I regularly beat the stuffing out of organizations for Defending & Extending their Lock-in. Low growth and poor results have demonstrated for these companies that market shifts are pushing their Success Formula toward obsolescence. They need to Disrupt and use White Space if they are to survive and grow again.
There is another side to this. Some companies are in the Rapids, and they have a different set of requirements. Take for example IT services provider Infosys. Their quarter ended 30 June, 2008 saw revenues increase by 24.5% versus a year ago! The company also added over 7,000 employees during the quarter. Tata Consultancy Services (TCS – also an the IT services provider) for the same period saw revenues grow 21% as they added nearly 9,000 new employees. These companies are clearly in the Rapids, seeing revenues grow in double digits and they are profitable. They have a very different Lock-in problem.
When businesses are in the Rapids, their objective is to define the Lock-in which will guide improving results from the Success Formula. Without Lock-in, they cannot keep growing revenues and, even more importantly, improve on the Success Formula to grow profits and maintain above-average returns as new competitors enter. These businesses need to make sure they have a clear hierarchy that can guide the recruiting, hiring and new employee indoctrination process. They need clear processes for adding new large clients – Infosys added 49 clients in the latest quarter and TCS added 35. Without Locked-in processes to rapidly sell, onboard and deliver services to new clients they cannot maintain this rapid growth. Without clear IT structures, they cannot measure employee performance against client goals, and effectively implement billing and cash receipts. They need Locked-in decision-making processes that allow leaders to quickly review business issues and make quick decisions so the company can keep growing. And they need to develop experts inside the company who can oversee operations and be sure each silo maintains its performance.
When a business enters the Rapids Lock-in is GOOD! We forget about that because so often we are talking about problematic businesses. But when GM was growing fast, it needed to create Lock-in that helped it become the #1 auto company offering more styles and features than previous leader Ford. When Microsoft was growing fast it needed Lock-in to help it dominate the desktop market amongst fierce competitors threatening to fragment the PC software market. It was Wal-Mart’s Lock-in to supply chain leadership that allowed it to go from a small group of stores in backwater rural towns to the world’s largest retailer in just 2 decades. (Of course, all of them are now Challenged looking forward because eventually the let Lock-in overcome their need to change due to market shifts – but that’s a different story.)
When businesses don’t create Lock-in they can’t grow. They can’t compete effectively in a way that meets market expectations. They are chronically short capacity. They cannot onboard clients effectively, so potential buyers grow weary of the wait. They lose track of their record keeping and miss customer expectations – as well as struggle with cash management. They make erratic decisions that confuse customers, investors and employees, slowing the ability to maintain growth.
Today, Infosys and TCS are very profitable at the gross margin line – but not so on the bottom line. Their revenue per employee is a mere $51,000. Accenture produces revenue of $240,000 per employee! In the Rapids, these high growth companies that are Disrupting the marketplace need to manage their Lock-ins so they not only grow, but earn above average rates of return as well. Eventually, all Success Formulas hit the wall of diminishing returns. Market shifts allow competitors to strip out value from old Success Formulas. But first, before they stall, successful companies have to implement Lock-in to make their Success Formula valuable! Those that don’t just churn through lots of investor cash, employee turnover, beaten up suppliers and in the end fail.
In the Rapids, Lock-in is good! If you’re evaluating a growing company, you want to see that it has a clear Success Formula and knows how to Lock it in. Only after that has happened, and proof of above average returns are demonstrated, does it become critical to manage Lock-in for evergreen, long-lived results.