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How the Mighty Endure
Last month Toyota and Microsoft were featured as companies that now suffer despite huge prior success. It is not uncommon for the mighty to fall, but it is also possible for the mighty to avoid the fall — or at least to recover from it.
Several years ago a Harvard Business Review article explained "Why bad things happen to good companies."1 In addition to noting the impact of the unpredictability of markets, the authors asserted that good companies are likely to suffer a failure of leadership at the very moment when change must take place: "They [CEOs] discharge their community responsibility by becoming active in charities. They build a new headquarters and spend their time decorating it with world class art. They provide advice to government agencies. They write a book. They do anything to get someplace where they can achieve something." It doesn't have to be this way; corporate management must remain focused on corporate strategy.
There are examples when leaders of successful or once-mighty companies did lead effectively, avoiding a future crisis or recovering from one already in force. Alongside Toyota's recent troubles, Ford has ascended under the leadership of Alan Mulally. In February, Ford eclipsed General Motors in market share for the first time in 70 years (excluding strike years). Ford's renaissance is not simply taking advantage of GM's misfortunes. It is the result of a clear plan for simplifying operations to gain efficiency and playing in markets where Ford can be profitable.
In essence, Ford is executing a corporate strategy that provides clear direction on: a) what markets they will play in (e.g., small cars in addition to trucks), b) how they will win (by offering fewer brands and models), and c) what they will invest in (efficiency measures such as the "One Ford" initiative). These all align with the motto of "Improve Focus, Simplify Operations." If the current trend line continues, "Mulally will be credited with one of the great turnarounds in corporate history."2
Corporate leaders don't have to wait for decline before taking action. Take Henry Schacht at Cummins Engine. The longtime CEO made the decision in the early 1980s to significantly recast the company despite the fact Cummins was enjoying record sales and record profits. Schacht did this to preempt significant market changes likely to impact the firm's primary business of diesel engines: stagnant demand growth, clean air regulation, and Japanese competition that owned a 30% cost advantage.
To survive these changes, Cummins executives determined a plan to make heavy investments in R&D (to stay ahead of looming clean air requirements) and plant processes (to attain needed efficiency). In order to achieve scale, they expanded to play in international markets and decided the way to win was to protect share at all costs in the short-run as infrastructure investments took hold.
Company survival is a matter of corporate strategy; corporate executives must determine three things:
Roger Martin3, Dean at the University of Toronto, claims that many CEOs — and just about everyone else claiming to be company strategists — are ineffective because they are unable to fit together these three things. Some are good at what he calls "how-to-win" choices and others are good at "where-to-play" choices. But getting >b>part of this thinking right is not sufficient. And good corporate strategy is not gained by using analytical tools. Instead, effective strategists use what Martin calls "creative insight" — considering the whole package of markets, positioning and core technology.
- What markets to play in
- How to position the company's brand(s)
- Where to invest
Apple was in the dumps in the late 1990s but soon thereafter, the company changed direction and became hugely successful. First, they determined they were primarily a hardware company, focusing investment in hardware design (and letting others focus on software). Second, they have determined to play in a broad range of electronic categories where user experience is key (computers, music, phones), and they are positioned as providing intuitive, cool user experiences.
It will be wise for Apple executives — and senior management of any successful companies — to learn the lesson of so many giants before them: keep looking to the future to plan success beyond today.
1By Dion Haynes, "Why bad things happen to good companies." Harvard Business School, 1994. By Benson Shapiro, Adrian Slywotzky, & Richard Tedlow.
2"Ford's Renaissance Man." The Wall Street Journal, February 27, 2010. By Paul Ingrassia.
3Why Most CEOs are Bad at Strategy, By Roger Martin, Harvard Business Review
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