All companies, like their products, need renewal from time to time. The process, though, has three severe difficulties. One is timing. How do you know when the moment for renewal is ripe? The second is start-up. Who initiates change, and how? The third is extent. Do you turn the organisation upside down, go in for gradual change, or settle for something in-between? Get the timing, the method and the extent wrong, and long-term strengths and corporate unity may be put at risk.
Long-termism and corporate harmony are features in which the great Japanese and other Asian corporations have been thought to excel. Their example is no longer the fashionable model of excellence, thanks to current Eastern economic traumas. But these problems, hideous though they are, don't reflect on the managerial qualities of firms like Toyota and Sony, which have continued to forge ahead. In industry after industry, such firms are still the world leaders and the key competitors.
Ask any components supplier to name the best car manufacturer, and the answer is Toyota. The company is relentlessly pursuing Ford's second place in the world league, building plants world-wide to boost its share of sales outside Japan. Its 40% of the home market, however, is the foundation of its fabled manufacturing and design skills, and president Hiroshi Okuda (the first boss from outside the founding Toyoda family) takes a revealing attitude towards that two-fifths domestic share: 'Toyota doesn't want to follow either GM or Nissan'.
INABILITY TO RENEW
General Motors notoriously and permanently lost US market share, not only to foreign cars, but to Ford and Chrysler, because of inability to renew itself. The fact that Nissan was also overtaken by complacency and its competitors shows that Japanese corporate virtues are not automatic or genetic. If they were, the model would be depressingly hard to follow. But there's nothing in the renewal process that Westerners can't imitate.
Toyota itself missed out on 'niche' vehicles in the early 1990s and was forced to fight its way back as they soared to half the market.
Huge strength in domestic markets can easily be a barrier to renewal. Both the high numbers and the high reputation feed the corporate complacency. Mercedes-Benz is a power brand world-wide, but nothing like so strong in other main markets as in Germany: the vastly profitable C-Class and E-Class cars are sixth and seventh in the home market, but only just squeeze into the top twenty in Europe as a whole.
The strategy of broadening the product range all the way down to the Swatch-partnered micro-car was intended to counter this discrepancy. As reported in Thinking Managers last month, the A-Class fiasco has blown a hole in the plans. Even the components suppliers, with their intimate knowledge of the Stuttgart firm, can't explain the failure to detect this car's instability.
The now-famous elk test by which Scandinavian journalists revealed its penchant to turn over in extreme conditions should have been signalled by 'predictive engineering'. Whether normal procedures were bypassed in a rush to market, or warnings were simply ignored, the incident and the initial muddled management reactions indicate a prevailing internal view - that Mercedes was only capable of perfect engineering.The outside world, holding much the same idea, reinforced complacency. The results emphasise a truth that the best Japanese have long built into their processes. Corporate renewal isn't a matter of remaking one aspect of an organisation, even so crucial an aspect as its product line. The truth applies to all sizes of company. The analogy is with a share portfolio. You hold ten stocks in equal proportions. One of them doubles, while five rise by 10% and the other four fall by 5%. You feel great until you value the entire portfolio. It has only risen by 13%.
The very hard lesson is that it's no use tackling one or two aspects of a company, however brilliantly: you have to do everything - and, so far as possible, at once. For example, to stay in the big automotive league, Lucas Varity is striving to exploit its post-merger market scale by raising its performance across the board. That involves changing everything from innovation to remuneration in a 'total quality environment'. Total Quality Management has been adopted precisely because its philosophy embraces the whole organisation and leaves no stone unturned.
The philosophy also seeks out new ideas and practices. On remuneration, for example, managers are set targets for their operations based on Economic Value Added. That's the difference between the cost of capital, including equity, and the returns made by the company. Applied down the line, it forces managers to concentrate on both the assets they employ and the profits they generate - discouraging, for example, excessive stocks and floor space. If Lucas Varity's people exceed their imposed targets (which are never changed), they can earn unlimited bonuses: fall below those targets, and the bonus is negative.
SIX KEY STRATEGIES
The exceptional bonus payments are not paid over completely. Half is 'banked', to provide cover for possible negative years. The starting point for exceptional bonus payments is the previous year's actual achievement. The beauty of this approach is that managers gain no benefit from foisting easy targets on their superiors. On the contrary, they have every incentive to optimise performance. The reward system fits in with a management approach that leaves strategy formation to the divisional bosses. Each is expected to develop at least six key strategies - and to make those strategies work.
Strategy is one of the elements without which renewal cannot occur. That makes the rarity of renewal far from remarkable, if you believe consultant Michael de Kare Silver of the Kalchas Group. His excellent new book, Strategy in Crisis, (Macmillan), argues that in most companies strategy has a low priority. Kalchas people interviewed 100 chief executives of the top 100 groups based in the UK and US to find their priority agenda. The average response put 'future strategy' below technology, information management, new products and the regulatory environment. The latter came above everything else in the list of priorities.
That result is very peculiar. First, regulators are outside the CEO's control. Second, it's a cliche of information strategy that it can't be successfully formed save in tandem with overall corporate strategy: so how can the former possibly outrank the latter in priority (by 9 to 6)? Next, innovation can only take place intelligently within a strategic framework. Fourth, technology also makes no sense save as a servant to strategy. These CEOs seem to be putting the cart before the horse. Small wonder that the top 100 UK companies averaged only 2.6% real growth in the five years to 1996.
Silver suggests that a vicious circle explains 'the lost art of strategy-making'. Because it's low on the agenda, corporate planning is relegated in importance, so that the necessary skills and understanding dwindle. This means that still less value is attached to paybacks on planned strategy. The outward-facing, uncontrollable future thus loses out to inward-facing, controllable present activities like re-engineering. As the short term dominates at the expense of the long, the voices for strategic change become still less audible, and the lost art loses out still more.
BENEVOLENT CIRCLE
Renewal of strategy-making, however, can set a benevolent circle going. But Silver argues that none of the well-known strategic frameworks will do the trick, whether you fancy the Boston matrix, PIMS (Profit Impact of Market Strategy), Michael Porter's 'five forces' and 'three generic strategies', core competencies, parenting or the 'three value disciplines'. In his view, none of these provides a satisfactory answer to seven critical tests of strategic robustness. How does your own strategy (if any) match the criteria?
• Does it reflect the business realities of the end-century?
• Does it begin with the customer?
• Is it rooted and imbued with market understanding?
• Is it practical (not theoretical)?
• Is it specific (not superficial)?
• Does it encourage a longer-term view?
• Is it measurable?
In some of the seven cases, sheer old age explains the fading of the message. The Boston matrix is especially hoary. It divided operations into stars (for backing), cows (for milking), question marks (for possible stardom) and dogs (for killing) according to their market share and market growth. As Silver points out, that says nothing whatsoever about strategy. It's a guide to investment, not to creating a better business. Even as an investment guide, it's fallible, because of self-fulfilling prophecy. Dogs and cows get treated like dogs and cows, and that's the end of that - and them.
The book gives its highest rating to the 'three value disciplines' promoted by Michael Treacy and Fred Wiersema. Their theory attributes market leadership to a choice between operational excellence, product leadership or customer intimacy. Thinking Managers attacked the thesis on its first appearance, though, precisely because it offended against the renewal principle: that you have to do everything. You get nowhere with operational excellence which results in products that don't lead the market or rejoice the customer. Since none of the three can stand on its own, the model falls down.
Naturally, Silver has his own model. But it differs markedly from the rest. After investigating many cases of outstanding competitive success, he has isolated five factors that compose the 'Market Commitment Model'. The middle word, commitment, is at the core of the model, too. The other four revolve round this core: price, emotion, 'service hustle' and performance. Only the last customarily appears in strategic writing (though not, as will appear later, in Silver's model). All five terms, though, have very specific meanings. Commitment thus has two key elements:
1. Developing an understanding of and immersion in the market with customers.
2. Establishing a long-term horizon and determination to win out, overcoming the inevitable undertainties of any late 1990s market.
Silver adds that these two elements must obey the renewal formula. One without the other won't work: they 'go hand-in-hand; identifying future goals and opportunities must be born out of totally rigorous, deep-rooted market immersion'. His example is Microsoft, which was heading into possible oblivion with a strategy that ignored the Internet. Bill Gates turned the company on a sixpence, boosting R&D by half, forming key alliances, buying Net start-ups and striving to drive Netscape out of the browser market (with tactics that US anti-trust regulators and the courts have found unacceptable).
DISCOURAGE COMPETITORS
Microsoft has always been fond of that form of commitment which, in the words of Brian Arthur, a Stanford professor, 'discourages competitors from taking on a potentially dominant rival'. One traditional weapon to this end is price. British Airways, for example, was accused of 'predatory pricing' when its tactics helped to drive Laker Airways out of business. In Silver's lexicon, though, pricing strategy is not just about 'low price'. In some cases, lowness may well be fundamental. But Marks & Spencer's global retailing drive has been based on offering value for money: a 'proposition which also combines quality + service'.
The conclusion again comes back to the renewal principle: 'For M&S all three forms of potential advantage need to work harmoniously together to provide and sustain its lasting and successful market position'. That position is also dependent on what the book calls 'emotion'. The strength of a brand is the product of the perceptions created about the company and its offer to the market. Exploitation of this strength has generated the comeback of the brand, a crucial late century development. A power brand harnesses people's powerful feelings - whether they are buying M&S shirts or Intel microprocessors.
The latter products pass Silver's third test: performance, whose 'core is about the basic functionality and reliability of a product - does it do the job it's supposed to do well and better than its rivals?'. This is far easier said than done in most industries these days. All products climb towards the same standards, and those that don't reach the top tend to drop off the tree. By approaching the market in innovative ways - the 'changing the rules' approach recommended here last month - companies can keep ahead of the game. But performance won't win unaided.
The crucial aid is service, which 'is no longer enough' without Hustle, defined as 'going beyond customers' expectations and creating levels of service that had not been imagined'. In case that sounds too vague, it's spelt out. The Hustle service is...
• Comprehensive ('Whatever I want')
• Available ('Wherever, whenever I want it')
• Personalised ('Tailored just for me')
• Symbiotic (provided in a context of an enduring, mutually beneficial relationship)
There are similar sets of four sub-definitions for the other three components of the Market Commitment Model. Is it all just words? Yes, in the sense that good plans begin with words before being fleshed out with numbers. The model's real message is that strategy for the 21st century can't be managed by numbers; that, like the company, it must live and breathe; that the strategy is fired by competitive urgency; and that it mutates with changing circumstances - i.e., the strategy is constantly renewed.
The great strength on which renewal strategists can draw is that of the brand. It's easy to kill a product. But brands are astonishingly resistant to the worst efforts of managers. Thus Chrysler emerged from near bankruptcy to achieve its best results ever, reflecting its residual brand power. Another US company, Walt Disney, after neglecting its animated cartoons for three decades, achieved a spectacular comeback by releasing one full-length feaure a year: a pace which had eluded the great Walt.
GREAT GROUPS
That was the achievement of what Warren Bennis, writing with Patricia Ward Biederman, calls a 'Great Group'. He argues in Organising Genius (Nicholas Brealey) that Great Groups have replaced great men as the driving forces for organisational breakthroughs. His thoughts answer one of the three problems in engendering renewal raised at the start - getting it going:
1. Gather the ablest people you can find to lead change
2. Place them under a highly effective leader
3. Continue to recruit talent as a key activity
4. Form and share a powerful vision and mission
5. Set up a separate Change HQ
6. Focus change on a chosen opponent: 'The Enemy'
7. Pick the right person for every job
8. Leave creative people free to create
9. Insist on delivery against objectives
This regime creates exactly what renewal leadership requires: a group of dedicated, optimistic people who believe that they can accomplish anything, and who find that achievement is its own reward. Intel, the star growth company described here last month, exemplifies all nine steps. It tackles recruitment so seriously that half-a-dozen people may interview a single candidate intensively. One interviewer even refused to take a call from Robert Noyce, the chairman of the board, because 'I have a candidate.' As Silver's Market Commitment Model recognises, strategy revolves around people and their enlistment. So does renewal.
The renewal formula is thus clear. The best timing is when the company has been riding high for some time. The programme has to embrace all aspects of the organisation. And you lead the change with one Great Group - which proves its greatness by spawning other groups to form a great, renewed company.
read all 70 gurus with one feed read all Read all media
