A good crisis can make for great opportunities

Originally published on September 4, 2015 as a Guest Column in The Globe and Mail:

A few weeks ago, I went to Brazil to speak to a large group of manufacturers on the perpetually-topical subject of innovation in a time of crisis. The forum, held by FIERGS (Federation of Industries of Rio Grande do Sul), addressed the well-known struggles of the Brazilian economy. Unfortunately, those same issues are now being faced by the Canadian economy.

With the recent announcement that Canada is in a “technical” recession, these two resource-driven economies are slowing to a crawl. The good news? For me, there’s never been a better time for businesses to embrace innovation. And the best way to succeed in this perpetually challenging area is to look at innovation through the lens of crisis – or turnaround – management.

Innovation has always thrived in hard times. Desperation forces people to question the status quo. In good times, people may be less inclined to rock the boat, but when investors and customers are bolting for the doors, you have no choice. That’s probably why some of the world’s great companies were founded during recession – businesses such as General Electric, IBM, Disney, Microsoft and Adobe.

One of the world’s most successful innovators, Apple, wasn’t founded during a recession. But the same principle applies. When Steve Jobs returned to take the reins in 1997, Apple was facing crisis: too many products, too little focus, not enough revenue. What saved the day? Steve Jobs shaved Apple’s product lines by 70 per cent. Even the best companies can become bloated and undisciplined during the good years and forget the core competencies that made them great.

To stay true to your strategic core, you could do worse than look to the process of strategic turnarounds. Once a company has accepted that it has lost its way, a successful turnaround requires an extraordinary commitment to self-analysis, questioning, reflection and day-to-day change. The same turnaround tools can be adapted to meet the enormous market pressures all businesses face today.

The main reason many companies fail is lack of focus. They start off doing one thing well, and then get attracted to – or distracted by – other opportunities. Some may be successful, others not. But all of them distract the business owners and leaders from what they set out to do. And all too often these shiny new opportunities are well removed from the business’s original roots. That means there is little synergy with established operations, and way too much to learn – about new products, suppliers, distribution channels, markets and customers. It’s falling into this pit of guesswork and improvisation that leads most companies to call in the turnaround experts.

It takes courage to admit that your company needs to reverse course. But successful turnarounds require everyone involved to face the brutal truth.

The best turnarounds usually begin with a strategic review that asks: What are our strengths? What do we do best? Where are we losing money? What operations are most profitable? Where can we grow? Successful change also requires that you reconsider some of the specific actions that got you into trouble. Stop doing the same old things; one definition of insanity is doing the same things and expecting different results.

Here are some of the key elements of a successful turnaround:

  • You need the right people on the journey. A winning turnaround starts with shedding employees who aren’t contributing sufficient value, or lack passion for their job. Once you get rid of the complainers and the complacent, your company has a better chance to bounce back.
  • You need a “change champion” to manage the turnaround – someone who owes nothing to the old, failed ways of doing things, and is prepared to listen carefully, consider many new ideas, and take direct action. His or her objective must be to stop the bleeding and get the company moving in the right direction. This is usually a hard job for the original owner/manager to do. Regardless of who takes charge, they require a formal process. As outlined in my book, The 90% Rule, that means knowing where your organization came from, knowing what it’s best at, and finding more ways to create value for more customers.
  • Focus is key. Trimming marginal operations is imperative – as Steve Jobs knew when he cancelled 70 per cent of Apple’s product lines in order to focus on only the best and biggest opportunities. In crisis, protect the core. Pull the plug on non-core activities.
  • Review prices and margins. Many companies are afraid to raise prices or set minimum margins for fear of losing customers, but it’s the best way to figure out who your best customers really are, and to clear out the unprofitable ones. Every penny of these exercises goes directly to the bottom line. No surprise, then, that the companies I have seen do this all wish they had done it sooner.
  • Refocus on the customer: What do your customers want and need? What are their biggest pain points, and how can you relieve them? Get out and talk to the customers. (It’s a shame so many companies wait till they’re in trouble to do this.) Once you have identified new ideas, opportunities and solutions, let the customers know the new directions your company is taking – and how they contributed to its success.
  • Keep employees well informed of the company’s plans and decisions. In the absence of facts, fear breeds confusion and negativity. Keep everyone informed, involved, and marching forward.
  • Paint a clear picture of what you’re trying to do and the process you are following. Share this vision with all your all stakeholders (customers, employees, suppliers, investors, bankers, etc.). You want everyone to know that there is a better future ahead, and that their sacrifice, hard work and faith will not be in vain. Make sure to offer a specific reward at the end, whether it’s increased job security, bonuses, profit-sharing, and/or a blowout party to end all parties.

Diamonds can only be created under great pressure. Whether your company needs a major rethink or you are simply looking for new opportunities for growth, crisis thinking can create the new opportunities you and your team are looking for.

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How far can Apple fall from the tree?


The recent tumble of Apple’s stock raises an interesting question: How far can the price of the stock fall relative to the value of Apple’s most inherent strength, its ability to innovate?

No one knows exactly how much value investors attribute to a company’s innovative capacity and how much of that is reflected in the stock. Apple’s precipitous decline to $457.19 a share (January 29, 2013), compared to a 52 week high of $705, is more about ‘expectations’ for revenues and profits than the intangible of innovation. In January, expectations remained high despite the fact that Apple executives tried to downplay them. On November 26, 2012, John Dobosz of Forbes cited Marc Gerstein who had Apple as “Sell” and he said, “Apple stocks could slip further.” Now, after a quarterly report in which the numbers were good, just not good enough, the questions have started. Has Apple lost its edge? Will the competition make inroads? Why aren’t new products creating the same buzz? Has the bloom worn off the iPhone?

In the smartphone market, Samsung, who serves more of the lower-end market, has long been in Apple’s rearview mirror even though their phones outsold Apple in 2012, 233 million to 133 million. And Samsung’s fourth-quarter results exceeded expectations with an 89% increase in operating profit and 76% in net profit. Who’s hunting whom?

When it comes to innovation, Samsung’s approach is different than Apple’s. Simone Foxman, business writer for Atlantic Media’s Quartz, reports, “Samsung sees itself as less inventor than innovator. It builds on technologies already in the marketplace and remains open to others.”  That’s what I call ‘simple-adaptive’ innovation in that they develop products incrementally based on what they know rather than focusing on ‘disrupting’ the marketplace with transformational products. That’s Apple’s game.

Both simple-adaptive and focused-disruptive strategies work, and ideally companies want to be good at both. Now, for these two giants, it may be a question of whether Apple can become more incremental while maintaining its Steve Job’s transformational capability and whether Samsung can move beyond incremental and leapfrog into higher-end markets. It will depend a lot on their capacity to innovate. Time will tell. In the meantime, some expectation of their innovative capability will be evident in the stock price.

Innovation is in the DNA of a company and its people, and that doesn’t change with quarterly results. In Apple’s case, it may well intensify their innovative quest for the next game-changer. And when it comes to expectations, I wouldn’t bet on the apple falling too far from the tree that Steve planted.

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Epic Brand Fail!


I read in a recent New York Times article (published October 15, 2012) that a Blackberry user, Rachel Crosby, said she no longer takes out her BlackBerry at parties and conferences, and in meetings she hides it beneath her iPad for fear clients will see it and judge her. “I am ashamed of it,” she said. Ouch! That is so not cool. We know BlackBerry’s troubles over the last four years and its drought of innovation since its supernova days and a market cap of $78 billion (June 2008). Today, it’s at $4.4 billion and the brand is in free-fall.

The connection between a corporation’s value and brand is not covered by standard accounting practices. As Roy Sieben, partner at SB Partners accounting firm explains, “Generally accepted accounting principles do not report the value of internally generated goodwill (as opposed to purchased goodwill) despite the fact that such goodwill can be a significant part of a corporation’s overall value.”

Luckily, there are firms (Interbrand) that measure the value of brands and rank the top 100. The results are a striking reminder to all of us in business of how important brand is to the long-term of the business assets that we are building.

In 2012, guess who was #1? No, not Apple; it was Coke, coming in at a value of $77.8 billion, up 8% from 2011. Apple was a close #2, at $76.8 billion, up 129%. And guess who was down at #93? Blackberry at $3.9 billion, down 39%. Another tech competitor, Microsoft, was #5 at $57.8 billion, down 2%.

Not surprisingly, in this group, there is a general correlation between the company’s market capitalization and brand value. Between January 2011 and November 2012, the up or down change in market cap is mirrored in 2012’s brand value:

Apple: Market cap rose from $296 to $510 billion and brand value jumped 129%
Blackberry: Market cap crashed from $34 to $4.4 billion and brand value fell 39%
Microsoft: Market cap dropped from $238 to $227 billion and brand value fell 2%
Coca-Cola: Market cap rose from $152 to $162 billion and brand value rose 8%

Accountants may not put brand value and innovation on the balance sheet but you can probably get pretty good odds from any savvy investor that a strong brand and continuous innovation are intangible items to be considered “on” the balance sheet. Leaders of the most successful corporations know it.

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