Staying alive in a copycat world

In 2001, business management consultant James C Collins identified 11 companies in the US — from out of a universe of over 1,400 that he studied — as having gone from “good to great”, and fleshed out their distinguishing characteristics. His exertions were channelled into an eponymous business book: Good to Great: Why Some Companies Make the Leap… And Others Don’t , which became something of a best-seller, and enjoyed a readership beyond the traditional constituencies of readers.

But the findings of the book didn’t age very well: of the 11 companies that Collins picked, four have either ceased to exist or gone bankrupt. Indicatively, Circuit City, a home appliances store, filed for bankruptcy in 2008; Fannie Mae had to be bailed out following the 2008 sub-prime mortgage crisis that snowballed into a global financial avalanche; Wells Fargo was later mired in banking scandals; and grocery chain Kroger is in financial hot waters, struggling in the face of competition from e-commerce.

For businesses, the struggle to stay alive has been rendered acute in recent decades and years. Indicatively, using the bellwether S&P 500 stock index as a reference, companies’ average life-span on the index has fallen sharply from 67 years in the 1920s to about 15 years today. Likewise, the average tenure of a CEO in corporate America has shrunk over the past 30 years. The case in India is not much different, given the accelerated pace of change in the business landscape.

In Leap , Howard Yu, LEGO professor of management and innovation at IMD Business School in Switzerland, ventures into this world of fallen business giants to figure out why even companies that were pioneers in their spaces (and therefore had the critical first-mover advantage) keeled over, whereas Johnny-come-lately newbies caught up and overwhelmed them.

One of the more superficial reasons why latecomers have it relatively easy relates to the “democratization” of knowledge. At an early point in the evolution of a business, the pioneer, or more correctly a small group of leading experts, have exclusive control to knowledge, but as it evolves, and as experience accumulates, people’s understanding improves. And when this expert knowledge is codified, it becomes easy for more people to master the fundamentals.

More ominously, as Yu points out, codified knowledge can be easily disseminated through borrowing, copying, imitation, or stealing. What begins as an act of human creativity by a world-class expert usually ends in machine automation, he writes.

Pioneers no longer have the luxury of sustainable advantage since trade secrets and proprietory knowhow eventually transfers to copycats, he points out.

Change is the constant

One of the many compelling case studies that Yu showcases relates to how classical piano maker Steinway, which prided itself on its hand-crafted expertise, lost ground to Yamaha, which automated its production line and profited from Steinway’s reluctance to change.

“By automating many of the production steps, Yamaha led in the areas of standardisation and precision manufacturing. Its conveyor belt system… meant that the time required for Yamaha to produce a piano went from two years down to three months,” Yu writes.

And although during the initial phase of automation, standardised products appear less sophisticated than those traditionally handcrafted, it provided Yamaha a foothold at the lower end of the segment, from where it upscaled later.

What inhibited Steinway from embracing change was the classical management aversion to cannibalising existing products and processes, as a Harvard Business Review study noted. Managers often assume that the present health of the company will continue indefinitely as long as the existing production system is adequately maintained. This is a dangerous premise, cautions Yu.

As Steve Jobs famously said: “If you don’t cannibalise yourself, someone else will.” It was a mantra Jobs would rigidly abide by: in 2005, for instance, he launched the iPod Nano even at the risk of cannibalising the sales of the iPod Mini. Similarly, the iPhone launch cannibalised iPod sales; and the iPad came with the risk that it would one day eat into sales of Mac desktops. But Apple kept “leaping” ahead.

To leap into a new knowledge discipline is to de-emphasise the old, and quite often, the new product or services launched will exert substitutional pressure on the old ones. That’s why it’s difficult for an established company to leap forward, reasons Yu.

Dive deep

Of course, any attempt to “leap” ahead also comes laden with the risk of failure. But as Yu points out, tech giants like Google and Amazon have not been inhibited by that risk. Jeff Bezos is on record as saying that the billions of dollars he had lost on failures did not matter. “What matters is (that) companies that don’t continue to experiment or embrace failure eventually get in the position where the only thing they can do is make a ‘Hail Mary’ bet at the end of their corporate existence,” he reasoned.

It isn’t just enough for the corporate leader to philosophise about risk; occasionally, the CEO must take a “deep dive” into the trenches, reckons Yu.

“Every time an organisation successfully leaps into a new knowledge base, the senior leaders need to go beyond formulating a strategy and should get their hands dirty during its implementation.. Corporate leaders need to absorb career risks that mid-level general managers normally shun,” Yu recommends.

The book is not an easy read, not least because Yu’s dense narrative style is more suited for management academic publications. Salvaging nuggets of management wisdom requires heavy-duty plodding. It is left to the case studies that he showcases — from Procter & Gamble to Novartis to John Deere to WeChat — to bring to life the core of Yu’s lessons and render it a useful survival primer for businesses to thrive in today’s copycat world.

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