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The Emerging “Metaphysical Corporation”

The articles of business thinker and writer Gord Hotchkiss are “go-to” columns on the web because they’re invariably thought-provoking pieces to read.

In one recent piece, Hotchkiss poses an interesting set of questions surrounding the emergence of the “metaphysical corporation.” Hotchkiss notes that more business today is being conducted in non-physical markets.

To illustrate, he cites a recent evaluation issued by intellectual property merchant bank Ocean Tomo, which reports that the asset mix of companies has undergone a massive shift over the past 40 years.

In 1975, tangible assets — equipment, buildings, inventory and land — made up more than 80% of the asset market value of the S&P 500 companies.

In just 35 years, that ratio has flipped. Intangible assets — patents, trademarks, goodwill, brand equity — now make up 80% of the S&P 500’s asset market value.

To Hotchkiss, this trend promises to have major implications on the future structure of corporations.  Historically, companies that made physical products needed a supply chain.

Vertical integration was the common way to remove physical “transactional friction” from the manufacturing process. And vertical integration was best managed through hierarchical management styles.

By contrast, companies that sell ideas or intangible products need to have a network.  By their very nature, these networks don’t have physical friction, so supply chains aren’t required.

In fact, attempting to control a network via a centralized organizational structure tends to be counterproductive, as branches of the network are prone to wither under such constraints.

Building on this notion, Hotchkiss concludes:

“As we move from the physical to the metaphysical, the cost of producing consumable services or digital concept-based products … drops dramatically. Capital was required to overcome physical transactional friction.  If that friction disappears, so does the need for capital.”

Like other big trends, this transformation won’t happen overnight.  But Hotchkiss predicts it will happen by degrees in the coming years and decades.

 

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