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Networks give small firms a shot at success

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During lunch the other day with a friend who runs a small Salt Lake advertising agency, I asked him how business was going.

"It's really tough," he said. "In advertising you need to be either really big or so tiny you can work out of your basement."On one hand, he has to compete with the international agencies that have merged with or purchased Utah firms. They have enormous resources and can serve a client's every need.

On the other hand, he must compete with those numerous freelance graphic artists and desktop publishers working out of their homes with low overhead and very low prices.

His dilemma is shared by many in the business world who watch the frenzy of mergers, acquisitions and consolidations going on in nearly every industry. Can the little guys make it in this world where bigger seems better?

The mergers appear to contradict the assertions of some futurists. The Digital Age, according to the futurists, was supposed to flatten and decentralize, empower the little guy, topple everything that is top-down, big and bureaucratic. Anything large and hierarchical was supposed to be doomed.

Instead, we're seeing a barrage of mergers turning already large businesses into international behemoths. Robert J. Samuelson reported in Newsweek (June 1) that in 1997 American companies were involved in a record 7,800 mergers worth $657 billion.

However, it's also true that thriving amidst these enormous corporations are millions of tiny startups collectively offering every service imaginable in specialized niches. The big are getting bigger, but small businesses continue to spring up like mushrooms.

Samuelson points out that despite the mergers and the presence of the gargantuan corporations, most industries are more fragmented and competitive today than ever before. Small business remains the backbone of the economy. Innovative, flexible and fast-moving small businesses are creating far more new jobs and new products and services than the big guys.

So what is going on here?

Futurists like John Naisbitt and Nicholas Negroponte say two paradoxical forces are at work: Globalization and localization.

On the localization side, the proper deployment of information technology really does result in enterprise decentralization. With knowledge and power distributed to lower levels and to the edges of enterprises, bottom-rung employees are empowered and can make better decisions. Turf can be torn up and walls can be knocked down. Enterprises can become flatter and smaller.

However, with the whole world on the Internet, globalization is occurring at a frenzied pace, and even local companies are having to compete in the world marketplace. So companies are getting bigger to become global forces.

In addition, a networked world, by its very nature, demands higher levels of collaboration and coordination at the top. Networks don't work without agreement on standards and processes.

Thus, successful businesses, large or small, must understand the paradox of the Information Age: decentralization and empowerment on one hand; increased coordination and collaboration on the other.

Naisbitt has argued that society is fragmenting but is also increasingly interdependent. Decentralized, non-bureaucratic enterprises will flourish but need to do so within international guidelines on business conduct, the environment, human rights and other issues. He calls this the Global Paradox.

Negroponte says the digital world will make things bigger and smaller at the same time. Simultaneous globalization and localization. He argues that governance should be pushed down into the village and up onto the planet. "At this point in history, it is hard to imagine that our highly structured and centralist world will morph into a planetful of loosely connected physical and digital communities. But it will. For this reason, more and more attention needs to be paid to just how and how well we can coordinate this new mass individualization."

I believe the right model for many enterprises is this: local control with central coordination.

The size of a business isn't nearly as important as how fast, flexible and innovative it is, and how well it is positioned with partners and allies. I believe a network of independent small businesses that rely on each other for outsourcing and services can compete with the big boys who try to do it all themselves.

On the other hand, a large corporation can be successful if it organizes as a network of smaller, specialized enterprises while enjoying economies of scale.

Whether large or small, a business or alliance of businesses should be organized like a network of intelligent PCs, rather than like an old-fashioned mainframe computer. Networked PCs have central coordination but local control.

So what does all of this mean to my friend with the small advertising firm? It means he needs partners and allies. He can control his business locally, but he needs to be part of a larger network to obtain the advantages of a bigger enterprise, to gain access to the global markets.

We live in the age of the network, and networks promote and simplify collaboration and partnering. Enterprises that in the past never had uses for partners are now finding that to reach out globally and to take advantage of the power of the Internet, they need alliances and collaboration.

Decentralization on one hand; more collaboration on the other. Find a specialized niche, but team up with complementary partners. This paradox really can work to bring big changes and vast improvements to all sorts of enterprises.

You can be small, but you need to be part of a larger network.