How do leading companies sustain their leadership position? They get their standards right and they have the right standards, says George F. Brown, Jr.
Recently, I had the privilege of speaking at the Fast Growth 2011 conference, honoring technology integrators and solution providers from the firms that had achieved the fastest growth in the prior year. One of the questions that was frequently asked at this event was, “What do leading companies do to sustain their position among the elite, continue to perform well and achieve industry-leading growth rates?”
Responding to that question can be like skating on thin ice. After all, many people remember the WHOOPS! article in Business Week that spotlighted how a third of the 43 companies cited in In Search of Excellence were in financial trouble only five years later. And any search involving companies like Enron, Wang Laboratories, Polaroid, Circuit City, Border’s, and other examples of now-bankrupt firms will find numerous articles touting their leadership, innovation, and ongoing prospects for success. Some of these firms were victims of technology, others of leadership failures, others of economic cycles, and still others of a next generation of competitors that simply outclassed them. But such abrupt shifts from greatness to failure highlights the challenge of identifying what firms can do to sustain a leadership position.
When I spoke at the Fast Growth 2011 conference, I included in my presentation a slide drawn from the world of sports. It included the following statistics:
- Four teams have won 44 percent of the Super Bowls: Steelers, Cowboys, 49ers, and Packers
- Four teams have won 50 percent of the Major League Baseball championships: Yankees, Cardinals, Athletics, and Red Sox
- Three teams have won 51 percent of the Stanley Cups: Canadiens, Maple Leafs, and Red Wings
- Two teams have won 51 percent of the NBA championships: Celtics and Lakers.
With the sports industry basically defined by competition, the fact that some teams continue to win decade after decade against quality competition might throw some light on the quest for the sustainability of business performance.
Mike Tomlin, the exciting young coach of the Pittsburgh Steelers, replied “The standard is the standard” to a reporter’s question about whether a rash of injuries to key players would affect his team’s performance. I think that quote’s focus on standards defines one important concept that great firms can use as a starting point towards sustaining their leadership position.
Setting standards obviously isn’t enough on its own to ensure sustained success. After all, I doubt that the coaches of teams that have never won a championship in their sport ever tell their team that “Our standard is to get through the season without embarrassing ourselves too badly”. Having the “right stuff” necessary to achieve the standard that is set is clearly another key ingredient to sustained excellence. But focusing on the right standards is a key starting point. Several short case studies provide a glimpse at how the development of customer-defined standards can contribute to success, and of the problems that can arise when that approach is not implemented.
The first case study involves a firm that designs and constructs a complex unit that is part of many industrial and energy facilities. This firm had experienced a loss of market share over a number of years, despite the fact that by numerous third-party evaluations, their offer was the industry leader in terms of the quality of their product and its performance.
During an interview, one of their customers summed up the situation as follows. “No question that [this firm] is the class of the industry. What they deliver is better than what any of their competitors can do. But they didn’t change as we changed. We used to buy strictly on performance. Now, in a different environment and with a very different basis of cost recovery, cost is the most important factor. We’re willing to buy something that is acceptable, not the best, but acceptable, if it comes in at a much lower price.”
The firm that was losing market share in this industry had set high standards, and was continuing to meet them in terms of quality and performance. But they failed to listen to their customers and evolve their standards to what mattered in their industry. The lesson that can be drawn from this case is that while Mike Tomlin’s Steelers can have the same standard year after year, namely winning the Super Bowl, in business, standards must evolve with customer priorities. You simply can’t take your eye off the ball in terms of understanding how customer needs are evolving.
Another firm in the tool industry decided to take its market-leading offering to China, seeing the incredible pace of construction activity there. They felt that their product’s performance and brand reputation would enable them to duplicate the success that they had achieved in North America. Unfortunately, success did not come easily in that new market, despite a considerable investment.
An executive from that firm provided a retrospective. “We established industry leadership in the US by fully understanding how our customers used tools, and then determining what we could do to make their jobs easier. We were the productivity gurus, time after time coming up with a better way to do a job and the tools that were needed to do so. In [one application], our tool saved about a third of the time that had been required to do the job. Our customers loved us, and rewarded us for what we did. They knew that ‘time is money’ and they were willing to pay for a tool that saved time and put money in their pockets.
“But that value proposition didn’t translate to China’s market, especially in the early days when we first tried to gain a beachhead there. There was lots of labor, and it was cheap. When there was a Chinese tool available for half of what our tool costs, it won out because there wasn’t the focus on saving labor. As a result, our sales didn’t even make the charts, and it took us quite a while to realize that what worked so well in the US wasn’t the right way to win in China.”
Not only are standards likely to change over time, they are likely to vary across markets, whether geographical in nature like this example or reflecting vertical markets in a single country. Believing that achieving standards that resulted in success in one market will be sufficient for success in another market is a dangerous and probably wrong assumption. Listening to the inputs of customers in each targeted market segment is a critical foundation for determining the standards on which to focus.
A third case study involved the acquisition of a firm with long-lived products by one that operated in an industry characterized by short product life cycles driven by rapid changes in technology. In this instance, the acquiring firm imposed the standards that had driven its success onto the newly acquired firm. As one example, executives in the acquiring firm had incentives based in part on sales of newly-introduced products, reflecting the importance of managing the product development and introduction processes. When this became a key part of the incentives of executives in the newly acquired firm, they responded – reflecting the time-tested insight that if you make an objective a key element of an individual’s compensation, he or she will give that objective attention.
Not surprisingly, the customers of the acquired firm failed to find value in this changed perspective. Few were motivated to replace what they had purchased earlier with the new model, and a number complained loudly that they felt betrayed by having just bought a product that was now said to be obsolete. Competitors to this firm seized upon this opportunity, touting their commitment to provide products that would provide superior service over the long term. Unfortunately, it took a while for the firm that did this acquisition to recognize that it had imposed standards on the acquired firm that were inappropriate and, in a few instances, dysfunctional.
As I noted earlier, getting the standards right is only a part of the equation that defines sustained success and market leadership. Mike Tomlin, whose quote about standards was used as the title to this article, has also commented frequently on the performance of his team with statements like “If we are going to be a good football team, we need to kick the ball away, we’ve got be able to run down, cover it and tackle people, on or inside the 20. That’s what good teams do."The same focus on performance applies to businesses that aspire to ongoing success. But getting the standards right is a key first step.
Feel free to email George at gfb@bluecanyonpartners.com
