June 13, 2011

Why Companies Will Change Or Fail

The three Cs--customers, competition, and change--have created a new world for business, and it is becoming increasingly apparent that organizations designed to operate in one environment cannot be fixed to work well in another. Companies created to thrive on mass production, stability, and growth can't be fixed to succeed in a world where customers, competition, and change demand flexibility and quick response.
Some people blame corporate problems on factors beyond management control--closed foreign markets, the low cost of capital, and predatory pricing by foreign companies subsidized by their governments. They blame the federal government's mishandling of the economy, its regulations, and its poor husbandry of natural and human resources. They blame unions or poorly educated and unmotivated workers.
But if these reasons accounted for our dilemma, nearly all companies would be in decline. But they aren't. Sears may be losing its market, but Wal-Mart is thriving. GM has trouble making worldclass cars in the United States, but Honda doesn't. The insurance industry, as a whole, may be hemorrhaging money, but some companies, such as Progressive Insurance, earn outstanding returns. In almost every industry, under the same rules and with the same players, the successes of a few companies rebut the excuses of the many.
If managers can't decide why their companies are in trouble, neither do they agree on what to do about it. Some people think companies would bounce back if only they had the right products and services for the times. We reject that thinking, because products have limited life spans, and even the best soon become obsolete. It is not products but the processes that create products that bring companies long-term success. Good products don't make winners; winners make good products.
Some people think companies could cure what ails them by changing their corporate strategies. They should sell one division and buy another, change their markets, get into a different business. They should juggle assets or restructure with a leveraged buyout (LBO). But this kind of thinking distracts companies from making basic changes in the real work they actually do. It also bespeaks a profound contempt for the daily operations of business. Companies are not asset portfolios, but people working together to invent, make, sell, and provide service. If they are not succeeding in the businesses that they are in, it is because their people are not inventing, making, selling, and servicing as well as they should. Playing tycoon might be more exciting for senior managers than dirtying their hands in the mundane details of operations, but it is not more important. "God," said the architect Mies van der Rohe, "is in the details." Van der Rohe was speaking of buildings, but his observation applies equally well to running a business.
Some people, including many managers, blame corporate problems on management deficiencies. If companies were only managed differently and better, they would thrive. But none of the management fads of the last thirty years--not management by objectives, diversification, theory Z, zero-based budgeting, value chain analysis, decentralization, quality circles, "excellence," restructuring, portfolio management, management by walking around, matrix management, intrapreneuring, or one-minute managing--has enabled companies to sustain their competitive performance. They have only distracted managers from the real task at hand.
Some people think that automation is the answer to business problems. True, computers can speed work up, and in the past forty years businesses have spent billions of dollars to automate tasks that people once did by hand. Automating does get some jobs done faster. But fundamentally the same jobs are being done, and that means no fundamental improvements in performance. Our diagnosis of business problems is simple, but the corrective action that it demands is not as easy to implement as the solutions that have already been tried. Our diagnosis goes to the very heart of what a company does. It rests on the premise that a company that is better than others at the meat and potatoes of its business--inventing products and services, manufacturing or providing them, selling them, filling orders, and serving customers--will beat the competition in the marketplace. 
We believe that, in general, the difference between winning companies and losers is that winning companies know how to do their work better. If companies want to become winners again, they will have to look to how they get their work done. It is as simple and as formidable as that.

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