By the time we see the iceberg, is it always too late to change our course? Business model disruptions often blind fast growing companies, shareholder darlings, and result in their precipitous decline. The impact is rarely limited, as the wake of the disruption ripples across the globe creating great uncertainty in the capital markets.
Last week Borders Group Inc appears to be the latest casualty. WSJ.com – Borders Hires Restructuring Lawyers On January 18, the WSJ reported management’s decision to suspend book order payments and hired restructuring lawyers. The resignation of top c-suite executives followed. At this point, it appears collapse is their only alternative. But last January, on the 27th their CEO resigned and the interim CEO announced in April a turnaround plan, that in retrospect failed to keep them afloat. Is this case a failure of strategy, leadership or execution? A full analysis isn’t necessary to realize that the larger cause was the absence of a timely response to their industry disruptors.
I wouldn’t have paid much attention to this story, or been that drawn into the analysis had I not sat with Chicago Booth alumni last Friday and focused exclusively on this issue of business model disruptors. The Border’s story was coincidental, and though none of us had the facts or details, we recognized that the leadership team could not have merely been asleep or unaware that trouble was looming.
Mckinzie happened to publish a survey on the value of corporate strategy. Their findings were not surprising and merely confirmed the experience of the Booth and Kellogg discussion participants.
Strategy is hard
Defining the nature of your business is also challenging. Borders was first and foremost a bookseller. Their megastore concept, in itself an industry disruptor, enjoyed great success until someone else ushered in additional disruptors that took the lessons of the megastore online -switching mass in store sales and square footage overhead online. I leave the case write-up to others. The question is whether the disruption is inevitable and what if anything can a company facing similar game-changing disruptions do?
It was precisely this question that the monthly discussion of Chicago Booth Alumni considered last Freday. To frame the short conversation, attendees reviewed in advance three articles with strategic advice and listed at the end of this post.
Unlike the predictability and regularity of a ticking mechanical clock, the future rarely repeats or duplicates the past. Our circumstances are always shifting, some subtly, occurring as imperceptibly as the orbital passage of the earth around the sun. Business disruptors are successful because they are rarely taken seriously early enough.
A single customer may be fickle; but consumers rarely act enmass, abruptly taking their business to the emergent competitor. The reality is that often the best customers remain loyal and the ongoing revenue stream, masks the departure and slow growth of the exodus into a massive iceberg whose top once visible, is dismissed as small and inconsequential.
Most successful business leaders monitor and report business metrics and then review them with interested stakeholders , e.g. senior management, share- holders, board of directors. Rarely do these metrics reflect the full organization’s capabilities and/or its resilience to withstand disruptive threats. Clayton Christenson studies of corporations facing change found them missing any focus on changes in demand as they occur in their marketplace. Resilient companies direct their attention to insuring existing resources can successfully meet the evolving needs of their customers. The review process is not retrospective, but rather a future focused assessment. Examining the steps necessary to propel, not impede their processes and values toward innovation. In a race with a motorboat, paddling faster, or cutting dead weight won’t help you win.
Business model disruptions are rarely welcomed or predictable. There are several tactical strategies that make it possible to bounce back to position.
James Ogilvy, writing for Strategy +Business, offered metaphors from philosophy to exemplify how easily management and leadership can miss critical cues . If however they create a culture that is more resilient amidst the ever present uncertainties of our world employees emboldened to speak and act early can help avert the looming disasterier. Acknowledging our inability to predict the future we must decide how to operate in the present and still plan for changes we may not understand, measure or foresee.
Markides and Oyon writing for MIT Sloan review pushes past the work Clayton Christenson, Michael Porter and others on innovation challanges by narrowing them down to five key questions. Asking these, management can better assess the potential damage caused by a disruption to its business or industry; and correspondingly, respond to the new competitive threat. These questions don't produce the next actions plan, but for companies who recognize their current products, services or basic business model is time limited, it's the basis by which strategy should be revisited. Once again, the restructuring and committments will require great strength to meet the management challenges and incongruencies attached to creating something new while managing existing revenue opportunities.
Finally, another article from Strategy and Business (Leinwand and Mainardi) posits merely being the game changer requires companies execute an effective capabilities driven strategy. Outward facing, the strategic focus starts and ends with your customers. This piece written before the phenomenon of Facebook and direct engagement utilizing social media tools was a great prescription. The suggestion to build a portfolio of ideas, skills and competencies that can be put together coherently and mutually reinforce the organization’s overall capabilities is long on theory but hard to execute. [note, an older article by Christenson and Ovendov in HBR 2000, outlines how to assess and find your core capabilities.]
Closing discussion take-aways
Discussants summarized their thoughts at closing as follows:
- Where are the lessons on how to create culture transformations? The prescription needs more details to be meaningful or effective.
- Organizations and their leadership are not as dumb as they seem; rather inertia may be to blame, or more specifically its absence, which inevitably rolls up into a leadership problem.
- If you can stop the bleeding, act sooner and change the management team it may help, but critically need to change what management is and has been doing to navigate a better course.
- “Viewing your death”, an Ogilve tip, is only as helpful as how you perceive the future and the significance of the outside possibilities painted in a future scenario.
- Remember who your ultimate customers are, not your board, not your leadership, only the shifting nature of your customers should be the rationale and focal point for business redirection.
- Keep track of your fundamentals, the organization capabilities.
- Be wary of the situational leadership conundrum…their path to the top shaped how they read the signposts and drive the organization forward.
- Best to take a long-term look, overcome the protective instincts that may ultimately undermine your ability to move the product along a more realistic and vibrant future.
- CEOs are ultimately responsible for strategy and any changes have to come from the top.
The best insurance an organization can carry is regular consideration of outsider’s perspectives, reality checks on their planning. In theory, this should be a board of directors comprised of individuals whose own context and operating environment is in sharp contrast to your industry and culture. The more divergent their views of the future, the greater the value of their contribution to your survival and success.
These articles were the basis of the Chicago Booth Alumni Discussion January 21, 2011
What Strategists Can Learn from Sartre
By James Ogilvy, Strategy +Business, Winter 2003
Strategic thinking can benefit from philosophy. In this reflective piece, the author explained why in an uncertain world where competitive advantage is insecure, setting strategy must become an existential exercise.
How to Win by Changing the Game
By Cesare Mainardi, Paul Leinwand, and Steffen Lauster,
Strategy +Business, Winter 2008
This was the magazine’s first major piece on capabilities-driven strategy, laying the groundwork for Leinwand and Mainardi’s book The Essential Advantage: How to Win with a Capabilities-Driven Strategy (Harvard Business Press, 2010).
What to Do Against Disruptive Business Models (When and How to Play Two Games at Once)
By Constantinos C. Markides and Daniel Oyon, June 26, 2010
Fighting against a disruptive business model by rolling out a second business model is one option for companies to consider. But to make that work, you need to avoid the trap of getting stuck in the middle.