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Reinvent Your Company by Reassessing Its Strengths

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June 2014
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Strategic consistency is the hallmark of many great companies. Southwest Airlines’ decades-long strategy of “short-haul, high-frequency, point-to-point, low-fare service” produced what was not only one of the best-performing airlines in the U.S. over the last half-century, but also one of the best-performing companies in any industry. For over 50 years, Wal-Mart has pursued essentially the same strategy of “offering the lowest price so its customer can live better.” Wells Fargo has become the most valuable bank in the world by sticking to its strategy of building a value proposition around selling more products per customer than anyone else. And the essence of Walt Disney’s original strategy remains intact today: to construct a range of businesses — from animated film to fun parks, TV, retail, cruise ships, and more — around a group of engaging, family-friendly characters.

But the corporate landscape is also littered with once-great companies whose strategies became obsolete faster than they were able to reinvent themselves. For example, deregulation killed off icons in the airline business such as Pan Am and TWA. Digital technology overwhelmed Kodak’s once-formidable business in photography. The emergence of e-commerce obliterated the likes of Borders, Circuit City, and Blockbuster. Smartphones destroyed Nokia’s cell phone business. Strategic consistency may be a hallmark of great enterprises, but it hastened the demise of these companies. They needed reinvention, not more of the same.

Smart executives know that sustaining great companies requires both strategic consistency and reinvention. But how do you achieve each without sacrificing the other?

In my experience, the answer lies in being able to answer — and act on — two important questions: what capabilities set your company apart from everyone else? And, are there changes happening in your world that will make those capabilities obsolete or insufficient?

The foundation of strategic consistency is being clear about the capabilities that make your company special. Frito-Lay’s direct-to-store delivery capability, Inditex’s fast-fashion supply chain, and Toyota’s production system took years to hone into true sources of enterprise differentiation. If a company’s leaders understand the capabilities that define its unique identity, they’ll make smarter decisions about what businesses to buy and sell, what markets to enter and exit, what to prioritize in new product development, how to manage costs, where to invest, and all the other choices that are inherent in sustaining a great company.

However, leaders must always ask themselves whether their differentiating capabilities are still relevant. Today, all the major credit card companies are seeking to move from traditional payments to digital commerce. In payments, core capabilities are tied to driving card usage because the economic model is based on card transaction fees; but as they move into digital commerce, most credit card firms are finding they lack a new set of required capabilities — the ability to generate, analyze, and use customer data in order to drive sales and loyalty for their primary customer, the merchants who accept their cards.

Similarly, in big-box retailing, most players have run out of room in their home markets for laying down more super stores, so they are seeking growth by using a small-store format to penetrate pockets of geography that their bigger stores cannot reach. But the capabilities — from merchandising to managing store staff and operating the supply chain — are very different for a small-store format.

Or consider U.S. health care providers: the push for more accountable care will require new business models where risk sharing with private and government insurers becomes more the norm. And, yes indeed, such models will demand a set of capabilities now alien to most care providers. Leaders of any company operating credit cards, big box retailing, or health care should be be saying to themselves, “Yes, changes happening in our world are making our capabilities insufficient, if not obsolete. Strategic consistency is not enough right now; we need strategic reinvention to shore up and bolster the foundation of capabilities that will underpin great performance from the business we will have, not just the business we have today.”

There are a handful of leaders who have successfully managed the tension between strategic consistency and reinvention to survive major changes and create a new life for their companies. Andy Grove pivoted Intel from a memory chip to a smart chip company; Lou Gerstner turned IBM from a hardware OEM to an IT services provider; and Phil Knight transformed Nike from a sports shoe company to a sports licensing company. In each case, the reinvention was about adding new capabilities to those that made the company great in the first place. Thus, neither its reinvention meant the loss of strategic consistency nor did strategic consistency come at the cost of falling behind the changes happening all around it.

Managing the tension between strategic consistency and reinvention does not have to mean taking less of one in order to have more of the other. If you correctly identify the capabilities that make your company great and build your strategies around them, and if you act smartly on the enhancements or additions to those capabilities that your changing world requires, you will achieve the benefits of strategic consistency while also preparing your company for the seismic shifts that are inevitable in every industry.

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Check out Paragon Strategies Coaching Programs @ http://www.paragonstrategies.com

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