Change, Adapt, and Overcome in the Face of Danger (1/2)
The market is Darwinian: the strongest ones survive. During prosperous times, companies need to reap the benefits of their labour, develop, and prepare for the (inevitable) bad times. Almost every company is faced with difficulties, be it economical recessions, threat of another company taking your business, or simply stagnating and not reaching your goals.
Don't be a turtle when facing danger
So the question, of course, is "How do I get stronger?" and "What do I do if the firm is already in a slump". Such situations are never easy and there are a few survival techniques we can gather from looking at firms’ downturn survival strategies.
The most natural and common thing we see firms do is something called "threat-rigidity effects". When under threat, facing a shortfall in performance, firms are inclined to close up and more narrowly and firmly focus on the one thing they do well (e.g. their core product or service), stop doing other things, and become more hierarchical and top-down in terms of management control.
Unfortunately, this often makes things worse, or at least prevents you from coming up with any solutions.
What firms are better off doing, is opening up; exploring new sources of potential revenue and experimenting with bottom-up processes to generate such ideas and innovations.
Opening up to change
There are countless examples from the recent 2008 recession from every industry, such as automotive, housing, construction, machinery, etc. or companies that were under attack by innovative competition, such as Kodak and Nokia.
Several companies, such as Kodak, Nokia, or American Suzuki Motor Corp. fel victim to disrupting innovation or poor strategic management but there are valuable lessons to be learned from their stories. There have been numerous analyses and studies on their cases and we can use them to learn what they could have done:
Specialize. Against threatening innovation, a firm can compete in the new market but focus on spaces that will continue to benefit from further innovation. A company has to anticipate increases in different markets and use them to build its capabilities.
Extend. Consider what side businesses might be moved to center stage. Kodak, for example was an early mover in cloud-based photo management, most notably with the acquisition of Ofoto. But its focus was on encouraging photo sharing to drive photo printing rather than on embracing the social networking trend.
Diversify. Recognize the fragility of your position and don’t concentrate your bets. Nokia, Motorola, and Sony Ericsson were all at the top of their game in 2007 when Apple was coming out with a new offering that none of the established brands could provide. They were refusing going into a new area, such as mobile appls.
Harvest and husband. Since peaking in 2007, Suzuki sales had fallen by 75%, and its small scale combined with the strong yen made its future prospects bleak. Suzuki decided to conserve their resources and retreat to a defensible niche. However, this comes with a whole new set of challenges.
There's a pattern here. Although all strategies lead in different directions, they have something in common. They require the firm to change and do so proactively.