Sooner or later, all businesses, even the most successful, are not growing anymore. Faced with this unpleasant reality, they are required to reinvent themselves periodically. The ability to pull off this difficult feat — to jump from the maturity stage of one business to the growth stage of the next — is what separates high performers from those whose time at the top is all too short.
The potential bad consequences are extremely serious for any organization that fails to reinvent itself in time. And, unfortunately, once a company runs up against a major stall in its growth, it has very low chances of ever fully recovering. Those odds are certainly daunting, and they explain much why two-thirds of stalled companies are later acquired, taken private, or forced into bankruptcy.
There’s no shortage of explanations for this stalling — from failure to stick with the core (or sticking with it for too long), to problems with execution, misreading of consumer tastes, or an unhealthy focus on scale for scale’s sake. What those theories have in common is the reality that stalling results from a failure to fix what is clearly broken in a company.
Companies fail to reinvent themselves not necessarily because they are bad at fixing what’s broken, but because they wait much too long before repairing the deteriorating bulwarks of the company. They invest most of their energy managing to the contours of their existing operations — the financial S curve in which sales of a successful new offering build slowly, then ascend rapidly, and finally taper off — and not nearly enough energy creating the foundations of successful new businesses.
The companies that successfully reinvent themselves have one trait in common: they tend to broaden their focus beyond the financial S curve and manage to three much shorter but vitally important S curves: tracking the basis of competition in their industry, renewing their capabilities, and nurturing a ready supply of talent. In essence, they turn conventional wisdom on its head and learn to focus on fixing what doesn’t yet appear to be broken.
Long before a successful business hits its revenue peak, the basis of competition on which it was founded expires. The curve tracks how competition in an industry is shifting. High performers see changes in customer needs and create the next basis of competition in their industry, even as they exploit existing businesses that have not yet peaked.
In building the offerings that enable them to climb the financial S curve, high performers invariably create distinctive capabilities.
But distinctiveness in capabilities — like the basis of competition — is fleeting, so executives must invest in developing new one in order to jump to the next capabilities S curve. All too often, though, the end of the capabilities curve does not become apparent to executives until time to develop a new one has run out.
Companies often lose focus on developing and retaining enough of what we call serious talent — people with both the capabilities and the will to drive new business growth.
This is especially true when the business is successfully humming along but has not yet peaked. In such circumstances, companies feel that operations can be leaner (they’ve moved far down the learning curve by then) and meaner, because they’re under pressures to boost margins. They reduce both headcount and investments in talent, which has the perverse effect of driving away the very people they could rely on to help them reinvent the business.
High performance companies need up-and-comers who can grow a new business, not just manage an old one.
* * *
By managing to these curves, as well as keeping focused on the revenue growth S curve, the high performing companies are typically starting the reinvention process well before their current businesses will begin to to slow.
Interested in reinventing your business?