What do these ten companies have in common? Citigroup, Coca-Cola, Gap, Merck, Microsoft, Morgan Stanley, Nike, Sony, Verizon, Wal*Mart. (No cheating. But if you read the most recent issue of FORTUNE, you already know.)
Is it that they are all industry leaders? Well, maybe, but that's not the answer I'm looking for.
Is it that they have all created a great deal of wealth for investors over the past few decades? Perhaps that's true, but that's not the answer either.
Enough game playing. The answer is that these ten formidable companies were identified as places where the current CEO has one of the toughest jobs in business. (Actually, Rick Wagoner of GM was deemed to have THE toughest job of all CEOs, and on that there is no argument.)
But why are these CEOs jobs so tough? Because they have to keep their companies operating and profitable, yielding good returns to shareholders while they REINVENT THE COMPANY! Perhaps reinvent is too strong a word, and perhaps it is not. I have often said that the only retailer that can stop Wal*Mart IS Wal*Mart itself. Gap clearly has holes in its proverbial shoes from shooting itself in its feet. (Although Levi's is the winner in this category, having successfully shrunk the company from $7B to $4B over the past decade.)
THE SHAPE OF VALUE IS CONSTANTLY SHIFTING
When I wrote my "best content-worst selling" book THE SHAPE SHIFTERS, back in 1997, I stated that the "shape of value" was constantly shifting, and companies must alter their "shapes" continuously to keep providing what their customers believed was the best value "NOW, and NEXT!" Just ask McDonald's, whose missteps led it to try a multitude of different, mostly ill-advised solutions to the fact that people didn't want mass-produced burgers all made the same way anymore. They wanted them "my way" (to take the phrase from Burger King), and both Burger King and Wendy's systems permitted customization of sandwiches AND fast service. McDonald's is still struggling with it system changes, and its result show the evidence. Of course BK & Wendy's have each suffered from their own problems, not the least of which is the SHIFT in the market to a variety of "near-fast food," but different ambience establishments, where the process is order, sit down, retrieve order, and eat-in--restaurants like Panera Bread, Atlanta Bread, COSI, etc.
POSITIVE CHANGE IS DIFFICULT
It is really hard to reinvent something you created. I had this feeling again recently when considering how to change The Reunion Conference series I started in 2006. In ten years, it certainly needed to change, but how? How could I retain what was right and good about it, and change what was outdated or no longer desirable? That is a hard, hard job--and I only had to argue it with myself and a small group of cooperative cohorts. Think about the challenge of changing a hugely successful enterprise like Microsoft or one with its roots in two very different cultures, like Sony.
IT'S HARD TO KEEP YOUR FOOTING WHEN THE TERRAIN IS SHIFTING
Coke may still be "the real thing," but cola beverages have lost ground to bottled water, sports drinks, fruit drinks, etc. What do you do when you are the "king" of a shrinking "kingdom." Phil Knight at Nike has built a uniquely powerful business, and tried to bring in a highly qualified CEO from outside to take it to the next level. But Knight (and perhaps Nike's culture) couldn't stand the shock of such a different way of doing things, and William Perez (formerly of S. C. Johnson) is now back in Florida pondering what went so wrong.
WATCH OUT FOR THE IMMUNE SYSTEM
What went wrong is that companies, like human organisms, have an immune system. The stronger the "body," the stronger the immune system. The corporate immune system fights off invaders who want to alter its structure and how it operates and behaves. Companies also has a corporate DNA on which is imprinted the gene structure that made them successful. These two biological metaphors are why so many mergers fail in the integration phase. Look no further that HP and Compaq to find an illustration of this. Or consider AOL and TimeWarner.
INCUMBENT INDUSTRY LEADERS ARE AT RISK
I agree with the FORTUNE editors who made the list. Perhaps 1-2 companies might have been omitted or added, but the premise was still the same. Rebuilding the engine or a race car during the race is very tough. And the race never seems to stop. Further, thanks to what we now call "disruptive technologies," the incumbent is virtually never the one to find the new business model or new technology that unseats it from its lofty perch. (Both Clayton Christenson of Harvard and Gary Hamel of London Business School have explained this far better than I can in this limited space.)
"IF YOU'RE COASTING, YOU MUST BE GOING DOWNHILL" (a quote from my days in the bike business)
So what's the message, the lesson for us in this. It is that the status quo is a dangerous place to stay. As Will Rogers put it, "Even if you're in the groove, if you stay there too long it becomes a rut." Change is constant. Evolutionary change is the only way for large successful companies to do it. Revolutions are too bloody, too risky and too hard to start--or stop. But change they must.
My candidate for the most promising "evolutionary" change of early 2006 is the Disney-Pixar combination, and the fact that the arch revolutionary of the computer industry will now be a part of Disney's board. If those two can merge DNA's, watch out. I'll be watching closely--you should too--it is a giant step in the path of convergence of computers and entertainment. Exciting times, huh?