- Email: [email protected]
Back to the future: Timeless lessons for organizational success
The Editor's Chair
Back to the Future: Timeless
Lessons for Organizational Success Christopher K. Baff, Guest Editor
ne of the greatest challenges any manager can face is "keeping u p " - - t h a t is, trying to stay abreast of the latest management w i s d o m being touted and spouted by various experts. The problem Is that there is just too m u c h to absorb. Surely e v e i T t h m g that is being written about can't be so important? Having taught and consulted in the strategic planning field for the last 12 years, I offer the following advice' Forget about trying to learn all the new lessons, lust r e m e m b e r the old ones What is the point of trying to be up-to-date on chaos theory, strategic group analysis, self-directed work teams, and multivariate regression forecasting w h e n you still haven't mastered the basics> When the dust settles, most of the latest fad m a n a g e m e n t wisdom being published will turn out to be more s m o k e and mirrors than timeless principles for long-term success Allow me, then, to offer some personal insights into what ! consider to be seven of the most important and fundamental m a n a g e m e n t lessons crincal to competitive survival Each will s e e m fmrly simple---obvious, even, for the lessons definitely are not new. Faihng to learn them or adhere to them, however, can result m s o m e of the most c o m m o n mistakes managers make.
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1. Focus o n w h a t is "really important." This may sound basic, yet it is amazing h o w m a n y firms fall to "walk the talk" on this one In the end, every organization must do everything fairly well But no organlzanon can excel at evBac_k to the Future % t o e l e s s Lessons lor Ore, a n l z a n o n a [ Success
erything it wants all at once Some things are more important than others Also, given hnmed and scarce resources, there lUSt is not enough m o n e y and time Nevertheless, h o w m a n y times do senior managers d e m a n d that their staff m e m b e r s simultaneously provide outstanding customer service, breathtaking cost efficiency, and lightning creativity and innovation while managing the day-to-day stuff "with excellence"> Sadly, there are too many b h n k m g hghts on tile organization's console for e m p l o y e e s to heed. So they do tile obvious. They Ignore them Or worse, they actually try to do them all and emerge frustrated and demorahzed by their failure The method for conquering this challenge is fairly straightforward List all things that need to be done, make priorities (Note there are s o m e simple techniques for doing this), and focus the organization on accomplishing them o n e step at a t i m e This is essentially what Komatsu did as it transformed itself one step at a time from being a low-price, high-cost, low-quality, poor-service, non-innovative c o m p a n y into the second most formidable earthmoving equipment manufacturer in the world. Phase One of the transformation began m 1964, w h e n the president of the com-
Forget the new for the moment. Concentrate instead on these oldies but goodies from the corporate wars.
1
pany ordered his staff to ignore costs and produce to world standards Spectacular results followed three years later Warranty clamls decreased by 70 percent Then the c o m p a n y turned its attention to the priority of Phase "Organizations spend Two and began a three-year campaign far too much time trying of cost r e d u c t i o n - to blame others when with the understandmost of their serious mg that quahty would not be allowed to problems actually lie drop Phases One and close to home. " Two were repeated again ,n 1972 and 1976, respectively By 1982, Komatsu had doublecl its world market share. Such results could not have been achieved without such a highly focused approach to its prlorltmS Some short-term sacrifices--in other words, losses--may occur as one priority takes precedence over another However, I have found that this is both acceptable and sellable to the firm's governmg board once the directors can see a rime-sequenced progression and antlopate the results (good or bad) that follow
2. Don't get distracted. Though essentially a variation on the first lesson, this one still requires separate treatment There will always be something new c o m m g along that managers can grab as an excuse for abandoning their original game plan Yes, things change But far too many organizations respond in knee-jerk fashion to a new signal without fully analyzing and understanding its mlphcanons Seldom is there any m-depth discussion or lustiflcatlon for departing from the previously agreed-upon priority Often, dl.stractlon happens when (a) losses hit the organization, (b) elusive yet artificial financial goals are not being realized, or (c) senior managers have prematurely convinced themselves that they face seemingly insurmountable problems Then the cries of "Diversification r' and "Acqu~slnon r' begin to be heard Such moves, though, are the equivalent of running away from an u n h a p p y marriage It would be far better either to reduce expectations (as in the case of unreahsnc goals) or to persist in trying to fix the problems at home before starting an affair It is odd that one of the times distraction is most likely to occur is when performance is not suffering at all Management simply becomes bored and looks for other ways to take up the slack m their otherwise carefree hves--usually with dire consequences. This is what h a p p e n e d 2
to Robert Campeau (an excellent real estate developer but a poor retail merchant), Donald Trump (another excellent real estate developer but a poor alrhne, hotel, and casino owner) and Conrad Black (an excellent newspaper publisher but a poor food merchant and farm e q m p m e n t manufacturer) As Bob, Don, and Con each learned through bitter experiences, sometimes what an organizanon is currently doing is all that it can ever d o - - a n d it isn't all that bad, either.
3. Blame yourself. Managers and staff always seem able to provide a litany of reasons as to w h y some events are not happening as planned or anticipated In fact, often the problems encountered are s o m e b o d y else's doing Managers blaine subordinates Subordmates grouse about their bosses Everyone blames the competition and the government. Sometimes it's even the customer's fault Yet how many nines do these people blame themselves for the cause of the problems> My experience suggests that organizations spend far too much tune trying to blame others w h e n most of their serious problems actually lie close to home Moreover, most firms spend an inordinate amount of nine complaining about things over which they have httle or no control--NAFTA, taxes, interest rates, the unfair trade practices of others, whatever Such breast-beating, however, is usually no more than a convenient excuse for failing to address those problems over which the organization has some control As companies look to the future, my advice is to take an unusual perspective For every problena the c o m p a n y encounters, each staff m e m b e r must be made to think This is "my" fault, so what c a n ' T ' do about it? Blaming others is unacceptable The starting point for this new perspective is to list all the organizanon's problems, make priorities, and then ask each staff member what he or she personally can do to correct them Their sohltlOnS can't cost a lot of money, either I have worked with several organizations that have saved or made tens of mllhons of dollars by following this remarkably simple procedure One firm in particular even pays its employees a bounty of $20 for "A-type" ideas and $5 for "Btype" ideas Last year its 42 employees contributed 5,000 ideas for which they received $50,000 in bounties Although only 1,500 ideas were implemented, the firm estimates a return of approxunately $7,000,000 T
4. K n o w w h y you exist. Most private-sector organizations think that the reason they exist is to make profits--or at least break even Though ~t ~s tme that continued Bu.',mess Horizons / November-Deceml)er 1994
losses eventually signal the end of any orgamza'non, focusing only on profits can be a narrow and dysfunctional activity It is important to k n o w why the profits h a p p e n in the first place The key to the question of existence lies m the notion of "stakeholders." There are many mdwlduals and groups w h o contribute to and determine the existence of any orgamzatlon. First on the hst, of course, IS the customer Unless an organization is able to successfully trade with customers, it will not exist Yet h o w much time and attention do most firms give their customers before and after a sale? H o w many routinely survey their customers--say, every three to six m o n t h s - - t o determine their level of sansfacnon> Amazingly, the answer is fewer than 5 percent in the private s e c t o r - - a n d probably none in the notfor-profit arena Yet there is probably no better way of ensuring continued existence than by anticipating customers' needs and solving their problems It's as simple as that. After customers, a company's second most important stakeholder group ~s ItS ernplqyees Without their loyalty, dedication, commmnent, and support, a c o m p a n y is mapervlOUS to change and techmcally brain dead. Nothing will be done Gwen the usually appalling treatment of customers, it ~s not surprising that most firms don't even recognize employees as a stakeholder group essennal to their existence. Indeed, most routinely abuse, both mentally and physically, what they clama is their most valued asset When was the last time you asked your staff h o w satisfied they were with their lobs and work environment? Most managers don't do that because they fear employees will hold them up for ransom over wages However, countless research studies have s h o w n that m o n e y is a low priority in most employees' minds What matters most is respect, recognition, social interaction, and the absence of b o r e d o m Why, then, are most firms so reluctant to deal with this> Among the many other stakeholder groups, the third most important one to recognize ~s society Today, no organization will be allowed to exist unless it acts m a socially responsible fashion Witness the current grief of forest giant MacMillan Bloedel in its worldwide battle with Greenpeace over the cutting of virgin forests in Canada's Clayoquot Sound in British Columbia MacBlo is going to lose a lot of money, the loss to its reputation and image (and the lost future sales that this represents) is mestlmable Jack Welch, CEO of General Electric and the most admired business exect, nve in the world, has stated that the secret of survival in the 1990s and b e y o n d is "to make products of the highest quality and offer them to customers at the lowest price while acting in an environmentally responsible and sens~tlve m a n n e r " He's right So, in the Back to the Future Tuneless Lessons for Orgamzanona[ Success
mamortal words of Nlke. Just do ltl Ignoring this notion----or even worse, fighting it--wdl take your organization nowhere Those w h o respond first to the demands of their multiple stakeholders may have such an advantage that they will actually make ~t impossible for their competitors ever to catch up
5. Constantly c o m m u n i c a t e the strategy to the troops. Even w h e n an orgamzatlon understands the importance of setting priorities (lesson 1), not becoming distracted (lesson 2), and satisfying mulnple stakeholder needs (lesson 4), I am constantly amazed at h o w reluctant most senior managers are w h e n it comes to openly and frequently discussing their goals, strategies, and expectanons Their reasons for this are equally amazing Some, for example, seem to believe that their lower-level staff members are mind readers and that there really is no need to describe or explain the firm's strategy This is tantamount to asking combat "Focusing on profits troops to charge into battle without a clear understandcan be a narrow ing of what is to be accoma n d dysfunctional phshed, w h o the enemy is, and what the potential activity. " risks and rewards might be Just as open and frequent communication is the key to a successful marital partnership, so too is it wtal for business Other senior managers, however, think that communicating the organization's strategy once should be e n o u g h To quote one mmgulded manager. "It's a s~gn that nay staff is paying attention and on the ball " Heed what Roger Smith, the widely criticized CEO of General Motors, confessed lUSt prior to the end of his career with the company: If I had an opportunity to do everything over again I sure wish I'd done a better lob of communicating with GM people. I'd do that differently a second tune around and make sure they understood and shared my vision for the company Then they would have known why I was tearing the place up, taking out whole divisions, changing our whole production structure. If people understand tile "wily," they'll work at at • I never got that across• Roger should have talked w~th some high school teachers or junior sports coaches in North America Any one of them could have told him that it is the repetition of the lesson and pracnc3
mg the drills that ultimately drive the message home. Similarly, in business, o p e n and frequent communication regarding goals, strategy, and expectations is critical for keeping an organization focused on its pnonttes. At the minimum, it serves to remind s e m o r m a n a g e m e n t itself about what it is trying to accomplish The key to truly effective communication, however, as to follow the KISS principle: "Keep it simple and straightforward." If the c o m p a n y ts focused, doing so should be relatively easy
6. Avoid competing on price. Most firms find it relatively easy to satisfy their market share, volume, and profit oblectlves m high-growth environments. In mature markets, however, capturing and holding onto new customers can be especially problematic There are only two ways of actively competing for customers (taking share away) in mature markets (a) offering a comparable or identical product or service at a price lower than the competition, in which case the aggressor firm should have significantly lower costs, or (b) differentiating the product or service, preferably m such a w a y that a p r e m m m price is obtained In almost all circumstances, differentiation is the preferred route Attacking a competitor's market share with a low-price strategy does not tend to provide a sustainable competitive advantage. Most "victim firms," sensing a loss in their market share, will respond fairly rapidly to the price reduction maneuvers of their competitors and then work aggressively on their o w n cost reduction programs to restore margms Therein lies the lack of attractiveness of this approach Price competition generally proves to be futile--particularly a m o n g equally large companies Witness, for example, the horrlfic price battles during the cola wars of the 1970s and 1980s. Though consumers received s o m e fantastic deals, Coke's and Pepsl's relative c o m p e m i v e positions remained, in the end, unchanged The same holds true in the slugfest occurring today a m o n g the world's malor airlines The only time it makes sense for a firm to aggressively pursue a low-price strategy (launch a price war) is w h e n it is confident that already w e a k e n e d competitors wall succumb to defeat. Competitors may lower their prices but they will not be able to meet an aggressor's cost structure Typically, smaller regional players in an industry are most vulnerable to such attacks. For example, smaller companies went out of business during the cola w a r s - - u n h k e Coca-Cola, which had hundreds of mllhons of dollars with which to defend itself against the "Pepsi Challenge " The smaller players also have recently been driven from the airline industry, Small c o m p a m e s , there-
fore, should be especially careful not to p r o v o k e confrontations with their larger, m o r e powerful competitors--unless, of course, they are confident about being able to deliver the fatal blow. A differentiation strategy, on the other hand, avoids almost all problems associated with using a lower price to increase market share It does this by changing the rules of the game. As a consequence, competitors are either neutrahzed or r e m o v e d from the playing field--usually for a considerable period of time This is what Canon did w h e n it decided to sell its p h o t o c o p i e r machines through d~stnbutors rather than mmalc Xerox's direct sales force It is what CNN did w h e n it chose to concentrate on televis~on news and market itself globally through cable c o m p a nies instead of c o p y the standard format of most domestic broadcasters. Wal-Mart also did it w h e n it chose to offer its products in rural locations rather than follow the e x a m p l e of the giant discount retailers, w h o preferred to concentrate on urban areas. It is during this period of "no direct competition" that companies can m a k e e n o r m o u s profits, reshape consumers' loyalty, and stake out strong competitive positions. The stronger the dtfferennation (especially through new product innovation), the more difficult it IS f o r competitors to play "the match game."
7. Lead by example. There is no question that if senior managers want the best perf'ormance out of their employees, they must perform well themselves For instance, if they want their e m p l o y e e s to work hard, then senior managers should be at w o r k the earhest and stay the latest Every action must reflect the pnoritms they want their staff to emulate No action should be taken without ludging h o w it will be interpreted and antlctpatlng the sigmficance of its unpact on others I k n o w of one CEO who, on his first day on the lob, asked for a pencil holder for his desk His secretary s h o w e d tip several hours later with a real spiffy looking one---obviously manufactured specifically to grace the desk of s o m e grand p o o b a h The CEO asked his secretary h o w m u c h it cost When she told him, he mmaedlately ordered her to take it back and get him a coffee cup for his pencils By the end of the day, the story had spread like wildfire throughout the 400person organization "You could be sure that I didn't get any gold-plated proposals after that happened," he remarked to me months later It is discouraging to realize that there are leaders of major corporations today w h o still don't understand h o w their o w n negative behavior affects their organizations. For instance, in its annual survey of America's toughest bosses, ForBusiness Horizons / Novenll3er-December1994
t u n e reports of one c o m p a n y in which the president makes his divisional managers bark for their pay checks. (One can only imagine what those managers m a k e their o w n staff do. Shame on them all!) If they wmld them sMllfully and wmely, however, senior managers can use their actions to conditxon and internalize a p p r o p n a t e behaviors m their lower-level managers Leading by example can b e c o m e the means by which to pass along w~sdom to a firm's y o u n g e r - - a n d aspiri n g - m e m b e r s , w h o are always trying to answer the question- "What do I have to do to get ahead here, to be respected, and to get rewarded~" Even more important, however, leading by positive example helps to create, instill, and reinforce a c o m p a n y value system that will continue to influence lower level m a n a g e r behaviors long after the leader has died (Thomas Watson at IBM), retired (Alfred Sloan at General Motors), or simply m o v e d farther a w a y from the grassroots operauons as the orgamzation grows (Phil Kmght at Nlke) Thus, learning by watching can be just as ~mportant--and m a y b e more s o - - t h a n learning by doing. Semor managers therefore need to recogmze that subordinate managers are watchmg them closely and are eager to follow the directxon and e x a m p l e of thmr superiors. In the corporate context, imitation b e c o m e s more than flattery--it ~s the essence of learmng
Back to the Future Tm~elessLessons for Orgamzat~onalSuccess
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rganizations need to k n o w m a n y things as they march d o w n the road to the twenty-first century. However, the position taken m this article is that before learning any new lessons, ~t ~s mlportant to first master the old ones. So b e w a r e of the consultant or guru bearing the latest flavor-of-the-month management w~sdom. The lessons presented here are those that my experience has s h o w n to be the most Important for continued success. If most orgamzat~ons would w o r k on mastering them, m a n y of the problems they face would either be drastically & m m i s h e d or perhaps totally disappear I therefore challenge you to test your o w n m a n a g e m e n t practmes against these lessons as an indicator of your organization's current and future performance. G o o d luck! ffl
Christopher K. Bali isan associate professor of business policy at the Michael G. DeGroote School of Business, McMaster University,Hamilton, Ontario, C a n a d a . His e-mail address [email protected]
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Back to the Future: Timeless
Lessons for Organizational Success Christopher K. Baff, Guest Editor
ne of the greatest challenges any manager can face is "keeping u p " - - t h a t is, trying to stay abreast of the latest management w i s d o m being touted and spouted by various experts. The problem Is that there is just too m u c h to absorb. Surely e v e i T t h m g that is being written about can't be so important? Having taught and consulted in the strategic planning field for the last 12 years, I offer the following advice' Forget about trying to learn all the new lessons, lust r e m e m b e r the old ones What is the point of trying to be up-to-date on chaos theory, strategic group analysis, self-directed work teams, and multivariate regression forecasting w h e n you still haven't mastered the basics> When the dust settles, most of the latest fad m a n a g e m e n t wisdom being published will turn out to be more s m o k e and mirrors than timeless principles for long-term success Allow me, then, to offer some personal insights into what ! consider to be seven of the most important and fundamental m a n a g e m e n t lessons crincal to competitive survival Each will s e e m fmrly simple---obvious, even, for the lessons definitely are not new. Faihng to learn them or adhere to them, however, can result m s o m e of the most c o m m o n mistakes managers make.
O
1. Focus o n w h a t is "really important." This may sound basic, yet it is amazing h o w m a n y firms fall to "walk the talk" on this one In the end, every organization must do everything fairly well But no organlzanon can excel at evBac_k to the Future % t o e l e s s Lessons lor Ore, a n l z a n o n a [ Success
erything it wants all at once Some things are more important than others Also, given hnmed and scarce resources, there lUSt is not enough m o n e y and time Nevertheless, h o w m a n y times do senior managers d e m a n d that their staff m e m b e r s simultaneously provide outstanding customer service, breathtaking cost efficiency, and lightning creativity and innovation while managing the day-to-day stuff "with excellence"> Sadly, there are too many b h n k m g hghts on tile organization's console for e m p l o y e e s to heed. So they do tile obvious. They Ignore them Or worse, they actually try to do them all and emerge frustrated and demorahzed by their failure The method for conquering this challenge is fairly straightforward List all things that need to be done, make priorities (Note there are s o m e simple techniques for doing this), and focus the organization on accomplishing them o n e step at a t i m e This is essentially what Komatsu did as it transformed itself one step at a time from being a low-price, high-cost, low-quality, poor-service, non-innovative c o m p a n y into the second most formidable earthmoving equipment manufacturer in the world. Phase One of the transformation began m 1964, w h e n the president of the com-
Forget the new for the moment. Concentrate instead on these oldies but goodies from the corporate wars.
1
pany ordered his staff to ignore costs and produce to world standards Spectacular results followed three years later Warranty clamls decreased by 70 percent Then the c o m p a n y turned its attention to the priority of Phase "Organizations spend Two and began a three-year campaign far too much time trying of cost r e d u c t i o n - to blame others when with the understandmost of their serious mg that quahty would not be allowed to problems actually lie drop Phases One and close to home. " Two were repeated again ,n 1972 and 1976, respectively By 1982, Komatsu had doublecl its world market share. Such results could not have been achieved without such a highly focused approach to its prlorltmS Some short-term sacrifices--in other words, losses--may occur as one priority takes precedence over another However, I have found that this is both acceptable and sellable to the firm's governmg board once the directors can see a rime-sequenced progression and antlopate the results (good or bad) that follow
2. Don't get distracted. Though essentially a variation on the first lesson, this one still requires separate treatment There will always be something new c o m m g along that managers can grab as an excuse for abandoning their original game plan Yes, things change But far too many organizations respond in knee-jerk fashion to a new signal without fully analyzing and understanding its mlphcanons Seldom is there any m-depth discussion or lustiflcatlon for departing from the previously agreed-upon priority Often, dl.stractlon happens when (a) losses hit the organization, (b) elusive yet artificial financial goals are not being realized, or (c) senior managers have prematurely convinced themselves that they face seemingly insurmountable problems Then the cries of "Diversification r' and "Acqu~slnon r' begin to be heard Such moves, though, are the equivalent of running away from an u n h a p p y marriage It would be far better either to reduce expectations (as in the case of unreahsnc goals) or to persist in trying to fix the problems at home before starting an affair It is odd that one of the times distraction is most likely to occur is when performance is not suffering at all Management simply becomes bored and looks for other ways to take up the slack m their otherwise carefree hves--usually with dire consequences. This is what h a p p e n e d 2
to Robert Campeau (an excellent real estate developer but a poor retail merchant), Donald Trump (another excellent real estate developer but a poor alrhne, hotel, and casino owner) and Conrad Black (an excellent newspaper publisher but a poor food merchant and farm e q m p m e n t manufacturer) As Bob, Don, and Con each learned through bitter experiences, sometimes what an organizanon is currently doing is all that it can ever d o - - a n d it isn't all that bad, either.
3. Blame yourself. Managers and staff always seem able to provide a litany of reasons as to w h y some events are not happening as planned or anticipated In fact, often the problems encountered are s o m e b o d y else's doing Managers blaine subordinates Subordmates grouse about their bosses Everyone blames the competition and the government. Sometimes it's even the customer's fault Yet how many nines do these people blame themselves for the cause of the problems> My experience suggests that organizations spend far too much tune trying to blame others w h e n most of their serious problems actually lie close to home Moreover, most firms spend an inordinate amount of nine complaining about things over which they have httle or no control--NAFTA, taxes, interest rates, the unfair trade practices of others, whatever Such breast-beating, however, is usually no more than a convenient excuse for failing to address those problems over which the organization has some control As companies look to the future, my advice is to take an unusual perspective For every problena the c o m p a n y encounters, each staff m e m b e r must be made to think This is "my" fault, so what c a n ' T ' do about it? Blaming others is unacceptable The starting point for this new perspective is to list all the organizanon's problems, make priorities, and then ask each staff member what he or she personally can do to correct them Their sohltlOnS can't cost a lot of money, either I have worked with several organizations that have saved or made tens of mllhons of dollars by following this remarkably simple procedure One firm in particular even pays its employees a bounty of $20 for "A-type" ideas and $5 for "Btype" ideas Last year its 42 employees contributed 5,000 ideas for which they received $50,000 in bounties Although only 1,500 ideas were implemented, the firm estimates a return of approxunately $7,000,000 T
4. K n o w w h y you exist. Most private-sector organizations think that the reason they exist is to make profits--or at least break even Though ~t ~s tme that continued Bu.',mess Horizons / November-Deceml)er 1994
losses eventually signal the end of any orgamza'non, focusing only on profits can be a narrow and dysfunctional activity It is important to k n o w why the profits h a p p e n in the first place The key to the question of existence lies m the notion of "stakeholders." There are many mdwlduals and groups w h o contribute to and determine the existence of any orgamzatlon. First on the hst, of course, IS the customer Unless an organization is able to successfully trade with customers, it will not exist Yet h o w much time and attention do most firms give their customers before and after a sale? H o w many routinely survey their customers--say, every three to six m o n t h s - - t o determine their level of sansfacnon> Amazingly, the answer is fewer than 5 percent in the private s e c t o r - - a n d probably none in the notfor-profit arena Yet there is probably no better way of ensuring continued existence than by anticipating customers' needs and solving their problems It's as simple as that. After customers, a company's second most important stakeholder group ~s ItS ernplqyees Without their loyalty, dedication, commmnent, and support, a c o m p a n y is mapervlOUS to change and techmcally brain dead. Nothing will be done Gwen the usually appalling treatment of customers, it ~s not surprising that most firms don't even recognize employees as a stakeholder group essennal to their existence. Indeed, most routinely abuse, both mentally and physically, what they clama is their most valued asset When was the last time you asked your staff h o w satisfied they were with their lobs and work environment? Most managers don't do that because they fear employees will hold them up for ransom over wages However, countless research studies have s h o w n that m o n e y is a low priority in most employees' minds What matters most is respect, recognition, social interaction, and the absence of b o r e d o m Why, then, are most firms so reluctant to deal with this> Among the many other stakeholder groups, the third most important one to recognize ~s society Today, no organization will be allowed to exist unless it acts m a socially responsible fashion Witness the current grief of forest giant MacMillan Bloedel in its worldwide battle with Greenpeace over the cutting of virgin forests in Canada's Clayoquot Sound in British Columbia MacBlo is going to lose a lot of money, the loss to its reputation and image (and the lost future sales that this represents) is mestlmable Jack Welch, CEO of General Electric and the most admired business exect, nve in the world, has stated that the secret of survival in the 1990s and b e y o n d is "to make products of the highest quality and offer them to customers at the lowest price while acting in an environmentally responsible and sens~tlve m a n n e r " He's right So, in the Back to the Future Tuneless Lessons for Orgamzanona[ Success
mamortal words of Nlke. Just do ltl Ignoring this notion----or even worse, fighting it--wdl take your organization nowhere Those w h o respond first to the demands of their multiple stakeholders may have such an advantage that they will actually make ~t impossible for their competitors ever to catch up
5. Constantly c o m m u n i c a t e the strategy to the troops. Even w h e n an orgamzatlon understands the importance of setting priorities (lesson 1), not becoming distracted (lesson 2), and satisfying mulnple stakeholder needs (lesson 4), I am constantly amazed at h o w reluctant most senior managers are w h e n it comes to openly and frequently discussing their goals, strategies, and expectanons Their reasons for this are equally amazing Some, for example, seem to believe that their lower-level staff members are mind readers and that there really is no need to describe or explain the firm's strategy This is tantamount to asking combat "Focusing on profits troops to charge into battle without a clear understandcan be a narrow ing of what is to be accoma n d dysfunctional phshed, w h o the enemy is, and what the potential activity. " risks and rewards might be Just as open and frequent communication is the key to a successful marital partnership, so too is it wtal for business Other senior managers, however, think that communicating the organization's strategy once should be e n o u g h To quote one mmgulded manager. "It's a s~gn that nay staff is paying attention and on the ball " Heed what Roger Smith, the widely criticized CEO of General Motors, confessed lUSt prior to the end of his career with the company: If I had an opportunity to do everything over again I sure wish I'd done a better lob of communicating with GM people. I'd do that differently a second tune around and make sure they understood and shared my vision for the company Then they would have known why I was tearing the place up, taking out whole divisions, changing our whole production structure. If people understand tile "wily," they'll work at at • I never got that across• Roger should have talked w~th some high school teachers or junior sports coaches in North America Any one of them could have told him that it is the repetition of the lesson and pracnc3
mg the drills that ultimately drive the message home. Similarly, in business, o p e n and frequent communication regarding goals, strategy, and expectations is critical for keeping an organization focused on its pnonttes. At the minimum, it serves to remind s e m o r m a n a g e m e n t itself about what it is trying to accomplish The key to truly effective communication, however, as to follow the KISS principle: "Keep it simple and straightforward." If the c o m p a n y ts focused, doing so should be relatively easy
6. Avoid competing on price. Most firms find it relatively easy to satisfy their market share, volume, and profit oblectlves m high-growth environments. In mature markets, however, capturing and holding onto new customers can be especially problematic There are only two ways of actively competing for customers (taking share away) in mature markets (a) offering a comparable or identical product or service at a price lower than the competition, in which case the aggressor firm should have significantly lower costs, or (b) differentiating the product or service, preferably m such a w a y that a p r e m m m price is obtained In almost all circumstances, differentiation is the preferred route Attacking a competitor's market share with a low-price strategy does not tend to provide a sustainable competitive advantage. Most "victim firms," sensing a loss in their market share, will respond fairly rapidly to the price reduction maneuvers of their competitors and then work aggressively on their o w n cost reduction programs to restore margms Therein lies the lack of attractiveness of this approach Price competition generally proves to be futile--particularly a m o n g equally large companies Witness, for example, the horrlfic price battles during the cola wars of the 1970s and 1980s. Though consumers received s o m e fantastic deals, Coke's and Pepsl's relative c o m p e m i v e positions remained, in the end, unchanged The same holds true in the slugfest occurring today a m o n g the world's malor airlines The only time it makes sense for a firm to aggressively pursue a low-price strategy (launch a price war) is w h e n it is confident that already w e a k e n e d competitors wall succumb to defeat. Competitors may lower their prices but they will not be able to meet an aggressor's cost structure Typically, smaller regional players in an industry are most vulnerable to such attacks. For example, smaller companies went out of business during the cola w a r s - - u n h k e Coca-Cola, which had hundreds of mllhons of dollars with which to defend itself against the "Pepsi Challenge " The smaller players also have recently been driven from the airline industry, Small c o m p a m e s , there-
fore, should be especially careful not to p r o v o k e confrontations with their larger, m o r e powerful competitors--unless, of course, they are confident about being able to deliver the fatal blow. A differentiation strategy, on the other hand, avoids almost all problems associated with using a lower price to increase market share It does this by changing the rules of the game. As a consequence, competitors are either neutrahzed or r e m o v e d from the playing field--usually for a considerable period of time This is what Canon did w h e n it decided to sell its p h o t o c o p i e r machines through d~stnbutors rather than mmalc Xerox's direct sales force It is what CNN did w h e n it chose to concentrate on televis~on news and market itself globally through cable c o m p a nies instead of c o p y the standard format of most domestic broadcasters. Wal-Mart also did it w h e n it chose to offer its products in rural locations rather than follow the e x a m p l e of the giant discount retailers, w h o preferred to concentrate on urban areas. It is during this period of "no direct competition" that companies can m a k e e n o r m o u s profits, reshape consumers' loyalty, and stake out strong competitive positions. The stronger the dtfferennation (especially through new product innovation), the more difficult it IS f o r competitors to play "the match game."
7. Lead by example. There is no question that if senior managers want the best perf'ormance out of their employees, they must perform well themselves For instance, if they want their e m p l o y e e s to work hard, then senior managers should be at w o r k the earhest and stay the latest Every action must reflect the pnoritms they want their staff to emulate No action should be taken without ludging h o w it will be interpreted and antlctpatlng the sigmficance of its unpact on others I k n o w of one CEO who, on his first day on the lob, asked for a pencil holder for his desk His secretary s h o w e d tip several hours later with a real spiffy looking one---obviously manufactured specifically to grace the desk of s o m e grand p o o b a h The CEO asked his secretary h o w m u c h it cost When she told him, he mmaedlately ordered her to take it back and get him a coffee cup for his pencils By the end of the day, the story had spread like wildfire throughout the 400person organization "You could be sure that I didn't get any gold-plated proposals after that happened," he remarked to me months later It is discouraging to realize that there are leaders of major corporations today w h o still don't understand h o w their o w n negative behavior affects their organizations. For instance, in its annual survey of America's toughest bosses, ForBusiness Horizons / Novenll3er-December1994
t u n e reports of one c o m p a n y in which the president makes his divisional managers bark for their pay checks. (One can only imagine what those managers m a k e their o w n staff do. Shame on them all!) If they wmld them sMllfully and wmely, however, senior managers can use their actions to conditxon and internalize a p p r o p n a t e behaviors m their lower-level managers Leading by example can b e c o m e the means by which to pass along w~sdom to a firm's y o u n g e r - - a n d aspiri n g - m e m b e r s , w h o are always trying to answer the question- "What do I have to do to get ahead here, to be respected, and to get rewarded~" Even more important, however, leading by positive example helps to create, instill, and reinforce a c o m p a n y value system that will continue to influence lower level m a n a g e r behaviors long after the leader has died (Thomas Watson at IBM), retired (Alfred Sloan at General Motors), or simply m o v e d farther a w a y from the grassroots operauons as the orgamzation grows (Phil Kmght at Nlke) Thus, learning by watching can be just as ~mportant--and m a y b e more s o - - t h a n learning by doing. Semor managers therefore need to recogmze that subordinate managers are watchmg them closely and are eager to follow the directxon and e x a m p l e of thmr superiors. In the corporate context, imitation b e c o m e s more than flattery--it ~s the essence of learmng
Back to the Future Tm~elessLessons for Orgamzat~onalSuccess
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rganizations need to k n o w m a n y things as they march d o w n the road to the twenty-first century. However, the position taken m this article is that before learning any new lessons, ~t ~s mlportant to first master the old ones. So b e w a r e of the consultant or guru bearing the latest flavor-of-the-month management w~sdom. The lessons presented here are those that my experience has s h o w n to be the most Important for continued success. If most orgamzat~ons would w o r k on mastering them, m a n y of the problems they face would either be drastically & m m i s h e d or perhaps totally disappear I therefore challenge you to test your o w n m a n a g e m e n t practmes against these lessons as an indicator of your organization's current and future performance. G o o d luck! ffl
Christopher K. Bali isan associate professor of business policy at the Michael G. DeGroote School of Business, McMaster University,Hamilton, Ontario, C a n a d a . His e-mail address [email protected]
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