Their power to prevent innovation can devastate your business.
“That’s not how we do things around here.” How often have you heard that? And what does it really mean? It is said to stop someone from doing something new. It is no way to promote innovation, is it?”
All companies want to grow. But early in the lifecycle they Lock-in on what works, and then implement Status Quo Police that intentionally do not allow anything to change. Their belief is that if nothing changes, the business will always grow. So conformance to historical norms is more important than results to them. To Status Quo Police results will return when conformance to old norms is returned!
Of course, this completely ignores the marketplace. Market shifts, created by competitors launching new technologies, new pricing models, new delivery models or other new solutions cause the value of old solutions to decline. No matter how well you do what you always did, you can’t achieve historical results. The market has shifted!
To keep any company growing you must know who the Status Quo Police are in your organization. They can be in HR, controlling hiring, promotions and pay. In Finance controlling what projects receive resources. In Marketing, tightly controlling branding, product development or distribution. The Status Quo Police are committed to keeping things tightly controlled, and saving the organization from change that could send the company in the wrong direction! No matter what the marketplace may require.
But it’s not enough to know who the Status Quo Police are, its up to leaders to eliminate them! If you want to have a vibrant, profitably growing organization you have to constantly adjust to market shifts. You have to sense what the market wants, and move to deliver it. You have to be very wary of the Status Quo, and instead be open to making changes in order to grow. To do that, you have to hold those who would be the Status Quo Police in check. Otherwise, you’ll find the obstacles to innovation and growth overwhelming!
Please read the article at Forbes, review it and comment! Let me know what you think!
We are biased toward doing what we know how to do, rather than something new
We like to think we can forever grow by keeping close to what we know – that’s a myth
Growth only comes from entering growth markets – whether we know much about them or not
To grow you have to keep yourself in growth markets, and it is dangerous to limit your prospects to projects/markets that are “core” or “adjacent to core”
Recently a popular business book has been Profit from the Core. This book proposes the theory that if you want to succeed in business you should do projects that are either in your “core,” or “adjacent to your core.” Don’t go off trying to do something new. The further you move from your “core” the less likely you will succeed. Talk about an innovation killer! CEOs that like this book are folks who don’t want much new from their employees.
I was greatly heartened by a well written blog article at Growth Science International (www.GrowthSci.com) “Profit from Your Core, or Not.. The Myth of Adjacencies.” Author Thomas Thurston does a masterful job of pointing out that the book authors fall into the same deadly trap as Jim Collins and Tom Peters. They use hindsight primarily as the tool to claim success. Their analysis looks backward – trying to explain only past events. In doing so they cleverly defined terms so their stories seemed to prove their points. But they are wholly unable to be predictive. And, if their theory isn’t predictive, then what good is it? If you can’t use their approach to give a 98% or 99% likelihood of success, then why bother? According to Mr. Thurston, when he tested the theory with some academic rigor he was unable to find a correlation between success and keeping all projects at, or adjacent to, core.
Same conclusion we came to when looking at the theories proposed by Jim Collins and Tom Peters. It sounds good to be focused on your core, but when we look hard at many companies it’s easy to find large numbers that simply do not succeed even though they put a lot of effort into understanding their core, and pouring resources into protecting that core with new core projects and adjacency projects. Markets don’t care about whatever you define as core or adjacent.
It feels good, feels right, to think that “core” or “adjacent to core” projects are the ones to do. But that feeling is really a bias. We perceive things we don’t know as more risky than thing we know. Whether that’s true or not. We perceive bottled water to be more pure than tap water, but all studies have shown that in most cities tap water is actually lower in free particles and bacteria than bottled – especially if the bottle has sat around a while.
What we perceive as risk is based upon our background and experience, not what the real, actual risk may be. Many people still think flying is riskier than driving, but every piece of transportation analysis has shown that commercial flying is about the safest of all transportation methods – certainly much safer than anything on the roadway. We also now know that computer flown aircraft are much safer than pilot flown aircraft – yet few people like the idea of a commercial drone which has no pilot as their transportation. Even though almost all commercial flight accidents turn out to be pilot error – and something a computer would most likely have overcome. We just perceive autos as less risky, because they are under our control, and we perceive pilots as less risky because we understand a pilot much better than we understand a computer.
We are biased to do what we’ve always done – to perpetuate our past. And our businesses are like that as well. So we LOVE to read a book that says “stick close to your known technology, known customers, known distribution system – stick close to what you know.” It reinforces our bias. It justifies us not doing what we perceive as being risky. Even though it is really, really, really lousy advice. It just feels so good – like sugary cereal for breakfast – that we justify it in our minds – like saying “breakfast is the most important meal of the day” as we consume food that’s probably less healthy than the box it came in!
There is no correlation between investing in your core, or close to core, projects and high rates of return. Mr. Thurston again points this out. High rates of return come from investing in projects in growth markets. Businesses in growth markets do better, even when poorly managed, than businesses in flat or declining markets. Where there are lots of customers wanting to buy a solution you simply do better than when there are lots of competitors fighting over dwindling customer revenues. Regardless of how well you don’t know the former or do know the latter. Market growth is a much better predictor of success than understanding your “core” and whatever you consider “adjacent.”
Virgin didn’t know anything about airlines before opening one – but international travel from London was set to boom and Virgin did well (as it has done in many new markets.) Apple didn’t know anything about retail music before launching the iPhone and iTunes, but digital music had started booming at Napster and Apple cleaned up. Nike was a shoe company that didn’t know anything about golf merchandise, but it entered the market for all things golf (first with just one club – the driver – followed by other things) by hooking up with Tiger Woods just as he helped promote the sport into dramatic growth.
Success comes from entering new markets where there is growth. Growth can overcome a world of bad management choices. When there are lots of customers with needs to fill, you can make a lot of mistakes and still succeed. To restrict yourself to “core” and “adjacent” invites failure, because your “core” and the “adjacent” markets that you know well simply may not grow. Leaving you in a tough spot seeking higher profits in the face of stiff competition — like Dell today in PCs. Or GM in autos. Sears in retailing. They may know their “core” but that isn’t giving them the growth they want, and need, to succeed in 2010.
Nearly 20 years ago the Clinton campaign inspired itself with the mantra “It’s the Economy, Stupid.” Their goal was to remind everyone that the economy was critical to the health of a nation, and the economy hadn’t been doing so well. Now we could retread that for business leaders “It’s About Growth, Stupid.” For some reason, all too many seem to have gotten caught up in downsizings and cost cutting, forgetting that without growth there’s no way to have a healthy business!
I’ve long been a detractor of Sara Lee. As the company undergoes a change in leadership, the Chicago Tribune headlines “Nobody Doesn’t Like Sara Who?” Under CEO Brenda Barnes, Sara Lee sold off business after business. Now the company is so marginalized that it’s an open question if it will remain independent. For years the leaders said asset sales were to help the company “focus.” Only “focus” made the company smaller, without any growth businesses. Why would an investor want to own this? Why would a manager want to work there?
Had the asset sales been invested in growth, perhaps a positive outcome would have developed. But Sara Lee was like most companies, as that rarely happens. Had the money been paid out to investors perhaps they could have invested those gains in other growth businesses. But instead the money went into the company, where it propped up no-growth businesses. Leaving Sara Lee a smaller, no growth, low profit business. This leadership has not benefited investors, employees, customers or suppliers.
Likewise, draconian cost cutting does more harm than good. The National Public Radio headline reads “Extreme Downsizing May Hurt Companies Later.” Using deep cuts at Alcoa as an example, Wayne Crascia, professor at University of Colorado, points out that it’s unlikely Alcoa has really “prepared itself for future growth.” Instead, cost cutting often eliminates the ability to compete effectively, by cutting into R&D, marketing and sales in ways that are impossible to rebuild quickly or effectively. By trying to save the old Success Formula with cuts, rather than growth initiatives, the leadership hurts the company’s long term viability. Sort of like repeated vomiting by anorexia sufferers leaves them skinnier – but in far worse health. Even though Alcoa still boasts 60,000 employees it’s very likely the company has permanently Locked-in its old Success Formula leaving itself unable to emerge as a stronger company aligned with new market needs.
Yet, while so many company leaders are trying to “retrench to success” it’s clear that growth still abounds for the companies that understand how to create value. BrandChannel.com headlines “The Elastic Brand: Virgin Expands in Every Direction.” Instead of retrenching to focus on some sort of “core” the article points out how Virgin’s leader, Sir Richard Branson, keeps taking the business into new, far flung operations. Defying conventional wisdom, Virgin is in money lending, mobile phones, gaming, social media, international airlines, domestic airlines and even intercontinental flight! By intentionally avoiding any kind of “core” Virgin keeps growing – even during this recession – adding jobs for employees, higher value for investors, more sales opportunities for suppliers and more chances to buy Virgin for customers!
Conventional wisdom be danged ….. maybe it’s time to look at results! Organizations that whittle themselves down to “core” by asset sales or cutting destroy value. While it may feel self-flaggelatingly good to talk about cuts, it does not create value. Only growth can do that. And there is growth, when we start focusing on market needs. Virgin is finding those opportunities – so what’s stopping you? Is it your “focus on your core” business? If so, maybe you need to read the Forbes article “Stop Focusing on Your Core Business.” It may sound unconventional, but then again – isn’t it those who defy conventional wisdom that make the most money?
Postscript: I offer my personal best wishes to Ms. Barnes on her recovery. It has been reported in the press that Ms. Barnes recently suffered a stroke. I know how difficult a time this can be, as my wife stroked at age 54, and I was her personal caregiver for 3 years of difficult recovery. Stroke recovery is hard work. For the patient as well as the family it is a tough time. While I have been a detractor of Ms. Barnes leadership at Sara Lee, in no way did I ever wish my comments to be personal, and I would never wish anyone suffer such a difficult health concern as a stroke. Again, my best wishes for a full recovery to Ms. Barnes, and for both her and her family to have the strength and tenacity to come through this ordeal stronger and even more tightly knitted.
"From the day we start kindergarten we fear the teacher's call to our
parents saying, "Hello Mr. and Mrs. Smith. I'm sorry to tell you that
Mary has been disruptive in class." We are taught, trained and
indoctrinated to go along and get along, to not disrupt. In fact we're
constantly told to seek harmony. But in business that can destroy your
entire value."
That's the first paragraph from my Forbes.com column, posted today,"To Succeed You Must Seriously Disrupt." Companies that don't Disrupt remain Locked-in to Success Formulas with declining value until all hope is lost – just look at Sun Microsystems. Although Chairman Scott McNealy was famous for his Disruptive corporate behavior – he was unwilling to tolerate disruptions from his own organization to the company business model. In 10 years Sun went from $200B market cap to out of business.
Now Toyota is struggling because it wouldn't Disrupt. Meanwhile Honda is doing much better than most, because it is willing to Disrupt. Listen to the 40 second video on Disruptions, and read the article so you can see the need for Disruption and adopt in your business!
We end the first decade in 2000 with another first. In ReutersBreakingViews.com "Don't Diss the Dividend" we learn 2000-2009 is the first time in modern stock markets when U.S. investors made no money for a decade. Right. Worse performance than the 1930s Great Depression. Over the last decade, the S&P 500 had a net loss of about 1%/year. After dividends a gain of 1% – less than half the average inflation rate of 2.5%.
Things have shifted. We ended the last millenium with a shift from an industrial economy to an information economy. And the tools for success in earlier times no longer work. Scale economies and entry barriers are elusive, and unable to produce "sustainable competitive advantage." Over the last decade shifts in business have bankrupted GM, Circuit City and Tribune Corporation – while gutting other major companies like Sears. Simultaneously these changes brought huge growth and success to Google, Apple, Hewlett Packard, Virgin and small companies like Louis Glunz Beer, Foulds Pasta and Tasty Catering.
Even the erudite McKinsey Quarterly is now trumpeting the new requirements for business success in "Competing through Organizational Agility." Using academic research from the London Business School, author Donald Sull points out that market turbulence increased 2 to 4 times between the 1970s and 1990s – and is continuing to increase. More market change is happening, and market changes are happening faster. Thus, creating strategies and organizations that are able to adjust to shifting market requirements creates higher revenue and improved operational efficiency. Globally agility is creating better returns than any other business approach.
A McKinsey Quarterly on-line video "Navigating the New Normal: A Conversation with 4 Chief Strategy Officers," discusses changes in business requirements for 2010 and beyond. All 4 of these big company strategists agree that success now requires far shorter planning cycles, abandoning efforts to predict markets that change too quickly, and recognizing that historically indisputable assumptions are rapidly becoming obsolete. What used to work at creating competitive advantage no longer works. Monolothic strategies developed every few years, with organizations focused on "execution," are simply uncompetitive in a rapidly shifting world.
And "the old boys club" of white men in top business leadership roles is quickly going to change dramatically. In the Economist article "We Did It" we learn that in 2010 the American workforce will shift to more than 50% women. If current leaders continue following old approaches – and generating anemic returns – they will rapidly be replaced by leaders willing to do what has to be done to succeed in today's marketplace. Like Indra Nooyi of PepsiCo, women will take on more top positions as investors and employees demand changes to improve performance. Leaders will have to be flexible and adaptive or they, and their organizations, will not survive.
Additionally, the information technology products which unleashed this new era will change, and become unavoidable. In Forbes "Using the Cloud for Business" one of the creators of modern ERP (enterprise resource planning) systems (like SAP and Oracle) Jan Baan discusses how cloud computing changes business. ERP systems were all about data, and the applications were stovepiped – like the industrial enterprises they were designed for. Unfortunately, they were expensive to buy and very expensive to install and even more expensive to maintain. Simultaneously they had all the flexibility of cement. ERP systems, which proliferate in large companies today, were control products intended to keep the organization from doing anything beyond its historical Success Formula.
But cloud computing is infinitely flexible.Compare Facebook to Lotus Notes and you start understanding the difference between cloud computing and large systems. Anyone can connect, share links, share files and even applications on Facebook at almost no cost. Lotus Notes is an expensive enterprise application that costs a lot to buy, to operate, to maintain and has significantly less flexibility. Notes is about control. Facebook is about productivity.
Cloud computing is 1/10th the cost of monolithic owned/internal IT systems. Cloud computing offers small and mid-sized companies all the computing opportunity of big companies – and big advantages to new competitors if CIOs at big companies hold onto their "investments" in IT systems too long. Businesses that use cloud architectures can rearrange their supply chain immediately – and daily. Flexibility, and adaptability, grows exponentially. And EVERYONE can use it. Where mainframes were the tool for software engineers (and untouchable by everyone else), the PC made it possible for individuals to have their own applications. Cloud computing democratizes computing so everyone with a smartphone has access and use. With practically no training.
As we leave the worst business environment in modern times, we enter a new normal. Those who try to defend & extend old business practices will continue to suffer declining returns, poor performance and failure – like the last decade. But those who embrace "the new normal" can grow and prosper. It takes a willingness to let scenarios about the future drive your behavior, a keen focus on competitors to understand market needs, a willingness to disrupt old Lock-ins and implement White Space so you can constantly test opportunities for defining new, flexible and higher returning Success Formulas.
Here's to 2010 and the new normal! Happy New Year!
