A Sense of Where You Are

Having a sense of where you are in life gives you a much better chance of controlling where you are going. Nowhere is this statement truer than in corporate America where the concept of a corporate or industry lifecycle, often presented graphically as an “S” curve, has bedeviled business executives throughout our corporate history. The idea behind it is a simple one: from cradle to grave companies, products and entire industries, follow a well-worn path that includes five distinct phases from development to launch, followed by rapid growth, maturity and then decline.

So powerful is this concept that it can influence everything from the type of executives needed to operate the company at each stage, to whether excess cash is used to fund growth initiatives or returned to shareholders in the form of dividends or buybacks. The questions managers ask themselves and the metrics they monitor change depending on the company’s positioning, as do the type of investors betting with or against them.

The “S” curve conceptualizes the roller coaster issues executives face while navigating a dynamic global economy. At its core are the twin forces of competition and destructive innovation that inevitably lead to the decline of entrenched players. Throughout history, few companies have escaped its gravitational pull and those that do must work hard to reinvent themselves. Corporate annals are filled with once venerable companies that lost their dominance or disappeared altogether. Not too long ago, Blackberry and Nokia dominated the handset market but have since yielded to Apple and Samsung; Sears and Toys “R” Us were first disrupted by Wal-Mart and again by online retailing.

It’s hard to imagine that same fate happening to some of today’s corporate stars but a quick look at Amazon and IBM reveals that natural selection is alive and well. Amazon started life as an online bookseller while IBM began as a manufacturer of mainframe computers. Today, Big Blue earns most of its revenues from services and Amazon gets less than 10% of its total revenues from selling books.

In a recent WSJ interview with IBM”S CEO, Virginia Rometty discusses the company’s many transformations over its 105-year history:

“Tech companies come and go. It’s very difficult to transform [and prosper] through one or two eras. It’s something very different to go through three, four and five different eras. You can’t define yourself by a product….We define ourselves by working on the most challenging societal and business problems.”

What distinguishes the survivors from those that disappear? Savvy management – executives who exercise thought leadership and are willing to take risks. Too often management gets drunk on their own success and fails to see who or what may be nipping at their heels. Size, culture and hubris are classic impediments that can lead to corporate paralysis and inertia. However, once it becomes apparent that a new direction is needed, it is often too late to do so without painful layoffs and restructurings. Even then, it may be too late to avoid the inevitable.

Categories: MBA