Conquering and Leaving the Frontier
Your new product has been a success in the frontier, and enjoys a patent, or some means of marketing or distribution, that no one else can duplicate. When your product is a hit and your organization has developed a means of keeping others from successfully competing, several important things need to happen:
First, prices must be set high, at the limit the customer is willing to spend. (Cell phones, for example, sold for about $1000 each when they were first introduced, and the charge for airtime was also very high.)
Second, because of the resulting high margins, your company can now afford to aggressively develop, modify, and innovate products. This is what enables it to continue to stay ahead of its competition.
Third, these margins provide the financial resources to support the development of a top-down, strongly-managed organization. Building and successfully operating this infrastructure provides significant financial rewards and incentives for management in a somewhat restrictive and paternalistic environment.
Key IssuesThe road that transforms pioneers into rulers will look familiar, because you'll remember it from a Marketing 101 class. This road is the traditional "S" curve that illustrates the life of a product, from initial investment through productivity to decline:
Every new product goes through an initial period of development, during which heavy investment is needed in order to bring it to market. If it makes it through this period, it then enters a phase during which it has the greatest potential for bringing returns to its investors and producers. During this time there is normally the heaviest demand, and the key organizational problem is filling that demand.
Eventually, however, competition catches up and profits begin to decline. By this time some kind of renewal strategy (e.g., the rollout of a new product, the significant redesign of the old product, the opening of new markets, etc.) should be in place. As an organization follows this "S" curve, there is the widespread expectation that the resources expended in development will be more than adequately repaid during the period of productivity. This is exactly what happens when a product enters a kingdom market.
The most common mistake new rulers make is to focus their attention almost solely on fulfilling orders, and to forget that those orders will eventually begin to dry up. In the midst of the productivity stage, it is easy to believe that no one else will be able to enter the market as a major competitor. In fact, however, long-time rulers have stayed successful precisely because they committed substantial resources to protecting their territories and keeping others out. This means paying close attention to competition and other external market forces. (The people in charge of this should be quite near to the top of management, so that any threats will be taken seriously and dealt with immediately.)
New rulers must also quickly learn to walk an unexpected tightrope. On the one hand, they must stay ahead of competition by creating innovative variations on their products, and/or by extending those products into new areas. On the other, these efforts must not draw off so many critical resources that order fulfillment is affected.
Kingdoms are maintained by a tenuous alliance that is built entirely around the customer's ability to procure the highly-desired product. Therefore, keeping customers should always be the number one goal of any ruler organization. This means carefully and consistently monitoring delivery to ensure that it is on time, accurate, and otherwise satisfactory.
Finally, there is the issue of control. Although the word "control" has some negative connotations, the fact is that control is an essential ingredient to the success of a ruler organization. A ruler that under-utilizes control and power in dealing with competitors (and attempts at regulation) makes itself too vulnerable to outside forces. Of course, over-utilizing control with customers and employees is just as much of a problem: it creates dissatisfaction and unnecessary complications.
Furthermore, employees and customers appreciate rulers' use of control - provided that it is used for their benefit.
Common DifficultiesManaging the cultural changeThe key problem in moving from the frontier to a kingdom market is changing the culture from an open, loosely-managed system to one in which management sets a variety of controls and boundaries. Most entrepreneurs find this too confining and restrictive. They simply are not able to develop the confidence that these processes are in their best interest. These changes inevitably take away freedoms that existed in the frontier, and they naturally meet with resistance, shock, and even outrage. If this transition is not handled intelligently, serious morale problems can arise, and these can sabotage the entire organization's performance.
Continuing to meet customer expectationsThe new ruler must also take care to retain the essential values of its product or service. It behooves the company not to undermine those key attributes that customers or dealers have learned to rely upon.
Because the focus of a pioneer-turned-ruler tends to shift somewhat away from research and development, and more toward getting product out the door promptly and reliably, there is a temptation to pay less attention to quality. This is a mistake, however. The new ruler instead needs to learn what product qualities (and/or other customer expectations) are particularly valued, and focus on maintaining these. If it does not, the organization may find itself slipping quickly back out of a kingdom market - either into a battleground or, worse, a jungle. As an example, frontier organizations often take responsibility for all unsold product on dealers' shelves. If it is not sold within a certain time, the company takes it back and issues a credit. In contrast, ruler organizations are sorely tempted to ask dealers to absorb the cost of any unsold product. In certain circumstances (e.g., in cases where a product is very well-protected against competition by patents) this may be acceptable. But in most situations, a refusal to accept returns may simply encourage dealers to stock competing products or work with other suppliers.
Reducing internal frictionA third type of difficulty can arise when two or more new rulers exist as parts of the same large organization, with each ruler dominating its own market. Without careful planning and oversight, each ruler can become its own little empire - and these empires may not work smoothly together within their larger organization. The more levels of management that are created, and the smaller the span of control each individual manager has, the more encrusted these empires can become, and the more time and energy must be allocated to make the larger system work.
While an overt, vertical hierarchy remains essential to rulers' success, this hierarchy should therefore contain only as many levels as are strictly necessary, and no more. In addition, structures and devices need to be put in place to create cooperation across boundaries. For instance, your company may create a variety of product manager and process manager positions to represent cross-functional interests. Another common solution is to create teams to support efforts to cross boundaries among regions, functions, technologies, etc. All of these cross-functional positions and teams must be developed from the top down, however, with clear, strong support from the highest levels of management. Otherwise, they are likely to be ignored.
Setting healthy boundaries with customersA final challenge for new rulers is setting boundaries in terms of what the organizations will and will not do to please customers.
Early on, many frontier organizations learn to never say "no," to be willing to do whatever the customer, distributor, or retailer wants in order to get their business. When a product is first making inroads into the market, this total "can do" approach is often wise. However, by the time a company has become a ruler, this bending over backward loses the organization more than it gains. What was once an admirable focus on the customer then becomes a lack of discipline that puts a drain on the bottom line.
Obviously, rulers still need to please their customers and deliver high levels of customer service. But wise rulers will negotiate (and, if necessary, renegotiate) these boundaries with customers in advance - making it clear precisely what they will and will not do. Once these agreements are in place, the ruler company then needs to set up a system to monitor and maintain those boundaries.
SolutionsEstablish a climate of openness and trustPeople who have worked in a pioneer organization share a clear vision that they were part of a developing company. Together they built a culture of innovativeness, responsibility, and accomplishment around that vision. They believe very strongly in both the vision and the culture.
When it is time to begin building a more permanent and powerful business to take over and control competition, some of the core pieces of this culture need to change. There needs to be less reliance on individual ideas of how things must work and more reliance on systems that work every time and in the same way. There now needs to be less concern for the innovativeness of the technology and more concern for efficient production and control.
To managers used to (and loyal to) a pioneer culture, these changes may feel like a stab in the heart, a signal that their opinions are no longer considered as valuable. They may feel (perhaps quite accurately) that they will be less able to be themselves in this new culture.
In general, the cultural changes your organization will need to make will not go down easily with most of the people in it. Many will feel that management has betrayed them and sold out, that the company's most positive attributes have been discarded. (There is some truth to this last item, though what has been discarded is a set of values that the company has outgrown.)
Therefore, it is critical that all the things we know about managing change be brought to bear in assisting people to make this very difficult adjustment. Indeed, the attraction (and the thrill) of becoming a ruler often blinds management to the fact that enormous changes must take place, both for the organization and for the people in it. This makes it all the more important to make good use of best practices for dealing with change.
Redesign your processes to focus on both efficient delivery and customer satisfactionRulers must change their focus from pleasing customers at virtually any cost to getting as much product out the door as efficiently as possible, while still meeting customers' key demands. This means identifying (and, if need be, creating) the most effective and efficient processes for meeting all delivery goals. It also means learning what truly matters to customers (and what, therefore, must be maintained), as well as what customers aren't especially worried about (and what, therefore, can be dispensed with).
Manage people benevolently and honestlyWithout vigilance, and a strong moral commitment from its top managers, ruler organizations can easily deteriorate into power systems that do not take people into account and focus entirely on financial concerns. How to avoid this temptation? Leaders, especially those at the top of the organization, need to maintain and model honesty and integrity at all times. They also need to make it clear that such behavior is highly valued in employees' dealings with customers, and with each other. The flip side of this is that managers who don't value, practice, and encourage integrity must be encouraged to find new employers.
Ruler companies all have the opportunity to become more than just a business organizations earning profits. They can learn to benefit all their stakeholders for a long time once management understands clearly that the purpose of business is: to provide valued products and/or services to customers, and to do so with integrity. Making money is not the purpose of a company, but an outcome, a result to be striven for. Reminding managers and employees of this helps to avoid the - dishonesty and lack of integrity that we so often observe in business life.
Leaders should also go beyond what is merely necessary to establish good will with employees. This might mean investing in bonuses, raises, gifts, awards, appreciation programs, etc. - though it might also be as simple as regular meetings or lunches with employees.
Establish early warning and quick response systemsRulers can easily become obsessed with production and filling orders, since they are where the profits are. Furthermore, there are considerable problems just in making sure that enough product gets produced and sold. As a result, managers in a new ruler organization tend not to be easily influenced by information outside the realm of production and delivery. They simply do not want to hear about other problems.
Unfortunately, potential competitors become very envious of businesses that realize excellent margins, and they will not allow those businesses to exist without a challenge for very long. It is essential, therefore, that at an early date you put systems into place that scan the market horizon for potential incursions by competitors. These scouting systems need to be properly funded and staffed. Furthermore, they need to have a direct line to top management, or they will go unheeded by most everyone.
Develop cross-functional mechanisms that enhance the effectiveness of the hierarchyIn twenty-first century kingdom markets, rulers cannot afford to relax and foster internal dynasties. Neither a horizontal nor a siloed structure will work for rulers. In order to achieve the greatest efficiency and effectiveness, your organization will need a clear hierarchy augmented by many cross-functional and (perhaps) cross-market mechanisms.
For example, as certain markets get more demanding, the parts of your company that service one particular market (or a certain group of buyers) may decide to create an overlapping business mechanism that reaches across those parts and unites them in serving that particular market or set of buyers more effectively and efficiently. For instance, your industrial heating and cooling company might create a cross-functional system (often called an overlay business) to specifically address the needs of hospitals, or airports, or heavy industry. In a ruler organization, however, this overlay business must always be less important than the core business.
Communicate and support a clearly-defined business strategy throughout the organizationRuler organizations function best when they develop a clear strategy for doing business, as well as clear guidelines for all managers and employees to follow. This explicit sense of direction provides everyone in the organization with a sense of freedom, focus, and meaning.
Two important caveats apply here, however. First, if you want to help focus and energize your employees, you must have a full-fledged business strategy in place, not just a set of sales or profit goals. Second, that strategy must be clearly - and regularly - communicated (and re-communicated) to everyone in the organization. New hires should understand the strategy clearly by the end of their first day on the job.
Most ruler organizations today relate all operational decisions to one (or more) of 4-5 key strategic initiatives, and expect departments to arrange their objectives similarly. Without this clear connection of plans, activities, and strategy, department activities quickly deteriorate into uncoordinated action, resulting in organizational anarchy.
Actively discourage bureaucratic behaviorAlthough ruler organizations are bureaucracies, they should be highly functional ones. This means actively encouraging managers and employees to share ideas with one another, make suggestions, ask questions, and communicate frankly and honestly. It means encouraging mutual respect, regardless of anyone's rank or job title. And it means actively discouraging behavior that gets in the way, such as:
- Saying "it's not my job" and turning away, rather than making an effort to locate the right person.
- Wrapping oneself in the cloak of the organization - e.g., writing "the company has made the decision" instead of "I decided."
- Dodging responsibility, or trying to foist it on others.
- Butt-covering.
- Protecting one's turf.
- Brown-nosing.
As soon as possible, some mechanism should be put in place to flag dysfunctional management behavior, so that it can be corrected or eliminated quickly, before it can become a way of life in the organization.
Adaptation IssuesAs your organization crosses the line from pioneer to ruler status, keep in mind the following:
Grow slowly, even reluctantlyDespite appearances, growth of an organization is not ipso facto beneficial. Yet ruler organizations tend to grow automatically, with little or no effort, at least at first. Therefore, one of top management's concerns should be carefully monitoring growth, and, as necessary, reining it in, stopping it entirely, or spinning off one or more pieces of the organization. Wise managers focus not on mere growth but on careful, deliberate, well-managed growth.
Too much growth too fast can cut deeply into margins, wreak havoc with cash flow, and create a chaotic business climate in which the speed of change outstrips people's ability to cope. Remember, too, that management is responsible for anyone laid off because of excess capacity.
Focus attention on those markets that can be dominatedIt may appear that rulers, with their high margins and relatively secure positions, can afford to take significant risks in new markets and with new products. Yet experience teaches us that this is not the case at all. While rulers may have the financial stability to weather a string of poor decisions or tough breaks, no organization can afford to take a significant risk when the risk/benefit ratio does not make good business sense.
Your company's focus now needs to change. As a pioneer, you focused on creating new products and garnering a reasonable market share. Now, as a ruler, your focus needs to be on maintaining your dominance in current markets, and expanding into other markets only if you can extend your domination into them.
A good example here is General Electric, which won't even enter a market unless key people in the company believe it can become either #1 or #2 in that market.
If you do wish to continue to develop and market brand new, first-of-their-kind products (and thus remain in some frontier markets), then you'll need to set up a separate division or unit - with, of course, a pioneer culture - to do this.
Improve the collection of information about your customers and competitorsAs a pioneer organization, you probably collected (and made good use of) information about product acceptance and use. While you certainly need to continue doing so, you must now also regularly collect information about competition, market shifts, and market volatility. This information must quickly be made readily available throughout the organization - especially to people at the top.
Keep innovatingA danger for all new (and many not-so-new) rulers is believing that answering the phone and delivering product are all that need to be done. (As your people will discover, it takes a great deal of effort just to do this much right when you're the ruler of a kingdom market.) However, your retention of ruler status is very much dependent on the amount of continued innovation (in both processes and products) that your company supports.
