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Why Good Companies Go Bad
Freek Vermeulen Associate Professor of Strategic & International Management
“Making Strategy Happen”
1. Compound asset growth from 1961 through 1980
2. Compound equity growth
3. Average market to book value (wealth creation)
4. Average return on capital
5. Average return on equity
6. Average return on sales
“In order to qualify as a top performer, a company must have been in the top half of its industry in at least four out of six of the measures”
“In Search of Excellence”
Peters & Waterman, 1982
Allen-BradleyAmdahlDigital equipmentEmerson electricHewlett PackardIBMSchlumbergerTexas InstrumentsData GeneralHughes aircraftIntelNational semiconductorRaychemWang Labs
Eastman KodakFrito-Lay (PepsiCo)Johnson & JohnsonProcter & GambleAtariAvonBristol-MyersChesebrough-Pond’sMarsMaytagMerckRevlonTupperwareCaterpillarDana Corporation3M
Delta AirlinesMarriottMcDonald’sDisney ProductionsK MartWal-MartBechtelBoeingFluorDow ChemicalDu PontStandard Oil / Amoco
Allen-Bradley *AmdahlDigital equipment *Emerson electric *Hewlett PackardIBM *SchlumbergerTexas InstrumentsData GeneralHughes aircraftIntel *National semiconductorRaychemWang Labs
Eastman KodakFrito-Lay (PepsiCo) *Johnson & Johnson *Procter & GambleAtariAvonBristol-MyersChesebrough-Pond’sMars *Maytag *Merck *RevlonTupperwareCaterpillarDana Corporation3M
Delta AirlinesMarriottMcDonald’s *Disney Productions *K MartWal-Mart *BechtelBoeing *FluorDow ChemicalDu PontStandard Oil / Amoco
Allen-Bradley *AmdahlDigital equipment *Emerson electric *Hewlett PackardIBM *SchlumbergerTexas InstrumentsData GeneralHughes aircraftIntel *National semiconductorRaychemWang Labs
Eastman KodakFrito-Lay (PepsiCo) *Johnson & Johnson *Procter & GambleAtariAvonBristol-MyersChesebrough-Pond’sMars *Maytag *Merck *RevlonTupperwareCaterpillarDana Corporation3M
Delta AirlinesMarriottMcDonald’s *Disney Productions *K MartWal-Mart *BechtelBoeing *FluorDow ChemicalDu PontStandard Oil / Amoco
The Organisation of Swiss Watch-makers
early 70s mid 80sSwiss global market share 70% 15%
Employment in Swiss watch industry
89,500 31,500
Proportion watches sold based on quartz technology
1% 80%
Export of watches, Switzerland(in thousands)
71,437 50,986 (1980)
Export of watches, Japan(in thousands)
11,399 68,300 (1980)
But it was a Swiss engineer who invented the quartz watch (in 1967)!
“this is just a fad; it won’t catch on”
“it is a different segment; they are not competition to us”
“people will always prefer to have a high quality watch that they can pass on to their grandchildren”
“These are just for kids; we are in a very different market”
“The quality is poor; they are no threat to us”
“this is just a fad; it won’t catch on”
“it is a different segment; they are not competition to us”
“people will always prefer to have a high quality watch that they can pass on to their grandchildren”
“These are just for kids; we are in a very different market”
“The quality is poor; they are no threat to us”
R&D HR
distribution
COMPANY/BRAND
etc.
hands
cases
wheels assem-blage
etc.
The Organisation of Swiss Watch-makers
CORPORATION
The Organisation of Swiss Watch-makers
THE SWISS WATCH INDUSTRY
The Organisation of Swiss Watch-makers
Could it have been avoided…?
Proposition 1: Yes, they should have been able to avoid it.
Proposition 2: No, it was pretty much inevitable.
Cognitive Inertia
Structural Inertia
CORPORATIONCORPORATION
INSIGHT 1:
Once a business environment has changed (creating a crisis-situation), the combination of structural and cognitive inertia makes it very difficult to adapt
structural inertia
cognitive inertia
Why Good Companies Go Bad
The Revival - Swatch
What was Hayek and Thomke’s role in the revival of Swatch?
THOMKE’s
Exploration Strategy
HAYEK’s
Exploitation Strategy
existing capability
add something new
create the environment
“get lucky”
business innovation
take existing advantage
invest in efficiency
create the environment
complementary choices
focused growth
INSIGHT 2:
exploitation strategy
exploration strategy
Companies, over time, need “exploration” but they also need “exploitation”.
They have different characteristics – e.g. in terms of management style – and are difficult to combine.
Why Good Companies Go Bad
INSIGHT 1:
structural inertia
cognitive inertia
INSIGHT 2:
exploitation strategy
exploration strategy
Why Good Companies Go Bad
several company cases; well-known and relatively unknown
some in financial distress; corporate turnaround cases
some remained very successful; because they changed!
in turbulent environments, i.e. without knowing what their worldwould look like
NOT step 1 = strategy design; step 2 = strategy implementation
what & when to decide; when to enable strategy to happen
cases, explicit tools, exercises, lecture, interactive!
several company cases; well-known and relatively unknown
some in financial distress; corporate turnaround cases
some remained very successful; because they changed!
in turbulent environments, i.e. without knowing what their worldwould look like
NOT step 1 = strategy design; step 2 = strategy implementation
what & when to decide; when to enable strategy to happen
cases, explicit tools, exercises, lecture, interactive!
“Making Strategy Happen”12 & 13 March
several company cases; well-known and relatively unknown
some in financial distress; corporate turnaround cases
some remained very successful; because they changed!
in turbulent environments, i.e. without knowing what their worldwould look like
NOT step 1 = strategy design; step 2 = strategy implementation
what & when to decide; when to enable strategy to happen
cases, explicit tools, exercises, lecture, interactive!
several company cases; well-known and relatively unknown
some in financial distress; corporate turnaround cases
some remained very successful; because they changed!
in turbulent environments, i.e. without knowing what their worldwould look like
NOT step 1 = strategy design; step 2 = strategy implementation
what & when to decide; when to enable strategy to happen
cases, explicit tools, exercises, lecture, interactive!
“Making Strategy Happen”12 & 13 March
“Making Strategy Happen”12 & 13 March
several company cases; well-known and relatively unknown
some in financial distress; corporate turnaround cases
some remained very successful; because they changed!
in turbulent environments, i.e. without knowing what their worldwould look like
NOT step 1 = strategy design; step 2 = strategy implementation
what & when to decide; when to enable strategy to happen
cases, explicit tools, exercises, lecture, interactive!
several company cases; well-known and relatively unknown
some in financial distress; corporate turnaround cases
some remained very successful; because they changed!
in turbulent environments, i.e. without knowing what their worldwould look like
NOT step 1 = strategy design; step 2 = strategy implementation
what & when to decide; when to enable strategy to happen
cases, explicit tools, exercises, lecture, interactive!
In an economic downturn, you cannot just continue do what you’re doing, you have to execute some real changes to weather the storm
A lone top manager will not be able to come up with all the necessary changes by him- or herself; you will have to mobilise people within the organisation
At some point, the economic downturn will end. Companies that take actions now, will be best placed to quickly “catch the wave” (and leave competition trailing)
In an economic downturn, you cannot just continue do what you’re doing, you have to execute some real changes to weather the storm
A lone top manager will not be able to come up with all the necessary changes by him- or herself; you will have to mobilise people within the organisation
At some point, the economic downturn will end. Companies that take actions now, will be best placed to quickly “catch the wave” (and leave competition trailing)
why now?
“Making Strategy Happen”
