The mighty who fell: too big to succeed
Levi Strauss, Eastman Kodak, Caterpillar, Heinz, American Express, Procter & Gamble, Compaq, Blackberry.
Just a sample of companies, all legendary, that at some point, saw their growth stall, their market caps decline and their very existence questioned. Megatrends in technology and demographic shifts made some of their troubles inevitable. But, I can’t help but think there’s more to that.
In my previous career as a management consultant, I had the opportunity to work with organisations across industries and geographies on a variety of business priorities. Every large organisation of pedigree is around because they’ve done certain things really well. However, their very size and complexity brought with it a certain inexorable slowness in the way things happened. At the sub-system level (design, engineering, marketing, supply chain…) you see frenetic activity; demanding leadership, conference calls, review meetings, workshops, burnt out teams. Yet, the purely incremental, par-for-the-course product release keeps getting pushed back, from it’s timeline of 18 months (which was 12 months behind nimble competition to begin with), to finally limping into market, 24 months after it was kicked off, laden with long-outdated features.
In each case, the prime suspects, to me, have looked like size, and centralisation. The more an organisation looks to run things out of functional mega-structures, the less accountability for outcome, rests at the front-line. Not that they have it easy. Far from it. Measured against derived metrics (number of sales meetings conducted, tickets resolved, Turn-around-time for customer queries…?!), they’re forever scampering to show progress to the myriad national, sub-regional, regional and global designations who needed those updates to justify their not-insignificant payroll.
The perceived benefits of centralisation; shared know-how, cost curves, scale economies etc. look utopian and usually only marginally realised, if at all. So much so that I consider the phrase “synergy benefits” in a corporate press release or earnings announcement as a SELL indicator!
The exception to the rule
And then there’s Amazon. Conventional wisdom says a publicly listed organisation making $136Bn in annual revenue and market cap $422Bn should have those same problems of bloat and inertia. Of struggling to innovate, launch and successfully scale new multi-billion dollar businesses. Then you read the CEO’s letter to shareholders and it makes sense why.
Learning from Jeff Bezos 2017 letter to shareholders
On being asked when will Amazon move from the “just begun” (Day 1) phase to that of a mature, evolved company (Day 2)
“Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1.”
To be sure, this kind of decline would happen in extreme slow motion. An established company might harvest Day 2 for decades, but the final result would still come.
So how does a company avoid becoming irrelevant?
Such a question can’t have a simple answer. There will be many elements, multiple paths, and many traps. I don’t know the whole answer, but I may know bits of it. Here’s a starter pack of essentials for Day 1 defense: customer obsession, a skeptical view of proxies, the eager adoption of external trends, and high-velocity decision making.
True Customer Obsession
Most companies center their business around their products, or worse, around competition. But the only true way, according to Bezos, is to be centered around the customer
Why? There are many advantages to a customer-centric approach, but here’s the big one: customers are always beautifully, wonderfully dissatisfied, even when they report being happy and business is great. Even when they don’t yet know it, customers want something better, and your desire to delight customers will drive you to invent on their behalf.
And that means experimenting patiently, accepting failures, planting seeds, protecting saplings, and doubling down when you see customer delight.
Timesheets, customer meetings conducted, vacation days allowed, tickets resolved, all metrics that are meant to drive the organisation’s goal of delivering value to customers, while retaining some of it. And yet, so often the means become the end.
A common example is process as proxy. Good process serves you so you can serve customers. But if you’re not watchful, the process can become the thing. This can happen very easily in large organizations. The process becomes the proxy for the result you want. You stop looking at outcomes and just make sure you’re doing the process right…The process is not the thing. It’s always worth asking, do we own the process or does the process own us
Embrace External Trends
This is a tough one. Imagine your competitive differentiator being your easy-to-use rugged keyboard and deciding to decide in a meeting that the way forward is to allocate resources to capacitive touchscreens, what Blackberry would have to do back in 2007.
These big trends are not that hard to spot (they get talked and written about a lot), but they can be strangely hard for large organizations to embrace. We’re in the middle of an obvious one right now: machine learning and artificial intelligence.
Over the past decades computers have broadly automated tasks that programmers could describe with clear rules and algorithms. Modern machine learning techniques now allow us to do the same for tasks where describing the precise rules is much harder.
But much of what we do with machine learning happens beneath the surface. Machine learning drives our algorithms for demand forecasting, product search ranking, product and deals recommendations, merchandising placements, fraud detection, translations, and much more.
High-Velocity Decision Making
“Refine the business case and come back” If I got a dollar for every time I’ve heard that said in a meeting, no, I wouldn’t be a billionaire, but I’d have a hefty bag of dollars. The urge to wait till attaining the semblance of 20-20 vision is probably the most prevalent in large complex organisations. Why? Simple. In Day 2 organisations, the cost of bad decisions, to the people making decisions, is orders of magnitude higher than making no decision.
First, never use a one-size-fits-all decision-making process. Many decisions are reversible, two-way doors. Those decisions can use a light-weight process. For those, so what if you’re wrong? I wrote about this in more detail in last year’s letter.
Second, most decisions should probably be made with somewhere around 70% of the information you wish you had. If you wait for 90%, in most cases, you’re probably being slow.
Third, use the phrase “disagree and commit.” This phrase will save a lot of time. If you have conviction on a particular direction even though there’s no consensus, it’s helpful to say, “Look, I know we disagree on this but will you gamble with me on it? Disagree and commit?” By the time you’re at this point, no one can know the answer for sure, and you’ll probably get a quick yes.
This isn’t one way. If you’re the boss, you should do this too. I disagree and commit all the time…Note what this example is not: it’s not me thinking to myself “well, these guys are wrong and missing the point, but this isn’t worth me chasing.” It’s a genuine disagreement of opinion, a candid expression of my view, a chance for the team to weigh my view, and a quick, sincere commitment to go their way.
Fourth, recognize true misalignment issues early and escalate them immediately…“You’ve worn me down” is an awful decision-making process. It’s slow and de-energizing. Go for quick escalation instead – it’s better.
So, the question worth asking of each of our investments, paraphrasing Bezos’s closing:
Have they settled only for decision quality, or is it mindful of decision velocity too? Are the world’s trends tailwinds for your investment? Is it falling prey to proxies, or do they serve it’s performance? And most important of all, is it delighting customers?
Jeff Bezos 2017 letter to shareholders – full text
When Growth Stalls – HBR