Monday, July 9, 2007

Management by Yelling

One time, early in my business career, I had the privilege of flying on the corporate jet. Boy, for a young person like me that was a treat! I highly recommend corporate jets if you travel a lot.

Also on the flight was a senior executive. Normally, this executive would not have given me the time of day, because I was so far beneath him in the corporate hierarchy. However, it was a long flight, and there were no other senior executives on the plane.

Therefore, since I was the next highest ranking person on the plane, after a long period of silence, he finally, reluctantly decided that he would have to talk to me. Not knowing quite what to say, he started off by saying, “You know, I’ve discovered over the years that fear is a great motivator.”

With an opening comment like that, you can imagine that the conversation for the rest of the flight was a little bit awkward.

In the last blog we talked about how different companies require a different approach to strategic planning depending on where they are in their lifecycle and how many barriers there are to entry/exit in their industry.

These approaches can lead to different styles of management. In the story above, this senior executive had a very cold management style. Fear and yelling seemed to be his way of getting things done. Although I am never sure that this type of management style in its extreme is appropriate, I can see how such a style can develop depending on the types of industries one has worked in.

In industries that have the characteristics of being mature, stable, consolidated, and with high barriers to entry/exit, a cold management style characterized by yelling can appear to be appropriate…at least for awhile. However, as we will see below, even in those instances, it has its limits.

In the last blog (see “Same Title, Different Jobs”), we said that there are three major steps in strategic planning:

1) Positioning: Determining what you will stand for (own) in the marketplace—the place where you can win.

2. Pursuit: Determining the path that will ensure you are able to obtain (or re-enforce your hold on) your desired position. This involves making it easier to get what you need and harder for your competitors to do the same

3. Productivity: Discovering ways to leverage your position so that you can optimize the return on your investment.

In mature, stable industries, the positions are already pretty much staked out. Consumer impressions of what you stand for are already firmly planted in their minds. High barriers to entry keep my customers from having many choices. High barriers to exit give me more ability to play hardball without fear of negative repercussions. Little can change in the near term. Therefore, less time is needed to devote to positioning.

A similar situation exists for mature companies when it comes to pursuit. You have already pursued growth and market share to the point where you were able to survive the industry consolidation and still be in business as one of the industry leaders. You also have had sufficient time to pursue the basic tricks of the trade in your business and become relatively good at them. Therefore, less time is needed to devote to pursuit.

Hence, these mature stable businesses tend to focus their strategy on productivity. In other words, the key question becomes:

How can I use the power of my current situation (a result of prior success in positioning and pursuit) to squeeze more incremental profits out of the same basic business? How can I beat up my sources for lower prices? How can I get more productivity out of the employees? How can I get my customers to pay a little bit more?

With a focus like that, it is easy to see how the management style in these industries can become cold and be based on fear and yelling.

The executive mentioned in the story above learned his management skills while working for a leading supermarket chain in the New York City area. At the time he worked there, supermarketing in New York City was mature and stable. It had consolidated to only a handful of major players and he worked for one of the leaders. It was nearly impossible any more to find many new sites to build supermarkets in the New York metro area, so if you already had stores in the key locations, you were pretty much set. People have to eat, and supermarkets at the time were the primary places to get food to eat, so as long as you were a decent operator, you were pretty much assured of success.

Therefore, the big focus was on trying to squeeze a little bit more out of the business through productivity. This may help explain how this executive came to this management style.

Unfortunately, when taken to an extreme, this type of strategic mindset can get you into big trouble. First, through cockiness, one can start holding back on reinvestment, believing that the barriers to exit are so high that you can get away with letting the business run down a little (so that you can pocket more profits). Second, one can start believing that the current stability will last forever, so there is no need to reassess one’s situation to see if there is a need for repositioning or a new wave of pursuit.

Stable situations never last forever. In the case of supermarkets, the format started to become obsolete as people preferred shopping at larger stores with greater variety, such as supercenters, warehouse clubs and combination food/drug stores. The dense urban markets, which used to seem impenetrable for new competition, were getting increased food selling by drug stores as well as selling by internet companies which did not need to build a lot of stores. Food tastes were changing, with more people looking for gourmet, fresh prepared and organic foods. Gradually, the “conventional supermarket” position in New York was not so strong any more.

Shifts in populations were making some old sites less desirable and opening up new real estate opportunities for more aggressive pursuers. If the supermarkets were not pursuing by reinvesting in the core business, they could start looking weak compared to the new competitors on the block.

Recently, that strong supermarket company this executive used to work for became rundown and quite weak and was eventually sold.

That is why even mature and stable businesses cannot ignore positioning or pursuit and just relying on yelling for more productivity. Times change, requiring repositioning and renewed pursuit.

Take, for example, the photography industry. The camera film business used to be mature and stable. Fuji and Kodak were the survivors who had pursued relentlessly to make their film available for sale almost everywhere. Life, for a time was relatively simple. But then came digital and the need for film started to become obsolete. Kodak was slow in realizing a need for repositioning and a renewed pursuit of the new technology. Now Kodak is only a shadow of its former self.

A similar situation occurred in the camera business. As digital cameras came into being, new companies broke through the old barriers to entry, like Sony and HP. The old rules no longer applied. Recently, I was visiting the Columbus Zoo and noticed that more people where taking snapshots with their cell phones than with digital cameras. So even the idea of a camera may someday become obsolete.

Just getting more productive at making film or making film-based cameras no longer gets the job done. That is why there is a need for balance. Even in mature and stable industries one needs to spend a little time on studying positioning and pursuit to ensure that one is ready when the stability is upended by change. Trust me…all stable businesses eventually get reinvented and the process starts all over again with a new upheaval. You cannot just suck all of the money out of a business without reinvestment and assume it will survive into the next upheaval. Investments in experimentations to ensure that you are on top of industry trends can help keep you from getting upended when the new trends take over.

Wal-Mart was smart enough to understand that traditional discount stores were becoming obsolete and it repositioned itself as a supercenter operator and pursued this new vision relentlessly so that nobody else could beat them to the end goal of leadership once the supercenter industry matures. They did this even though it meant abandoning their huge investment in conventional discount stores and starting the investment process all over again. Sometimes a radical replacement of what you used to be with something else is what is necessary in order to survive the industry upheaval. And a focus only on productivity through yelling won’t get you there.

Even though mature and stable industries should spend the majority of their effort on productivity, they also need to spend some time on positioning and pursuit, so that they are prepared when the industry inevitably gets upended by a reinvention that makes the industry unstable again.

It is not easy to envision of how an industry is evolving and what must be changed to survive a new instability by yelling at people.

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