Perfect Biz Match | Transform | Drift into this Market from a Declining Kingdom

Drift into this Market for a Declining Kingdom

After dominating the market for some time as the premier producer of a product in high demand, your company finds that the product has become a commodity and is now produced equally well by a handful of competitors.

Once a company has established itself as a ruler in a kingdom market, there is a tendency for its managers and employees to assume that this is its rightful, God-given place. Yet the kingdom is never the final phase in a product's natural life cycle.

Your company may be able to create a kingdom market, and protect its position through patents, marketing strategies, and/or the elimination of all meaningful competition. But eventually - after some months, years, or decades - every kingdom market erodes into a battleground. This may be because a patent runs out, or because some company with huge capacity and resources decides to enter the market, thus creating significant competition.

In either case, your company is now faced with a very different market environment, and must either learn how to do business in a battleground or get out of the market entirely. This is roughly akin to learning that the inheritance you've lived on all your life is suddenly gone, and you've got to get a job like everyone else.

Imagine that the people in your company have gotten used to its ruler status. All of you are used to focusing your attention on "answering the phone" - that is, on responding to the incessant growth in demand for your product by upgrading facilities, constructing new plants, hiring more people, innovating new versions of the product, and increasing prices to meet these needs. New versions and variations of the product come out every now and then to keep customers demanding more and more. The product has been a provider for the company, usually for a long period of time (sometimes for 15-20 years). The margins it has created have been used to weather storms in product areas that are more vulnerable to changing market forces. Infrastructures have been built around the research, production, and marketing of the product. These have been allowed to grow in size to handle ever-increasing demand. Product innovations have become more and more difficult, so the research departments have become large and costly. Production processes have either been allowed to deteriorate, or huge investments have been made in new equipment. Sales forces are large and deployed deeply in many territories. Because of the product's success, people connected with it have received many rewards, which they wish (and in some cases expect) to continue receiving. Leaders in this product area have become strong political forces by being chosen to lead more and more significant portions of the company.

Eventually, however, the phone no longer rings as often. There is too much capacity in the plants. New units sit on the shelves unsold. Other companies have taken away some of your customers with lower prices, or better service, or product modifications, or some combination of these. Customers continue to need your product, but your company no longer has a stranglehold on the market.

The party is over and management knows it. Yet, because everyone has gotten so used to their ruler status, parts of the organization are in turmoil. There are impending layoffs, and a new focus on efficiencies needs to be created in all parts of the system. Discretionary funds for conferences, meetings, trips, new offices, etc. have dried up. People in the organization no longer are clear about what their roles are and how they are expected to contribute. The manufacturing people want to see more orders and more product going out the door, but the orders continue to decline. Marketing people dream up multiple projects to bring in more customers, but the customer base keeps shrinking nevertheless. Research and development people are busy creating what they consider new and improved products, yet these are not well-received by customers. The financial people call for more and more discipline in spending, but find that all the activity to improve manufacturing, marketing, and R&D is actually costing more. The rest of the supporting cast is equally as confused.

Welcome to the inevitable last phase in the life of a product, where it is very competitively priced, of uniformly good (or at least adequate) quality, and easily and readily available from several sources. Your organization must now either make the huge, difficult, and disruptive change from a kingdom to a battleground market, or else get out of that market entirely.

In many cases, this second option - selling the product license, the unit, or the entire company - may well be your best strategy. Indeed, often there's a very good reason why your company has been knocked off its throne: the organization(s) that have forced you into a battleground market can do a better job than your company can with this product. In such a situation, it's probably time to get out of that particular business. Accept that your company's run of success with this product is over. Formally celebrate your past success, honor the people who helped create it, and move on. In many cases, this will create the least disruption to people's lives, and lead to the best bottom line - especially if you can sell out for a substantial sum.

In fact, most companies that have attained kingdom status choose not to continue with a product once the kingdom market erodes into a battleground. The disruption is simply too great, the required change too radical. Seeing that the organizationâ€™s infrastructure simply cannot withstand the impact, management wisely decides to sell out to a competitor.

For example, 3M invented video tape and ruled that market for some time, extracting significant margins of between ten and twenty dollars per cassette. In the early 1980s, however, the company's patent ran out, and several competitors, some of them Japanese, began producing the product. There was some price erosion, but 3M kept its retail price at around ten dollars, using its brand name to help support that price. In the mid-1980s, however, Memorex suddenly cut its price to about four dollars. At first, 3M's management figured it was a marketing ploy to secure the customers, run 3M out of the business, and then raise the price again so Memorex could make profits. But then other companies matched Memorex's price, and it soon became clear to 3M that it was not a ploy, and that its competitors were actually making sufficient profits at that reduced price.

3M decided to stay in the business and to do battle with these companies on these new terms. After all, management reasoned, the company had made huge capital investments in its manufacturing processes, and its leaders felt that they could bring their costs down and pay for those investments, while still making some profit. However, as 3M began to come close to the new price, its competitors continued to reduce theirs.

In order to keep the division alive, top management cut costs inexorably and downsized the division far beyond any cuts the company had ever made. There followed several years of excruciatingly painful working conditions for everyone involved in that part of the company.

3M's problem was that it was a ruler organization trying to quickly learn to adapt to the ways of a warrior. Meanwhile, it was faced with competitors who were much more adept at operating in a battleground market. They were warrior organizations that know how to win under these conditions. Finally, after ten years, 3M gave up the videotape business, unable to even sell off its assets. The division simply could not change deeply enough and fast enough to compete in a battleground.

All ruler organizations face similar difficulties if they attempt to do business in a battleground. If your management does decide that it wishes to complete in its new battleground market, your company's entire culture of abundance and domination will need to change. The organization must become frugal, and willing to share the market with other large players. The focus of all activity must change to efficiency, speed, minute margins, small product adaptations, and developing and maintaining extremely high volumes. In the meantime, do not be surprised if a buyout offer comes on the table, as one of your competitors seeks to absorb your company to serve its own efficiency and volume needs.

In many ways, the demands of a battleground market are exactly the opposite of those of a ruler culture. As a result, people who were performing very well before according to certain guidelines may become very frustrated with the 180-degree discrepancy between what they have been trained to do and what they are suddenly being asked to do.

Key Issues
Cleary, the central issue is whether to continue to compete at all, or to create a strategy for bailing out. Unfortunately, either decision will be traumatic for most of the people in the company. The only other option is more traumatic still: make few or no changes, and ride a death spiral to bankruptcy. (Sadly, this is exactly what does happen to many companies.)

If your company does choose to attempt to profitably compete in this new battleground market, it will have to go through some significant and painful downsizing, as well as an overall restructuring of both the work and the organization. And, as if this won't be difficult enough, the power structure of the company may be laced with people who have ties to the productâ€™s history. These people are going to be very disappointed when they watch their pet projects of many years simply disappear.

It may, perhaps, come as no surprise to you that most efforts to adapt a ruler organization to a battleground market are unsuccessful. The companies typically become dysfunctional and financially unsound, and are usually swallowed up by competitors, often after at least one reorganization.

Common Difficulties
Coping with the new reality: survival
As the ruler of a kingdom market, your organization may have seemed invincible and capable of almost anything. Now the very structures that supported your dynasty will weigh on your organization like a huge stone about its neck. Virtually all of the old culture - habits, practices, proclivities, processes, attitudes, etc. - is no longer needed, and in fact now gets in the way.

To put it simply, your organization must change enormously and extremely quickly, or else die. Everyone in the organization needs to very quickly understand this. This means that a huge internal communication effort must immediately be put in place, and it must come from the very top.

Garnering buy-in for a major change in the way almost everything is done
The slow-moving enterprise of the ruler now needs to become known for speed. The old luxuries and discretionary resources are gone (or must go), probably forever. The company can no longer be driven by a focus on the growth of its assets; it must now focus on huge volume, and be satisfied with minute margins. The old emphasis on internal politics, in which leaders of the different units competed with one another for prominence and accession to the throne, must give way to a single centralized command, whose orders must be followed to achieve fully coordinated strategies.

None of this can take place by fiat or executive order, no matter how powerful and charismatic your organization's leader may be. There must be widespread buy-in for every one of these changes, or your organization will expend much of its resources shooting itself in the foot, over and over.

Creating a new and alien culture - and finding the right people to lead it
Nothing short of a total transformation of the organization is required. Few, if any, of the organization's top people will be able to make this transition. Given the change that is needed, this is a simple fact of life; it does not represent a failure on the part of either the affected people or the organization as a whole.

One painful reality is in the disappointment of those who have for years performed successfully, learned all the rules, and developed all the political skills needed in the ruler environment. Now the rules need to change drastically, and the political skills that were once so valuable have become serious detriments to the organization. Another is that the kinds of behaviors needed to be speedy and Spartan have not yet been developed or supported; indeed, they are probably totally foreign to your company's current managers.

Ensuring that the change is complete, swift, and all-encompassing
The transformation from ruler to warrior must not only be thoroughgoing, it must be swift and irrevocable. By definition, there will have been little or no preparation for the change. Essentially, the whole organization must be pushed off the dock and then quickly taught to swim.

Within a few weeks, there will need to be severe downsizing throughout the entire organization, especially in management. Those managers who do remain must quickly learn how to do things without lengthy discussions about when and how they should be done. If they cannot make this adjustment quickly and reasonably smoothly, they will need to be replaced.

Solutions
Rid the organization of everything not absolutely necessary to production - and be 100% public about it
It can take years to completely realign a culture developed by a ruler organization. Nevertheless, if you are competing against companies that are already functioning as warriors, you must move as fast as possible, because until most of the transition is complete, those companies will consistently outperform your own organization. (This is one of the main reasons why ruler companies that suddenly find themselves in a battleground market often let themselves be bought out rather than face a lengthy, difficult, and painful transition.) Even though the full realignment will take some time, your company can probably be saved if you promptly begin making substantive changes, and continue the process steadily and vigorously.

There will be shock, panic, and resentment no matter what you do, but these can be kept to a minimum by immediately and fully disclosing to everyone in the organization exactly what is being done, why it is both necessary and unavoidable, and what they each stand to gain and lose in the process. There is no up side, and an enormous down side, to withholding information or plans from employees in this situation. Buy-in is possible only in an environment of total, honest disclosure. You will still lose some of the people you hoped to keep, but far fewer than if leaders play their cards close to their chests.

Once news of the organizational redesign has been made public, the very next move is to excise as many layers of management as possible. This quickly streamlines the organization, saves a considerable amount of money, demonstrates to employees that the redesign effort is for real, and sends a message throughout the company that managers no longer make up a privileged class. This effort should be swiftly followed by the following changes:

The massive research enterprise that develops (or searches for) new products should be shrunk by 40-80%, because most of this function is probably no longer needed.
The overstaffing in most departments that existed to keep everyone informed, involved, and rewarded should be cut back, again by 40-80%.
The great majority of project managers in marketing are no longer needed, and should be reassigned or let go.
Any element of production that can be efficiently automated should be, and the relevant jobs eliminated.

All of these people served important functions in the ruler system - but they will be detrimental to the speed and leanness now needed to survive in the new battleground.

If your primary competition is a company that has primarily operated in a different kingdom market, but has recently entered your own market and successfully managed to take away a significant chunk of your own market share, then the time crunch may not be so urgent. Your competitor is probably faced with similar concerns and may also need time to plan and implement its own realignment. The same is true if your primarily competitor(s) have recently entered the battleground from the frontier. But if you are facing competition from companies that have considerable experience succeeding in either a battleground or jungle market, your company is already in a state of emergency. Everyone in your organization needs to know this, and they also need to understand that the only hope for survival is swift and drastic measures.

In essence, your company, which has been used to feasting during a time of plenty, must be put on a crash diet. Furthermore, the benefits of this diet - a long, healthy life for the company, and long-term job security for those who survive the downsizing - need to be sold internally, over and over, with great vigor and even greater sincerity.

None of this, however, should be taken as a mandate to recklessly downsize and create ostensible efficiencies through ruthless or capricious decision-making. (Exhibit A is "Chainsaw Al" Dunlap, who is primarily known not for brilliant leadership, but for his penchant for reckless downsizing.) All the changes recommended in this chapter need to be made in such a way that managers and employees have the support they need to go through the change process with their integrity intact. Otherwise - to put it bluntly - why even start?

Nevertheless, the final result must still be fewer employees, fewer managers, much less cost, quicker processes, an orderly work process, and a product or service that contributes to the lives of vast numbers of customers. This makes the job of designing and implementing the change process truly monumental.

Create a new culture based on the centralized issuing and carrying out of orders
With few exceptions, this can only be done by removing the person at the top, and bringing in someone with experience as a leader of a warrior business. There simply is no time for the current CEO or president to learn all the ropes of leading a warrior organization. Your company needs someone who can very quickly establish the vision of a warrior organization and put the pieces into place over as short a time as possible.

Furthermore, as soon as this new leader arrives, they need to issue something very close to this proclamation: "In order to survive, we need to reinvent ourselves from top to bottom, and we need to do it fast. From today on, our focus is on creating as many efficiencies as possible everywhere we can. Without these efficiencies, we lose money on everything we sell, and the greater our sales volume, the greater our loss. As part of this focus on efficiency, your new mandate is not to consult with many of your colleagues before acting, but to follow the instructions you receive from above as swiftly and efficiently as you can. We must all reinvent how we work if we are to continue to compete." This message needs to quickly permeate the whole organization.

Redesign all key processes
Although this necessary change can be easily stated in only four words, it is usually a massive effort. Leaders and other important people in every department need to put their heads together to redesign all of your organization's processes around the steps needed to accomplish them. This means eliminating all variances at the source of every problem. It also means reducing or eliminating the involvement by everyone not absolutely necessary to any department's core process.

Furthermore, this needs to be done quickly - in months rather than years, and ideally within a couple of quarters. This will send enormous shock waves throughout every part of the organization, so tell everyone to expect them.

Realign the entire human resources function
Although all departments will need (and should be expected) to streamline, the human resources department will require a full-scale realignment. For some time the department has been supporting a culture that is no longer viable; quite naturally, then, many of its key people are as entrenched in the old system as the managers they have served. HR's selection process, review process, and reward systems all need to be redesigned, probably from scratch, to reflect the new realities in a warrior company.

Your primary considerations will be these:

Attraction and recruitment of prospective employees. You should no longer be looking for the best of the best. Instead, simply look for the skills actually needed to carry out the orders of management and perform the functions of the work.
Selection and hiring. Management now needs to select only those people who will fit well within the new culture.
Orientation of new employees. It is essential that new people understand, immediately and clearly, the importance of getting things done speedily and without any unnecessary hesitation or deliberation. In a battleground market there is no time for much discussion or for the reassessment of goals.
Training and Development. Management must make it clear that people will now be trained only for the work that needs to be done, and any specific future work that is clearly foreseen. Employee development efforts should now become minimal.
Performance measurement and development planning. The principal issue now should be whether people carry out the imperatives of their jobs and the orders of management, not whether they have shown innovative tendencies and purposely broadened themselves.
Career development. Future managers should be clearly recognized, designated, and developed, according to a concise and forceful plan. Everyone else should be judged mainly by their accomplishment of the clear objectives formulated by management.
Compensation systems and formal and informal recognition. These should reflect management's imperatives of developing speedier and higher quality systems, and increasing production and sales volumes.

A more macroscopic HR issue needs to be dealt with as well. In ruler organizations, human resources departments are often politically very strong. When the whole organization culture system changes, it is critical that this political force be reconstituted. Top management needs to move swiftly to reshape the department's role and functions.

HR should now fulfill almost solely an administrative role, rather than a developmental one as well. Reporting requirements will need to change, so that top management can have more oversight and more direct control. In many cases, some or all of the hiring should be moved out of HR and into the specific departments. Understandably, the people in HR are going to strenuously resist such efforts, which means that the mandate for change in the department needs to come directly from the very top level of management - if possible, from the CFO or CEO. Furthermore, in my experience, the required changes can only be made if a new HR director is brought in. This person should of course have considerable experience as an HR leader in a warrior organization.

Adaptation Issues
Leading the change from the very top
The change process should, at minimum, be aggressively supported by your company's Board of Directors. It's better still if the process is driven by the Board, since the CEO will almost certainly need to be replaced. (The exception is if the current CEO is new and has significant experience leading a warrior organization.)

From the very top of the organization, develop and communicate a radical new vision of the company that includes what it will look like if it is successful in its new market environment. Work to get commitment from every part of the organization; as needed, replace people who do not completely buy into this vision. Then lead the organization to this radical goal.

Engaging the help of change management specialists who are familiar with this kind of change
Do not expect your own OD people, no matter how talented, to be able to provide all the necessary expertise and experience. A good outside consultant can help your organization to avoid all kinds of strife and a host of common mistakes.

Understanding the disruption to people's professional and personal lives that will be created
Because the required transformation will be so enormous, at various points all the various stakeholders in the organization - from employees to top managers to directors to stockholders - will lie awake at 3 a.m. and ask themselves, "Is it all worth the incredible personal strife that's been created?" If the effort ultimately results in the company's long-term success, then the answer is "probably." But if the company becomes a marginal player, or can at best only manage break even each year, then the answer is "probably not."

Obviously, each organization has to create its own answer to this question. Still, a decision to stay in the market should be made only if the clear consensus among key leaders and directors is "we think it will be worth it, and we're committed to doing our best to make it work." In the absence of such a solid and unanimous (or nearly-unanimous) commitment at the very top, it's usually best to close up shop.

This is not a situation where it makes sense to say, "Let's give it a try and see what happens." Other approaches that won't work include arrogance ("we've got a great team here; we'll make it work"), false optimism ("things will get better if we can just hang on for the next two years or so"), and outright denial ("we can't let go of the people who have given us so many years of their lives; besides, Michael Moore will skewer us in the media"). As we all know, when reality squares off against good intentions and fond hopes, reality always wins.

Ultimately, your top leaders will need to go back to the organization's mission and ask, "Which direction will best help us continue to fulfill our mission?"

If you do decide to proceed with the adaptation effort, everyone at the top needs to be ready and willing to live with the fallout of replacing key people - including the CEO, the HR director, and other powerful (and, usually, entrenched) leaders. The process will very likely result in many angry or disgruntled employees.

Some of the people who will need to be let go will be on the verge of being vested in their retirement programs (vest them anyway). Others will be new hires who left (or turned down) great jobs elsewhere,; some may have relocated to join your organization. (Give these people good recommendations and decent severance packages.) Still others will be talented people ages 50 and older who may have a hard time finding new jobs. (Make sure that they get honest recommendations, appropriate severance pay, and reasonable sums of money for retraining.)

Managing the downsizing process thoughtfully and compassionately
Remember Chainsaw Al Dunlap. If the process is handled poorly or harshly, the new culture will reflect the attitudes formed by the survivors of the downsizing. Often these people suffer from anger, or severe depression, and many feel guilty about remaining employed while others have been downsized. These attitudes are ready to surface at the first hint that things are going poorly - or that management doesn't give a damn.

Considering each division separately
If your organization has a division that has routinely turned significant profits, which the company as a whole has used to solve problems elsewhere in the organization, an additional concern will need to be addressed. People at the top of the company need to be told that they cannot reasonably expect the same large profits in the future - and, in fact, that they should expect minimal profits, or even losses, for the next 1-3 years, while the division reinvents itself. Top management then needs to figure out how to function effectively without this income.

In some cases, a single division of a company may move from a kingdom market to a battleground, while the rest of the organization continues to operate in kingdoms. In such a case, this division must be structurally separated from the rest of the organization and reinvented, while the structure of the rest of the company should remain unchanged.

Never losing sight of the fact that becoming a warrior organization is an enormous and difficult job
Change management consultant Daryl Conner is fond of saying that unless a change is absolutely necessary, don't make it, because it is much more difficult than anyone imagines in the beginning. This is especially true of the change needed to transform a ruler into a warrior.

Knowing when to stop
The new CEO needs to steadily monitor the ever-present drive for efficiency and leanness, and to put the brakes on if it begins to create organizational anorexia - e.g., if all or part of the company is in danger of becoming too lean to function effectively.

In addition, the top leader needs to recognize when even the best efforts at redesign and efficiency are not making the organization (or division, or unit) sufficiently competitive. If this does become clear, the CEO needs to have the courage - and sufficient support from the organization's directors - to say, "Enough is enough. It's time to sell or close."

Neither of these decisions can be made easily - nor can they be made without very high quality information. Thus, the CEO's management team should be charged with regularly providing the kind of information needed to make these difficult calls.

As you weigh all the factors involved, beware of getting stuck in product pride. It may feel satisfying to declare, "It's our product, and it defines who we are. How can we possibly sell it off to someone else? Either we find a way to make a profit with it or we go down with it, like a captain and their ship." Ultimately, however, such a position will harm virtually every stakeholder.

It also helps to remind yourself, and your colleagues, that consumers don't care who makes your product. As long as the product itself doesn't change, no one gives a hoot whether it comes from you, your competitor, Nabisco, Ford, Procter and Gamble, or some 19-year-old's garage.

Although I have made much of the difficulty involved in transforming a ruler into a warrior, a significant number or organizations have made the change successfully. Here's how one organization I consulted for pulled it off:

The general manager shut down his entire operation for two weeks and took all of managers on a retreat. There, together, they developed a new vision for the organization. Each manager was then assigned a team of employees. The ultimate charge was for each manager and their team to change some significant part of the organization and its operations.
During the retreat, each manager was also asked to create and present a detailed plan for how they and their team would accomplish the needed change. When each manager presented their plan, it was thoroughly reviewed, critiqued, and refined by the other participants.

After the retreat ended and the plans were implemented, daily and weekly meetings were held to provide support and monitor progress in terms of specific numerical goals. The plan was to stop the bleeding first, then change the organization's structure, and all of its key processes, within six months. The general manager led the process at all levels, but, by design, the change effort involved every single person in the organization.

And the effort paid off. Within a year, the organization was turning a profit again, and functioning as a successful warrior.

All of which demonstrates that, while making the transition from ruler to warrior is as tough as training a lap dog to herd sheep, it can be done.