Competing for the Futureby Gary Hamel
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New competitive realities have ruptured industry boundaries, overthrown much of standard management practice, and rendered conventional models of strategy and growth obsolete. In their stead have come the powerful ideas and methodologies of Gary Hamel and C.K. Prahalad, whose much-revered thinking has already engendered a new language of strategy. In this book, they develop a coherent model for how today's executives can identify and accomplish no less than heroic goals in tomorrow's marketplace. Their masterful blueprint addresses how executives can ease the tension between competing today and clearing a path toward leadership in the future.
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Read an Excerpt
Getting Off the Treadmill
* * *
Look around your company. Look at the high-profile initiatives that have been launched recently. Look at the issues that are preoccupying senior management. Look at the criteria and benchmarks by which progress is being measured. Look at the track record of new business creation. Look into the faces of your colleagues and consider their dreams and fears. Look toward the future and ponder your company's ability to shape that future and regenerate success again and again in the years and decades to come.
Now ask yourself: Does senior management have a clear and broadly shared understanding of how the industry may be different ten years in the future? Are its "headlights" shining farther out than those of competitors? Is its point of view about the future clearly reflected in the company's short-term priorities? Is its point of view about the future competitively unique?
Ask yourself: How influential is my company in setting the new rules of competition within its industry? Is it regularly defining new ways of doing business, building new capabilities, and setting new standards of customer satisfaction? Is it more a rule-maker than a rule-taker within its industry? Is it more intent on challenging the industry status quo than protecting it?
Ask yourself: Is senior management fully alert to the dangers posed by new, unconventional rivals? Are potential threats to the current business model widely understood? Do senior executives possess a keen sense of urgencyabout the need to reinvent the current business model? Is the task of regenerating core strategies receiving as much top management attention as the task of reengineering core processes?
Ask yourself: Is my company pursuing growth and new business development with as much passion as it is pursuing operational efficiency and downsizing? Do we have as clear a point of view about where the next $10 million, $100 million, or $1 billion of revenue growth will come from as we do about where the next $10 million, $100 million, or $1 billion of cost savings will come from?
Ask yourself: What percentage of our improvement efforts (quality improvement, cycle-time reduction, and improved customer service) focuses on creating advantages new to the industry, and what percentage focuses on merely catching up to our competitors? Are competitors as eager to benchmark us as we are to benchmark them?
Ask yourself: What is driving our improvement and transformation agendaour own view of future opportunities or the actions of our competitors? Is our transformation agenda mostly offensive or defensive?
Ask yourself: Am I more of a maintenance engineer keeping today's business humming along, or an architect imagining tomorrow's businesses? Do I devote more energy to prolonging the past than I do to creating the future? How often do I lift my gaze out of the rut and consider what's out there on the horizon?
And finally: What is the balance between hope and anxiety in my company; between confidence in our ability to find and exploit opportunities for growth and new business development and concern about our ability to maintain competitiveness in our traditional businesses; between a sense of opportunity and a sense of vulnerability, both corporate and personal?
These are not rhetorical questions. Get a pencil. Rate your company.
How does senior management's point of view
about the future stack up against that of
Conventional and Reactive Distinctive and Far-sighted
Which issue is absorbing more of
senior management's attention?
Reengineering Core Processes Regenerating Core Strategies
Within the industry, do competitors
view our company as more of a rule-taker or a rule-maker?
Mostly a Rule-taker Mostly a Rule-maker
What are we better at, improving operational efficiency
or creating fundamentally new businesses?
Operational Efficiency New Business Development
What percentage of our advantage-building efforts
focus on catching up with competitors versus
building advantages new to the industry?
Mostly Catching Up to Others Mostly New to the Industry
To what extent has our transformation agenda
been set by competitors' actions versus
being set by our own unique vision of the future?
Largely Driven by Competitors Largely Driven by Our Vision
To what extent am I, as a senior manager,
a maintenance engineer working on the present
or an architect designing the future?
Mostly an Engineer Mostly an Architect
Among employees, what Is the balance
between anxiety and hope?
Mostly Anxiety Mostly Hope
If your marks fell somewhere in the middle, or off to the left, your company may be devoting too much energy to preserving the past and not enough to creating the future.
We often ask senior managers three related questions: First, what percentage of your time is spent on external, rather than internal, issuesunderstanding, for example, the implications of a particular new technology versus debating corporate overhead allocations? Second, of this time spent looking outward, how much of it is spent considering how the world could be different in five or ten years, as opposed to worrying about winning the next big contract or how to respond to a competitor's pricing move? Third, of the time devoted to looking outward and forward, how much of it is spent in consultation with colleagues, where the objective is to build a deeply shared, well-tested view of the future, as opposed to a personal and idiosyncratic view?
The answers we get typically conform to what we call the "40/ 30/20 rule." In our experience, about 40% of senior executive time is spent looking outward, and of this time, about 30% is spent peering three, four, five, or more years into the future. And of the time spent looking forward, no more than 20% is spent attempting to build a collective view of the future (the other 80% is spent looking at the future of the manager's particular business). Thus, on average, senior management is devoting less than 3% (40% x 30% x 20% = 2.4%) of its energy to building a corporate perspective on the future. In some companies the figure is less than 1%. As a benchmark, our experience suggests that to develop a prescient and distinctive point of view about the future, a senior management team must be willing to spend about 20 to 50% of its time, over a period of several months. It must then be willing to continually revisit that point of view, elaborating and adjusting it as the future unfolds.
It takes substantial and sustained intellectual energy to develop high-quality, robust answers to questions such as what new core competencies will we need to build, what new product concepts should we pioneer, what new alliances will we need to form, what nascent development programs should we protect, and what long-term regulatory initiatives should we pursue. We believe such questions have received far too little attention in many companies.
They have received too little attention not because senior managers are lazy; most are working harder than ever. Stress, burnout, and perpetual jet lag are less occasional occupational hazards than a way of life for most executives today. It is not even the sheer, bloody, time-consuming difficulty of answering these questions that scares top teams off. These questions go unanswered because to address them senior managers must first admit, to themselves and to their employees, that they are less than fully in control of their company's future. They must admit that what they know todaythe knowledge and experience that justify their position in the corporate pecking ordermay be irrelevant or wrong-headed for the future. These questions go unanswered because they are, in a sense, a direct challenge to the assumption that top management really is in control, really does have better headlights than anyone else in the corporation, and already has a clear and compelling view of corporate direction. So the urgent drives out the important; the future goes largely unexplored; and the capacity to act, rather than the capacity to think and imagine, becomes the sole measure of leadership.
If it's not the future, just what is occupying senior management's attention? In two wordsrestructuring and reengineering. Whereas downsizing and core process redesign are legitimate and important tasks, they have more to do with shoring up today's businesses than creating tomorrow's industries. Neither is a substitute for imagining and creating the future. Neither will ensure continued success if a company fails to regenerate its core strategies. Any company that succeeds at restructuring and reengineering, but fails to create the markets of the future, will find itself on a treadmill, trying to keep one step ahead of the steadily declining margins and profits of yesterday's businesses.
The painful upheavals in so many companies in recent years reflect the failure of one-time industry leaders to keep up with the accelerating pace of industry change. For decades the changes that confronted Sears, General Motors, IBM, Westinghouse, Volkswagen, and other incumbents were, if not exactly glacial in speed, at least more or less linear extrapolations of the past. Sears could count on the fact that successive generations of rural Americans would find its catalog the most convenient way to outfit their homes and themselves; GM could be sure that as incomes rose, young consumers, like their parents before them, would trade up from Chevys to Oldsmobiles and from Buicks to Cadillacs; IBM could expect revenues to rise forever upward as big companies added more "mips" to their central data-processing departments and as proprietary operating systems protected IBM's accounts from competitor encroachment. The watchword for top management in these companies was "steady as she goes." Companies were run by managers, not leaders; by maintenance engineers, not by architects.
Yet few companies that began the 1980s as industry leaders ended the decade with their leadership intact and undiminished. IBM, Philips, Dayton-Hudson, TWA, Texas Instruments, Xerox, Boeing, Daimler-Benz, Salomon Brothers, Citicorp, Bank of America, Sears, Digital Equipment Corp. (DEC), Westinghouse, DuPont, Pan Am, and many others saw their success eroded or destroyed by the tides of technological, demographic, and regulatory change and order-of-magnitude productivity and quality gains made by nontraditional competitors. Buffeted by these forces, few firms seemed to be in control of their own destiny. The foundations of past success were shaken and fractured when, in all too many cases, the industrial terrain changed shape faster than top management could refashion its basic beliefs and assumptions about which markets to serve, which technologies to master, which customers to serve, and how to get the best out of employees.
These and many other companies found themselves confronted with sizable "organizational transformation" problems. Of course, any company that is more of a bystander than a driver on the road to the future will find its structure, values, and skills becoming progressively less attuned to an ever-changing industry reality. Such a discrepancy between the pace of change in the industry environment and the pace of change in the internal environment spawns the daunting task of organizational transformation. The organizational transformation agenda typically includes downsizing, overhead reduction, employee empowerment, process redesign, and portfolio rationalization. As important as these initiatives are, their accomplishment cannot restore a company to industry leadership, nor ensure that it intercepts the future.
When a competitiveness problem (stagnant growth, declining margins, and falling market share) finally becomes inescapable, most executives pick up the knife and begin the brutal work of restructuring. The goal is to carve away layers of corporate fat, jettison underperforming businesses, and raise asset productivity. Executives who don't have the stomach for emergency room surgery, like John Akers at IBM or Robert Stempel at GM, soon find themselves out of a job.
Masquerading under names like refocusing, delayering, decluttering, and right-sizing (one is tempted to ask why the "right" size is always smaller), restructuring always has the same result: fewer employees. In 1993, large U.S. firms announced nearly 600,000 layoffs25% more than had been announced in a similar period in 1992 and nearly 10% above the levels of 1991, which was technically the bottom of the recession in the United States. While European companies had long tried to put off their own day of reckoning, bloated payrolls and out-of-control employment costs had, by the early 1990s, made downsizing as inevitable in Europe as it was in the United States. Some European companies such as Volkswagen, eager to preserve industrial peace, sought to maintain employment levels by reducing the number of hours worked by each employee. The depressing assumption seemed to be that because there was no hope of raising output, the only solution was to share fewer jobs among more people.
Despite the excuses about global competition and the job-destroying impact of productivity-enhancing technology, the fact was that most of the employment contraction in large U.S. companies was caused not by distant foreign competitors intent on "stealing U.S. jobs," but by U.S. senior managers who had fallen asleep at the switch. For the most part, the companies that have been most aggressive in reducing headcount won't make it on to anyone's "most admired" list (see Table 1-1). These companies tend to be a rogue's gallery of undermanaged or wrongly managed companies.
Although some responsibility for Europe's pitiful record of job creation could be laid at the feet of politicians and their overgenerous social spending (between 1965 and 1989 European industry created approximately 10 million new jobs while U.S. industry created close to 50 million new jobs), much of the problem was, again, management-made. The guilty included self-protective executives in Europe's sclerotic telecommunications companies determined to prevent European companies from enjoying the fruits of the information revolution, timid managers in European car companies who preferred protectionism at home to the challenge of learning to compete head on with U.S. and Japanese automakers outside of Europe, and subsidy-hungry managers in many of Europe's high-technology companies who, having accepted billions of ecus from Europe's long-suffering taxpayers, nevertheless failed to create world-beating new businesses.
With no or slow growth, these companies soon found it impossible to support their burgeoning employment rosters, traditional R&D budgets, and significant investment programs. The problems of low growth were often compounded by inattentiveness to ballooning overheads (IBM's problem), diversification into unrelated businesses (such as Xerox's foray into financial services), and the paralysis imposed by unfailingly conservative corporate staff. It is not surprising that shareholders are giving moribund companies new marching orders: Make this company "lean and mean"; "make the assets sweat"; "get back to basics." Return on capital employed, shareholder value, and revenue per employee became the primary arbiters of top management performance. Although perhaps inescapable and in many cases commendable, the resulting restructuring has destroyed lives, homes, and communitiesto what end? For efficiency and productivity. Although arguing with these objectives is impossible, their single-mindedand sometimes simple-mindedpursuit has often done as much harm as good. Let us explain.
Imagine a chief executive who, fully aware that if he or she doesn't make effective use of corporate resources someone else will be given the chance, launches a tough program to improve return on investment. Now, ROI (or RONA, or ROCE, and so forth) has two components: a numeratornet incomeand a denominatorinvestment, net assets, or capital employed. (In a service industry, a more appropriate denominator may be headcount.) Managers throughout our not-so-hypothetical firm also know that raising net income is likely to be a harder slog than cutting assets and headcount. To grow the numerator, top management must have a point of view about where the new opportunities lie, must be able to anticipate changing customer needs, must have invested preemptively in building new competencies, and so on. So under intense pressure for a quick ROI improvement, executives reach for the lever that will bring the quickest, surest improvement in ROIthe denominator. To cut the denominator, top management doesn't need much more than a red pencil. Thus the obsession with denominators.
In fact, the United States and Britain have produced an entire generation of denominator managers. They can downsize, declutter, delayer, and divest better than any managers in the world. Even before the current wave of downsizing, U.S. and British companies had, on average, the highest asset productivity ratios of any companies in the world. Denominator management is an accountant's shortcut to asset productivity.
Don't misunderstand. We have nothing against efficiency and productivity. We believe, and will argue strongly, that a company must not only get to the future first, it must get there for less. Yet there is more than one route to productivity improvement. Just as any firm that cuts the denominator and holds up revenue will reap productivity gains, so too will any company that succeeds in growing its revenue stream atop a slower growing or constant capital and employment base. Although the first approach may sometimes be necessary, we believe that the second approach is usually more desirable.
In a world where competitors are capable of achieving 5, 10, or 15% real growth in revenues, aggressive denominator reduction, under a flat revenue stream, is simply a way to sell market share profitably. Marketing strategists term this a "harvest strategy" and consider it a no-brainer. Take a national example. Between 1969 and 1991, Britain's manufacturing output (the numerator) went up by a scant 10% in real terms. Yet over this same period, the number of people employed in British manufacturing (the denominator) declined by 37%. The result was that during the early and mid 1980sthe Thatcher yearsU.K. manufacturing productivity increased faster than any other major industrialized country except Japan. Though Britain's financial press and Conservative ministers trumpeted this "success," it was, of course, bittersweet. While new legislation limited the power of trade unions, and the relaxation of statutory impediments to workforce reduction allowed management to excise inefficient and outmoded work practices, there was not a corresponding increase in the ability of British firms to create new markets at home and abroad. In fact, with scarcely any net gain in real manufacturing output over the period, British companies were, in effect, surrendering global market share. One half expected to arrive at Heathrow one morning, pick up the Financial Times, and find that Britain had finally matched Japanese manufacturing productivityand that the last remaining person at work in U.K. manufacturing was the most productive son-of-a-gun on the planet.
The social costs of restructuring are high. And although an individual firm may be able to avoid some of these costs, society cannot. In Britain, the service sector could not absorb all the displaced workers and underwent its own vicious downsizing in the recession beginning in 1989. Of course, much of the cutting in British companies and around the world was necessary, even if first-line workers often bore more than their fair share of the pain. Unproductive layers of management had to be excised, dumb acquisitions unwound, and inflexible work practices abandoned. Yet few companies seemed to ask themselves: How will we know when we're done restructuring? Where is the dividing line between cutting fat and cutting muscle?
One of the inevitable results of downsizing is plummeting employee morale. Employees have a hard time squaring all the talk about the importance of human capital with seemingly indiscriminate cutting. They are too often confronted with a lose-lose proposition: "If you don't become more efficient, you'll lose your job. By the way, if you do become more efficient, you'll lose your job." What employees hear is that they're the firm's most valuable assets; what they know is that they're the most expendable assets.
Many middle managers and first-line employees must feel like the laborers who built the pharaohs' tombs. Every pharaoh hoped to build for himself a tomb of such intricate and deceitful design that no marauder would ever be able to enter it and purloin the pharaoh's wealth. Think of the laborers as middle managers in the midst of corporate restructuring. All the workers knew that when the tomb was finished they would be put to deaththis was how the pharaoh destroyed any memory of how to find the wealth. Imagine what would happen when the pharaoh showed up on a work site and inquired of a supervisor, "How's it going, are you about done yet?" "Not yet boss, it'll be a few more years, I'm afraid." No wonder tombs were seldom finished within the pharaoh's lifetime! And no wonder so few first-level and mid-level employees bring their full emotional and intellectual energies to the task of restructuring.
Restructuring seldom results in fundamental improvement in the business. At best it buys time. One study of 16 large U.S. companies with at least three years of restructuring experience found that although restructuring usually did improve a firm's share price, the improvement was almost always temporary. Three years into restructuring, the share prices of the companies surveyed were, on average, lagging even farther behind index growth rates than they had been when the restructuring began. The study concluded that a savvy investor should look at a restructuring announcement as a signal to sell rather than buy. Downsizing belatedly attempts to correct the mistakes of the past; it is not about creating the markets of the future. The simple point is that getting smaller is not enough. Downsizing, the equivalent of corporate anorexia, can make a company thinner; it doesn't necessarily make it healthier.
Any company that is better at denominator management than numerator managementany company that doesn't have a track record of ambitious, profitable, organic growthshouldn't expect Wall Street to cut it much slack. What Wall Street says to such companies is, "Go ahead, squeeze the lemon, get the inefficiencies out, but give us the juice (i.e., the dividends). We'll take that juice and give it to companies that are better at making lemonade." The financial community knows that a management team that is good at denominator reduction may not be good at numerator growth. Look at how IBM's share price tanked when the company finally cut its dividend. Investors obviously didn't believe that IBM was likely to redeploy the cash saved in a way that would ultimately produce more shareholder wealth.
Though many factors influence dividend payout ratios (the proportion of earnings paid out to shareholders), and although ratios among companies in the developed world may be slowly converging after having diverged since the mid-1970s, it is not totally by accident that the world's best denominator managersU.S. and British managerspay back more of their firm's earnings to shareholders than do Japanese and German managers. Again and again Wall Street has shown itself quite content to watch a firm profitably restructure itself out of business, when top management seems incapable of profitably creating the future.
Recognizing that restructuring is ultimately a dead end, smart companies have moved on to reengineer their processes. Reengineering aims to root out needless work and get every process in the company pointed in the direction of customer satisfaction, reduced cycle time, and total quality. Once again, the stopwatches are out: How do we do things faster and with less waste? The difference between this twenty-first century Taylorism and the original is that now companies are asking employees, rather than the "experts," to redesign processes and work flows. Interestingly, though the ostensible goal of reengineering is to focus each and every process on customer satisfaction, it is almost always the promise of reduced costs, rather than heightened customer satisfaction, that convinces a top team to sign up for a major reengineering project. In fact, many companies have taken reengineering charges against earnings in the same way they took restructuring charges in earlier years. Few companies seem to have asked themselves what is the opportunity cost of the hundreds of millionsor even billionsof dollars that have been written off for reengineering and restructuring. What if all that cash and all that "redundant" brain power had been applied to creating tomorrow's markets? Far from being a tribute to senior management's steely resolve or far-sightedness, a large restructuring and reengineering charge is simply the penalty that a company must pay for not having anticipated the future.
There is a difference, though, between restructuring and reengineering. Reengineering offers at least the hope, if not always the reality, of getting better as well as getting smaller. Any company that is more successful at restructuring than reengineering will find itself getting smaller faster than it is getting better. Several of the largest U.S. companies have recently found themselves in this unenviable position. Although restructuring is never more than a necessary thing, reengineering can be a good thing. Yet there is a dilemma. Let us explain. The Machine That Changed the World, an exhaustive and insightful study of the changing economics of car design and production, was published in 1990. "Lean manufacturing," the authors' term for the extraordinarily efficient manufacturing system pioneered by Toyota, is a central theme of the book. Yet as one reads the book, one is compelled to ask: When did Toyota begin its pursuit of lean manufacturing? Answer: more than 40 years ago. And another question comes: Why did it take U.S. automakers 40 years to decode the principles of lean manufacturing? Answer: because those principles challenged every assumption and bias of U.S. auto executives.
Detroit is today catching up on quality and cost with its Japanese competitors. (Of course, Detroit was helped by a yen that appreciated by 20% against the dollar between 1991 and 1993 and a new U.S. president who, at the beginning of his term, threatened Japanese car producers with a massive antidumping suit. Not surprisingly, Japanese automakers raised their prices and surrendered market share.) Supplier networks have been reconstituted, product development processes redesigned, and manufacturing process reengineered. Yet the cheerful headlines heralding Detroit's comeback miss the deeper story. Sure, Detroit is catching up on cost and quality, but what was lost in terms of employment and global market share? The answer: hundreds of thousands of jobs, about 25 percentage points of market share in the United States, and any near-term hope of U.S. automakers' beating Japanese rivals in the booming markets of Asia.
The point is that in many companies, process reengineering and advantage-building efforts are more about catching up than getting out in front. A few years ago one of us sat in on a leading strategy consulting firm's exposition of its methodology for helping clients do things faster. "Competing on time" was, in the opinion of the presenters, the next big competitive advantage. Although no one argued with this premise or the proposed methodology, the consultants were reminded that in the 1970s they had identified global scale and experience effects as key advantages to be pursued and, indeed, many automakers, chemical companies, semiconductor producers, and others had been persuaded to make preemptive investments in large-scale plants, each hoping to secure the required minimum share of world capacity. The result, in several industries, was severe overcapacity and vicious price cutting. Later, in the 1980s, they had urged their clients to pursue quality, which was certainly a laudable goal. Now they were recommending speed as the tonic for uncompetitiveness. In each case, it was pointed out, the consultants had come up with the right answer, but in each case the answer had come about ten years too late. They were helping their clients catch up rather than take the lead.
So while U.S. car companies could celebrate the fact that they were pulling even with their Japanese rivals on cost and quality, Japanese producers were setting new competitive hurdlesbreathtaking engine performance, razor-edge handling, luxury, new design aesthetics, and product development aimed at lifestyle niches. It remained to be seen whether Detroit would be the pacesetter in the next round of competitionto produce vehicles as exciting as they were fuel efficient and reliableor whether they would once again rest on their overused laurels.
In a recent survey, nearly 80% of U.S. managers polled believed that quality would be a fundamental source of competitive advantage in the year 2000. Yet, barely half of Japanese managers predicted quality to be a source of advantage in the year 2000, though 82% believed it was currently an important advantage. Rated first as a source of competitive advantage in the year 2000 by Japanese managers was a capacity to create fundamentally new products and businesses. Does this mean that Japanese managers are going to turn their backs on quality? Of course not. It merely indicates that by the year 2000 quality will no longer be a competitive differentiator; it will simply be the price of market entry. These Japanese managers realize that tomorrow's competitive advantages must necessarily be different from today's.
We come across far too many companies where top management's advantage-building agenda is still dominated by quality, time-to-market, and customer responsiveness. Although no one questions that such advantages are prerequisites for survival, to be still working on the advantages of the 1980s in the 1990s is hardly a testimony to management foresight. Though managers often try to make a virtue out of imitation, dressing it up in the fashionable colors of "adaptiveness," what they are adapting to all too often are the preemptive strategies of more imaginative competitors.
Again, let us be clear. Catching up is necessary, but it's not going to turn an also-ran into a leader. Divisions of IBM, GM, and DEC have all won the Baldrige for qualityan award for better, not different. Becoming smaller and better are not enough. Think again about the laggards of the late 1980s and early 1990s: Sears, TWA, Westinghouse, Sanyo, Upjohn. Could Sears retake the high ground by getting even better at "bait-and-switch," convincing even more customers that they really wanted a $600 washing machine when they had come in for a $300 model? Would it have helped Sears to become an even more efficient and customer-focused catalog retailer (instead of killing off its encyclopedic catalog)? What if IBM created a lightning-fast mainframe development process, and won even more loyalty with central data-processing managers? What if American and United perfected the art of running a hub-and-spokes airline systemwould this help them woo well-heeled international business passengers away from British Airways and Singapore? Our point is simple: It is not enough for a company to get smaller and better and faster, as important as these tasks may be; a company must also be capable of fundamentally reconceiving itself, of regenerating its core strategies, and of reinventing its industry. In short, a company must also be capable of getting different (see Figure 1-1).
Just as some companies have gotten smaller faster than they've gotten better, others have gotten better without becoming much different. Consider Xerox. During the 1970s and 1980s Xerox surrendered a substantial amount of market share to Japanese competitors such as Canon and Sharp. Recognizing that it was on a slippery slide to oblivion, Xerox benchmarked its competitors and fundamentally reengineered its processes. By the early 1990s Xerox had become a textbook example of how to reduce costs, improve quality, and satisfy customers. But in all the talk of the new "American Samurai," two issues were overlooked. First, although Xerox succeeded in halting the erosion of its market share, it failed to recapture much share from its Japanese competitors. Canon still produces more copiers than any company in the world. Second, despite a pioneering role in laser printing, networking, icon-based computing, and the laptop computer, Xerox has failed to create any substantial new businesses outside its copier core. Although Xerox may have invented the office as we know it, it profited very little from its inventiveness. In fact, Xerox has probably left more money on the table, in the form of underexploited innovation, than any company in history. Why all this underexploited innovation? Because to create new businesses, Xerox would have had to regenerate its core strategy and reinvent its very concept of self: its channels, manufacturing processes, customers, criteria for promoting managers, metrics for measuring success, and so on. A company surrenders today's businesses when it gets smaller faster than it gets better. A company surrenders tomorrow's businesses when it gets better without getting different.
It is entirely possible for a company to downsize and reengineer without ever confronting the need to regenerate its core strategy, without ever being forced to rethink the boundaries of its industry, without ever having to imagine what customers might want in ten years' time, and without ever having to fundamentally redefine its "served market." Yet without such a fundamental reassessment, a company will be overtaken on the road to the future. Defending today's leadership is no substitute for creating tomorrow's leadership.
We meet many managers who describe their companies as "market leaders." (With enough creativity in delimiting market boundaries, almost any company can claim to be a market leader.) But market leadership today certainly doesn't equal market leadership tomorrow. Think about two sets of questions:
Which customers are you serving today?
Through what channels do you reach customers today?
Who are your competitors today?
What is the basis for your competitive advantage today?
Where do your margins come from today?
What skills or capabilities make you unique today?
In what end product markets do you participate today?
5 to 10 Years in the Future
Which customers will you be serving in the future?
Through what channels will you reach customers in the future?
Who will be your competitors in the future?
What will be the basis for your competitive advantage in the future?
Where will your margins come from in the future?
What skills or capabilities will make you unique in the future?
In what end product markets will you participate in the future?
If senior executives don't have reasonably detailed answers to the "future" set of questions, and if the answers they do have are not substantially different from the "today" answers, there is little chance their companies will remain market leaders. Whatever market a company might dominate today, it is likely to change substantially over the next ten years. There's no such thing as "sustaining" leadership; it must be reinvented again and again.
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Anyone involved in consulting and managing organization must read this book. It presents a different point of view, compared top to some old management schools of taughts, on the important elements to have a successful organization in the future in an era where information must be translated into knowledge... where organization must focus on their core competencies to evolve...