visionary leadership

Punctuated equilibrium for business success

Posted on June 18, 2010 by Ray in Corporate growth, Executive leadership, Market dynamics, Strategic Inflection Points, Strategy

Finch evolution (from http://rst.gsfc.nasa.gov/Sect20/A12d.html)

Coming out of the deep recession of 2007-2009 I am struck by how closely business success during recession looks like what ecologists call punctuated equilibrium. As Wikipedia defines it, punctuated equilibria, “… is a model for discontinuous tempos of change (in) the process of speciation and the deployment of species in geological time.”

This seems to me to look just like strategic inflection points. That is punctuated equilibrium is a dramatic, discontinuous change in a market or an environment which brings about great opportunity for gain or loss. Such opportunities can significantly increase business market share, if addressed properly. But if handled wrong, species and/or market share can vanish with surprising speed.

Galapagos Finches

I first heard of punctuated equilibrium from the Pultizer prize-winning book The Beak of the Finch by Jonathan Weiner which documented a study done by two ecologists on Galapagos island finches over the course of a decade or so. Year after year they went back and mapped out the lives and times of various species of finches on the island. After a while they came to the conclusion that they were not going to see any real change in the finches during their study, the successful species were holding there own and the unsuccessful species were barely hanging on. But then something unusual occurred.

As I recall, there was a great drought on the islands which left the more usual soft-skinned nut finch food unavailable. During this disaster, a segment of finches that hadn’t been doing all that well on the islands but had a more powerful beak was able to rapidly gain population and there was evidence that finch speciation was actually taking place. It turns out this powerful beak which was a liability in normal times was better able to break open these harder nuts that were relatively more plentiful during drought but normally unavailable.

Recessionary Business Success

Similar to finches, certain business characteristics that in better times might be consider disadvantageous, can reap significant gains during recession. Specifically,

Diverse product & service portfolio – multiple products and services that appeal to different customer segments/verticals/size can help by selling to differing business some of which may be suffering and some who may do ok during a recession.
Diverse regional revenue sources – multiple revenue streams coming from first, developing and third world localities around the world can help by selling to regions which can be less impacted by any economic catastrophe.
Cash savings – sizable savings accounts can help a company continue to spend on the right activities that will help them emerge from recession much stronger than competitors forced to cut spending to conserve cash.
Marketing discipline – understanding how marketing directly influences revenue can help companies can better identify and invest in those activities that maximize revenue per marketing spend.
Development discipline – understanding how to develop products that deliver customer value can help companies better identify and invests in those activities that generate more revenue per R&D $.

Probably other characteristics that were missed, but these will suffice. For example consider cash savings, a large cash horde is probably a poor investment when times are good. Also, diverse product and regional revenue streams may be considered unfocused and distracting when money is flooding in from main product lines sold in first world regions. But when times are tough in most areas around the globe or most business verticals, having diverse revenue sources that span the whole globe and/or all business segments can be the difference between life and death.

The two obvious exceptions here are marketing and development discipline. It’s hard for me to see a potential downside to doing these well. Both obviously require time, effort and resources to excel in, but the payoffs are present good times and bad.

I am often amazed by the differences in how companies react to adversity. Recession is just another, more pressing example of this. Recessions, like industry transformation are facts of life today, failing to plan for them is a critical leadership defect that can threaten business long-term survival.

Posted on April 30, 2010 by Ray in Executive leadership, Strategy

Abraham Lincoln - head & shoulders portrait from Believe Collective (cc) (from flickr)

We have discussed the need for visionary leadership in prior posts on R&D effectiveness and is M&A the only way to grow but failed to define the traits of visionary leadership. We turn now to examine just what makes a visionary leader? It seems only fitting to start this discussion with a portrait of Abraham Lincoln who embodies all the characteristics that define visionary leadership.

I believe a visionary leader embodies four aspects or skills that are not often found in one person. Specifically,

Technical knowledge – most visionary leaders in business today have a significant understanding of what can and cannot be done within today’s technology or environment. If anything they are also constantly trying to push beyond what’s doable today into what will be doable tomorrow. Such constraints define the bounds of product or idea development, extending beyond those limitations is the charge of such leaders.
Marketing prowess – most successful leaders have an in-depth understanding of market dynamics and how to sell products or ideas. We are all aware of viable products that never saw the light of day due to lack of marketing. Understanding how products or ideas are adopted in the market or world today can provide a significant advantage to any undertaking.
Motivational understanding – most successful leaders know the engine that drives successful solutions is human motivation. Products or ideas out to change the world can only be accomplished when people working on them all share that belief. Few executives understand the motivation of an engineer let alone other key personnel in any venture. But when leaders can motivate their people to do the right thing, watch out.
Communicational mastery – most leaders know the ability to communicate both internally and externally to get your view of world changing notions out to others is key. One cannot succeed in any endeavor involving multiple people and/or constituents unless without effectively communicate their ideas to others.

There are many other skills that a visionary leader must possess to be successful but these seem the most important and most rare to be found in one person. Most successful executives have one or two of the above traits but visionary leaders succeed only as a function of how well they incorporate all of them.

Can visionary leaders be made or are they born with these abilities? That will have to wait until another hearing…

Is M and A the only way to grow?

Posted on January 20, 2010 by Ray in Corporate growth, Strategy, Visionary leadershp

Photograph of Women Working at a Bell System Telephone Switchboard by US National Archives (cc) (from flickr)

Oracle buys Sun, EMC buys Data Domain, Cisco buys Tandberg, it seems like every month another major billion dollar acquisition occurs. Part of this is because of the recent economic troubles, which now values many companies at the lowest they have been for many years and thus, making it cheaper to acquire good (and/or failing) companies. But one has to wonder is this the only way to grow?

I don’t think so.

Corporate growth can be purely internally driven or organic just as well as from acquisition. But it’s definitely harder to do internally. Why?

Companies are focused on current revenue producing products – Revolutionary products rarely make it into development in today’s corporations because they take resources away from other (revenue producing) products.
Companies are focused on their current customer base – Products that serve other customers rarely make out into the market from today’s corporations because such markets are foreign to the companies current marketing channels.
Company personnel understand current customer problems – To be successful, any new product must address it’s customer pain points and offer some sort of a unique, differentiated solution to those issues and because this takes understanding other customer problems, it seldom happens.
New products can sometimes threaten old product revenue streams – It’s a rare new product that doesn’t take market share aware from some old way of doing business. As companies focus on a particular market, any new product development will no doubt focus on those customers as well. Thus, many new internally developed products will often displace (or eat away at) current product revenue. Early on, it’s hard to see how any such product can be justified with respect to current corporate revenue.
New products often take efforts above and beyond current product activities – To develop, market and sell revolutionary products takes enormous, “all-out” efforts to get off the ground. Most corporations are unable to sustain this level of effort for long, as their startup phase was long ago and long forgotten.

We now know how hard it can be but how does Apple do it? The iPod and iPhone were revolutionary products (at least from Apple’s perspective) and yet they both undeniably became great successes and helped to redefine industries in the process. And no one can argue that they haven’t helped Apple to grow significantly in the process. So how can this be done?

It takes strong visionary leadership in the company at the highest level – Such management can make the tough decisions to take resources away from current, revenue producting products and devote time and effort to new ones.
It takes marketing genius – Going after new markets, even if they are adjacent, requires in-depth understanding of new market dynamics and total engagement to be succesful.
It takes development genius – Developing entirely new products, even if based on current technology, takes development expertise above and beyond evolutionary product enhancement.
It takes hard work and a dedicated team – Getting new products off the ground takes a level of effort above and beyond current ongoing product activities.
It takes a willingness to fail – Most new internally developed products and/or startups fail. This fact can be hard to live with and makes justifying future products even harder.

In general, all these items are easier to find in startups rather than an ongoing corporation today. This is why most companies today find it easier and more successful to grow through acquisitions rather than through organic or internal development.

However, it’s not the only way. ATT did it for almost a century in the telecom industry but they owned a monopoly. IBM and HP did it occasionally over the past 60 years or so, but they had strong visionary leadership for much of that time and stumbled miserably, when such leadership was lacking. Apple has done it over the past couple of decades or so but this is mainly due to Steve Jobs. There are others of course, but I would venture to say all had strong leadership at the helm.

But these are the exceptions. Strong visionary leaders usually don’t make it to the top of today’s corporations. Why that’s the case needs to be the subject of a future post…