was not crowded. Staffing appeared more than adequate. But the place was a pigsty. Maybe not by pigs' standards, but by the standards of the McDonald's Bob Waterman and I extolled in "In Search of Excellence" just 10 years ago. (Just 10 years ago? The late Bill McGowan, MCI's longtime leader, once told me, "The chump-to-champ-to-chump cycle used to be three generations. Now it's five years.") The floor was dirty, bordering on filthy. An overflowing ashtray stood atop the counter where you pick up straws and napkins. A general air of disorder pervaded.

McDonald's founder Ray Kroc had a simple formula ("QSCV" -- Quality, Service, Cleanliness and Value) which, I guess, was almost impossible to sustain with growth and the passage of time. McDonald's still has demanding standards for would-be franchisees (time spent behind the counter before launching your store, financial stability, training at Hamburger U.).

Yet its products no longer stand out -- they're still "good" by my lights, but so are those of other fast-food chains. The value is still OK too, though, once again, hardly exceptional.

My Granville experience, incidentally, is not unique. The other McDonald's I frequent in Greenwich, N.Y., is no prize either. Not awful, mind you. Not foul. And not McDonald's: neither the "wow" McDonald's of 1970, nor the "stupendously consistent" McDonald's of 1980. It's, well, just another place -- the french fries are still to Julia Child's (and my) taste, and you need not fear food poisoning. But that's about the best one can say.

The fact is, McDonald's, stymied by brutal competition and saturation of the U.S. market, has put a lot of attention -- with success -- into international markets during the last few years. Maybe by 1995, if it's not too late, the chain will refocus on the basics.

Not too many years ago, the economist John Kenneth Galbraith wrote, "A benign providence . . . has made the industry of a few large firms an almost perfect instrument for inducing technical change." Other Galbraithian writings make it clear that General Motors topped his "almost perfect" list.

On the other hand, a Business Week cover story (May 4, 1992) on Johnson & Johnson was breathlessly titled "A Big Company (( That Works!" That is, it's front-page news these days when any huge institution pulls its oar! (Business Week quickly added -- on the cover no less -- that J&J's secret is creating smallish business units, which are given exceptional autonomy and then held to merciless performance standards.)

Can any giants thrive? Maybe. The marketplace has gone crazy. Only phenomenal innovation, responsiveness and adaptation will carry the day. No matter how you cut the cake, innovation, adaptivity and responsiveness don't mix well with giantism.

Still, size has its benefits -- e.g., the ability of McDonald's (or Microsoft) to project market power around the globe. "Dick's Diner of Des Moines" would not have had block-long lines had it opened an outlet in Moscow!

The question is, can you be big (market presence) and small (aggressive, innovative, turn on a dime) at once? Mostly, the answer would seem to be no. Some, like J&J, have more or less pulled it off. But the only answer is to have the guts to grant virtually unfettered autonomy to independent business units.

Moreover, and at least as important, each such unit must be allowed to develop its own personality. This goes beyond J&J's strategy. (Its enormous headquarters staff of 1,000 -- Business Week foolishly characterized that number as small -- casts a long shadow.)

International Data Group, publisher of 40 flavors of Computerworld and more than 110 other publications, does understand. CEO Pat McGovern seeks out vital personalities to head his publications, offers them unflinching autonomy, then holds them to sky-scraping standards. But McGovern also realizes that to amass market clout means, a la McDonald's of old, to project consistency. (That was the thing about old McDonald's -- you could count on it in Granville and Stockholm alike.)

So the trick of "big and small at once" is the devilish "consistent and inconsistent at once." Consistent enough to project faith in the brand name, inconsistent enough to have units that tack fast and are as feisty and peculiar as the upstart competitors swarming into every marketplace around the world.

To overdo either dimension -- consistency, inconsistency -- is to lose "control." Maybe that's why midsize firms from Munich to San Jose, Calif., seem to be doing relatively well these days ("The Fortune 500 is over," Peter Drucker said in the Fortune 500 issue in April). Economics' main theme these days is market madness. While consistency can pay off big (the Marlboro brand is worth about $10 billion), intentional inconsistency is of paramount importance. As for "almost perfect" instruments, it sounded like a good idea at the time, Professor Galbraith.

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