WHAT IS BUSINESS?

So, what is this thing called business? Essentially, a business is an enterprise set up to make money through selling goods or services or a mixture of the two. However, this is a bit simplistic. Increasingly, there are governmental bodies and charities that are run increasingly like businesses. At the same time, the picture is becoming blurred by organisations that are set up as businesses but look more like charities, with their aims of being “social enterprises” or “not-for-profits” and righting some social wrong. Business is everywhere.

This is all the more remarkable because until the last decade or so – certainly in Britain, less so in America – “business” was something of a dirty word. “Entrepreneur” was a sort of codeword for “wheeler-dealer”.

What has brought about this dramatic change of heart? It is fair to say that a large part of it is the internet, with its promise of limitless possibilities. But there is also a much greater willingness to try things – even when it comes to careers. This is perhaps best illustrated by the numbers of business school graduates rejecting positions with investment banks and large corporations in favour of start-ups. Reinforcing all this is a change in attitude among policy makers. Young people are actively encouraged to start their own businesses for genuine reasons, such as doing good and/or creating wealth.

WHO YOU NEED TO KNOW

Sir Richard Branson

Many of today’s business heroes are technology wizards who use a bright idea to launch a successful business. Branson is a more old-fashioned buccaneering type of entrepreneur who has got where he has largely on the strength of his extreme self-confidence and love of challenging the big guy. As such, he has become an inspiration to many would-be business owners and is one of the best-known business people in the world.

His best-known business is Virgin Atlantic Airways, which in the 1980s had the audacity to take on British Airways in the battle for the lucrative trans-Atlantic air travel market. A quarter of a century later, Virgin Atlantic is a major player on the travel scene, with various related holidays operations, but Branson still likes to portray the business as a young upstart battling against the established incumbents.

Branson’s Virgin empire started as a mail-order record company (which hit the big time with the unlikely hit “Tubular Bells”) and has moved into record shops, cola drinks, publishing, health and beauty, financial services and trains. It has not always been resoundingly successful, but Branson – bearded, long-haired and tie-less even in his 60s – always gives the impression that he is enjoying a great adventure.

A SHORT HISTORY OF BUSINESS

There is nothing new to the realisation that a successful business community is vital to a successful political system. One of the earliest examples of what we now think of as a company was the British East India Company, which was founded by Queen Elizabeth I in 1600 and over the next two-and-a-half centuries became inextricably linked with the growth of the British Empire. Perhaps even more significant were the businesses created at about the same time in the newly colonised North America. Historians cannot quite decide on which came first – Puritanism or Capitalism. But it is clear that the two are closely entwined, particularly in America, where such virtues as subordinating the individual to the group, marshalling resources to achieve a single purpose and a belief in self-help are shared by both creeds.

These early joint stock companies – ventures which raised funds by selling shares to investors who became partners in the enterprise (and thus predecessors to the current quoted companies) – paved the way for the businesses that helped develop the fledgling United States. Among these were railway companies and many types of manufacturing enterprises, which in a short period of time turned a few colonist-farmers into the factory of the world.

Similar developments were taking place in Britain, the birthplace of the Industrial Revolution. By the early twentieth century, the geographical spread of some of the businesses mirrored the reach of the Empire, with names such as Cable & Wireless and the now-defunct Imperial Chemical Industries seen as synonymous with British power and influence.

However, for sheer audacity nothing could beat the American businesses. Beefed up by serving a huge home market, the likes of the consumer goods company Procter & Gamble, the conglomerate ITT and the Ford Motor Company became huge players around the world. They used this strength to build up significant subsidiaries and own more businesses around the world than many people realised, but particularly in Europe, long before the more obvious US invasion that led to McDonald’s fast-food restaurants and Starbucks coffee shops appearing in every major city.

WHO SAID IT

“What is good for the country is good for General Motors, and vice versa.”

– Charles Wilson

At their peak, these businesses were immense – so big that individuals could, and often did, spend their whole career at a single employer. Thanks to mass production and the application of scientific principles of management established by early business leaders, these businesses were effectively giant machines operating in huge factories employing so many workers that whole towns depended upon and grew up around them. They also developed equally enormous offices to house the people supposedly running them. The rows of machinery minders in the factories were matched by lines of typists and other clerical workers in the offices.

What had started out as exciting enterprises had ballooned into huge bureaucracies where few people really knew what they were doing and why, and where conformity ruled. This is the dull, stultified world of the “Corporate Man”, made fun of in films and novels and analysed in the sociological study The Organisation Man by William H. Whyte.

This cosy world of golf clubs and long lunch breaks came crashing to an end in the 1970s, when a sudden rise in the oil price by the increasingly assertive oil-producing nations of the Middle East challenged the whole basis on which business in countries such as the United States and Britain was conducted. A serious recession on both sides of the Atlantic paved the way for the arrival of Margaret Thatcher in Britain and Ronald Reagan in America and, with them, a robust “market forces” approach to economics. In the 1980s, a chill wind blew through the boardrooms and across the factory floors of both nations. And, when it was realised that in Germany and Japan, the two nations supposedly defeated in the Second World War, industry was in much better shape, producing better, more reliable products at better prices, a heavy bout of soul-searching set in.

Suddenly, management gurus, notably the charismatic and evangelical Tom Peters, and their theories about “quality”, “excellence” and “customer service” were all the rage. In fact, there were so many theories – often contradicting each other – that they were quickly termed fads and ignored by embattled workforces and management teams alike. This was also the period when service industries began to take over in importance from manufacturing. It was the time of deregulation of the financial markets and the arrival of the “Masters of the Universe” on Wall Street and in the City of London. It was also the era of “yuppie” excess. Although nobody at the time realised it was small beer compared with what was to come in the early years of the twenty-first century, it was still seen as unattractive. It was hard to admit to being a merchant banker in polite society.

Despite, or because of, the emphasis on financial engineering at the expense of real engineering, businesses were in no state to cope with the next big recession, which came in the wake of the first Gulf War in the early 1990s. This led to great swathes of job cuts across whole industries that were euphemistically described as “downsizing” or even “rightsizing”. It also led to a renewed focus on market forces and the arrival of the term “shareholder value”, for a concept designed to improve businesses’ focus on their main purpose – making money, or creating value, for shareholders. Conglomerates were “demerged” and “focus” became the watchword.

Business became a lot more efficient. But it also became a lot less enjoyable. The failings exposed by the 1990s recession led to a fresh bout of introspection and the realisation that perhaps business had lost its way.

Some people saw a link between the superiority of Japanese and German goods – particularly in such areas as cars and consumer electronics – and these countries’ companies were run differently from the Anglo-Saxon model. In Japan, the concept of a job for life had benefits in loyalty and a readiness to take a long-term view, while Germany had the consensual approach to management common across much of continental Europe, where workers’ councils typically had much greater influence than the trade unions in Britain and the United States. However, as time wore on – and Japan and Germany both endured difficult economic periods – the Anglo-Saxon, and, it has to be said, increasingly American, view held sway.

Although some of them drew from other cultures, the gurus and consultants who were growing ever more important in business were largely American. As a result, business premises across the world began to ring with American terms such as “double whammy” and “ball park figure” and managing directors became chief executives or CEOs, a title that Peter Drucker, the guru of gurus, had previously said was peculiar to America.

Some of the analysis of “what went wrong” that followed the early 1990s recession, and the spectacular collapses that accompanied it, took place in Britain. For example, the Cadbury Committee came up with a code on corporate governance that did much to pave the way for the improvements in that area that have followed, while the Royal Society for the Encouragement of Arts, Manufactures and Commerce (RSA) initiated an inquiry that gave rise to the ongoing experiment with “Tomorrow’s Company”.

WHO YOU NEED TO KNOW

Peter Drucker

Peter Drucker was without a doubt the doyen of management gurus. Born in Austria, he moved to the United States in the 1930s and published his first book – an examination of General Motors entitled Concept of the Corporation in 1946. Over the next half century he covered a huge variety of management topics, along the way identifying many notions that would become central to business thinking, such as the “knowledge worker” and “managing by objectives”.

In the key work The Practice of Management (1954) he offered his view of the first principles of management and wrote what has come to be regarded as one of the key statements of management thinking: “There is only one valid definition of business purpose: to create a customer.”

Always prolific and provocative, he continued writing and consulting into his 90s and applied the thinking that had originated in the study of large organisations to entrepreneurship and non-profit organisations. But he remained remarkably consistent – the tasks for the manager of the future that he set out towards the end of his life had in fact been identified by him years before.

But it was, of course, in America that business was really born again. Particularly in California and in a small area that came to be known as Silicon Valley. The area, close as it is to the prestigious Stanford University and its mighty engineering faculty, had long been a centre for business, giving rise to what would become the computer giant Hewlett-Packard and many others. However, it really came into its own when it became the de facto centre of the world’s high-technology businesses. Sure, Microsoft was based in Seattle, a few others came out of the area around Boston and some were even spawned around Cambridge University – Silicon Fen. But the vast majority of the new technology businesses and – more importantly – the new attitudes came out of Silicon Valley.

One aspect of this approach – involving employees or customers in the ownership of the business – had been tried before. Indeed, Britain has at least two long-running success stories in this area – the financial services and retail group the Co-operative Society and the retail company the John Lewis Partnership.

However, it was the first time that a significant group of companies had adopted such an approach. Moreover, it looked so attractive that many other businesses had to start following suit in order to avoid losing their best people.

There has been much comment in recent years about businesses moving away from their original purpose – as expounded by the late Chicago free-market economist Milton Friedman – of being to maximise profits for shareholders. Companies have been encouraged to look at the interests of stakeholders other than shareholders, to engage in corporate social responsibility, even to look for a new form of capitalism.

WHO YOU NEED TO KNOW

Charles Handy

Charles Handy is more quietly spoken and more circumspect than many management thinkers. Nevertheless, he has been hugely influential in imagining and describing many aspects of the current workplace.

For example, he developed the “shamrock organisation” as a way of explaining how many built around cores of essential businesses would be built around cores of essential executives and workers supported by outside contractors and part-time help. He has also pioneered the concept of the “portfolio career”, both in his own way of working and in describing it in a series of accessible and popular books. Reacting against the old split between work and play, Handy sees people dividing their time between work for which they get paid, free work for friends and charities, studying in order to keep up with their professions, working at home and leisure.

Having begun his business career at Shell, he was an early teacher at London Business School before becoming best-known for his talks and books, such as The Future of Work (1984), The Age of Unreason (1989) and The Empty Raincoat (1994).

But what has really made business attractive is that people who previously would not have dreamed of going into commerce suddenly saw it as a way of “making a difference”, of getting things done (roles previously answered by public services) and, above all, of having fun.

Having thrown out the notions of loyalty and paternalism in response to market forces, business is now returning to something similar. Companies now queue up to be included in the lists of the best companies to work for, they constantly add to the services they provide for their hard-pressed staff and they encourage them to use mobile technology so that they can work flexibly (critics inevitably say this means working longer). Almost without exception, they are also anxious to stress the good they do in their communities through supporting charities, supplying schools with computers, regenerating rundown areas and the like.

This work hard, play hard approach and almost cult-like devotion to the company that you currently work for harks back to the earliest days of industry, when – just as now – there was a blurring between work and life and a belief that business could change the world. Indeed, Google – towards the end of the first decade of the twenty-first century perhaps the most ubiquitous new company of them all – has been described as “a religion posing as a company”.

It is really not going too far to say that business has become a way of life. Which makes this book all the more important.

That said, most people’s idea of business – unless they are involved in it – is of the sort of large international affairs that attract coverage in the media through takeovers, strikes or involvement in catastrophe. In truth, though, such businesses are the exception. There are many more businesses that do not attract any attention at all.

Here, we will look at the two main types of business – big business and small and medium-sized business.

BIG BUSINESS

Although they only make up a tiny proportion of the businesses in the world, one could be forgiven for thinking that big companies were the only ones in existence. Most of the coverage in the media is given over to them. And they also attract the greatest criticism from politicians, commentators and the public at large. This is because they are seen as increasingly powerful in a world where ease of communication and other technological developments are enabling more and more companies to act on a global scale.

WHO SAID IT

“Big companies are small companies that succeeded.”

– Robert Townsend