I attack Defend & Extend Management a lot. Too often, managers try to succeed by just doing more of the same – often faster or cheaper. But when markets have shifted, that can produce ever declining performance instead of improvement. Then why is D&E management so popular, and so frequently taught in business school?
When a business is in the Rapids, because it is participating in a growing market, then D&E Management can produce very good results. GM in the heyday of auto sales made huge money being the largest manufacturer – and Dupont was the same during the zenith of chemicals (remember when Dustin Hoffman was given one word of advice post-college – "Plastics" – that was a good time for DuPont). More recently, first Wang then DEC did tremendously well during the growth of mini-computers. And Dell was an enormous benefactor of the growth in PC sales.
Today, Google (see chart here) is riding high practicing D&E Management. The market for searches is continuing to grow. And we’re still in the early days for internet ad placement. Google is doing well merely by doing more (read AP article about Google here.) When the market is growing at 20%/quarter, management is incredibly busy just trying to hire people, get them on staff, get them directed and keep up with customer demands. Market growth keeps Google growing and making money – and management is encouraged by analysts, and investors, to keep doing more of what it has always done. D&E Management is working – producing results.
And this will continue until the market shifts. Companies that catch these growth waves can do well for many years – sometimes decades. Recall the examples above. Dell rode high for 20 years before growth stalled – along with PC sales and tremendous increase in competitiveness of competitors. And the best leadership teams realize they can’t predict when this stall will happen. They just know it will. The cause will always be something unexpected, and thus a shock to the existing Success Formula results. So the best leadership teams in high growth markets practice D&E, and at the same time create and invest in White Space.
The best time to prepare for a market to slow its growth, or become victim of a Clayton Christensen style disruptive technology shift, is when things are going great. When growth is creating plenty of cash, and investors are throwing money at you. During this time, it’s really smart to Disrupt yourself from time to time and set up White Space projects that can focus on alternative Success Formulas. This prepares the foundation for long-term growth, rather than the boom-and-bust scenario of, say, DEC.
Cisco Systems (see chart here) is a case in point. When most internet companies were getting destroyed at the end of the 1990s Cisco relied upon the foundation for continued growth developed by investing in plenty of projects that weren’t the current fast growers during previous years. Rather than just trying to D&E what had worked (and it was working really well to sell network devices to telecom companies) Cisco had already started looking for other competitive products in other markets. As a result, the cliff fall off that lambasted Sun Microsystems, and 3Com, had a far less impact on Cisco. Cisco’s ongoing Disruptions, by constantly trying to obsolete its own products, with a never-stopping focus on looking at future scenarios, helped the company prepare for the dot.com crash. Now Cisco is as strong as ever and continuing to make tremendous returns in a very different competitive marketplace.
Google is doing great. It’s Success Formula has been Locked-in and its is creating tremendous results. And this scenario is likely to continue for years. In the Rapids, life is fun at Google. D&E Management is making money. But keep your eyes open for a market shift. Without White Space, Google could quickly be the next DEC.