Chapter 10 Changing Coiurse to Sustain Growth Hybrid growth strategies Nike Changing course Rethinking Darwin Survival of the luckiest American Express Change begins by unlearning Levers of change
Changing Course to Sustain Growth
Excerpt from Go For Growth
By Robert M. Tomasko
Off-road driving is fun in a 4x4, torturous in a Lincoln Town Car. A minivan makes great sense when kids and car pools dominate your driving time; an Audi TT can ease the pain of an empty nest. Long, straight Western interstates were made for Detroit's muscle cars; the Pacific Coast Highway cries out for a BMW convertible.
Different paths require different vehicles. Different strategies for growth require different organizations to carry them out. The previous chapters highlighted the differing organizational characteristics of companies on each of the five growth paths. To summarize these, three growth paths are pure-breds and two hybrids.
· Most Rule Breakers have organizations in which the function of Direction predominates. Many are even called "extended shadows" of their founder or chief executive. They still require mechanisms to provide Propulsion and Stability, but these are far less developed - especially those contributing to Stability. And this is the way it needs to be for a Rule Breaker to thrive in the environment its growth path transverses.
· Game Players do better with vehicles able to steal market share from tough competitors, ones able to do well in double digit growth rate markets. For them Propulsion is the most vital function of their organizations. Game Players know where they are going; they just need the energy necessary to get there.
· Specialists also over-emphasize some aspects of their organizations, but for their slower and focused path to growth Stability is the organization characteristic that serves them best. Which, again, is not to say the do not need direction or propulsion, they just require - compared to companies on the previous two paths - proportionally less to be successful.
· Rule Makers are more complicated. They tend to blend strong Bill Gates or Michael Eisner-style Direction with well developed approaches to provide strong internal Stability. This combination may even help them carry this sense of stability to the outside marketplace.
· Improvisers are also a hybrid. Their unique ability to roll-with-the-punches and adjust quickly to chaotic markets is driven by an emphasis on Direction (like that provided by Louis Gerstner at IBM) coupled with strong attention to using the tools of Propulsion to rapidly shift course.
Another possible combination of organizational characteristics remains. It is the combination of Propulsion and Stability. Were this vehicle a boat, it would have a large hull and a powerful engine to haul it around - but no place in particular to go. This category, perhaps, should be reserved for one-time successful companies that have lost their will to grow. A number of businesses fit this type, they are just not the subject of this book.
· best fit the complexities of current industry realities
· adapt to changing market conditions by putting out new growth feelers
· keep a business from getting "over adapted" to its current situation - always a path to eventual decline
· hedge bets - multi product, multi path companies tend to last longer than single-focus ones.
Hybrid growth strategies
· For many years Xerox has nurtured its Rule Breaking office automation group within a largely Game Player corporate structure.
· More recently Matsushita gave up its Rule Making ambitions to dominate the course of the emerging "digital universe" when it sold most of its Hollywood moviemaker, MCA. Realizing it lacked the clear sense of Direction needed by successful Rule Makers, it is refocusing itself to follow a mix of Specialization in making electronic components and Game Playering in the consumer markets it already knows well.
· In the U.S. steel industry two rivals, Rule Breaker Nucor and U.S. Steel (once an industry Rule Maker, now a hybrid Improviser-Specialist) are following the cooperation-oriented New Rules for Growth. They are setting up a Rule Breaking joint venture aimed at revolutionizing the American steel industry by finding a new way to turn iron ore into steel.
· Specialist semiconductor maker, Integrated Device Technology, realizing how hard it is to mix the Rule Breaking orientation with its own, allowed its vice president of engineering to "spin-off, in-place,"forming a new semiconductor company right in the middle of Integrated Device's office space. The new company, called MoST, Inc., intends to dramatically speed up how computer screens draw graphics. The parent owns 10% of its stock, provides overhead services, and keeping the proximate operations sufficiently blurred so visitors walking through its offices cannot tell where one begins and the other leaves off.
Internal departments have their own growth paths
· R&D often has many Rule Breaker characteristics.
· Sales and marketing departments are classic Game Players.
· Manufacturing and many administrative units share characteristics with Specialists.
· Most top managements seem to follow either the Rule Maker or Improviser orientations.
A "shoe-less" shoe
Some combinations are easier than others
Other combinations are possible, and can be observed in multi business companies like General Electric and Sony that operate in diverse businesses. One principle to bear in mind when organizing businesses with diverse growth paths under one corporate umbrella, is not to try to tightly integrate things that are not meant to be tightly integrated. This is a sure way to kill off growth potential, as Exxon found when it (a Specialist cum Rule Maker) tried to diversify into computer chips and office automation (then dominated by Rule Breakers). The more the businesses resemble combinations of oil and water (Rule Breakers and Specialists; Rule Breakers and Rule Makers) the further apart - organizationally - they need to be. This is when structural forms like autonomous divisions, holding companies and joint ventures are most useful.
In theory, almost any blending of paths is possible along as the right organizational accommodations are made. Chemical opposites, like oil and water, can mix if put in a closed container and shaken with sufficient force. This requires the continual additional of energy to keep their molecules in motion, just as ongoing management attention is required to operate businesses on divergent growth paths under the same corporate structure. The important consideration here is one of opportunity costs: might not the company's overall performance be better if this management attention were directed elsewhere?
This issue does become of renewed importance, however, when a company reaches the midpoint of its growth path. That is when, assuming the business has been fairly successful, the organization most reflects the requirements of the current growth path. The midpoint is when the company operates most efficiently, and when its sustained growth is threatened the most.
Rethinking Charles Darwin
In 1859 Charles Darwin launched a new way of thinking about biological development. He did not answer all the questions about how species evolve, nor are his generalities especially sound when used to describe how businesses behave. More recent research has suggested some better explanations Darwin's theories imply there is some long, single chain that connects all species. But studies done since he advanced his ideas have failed to show, for example, how birds descend from reptiles, mammals from simpler quadrupeds, or the four legged creatures from their assumed marine ancestors. Gaps, more often than not, tend to appear between different species. Some of these may be due to missing, undiscovered biological evidence, but they are sufficiently numerous to suggest Darwin's paradigm needs some rethinking.
Evolution is seldom evolutionary
Or, to translate this to the business world, it is still possible for a Harvard-drop-out to create a multi billion dollar, high growth company from a garage start-up. After becoming well established, businesses do not grow by successive minor changes in strategy and organization, but by large-scale transformations that involve the corporation as a whole. This is something like the shift, for example, of a Rule Breaker to a Game Player.
Survival of the luckiest
Maybe so, but chance still favors the prepared company.
Harvey Golub, American Express' former chief executive, worked hard on the preparatory activities. He undid his predecessor's Rule Making strategy of attempting to be a "financial supermarket" - a path making little sense in an environment populated with many Rule Breakers and strong and successful Game Players. Instead of variety, Golub selected the company's charge card business as the center of future growth. He has few illusions about the difficulties of this path, considering the already established strengths of competitors such as Visa, A.T. & T., and Sears. Golub believes, for American Express and its competitors, that every business is destined to ultimately go out of business. The only issue, as he sees it, is if the wounds are to be self inflicted by American Express changing its product mix, or suffered at the hands of competitors.
Evolution at American Express
Golub is attuned to a concept learned in a previous career as a consultant, the "S" curve. Most every product - or new industry, for that matter, goes through a period of development that, when plotted, is the shape of that letter. When the effort that goes into a growth initiative is compared with the return from that investment, three distinct phases are common. First, progress is slow and returns minimal or non-existent. Then, in the words of "S" curve charter Richard Foster, "all hell breaks loose,"and growth runs wild. Then a point is reached when new dollars invested in the growth initiative do not produce the high return of previous investment. Progress, in the lab or marketplace become more difficult. Golub's American Express is at the upper end of its curve in its charge card and travelers check businesses. Renewed growth will have to come from paths that begin at the bottom of the curve.
· Emery Worldwide was once a Game Playing Federal Express-look-a-like. But its competitive position was weak. Federal Express picked up more packages at Manhattan's World Trade Center than Emery did throughout New York State. It was also plagued by high costs. It cost Emery $16.00 to pick up a a one pound package, for which it only charged customers $6.00. Something had to give, and it was Emery's Game Player-growth path. Now Emery refuses to haul letters and small packages. All resources are concentrated on freight weighing over 70 lbs. Changing to Specialization has brought large increases in revenues and profits, and Emery's share of its market segment is twice as large as its nearest rival (another long-time Specialist, Burlington Air Express).
· Emery's nemesis, Federal Express, has in less than a quarter of a century shifted path from its Rule Breaking creation of a new market to, for a brief period, a Rule Making dominance of its industry. Attempts to sustain its position by reverting to Rule Breaking - its ill-fated Zap Mail fax delivery service - and emergence of strong competition from UPS, Airborne and even the U.S. Postal Service, forced it to shift into its current Game Player mode.
· Emerson Electric, the manufacturer whose rediscovery of growth was described in an earlier chapter, is transforming from a Specialist to Game Player. Two well known consumer beverage makers, Snapple and Starbucks, have made similar changes.
· In the early 1980s Franklin Computer Company started as a Game Playing imitator of Apple Computer's products. When forced from the cloning business, Franklin repositioned itself as "Franklin Electronic Publishers," a sales leader Specializing in the electronic language translator and reference book market.
· Apple Computer itself began as a Silicon Valley Rule Breaker, for a time attempted to be a Game Player, but was forced by IBM and Microsoft to follow the Improviser path. Some industry analysts see a bright future fro the company, but one that follows the Specialist's niche path.
· American Express' Golub may find it easier learning from others in the financial services industry. Fortunately, examples of growth shifts, both good and bad , abound in banking. Bankers Trust, a once poor-performing blend of Game Player/Improviser dramatically turned its performance around when it shed its branch network and became a Specialist/Game Player, focusing on fee-based services for corporate clients. One of these, its derivatives products, led to unexpected consequences fro its largest customers and the bank has moved to the Improvising path. Bankers Trust's Manhattan neighbor, Citicorp, remained a full-service bank but, during the same period, has gone from Rule Maker to near-failing Improviser to rebounding Game Player.
Change begins with unlearning
The Naskapi Indians had an approach to planning that made it easy to forget old paths. The Spanish explorer Cortez, in the early 1500's, conquered a much larger and better armed Aztec nation only after scuttling or sending home all the ships that brought him to the New World. His soldiers had no choice: move forward or perish.
Where does all this new, growth-inducing wisdom come from? A strong willed executive, coping with a grow-or-perish crisis, is one source. But hard times and survival-at-stake are not the only ways change happens. Chuck Knight at Emerson moved when profits were strong, so has Federal Express' Fred Smith and many others.
Ed McCracken is no modern-day Cortez, but as chief executive of Silicon Graphics he has made use of management practices that help employees pay attention to life as it is, and can become - not how things used to be. Most major reorganizations - essential in any shift from one growth path to another - are handled very poorly in most companies. This is often because all the attention is giving to figuring out what comes next, and too little time devoted to closing the books on the past.
Before reorganizing: hold a wake
Sony is, in part, another corporate want-a-be. It is the world's master at miniaturization and has one one the strongest brand names in consumer electronics. But it also has a history of failing at controlling a market's development. Its pioneering VCR product, betamax, lacked all the features consumers wanted, and a rival technology (VHS) became standard. Other missteps occurred in software and digital audio standard setting.
A strategy Sony pursued to maneuver around these failures was an attempt to become the Rule Maker controlling both the "hardware" (Sony's entertainment products) and "software" sides of the emerging digital entertainment industry. To provide "content" that can potentially be exclusively adapted for its products, Sony purchased Columbia and Tri-Star studios, and entered into the electronic publishing business. Since Sony has faced severe challenges combining the Rule Breaking electronic path with the Game Playing show business. Rule Makers seldom emerge by blending these other two paths.
Sony produces absolutely incredible products; it might benefit if it stops fighting its old battles. Sony can clearly be the 3M of global consumer electronics. 3M has had a much-envied track record of growth - achieved without it ever wanting to be the "Microsoft of abrasives."
Know when to temporarily throw-in the towel
The lesson: growth minded businesses sometimes have to face the reality that there are times when "you just can't get there from here." This was an injunction that eluded John Scully, former Apple Computer chief executive. In spite of his Game Playing, consumer marketing career at Pepsi he put a great deal of effort to restore Apple's growth by attempting to take the company again down its original Rule Breaking path with the development of the hand-held electronic communicator, the Newton.
At times it seems almost every example of success at renewing growth can be countered with missteps or failures. This may be just the nature of business. But there are ways course changes can occur more smoothly and successfully.
Start before you have to
Beware of too-much positive thinking
Sending managers to classes in organizational learning is seldom sufficient to change these inbred patterns. Structural changes are also needed to provide power bases for people with insight into the new directions for growth a business may need to consider. This is a role consultants are sometimes asked to play, but they often lack the position and continuity to fight for the changes that need to happen.
Create a group for growth
Levers of organization change
How have companies successfully kept growing over the long haul? They:
· become aware of the need for change,
· adapt the vehicle for their growth to the requirements of a new growth path., and
· change, when necessary, from one vehicle to another.
Attention is given to whatever shifts are necessary in DIRECTION, PROPULSION and STABILITY. Gaps are identified between what is happening now, and what will be needed to sustain growth on a different path.
On the surface this is an analytic task, involving examination of a variety of important details, including:
· the management team's make-up;
· systems in place for planning and control;
· what the business mission is, and the extent it is widely shared;
· how incentives are tired to measures of growth;
· how the unwritten rules are contributing or detracting from forward movement;
· what kind of structure for what kind of employees has been chosen;
· and what mechanisms are in place to coordinate everyone's activities.
Analysis is important, but, in the end, everyone of these issues has a human side. What counts the most is the impact each element of organization has on people. The bottom line of any organization is how well it positions its employees for growth. Organizations shape the way people interact. You can tell that an organization is focused on moving forward when talk about growth permeates conversations throughout the company. No business can "go for growth" unless its employees want to get there just as much.
© Robert M. Tomasko 2002