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First and Fast
Stuart Cross
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First and Fast
Stuart Cross
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About This Book
For the past 30 years, business leaders have been exhorted to move faster and adopt a "ready, fire, aim" approach to the growth of their business. As the level of change and turbulence increases in all markets, all organizations must adaptâquickly!âor risk decline and decay. But what are the real behaviors, processes, and techniques that are critical to lead your organization at pace without creating confusion, frustration, and unnecessary risk? First and Fast provides business leaders with a comprehensive and pragmatic set of tools and ideas to enable them to increase pace, build momentum, and accelerate growth in a systematic way. This book is written for business owners, chief executives, other senior executives and managers, consultants, and business advisors.
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BetriebswirtschaftSubtopic
UnternehmensstrategieCHAPTER 1
Are You Fast or Irrelevant?
The Decline and Fall of Nokia
By February 2011, Stephen Elop had been the CEO of Nokia for nearly five months. The first non-Finnish director of the mobile communications giant, the former Adobe and Microsoft executive, had, since his appointment, been reviewing the companyâs declining performance and talking with the companyâs customers, workers, suppliers, shareholders, and partners. The results of Elopâs review terrified him.
Nokiaâs once unassailable position across various segments of the mobile phone market had been rapidly eroded by competition from Apple in the smart phone segment, by the explosion in the share of Android in the mid-range market, and by Chinese manufacturers at the low-price end of the market. Symbian, the companyâs proprietary software, was seen as uncompetitive in many of the worldâs leading markets, particularly North America, and product development was both slow and lacked genuine innovation.
All of these issues had impacted negatively on results. Revenues were down from over âŹ50 billion in 2008 to âŹ42 billion in 2010, margins were in free-fall and operating profit had more than halved from nearly âŹ5 billion to a little over âŹ2 billion in the same period. Little wonder, perhaps, that the Board had looked outside of the company for its new chief executive.
Sitting at his desk at Nokiaâs global headquarters in Espoo, just outside Helsinki, Elopâs mood was as dark as the long, seemingly endless Finnish winter nights. As he sat down to compose a memo to everyone inside the mobile phone giant, he realized he had to shake up the companyâs entire way of thinking. Elop didnât pull any punches in his analysis of the companyâs predicament, comparing Nokiaâs situation with a man on a burning oil platform in the middle of the Atlantic Ocean. The man was faced with the choice of burning to certain death or jumping into the icy waters. He decides to jump and suggests that Nokia needs to do the same.
Elopâs âburning platformâ memo is over 1,000 words in length. After writing it, Elop shared it with the organization ahead of the presentation of his new strategy for the business. Here are some key extracts:
⢠We too, are standing on a âburning platform,â and we must decide how we are going to change our behavior. And, we have more than one explosionâwe have multiple points of scorching heat that are fuelling a blazing fire around us.
⢠The first iPhone shipped in 2007, and we still donât have a product that is close to their experience. Android came on the scene just over 2 years ago, and this week they took our leadership position in smartphone volumes. Unbelievable.
⢠Letâs not forget about the low-end price range. In 2008, MediaTek supplied complete reference designs for phone chipsets, which enabled manufacturers in the Shenzhen region of China to produce phones at an unbelievable pace.
⢠While competitors poured flames on our market share, what happened at Nokia? We fell behind, we missed big trends, and we lost time. We now find ourselves years behind.
⢠At the low-end price range, Chinese OEMs are cranking out a device much faster than, as one Nokia employee said only partially in jest, âthe time that it takes us to polish a PowerPoint presentation.â
⢠Our competitors arenât taking our market share with devices; they are taking our market share with an entire ecosystem.
⢠I believe we have lacked accountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We havenât been delivering innovation fast enough. Weâre not collaborating internally.
You can feel Elopâs frustration with the organization, canât you? He points to a lack of accountability and leadership, ineffective decision making, insipid innovation, and a lack of collaboration across Nokia over a period of time. But the memo points to one factor, above all others, that drove the companyâs decline: a lack of speed. In each market segmentâthe high-end, the mid-range, and the low-endâElop identifies faster, more agile competitors getting ahead of Nokia and accelerating away.
The day following Elopâs memo, he shared his refreshed strategy for the Nokia phones business. Alongside radical changes to the companyâs leadership, cost reductions, shifts in production and lay-offs, Elopâs big strategic move consisted of a partnership with Microsoft that would lead to Nokia abandoning its in-house Symbian software and, instead, adopting the Windows Phone software in all its smart phones. Recognizing that Appleâs iOS and Googleâs Android systems were now dominating the market, Nokia had little choice but to find a way of partnering with the #3 software provider, Microsoft.
Despite the initial hopes that the strategic partnership would help the two companies challenge Apple and Google, the results simply didnât follow. Even though Nokiaâs new Lumia phones received decent reviews, their level of innovation was still not enough to seriously disrupt the two market leaders. Nokia had simply fallen too far behind to have a chance of catching up. As shown in Figure 1.1, Nokiaâs smart phone market share had fallen from its high of over 50 percent in early 2007 to just 3 percent of global smart phone sales by mid-2013. Nokiaâs strategic partnership with Microsoft had had no noticeable impact on that decline. The companyâs financial performance followed the slide in share and in 2012 the company recorded an operating loss of over âŹ2 billion.
Figure 1.1 Nokia global smartphone market share, 2007â13
Source: Statista.
The further decline of Nokiaâs phone business led to its sale to Microsoft for $7 billion in September 2013. In a little over five years, Nokia had gone from being the seemingly unassailable leader of the mobile phone market to a near irrelevance that the holding companyâs board of directors was more than happy to sell. The Nokia Company still carries on, but it now focuses on network infrastructure services, mapping and location services, and technology development. Mobile phonesâand Stephen Elopâhave left the Finnish giant for good.
Whatâs Driving the Need for Speed?
Nokia operates in a fast-moving, highly dynamic market, driven by disruptive technological innovation. Schumpeterâs âgales of creative destructionâ are as common and as devastating in the mobile phone market as hurricanes and tropical storms are in the Caribbean and surrounding areas at the end of each summer season. In both cases, you know that storms will happen and major damage will result, but itâs far harder to predict when and where they will take place with any certainty.
But what about other markets? Are companies in less turbulent sectors able to keep up with, anticipate, and respond to changes in their markets any more effectively? If you look at the list of the biggest corporations in the United States, as set out in the Standard & Poorâs Top 100 index, you will find some of the bluest of blue chip businesses that America has to offer, and which operate in a wide variety of markets.
It seems almost inconceivable that such strong and vibrant companies could ever be fundamentally threatened or face issues that their executive teams canât manage. The 2014 list includes corporate behemoths such as American Express, Boeing, Caterpillar, Procter & Gamble, Coca-Cola, Disney, McDonaldâs, Wal-Mart, and IBM. Indeed, eight years earlier in 2006, the list looked equally impressive. Unfortunately, however, 38 of the Top 100 U.S. corporations from 2006 have fallen out of the Top 100.
While some of these corporations have slipped just outside the Top 100, the decline of others, such as Radio Shack, has been so severe that they have lost their independence. In fact, for 18 of these 37 businesses, their removal from the S&P 100 is because they are no longer independent publicly quoted corporations. Some, including Merrill Lynch, Anheuser Busch, Black & Decker, and National Semiconductor, were acquired by rivals; others, including Heinz, Harrahâs, and Clear Channel Communications, were acquired by private equity institutions; and two from this list of corporate giantsâEastman Kodak and Lehman Brothersâhad to file for bankruptcy.
In other words, in the space of just eight years, nearly 40 percent of the biggest companies in the United States were no longer members of the S&P 100, and nearly 20 percent of these businesses had lost their independence. The flip side of this decline is the rise of other corporations that came on to the list. Interestingly, the worldâs largest corporation, Apple, was not a member of the Top 100 in 2006 and neither were Amazon, eBay, Capital One, CVS, Nike, or Visa.
The lesson is that nothing lasts forever. If some of the biggest, strongest, and most powerful corporations can decline so rapidly, then no company is safe. For those businesses that are able to act with speed and agility, there are huge opportunities for growth, but for those that remain rooted in old ways of working and organizing, the future is bleak and you run the risk of becoming irrelevant. The whole purpose of this book is to ensure that your company is in the former group and not the latter.
The acceleration in the rate of environmental change and risk facing every business is summarized by five key trends:
1. Technological Acceleration
Economic and commercial growth has always been driven by technological innovation. The Industrial Revolution in England, for instance, was led and underpinned by advances including the flying shuttle, the spinning jenny, a national network of canals, trains and a national rail network, and, most critically, the steam engine. Each of these, and countless other inventions, catapulted Britain to the biggest economy in the world. Between 1700 and 1900, the U.K. population exploded from a little over 6 million to 42 million, a sevenfold increase, and the economy saw more than a 10-fold increase over the same period.
Technologyâs capacity to transform industries, markets, and even entire economies and societies is even more relevant today as it was in the 19th century. Figure 1.2 shows the number of utility (technological) patents that were granted by the U.S. Patent and Trademark Office between 1993 and 2012. Over that period, the number of patents granted grew from 98,000 to more than 250,000. Led by R&D arms of major multinational corporations including IBM, Samsung, Canon, Sony and Panasonic, this acceleration in the sheer scale of technology development shows no sign of slowing down.
Figure 1.2 U.S. technology patents granted, 1993â2012
Source: U.S. Patents and Trademarks Office.
Faster processing, growing memory storage and computing power, lower costs, greater interpersonal and interorganizational connectivity through mobile and cloud-based applications is reshaping both business and society in general. The remaining four drivers are themselves driven, in large part, by the continuing revolution in digital technology, and, as mentioned below, they demand businessesâand business leadersâthat are increasingly agile, adaptive, and fast.
2. Leftfield Competition
If you look at a list of the worldâs top retailers, the top 5 has remained relatively constant over the past decade. In 2015, for instance, The Global Powers of Retailing, an annual report from accountancy firm, Deloitte, lists the Top 5 as Wal-Mart (United States), CostCo (United States), Carrefour (France), Schwarz (Germany) and Tesco (United Kingdom), with Metro (Germany) and Kroger (United States), filling the next two slots. This analysis may lead you to think that the retail industry is relatively stable: but you would be wrong, very wrong. Just outside the Top 10, with 2013 revenues of $74 billion and a five-year growth rate of over 26 percent per annum is a retailer without a single store. Since its launch in 1995, Amazon has reshaped the global retail landscape, directly impacting on customer service, home delivery, pricing, and ranging decisions of virtually every other retailer.
From its initial role as a new-start irritant to the major players, it is now one of the fastest-growing players in the worldâs Top 100 list and the thought leader for the industry. If youâre a retail executive looking to improve your customer proposition, it is almost inconceivable that you can do this without first referring to Amazonâs offer. Starting with the companyâs attack on traditional bookstores and music retailers, Amazonâs convenience, range authority, and low prices have helped to extend the companyâs participation into virtually all retail categories. Although it has not previously competed directly in grocery, the biggest retail sector, this is likely to change with the roll out of AmazonFresh, delivering fresh products to its customers alongside its other, higher-value and higher-margin product categories.
Retail is not alone in facing new, leftfield competition. New forms of competition and the entrance of new, nontraditional players are now driving innovation in most markets. These upstart competitors come from one of five core categories:
1. Channel Revolutionaries. Amazonâs success has been based on its focus on the online channel. Exploiting alternative channels has driven disruption in other markets, too. First Direct, a U.K. bank, for example, was first established in the 1980s as a telephone-only banking business, and rapidly set the standard for customer service and convenience.
2. Cross-border Raiders. The quality and quantity of international competition continues to grow, however, at an exponential rate. Trade agreements, technology developments, and the rapid growth of many economies have ensured that new market entrants can set up and do business on a global scale more easily than ever before. As we have seen, for example, a key element of Nokiaâs struggle was its inability to deal with newer, faster, and cheaper Chinese competition.
3. Business Model Innovators. The dominance of mass European and U.S. airlines, such as BA, American and Delta, has been overthrown in the past decade by the rise of airlines with two types of business model. First, low-fare airlines have undercut these traditional players, attracted new customers to the market, and attracted more value-focused business flyers. Second, Asian airlines including Singapore, Emirates, and Etihad have redefined luxury air travel by providing an amazing experience for affluent passengers. The traditional airlines have struggled to keep pace with this twin attack of innovation, and have lost customers, market share, and profits.
4. Market Redefiners. Part of the genius of the Starbucks proposition was its redefinition of a cafĂŠ or coffee shop from being a commodity service to a lifestyle choice for everyone. How else can you explain the fact that 250-pound truck drivers seem happy to pay $5 for a coffee, even if it is a skinny latte? Howard Schulz, the CEO of Starbucks, didnât accept the coffee shop market as ...