During this serious recession the business news is driven by stories of job losses, forced mergers and bankruptcies. The question that must be asked is whether these events were inevitable or are the result of management failures?
I would argue that these events were not inevitable. They happened because executives focused on doing whatever was necessary to “make the quarter (revenue)” without considering that these decisions could have mid-term and long-term consequences. High tech companies, auto manufacturers and major banks and insurance companies currently under duress based their most important decisions on a common, but flawed, assumption: they could grow their way out of the consequences of bad short-term business decisions. When a business assumes inevitable growth, it forgets that both history and gravity tell us a different truth.
In the technology industry, Sun realized too late that hardware was no longer a differentiator – especially when associated with proprietary operating systems. Sun never made the total commitment to JAVA and its other software products – turning itself a cheap acquisition target for Oracle.
GM did not misinterpret consumer sentiment toward larger vehicles over the last decade. For proof, one needs to look no further than the SUVs offered by every major import vehicle manufacturer after the success of the Chevy Tahoe. The GM mistake was to build that consumer sentiment into their revenue strategy and fixed operating costs. Their competitors were more realistic in their model mix and their (business) operating model. Toyota has both its hybrid Prius and its SUV Pilot – but neither model is encumbered by high labor costs, expensive retiree benefits or out-dated factories.
Neither Sun nor GM’s failure was inevitable. If the assumptions underlying short-term strategic and operational decisions had been tested against potential consequences developed in mid / long-term scenarios – the outcome for either (or both) would have been different. The short-term plan would have been modified to incorporate mitigation strategies for mid / long-term impacts resulting in a corporate renovation over time rather than an urgent restructuring.
Businesses that take the extra 10% time to plan their present and their future in tandem will continuously renew themselves – and, by so doing, insure their survival in lean times and their prosperity in good times.
@Cordi and Associates Inc. All Rights Reserved
www.cordiconsulting.com
4/28/2009