Old Rules, New Rules

Some examples of recent trends in the rules of running a business are explained by Betsy Morris (2006):

i) old rule (big dogs own the street); new rule (agile is best; being big can bite you)

Until the mid 1990s, a company's stock market value was linked with revenue. In 1993 Microsoft's market value exceeded IBM even though its revenue was 1/22 the size of IBM.

Size did not insulate GM from its troubles. The large pharmaceuticals that were valued for the amount of R & D have struggled; yet it is the smaller biotech companies, such as Genentech, that generate new drugs.

"'technological advances and changing business models have diminished the importance of scale, as outsourcing, partnering, and other alliances with specialty firms (with their economies of scale) have made it possible to convert fixed costs into variable ones..."

Betsy Morris, 2006

Dell is a good example: keeping its cost down by outsourcing disk drives, memory chips, monitors, etc frees it to focus on direct selling and just-in-time assembly.

ii) old rule (be No. 1 or No. 2 in your market); new rule (find a niche, create something new)

Market dominance is no guarantee for success. For example, Disney's dominance in animated films offered it little protection against Pixar's digital innovation; Coca-Cola's dominance has been threatened by bottled water, sports and energy drinks, etc which were initially viewed as low volume distractions. Only other hand, Starbucks has never desired to be No. 1 or 2 in the marketplace. It has continually chased niches, ie it has continually chased a product (coffee), etc.

Organisations need to keep moving, evolving and trying new things so that they become the company of choice.

iii) old rule (shareholders rule); new rule (a customer is king)

The old rule involved focusing on earnings per share in the short-term; this could encourage anti-customer behaviours, such as costing cutting. The rule focuses on consumers' details, such as new products, service calls, customer satisfaction scores, etc that all add to the bottom line but not necessarily in the short term.

iv) old rule (be lean and mean); to new rule (look out, not in)

Concentration on being lean and mean, such as via 6 Sigma, does not encourage exploring new ideas and/or different approaches. In other words, innovation suffers, ie

"...Nothing will kill it faster than trying to manage it, predict it, and put it on a time line..."

Vishva Dixit (vice president, research, Genentech) as quoted by Betsy Morris, 2006

Old rule encourages an inward-looking culture that can result in missing opportunities in the ever-changing business world of disruptive technologies, eg VOIP threatening to make phone calls virtually free.

To be successful, businesses have to focus on what is going on outside rather than just inside the organisation.

v) old rule (rank your players and go with the A's); new rule (hire passionate people)

The old rule ranked employees on performance as As, Bs and Cs; and then the Cs were culled, ie rank and yank. The new rule encourages employing people who are passionate about what they do, like Apple and Genentech

vi) old rule (hire a charismatic CEO); new rule (hire a courageous CEO)

The old rule encouraged celebrity CEOs who squeezed costs, deftly managing financial and accounting decisions, using acquisitions to grow but not necessarily providing long-term solutions. The new rule encourages organic growth and taking risks that can take a while to pay off.

vii) old rule (admire my might); new rule (admire my soul)

Previously, being large meant that you were powerful and encouraged a focus on now rather than the future. More recently, corporations have a social responsibility in addition to making money. This involves more than contributing to causes or being transparent; it involves being sustainable in the long term.


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