Tuesday, May 1, 2007

Eat Your Children

Back in 1729, Jonathan Swift wrote an essay entitled, “A Modest Proposal.” In this essay, Jonathan Swift was writing about the deplorable situation that existed in Ireland at that time. In particular, he was concerned about the large number of children in Ireland living in poverty. In the words of Swift, his goal was to “find out a fair, cheap, and easy method of making these children sound, useful members of the commonwealth.”

In the essay, Swift makes “a modest proposal” for achieving this noble goal: Sell the children at the age of one for the purpose of being eaten by the wealthy. In a cold and unemotional writing style, Swift calmly points out many benefits from the proposal, including the elimination of problem children and an improvement to the economic condition of the community.

Naturally, this is just one of the many satirical pieces Swift wrote during his life. You can find the entire essay at http://art-bin.com/art/omodest.html.

The thought of eating one’s babies is disgusting. This was anything but a “modest proposal.” Of course, this was the point of the essay, that the real disgusting thing was that society had become callous to the societal ills around them. By pointing out the absurdity of the eventual outcome of extreme callousness, Swift hoped to encourage more compassion.

The business world is full of its version of babies—all of the products and services that the company has nurtured over many years. Just as people would find it disgusting to kill and eat their children, businesses often find it disgusting to think about killing off their products and services. The emotional ties are difficult to sever.

However, sometimes the best strategic options for a business include the need to kill and/or sell off our corporate children. It may not be pleasant, but it may be necessary for the survival and prosperity of the firm. The trick is to find a way to make the move without destroying the emotional fiber of the company.

The principle here is that all strategic initiatives eventually fail. If you stick it out with a product throughout its entire life cycle, when that product or service reaches the end of its life cycle, your company will die along with that product. To avoid the premature demise of a company, it must at times be willing to let go of the heritage of the past and adapt the strategy to the changing environment.

A great example of this dillema occurred at Intel. Intel’s heritage had been in memory devices. In the 1980s the memory chip was called the DRAM ( Dynamic Random Access Memory) chip. Employees thought of memory devices such as the DRAM as being a part of the heart and soul of the company. It was how they defined the company in their mind. It was what put Intel “on the map.” To abandon it would be like abandoning your parents. One middle manager, for instance, said that the idea of Intel getting out of DRAMs would be aking to “Ford deciding to get out of cars."

Emotions aside, reality was telling a different story. Intel was increasingly becoming a non-factor in DRAMs. The DRAM business was unprofitable for Intel and was putting the fate of the entire company at jeopardy. A rational person could see that microprocessors were the more logical future of Intel. Yet humans are not entirely rational people. Emotions also drive decisions. And the emotions kept Intel in the DRAM business longer than it should have.

Emotions are important to strategy, because without an emotional commitment, it is difficult to endure the difficulties which come with trying to bring a strategy to life. An emotionless strategy rarely gets the company’s rank and file motivated to go the extra mile to achieve greatness. So it is important, when taking a new strategic path, to make sure that the emotions and morale are not destroied in the process.

Intel COO at the time Andy Grove knew that the company needed to move on. The dilema as he saw it, and the way he resolved it was like this:

“Don't ask managers, What is your strategy? Look at what they do! Because people will pretend. . .The fact is that we had become a non-factor in DRAMs, with 2-3% market share. The DRAM business just passed us by! Yet, many people were still holding to the "self-evident truth" that Intel was a memory company. One of the toughest challenges is to make people see that these self-evident truths are no longer true. . .I recall going to see [President] Gordon [Moore] and asking him what a new management would do if we were replaced. The answer was clear: Get out of DRAMs. So, I suggested to Gordon that we go through the revolving door, come back in, and just do it ourselves.”

The solution was to:

A) Get people to see that their version of the truth really wasn’t the truth; and

B) Point out that if they didn’t make the change themselves, new management would probably be brought in to do it without them.

In today’s era of hedge funds and activist shareholders, the risk of being replaced or having the change thrust upon you anyway is a far more frequent and real threat. Why let the outsiders come in and make all the changes and reap all the profits? If it is going to happen anyway, do it yourself and allow current management and current stakeholders reap the benefits. At least if you do it, there will probably be more compassion and understanding. The emotional aspect may be easier to take and the healing may be more rapid if the insiders do it rather than the unknown outsiders.

It can hurt to abandon one’s children, like the DRAM. It can hurt more if you do not. The company may die along with the death of the product. Another related problem is the fear of cannibalization. As discussed in an earlier blog, “This Candy Melts in Your Hand”, many companies over the years have failed to invest in the next big thing in their industry for fear that it would cannibalize the sales of the current portfolio of products. By avoiding investment in the new, these managers hope to prolong the life of the old.

Unfortunately, just because your company does not invest in the new does not mean that others will do likewise. Firms with less to lose will dive into the next big thing and ruin your business anyway. It is better that you ruin the the business yourself by killing off your baby and at least own an entry into the next big thing, than to have someone else kill your baby and leave you with nothing.

However, using only a rational justification to do so is rarely as effective as combining it with an appeal to people’s emotions and sense of heritage. Jonathan Swift’s cold and rational essay could never pursuade anyone to kill babies, because it did not address the moral outrage. Similar feelings of outrage could occur in your business if you appear as cold as Jonathan Swift.

For example, there could be emotions of fear to be dealt with—fear that by leaving the old, everyone will lose their jobs and that one’s personal stake in the company will disappear. This is a real threat to company employees. In the case of Intel, leaving the DRAM business resulted in the loss of 3000 jobs. Although not all jobs can be saved, one should point out that change can often lead to greater growth, and greater growth can lead to greater opportunity.

There could be great sense of loss in purpose. Although the paycheck is great, people are happier and more productive if they feel like their work has a greater sense of meaning and purpose. By severing the heritage with the past, the company could appear like a cold uncompassionate piece of money-grubbing capitalism. This could disrupt morale to the point that productivity drops and good people leave to find a more fulfilling position elsewhere. It is important to link the killing of the corporate baby with a shift to an even greater sense of purpose which builds on the heritage of the past.

Finally, it is important to continually manage the perception of the company by its employees. If the identity of the company is too wrapped up in a single product, or the perception is based on a false “self evident truth,” then you could have problems down the road. It is better to manage this image prior to the need to kill off a baby then to wait until the last minute.

Because the world is changing, strategic initiatives become obsolete. At some time, it may become necessary to kill off the babies that made the business what it has become in order to ensure a better place for where it must go in the future. Although this sounds great on a rational level, people live and act based on emotions as well. The emotional aspect should be addressed when making this change. If it is not addressed, either powerful internal forces will keep the change from occurring or the transition will not be as smooth and successful as it could be.

Companies are only as good as the people who do the work. If you destroy the morale, you destroy a part of what makes your company great.

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