Reinvention Reply

Daniel Burrus, best selling author, says rapid change in business and technology is the “new normal.” However, in the 21st Century, “change” is actually too weak a descriptor.

Today, it’s all about transformation. This means you can’t go backward, and you can’t stand still. You can’t sit still and you can’t keep doing what you’ve always done — even if you do your best to keep doing it better.

The only way for your company to survive, let alone thrive, is to continuously reinvent and redefine.

Reinvent and redefine what? Everything.

Harvard Business Review wrote about this back in January 2011 – Sooner or later, all businesses, even the most successful, run out of room to grow. Faced with this unpleasant reality, they are compelled to reinvent themselves periodically. The ability to pull off this difficult feat—to jump from the maturity stage of one business to the growth stage of the next—is what separates high performers from those whose time at the top is all too brief.

As Matthew S. Olson and Derek van Bever demonstrate in their book Stall Points, once a company runs up against a major stall in its growth, it has less than a 10% chance of ever fully recovering. Those odds are certainly daunting, and they do much to explain why two-thirds of stalled companies are later acquired, taken private, or forced into bankruptcy.

There’s no shortage of explanations for this stalling—from failure to stick with the core (or sticking with it for too long) to problems with execution, misreading of consumer tastes, or an unhealthy focus on scale for scale’s sake. What those theories have in common is the notion that stalling results from a failure to fix what is clearly broken in a company.

Companies that have set the standard for reinvention over the last while are:

IBM – before the 1980’s only the most gadget geared person had a computer. The IBM PC brought this machine to the masses.

Ford – With just some bucket seats, a floor shift and cosmetic tweaks, the lowly Ford Falcon “magically” transformed into the wildly popular Ford Mustang.

Accenture – splitting off from the accounting firm Arthur Anderson, Accenture is one the of the world’s largest consulting firms today.

Starbucks – Before, you picked up a cup of java at a convenience store. With upscale interiors and gourmet edibles, Starbucks created a “coffee experience.”

Nike – Transformed itself from making sneakers from waffle irons to producing Nike+, which monitors a runner’s performance via a shoe radio device that’s linked to an iPod.

Allegheny Technologies – With a history going back to the Revolutionary War, Alleghany now boasts some of the world’s most advanced production capability for specialty metals.

Red Hat – It started as a catalog business for Linux and Unix software and accessories. Now an open-source company, it makes money by selling subscriptions for support, training and integration.

Apple – The reinvention king began as a desktop computer business. It now sets the bar for mass consumption of tech products such as the iPod, iPhone and iPad.

Blockbuster – You may recall Blockbuster Video — it rented out DVDs and VCRs at retail stores. Then Netflix NFLX +1.88% came along with DVD-By-Mail — and that made it cheaper and more convenient for consumers to get the movies they wanted. Blockbuster was unable to adapt and perished.

There are many different stories and paths to successful reinventions.  Great leadership is always needed.  Xerox and IBM would either be gone or be like Eastman Kodak today if Anne Mulcahy and Lew Gerstner had not come at the right time and begun to lead them down new paths. 

Some common themes of successful reinventions:

Although the execution phase of a reinvention takes many years, the decision process has to be clear and efficient.  Many companies disappear before they can reinvent themselves.  When it becomes clear that reinvention is needed, waiting until the perfect path becomes available can be suicidal.

 The CEO and the Board have to be aligned on the reinvention path, and, then, they have to communicate clearly and frequently to all stakeholders: employees, customers, shareholders and other investors, the media, and the broader community. 

The process has to be as transparent as possible, so that stakeholders with useful feedback can contribute insights as the process unfolds. 

 Hewlett-Packard is an example of a company that, during Carly Fiorina’s tenure, could not get agreement within its board about its reinvention path.  For example, the board had a public dispute about the Compaq acquisition.  The company has struggled ever since, through a variety of governance crises.

 Successful reinventions are much harder to achieve with big, transformative acquisitions or mergers, than with a combination of organic changes, combined with many small, focused acquisitions.  Large acquisitions may add assets and businesses needed for reinvention, but, unfortunately, they also add legacy assets that need to be sold or shut down.  The process of sorting out the wanted from the unwanted pieces of a large acquisition is time-consuming and distracting, and it often causes the acquisition to fail.

 The idea of moving from one business in which the company is an expert to a completely different business in a completely different industry in which it has no prior experience has about as much chance of success as going into an unrelated start-up business, which is very low.

 The company going through a reinvention has to accept the fact that it may lose shareholders who depend on the cash flow from the existing business for dividends or share repurchases, since capital has to be redeployed for growth and development in the new business space. 

 Reinvention is easier to do in a situation in which the company’s survival is at stake, like the situation faced by Xerox or IBM, when there is a “burning platform,” than it is when decline is gradual, and the conditions that precipitate the significant decline have not yet happened and are not yet visible.

 Finally, as a conclusion, reinvention is extremely difficult.  Many, if not most, companies fail at it, either because they make the wrong decisions, like Eastman Kodak did, or wait too long to make the right ones.  The reason we closely study stories like Intel and the Thomson Corporation is that successes like theirs are highly unusual. 

Sustained or transformational success is very difficult to achieve.