They fall because they no longer know how to read market signals. Market signals are not easy to read: they are weak and ambiguous, and they need deciphering. Only a systematic and powerful process can decipher market signals early enough to save a firm from decline.
Jack Welch, General Electric's CEO, once defined management as the task of "staring reality straight in the eye" and then having the courage to act. This is much easier said than done.
There are two basic problems with this definition. First, management must be close enough to reality to stare it in the eye. Second, it must not only stare but also see what is in front of its face.
This is a tall order. First, top management, through no fault of its own, is never close enough to the market. Second, some top executives can't see competitive reality staring at them.
One of the facts that amazed me the most over the past eight years while helping American and European firms improve their ability to read their markets, was how insulated top executives were from competitive reality. This is because they secure their competitive intelligence (market signals regarding change) at best through a close circle of 'trusted' personal sources, or at worst through those one-page news summary clippings. Top managers' information is invariably either biased, subjective, filtered or late.
This is a repeated phenomenon. By the time most top executives get firm evidence regarding changes taking place in their markets, the company has lost touch with customers, technology, competitors, suppliers, government and the other myriad forces operating to squeeze profits out of competitive markets. As Ben Rosen, the chairman of Compaq, lamented recently in describing Compaq's changing market, "We got hit in the head by a two-by-four".
Indeed, many top managers face change only when it hits them in the head. They can never be close enough to the competitive arena to notice the signals of change early on. Moreover, early signals are never unequivocal: they are weak, ambiguous, deceptive. They need deciphering. Who has the time and access to continually and systematically identify signals early on? Who has the expertise to attempt to decode all of them? The $64 billion answer is: people who are in touch daily with the competitive arena – ie, lower-level managers and employees.
But then there is always the problem that some top executives either fail or refuse to see reality, even when they stare straight at it. As Eckhard Feiffer, who replaced Rod Canion as Compaq's CEO, stated: "We had to overcome the denial before anything constructive could start".
Denial, failure, or refusal to see reality are the biggest problems companies face. These problems wrecked IBM, Digital, General Motors, Sears, Hoffman-La Roche, Schwinn, American Express, Tandy, Citibank, Xerox, Kodak, and the list goes on and on. It stems from what I call 'Business Blindspots'. The three most devastating blindspots are unchallenged assumptions, corporate myths and corporate taboos. Every company harbours blindspots, or is breeding some as you read these lines. The question is not whether your company will lose touch with the competitive arena, but when it will lose touch.
This is not a claim that one can do nothing about losing touch. It is a claim that if one does nothing, blindspots will always prevail. Without taking specific preventive measures, such as ensuring that top managers consider competitive information in making decisions, companies will be hit on the head by change time and again. And, as many managers already know, it hurts.
For many years Mercedes Benz has been the symbol of 'Good Products Sell Themselves'. After Mercedes' sales in the United States plunged 24 percent in 1991, its top management at last conceded that it had to change its strategy because of the competition (ie, the Japanese). Until then, Mercedes' management refused to even acknowledge the existence of competition!
Ridiculous, you say? Yet even two decades of stiff competition have not completely uprooted the deep-seated belief, held by many companies throughout the United States and Europe, that it is enough to have a good, solid product and tight financial control to win the competitive game. The stronger this belief is, the ruder the eventual awakening. Until 1980, Sears' internal position papers did not mention Wal-Mart! Since top management has many subtle, and not so subtle, ways of sending messages throughout its organisation as to what really counts, this type of strongly held yet often unspoken belief affects the overall strategy as well as the daily operation of a company. It is just one small example of a business blindspot – in this case, a corporate myth that competitors don't count – that causes successful giants to fall from grace. Corporate taboos and a host of unchallenged assumptions do the rest.
In the past two years or so, I haven't read one issue of Fortune or Business Week magazine in which there wasn't one executive or expert quoted as saying, "We have been too successful for too long, and now we are paying the price". It has become a joke: Every current management guru, former guru, or future hopeful is claiming that success leads to companies being arrogant, complacent, and a host of similar adjectives, depending on the guru or the audience or the management fad in vogue. When did success become the enemy? I ask you: Do you really need to pay $15,000 for a lecture by a famous 'management consultant' to hear that? It reminds me of what Lou Gerstner, until recently RJR Nabisco's CEO, said in an interview in 1992: "Discounting is too easy. I don't need marketing people for that".
Blaming success does not explain anything. If everyone knows that too much confidence is bad, and complacence is bad, and arrogance is bad, and not listening to the market is bad, how come successful companies still find themselves broke? How come Sears and IBM and American Express and Citibank and Hoffmann-La Roche and General Motors and Mercedes and USX and Procter & Gamble and Travelers and Southland and Westinghouse and US Air and ITT and Dupont (have I missed some? Sorry, next book around) couldn't see competitive developments happening all around them? Were they blind or something? The answer is: exactly. Success is wonderful. Blindness is not.
This book does not pretend to solve all the ills of corporations. It merely explores the reason success can turn 'bad'. It shows why it is almost inevitable that successful companies and executives fail to see changes around them. It takes away the blame from the managers who are hailed as geniuses one year and villains the next. More important, instead of throwing banalities around and then offering a miracle solution of restructuring, revitalising, re-engineering, reinventing, or some other re-something, it shows what should be done to prevent success from becoming a menace – not what can be done to prevent success, which seems to be the principal achievement behind the repeated restructuring of some giant corporations, like Kodak and IBM.
The companies described in this book, the executives quoted, and the examples analysed, do not form a list of failures and successes. The essence of the tool I am giving you is the understanding that survival is tentative and success transitory, unless a company finds a way to keep its management alert. One of my favourite quotes is from Andrew Grove, the wise (at least for now) CEO of Intel:
"There is at least one point in the history of any company when you have to change dramatically to rise to the next performance level. Miss the moment and you start to decline".(emphasis added)
Unfortunately, without a focused, powerful process to track that moment, missing it is guaranteed. As Louis Hughes, president of General Motors' European operations, states, "You can fall very deep and very fast if you don't pay attention". He should know. His company did not pay attention for years.
What does 'pay attention' mean? It boils down to the seemingly obvious act of knowing how to pick up and interpret weak, ambiguous market signals early enough to make a difference for the future of the company. Obvious perhaps, but not well practised. By the time most senior executives receive such signals, they are loud enough for everyone to hear, and too late for meaningful proaction. It takes a powerful, systematic, patient, company-wide effort to practice this art well. This book describes a very old tool for doing just that.
This tool, which I call the competitive intelligence process, is the most powerful and misunderstood managerial tool available today to corporations. It has slowly gained in popularity and respect since mid-1980s, as competition became global and Western firms found themselves at a growing disadvantage against agile competitors from the East who excelled in this area. In the 1990s, the need of Fortune 100 companies to emulate what other Fortune 100 companies do has led to another surge in interest, if not in effectiveness. The process has the capability, if deployed right, to keep companies alive and to extend success into the future. Alas, I can count on one hand the number of firms currently deploying it right. In fact, I do count them in this book.
No, this is not another corporate buzzword, such as time-based competition, competency-based competition, capabilities-based competition, etc. It is much more fundamental and requires the oldest skill in the world: listening (yes, even the oldest profession needed to use this skill to become a profession). Consider the following example.
Bernard Marcus is the successful executive founder of Home Depot, the enormously successful retail chain (10-year return to investors of 45.5 percent, 10-year growth in earnings per share of 42.5 percent on average). In 14 years, Marcus built 224 stores in 21 states and reached sales of $7.1 billion in 1992. Impressive, wouldn't you say? What made Marcus so successful?
Take a deep breath. The list would probably go on for many pages, and each analyst and academic and leadership scholar would name different qualities. For me, though, it was one paragraph in the article describing Home Depot that screamed, this is it! In this little paragraph, Fortune magazine reported that a few years ago, while already very successful, Marcus visited Wal-Mart's Sam Walton and David Glass in Bentonville, Arkansas. They convinced him that offering everyday low prices was better than seasonal sales, which caused a run on the stores and ill feelings among customers.
How many successful executives do you know who visit other companies to learn? And how many change their minds about the right strategy after listening to some piece of competitive information? Competitiveness is based on learning, which is based on the ability to listen: to customers, to consumers, to partners such as suppliers, or to competitors, to industry experts, and, most important, to one's own employees. The essence of this philosophy is so simple it is embarrassing. The competitive environment sends messages all the time: signals about change, trends, prospects, threats and weaknesses. Early on, these signals are weak, ambiguous and hidden. Tapping them and then learning from them is an art that requires open eyes, ears and minds. Companies that harness the power of learning, that develop sonar system to listen to faint signals, can fight decline. Companies that take learning for granted, or practice it haphazardly, or simply ignore early signals, charge blindly into Andy Grove's 'miss the moment' trap.
Competitive learning is not learning only from competitors, although they are a powerful source of learning. It is learning from anyone in the competitive environment who has something to offer that will enable the company to maintain its success: competitors, partners, suppliers, other companies, consumers, customers, government. American Express did not learn. Customers were sending signals that value was more important than prestige. AT&T listened, and came out with its no-fee Universal card, while CEO Robinson of American Express was forced to retire early.
Despite recent emphasis on empowerment and decision decentralisation, competitive learning at the top of the organisation is more crucial than competitive learning at the bottom. Kay R. Whitmore, Kodak's former CEO, masterminded the acquisition of Sterling, the drug company Kodak acquired in 1988 for $5.1 billion. In 1993, Kodak was in trouble in its core film business and carried a huge debt load of $9.5 billion. But Sterling was Whitmore's pet project – in other words, a blindspot. When an outsider brought in as chief financial officer suggested reducing the debt, which might have required selling Sterling, he had to quit after only 11 weeks. One wonders how long it would have taken Whitmore to learn that Sterling was too costly, and the debt was too heavy, if he had not had to quit in 1993. Learning at the top is often painful but always crucial.
In this book I present a model of organisational learning that requires few resources but a lot of political courage. In its centre is the creation of a new structure, the Office of the President, a cross-breeding of a Japanese design and an American organisational innovation aimed at supporting the heads of business units with competitive intelligence. 'Business units' means companies, or divisions, or operating units, or subsidiaries, or whatever term is in use in your company to describe a unit that actually engages in the competitive battle. The model is then extended to cover corporate management as well, and the support a CEO needs in this area. It is clear, therefore, that one target market for this book is business leaders, from top division-level executives to top corporate executives, especially division presidents and corporate CEOs.
Sounds simple, doesn't it? When the reader who is a business unit's chief reads the next few chapters about blindspots and their horrendous consequences, I have no doubt that he or she will see immediately why the new structure makes perfect sense. Now all one needs to do is get the president to read this book, get the other top executives to accept the change as beneficial and non-threatening to their standing, and get the rest of the organisation to believe that this is not just one more 'management fad'. As I said, sounds simple.
When top management buys into this book's basic concept, the process of competitive learning makes everyone in the organisation more in tune with competitive developments. But what if top management does not want or have the time to read this book? Or worse, what if top management is convinced that its own sources and personal collection of intelligence are sufficient to keep disaster away? The consequences of top executives being blind to a changing marketplace are often massive wealth destruction and layoffs. When there is no systematic, all-powerful, all-encompassing process at the organisation to keep the top in tune with competitive reality at all times, who pays? Mostly middle management and workers. Consequently, this book is as much for middle- and junior-level managers as it is for top-level executives.
The model in this book relies heavily on the voluntary co-operation of managers and workers in identifying early market signals and persisting in offering interpretations. The time when one could rely on the top four or five people in a division to be able to collect and interpret all the relevant signals is over. The environment is too complex, the executives too busy or, worse, wear too many blinders. Because of that, they are often the last ones to receive or decipher the signals. If middle management and plant workers and service technicians and salespeople and all the other employees choose to put their faith blindly in their top executives' limited ability to 'pay attention', and are content to just 'do their job', they should not be surprised if one sunny day they find themselves looking for a mid-life career change.
The message of this book is that in today's competitive pressure cooker, every manager and every employee is responsible for ensuring that his or her job is there five years hence. And if the manager is near retirement, it is his or her responsibility to keep the stock price up (assuming the company encouraged stock ownership). And if the manager has already retired, it is his or her responsibility to keep the company prosperous so that a grandchild may find surer employment when grandpa or grandma picks up the phone and calls good old Jim in personnel. Just shuffling papers from point X to point Y, or putting in the eight-hour shift at the plant, or convincing the retailers to stock more of the product, won't do it. As story after story will prove, one cannot rely on top management to do all the 'attention paying'. It is time employees took that responsibility into their own hands.
And what if management does not want to listen to its own people? This is usually the same management that brings in the famous consulting firms and pays them millions to come up with ideas that everyone has tried for years to get management to adopt. What can the purchasing manager in room 2l3C, who complained for years that the relationship with supplier X was too relaxed, or the operation manager who knows of a better product development process at the competitor, do?
The answer is, keep hammering it in. It does not matter, it should not matter, that some top executives lose the ability to listen to their own people, let alone listen to weak signals from the environment. It is up to the purchasing manager and the operating manager and the sales executive and the service representative and the tax specialist to scream and shout and nag and bug and, most of all, persist. With the help of the new intelligence process introduced here, the operations manager may have a fighting chance to change things, and his job may be there next year and his mortgage will be paid. If he gives up – disgusted, cynical, disheartened – he should not blame top management alone for the failure of the company. It was he who decided not to fight any more.
Finally, many information and intelligence professionals are going to read this book (or so I hope) because it deals with their jobs. To them I would like to offer an apology: Sorry if I fail to make the subtle distinction between competitive data, competitive information and competitive intelligence. I am more focused on getting the division president to do something with the data, information or intelligence
One distinction I make very clearly is that competitIVE intelligence is not competiTOR intelligence. Concentrating on what your largest competitors are doing is only one aspect of competit IVE learning. It is not that competiTOR intelligence is reactive – a common confusion, since one must know what competitors' intentions and assumptions are in order to be proactive and outmanoeuvre them. It is that competitive learning can never be limited, or one will end up like General Motors, which paid $750 million just not to learn from a man named Ross Perot. [10]
Competitiveness starts at the division level and moves upward to corporate headquarters. The need to identify and decipher weak market signals early on starts with the division president and moves upward to the CEO. If they do it right, the entire organisation will do it right. If they believe everyone else but them needs help in keeping up with the market, the organisation will never become competitive.
Fighting competitive decline can take many forms. One way, exemplified by UPS's CEO, Kent Nelson, was to appoint four very senior executives to a task force to study the company's blindspots and formulate a better response to its competitors. That was back in 1990, after a two-year decline in profit margins.
The solution offered in this book is preventive. It relies on a systematic process of reading market signals early on, and it starts with one manager, a telephone, a PC, and top management that is not ashamed to demand help.
That is not too expensive, is it? It can make the entire organisation more attuned to the competitive reality. It can prevent the formation of deadly Business Blindspots. Give it a try.
© Infonortics 1996
a
complete list of contents, plus publication details.
order page to buy your
copy of the complete book.
15 Market Place
Tetbury, GL8 8DD
England
Tel: +44 (0)1666 505 772
Fax: +44 (0)1666 505 774
