What a day this Monday is turning out to be. Circuit City files for Chapter 11 (read Reuters article here, and Marketwatch article here). Sirius radio looks like it will follow soon (read article here). And Deutsche Bank analysts are predicting GM will end up wiping out shareholders through either bankruptcy or a government bailout that will eliminate the equity (read article here). GM was trying to find a solution by merging with Chrysler, but that deal's now dead leaving Ford at risk of failure, and Chrysler in need of a partner if it is to survive (read Financial Times article here). Who's pulling the rug out from all these stalwarts of American capitalism?
Let's not forget that Circuit City was the statistically best performing company in Jim Collins' wildly popular book "Good to Great". How could a company that was considered a model for all leaders to follow decline so far, so fast? Is it worth considering that the management approach the author recommends possibly might not be as effective as promised? Mr. Collins' recommends companies figure out their approach to the market, then get everyone committed to that approach. After that, his recommendation is to leave ego at the door, and execute, execute, execute against the approach and its metrics. Those who work hard, and sacrifice, he predicts will win. So, should we conclude that Circuit City changed after he wrote his book? Did management become vainglorious? Did leaders, managers and employees lose commitment to the market approach? Did everyone quit working hard, quit sacrificing? Is that the problem in all these companies? Egotistical management lacking committed and hard working employees willing to sacrifice?
My research into hundreds of companies for "Create Marketplace Disruption" concluded just the opposite. In most instances of troubled companies, management was extremely dedicated and hard working. Examples of sacrifice were everywhere, as employees dropped bonuses and accepted pay and benefit cuts. Vendors took longer terms and lower prices while carrying inventory for their troubled customers. Customers remained loyal often right up to the point of failure. In reality, there was just as much commitment and sacrifice, hard work and effort in those that failed as those that succeeded. As Mr. Rosenzweig concludes in "The Halo Effect" these characteristics do not explain performance of winners as distinctive from losers. So, what is it?
Following best practices can oftentimes be as harmful as anything else. Companies that get into trouble consistently demonstrated commitment to Defend & Extend management, even after market shifts rendered D&E management unable to improve results. Continuing to optimize, to do more while trying to be faster and better and cutting costs in efforts to be cheaper simply did not turn the corner on performance. For example, just today a leading marketing web site is recommending that companies need to implement only tactics that are designed to optimize the existing brand and its performance while eschewing innovation (read article here). Innovation is costly and risky, they presume, so investing in wht you know is the only way to go. That same journal pointed out that all the American auto companies were focusing on cost cuts in an effort to save themselves (read article here) - when we all know the biggest problem these companies face are autos which aren't competitive with foreign products which have equal or higher quality at better pricing and often considerable advantages in fuel economy, longevity, cost of ownership and performance.
When management focuses internally, bad things happen. Focusing on how to operate better presumes there will be no market changes which alter competitiveness. The reality is that most companies falter because they miss market shifts – and the shifts cause competitors to become relatively more attractive. If management keeps trying to do what it used to do better, it misses market changes and keeps falling farther and farther behind. Simple product enhancements (product variations or simple derivatives), early cost cuts, and other short-term actions give a false sense of betterment leading to complacency – as competitors keep gaining share due to better relative market position.
The retail marketplace started shifting powerfully in the late 1990s as internet retailers changed the costs and processes for customers. Circuit City ignored these market trends far too long. The auto industry has been shifting ever since offshore competitors started gaining share in the 1980s. But the "Big 3", their employees and their vendors ignored these trends for too long. Even as offshore competitors opened facilities in America, the changed competitive marketplace was ignored as GM, Ford and Chrysler tried doing more of what they'd always done. In the end, who pulls the rug on these companies? It's the competition.
Competitors who link their Success Formula to changing markets use scenario planning to keep abreast of necessary changes and obsess about all competitors to learn what they can do to remain in front with customers. These winning competitors don't Defend & Extend some plan management creates, but instead use Disruptions to keep themselves adaptable to changing markets, and use White Space to constantly test new solutions which can keep them advantaged. The losers are the ones who keep trying to do more, better, faster, cheaper with their old Success Formula, and fall behind competitors who ignore the siren's call of optimization, focus, productivity and sacrifice in favor of adaptability and leading market trends.
