To survive, reinvent yourself or exit
Your mission is to be a life-changing executive, to take the company to the next level. To be one, you must continuously scan the environment and your business model, reflect on the sector´s as well as your own SWOT (Strengths, Weaknesses, Opportunities, and Threats).
The competition will try to copy your competitive advantages, so, to prevent them from catching up with you, you must reinvent yourself.
Andrew Grove, in his book Only the paranoid survive, reminds us that you can never relax, even if you´re the leader of the Industry. Intel was the worldwide leader in semiconductors and was threatened by the Japanese competition. In view of this threat, despite being the leaders and to the amazement of many, they decided to give up their leadership and reinvent themselves. They dove into microprocessor manufacturing, which allowed them to become the huge company it is today.
If you don´t have any distinctive competitive advantages, or if they have been copied or depleted, or if you compete in a deteriorated industry, then you´ll need to reinvent yourself.
The world is under constant change with new technologies that lower costs or reduce the lifespan of products, with new players that revolutionize industries or with the appearance of new foreign competitors that break the rules on wage costs.
In this fast, competitive environment, the average lifespan of companies is shorter, as is the duration of their CEOs.
You have a rental car company and, suddenly, you come across RelayRides, a company that allows anyone to rent another person´s car whenever they´re not using it. Or, you have a hotel and run into Airbnb. Or a taxi and Uber appears. In all these cases you have a problem since new competition has changed the rules of the game for you.
Chris Zook, the author of Unstoppable, explains that to reinvent yourself, you must study which assets in the company have real value, those you can enhance to gain a clear distinction from the competition or a special added value for your clients. These assets may not be apparent and are sometimes hidden.
When the industry margins in PC manufacturing deteriorated, Apple moved towards a new business: digital music. Apple reinvented themselves by leveraging on their design strengths, the brand creating interface development capabilities. With all this, they created the iPod. They only needed to acquire experience in the music industry and rights management. As soon as they did, they launched the iTunes Music Store, closing the market to their competition after signing contracts with the four major record labels, guaranteeing a constant and controllable source of income. With the iPhone, Apple has created a new class of product, since they have turned the mobile phone into a computer, an entertainment system, and a shopping center.
Jeff Bezos, CEO of Amazon, said: “If you create frequently and are open to failure, then you won´t have to get to the point where you must risk the whole company. We´ll continue to plant seeds. We´re stubborn about our vision. We´re flexible in the details”.
You sense a change in the environment and, since you know your clients and their needs, explore hidden assets that enable you to create a new success formula by offering customers a differential value proposition.
Airbnb was founded in 2007, back then their founders´ goal was to turn the living room of their apartment into a small Bed and Breakfast, the original name was Airbedandbreakfast.com.
The founders evolved into their idea of finding rooms for technology convention attendants when all the hotels in the city were full and, at the same time, giving the local technologists the chance to do networking, from there they went on to extend it to all those persons who wanted to avoid hotels in their travels. They started getting feedback and learned from their users´ demands, detached themselves from the idea of breakfast and networking as their objectives and refined their mission until becoming the place to rent any possible residence.
When seeking your valuable assets within the company, ask yourself: Can they help to distinguish ourselves clearly? Can they offer a greater value to the customer? Can we obtain other capabilities that, combined with the ones we already have, allow us to offer a unique value in a large enough value pond?
When hardware sales were falling and margins were getting narrower, IBM searched for a distinctive capability within the company and found it in a little unit called Global Services Group. The whole company reinvented itself by relying on this unit´s knowledge, which is 2001 came to represent two-thirds of IBM´s total value.
De Beers, thanks to their huge diamond reserves, could set the prices in the industry. But new, enormous reserves appeared, which forced it to reinvent itself and benefit from a distinctive competitive advantage: their brand. They sold 80% of their reservoirs and created a new business model, based on enhancing their brand image to the public. They managed, in this way, to increase their value tenfold.
Sometimes a competitor with a lighter cost structure emerges and changes for you the rules of the game, as it happened to Compaq with DELL´s appearance or to Kmart with Wal-Mart´s. In these cases, companies are forced to cut back on costs or to seek new ways to distinguish themselves and add more value for their clients.
On occasion, the key to reinvention lies in discovering an unidentified segment of clients, like Target did with Wal-Mart. They understood that always low prices didn´t have to mean ugly products and they added design to the equation. They managed to go from 3,000 million to 63,000 million dollars in turnover.
Something similar happened to Harman, a quality home audio company. Their CEO discovered that many music lovers spent more and more time in their cars. They developed an automobile-focused digital line that excited both car manufacturers and drivers, which allowed them to increase the company´s value forty times in twelve years (from 1993 to 2005).
You must monitor your distinction sources to see if they´re becoming stronger or weaker. Dell´s started getting weaker when companies started to outsource the fabrication of components and the online computers´ sellers became widespread. There are many examples of corporate blindness, like Encyclopaedia Britannica (who didn´t see how internet revolutionized their business model) or Blockbuster (who kept their model of renting films in physical stores when faced with online competition), to name a few.
In order to reinvent yourself, you must be capable of understanding the heart of your business and of being alert to perceive if your distinctive feature is disappearing. In that case, you must explore your capabilities to create a new strategic advantage around them and add new ones that help you create a new distinctive business model.
Infosys is a private Indian company that went in 20 years from being a start-up to being listed on NASDAQ, with annual sales of 7,000 million dollars and a capitalization of 26,000 million in 2012. It was the first Indian company that became a large provider of strategic outsourcing services.
At the end of the nineties, Infosys´ leaders, by watching the technology consultancy industry´s behavior, anticipated an evolution in the clients. They perceived that they were going to pivot from the existing practice of hiring multiple suppliers (where none were totally responsible), to demanding one offering complete technology services.
This new type of service required a more strategic approach, which covered everything from business consultancy to the design of operations and the development, installation, and maintenance of hardware and software.
Only a few companies would be able to compete in that space and, to be one of them, Infosys had to develop new services, change their business model, hire new professionals, develop new processes and change the design of the organization. They did and grew exponentially during the following years.
Innovation must be incremental. It´s better to innovate based on quantitative analysis than on intuition.
Infosys didn´t change their business model without first experimenting. They launched an experimental business unit that offered complete business packages to Indian banks. Finally, in 2002 they launched a new business unit: Infosys Consulting, which would counsel clients when redesigning their operations.
Reinvent yourself, because the best way to be prepared for the future is to invent it.
You must be constantly alert to changes in your competitive environment in order to respond quickly to opportunities and threats. Sometimes, you realize, with the entrance of a new competitor, that the best way is out. Then, it is time to prepare your business for sale, before it is too late.