Getting down to business: review of John Kay’s The Corporation in the 21st Century

Review of John Kay’s The Corporation in the 21st Century

The central thesis of John Kay’s book on corporations is that “business has evolved but the language that is widely used to describe business has not.” It is a fact that the relationship with business has become more ambivalent. Factories no longer represent the commanding heights of business; the modern business environment, he writes, is characterised by radical uncertainty.

It is a world where companies like Meta, Google, Amazon, Apple rule, and is a world which can be navigated by “assembling the collective knowledge of many individuals and by developing collective intelligence.” Thus, relationships in these modern businesses cannot be “purely transactional: they require groups of people working together towards shared objectives,” and Kay says such an activity has a social as well as a commercial dimension.

Kay carefully examines the change through the years from pure manufacturing to new ways of doing business in The Corporation in the 21st Century. Taking a deeper look at the shifts, Kay thinks that the term ‘capital’ itself means more than just financial capital. New technologies and processes are transforming the manner in which products are being produced. The products that are produced in the process, like smartphones and internet applications, are items that conveniently fit into the pocket. What the consumer ends up paying is towards the collective intelligence in the product design, rather than the transformation of raw material into finished goods. Twenty-first century business needs little capital, mostly does not own the capital it uses and is not controlled by the people who provide that capital, argues Kay.

According to the economists Jonathan Haskel and Stian Westlake, modern business is best described as “capitalism without capital”. Amazon best illustrates it: its market cap over is over $2 trillion and its assets on the balanced sheet totals $585 billion. If you think that Amazon requires large warehouses and vehicles, think again. Its property assets are largely rented from real state investors and financial institutions. On top of that, Amazon sells its goods before it even pays for them. The change in the corporate landscape is providing a comparative advantage in business methods.

Kay’s book is aimed at the lay reader, but in effect it has been turned into a thoughtful business document. He underscores the point that though capital requiements of new businesses may be relatively modest, the relationship between hard financial capital and soft intellectual capital need to be properly understood. Kay has detailed important factors that are fast transforming businesses. Clearly, business is more than mere profit-making. “What we call ‘profit’ is no longer primarily a return on capital but ‘economic rent’ — which is used to describe the earnings that arise because some people, places and institutions have commercially valuable talents which others struggle to emulate,” writes Kay. ‘Economic rent’ is earned by Taylor Swift or by the enthusiasm of fans of Manchester United, he points out.

In addition to redefining capital, Kay raises two concerns. First, he debunks the notion that business means profit maximisation, and second, that shareholder profit is only central to business. Ignoring stakeholders, profit maximisation, and reduced capital infusion are not easy issues to grapple with. These three issues put together will contribute significantly to running future businesses.

The modern business hinges around cerebral leaders. “The asset is the capability of individuals and teams within the business to solve problems, to devise and deliver new products and to win the commitment of suppliers and the trust of customers,” says Kay.