The New Titans: Principles for When Tech Companies Rule the World

By Nina Pesavento

“Today the world obtains commodities of excellent quality at prices which even the generation preceding this would have deemed incredible. The poor enjoy what the rich could not before afford. What were luxuries have become the necessaries of life.”

– Andrew Carnegie, Gospel of Wealth, 1889

Leading economic progress requires a sense of optimism, a belief that today’s work is making the world better than it was yesterday. This hope is inherent to the American dream of upward mobility and has been sung in different tunes by all titans of industry—from the robber barons of the industrial era to the kings of Silicon Valley today.

However, as we have entered the information age and the Fourth Industrial Revolution, this continued sense of idealism from our new corporate giants is cause for concern. Despite over a century of separation, today’s technology titans continue to operate under many of the same principles that guided bygone industrial titans. When considering the past as prelude, things did not end well for most of the industrial era titans.

The company towns that stripped citizens of their agency and ultimately caved under tycoons’ heavy controls are resurging in the form of technology colonies nationwide. The restraints of industrial standardization continue to shape one-size-fits-all management practices despite our economy’s shift to human-centered values. And a nearsighted focus on optimization prevents mature market leaders from growing beyond the edges of what’s in view.

Human history is marked by forgotten patterns of existence. Our technology overlords today risk replicating the same negative byproducts that ultimately hindered the economic progress their industrial counterparts were fighting to advance.  

As the men and women behind the wheels of our newest governing institutions, leaders inside technology companies must revisit the principles that guide their approach to business in order to sustainably steward our economy into the future.

Principle 1: Preserve the artist.

While tech companies introduce a rush of affluence to the cities in which they operate, they struggle to maintain inventive cultures.

Pullman, Illinois was a company town, owned, designed and operated by railroad tycoon George Pullman. Housing in the Chicago-area community was sensibly architected, with executives placed in single family homes, skilled workers in row houses, and unskilled workers in small two-room apartments. Town affairs accounted for every aspect of working people’s lives, including school, worship and leisure. Pullman was a vision of systematized social order, and an insular life kept resident employees focused on work and isolated from Chicago’s larger union movements.

That is, until Depression Era wages coupled with stagnant rent prices drove residents to strike against their puppeteered existence, and Pullman’s reign was deemed illegal by the Illinois Supreme Court. As one Pullman striker lamented, “We are born in a Pullman house, fed from the Pullman shops, taught in the Pullman school, catechized in the Pullman Church, and when we die we shall go to the Pullman Hell.” The highly ordered and homogeneous environment that Pullman created ultimately led to its demise. At the height of the Industrial Age, Pullman was one of America’s estimated 2,500 company towns where corporate barons orchestrated most aspects of employees’ lives.

If this sounds eerily similar to Dave Egger’s The Circle, it should. The stifling uniformity that ultimately destroyed company towns is beginning to color the narrative of information age technology campuses, as more and more tech giants set up camp in burgeoning urban areas and suffocate the resident art scenes that draw them to begin with.

Famed for its spirit of creativity, San Francisco was home to the Beat Generation, Summer of Love, and Bay Area university science departments before it welcomed the dot-com era. Austin’s once grassroots festivals put the city on the map as an eccentric, welcoming oasis for innovation. The artist’s spirit resonates strongly through the scrappy alt scene that produced Kickstarter, Etsy, Livestream and Vice out of Brooklyn, and more recently lured a host of incubators and tech-sector newbies to Detroit.

Across startup geographies, open-mindedness percolates through a culture of hoodies and micro-dosing. Both the artist and the innovator share a common motivation: make things that make people think, as overtly referenced in IBM’s “Think” motto and Apple’s cheeky one-up, “Think Different.”

While the artist’s inventiveness is an essential ingredient to geographies rich with technological progress, it is threatened by the homogenizing effects of newfound wealth. Tech mega-hub San Francisco has become a widely cited case study.

The cost of living in San Francisco is 62% higher than the national average[1], and 1 in 5 payroll jobs are now in high-tech industries[2]. Today, an SF family of four with an income of less than $105,350 is considered to be “low income” according to the Housing of Urban Development[3]This is a far cry from 1990 when the now yuppified Mission District was dubbed “the New Bohemia” by The San Francisco Chronicle and, at $40,561[4], the median family income could be accumulated through a host of various career paths.

In concert with its explosive technology sector and cost of living, San Francisco’s population has become more white, male, educated and younger than it’s ever been[5]. The city’s whitewashed complexion is driving out those initially drawn to its artistry, with some 41% of Silicon Valley-based technology job seekers looking for opportunities elsewhere in the country[6].

Younger meccas like Austin are witnessing similar effects from the ascension of technology. While an influx of tech campuses has helped make Austin one of America’s 10 fastest growing cities, its explosive population growth parallels a decline in diversity[7], a true demographic anomaly. The city has simply become too expensive for much of the diverse population that once called Austin home. From 2004 to 2013, the average rent in the Austin area increased by 50%[8], and with more than 60% of tech job offers from Austin employers going to candidates not only outside of Austin but outside of Texax[9], the homegrown eclecticism that makes Austin weird faces real risk of extinction.

To continue to grow and prosper, tech companies must cultivate diverse environments. This means maintaining not only their internal creative cultures, but the artistic spirit of the cities they choose to call home.

Principle 2: Major on the human.  

Solving for human needs has become critical to business success, and technology companies must redesign standardized management practices for individuals not just system optimization.

        Economic eras are marked by strides in problem solving. In the industrial era, the key problems centered around efficiency and were solved through standardization. As industrial titans grew, the principles of standardization set the foundation for traditional business management practices that are still employed today.

However, efficiency is now table stakes. While Pullman-era corporate titans prospered by manufacturing standardized goods and products, our modern tech giants win big by recognizing the nuances across individuals’ needs and wants, and bringing new value to their lives. Facebook and Instagram connect people. Uber and Lyft help people get to where they need to be. Amazon allows consumers to buy almost anything, anywhere. And Airbnb gives

travelers a home when they’re away from their own. Businesses that lead in customer experience have outperformed the S&P 500 by over 25% for the last six years[10].

This is a dramatic departure from equation-based problem solving of the industrial era, yet operations inside many modern corporations today—even technology companies with innovative offerings—are still governed by the same standardized business measures, such as worker productivity and manager efficiency, rather than employee engagement.

According to Gallup’s most recent annual State of the American Workplace study, engaged employees—those people who are involved in, enthusiastic about, and committed to their work—incur far fewer healthcare costs, contribute more ideas, create most of the company’s new customers, and have the most entrepreneurial energy. But the same study found that 70% of US employees consider themselves disengaged at work, and cost the US an estimated $450 to $550 billion per year.

To sustain success with customers, many technology companies are taking a human-centered approach to employee engagement. Beyond ping-pong tables and kegs, some tech stars are engaging employees by dedicating company time to side-projects, such as Google’s “20 percent time,” which brought us Gmail, AdSense, and Google Talk, and IBM’s Cognitive Build, which resulted in 2,700 cognitive product ideas from IBM employees. Other companies like Salesforce have Productivity Departments that customize employees’ learning and development programs to their needs. Facebook gives employees control over their career paths by allowing them to decide whether to take on managerial roles or remain contributors—all while still moving up within the organization.

While these high-performing companies are investing in employee engagement today, these efforts are often first to go in the face of tough earnings or market downturns. But to curb them would be a mistake. In the face of unprecedented customer and employee agency, as well as skepticism towards both technology and big business, it is essential for tech giants to stay human and maintain an empathetic approach towards the people that impact their longevity.

Principle 3: Remember why you started.

When optimizing business practices no longer produce competitive returns, technology titans must look to their core values as north stars for guiding growth.     

        Few companies have influenced America’s economy like Ford Motors. An emblem of America’s industrial revolution, the company was the first to scale the idea of a moving assembly line to cars—a method coined “Fordism” and celebrated for its efficient use of labor, costs and time. With Ford’s new production method, the company was able to drive down the price of cars in America from $850 in 1908 ($21,500 by today’s standards) to less than $300 by 1924 (or $4,277 today)[11]. The widespread accessibility of Ford automobiles elevated the car as our ultimate cultural symbol of freedom.

Ford Motors steadily remained one of America’s most valuable car manufacturers—and corporations at large—until the late 90’s when the company felt the full effects of the dot-com crash and its stock price fell from a peak of $37 in 1999 to a low of $7 by 2003[12].

Where Ford and many other mature companies faltered was their inability to move beyond optimizing their core products. Despite creating immense value for individuals throughout their earlier years, staid companies like Ford continued to focus on improving institutionalize processes at the expense of preparing for impending change brought on by information technology.

In our new economic environment, successful technology companies look beyond optimization to grow through industry-agnostic innovation. This shift requires a new paradigm: a business’ core values are the new north stars for guiding consistent, yet flexible growth. Financial and reputational success now comes from creating customer value that is rooted in not just what a business makes, but in why it began making in the first place.

Take Amazon, among the most celebrated technology giants to date. Beginning as an online book retailer in 1994, Amazon’s ascent maps to the eventual demise of Borders, Tower Records, Circuit City, and other big-box giants—as well as dramatic declines in global brick-and-mortar retail sales. While retailers never could have foreseen the extent to which an outside competitor would negatively impact sales, their failure to quickly pivot beyond standard category practices exacerbated the damage. Within 16 years of Amazon’s founding, Borders’ 1,200 domestic and international stores had closed their doors[13], Tower Records folded after peak revenues in the billions plummeted to $8.8 million in losses[14], and Circuit City shuttered with $2.32 billion in debt[15].  

Unlike the competition, Amazon never defined its business by what it sold. Instead, the business defined itself by its values: be the earth’s most customer-centric company, and build a place where people can come to find and discover anything online. This approach has allowed the company to steadily grow revenue far beyond its origins in books, DVDs and consumer electronics to include cloud services, B2B software, content streaming and production, and advertising, with more on the horizon.

Whether their product category falls within transportation, clothing, mattresses, even food, many of today’s rising young businesses identify as technology companies, and for good reason. Technology is one of the few sectors with products that are both deeply and broadly embedded in how we operate our lives. Meaning, by belonging to this space, companies with big dreams can grow by delivering new customer value that defies traditional category confines. Doing this successfully without straying off course , however, requires commitment to a guiding intention.

Tech is hot right now, but no one gets to ride the caché wave forever. To achieve lasting titan status, technology companies must clarify and adhere to their values while inspiring employees and stakeholders to act against a shared purpose.

Nina Pesavento is an Associate Director of Designing Change at VSA Partners. She specializes in facilitating change management strategies inside Fortune 1000 organizations, having partnered with leaders at IBM, NVIDIA, Alibaba, Bloomberg and more.  

Contact Nina at npesavento@vsapartners.com


Sources

[1] Council for Community and Economic Research, 2016

[2] Tech boom reaches record heights in the Bay Area, East Bay Times

[3] In costly Bay Area, even six-figure salaries are considered ‘low income,’ The Mercury News

[4] Bay Area Census: San Francisco City and County, 1990

[5] San Francisco’s Diversity Numbers are Looking More and More Like a Tech Company’s, The Atlantic

[6] Is Silicon Valley At Risk of Brain Drain?, Indeed

[7] The Institute for Urban Policy Research & Analysis, The University of Texas at Austin

[8] Quantifying the Impacts of Regulatory Delay on Housing Affordability and Quality in Austin, Texas; Shannon, Megan Elizabeth

[9] 2017 State of Global Tech Salaries, Hired

[10] The US Customer Experience Index Q1 2015, Forrester

[11] Henry Ford and The Model T, History

[12] Google Finance

[13] Final Chapter: Borders to close remaining stores, NBC

[14] Tower Records Bankruptcy Heralds Industry Changes, PBS

[15] Circuit City Files for Chapter 11 Bankruptcy, Reuters