In recent years, we have seen scores of iconic businesses and brands fall by the wayside. The demise of Kodak, Borders and HMV Music leaves us with little doubt – shift is happening and no organisation or brand, no matter how well known, is immune to extinction. As once-lucrative revenue models increasingly come under siege and distribution channels that have been stable for decades crumble before our eyes, it is becoming apparent that the rules of business have changed – the goal posts have been moved.
Charles Darwin once observed, “It is not the strongest that survive, nor the most intelligent. Rather, it is those who are most responsive to change.” The challenge for every business and leader today is to evolve in the face of rapid and widespread change. Simply relying on conventional wisdom or assumptions that have held true in the past will set any brand or organisation on a collision course with obsolescence.
In considering the litany of businesses that have met their demise in recent times, there are five lessons that can be extracted from their experience – lessons that will put you in good stead to avoid the same fate:
Do not trust the numbers
While traditional business metrics like sales figures or profit and loss statements are somewhat useful in measuring the health of a business, they are also becoming increasingly unreliable. The reason for this is that these numeric measures of organisational health are lagging indicators. As such, they only gauge the effectiveness of decisions made many months or years previous and are therefore dangerously inadequate in an era of rapid change and disruption.
Consider how the numeric indicators of many recently failed businesses masked the fact that the underlying fundamentals of these companies were anything but healthy. Kodak, for instance, was still a darling of Wall Street long after it had begun to lose the digital war. It was a similar story with Nortel, Allans Music and SAAB automotive.
Herein lies a principle that ought to give every business leader pause for thought: businesses, organisations and institutions are often way down the track toward decline and obsolescence long before there is any tangible evidence of the fact. To put it more simply, it is possible to be on the brink of obsolescence and have absolutely no idea at all. Further still, by the time the numbers indicate that there is something wrong, it may be too late to do anything about it.
Management guru Peter Drucker once noted, “Simply because the status quo has been so for years or even decades, we cannot depend on the fact that it will remain so.” While Drucker made this observation in 1985, it is truer today than ever. Whether it is changes in technology, competitive dynamics, legislation or demography, fundamental shifts have caused scores of previously successful businesses to falter in recent years.
The fate of video hire giant Blockbuster demonstrates just how decisive and devastating shifts can be for established businesses. In its heyday in the 1990s, Blockbuster was opening a store somewhere in the US every 24 hours and, by 2005, had over 5,700 stores across America. A few short years later, they teetered on the verge of bankruptcy and closed stores countrywide. Why this turn of events? New streaming services like Netflix and Apple TV meant consumers no longer needed to rent the DVDs which had been Blockbuster’s bread and butter.
Consider too the fate of the recorded music industry which, at the end of 2012, had shrunk to almost half the size it was in 2000. As the digital age has obliterated the status quo, music manufacturers, product distributors and retail outlets have found themselves undermined and undercut, with many, including British music retailer HMV, going under as a result.
In early 2013, David Bowie released his latest single straight to iTunes, skipping the CD format altogether. As physical music products almost entirely disappear, analysts believe Bowie’s move is a sign of things to come.
Looking to a very different context, it is shifts in social attitudes and values in the UK that are decimating the iconic British pub. While the traditional local pub was once the place where beer-loving blokes went to swig a few pints and get some time away from ‘the missus’, the simple fact is that this Anglo, blue-collar male archetype is no longer as commonplace in modern-day Britain. As a result, pubs in the UK are shutting their doors at an average of 25 per week.
The moment you think you have made it, you have passed it
A key factor in almost every case of corporate demise is a dynamic I call the Intoxication of Success. Put simply, this phenomenon describes the way in which enduring success leads to a toxic blend of complacency, conceit and closed-mindedness within organisations that blinds leaders to potential opportunities and threats.
It was this dynamic that led to the obliteration of the Swiss watchmaking industry in the 1970s and 1980s. Having dominated the global timepiece market for decades, Swiss watch manufacturers had developed a series of set beliefs about how watches were meant to be produced and what customers wanted in a timepiece. They confidently assumed they were the masters of creating quality watches and no-one was going to come in and tell them how to do what they did best.
As a result, when Japanese company Seiko released the Quartz watch in 1969, the Swiss incumbents failed to recognise the innovation as the game-changer that it was – even dismissing it as a fad. By the mid-1980s, however, the Swiss watchmakers were in crisis. In the preceding decade and a half, the industry had shed almost 70 percent of its workforce and two-thirds of Swiss watchmakers had gone out of business – all because they had arrogantly assumed that they had been so successful for so long that they could never fail.
In a similar vein, consider the ill-fated approach that Sony took as the post-CD age dawned. Rather than embrace the MP3 format, Sony arrogantly assumed that their market dominance meant they could ‘own’ the entire music ecosystem and therefore attempted to force consumers to use their proprietary ATRAC format. At the very time Sony was attempting to force the market’s hand, audio file-sharing services like Napster were quickly making the MP3 format ubiquitous. By the time Sony realised it could not take consumers for granted, Apple had dealt it a final blow with the release of the iPod – a product that all but killed off Sony’s Minidisc range.
Great minds do NOT necessarily think alike
Although we were raised being told that great minds think alike, nothing could be further from the truth. Historical figures like Galileo, Copernicus and Thomas Edison show that revolutionary and creative ideas tend to come from those who think very unlike their peers and the prevailing wisdom of the era.
A dangerous dynamic unfolds when a culture of conformity or closed-mindedness grows within an organisation to the point where new points of view are silenced or shunned. In the same way that in-breeding results in weaker genetic strains, cultures lacking diversity weaken an organisation over time.
In his book Why Good Companies Go Bad, Donald Sull argues that such a culture of conformity played a key role in the woes of businesses such as Firestone Tires, Compaq and failed automaker Daewoo. Prior to these companies’ fall from greatness, Sull suggests that the respective leadership teams had become ‘like clones’, each executive tending to reinforce a collegial point of view. In the case of Daewoo in particular, six in 10 of the company’s senior management graduated from the same university, and almost a third graduated from the same high school!
Innovation has a dark side
Although innovation may be the current buzzword, very few acknowledge the fact that sometimes over-innovating is as dangerous as inertia. HP co-founder David Packard recognised this when he observed, “A great company is more likely to die of indigestion from too much opportunity, than starvation from too little.”
Consider how such indigestion was largely responsible for the demise of the iconic brand Rubbermaid. Having prided itself on its pace of invention and innovation, by the early 1990s, Rubbermaid was introducing at least one new product every day and was entering a new product category every 12 to 18 months. By the mid-1990s, however, fatigue began to set in. By late 1995, Rubbermaid posted its first quarterly loss in decades and within three years, the company was sold off.
Steve Jobs knew what it was like to want to do too many new things at once. “People think ‘focus’ means saying yes to the thing you’ve got to focus on,” he once said. “But that’s not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I’m actually as proud of the things we haven’t done as the things we have done,” Jobs continued. “Innovation is saying ‘no’ to 1,000 things.”
While it may be valuable to learn from the mistakes of organisations and brands that have fallen from greatness in spectacular fashion, there is also much to be gained by studying those who emerge from change and upheaval stronger than ever. Consider brands and businesses such as McDonalds, Volvo and IBM – what do these enduring companies do that their endangered counterparts have failed to do?
In order to win the battle to stay relevant over time, businesses and leaders must consistently be willing to:
- Re-Calibrate – While an appetite for change is critical to staying ahead of the curve, it is first important to discern which fundamentals in an organisation should never change. Just as it is necessary to determine which walls are load-bearing when renovating a house, leaders must identify the non-negotiable values, principles and purpose which must never change. Tamper with these ‘load-bearing’ fundamentals and everything may come crashing down.
Before embarking on any change agenda, it is vital to first re-calibrate an organisation with its core DNA and allow this to be a guidepost for strategy and a touchstone for decision making.
- Re-Fresh – Any gardener knows that regular pruning is necessary to maintain the health and vitality of a garden. In the same way, organisations require regular pruning of initiatives, traditions and even people who are inhibiting future growth. While pruning can be painful and even disruptive in the short-term, it is nonetheless critically important.
Consider how Sony CEO Kazuo Hirai has embarked on a series of necessary pruning initiatives in recent months. In the face of $6.4 billion loss for 2012 and a dramatic downgrade of Sony’s credit rating, Hirai recognised that he would need to act quickly to turn around his ailing tech-giant’s fortunes. His first step was to end Sony’s decade-long marriage with Swedish mobile phone company, Ericsson. Next to go were any Sony-owned non-core companies, including a chemical products business and a unit that specialised in producing small and mid-sized LCD displays. Hirai also trimmed Sony’s global workforce by roughly 10,000 employees and streamlined manufacturing processes so that Sony’s TV business expenses were slashed by half.
While it remains to be seen how successful the steps Sony has taken will be, history suggests that Kazuo Hirai is on the right track. After all, he is walking a similar path to the one trod by the legendary CEO Lou Gerstner, who successfully and dramatically turned around IBM during the mid-1990s.
- Re-Frame – As highlighted above, being open to seeing the world from a different frame of reference is the key to creativity and innovation. Leaders must pay particularly close attention to the views and perspectives of those who have fresh eyes in an organisation – often owing to their lack of experience. Such fresh eyes have no trouble thinking outside the box and seeing creative alternatives to the status quo because they have no idea what the ‘box’ even looks like yet.
- Re-Engineer – “In order to survive, a company’s internal rate of change has to be greater than the external rate of change,” observed Paul Raines, CEO of American electrical retailer GameStop.
Keeping pace with change will require leaders and organisations to continually re-engineer their internal systems and processes. Too often, being ‘in a groove’ can easily turn into a rut and simply repeating the habits that have worked in the past can set a business on a collision course with inefficiency and irrelevance.
- Re-Position – As times and needs evolve, so must the positioning of businesses and brands. This could mean developing new products and services, tapping into new markets, or completely overhauling a brand’s messaging.
Consider how an enduring brand like Lego has done this successfully over its 80-year history. Far from the days of simply manufacturing plastic blocks, Lego has been quick to embrace new technologies and approaches that have resulted in the brand remaining powerfully relevant. To its credit, this process of re-invention has never come at the cost of its core DNA. Lego is still a company committed to inspiring imagination and play, but it has brilliantly re-invented the way it does this.
Setting a brand or organisation up for enduring relevance involves a principle that every experienced surfer understands well. In order to catch the perfect wave, a good surfer knows the importance of keeping his eyes firmly on the horizon. While a wave is still forming a long way off in the distance, surfers know that this is the time to move – to paddle out and get in position. Move too late, or not at all, and you will simply get washed up as the wave crashes over you.
In much the same way, winning the battle for relevance is about anticipating, preparing for and embracing change – no matter how uncomfortable or confronting it may be.
Michael McQueen is the author of the recently launched book Winning the Battle for Relevance. Winning the Battle for Relevance is available in bookstores across the country and through Michael’s website www.MichaelMcQueen.net