The annual Global Competitiveness Forum is the Middle East equivalent of the World Economic Forum in Davos. The forum attracts leading figures from business and politics and its debates are invariably wide-ranging.
The forum’s theme this year was innovation, now identified as a critical factor in sustainable economic growth. Business innovation is difficult to define and almost impossible to promote, but we know it when we see it. When it comes, the impact of innovation can be enormous.
The forum’s keynote panelists included the chief executives of Rolls-Royce and of Boeing Corporation. Both claimed innovation was at the heart of their businesses. Not everyone was convinced.
Google, represented by senior vice president David Drummond, is a more compelling example of innovation in action. The company was founded in 1996, went public in 2004 and now has a market value of about $200bn. That’s four times the figure Boeing has reached in less than a sixth of the time and 10 times the market capitalisation of Rolls-Royce, an engine manufacturer which turns 40 this year.
The fastest-growing corporation in history, however, wasn’t at the forum, though its spirit definitely was. Facebook makes even Google look sluggish. Facebook was invented in the autumn of 2003 and established as a business seven years ago next month. Recent purchases of Facebook shares have lifted its estimated market valuation to $50bn.
This figure is the subject of sceptical comment. No one knows what Facebook’s revenues are and its profits are certainly modest. But even hard-headed investors can’t escape the logic of the market. If someone’s prepared to buy Facebook shares at that price, it must be because they think they’re worth it. That’s what value means in global capital markets.
This startling development wasn’t mentioned at Riyadh for obvious reasons. Business leaders who dismiss the Facebook phenomenon instantly damn themselves for rejecting an innovation that has lifted shareholder value with unprecedented speed. If they say Facebook is a model to emulate, however, the implications for their corporate structures are profound.
Facebook emerged as a result of actions, which differ in every way to how established corporations function. A 19-year-old Harvard University undergraduate conceived Facebook while blogging late one night. Mark Zuckerberg broke Harvard’s rules and was accused of stealing the Facebook idea. Zuckerberg worked essentially on his own. There was no board of directors, marketing department, HR managers or a chief executive officer worthy of the title.
Yet, its impact is inescapable, even for Google. On 20 January, the company’s co-founder Larry Page tweeted after taking over as chief executive from Eric Schmitt that Google no longer needed adult supervision. If this had come from any other business leader, the comment would have been greeted with derision. How can you criticise someone behind one of the world’s greatest business success stories?
There is more than one way of interpreting Page’s startling pronouncement. It’s difficult to escape the conclusion that he was railing against the corporate conventions, which he originally defied and Zuckerberg has more recently challenged.
Middle East echoes
The dotcom boom ended in tears in March 2000 and the business establishment was pleased. That complacency was shattered in 2008-09 by the collapse of institutions that were once believed to be indestructible. Farsighted students of corporate trends say a new era may have begun that will undermine assumptions about how successful businesses are made. Facebook, they forecast, may be the new normal.
There are echoes in the Middle East. The uprising in Tunisia and similar developments elsewhere in the region are believed to have been inspired by electronic community connections Facebook facilitates.
The Middle East needs innovation to stimulate non-oil economic growth, but it has one of the world’s lowest rates of invention despite huge increases in investment in education in the past 40 years. Top-down demands for this to change are increasing, but the Facebook phenomenom suggests innovation comes quicker when it flows from the base not the summit.
This may be something to fear in a region where political instability is rightly dreaded. Middle East business has little to lose from embracing the internet with a conviction that most Western corporations can’t muster and probably never will.