Tuesday, April 18, 2017

Why Do Cannibals Lead the Pack?

When your company is doing well,that is the time to orchestrate transformation.  These are the immortal words from a former CEO of a Fortune 500.  However, too often, CEOs are so focused on maximizing profits from existing revenue streams.  As a result, when a competitor introduces a disruptive product or service, the incumbent is not prepared.  That leads to being
cannibalized by the competition. 

With the introduction of Lean Six Sigma, businesses are obsessed with reducing costs – expenses, processes and head count.  This obsession allows the CEO to brag about profitability and efficiency of the enterprise.  At the same time, this obsession causes leaders to overlook the new opportunities. 

For example, in the early 1980s, the station wagon was still the family car of choice.  While GM, Chrysler and Ford had technology to create a minivan, they refused for fear of cannibalizing the station wagon market.  Chrysler, however, was in financial trouble.  Therefore, they had nothing to lose.  In a desperate move to save the company, Chrysler decided to introduce the minivan in 1984.  Even though it cannibalized their station wagon market, it simultaneously stole market share from GM and Ford.  This move by Chrysler was so successful it saved them.

When Blackberry saw the iPhone, they ignored it.  They were more concerned about improving their own smart phone.  This resulted in them being cannibalized by Apple.

The idea of not wanting to rock the boat or cannibalize one’s own product or service is na├»ve.  Because you run your enterprise more efficiently than last year does not guarantee you will stay in business.  Innovation has to be built into the corporate strategy. 

The challenge with innovation is that it often requires everyone to develop new skills and competencies.  While that sounds like a good idea, people are not rewarded for developing new skills and competencies.  People are rewarded for doing their job better and more efficiently year after year, including the CEO.  That’s the lean way.

Furthermore, developing new skills and competencies can pose a threat.  In the beginning, you may not be good.  There will be confusion and uncertainty.  In the mind of many people, that is the path to job insecurity.  So the idea of creating something new presents several threats, for the individual and enterprise. 

As you can see, innovation is inherently accompanied by self-sabotage.  In the book, The End of the Competitive Edge, by Rita McGrath, she says, “Although dynamism and rapid change are all around us, people are not very effective when facing extreme uncertainty – it tends to be paralyzing.”  To avoid that sense of paralysis, companies continue selling the same products and services perpetually.  Why?  They have proof it generates revenues.  In addition, the individual has proof his or her skills will guarantee employment.  No one is motivated to disrupt that paradigm because it appears to be working.  Yet, in a hyper competitive marketplace, someone can easily dethrone you, even from outside of your industry, like a company called Apple that built desktops and laptops disrupted Blackberry. 

With that said, it is essential to focus on growth.  That growth is best when it is the individual’s career and the company’s opportunity to identify and exploit new opportunities, even if they cannibalize current business models.  In other words, cannibalize or be cannibalized.

Organizations that cannibalize themselves do so by declaring a new future.  Instead of waiting to see what will happen, they invest in R&D, develop intimate relationships with clients and keep their eye on the horizon for new developments.  McGrath further “argues that stretch, instability and multidimensionality are crucial to keep a company from getting stuck.” 

The corporations that manage stretch, instability and multidimensionality most effectively have created a dynamic culture.  First, they develop a nimble mindset for staff and management.  This mindset empowers everyone to see themselves as more than a job description.  That mindset allows for fluidity and transferability in various job functions.  People can be moved from one department to another, not because they have the exact skills required.  They have the ability to learn and embrace new possibilities. 

Second, the culture is able to embrace disruption, instead of fear it.  Whether the disruption comes from a new competitor, industry or the CEO, employees are prepared to engage and contribute to the new development.  This is essential because it allows an organization to grow into other areas without hiring new people.  Instead of laying off valuable staff, employees can be transferred to a new division.  That creates the dynamic culture to which McGrath was referring. 

To sum it all up, those that fear cannibalizing their own products and services will eventually lose market share to a competitor. The most successful enterprises cannibalize their existing business and open doors that create entirely new operating units. 

What do you think? I would love to hear your feedback and I’m open to ideas. Or if you want to write me about a specific topic, let me know.

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