Beat the Odds - Avoid Corporate Death and Build a Resilient Enterprise
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The following are short excerpts from the book Beat the Odds: Avoid Corporate Death & Build a Resilient Enterprise, published in 2007 by J. Ross Publishing. The full book can be obtained from major online booksellers and many local bookstores. It can also be purchased directly from the publisher here.



Why do senior executives dutifully submit to annual physical exams but don’t take the same kind of pre-emptive approach to the organizations they run? Why do they undergo an array of tests to gather facts and uncover subtle issues before they emerge into full-fledged personal health problems, yet they “wing it” when it comes to the organization’s diagnosis?

It’s a very significant concern, and one that has bothered me over the years. Corporations are living organisms too, and their basic design allows them to outlast their human founders. But many corporations have the seeds of terminal illness deep within them today. Left unidentified or unaddressed, those malignant cells can bring down a corporation long before its founders reach retirement.

The numbers bear this out. In the United States alone, there have been more than 600,000 outright business failures (bankruptcies) in the past 10 years 1. An often-referenced source, an internal study of long-lived corporations by Royal Dutch/Shell, noted that only a handful of corporations have survived and prospered for more than a century.2 Bethlehem Steel, once an icon of American business, almost reached its 99th birthday, then had no more. (Interestingly, General Motors’ troubles appeared to be peaking as GM achieved its 99th birthday in early 2006.)

In another study, 1,008 companies were studied for the period 1962 to 1998. Only 160 of them survived this 36-year span.3 The inescapable conclusion is that there are factors at work that limit a corporation’s life expectancy to less than 50 years.

“Beat the Odds” sets out to offer a framework for diagnosis – one that if acted upon positively and decisively, can help ensure that an organization enjoys robust good health over a long life. 

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It is fair to say that the framework of nine principles is fundamentally a leadership framework. In “Beat the Odds,” you will not find much discussion about policy manuals, procedure manuals, information technology, controls, or “attention to detail.” Nor will you find checklists for such matters as capital structure objectives, logistics, procurement, and capital investment policies. Why not? Because these factors flow naturally from the nine success principles. And, if you don’t continually attend to the nine principles, the rest won’t matter.

However, that isn’t an invitation to cherry-pick the nine principles, starting with those that might be expected to meet the least resistance. There is far greater and longer-lasting company-building advantage in embracing the framework as a whole rather than, say, deciding to develop a clear world view (part of Principle # 3), or just deciding to implement an appropriate metrics system (part of Principle # 7). In other words, the whole (all nine principles taken together) is far greater than the sum of the parts. Just one piece of evidence: some of the companies commended for their excellence in adhering to one principle still face major challenges in stepping up to other principles. Until they address all the fundamentals, their long-term success may still be in question.

A relevant analogy is to think of an organization as a living entity. The analogy is developed more fully in Chapter 12, but for now, just consider this idea: each principle acts much like the basic mental or physical processes that inform and comprise a living entity. Take one or more of these basic processes away and the living entity suffers. Optimize all of them and the entire being will thrive.

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Every company should have an Imagineering unit.

I know what you’re thinking: your organization has got it covered. But I’m referring to a function with a broader role than the conventional R&D department or even the business-development group. I mean a group of individuals whose job it is to look around them and to look as far as they can over the horizon to imagine a future for their organizations – and then to help create it.

Call it “visioning” or “blue-skying” or “whiteboarding” if you like. I am referring to a discipline which transcends new product design and development and which is by no means limited to the corporate morphology made possible by the available merger opportunities. I think of it as “creating the future” – an externally focused principle that builds on the internal focus on purpose and on core values.

It’s the kind of discipline that entrepreneurs have in spades – and that the best so-called “intrapreneurs” in large companies also exhibit. The best practitioners in fact act like entrepreneurs, choosing “what if” rather than “yes but” scenarios. They act as if they have no legacy constraints – nothing to hold them back, and everything to aim for.

Apple Computer has that discipline and then some – evidence the spectacular success of its iPod handhelds, products that have spawned an entire industry of imitators, software providers, and accessory makers. Yet Apple has long since grown to a size that in other less agile organizations would mean sclerotic idea generation and risk aversion.

The discipline can be found in the largest corporations. Energy giant BP has opted to define its own future by identifying its name with “beyond petroleum” – a position reinforced by its planned $8 billion investment over the next decade in alternative energy and expressed in the reworking of its sunburst logo to reflect environmental themes. And in 2005, General Electric launched “Ecomagination,” a companywide initiative pledging to cut the pollution its products create and doubling R&D spend on clean technologies. “Taking on big challenges” is one way that GE frames the initiative on its Ecomagination Web site.

GE is also applying similar thinking to China, which poses a fascinating double-edged sword for business executives. A large and fast-growing market, China has also proven quick to learn new technologies and become a new competitor. In the context of Principle # 3, consider what GE chairman Jeff Immelt said in 2003: “Ten years out, 90% of our company’s earnings will have no competition from China. Eighty percent of our businesses will be selling to China.” 1 Immelt clearly has a world view of the opportunity and threat posed by China, but he also plans to create a future with respect to China that works well for GE.

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“Acquiring a world view” can happen in many different and creative ways. In 1996, I took part in Carnegie Mellon University’s Program for Executives (PFE). My 40 classmates for this intense four-week program came from all over the world, and represented well-known global businesses. Three of them were from Samsung, which at the time was a large but relatively low-key South Korean firm that was not performing particularly well. In fact, a quick read of the 1997 annual report finds comments about “restructuring” and “finding a better balance…”

Hidden away in that report was a signal that something special was happening at Samsung. It came to light in a Q&A with the corporation’s president and CEO, Jong-Yong Yun. The interviewer had asked about the CEO’s management philosophy. His reply: “First, I believe that we at Samsung Electronics must elevate our ways of thinking, which means we have to be away from the fixed notions and formalism that have influenced us greatly until now.”

This answer suggested an explicit attack on conventional thinking and captive mindsets. But what I witnessed during PFE was even more revealing. Our daily schedule usually allowed one to two hours of informal time after classes and before dinner. Within a week, most attendees had fallen into a pattern of meeting in small groups in the early evening for impromptu discussions about the day’s events or business in general, or to work out in the fitness center. I couldn’t help noticing that the three Samsung managers always disappeared during that time.

Mid-way through the program, I had developed enough rapport with one of my Samsung classmates to ask him what was on my mind: “Where do you disappear each evening?” He responded with one of the few possibilities that I had not imagined. Each man retired to his room to write a report on the day’s learnings (both classroom teachings and information picked up during the course of the day), and then sent his report back to Samsung headquarters in Seoul by fax (which, at the time, was the preferred electronic means of communicating.) In Seoul, one person was receiving such reports from any Samsung employee who was on the road. His job was to read each report that same day and immediately disseminate the relevant information to anyone within Samsung who could benefit from the market intelligence therein.

I was impressed. Clearly Samsung had made a huge commitment to gathering business intelligence from all vantage points, with an equally strong discipline of extracting value from the data as rapidly as possible. Here was one indication that something special was underway at the company. Today, Samsung is indisputably one of the world’s foremost consumer-electronics brands.

With such a wealth of external data on hand, companies such as Samsung can far more easily envision the future state of their industries or activities, and launch to good effect the kinds of scenario planning exercises that lead to smart risk-managed initiatives. 

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A prime litmus test for whether your organization is truly aligned and energized is the following: are employees (at all levels) willing to continually set aside personal agendas, egos, and personal preferences to do what is right for the organization's future? You probably have an opinion about the answer, but can you be sure your view is correct? How can you develop a fact-based answer to this important question? (See Part IV of this book, along with the diagnostics templates in the Appendix, for some ideas on how to reduce the guesswork.)

Another litmus test is whether or not your organization exhibits signs of the Abilene Paradox. The Abilene Paradox was first described by Dr. Jerry Harvey, professor of management science at George Washington University. In a nutshell, it describes the situation “when groups take action that contradicts what the [individual] members of the group silently agree they want or need to do.” 1

Groups, or companies, that are “on the road to Abilene” can be identified by these characteristics: individual members tend to agree, in private, about the underlying problem – and about appropriate measures to solve the problem. However, once they are in a group setting, those same individual members tend to not communicate their perspectives, their observations, and their opinions. As a result, the group tends to acquiesce, by default, on a path that each individual member knows is incorrect, but no-one is willing to raise their hand and say “This is nuts!”  If your organization has done a good job on the first five Principles, and has also truly aligned and energized the organization to do the right things, the Abilene Paradox should manifest itself rarely, if at all. 

The Abilene Paradox surfaced at Xerox during 1999 - 2000, when the company’s new CEO G. Richard Thoman – an outsider to the Xerox culture - sought to spur change at the then slow-moving corporation.  Among his attempted changes was a restructuring of the sales force, an idea which was not new to Xerox but which had been avoided for years by the Xerox culture.2 Thoman aggressively pushed that idea forward, but did so in a manner which arguably ignored the value of alignment and motivation. This was one of several attempted changes that contributed to his early departure. Successor CEO Anne Mulcahy said during a later interview: “We threw the whole sales force up in the air and didn’t think about what that would cost us in terms of customer relationships, continuity and trust. Everyone in the field knew it was stupid, but nobody said anything.” 3

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Early in its history, Southwest Airlines lived by a metric that made a big difference to its performance. The metric was its “20 - minute turnaround” time, a commitment that it would turn around its planes at an airport gate in 20 minutes, cleaned, re-stocked, and ready to fly again. The metric proved to be a powerful internal operational discipline which resulted in cost savings, as well as a powerful marketing tool with customers.

By contrast, one U.S. manufacturer that will go unnamed began focusing on the wrong kind of measurement. The company had been going through a protracted period of downsizing. Over time, management seemed to adopt the view that headcount reduction was synonymous with improved bottom-line performance. In fact, one of their most talked-about, measured and reported "objectives" was headcount. Indeed, the managers were so experienced in achieving headcount objectives in successive waves of downsizings that they received benchmarking requests from major companies that were starting their first rounds of staff cuts.

Almost too late, the company began to notice examples where its effectiveness to accomplish important business functions had been eroded.  It had become an example of "corporate anorexia."  The objective and measurement of headcount reduction (efficiency) had almost superseded the factors to which management should have given prominence in its performance measurement process (measures of effectiveness).

Communications equipment leader Cisco Systems got the wrong end of the measuring stick when it became overly enamored with its own acquisition prowess. A November, 1999 Fortune magazine article about Cisco’s acquisition system was headlined “Forty-two Acquisitions and Counting.” 1 Just a few years later, when Cisco fell afoul of the bursting of the high-tech bubble, its management team came to realize that a focus on “number of deals done” was short-sighted in the new world. In fact, Cisco had grown in an uncoordinated manner, resulting in enormous waste and inefficiency. 

By late 2002, Cisco had formed a corporate-wide initiative, under the leadership of the senior manufacturing executive, to identify and eliminate waste. This effort, plus other core initiatives focusing on how to run a business well in good times and bad, reflected a maturation of Cisco’s approach to measuring and guiding its business activities. 2

The lesson here: since you will only reliably get what you measure, you must measure what you want to achieve. The right performance measures drive appropriate focus, behavior, and results. Too many performance measures risk diluting focus, and thereby risk being counterproductive. 

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There is another vital facet to action: it is crucial to deal not only with the urgent matters but also the important ones. Too many executives focus on the firefights, and at the end of the week or the end of the month, the strategic issues have not been properly attended to. I once heard it said that too many corporate cultures lionize the “firefighters” – the executives who recognize and tamp down crises – but they fail to recognize the real heroes who prevent the crises from happening in the first place.

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Organizational complexity is another pervasive impediment to action and decision-making. Internal complexity can be a significant impediment to operational performance, to the development and speedy implementation of new ideas designed to create competitive advantage, and to a focus on external opportunities. But it’s something we can change if we choose to do so.

I have found that internal complexity is often inversely related to the organization’s performance in the first seven principles. In the case of one organization I’ve worked with, a root cause analysis of their complexity amounted to a litany of weaknesses in those principles. When employees don’t have the natural guidance that the first seven principles offer, things often go awry. This can prompt management to add “belt and suspenders” in the form of more layers of management, more complex organization structures, oversight committees, etc. As management does a better job on the first seven principles, there is a golden opportunity to simultaneously reduce complexity – with all that that means for the speed of decision-making and resulting actions. 


© 2006-2007 Robert A. Rudzki. All Rights Reserved.




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