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The art of reviving a dying organisation
Summary
Every company has a particular lifecycle. While some survive and thrive without too many upheavals, many others have to transform
In a renewal, a company tries to find new growth opportunities with its existing products and business model, using rebranding and redesign to expand its market. In a revamp, a company reaches further, with new products and services, new markets, and new business models driving growth. In a rebirth, a company remakes itself in a new business, perhaps very different from its original one.
The Chinese saying 生, 老, 病, 死 (“you are born, get old, get sick, and die") is a reality check for human beings, but it is not exactly an uplifting calling, and it is no wonder that many look for an escape from its strictures. One option that almost every religion offers is the possibility of an afterlife, cleverly tied to how closely you follow that religion’s edicts. For corporations approaching the end stages of their life cycle, this option is a nonstarter, since there is no corporate heaven (unless you count starring in a Harvard case study as heavenly) or hell (though bankruptcy court comes awfully close). The other option is the possibility of a rebirth or reincarnation, wherein you manage to redefine yourself. After all, I am uplifted by stories of people who have experienced that rebirth—athletes who transition to successful businesspeople or actors who become presidents. On this count, corporations have an advantage over individuals, since they are legal entities that can reinvent themselves while holding on to their corporate identities.
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There are companies that have beaten the odds of the business life cycle, fought off decline, and been reborn as successful ventures. Two examples that come to mind are IBM, in its fall from glory in the 1980s and its subsequent rebirth as a healthy, profitable firm in the 1990s, and Apple, with its climb back from the dark days of 1997 to the top of the market capitalization table in 2012. As I think of these and other examples, it is worth noting that the very fact that I can name these companies suggests that they are the exceptions rather than the rule. Notwithstanding that sobering reality, it is still useful to put these success stories under the microscope, not only to gain an understanding of what allowed these companies to succeed but also to develop forward-looking criteria…
Acceptance that the old ways don’t work anymore: To have a corporate rebirth, a company must come to an acceptance that the old ways, successful though they might have been in the past, don’t work anymore. That acceptance, as I noted earlier in this chapter, does not come easily or quickly, and the longer and hoarier the history of the company, the longer it takes for acceptance to set in. With IBM, in the late 1980s, a series of CEOs at the company raised denial to an art form and almost pushed the company into irrelevance. Acceptance also requires more than lip service to change and must be backed up by actions that indicate that the company is indeed willing to jettison big portions of its past.
A change agent: This is a cliché, but change starts at the top. At IBM, the rebirth really began when Lou Gerstner became CEO of the company, in 1993, and at Apple, the change agent was obviously Steve Jobs, a man who had been banished from Apple for his lack of focus a decade prior but returned as CEO in 1997. It would be simplistic to say that the change agent always must come from outside the company, because there have been companies where insiders who have spent a lifetime in the company have nonetheless been willing to shake it up. I think it is safe to say, though, that change agents are usually not shrinking violets and that they are ready to jettison the status quo.
A plan for change: Pointing out that the existing ways don’t work anymore is important, but it is futile unless accompanied by a new mission and focus. At IBM, Gerstner changed the mindset of the company (and its employees) early in his tenure, an incredible accomplishment given how deeply entrenched it was in its existing ways. Coming from RJR Nabisco, he brought both a customer focus and a willingness to let go of IBM’s past mistakes (anyone remember OS/2?), and this allowed him to create the modern IBM. Steve Jobs shocked Apple employees by entering a détente with Microsoft wherein, in return for $150 million in cash and a promise by Microsoft that it would continue producing Office for the Mac, he essentially gave Microsoft a free legal pass to borrow from the Mac operating system in updating Windows. He used the breathing room that this agreement gave him to redefine Apple as an entertainment company rather than a computer company, and the rest, as they say, is history.
Building on a company’s strengths: If there is a common theme that runs across renewals, revamps, and now rebirths, it is that a company that is trying to reinvent itself in a new business must build around its strengths. Microsoft’s successful foray into the cloud business, under Satya Nadella, was fueled by the expertise of the software engineers at Microsoft, just as Apple’s success in smartphones, with Steve Jobs at the top, was built around the company’s strengths in design and proprietary operating systems.
Shake up existing businesses: At many companies, rebirth will mean that you may have to give up revenues and earnings that you generate from existing product businesses, and those who run those businesses will push back, pointing to cannibalization as a reason to go slow on new businesses. It is this behavior that led Clayton Christensen to argue that disruption, if it happens in a business, almost always comes from new entrants with nothing to lose rather than the largest and most successful players in that business. In successful rebirths, it is critical that the decision-makers who are given the responsibility of transitioning a company to a new business have disruption mindsets, as well as a CEO who protects them from backlash from those in charge of the company’s existing businesses.
Luck: Much as I would like to attribute success uniquely to great skill and failure to poor management, it remains true that the X factor in successful rebirth is luck. Gerstner was lucky that he made his changes at IBM in the 1990s, a decade of robust economic growth overall, but especially so for technology companies. Steve Jobs was helped by the ineptitude of his competition, so blinded by their investment in the status quo (music companies selling us music on CDs, cell phone companies thinking of cell phones as extensions of landline phones) that they either did not react or reacted too slowly to Apple’s innovations.
I am sure that this is not a comprehensive list and that I have missed a few items, but it is a start. Companies that have been value traps or are destined to become walking-dead businesses can become great investments if they can find a path to rebirth; an investor who bought IBM shares in 1993 or Apple shares in 1997 would have profited immensely from their reincarnations. As an investment exercise, you could prepare a list of the companies where stock prices have stagnated for long periods and check to see which of them have the ingredients in place for rebirth: an acceptance that the old ways don’t work (with tangible evidence in investment, financing, and dividend decisions to back it up), a change agent (new management), and a new focus (with actions to back it up). The last factor, luck, is immune to assessment, but you can consult your astrological signs or read the tea leaves if it helps you to make the right choices.
Edited excerpt from The Corporate Lifecycle: Business, Investment and Management Implications, by Aswath Damodaran published with permission from Penguin Random House India
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