I’ve talked a lot about the business lifecycle, but not recently. For newer BLOG readers, I describe the business lifecycle as being like a river. Companies start out in the Wellspring, looking for a working Success Formula. After it hits on a functioning business model, it enters the Rapids where it uses innovation in all parts of its business to fully develop the Success Formula and make maximum returns while growing. Then the company hits a growth stall, and enters the Flats – where paddling suddenly becomes critical. Hoping that they can now extend their life by doing more of the same, they hope to stay in the Flats. But, unfortunately, in today’s economy there is no energy in the Flats and companies find themselves rapidly in the Swamp, where they become so obsessed with killing mosqitos and fighting alligators that they forget entirely what the Rapids were like and their real objective is to find fast moving water again. Finally, they fall into the Whirlpool when competitors simply pull them into failure.
I’m often asked how to identify transitions in companies across these sectors, and I point to how Lock-in during the Rapids leads to the stall in the Flats. Look at Lock-ins, and adherence to Lock-in even after the market has shifted and the Success Formula results are deteriorating. As focus becomes all about Lock-in adherence, even as results have become mired, and you see companies in the Swamp. Very few recover from the Swamp – the use up their resources as competitors push them toward the Whirlpool.
WalMart has exhibited all the traits of a company deeply in the Swamp. Despite their poor results, chronicled in this blog, Walmart rigidly sticks to its doctrine and hopes the market will bring them fresh water so the paddling isn’t so tough. A great example showed up recently, in the form of WalMart’s business cards. In the midst of it’s worst monthly and quarterly performance in over a decade, WalMart chose to react by reducing the physical size of their business cards (see Forbes article here.) Yep, amidst a crisis in growth this management team has reacted by cutting costs – it’s core Success Formula Lock-in – in the trivial area of business cards. WalMart is schrinking the cards in order to lower the paper cost and ink cost in printing employee cards. Give me a break – this is going to make any difference in the competitive problems with Target, Kohl’s and JCPenneys?
This joins the pantheon of key indicators that investors, employees and suppliers can use to identify a company in deep strategic trouble. I used to call it "the paper clip memo phenomenon." Look for the CEO of a troubled company to send out an email telling employees to be sure to save and reuse paper clips before discarding materials. This memo has come in many forms – such as "please start printing on the back side of paper as well as the front side", or "from here forward printing documents in color is forbidden," to "we are reducing all email archive space by 75% in order to save on server costs in IT." All real world examples of business leaders who are effectively telling the world they have no idea how to deal with the strategy problems they face, and they hope to survive as long as possible by adhering to Lock-in.
WalMart is huge and it won’t fail tomorrow. Heck, if we get a recession next year (predicted by several economists) WalMart might even see an up-tick in business and a jump in it’s stock price as customers go on a cost-saving binge. But, longer term, WalMart has demonstrated that it is out of touch with its customers and competitors – and it’s low cost no matter the consequences strategy is not the path to growth. Sometimes, the smallest things can demonstrate the biggest strategy problems. Just look at their business cards.