THE SEVEN RULES OF REINVENTION

JUST BECAUSE YOUR COMPANY’S SUCCESSFUL NOW DOESN’T MEAN IT’LL STAY THAT WAY. (JUST ASK RIM AND DEWEY & LEBOEUF.) HOW CAN YOU AVOID THE DUSTHEAP OF HISTORY?

By Jason Jennings

COMPARE THE TOP 25 COMPANIES in the Fortune 500 in the year 2000 to the same group in 2010. The results might surprise you. Sixteen of the top 25 companies from 2000 — once the largest, most stable businesses in the country — lost that status in one short decade. These powerhouse organizations — among them Sears, Compaq and Lucent — had the financial resources to ensure their continued success. But all of them failed to evolve, change, grow and reinvent themselves — and eventually they were kicked to the curb. To remain relevant, we must reimagine, rethink and reinvent everything we do, and we need to do it fast, because our competitors certainly will. Here’s how.

1 RECOGNIZE CHANGE — ESPECIALLY WHEN IT’S COMING FROM OUTSIDE YOUR FIRM

AS A PIONEER IN AN INDUSTRY that conceals its manufacturing strategies as if they were atomic secrets, Ford was astonished to receive an invitation from Toyota in 1981. “We invite you to visit our newest manufacturing plant,” the invitation read. “We’re anxious to share our methods.” Many senior executives at Ford thought it sounded too good to be true.

When the engineers returned from their visit to Japan, they agreed that the skeptics had been right. “It wasn’t a real auto manufacturing facility,” plant engineers explained. “Spare parts and components were virtually nonexistent. It was staged, like a movie.”

But the engineers were wrong. Nothing had been staged, and Toyota’s impressively lean manufacturing system, with its rigorous inventory control, was about to propel the company to the status of the world’s number one automaker — while Detroit’s Big Three, stubbornly resistant to change, began a market-share free fall.

How did those supposedly brilliant minds from Ford miss what was right before their eyes? They headed to Japan with a detailed picture of the proper setup of an assembly line and a fixed understanding of the rules governing 20th century manufacturing. That dogma kept them from seeing how much they could learn from Toyota.

Before you can begin to embrace and implement radical change and reinvention, you and your business have to let go of the reinvention killers — like ego and conventional wisdom — that will doom your attempts at reform. Ironically, it’s a lesson that Ford seems to have embraced in recent years, but Toyota — which would grow conservative and predictable after too long at the top — is now having to relearn.

2 PICK YOUR COMPANY’S DESTINATION

PAT HASSEY, WHO RETIRED IN MAY 2011 as CEO of Allegheny Technologies, reinvented his company during the prior decade, leading a metals manufacturer on the edge of bankruptcy to become one the nine best-performing publicly traded companies from 2001 to 2008. “My main job was one thing — to be the destination expert,” he says. “I had to be able to see through the fog, see far enough to connect the dots between near and far, and let everybody know where we were going.”

The destination is partly what the organization does and where it is going, but it also addresses why the organization is headed where it is. The proper selection of a destination is vital. Without it, you can’t know what interim steps to take, and you’re more than likely to wind up lost in the woods.

3 BET SMALL, BET OFTEN

EACH DAY THOUSANDS OF SMALL and mid-size companies make risky, one-shot bets — and fail. Businesses that do the best job of constant radical change and reinvention aren’t blinded by the fairy tale of the biggest bets generating the biggest paydays. They recognize that success can come from incremental but frequent changes.

When Howard Schultz stepped down as Starbucks CEO in 2000, the company had enjoyed one of the most incredible runs of any global brand, having grown from just a handful of Pacific Northwest stores in 1988 to more than 16,000 stores in 50 countries. But in the years that followed, customer traffic plummeted, employee dissatisfaction soared and the competition elevated its game. Many market analysts wondered if Starbucks had permanently lost its buzz.

So Schultz retook the reins in 2008 and began making a series of small but meaningful bets, including closing redundant stores, introducing new espresso machines, selling a new line of instant coffee and creating a customer loyalty program. Now the money saved and revenue generated by those small bets almost equals the company’s annual profit. Without Schultz’s willingness to make numerous small but significant changes, Starbucks could have gone the way of a chain in decline, like Burger King or Sears.

4 CHOOSE WHO STAYS, WHO LEADS AND WHO GOES

DECISIONS ABOUT WHO GOES and who stays, who leads and who follows in a business in transition will determine any enterprise’s ability to succeed at reinvention. Making the right decisions about people is a huge challenge. Steve Jobs frequently said, “Apple is an Ellis Island kind of company built on refugees from other companies. These are the extremely bright contributors who were troublemakers at other companies.”

5 LISTEN TO DISAGREEMENT, THEN GET YOUR TEAM ON THE SAME PAGE

HOWEVER LARGE OR SMALL YOUR TEAM, it will function more productively and successfully if its members have bought in to the company mission you’re advocating. But leader beware: Exhaustive research and simple observation suggest that we surround ourselves, in business and in life, with yes-men. We seek evidence that proves us right. Meanwhile, our employees don’t believe much of what we say; regular polls show that a majority of workers don’t trust their company’s CEO and believe their firm routinely distorts facts for public consumption. For most of us, listening to opposing views, especially when those views are misinformed, is excruciating, like doubling the incline on a treadmill. But getting everyone on the same page, working in concert, requires really listening — and recognizing the possibility that you might sometimes be wrong.

6 DEEP POCKETS ARE NOT ALWAYS AN ADVANTAGE

HAVING TOO MUCH MONEY or too many resources can actually get in the way of reinvention. Remember Boo.com? Boo was the dot-com dream of two photogenic twentysomethings, Ernst Malmsten and Kajsa Leander, a poetry critic and a model, respectively. Malmsten and Leander saw themselves as apostles of cool who would create an ultra-hip website and reinvent the high-fashion experience. Despite their near-total lack of business experience, they attracted some $200 million in funding. In 18 months, spending millions on travel expenses and rental apartments for the founders, they lost it all and more.

Companies with long histories of successfully embracing change and reinvention have a shared disdain for waste and indulgence, which probably comes from the fact that during their formative years they had to count on ingenuity instead of cash.

7 DON’T HESITATE

AFTER 20 YEARS OF SYSTEMIC observation, I’ve decided the most common mistake is getting stuck on the “plains of hesitation,” always putting off change or coming up with a reason to avoid it altogether. The plains of hesitation are a metaphorical wasteland where the best laid plans and good intentions expire. The bones of bookseller Borders are currently bleaching there, alongside countless others: Wang Laboratories, Arthur Andersen, Polaroid...all once-great companies that knew enough to make the right moves but hesitated to do so.

–ADAPTED FROM THE REINVENTORS: HOW EXTRAORDINARY COMPANIES PURSUE RADICAL CONTINUOUS CHANGE BY JASON JENNINGS (PORTFOLIO/PENGUIN, $26.95, 256 PAGES)

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