Success creates its own difficulties. One of them is especially tricky. What do you do for an encore? This question of strategic management mainly arises in business if your mine has run out of gold. Or, to change metaphors, if you’ve climbed the highest mountains - and there are, by definition, none higher to scale. The analogy applies to both the person and the business. Careers peak as well as markets. The instinctive reaction is to soldier on. But that must usually mean condemning yourself and/or the business to a process of diminishing returns.
The rarer path is far wiser: to strike out in a new direction, to launch a second life. The necessity that afflicts corporations, and sometimes individuals, has been brilliantly described by two very different experts on management - Charles Handy, writer and management philosopher, and Andrew S. Grove, one of the few top managers to have written a serious and original book on management - in fact, two of them, High Output Management and the more famous Only the Paranoid Survive.
JAPANESE ASSAULT
Grove’s belief in paranoia is deeply understandable, since his company, Intel, nearly went under as the Japanese assault on its core business, memory chips, drove the company to the wall. Memories were Intel’s core, an industry which it had created and dominated.
But the Japanese made their memory chips better and cheaper. In what had become a commodity market, Intel couldn’t make a profit, no matter how hard a brilliant management strived.
The market and Intel had reached what Grove later called a ‘strategic inflection point’. That happens when change in the technology or other factors alters the name of the game. The consequences can be shown by what Handy named the ‘Sigmoid Curve’. It maps the life story of a company as it starts up, goes through the difficult early period of growth, overcomes the growing pains and then enjoys the years (often many of them) in which sales and profits boom handsomely year after year.
But the golden days are numbered. At Point A on the Curve, some way below the coming peak, the writing is already on the wall. But customarily, nobody reads the message. Profitability is still marvellous, the shareholders are delighted, the customers are happy, the market is still strong. But inexorably the business moves on from Point A, rounds the heights of the Curve, and then heads remorselessly downwards.
Look no further than the airlines for powerful demonstrations of the trauma. The industry has been camped below Point B, on the downside of the Curve, for so long that only greybeards recall its former easy riches and lofty prestige. As in these cases, management efforts to return to the upside of the Curve are typically vitiated by financial losses, poor publicity, intense competition, consequent pressure on margins, and weak staff morale.
The morale only weakens further with each successive wave of job cuts and other cost reductions - administered by top managers whose minds are still set in the glory days and ways. Heavyweights, it was said before Muhammad Ali changed the rules, never comeback. Heavyweight companies are still in a pre-Ali era. They still don’t return - not to their former power and status - if they continue to fight the same wars.
In 1987, I published a book, based on broadcast interviews, that dealt with 17 UK companies selected because of their strong comebacks from a severe Thatcher recession. The stories and the short-term results were convincing enough at the time. But the long-term outcome, 17 years on, is fairly lamentable. Of the 17, only three can be called strong survivors of their management wars and leaders of Important industries: Glaxo (now the major part of GSK), Rolls-Royce and BOC.
WISER AND LUCKIER
The most common error of the failures, such as ICI, Courtaulds, Jaguar, Rover, Plessey and ICL, was to play as an encore what they had already performed year after year after year. Grove at Intel was wiser and luckier. Deep in the company’s bowels an engineer named Ted Hoff had set the new ball rolling with a most revolutionary idea: instead of supplying a ‘chip set’ of separate components to electronics companies, why not place all the required circuits on a single silicon wafer?
Such a device could be programmed - and thus was born the microprocessor, the computer on a chip; the tiny foundation on which the entire digital revolution came to rest. Intel’s encore created a new industry for itself and its customers and allies (not least Microsoft). It provides a blueprint for the return to Point A - in Intel’s case from well below the fateful Point B. However, the catechism for would-be encore managements is very demanding:
1. Is the new venture within the company’s established zones of management competence and marketing know-how?
2. Will the company change its modus vivendi as needed to exploit the encore opportunity?
3. Is the market opportunity larger, and faster-growing in prospect, than the existing marketplace?
4. Does the company have, or can it readily obtain, the talents required to take the business in the new direction?
5. Is the corporate culture responsive and radical enough to remake the company?
6. Is the leadership capable of leading the renewed business to Point A - and beyond, to a whole series of new encores?
PROBLEMATIC FUTURE
It’s not hindsight alone that leads to the conclusion that Intel was fully - indeed, uniquely - equipped to seize its opportunity and leave the commoditised memory market to the Japanese. It was, of course, an all or nothing bet.
It’s true that these should be avoided, for choice. But it’s desperately hard to expect organisations, or individuals for that matter, to attack their whole being, at a time of prosperity and success, to grasp a future that is by definition problematic.
The effort must be made, however. My associates at the Global Futures Forum are mountaineers whose task is to think deeply about the new ranges that are looming in the clouds ahead, or may do, and to work out the scenarios that look likeliest to succeed. You can’t predict the future - that gift is not given to man - but you can think hard about the future, intelligently and in full possession of the most relevant facts about the present.
Nobody pretends that these are easy exercises. But the great, foolish errors of the past did not, by and large, arise from misreading the future, but from not reading it at all. Like the far less useful tea-leaves at the bottom of the cup, the present is generally plain to see.
• The rise in second-car families in the US as women went out more to work was obvious to the Japanese, but not to the American rivals – which also missed the earlier significance of the large sales of VW’s small Beetles.
• All IBM’s major competitors missed the fact, clear from the rise of Apple, that PCs were creating an entirely new computing market of fabulous growth.
• None of the far larger US retailers saw that Sam Walton was tapping an inexhaustible market for discount stores serving smaller communities.
• Bill Gates in his book, The Road Ahead, dismissed the internet - the fastest-growing phenomenon that the world has ever seen. The fact that Gates saw the error of his ways, just in time, and totally recast Microsoft’s strategy for the new age, is a textbook example of Encore Management. The company was still most comfortably placed around Point A on the Sigmoid Curve. It had the intellectual ‘band-width’ to turn its strategy upside-down - and the necessary billions of dollars.
Above all, however, Gates was prepared to let the dead bury their dead: once past the point of no return, he wasted no time on sentimentality.
CLINGING TO THE PAST
The US car makers referred to above were in love with their ‘gas-guzzling dinosaurs’: in love with the false idea of their own superiority vis-a-vis the Japanese: in love with the fat profit margins earned on fat cars. All these factors blinded Detroit to the realities of their markets and the present - from which the future must inevitably spring. Clinging to the past is an all-too human habit. But in all probability it is the worst possible way to confront the future. The company stuck in the past has three terrible characteristics:
1. It is unwilling to experiment or to try a variety of solutions to its problems.
2. It is inflexible and closed to the lessons of current experience.
3. It is bowed down by the weight of tradition.
The Terrible Three were identified by a thoughtful manager who had achieved one of the last century’s most brilliant breakthroughs. He also delineated how the threesome evolves: how the company develops subtle policies and habitual modes; how it becomes more efficient, but at the price of losing flexibility and willingness to look afresh at each day’s experience; how fixed routines get ‘congealed in an elaborate body of written rules’.
But that’s not the half of it. The unwritten rules are more powerful still. Some are good. The bad ones, though, constitute ‘a choking underbrush of custom and procedure. There comes to be an accepted way to do everything. Radical approaches from past practices are ruled out. The old hand says ‘You have to understand how we do things round here...what he means is that “how we do things” is sound and respectable and the best way’.
What adds much piquancy to this unvarnished truth is its provenance. The speaker, Peter McColough, was one of the founding giants of Xerox, the visionary who initiated PARC, the research facility which invented most of the concepts from which flowed the breakthroughs of Intel and Microsoft. But Xerox failed to exploit any of PARC’s brilliant inventions; failed, too, to defend its copier market from Japanese attack; and provides a sad text for McColough’s own question.
‘Is it inevitable that such organisations as Xerox should have their periods of emergence, full flower of growth and prestige and then later stagnation and death?’
Readers will recognise this as a word-picture of Handy’s Sigmoid Curve. But it goes against the grain to accept that the Curve is ‘inevitable’. Surely clever and determined Encore Management can start new and important Curves before Point A is reached, let alone Point B. That demands, however, a forward-looking SWOT analysis.
• What developments could turn our present Strengths into Weaknesses?
• What strategies are required to forestall these Weaknesses, and thus create new Strengths?
• What Opportunities are currently visible that we are failing to take?
• What Threats, other than those already observed, would undermine our businesses?
TOUGH QUESTIONS
Tough questions again, but they have to be asked. In the end, Encore Management can only come from an encore company, one which is geared to the future - that never does it ‘the way the industry does’; that has ‘the willingness and confidence to act on an untried approach’; that works on an argumentative, dynamic, unrestricted philosophy of ‘disagree and commit’.
Those quotes are the very opposite of McColough’s Terrible Three and go a long way to explain the speaker’s superiority as an encore manager. He’s Andy Grove of Intel, who adds that: ‘If it is hard to make a success of something, it is an order of magnitude harder to sustain the success’. You’d better believe it.
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