Last Christmas we were horrified by videos of people who went out to pick up shells on the beach in Thailand only to be overwhelmed by the tsunami which rushed in and created total devastation. Some people (most) thought the situation was a mere outgoing tide (larger than usual, to be sure). A few, however, recognized this was no mere tide, but a tsunami about to unleash. Instead of going to the beach, they ran as fast as possible the other way. These few saved themselves.
How do business leaders know when a problem in their business is merely the tide going out, and when it will be a tsunami challenging (possibly wrecking) their business model? This question is critical for leaders and investors. When the business is in the Rapids, and short-term problems can be fixed, then staying the course is the right thing to do. But, if the problems are actually signals of much deeper challenges then a lot more is needed before the business is dumped into the swamp and returns become elusive.
Wal-Mart stock has been dumped lately. Due to concerns about hurricane Katrina’s impact driving gas prices higher, investor’s have driven Wal-Mart’s value down to levels similar to the market collapse after terror on 9/11/01. Is the tide going out on Wal-Mart, sure to come back in and raise Wal-Mart to greater value, or should we be more worried about the future?
The key is to move beyond short-term concerns and look at longer-term trends. Wal-Mart has been struggling to maintain its value since peaking in the dot.com boom. Since 2000, the stock has gone sideways. Why? There have been a series of problems for Wal-Mart: Union problems/threats, store failures in Europe, lost customers to more trendy Target and Kohl’s, rising costs from energy prices, employee lawsuits over discrimination, government investigation for hiring illegal immigrants, and top executives fired for misappropriation of expense monies to wage illegal union-busting activities. Problems with customers losing discretionary spending dollars to high gas prices is merely the most recent in a series of concerns about Wal-Mart’s ability to re-invigorate growth and its profits.
One reason we review quarter-to-quarter results is it helps us determine if a company is in the Rapids, or not. When in the Rapids businesses can tweak their operations to recover from problems. But, when in they move into the Swamp we see recurring problems that aren’t easily overcome. Results are always promised to improve – and historical glory regained. Improvement is always just around the corner from China expansion, investments in lower-cost distribution, and store extensions. And internal problems are diminished by explaining away lawsuits and executive misdeeds as "one off" occurences. In the Swamp, there are so many alligators and mosquitos nipping at the operations we wonder if management has time to focus on how to get back into the Rapids!
Everyone wants large and successful institutions to regain their glory. But that is rare. Smart leaders have to know how to recognize when the market is changing, and they are looking at a tsunami – not just the outgoing tide. Long-term success requires honestly seeing the recurring problems as the symptoms of something much worse – and not always doing what was done (picking up the fish on the beach) but instead taking much more drastic action to address fundamental challenges.