Tuesday, February 19, 2008

Analogy #157: Skin Shedding

Back when I was in High School, one of my best friends had a collection of snakes. It seemed like those things were shedding their skin all the time. In fact, snakes shed their skin about 3 to 8 times a year, depending on age, species and feeding habits.

Skin shedding is an important part of the life of a snake. Without the shedding, the snake could not grow. In addition, skin shedding is the means by which snakes get rid of any parasites on their body.

The shedding process starts with a period of inactivity. During this time, the eyes of the snake will become a dull, bluish-white color. This is because there is a thin layer of skin covering the eyes which must also be shed. As this layer over the eyes gets ready to be shed, the snake has difficulty seeing. Without adequate vision, snakes at this time can become unpredictable and aggressive.

Also during this early process, the new underlying skin gets a chance to toughen up a bit. Once the new skin is ready, the snake rubs its nose on something to cut the old skin open. Then the snake wiggles out of the old skin all at once. If the snake is healthy, the skin will come off in a single piece.

After shedding the skin the snakes go back to normal activities, like eating. Some of my friend’s snakes preferred to eat live food, so he would have live mice and baby chicks around. Once they ate enough of them, the shedding process would start all over again.

The strategic planning process is a lot like snakes shedding their skin. Businesses can be burdened with old activities, old business units or old strategies which need to be shed. The way that snakes shed their skin can teach us much about how businesses should shed their skin.

1) Without Shedding, A Snake Cannot Grow
Old practices, old businesses and old strategies can hold a business back. Often times, the best path to growth is by taking a new direction, by doing something a little different. Unless we are willing to shed ourselves from the past and embrace the new skin, we cannot grow the business to its optimal potential. So businesses must also shed in order to grow.

2) Shedding Helps Get Rid of Parasites
There are many things that can keep a business down: obsolete practices, toxic cultures, nagging cash drainers which should no longer be a part of the portfolio, and so on. These are like parasites to the company, robbing the company of its resources while providing nothing in return. Sometimes, the only way to get rid of these parasites is to make a clean break with the past.

3) The Old Skin does not come off until the New Skin is ready
It’s one thing for a business to rid itself of parasites and other hindrances to growth. However, if there is not a replacement strategy in place and ready to go, a company is stuck. New sources of cash flow need to be developed while the old sources of cash are still in place to fund/support it. Once the new sources have started to prove themselves, you can then shed the old businesses.

4) The Eyes get cloudy before the Shedding Occurs
When moving into new directions, the future appears a bit more cloudy. You cannot rely as much on your past history. When blazing new trails, there aren’t any maps to rely on. Yet, just because the future is not completely clear, this is no excuse to hold back. In fact, it is just the opposite. It is during the times of environmental change, when vision less unclear, that strategic change is of even greater importance. Cloudiness is a sign that the methods of the past may no longer be appropriate and that it is time to shed.

5) The Skin is shed all at once
Often times, a complete break with the past is needed in order to capture the growth of the future. It’s hard to move forward if you keep looking backwards. To eliminate distractions, a full shedding may be required. It’s a competitive world out there. In the race to the future, competitors who are unencumbered by the past can often capture leadership in the future faster than someone who is only half-shed and trying to live in both worlds.

The principle here is that the strategic planning process can be an integral part of the shedding process. It can help you to know when it is time to shed the past and can help you find which skin to wear in the future.

GE is a great example of a company which knows how to shed its skin. Over the years, GE has entered all sorts of new businesses, like entertainment, financing and energy. At the same time, GE has exited a whole lot of industries, particularly in basic manufacturing. Planning helps GE manage the continual shedding of old businesses, and the putting on of the skin of new businesses. It helps in staging the timing—knowing when to shed, when to expand.

For example, when GE got into plastics, it was a new growth industry with plenty of opportunity to add value. Now plastics has become more of a commodity (where value is harder to add), so GE is getting out.

Someone who was naturally gifted in this area was Charles Lazarus. He made a highly successful career out of knowing when to shed his skin.

Back in the 1940s, he took over the family business—a used bicycle shop. To grow sales, he decided to consider adding new products to the mix. Charles Lazarus noticed that right after World War II, the soldiers were settling down and having babies. Therefore, he decided to exploit the trend by adding baby furniture to the store mix. Based on the initial success, he made the bold move. He shed the skin of the bicycle shop and devoted the entire store to baby furniture.

In 1948, Lazarus renamed the store the National Baby Shop (bold ambitions for a one-store operation). Business was much better, but Lazarus wanted to grow even more. He noticed that cribs are not a big repeat business. He wanted to sell things that brought customers back more frequently. His customers often asked if he sold toys. Therefore, he added toys to the mix. It was a hit.

In the 1950s, Lazarus saw that the self-service supermarket format was growing rapidly, replacing the old full-service grocer. He thought that this self-service superstore concept was the future of retailing, and could be applied to other items besides food. Based on this observation and the success of the toys in his store, Lazarus decided to shed his skin again. In 1954, he shed the furniture skin and the full-service skin by opening an all toy store which was set up like a supermarket. He called it Children’s Supermart.

As he was growing the concept, he opened a store in a location where he could only have a small sign. Therefore, to keep the letters in the sign large, he shortened the name of the store to Toys R Us.

After building the chain up to four stores, he sold the operations in 1966 to Interstate Stores for $7.5 million. Interstate Stores was a conglomeration of discount department stores operating principally under the names of White Front and Topps.

Unfortunately, Interstate Stores got into financial difficulties and declared bankruptcy in 1974. Lazarus saw another opportunity to shed skin. He convinced the authorities to put him in charge of the bankruptcy. He shed the skin of the discount department stores and decided to dedicate the company to toy superstores. This was a bold move given that this was such a small part of the original company.

However, in 1978, Interstate Stores came out of bankruptcy and changed its name to Toys R Us. Sales were only around $300 million at the time. However, by growing rapidly, sales reached $4.8 billion by 1990, the year Lazarus retired as CEO. That’s pretty good considering he started the baby furniture portion of the bicycle shop with an investment of only $5,000.

His success was due to understanding the marketplace and knowing when to completely shed his skin, from bicycles to baby furniture to toys (and from full service to self-service). Although it was intuitive to Charles Lazarus, many of the rest of us could benefit from a more disciplined approach through strategic planning.

Just as snakes need to shed their skin in order to grow, businesses periodically need to shed themselves of their past in order to grow. Times change, requiring businesses to change. To effective adapt to this change, there must be a willingness to shed all of the old skin and wholeheartedly embrace the future.

The technical term for the shedding of skins like snakes is “ecdysis.” This is from the Greek word meaning “to strip off.” As it turns out, some exotic nightclub dancers have taken to this term and refer to themselves as an “ecdysiast” on their resumes (it sounds classier than saying you were a stripper). For different reasons, perhaps we should be referring to ourselves as ecdysiasts as well.

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