Or Not To Change?
n perusing the profusion of books and articles and other sources of advice by profound business gurus, the owner/manager of the smaller business invariably encounters a dilemma. One school cautions against an "identity crisis" the failure to understand the fundamentals of the enterprise, what the business is all about, what is often called the "mental model." But an opposing school counsels about the "loss of vision" the inability to see and accommodate the inevitable tides of change that may demand dramatic transformation. The advice from both schools is sound, but the implementation appears to be contradictory.
One of today's fashionable buzzwords is "core competency." It is essential that every venture understand the "core competency" undergirding its survival and success. It must never ignore its raison d'être. Corporate graveyards are filled with the skeletons of once-healthy businesses that simply lost sight of their basic identity neglected their "core competency." Confronting slower-than-desired growth or sluggish earnings, Fortune 500® corporations often seek the M&A panacea (merger and acquisition) leading them into new and often unfamiliar diversification.
An outstanding example of this kind of blunder was Jostens, Inc. (Minneapolis), the ubiquitous manufacturer of school rings, yearbooks, and related graduation products to schools commanding 40 percent of the US market. In 1989, the Jostens Learning Corporation was established to pursue an aggressive strategy introducing integrated learning soft-ware to schools. Its major competitor was promptly acquired raising its share of this computer learning market to 60 percent. Culminating a 34-year record of consecutive increases in sales and earnings, Jostens startled its shareholders with a $12.0 million loss in 1993. It was then apparent to the whole world that this much-applauded new strategy was in virtually total opposition to the company's "core competency" their unique channels of distribution were irrelevant, the critical technology was alien to senior management, their manufacturing resources were extraneous, and even cash flow followed an agonizingly-new pattern. With its "core competency" in danger of neglect and decline, an acclaimed visionary strategy had brought this fine company to the brink of disaster.
On the other hand, "loss of vision" is an equally fashionable buzzword. The owner/manager of the smaller business is confronted with tumultuous economic and technological change every day. Last year's winning service concept or product design becomes this year's "Model T." We are admonished continually not to sleep on yesterday's successes, but to prepare for a "whole new world" tomorrow. Major corporations are constantly being "re-engineered" or "re-structured." The "rules of the game" appear to be in constant change.
A remarkable example of "loss of vision" has been ascribed to the Commerce Clearing House (CCH, Incorporated, Riverswood, Illinois). Founded in 1892, CCH was the venerable publisher of authoritative reports for accountants, lawyers, corporations and government agencies declaring record earnings of $53.0 million in 1987, the third highest return on equity among 22 US publishers. But clinging to its traditional loose-leaf-format print products and legacy of mainframe computers, CCH plunged to a $64.0 million loss only five years later. The company then embarked upon a crash entry into electronic publishing introducing totally new products such as CCH ACCESS Online, CD-ROMs, and PC-based tax return software. While the company has been revitalized and returned to profitability, its current earnings are far below their historic highs and equity control of CCH has now been acquired by Wolters Kluwer of The Netherlands, one of Europe's largest legal and tax publishers. With its "loss of vision," a strategy of maximizing earnings and eschewing migration to PC software had brought this fine company to the brink of disaster.
For the owner/manager of the emerging business, the lesson to be learned is that there are rarely simple textbook answers to the tough strategic questions. In fact, while usually offered in good faith, there is a danger to accepting uncritically the doctrinal counsel of most gurus. Widely-accepted management principles cannot be faulted, but they are only applicable once our own business as well as the economic and technological environment in which we are operating are understood fully. Success seldom flows from slogans.
To change or not to change?" The textbooks and the management gurus can pose the right questions. But the right answers can only be found in an intimate and realistic grasp of our own business and the environment in which we are operating. The "right answer" for Jostens was the "wrong answer" for CCH. After careful analysis and thoughtfully posing all of the pertinent questions, the owner/manager of the smaller business must then exercise the discernment and the courage to make the "right" decision invariably alone! Quite likely, his/her colleagues and competitors may be making a different decision. This is the classic dilemma of leadership.
Your comments and suggestions for these pages are most welcome!
Revised: June 15, 2005 TAF
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