by Adam Hartung,
“Creative Destruction” leapt into the popular lexicon last week.
A lot of excitement was generated when Mitt Romney said the words “I like to fire people.” I’m sure he wishes he could rephrase his comment, as he easily could have made his point about changing service providers without those words.
Unfortunately, that argument is simply not true.
The only thing that allows “creative destruction” to kill a company is a lack of good leadership. Any company can find a growth path if its leaders are willing to learn from trends and steer in the growing direction.
Kodak watched the market for amateur photography shrink for 30 years – drying up profits for film and paper. Yet, management consistently – quarter after quarter and year after year – made decisions trying to defend and extend the historical market rather than move the company into faster growing, more profitable opportunities. Kodak invented much of the technology for digital photography, but its leaders chose to license it to others rather than develop the market because they feared cannibalizing existing sales.
Hostess is making a return trip to Chapter 11 this decade. But it’s not like the trend away from highly processed, shelf stable white bread and sugary pastry snacks is anything new. While 1960s parents and youth might have enjoyed the vitamin enriched Wonder Bread “helping grow bodies 12 ways” the trend toward fresher, and healthier, staples has been happening for 40 years.
In the 1980s Hostess was known as Continental Baking, and even then profits were problematic. As the company was “shopped” by investment bankers it was clear that to keep what was then the nation’s largest truck fleet profitable required new products. Consumers were shifting to fresher “bake off” goods in the grocery store as well as brands promising more fiber and taste. But despite these obvious trends, leadership continued trying to defend and extend the business rather than shift it. It wasn’t that people stopped eating bread, or snacks, but rather that tastes shifted and Hostess’ leaders didn’t.
These stories weren’t “creative destruction.” They were simply bad leadership. Decisions were made to do more of the same, when clearly something desperately different was needed! At the Harvard Business School Working Knowledge web site famed strategiest Michael Porter states “the granddaddy of all mistakes is competing to be the best, going down the same path as everybody else and thinking that somehow you can achieve better results.” Failure happened because the leaders were so internally focused they chose to ignore external inputs, trends, which would have driven better decisions!
Successful leaders avoid “creative destruction” by shifting with trends
In the 1980s Singer realized the sewing machine market was destined to decline as women left homemaking for paying jobs, and as textile industry advances made purchased clothing cheaper than self-made. Over a few years the company transitioned out of the traditional, but dying, business and became a very successful defense contractor as President Reagan upped military spending! Rather than letting itself be “creatively destroyed” Singer’s leaders identified the market trends and moved from decline to growth!
Similarly, IBM almost failed as the “core” computer market shifted from mainframes to PCs. But before all was lost (including jobs as well as investor value) leaders changed company focus from hardware to services and vertical market solutions allowing IBM to grow and thrive.
More recently, over the last decade a nearly dead Apple resurrected itself by tying into the trend for mobility, rather than focusing on its niche Mac product sales. Company leaders took the company into consumer electronics (iPod, iPod Touch,) tablet computing and cloud-based solutions (iPad) and mobile telephony with digital apps (iPhone.) Apple had no legacy in any of these markets, but by linking to trends rather than fixating on past businesses “creative destruction” was avoided.
It’s not hard to recognize trends and shift, if you’re willing
There are many businesses today in trouble because leaders simply won’t pay attention to trends. Avon, Sears and Barnes & Noble are three companies with limited futures simply because their leaders are unwilling to pull their heads out of the internal strategic planning sand and look at environmental trends in order to shift.
The next big example is most likely Microsoft. Nobody thinks we will be carrying laptop PCs in 5 years (or maybe 2.) Yet, Microsoft has been unable to recognize the trend away from PCs and do anything effective. Its efforts in music (Zune) and mobile devices have been indifferent, insufficiently supported and mostly dropped. Mr. Ballmer continues to speak about a long future for PC sales even as Q4 volume dropped 1.4% according to IDC and Gartner. Even though everyone knows this trend is due to limited PC innovation and rapidly accelerating mobile-based solutions, Microsoft blamed the problem on, of all things, floods in Thailand that restricted manufacturing output. Really.
We’ll learn soon enough just how many jobs Bain Capital created, and killed. But those lost were not due to “creative destruction.” They were due to leadership decisions to discontinue the business rather than invest in trends and transitioning to new markets. Creative destruction is an easy excuse to avoid blaming leaders for failures caused by their unwillingness to recognize trends and take actions to invest in opportunities for creating winning businesses.