Both IBM and McDonalds reported poor results this week. It struck me how i really don’t see these companies staying relevant in the future and also how it is so difficult for large companies to compete with a new generation of younger, hungrier and faster moving companies.
IBM and McDonalds are both giant, iconic brands that we have been surrounded by all our lives. But to me they look as weak as they ever have and i think you really have to wonder where they will be in a few years time.
Is IBM really still a technology company? Is McDonalds really still a food company? It seems once you become such a big company you just can’t innovate, move with the times and introduce new products at anything like the same pace as your competitors can or that you need to in order to stay current with changing market demands.
Big companies like these leverage their brands, their distribution and, most importantly, their financial muscle, to succeed. But they tend to stick with the core products that made them great, even when the market is moving away form them. Size and scale can only get you so far when the product is not changing as fast as the market is.
These days what IBM sells barely qualifies as technology. When i think of IBM i think of men in suits offering expensive consulting services. When i think of McDonalds i think of a menu that is hardly recognizable as food. The new generation of buyers want services in the cloud that they can access from their mobile devices. They also want food that looks like food, to know where it has come from and that it has some nutritional value.
I can’t see either business doing anything but going into terminal decline. Becoming much smaller as a business. Becoming much less relevant as a brand.
So what could they have done differently? It’s an interesting point and not an easy one to answer. The people running these companies are intelligent and experienced people. If it was obvious how to avoid these issues then they would have figured it out.
But i think there are a few things that spring to mind that would help companies to adapt in the face of a changing market.
1. A culture of innovation
So many companies talk about innovation but it’s not easy to do in a practice, especially as the company gets bigger and things become more difficult to change. I believe innovation has to be a core part of a company’s culture and it needs to be manifested and measured in some way. Everybody needs to know that the business encourages innovative thinking and is open to new and better ways of doing things.
2. Growth trumps all
You need to be growing your sales otherwise it will eventually catch up with you. You can continue to deliver strong profits and overall growth through cost cutting, acquisitions and clever financial engineering but if your top line is not growing then you will not be able to achieve sustainable, strong performance.
3. Embrace youth
There is this belief that age = experience = better choice for senior positions. I’m not sure this is always right and it can help to perpetuate an established way of doing things at the expense of innovation. I believe that relevance is just as important as experience when you are looking to fill senior positions. Are these people potential users of our product? Can they identify with the market we are selling into?
4. An ideas/incubator/investment group
There should be a group within the company that looks at new ideas and developing those ideas into products and business cases. At the same time there needs to be a group within the business that is looking at start-ups and emerging technologies/ideas that the business should be exposed to and sometimes invest in. You can learn so much from the next generation of companies and entrepreneurs. This group needs to have credibility and executive power within the company and the best way to do this would be for them to report directly into the CEO.
5. Back your CEO & their strategy
There is a tendency, especially within larger public companies, to look at performance in terms of quarterly reporting cycles and your share price. For a CEO to ensure that their company is responding to changing market conditions and is able to go through a process of renewal from time to time, a company and its board needs to back and judge a CEO over the longer term.
6. Listen to the market
The writing is usually on the wall many years before a large company starts to go into decline. But all too often companies do not listen to the signs and choose instead to cover up a faltering position with clever financial engineering. As Jim Collins says in his excellent book ‘Good to Great’ – the best companies ‘confront the brutal facts.’
7. A process of renewal
I once heard that you couldn’t hold a senior role at Microsoft for more than two years. I don’t think they do this anymore but it seems that this was an initiative during their best years. At a recent Vanity Fair event i attended Shane Smith the founder/CEO of Vice Media was asked what he would do with an old media company and he said something like ‘…rip out all the pipes and pull out all the wires and start again.’ While these initiatives for complete renewal may be terrifying for many of us i think this kind of attitude is needed to keep a company fresh and in touch.
But even after all of this the truth is that very few companies manage to be successful for the long term and IBM and McDonalds have done very well to lead their markets for so long. Very few companies manage to remain relevant in the face of a new wave of competitors. Indeed, with each new wave of technology, a market leader from one has never been a leader in the next.
So lasting the course is very hard to do and there are few precedents to draw from. But I’m convinced you can at least greatly improve your odds by staying committed to growth, innovation and long-term perspective in the face of multiple pressures to do otherwise.