Adapt Or Die
Companies need to be flexible to remain relevant in a changing environment
Gabor George Burt, Author, Slingshot
Imagine that one night
you are having a couple of terrible nightmares. In one frightening dream, the
business you manage suddenly loses its most important market. Then in another
dream, your core business abruptly becomes obsolete. Now imagine that you wake
up and your dream is actually the reality. What would you do? Could you
find a way to save your business? Better yet, could you use such a crisis to
reorient your company towards new heights of success?
This scenario
underscores the most important strategic priority facing any business today:
staying relevant. In an environment that can change in a blink of an eye, you
need to continuously monitor your ongoing relevance and be adaptable enough to
maintain it. Take to heart the words of General Eric Shinseki, former US
army chief of staff: “If you don’t like change, you’re going to like
irrelevance even less.”
Let’s look at some
real-life examples of how some well-known companies dealt with the nightmare scenario
above. Until a few years ago, Eastman Kodak was sitting on top of the world. Or
so it seemed. Founded in 1892, Kodak was an iconic American company whose brand
was recognised around the world and synonymous with the market segment it
dominated: film photography. It dominated to such an extent that Kodak enjoyed
70% margins and 90% market share in the US.
Things started to
unravel quickly in 2003. Kodak was caught sleeping as the world transitioned
from film to digital photography. The company severely misjudged the speed and
impact of this transition and its lifestyle implications. Coupled with the
rapid convergence onto personal portable devices, digital photography empowered
consumers to create, edit, store and share images instantly. As a result, Kodak’s
core business was on a fast track to obsolescence. The sad culmination of
Kodak’s precipitous fall came in January of 2012, when the company declared
bankruptcy. It re-emerged from bankruptcy in September 2013, but only as a
hollow shell of its former self. The re-structured company will not make or
sell any consumer products, but focus only on providing digital printing
services to other businesses.
Note the principal
lesson here: unless your business possesses ongoing relevance, it is of no
importance how good you are at what you do. And if you are only focused on
being the best in your current market space, you lose sight of everything
outside it. In 2003 Kodak remained the best film photography company in the
world, but it no longer mattered. The entire industry was replaced by something
more relevant to consumers. As a side note, Kodak actually invented the digital
camera in 1975, but did not bring it to market for fear of cannibalising its
film business.
|
In 1991, almost overnight, the Finnish company Nokia’s biggest
market ceased to exist when the Soviet Union dissolved as an economic entity.
But Nokia not only survived this catastrophe, it thrived like never before. At
that time its core business centred on the manufacturing of paper, rubber and
wood-based products. Its mobile phone unit was a small, peripheral division.
Yet, in the face of the crisis Nokia recognised the potential of this small
division as the driver of future growth, and acted swiftly. By 1994, Nokia sold
off its industrial divisions and was listed on the New York Stock Exchange as
the world’s premier supplier of mobile phones, creating and driving an entirely
new market space. And it was able to dominate this space to such an extent that
until 2010 Nokia’s share of the global cellphone market was greater than the
combined market share of its top three competitors.
Having successfully
achieved this remarkable corporate transformation and established itself as the
uncontested leader of a new market space, could Nokia take a brief pause or
rest easy? Not for a moment. Over the past few years Nokia failed to keep
up with the pace of evolution of the very industry it helped to create. The
company never established a strong foothold in the US market and was not a
leading player in the smartphone arena, the telecom industry’s fastest growing
segment. By 2012, Samsung had dethroned Nokia as the world’s biggest mobile
phone maker, and the company’s production levels sank below the breakeven
point. Finally, Nokia’s mobile phone division was sold to Microsoft in
September 2013 for $7 billion — a far cry from its total market value of $77
billion five years prior.
There is another example
that highlights the distinction between being relevant and being the best.
Coca-Cola has perpetually ruled the carbonated soft drink market space, with
Pepsi being number two. Rather than continuing to fight an uphill battle for
supremacy within this space, Pepsi instead decided to branch out strategically.
It began focusing more on consumer relevance, diversifying into beverages more
connected to healthy living. In the process it acquired such brands as Gatorade
and Tropicana.
By the end of 2005,
Pepsi derived only 20% of its total revenues from carbonated drinks, compared
with Coke’s 80%, and its market valuation overtook Coke’s for the first time —
even though just 10 years before, Coke’s value was three times that of Pepsi.
In essence Pepsi conceded the narrower confines of the carbonated beverage
market to Coke, and by doing so it became the more broadly relevant and,
therefore, arguably the more successful company during this period.
For our final
illustration, let’s reflect on a company that perhaps has a laser focus on
broadening its relevance: Amazon. This is a company that rocketed in annual
revenues from $4 billion in 2002 to over $60 billion in 2012. What is the
philosophy that enabled such growth? “If you want to continuously revitalise
the services that you offer to your customers, you cannot stop at what you are
good at,” Amazon CEO Jeff Bezos told BusinessWeek. “You have to ask what your
customers need and want, and then, no matter how hard it is, you better get
good at those things.”
Just look at the
progression of Amazon to appreciate how it is continuously re-imagining itself
in the pursuit of expanded relevance. It started out by selling new books
online; then the company expanded to providing a marketplace for used books,
then to cover all kinds of consumer goods, including electronics, beauty and
healthcare, clothing and sporting equipment. Then, in 2007, Amazon jumped from
the services platform to a product-service hybrid with its Kindle e-book
reader. And it has a major presence in the B2B arena as well, with services
such as cloud computing, warehousing and website operation. Along the way,
Amazon has been transforming the market spaces it plays in because it does not
define itself by traditional industry delineations. Rather, its business is
creating the most broadly relevant offerings to customers, blurring industry
boundaries.
So how can you ensure
the ongoing relevance of your company? I suggest that you continuously ask
yourself the hypothetical question of our nightmare scenario: if your core
business or biggest market was to suddenly vanish, can you think of new ways
for your company to thrive? This mental exercise will keep you alert, and help
you to both monitor the underlying relevance of your business as well as its
flexibility to adapt in the face of unexpected market developments.
