Alfred Chandler compared the history of corporate capitalism in the US, Britain, and Germany. The large vertically integrated corporations emerged in the US to replace what had been a fragmented structure of production and distribution. Britain’s corporations and their institutes were seriously lagging behind the US managerial revolution. As Chandler has claimed, the large-scale production technology of the 19th century required vertical integration and conscious managerial attention. The transformation from functional to product organizations was the means to enhance control and coordination. For most of the 20th century, vertically integrated managerial hierarchies persisted because it was the appropriate solution for multinationals, MNCs to maintain the minimum efficient scale of operations. Globalization and the digital economy have challenged the doctrine of vertical integration. The transformation from the vertically integrated production system to networking needs to enhance flexibility without losing control. The economic disaster of middle-management has led to the restructuring of the industrialized societies, especially in the US. The process model experimented in Japanese industrial firms, notably in Toyota, has been superior in productivity (like process and product quality). It is possible to speak about a drastic organizational revolution.
We are during transition from the industrial society to the information society. Circumstances in global markets can be highlighted by uncertainty, complexity etc that are the major reasons to the de-integration of the vertically integrated production. In the industries where knowledge is replacing labour and capital as the key value driver an extreme de-integration and outsourcing of the production into projects is the most prominent. This is because the increased flexibility by a project organization, as the response to market (demand) uncertainty, provides more economies of scope than a functional organization. An example is a modern film studio that is highly dependent on a scare resource provided by third party namely well-known actors. In the past, a film studio was able to appropriate much of the value from its creative talents by utilizing long-term contracts. A project organization constructing on a film-by-film basis allows knowledge to accrue to individuals who can sell their services to the highest bidder.
Peter Drucker, the well-known management advisor of many decades in the 20th century, has claimed that replacing managerial hierarchies with networking has been the greatest organization and industry structure shifts of the 20th century. The era of digital globalization has replaced the era of trade-based globalization. Digitalization is revolutionary because it has increased the importance of space and scope to glue together productive processes. The technological forces of the digital era promote a firms’ ability to use the applications of modularized production chains in the global contexts. The modularity of manufacturing creates norms for the coordination and co-alignment of processes. In the deconstructive model of manufacturing, the information-rich part, such as industrial services, is often integrated to the headquarters of MNCs when the commodity parts are relocated globally. Common de jure or de facto standards are the prerequisites for modularization and for the fast ramp-ups and pilot productions of commodities. Modularization and standardization of industrial commodities makes relocation of production easier because the core competence is no more the mastery of production activities. Dell Computers is a well-known example of the use of new technologies to order and get components from suppliers at short notice. The suppliers of intermediate goods use new technologies to make it easier to detect faults and, therefore, move production closer and cut delivery times.
The Volkswagen Group is one of the world’s leading automobile manufacturers and the largest carmaker in Europe. Its sales revenue in 2013 totalled €197 billion and profit after tax to €9.1 billion. The Group has 12 brands. Each brand has its own character and operates as an independent entity on the market. The product spectrum ranges from motorcycles to low-consumption small cars and luxury vehicles. In the commercial vehicle sector, the products include ranges from pick-ups, buses, and heavy trucks. The Group operates 107 production plants of which 19 are in Europe and 8 in other continents. The Group has 572,800 employees worldwide and produces some 39,350 vehicles, and work in vehicle-related services or other fields of business. Its vehicles are sold in 153 countries. The Group’s goal is to offer attractive, safe, and environmentally sound vehicles which can compete in an increasingly tough market and set world standards in their respective class.
Networking has thought to be the advantage of SMEs/entrepreneurs but MNCs like Volkswagen master their own network of production, sales, and service networks globally through their de facto standards of production plants and through well-known brands. Volkswagen continuous builds competences e.g. protection, allocation and use of IPRs. The economies of scale and scope are huge for the company. SMEs do need to organize mutual collaboration to avoid the obstacles of small scale. Subcontracting Excellence Club S.E.C ry is a network consisting of SMEs which have their special field of expertise in metal-based industry, mechanical engineering, technical planning, and industrial design. SEC is the basis on which the cooperation is built and where the versatile skills of the members speed up the development of new ideas. The problem of growth firms in international operations is how to compensate the small scale in competition against MNCs. Instead of scale, growth firms must rely on scope. The difficulty of economizing the extended scope of resources through networking depends on the integration of assets (social, knowledge/technology and money) into a model that is applicable to growth firms.
Economies have long been knowledge-based. Sumerians in the Mesopotamian river basin began the use of clay tablets 5,000 years ago. As Kenneth Arrow pointed out, information as an economic commodity has attributes of an experience good. Individuals intending to obtain information cannot know in advance the costs and benefits of certain types of information before they have acquired it. Arrow called that the information paradox. The geographic proximity matters in transmitting tacit knowledge. The Internet revolution has dropped the cost of transmitting information across the global geographic space, although the marginal cost of transmitting tacit knowledge rises with distance. While it is possible to translate a piece of information into bits, knowledge represents capabilities of individuals associated with understanding, as well as the abilities to organize, interpret and assess information, while information is knowledge reduced to messages that can be transmitted to decision agents. The value of information depends on the recipient’s prior knowledge. Conversely, the more we know about the subject, the better able we are to evaluate and use new data about it.
It is possible to transform codifiable knowledge into bit strings. Tacit knowledge embodied in practices or people cannot be transformed. The Internet produces forces for both de-agglomeration and agglomeration allowing remote coordination of innovative activities. Because the Internet cannot ‘feel’ or ‘touch’, it maintains needs for deep personal contacts.
According to Miles, digitalization and the Internet facilitate worldwide relationships with clients. The costs of searching global partners are marginal compared to the time before digitalization. The Internet is the most user-friendly technology that have empowered the young generation and been the main catalyst of the fundamental shift from seller-driven to buyer-driven markets. Some firms have created on-line direct, make-to-order distribution model, and, thereby, they have succeeded to cut costs by 20–45%through digital technology. Certain business areas are global by their nature. As activities are codified and digitized, they can be moved costless through space. This is true for knowledge intensive business services, such as accounting, advertising and, consulting in which global, the electronic delivery to customers is a substitute to the in-person delivery. Some other providers of knowledge intensive business services, such as German Hidden Champions, have made an opposite strategic choice. They have invested to keep face-to-face contacts with their key customer relations and succeeded excellently.
The internet’s biggest success stories are: Amazon (about 50% of America’s book market, over 50% in e-books); Alibaba (about 80% of e-commerce in China); Facebook (1.3 billion active members); and Google (68% of online searches in America, more than 90% in Europe). These companies are born-global. The main reason is the high penetration rate of internet, over 3 billion people and near 50% of the world’s population. Knowledge is replacing labour and capital as the key value driver. Markets are expanding from regional to global. Intelligent networks and virtual spaces are superseding the need for material investments and bits are becoming more powerful than atoms (Romer, 1989, 1990). It is possible to transform the codifiable knowledge into bit strings, while tacit knowledge, embodied in practices, people or networks of relationships, cannot.
It is probably Silicon Valley's most striking mantra: “Fail fast, fail often.” It is recited at technology conferences, pinned to company walls, bandied in conversation. Failure is not only invoked but celebrated. Entrepreneurs give speeches detailing their misfires. Academics laud the virtue of making mistakes. FailCon, a conference about “embracing failure”, launched in San Francisco in 2009 and is now an annual event, with technology hubs in Barcelona, Tokyo, Porto Alegre and elsewhere hosting their own versions. While the rest of the world recoils at failure, in other words, technology's dynamic innovators enshrine it as a rite of passage en route to success. But what about those tech entrepreneurs who lose – and keep on losing? What about those who start one company after another, refine pitches, tweak products, pivot strategies, reinvent themselves … and never succeed? What about the angst masked behind upbeat facades? Silicon Valley is increasingly asking such questions, even as the tech boom rewards some start-ups with billion-dollar valuations, sprinkling stardust on founders who talk of changing the world.
Companies typically die around 20 months after their last financing round and after having raised $1.3m, according to a study by the analytics firms CB Insights titled The RIP Report – start-up death trends. Failure is difficult to quantify because it does not necessarily mean liquidation. Many start-ups limp on for years, ignored by the market but sustained by founders' savings or investors. Software engineers employed by such zombies face a choice. Stay in hope the company will take off, turning stock options into gold. Or quit and take one of the plentiful jobs at other start-ups or giants like Apple and Google. Founders face a more agonising dilemma. Continue working 100-hour weeks and telling employees and investors their dream is alive, that the metrics are improving, and hope it's true, or pull the plug. The loss aversion principle – the human tendency to strongly prefer avoiding losses to acquiring gains – tilts many towards the former, said Bruno Bowden, a former engineering manager at Google who is now a venture investor and entrepreneur.
Silicon Valley wannabes tell origin fables of start-up founders who maxed out credit cards before dazzling Wall Street, the same way Hollywood's struggling actors find solace in the fact Brad Pitt dressed as a chicken for El Pollo Loco before his breakthrough. Venture capitalists and angel investors tolerate failure only up to a point, said Bowden. "You won't get funding unless you're credible. One previous failure can be OK but multiple failures will make it impossible to get funding."
Many founders are confessing anxiety in public for the first time via anonymous gossip sites like Secret and startupsanonymous.com. “My biggest mistake was trying to be an entrepreneur when I should have continued on with my current job,” confided one.
“I’ve got this month to pull something off, otherwise I’m screwed and looking for a job. I’m scared as hell that I can’t do it,” wrote another.
These are most spectacular failures of Silicon Valley:
1. Andrew Mason, Groupon
Scorned as the “worst C.E.O. of 2012” by CNBC’s Herb Greenberg, Andrew Mason was at the helm of Groupon when the company went public, an I.P.O. Greenberg wrote off as the “most over-hyped . . . of recent years.” Years after going public, Groupon still has trouble turning a profit.
2. Elizabeth Holmes, Theranos
Elizabeth Holmes became emblematic of Silicon Valley excess when her $9 billion blood-testing start-up, Theranos, became the subject of a series of Wall Street Journal investigations that reported that the company’s technology did not actually work. Theranos is currently under federal criminal investigation.
3. Parker Conrad, Zenefits
Zenefits C.E.O. and co-founder Parker Conrad resigned in 2016 amid concerns over questions about his $4.5 billion start-up’s regulatory compliance. Further reports insinuated Zenefits’ company culture under Conrad was more frat house than hackathon, complete with allegations of sex in the stairwells and plenty of drinking.
4. Marissa Mayer, Yahoo
Hailed as the turnaround boss Yahoo so desperately needed when she was hired for the job in 2012, Marissa Mayer has come under fire as investors have lost their patience waiting for a miracle that never came. (The millions she reportedly spent on lavish parties and perks, while the ailing Internet giant circled the drain, did not help.) Yahoo is now up for sale.
5. David Byttow, Secret
David Byttow, the founder of anonymous-posting app Secret, pivoted his year-old start-up to an incubator in 2015 after allegedly pocketing millions and buying a flashy Ferrari. Google Ventures investor Bill Maris later compared the start-up shutting down to a “bank heist.”
6. Michelle Peluso, Gilt
Gilt Groupe, the once hot flash-sales start-up, was valued at $1 billion in 2011, having raised more than $286 million in funding since its founding. Five years later, Hudson’s Bay, the parent company of Saks Fifth Avenue, purchased it for $250 million in what CNN dubbed the “ultimate flash sale.”
7. Anthony Bay, Rdio
Rdio filed for bankruptcy in 2015, showing just how hard it can be to make a viable streaming service. Rdio had raised $125 million in funding at a $500 million valuation. Pandora scooped up “many employees” from the failed start-up afterward, though its C.E.O. Anthony Bay did not join them.
8. Dan Wagner, Powa Technologies
C.E.O. Dan Wagner said that his company’s product, a glorified Q.R. scanner called PowaTag, was going to help Powa become “the greatest technology company of all time.” In February, $2.7 billion Powa shut down after struggling with its flagship product and, according to former employees, Wagner’s own hubris.
9. Adora Cheung, Homejoy
On-demand cleaning start-up Homejoy shut down in 2015 after failing to hold onto its customers. C.E.O. Adora Cheung reportedly did not work to fix its retention rates, which flopped as a result of offering $19 flat-fee introductory deals. The “deciding factors” in Homejoy closing its doors, however, were the four lawsuits it faced from workers who claimed they had been misclassified as contractors. The lawsuits were still pending as of last summer.
10. Ben Kaufman, Quirky
Quirky, a start-up that sought to crowdsource inventions to the masses, filed for bankruptcy in September 2015. Quirky struggled to raise funding and C.E.O. Ben Kaufman stepped down a month before his company folded. Quirky sold Wink, its software business, to Flextronics for $15 million.
11. Scott Thompson, Yahoo
Scott Thompson served as C.E.O. of Yahoo before the company hired Marissa Mayer. Months after Thompson was hired to the job, vocal activist investor Dan Loeb sent Yahoo’s board a letter questioning Thompson’s credentials and wondering if perhaps Thompson had “embellished his academic credentials.” Thompson was immediately replaced with Ross Levinsohn, after the board discovered Thompson had falsely added a computer-science degree to his résumé.
12. Carly Fiorina, H.P.
When Carly Fiorina was let go from her six-year tenure as C.E.O. of Hewlett-Packard, the company’s stock jumped 10 percent upon the news of her firing. While she was C.E.O., Fiorina didn’t increase the company’s profits, and she actually decreased H.P.’s shareholders’ wealth by 52 percent. A disastrous merger with Compaq, which led her to fire some 30,000 employees, haunted Fiorina throughout her failed senate and presidential campaigns, too.
13. Jason Goldberg, Fab
E-commerce start-up Fab was once valued at $900 million, a near unicorn in Silicon Valley terms. But after allegedly burning through $200 million of its $336 million in venture capital, C.E.O. Jason Goldberg was forced to shutter its European arm and lay off two-thirds of its staff.
14. Gurbaksh Chahal, RadiumOne and Gravity4
Fired in 2014 from his ad-tech firm RadiumOne following a domestic-violence conviction, Gurbaksh Chahal founded a new company to compete with the one he was kicked out of. But Gravity4, his new firm, was sued for gender discrimination in 2015, though that case is still pending, and former employees have contemplated legal action against him.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath
In Silicon Valley and the broader startup ecosystem, failure is a common occurrence, and the failure rate for startups is generally high. Studies and estimates vary, but it's commonly cited that the majority of startups fail within their first few years of operation. Some research suggests that around 90% of startups fail, while others suggest slightly lower figures.
However, it's essential to note that failure in the startup world doesn't always mean the end of an entrepreneur's journey. Many successful entrepreneurs have experienced failure in one venture but have gone on to succeed with subsequent endeavors. Failure often provides valuable lessons and insights that entrepreneurs can apply to future ventures, contributing to their ultimate success.
Silicon Valley has gained a reputation for embracing failure as part of the entrepreneurial process and for fostering a culture that encourages risk-taking and innovation. The ecosystem's robust support networks, access to capital, and abundance of talent also contribute to its ability to bounce back from failures and continue driving innovation.
So, while the failure rate for startups is high, the entrepreneurial spirit and culture of resilience in Silicon Valley ensure that each failure contributes to the collective learning and growth of the ecosystem, ultimately leading to more successful ventures over time.
