Morphing: Radical Evolution for Revolutionary Times · Morphing: Radical Evolution for Revolutionary Times Preface It’snotoftenthatacareerentrepreneurialmaverickandanivy-coveredcollegedeanﬁnd

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Morphing: Radical Evolution for Revolutionary Times

PrefaceIt’s not often that a career entrepreneurial maverick and an ivy-covered college dean find

common ground for conversation.We discovered that ground quite by chance after Larry’s

wife enrolled in an Executive MBA Program headed by Craig.We began by having coffee at

Starbucks from time to time. Our conversations usually revolved around business, the one

topic in which we did share an interest, even if from two entirely different perspectives.

The economy was in a slump at the time, due in part to the aftershocks of 9/11 and the

war on terrorism. Unemployment was up, confidence was down, the stock market was

wobbly. One day, our attention drifted to the issue of companies that thrive in spite of the

state of the economy.We wondered why, despite so many uncertainties and such a soft

economy, some companies were still able to prosper.What was their secret?What were

their commonalities?What could other companies learn that might help them ride out

turbulent times?

At the same time, we wondered why some of the country’s best-known, most highly

successful companies, pedigreed names which had been around for decades, seemed

to slip and fall and disappear into history.We thought of retail giants likeW.T. Grant and

F.W.Woolworth, and others, such as Kmart, that seemed to be destructing before our eyes.

It was often the case that familiar names —Westinghouse, American Motors, Eastern

Airlines — simply disappeared into bankruptcy or into the maw of merger and acquisition.

But why?

This book has been a joint effort to help us answer those questions. Over the course of

collecting data, interviewing executives and gathering information from others who are

experts in the field, we discovered a phenomenon neither of us had ever noticed before. It

is the phenomenon of “morphing.” Like the futuristic characters in the Terminator movies,

the features of successful corporations change and adjust continuously to deal with the

changing business world, changing markets and even changing conditions within the

company.

We also found threads of continuity among corporations we identified as morphing

organizations. Not only were these companies doing something right to remain profitable

and energetic, they were doing the same things right.

So we of diverse backgrounds submit to you, the reader, a mutually agreed-upon thesis:

Organizations that profit and thrive regardless of the economy take specific, substantive and

proven steps to ensure their success. By doing so, they are morphing organizations,

consciously evolving to meet whatever conditions, challenges or opportunities the

marketplace brings.

Laurence J. Pino, Esq.

Dr. Craig M. McAllaster

iii


Table of ContentsChapter 1: The Essentials of a Morphing Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Creating the Ultimate Enterprise Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Adding employees to the experience equation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Rewarding experiences for shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Rewarding experiences for employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Rewarding experiences for customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Characteristics of a Morphing Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

“Intelligent DNA” — the fingerprint of a successful company . . . . . . . . . . . . . . . . .7

The Unified Business Platform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

The “3 M’s” of a morphing enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Measuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Modifying . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18

Mastering the concept of adjacency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20

The Architecture of a Morphing Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Silos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22

Shared services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

Centralized support, internal tuning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23

Enterprise-wide communication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25

Chapter 2: Management — the Evolving Door to Success . . . . . . . . . . . . . . . . . . . . . . .26

How’s business? About the same as it ever was. . . . . . . . . . . . . . . . . . . . . . . . . . .28

How’s business? More complex than it ever was. . . . . . . . . . . . . . . . . . . . . . . . . .28

Many new ideas get around — but do not make a revolution. . . . . . . . . . . . . . . . .29

Where Management Has Been . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

Classical management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31

Behavioral management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33

Quantitative management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35

Modern management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36

Six Approaches to Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

The process approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

The systems approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

The contingency approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37

Strategic approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38

iv


Japanese-style management approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38

Excellence approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38

So... what’s the big idea? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

The Latest Managerial Tool Sets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

Change management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39

Conglomerate thinking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40

Corporate growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43

Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45

The Internet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47

Chapter 3: Good to Great Isn’t Good Enough . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49

Morphing and the Point of No Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51

Molting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53

Becoming more robust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54

Abandoning legacies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54

Starting over . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55

Current Conditions that Influence Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55

Technology — faster than a speeding thought . . . . . . . . . . . . . . . . . . . . . . . . . . . .55

Uncertainty and volatility — facts of business life . . . . . . . . . . . . . . . . . . . . . . . . .57

Short-term growth, short-term gratification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58

Management by best seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61

Alarmist writers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .64

Patches — Not Solutions for Tires or Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . .65

Back-to-basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65

Outsourcing and offshoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66

Benchmarking and best practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68

Management by Software — Installing Quality . . . . . . . . . . . . . . . . . . . . . . . . . . . . .69

Customer relationship management (CRM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .70

Balanced Scorecard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71

Six Sigma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .72

We Have Not Learned Our Lesson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .73

PayingTribute to the Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74

A viable product or service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .74

A competitive advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .75

Valid consumer base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .76

Communicate the product compellingly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78

Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78

v


Continuous replication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .79

Seamless support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80

Commitment to profitable decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80

The legitimate use of capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81

Cash is king . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .81

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .82

Chapter 4: The Morphing Enterprise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .84

From Surviving to Thriving — DefiningWhoWe Are . . . . . . . . . . . . . . . . . . . . . . . . . .86

The corporate model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .87

The corporate culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .87

The corporate mission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .88

The corporate vision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90

DealingWith the Variables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90

Customer needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .90

Industry outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91

Economic conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .92

No competitive advantage is sustainable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93

The sirens’ song of short-term success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .94

Morphing Is Evolution — Not Revolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .96

Orcas and corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .97

Conscious evolution — and the doctrine of incrementalism . . . . . . . . . . . . . . . . . .98

Implanting DNA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .99

Morphing to Meet New Realities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .100

Morphing in action — a case history . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101

Dad’s unified business platform — all in his mind . . . . . . . . . . . . . . . . . . . . . . . . .102

Kmart — the flickering blue light . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .102

America loves a comeback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .104

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105

Chapter 5: Beyond the E-Myth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107

Gerber’s E-Myth Revisited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .108

It’s no myth. Dreams come true — or fade — in the details. . . . . . . . . . . . . . . . .108

Passion becomes just a job . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .110

Aligning operations — A continuous task with continuous dividends . . . . . . . . . .110

Organizations As Autonomous Organisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .112

Cometa — and a market created by consumers . . . . . . . . . . . . . . . . . . . . . . . . . .113

Eckerd inertia — A prescription for failure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .114

vi


Technology As a Vital Tool of Morphing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116

New technology?... Or new toys? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119

Getting wired for sound business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121

The search for genuine solutions — not a quick fix . . . . . . . . . . . . . . . . . . . . . . . .122

Problem-solving at Darden — “Hot by Design” . . . . . . . . . . . . . . . . . . . . . . . . . .124

Keeping Intuition in Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .125

Other mind tricks in decision-making . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .126

Agent-based modeling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .127

Other games planners play . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .128

The human advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .130

The value of continuous measurement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .131

Taking action now: incessant modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .133

Chapter 6: Enterprise Alignment and Architecture . . . . . . . . . . . . . . . . . . . . . . . . . . . .134

Alignment — A Ring of Discipline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .135

Alignment Begins with the Performance Agreement . . . . . . . . . . . . . . . . . . . . . . . .136

More about Silos and Shared Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .139

Silos — the entrepreneurial tentacles of a morphing company . . . . . . . . . . . . . .139

Silos are sensory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .140

Iridium — and the idea whose time came... and went! . . . . . . . . . . . . . . . . . . . .140

Silos are nimble . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .142

The spirit of independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .143

The downside of silos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .143

Managing risk through diversification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .144

Managing market share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .144

Managing product growth and innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .145

Making new ventures seamless . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .145

Deflating the bloat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .146

Shared services — a network of support tucked among the silos . . . . . . . . . . . .146

Attributes of shared services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .147

Services refined by new technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .147

Shared services — a concept with infinite variables . . . . . . . . . . . . . . . . . . . . . . .148

Centralization and circulation of resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .149

Internal monitoring and measuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .149

Driving down the message . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .150

Providing a snapshot to the CEO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .151

Resource reallocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .151

vii


Information sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .151

More benefits of shared services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .152

Shared services vs. outsourcing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .153

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .153

Chapter 7: The Sixth Discipline: The Interior Décor . . . . . . . . . . . . . . . . . . . . . . . . . . . .154

Making yourself at home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .155

Corporate evangelism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .156

Creating Energy, Excitement and Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .156

A Look at the Morphing Culture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .158

A community engaged in ongoing conversation . . . . . . . . . . . . . . . . . . . . . . . . . .160

The driving force — a crucial determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . .161

Creating a culture of discipline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .164

True accountability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .164

Push, don’t pull . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .164

Reconciling the Long-term Perspective with Short-term Mind-sets . . . . . . . . . . . . .165

The Sacred Cow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .165

Learning Moments vs. Screwing Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .168

Vision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .169

Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .169

Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .169

Typhoon Zone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .169

Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .170

Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .170

Learning Moment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .170

Learning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .170

Moving forward: horizon management for the future . . . . . . . . . . . . . . . . . . . . . .170

Safe Sailing in Uncertain Seas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .173

Middleman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .173

Trimmer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .173

Skipper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .173

Tactician . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .174

Sustaining the Morphing Process — Even BeyondYourself . . . . . . . . . . . . . . . . . . .174

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .175

Chapter 8: n Search of Elegance: Integrating the Elements . . . . . . . . . . . . . . . . . . . . .177

Preparing to Morph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .179

Know thyself . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .179

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Know thy environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .180

Commit to conscious evolution — not technology . . . . . . . . . . . . . . . . . . . . . . . .181

Corporate culture — the groundwork for morphing . . . . . . . . . . . . . . . . . . . . . . .183

The unique enterprise experience — the condition for morphing . . . . . . . . . . . . .183

The unified business platform — the nervous system for morphing . . . . . . . . . .184

Monitoring, measuring and modifying — the processes of morphing . . . . . . . . .184

Silo/shared services architecture — the structure of morphing . . . . . . . . . . . . . .184

Internal alignment — the discipline of morphing . . . . . . . . . . . . . . . . . . . . . . . . .185

Intelligent DNA — the compass of morphing . . . . . . . . . . . . . . . . . . . . . . . . . . . .186

Epilogue: Morphing —The LastWord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .187

ix


Introduction

The following two items appeared in Bloomberg News in late October 2004:

Winn-Dixie has $153 million lossWinn-Dixie Stores Inc. onWednesday posted a loss of $153.1 million as sales

fell for the seventh straight quarter and the cost of store closures mounted. Thesupermarket chain’s shares dropped 12 percent.“The market is signaling they do expect bankruptcy here,” said Gary Giblen, an

analyst at C.L. King & Associates in NewYork, who doesn’t own the shares. “Itwas just another horrible quarter.”Winn-Dixie has been struggling to staycompetitive withWal-Mart Stores Inc. and other food rivals such as Publix SuperMarkets Inc. Chief Executive Officer Frank Lazaran spent $54.2 million in thequarter to close supermarkets and warehouses, part of his plan to save $100million in annual expenses.Winn-Dixie plans to cut 10,000 jobs and close or sell156 stores. As of Tuesday, about 4,700 jobs have been cut, 47 stores were closedand 34 have been or soon will be sold or sublet.

KB Toys to close more storesKBToys Inc., the toy store chain which sought Chapter 11 bankruptcy protection

in January, announcedTuesday that it will close another 148 to 238 stores. The 80-year-old chain had 1,231 stores at the beginning of the year. It already has closed427 stores and cut 3,400 jobs. “These store closings represent a significantelement of KBToys plan of reorganization and will not hinder our holidayoperations,” said Michael Glazer, president and CEO. The company has compiled alist of 141 stores that are almost certain to close, with another 97 stores that couldremain open depending on talks with landlords aimed at securing more favorablelease terms.

What happened?These aren’t new companies that just didn’t make it. Winn-Dixie is a household word to grocery shoppers in the Southeast. And KBToys hasbeen making kids happy since the early twenties. Every time you read aboutanother corporate giant frantically selling off its assets and sputtering towardbankruptcy, you wonder, “Where did they go wrong?”What about your organization? Is it still vibrant? Look behind you. Is competition

in close pursuit? Are you about to be overtaken? How long will your company last?

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Is your organization set up so that it will not only survive but thrive in hard times?When the economy begins a downward spiral, how will you fare?You should be asking yourself these questions every day. It’s inevitable that

things change, but do they change without you even knowing it?We work in a constantly accelerating, ever-changing business environment.

Knowing that change will continue to pursue us, we must adapt our businesses tostay one step ahead. Is your organization built to survive the dynamics of rapidchange?

Many businesses only survive in good timesIn the late nineties during the tech boom, many companies rode the wave of a

surging economy and survived. They may have appeared to be doing well, but assoon as the economy took a downturn, they couldn’t adjust, couldn’t or didn’t makethe necessary strategic moves, cost cuts or whatever it would take to stayfocused. Their facade looked strong, but behind that facade was nothing more thana hollow business that couldn’t make it except in a buying boom.Positive cash flow and profits keep businesses alive — not their stock price and

not their PR hype. During the boom, stocks were trading at sky-high prices, yetsome companies hadn’t even returned a profit. Profits are the beating heart of acompany — and cash flow is its lifeblood.For your company to stay profitable in all kinds of economic weather, your

products must be better than your competitors’ in some way. They must also beconstantly changing to meet consumers’ changing demands — and nimble enoughto change with the economy.Impossible? Read on.

Survival is not thriving; it’s just breathingFour out of five startup businesses fail each year. And two out of five companies

that have been in business for more than 10 years fail — a 40 percent failure rate!Why is this? Don’t they have a viable product? Don’t they properly manage theirproduct? If your company is surviving in today’s tough marketplace, such questionsmay intimidate you into not making any changes in your organization. You think,“We’re getting by, so why mess up a good thing?”This type of thinking is what causes so many companies to fail. Owners get

comfortable, and finally get to a point where they can pay the bills and may evenenjoy a little profit. Then they settle in for the ride. They assume that the economy

xi


will drive the company, and its loyal customer base will always be there, regardlessof economic conditions. Throughout the book, we’ll challenge this thinking.We’llalso leave you with some solutions with which to face the changing environment inwhich you run your businesses.Beyond skin-of-teeth survival, how does an organization thrive?The answer is,

they consciously evolve. They do not evolve just for the sake of evolution; instead,they change and adapt in order to push past competition. They consistentlyreinvent and renew the products and services they offer, while they reinvent andrenew those processes that get them to the final customer. They morph! Theydeliberately evolve in order to thrive in whatever environment emerges aroundthem.The key word is deliberately. They don’t act haphazardly or with their eyes shut.

Each move or decision is strategic — for the short run and the long run. Amorphing enterprise is one in which this process occurs continuously, independentof any program or campaign, as part of the corporate culture. As an owner or topexecutive, you must be constantly focusing on the horizon, fine-tuning yourstrategy and deciding on the best action to take to meet any contingency.

Survival — the most primal self-interestHamsters and humans, clubs and companies, church groups and governments

— in fact, all living organisms — operate first and foremost in their own bestinterests and to ensure their propagation. Social psychologists call this theinstitutional factor. Find a company or any organization, if you can, that tries to helpits competition without serving its own interests, or willingly sacrifices itself to thesurvival of another entity. Beyond individual acts of heroism or religious conviction,the institutional factor instills in the heart of every being the credo of self-perpetuation: “Me first, then you.”So out in the competitive landscape we call, only half-jokingly, the “jungle,” you’d

better constantly watch your back and keep your head above the water. You needto worry about yourself because no one else will.

You build customer loyalty — not your customerBut beyond the competitor behind you, you also need to be concerned about the

customer ahead of you. Organizations need to be in constant touch with theirconsumers or those customers will drift away.Without monopolies, customers will

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always have choices. If you lose touch, you can bet your competitors will be intouch — and gobble them right up.Red Lobster is an example of a bright idea of the seventies that became stale

and out of touch in the nineties. Red Lobster stores, from decor to menu to pricestructure, failed to reflect changing times and eating habits. Major changes wererequired in all these areas to recapture the chain’s appeal to middle-classrestaurant-goers.Even when we consider brands that were once thought of as immortal, we see

how consumer focus is mandatory. Look at Neiman Marcus.Who would havethought that this retail giant would ever face periods of static profits and nogrowth? But no company is immune from stagnation. Over the past few years,even that great American institution, Sears, has faced its mortality. Recently it hastried to redefine itself in terms of its customer base. Hence the campaign basedon the invitation, “Come see the softer side of Sears.”Successful companies create symbiotic relationships between company and

customer. A healthy, well-nurtured relationship endures the twists and turns of themarketplace, the ups and downs of the economy. Such a relationship is neverstatic, never based solely on past performance or simple longevity; instead, itmoves with the dynamics and fluidity of two skilled dance partners, the vendorresponsive to every nuance of need from the customer.Dell, as a second-generation company in the personal computer industry,

established itself early on as a very responsive, customer-friendly computercompany. Its advertising is characteristically hip, appealing to younger computerusers; but more important, Dell established its perceived value in the way itoperates.Such is the nature of customer satisfaction. And if you will build it, they will

come and stay.

Seeking Answers to Nagging Questions

Once the two of us had decided to pursue these questions, we concluded thatthe best way to find answers was, in the finest academic tradition, to start aresearch project. We began to assemble an astute team of researchers, RollinsCollege MBA students who could handle the tedious legwork required to get theproject launched.Working with this team, we proceeded to gather informationfrom three external sources. At the same time, we had the benefit of the

xiii


experience of two immediate, internal sources. Finally, we completed anexhaustive analysis of our data and information to ascertain patterns of similarityamong our selected target companies. These five elements enabled us to discoversome fascinating commonalities, corporate characteristics that are the basis of thisbook.

Step 1: Literature searchWe examined the body of published literature that has had an impact on

business in the past 10 years. In some cases, in addition to the concepts theyintroduced, we evaluated the companies cited as examples in these books, to seehow they were succeeding in these harsh economic times. Unfortunately, many ofthose companies were now struggling since the downturn of the economy.Wealso surveyed recent business magazines for articles that might have relevantcomments, observations and insights relating to the concept of morphing.

Step 2: Company searchWe then began searching for companies that were prospering despite the dim

economy.We developed a systematic method for looking at these companies,examining market out-performance over a 10-year period. They didn’t have to be inthe Fortune 500, or even hailed as an outstanding company.We were looking forcompanies that did well despite the impact of the ’99 “tech wreck.”It should be noted that most of the firms we interviewed were publicly held

companies. There are some privately held companies cited, such as CNL, but mostprivate companies were just not interested in disclosing enough information abouttheir operations to make their inclusion worthwhile.Next, we looked for constantly increasing sales revenues over a 10-year period.

Because of companies such as Enron and MCI, we knew that even though profitswere important, profits are figures that can be fudged. But sales rarely lie. Andthere was one other requirement: Qualifying companies had to have recordedpositive cash flows for every year in that same period.We then began researching the companies that had met our criteria, filtering

through annual reports and magazine and newspaper articles to get an idea of thecompany and what they were doing.We wanted companies that had not receivednegative press, and seemed to have a strong, in-depth corporate culture.The research process never ended. Even in the late editorial stages of the

project we were qualifying new companies that had not heretofore come to light.

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In addition, we continued to uncover more recent information about the companieswe had already interviewed, data which would help us round out a morecomprehensive corporate profile.

Step 3: InterviewsAfter they met our guidelines, we contacted each company. It was often a major

task just to talk directly with top management, but we persisted, traveling to eachof the companies we had identified and talking to key personnel. Sitting face-to-face with CEOs and other top-floor executives gave us a perspective that no annualreport or news article could ever provide.

Step 4: The experience of DynetechThe most immediate and accessible source of input in the quest to find the

characteristics of a successful organization was all around Larry — his owncompany. Dynetech Corporation, headquartered in Orlando, was founded in 2001to provide direct-to-market distribution of products and services through integratedsales, marketing and delivery systems. From its modest origins with 52employees, Dynetech has grown exponentially into a multifaceted organizationwith 509 employees, and audited revenues in 2003 of $113.8 million, a 74.8percent growth rate over the previous year’s 65.2 million. In September 2004,Dynetech was named to Orlando Business Journal’s Golden 100, a list of thelargest privately owned companies headquartered in Central Florida. As this wasbeing written, Dynetech was in the planning stages of building a 26-storyheadquarters on prime real estate in downtown Orlando.

Step 5: The global expertise of Dr. Craig McAllasterDr. McAllaster has served as dean of the Roy E. Crummer Graduate School of

Business at Rollins College,Winter Park, Fla. since mid-2000. He brought a uniqueperspective to our preparation for the book, based on a distinguished career as aneducator, a corporate specialist in organizational training and development, and as aglobally active business consultant. His clientele reads like a Who’s Who ofAmerican Business: Texaco, Black & Decker, AT&T, Hallmark, McGraw-Hill, MobilOil, and the Federal Reserve Bank of NewYork, to name a few.

Step 6: Comparison and conclusionHaving interviewed management at all our target companies, we began to

discuss and compare each of our findings. The companies we identified as

xv


potential morphing organizations shared some common characteristics. Over anine-month period, we formalized our observations and worked through them until,with surprising clarity, we were able to define a morphing company.If your organization is “getting by,” or “doing OK” or “in kind of a slump,” we

suggest that you hold the morphing template up to your operation. As we all knowfrom browsing the bookstore shelves, there are many recipes for businesssuccess. But as the experience of some of the most dynamic business entities inAmerica can attest, the characteristics of a morphing enterprise will position thatenterprise for moving in harmony with, and just ahead of, whatever marketconditions the rest of this century brings.

xvi

1

Chapter 1

The Essentials of aMorphing Enterprise

The ability to learn faster than your competitorsmay be the only sustainable competitive advantage.

– Arie De Geus

The ability to learn faster than your competitorsmay be the only sustainable competitive advantage.

— Arie De Geus

Chapter 1: The Essentials of a Morphing Enterprise

Creating the Ultimate Enterprise Experience

A common discussion in any realm of business, from corporate boardrooms tobusiness classrooms, is about the purpose of a company. Two basic views prevail.A corporation exists either to provide a rewarding customer experience or toreward shareholders. Of course, no company is going to shout, “ShareholderSatisfaction Comes First!” in its advertising. But the fact is that, experientially, athriving business maintains and cultivates happy customers and happyshareholders.A concept central to this book is that neither of these goals is the bottom-line

answer. Another, wider experience should be incorporated into every businessoperation.We call it the Ultimate Enterprise Experience (UEE).The goal of the UEE is to develop and operate an organization that provides a

rewarding experience for itself by delivering a rewarding experience to others —in a labor-efficient and cost-effective way. This is a philosophy of enlightened self-interest. It operates on the premise that when you satisfy the objectives of otherconstituencies, you satisfy and meet your own. It’s not a bad philosophy for life,either.But how can a company, whose primary concern is its own survival, reconcile

this self-serving instinct with such timeworn slogans as “The Customer ComesFirst!” and “Customer Satisfaction Is Job One”? Aren’t these two horses pullingthe corporate wagon in opposite directions?

Adding employees to the experience equationTraditionally the “others” in the definition has been limited to delivering a

rewarding experience to, externally, the customers and, internally, shareholders.The morphing organization takes the rewarding experience a step further — toinclude another internal constituency, its employees. Your employees mustperceive a reward. Their day-to-day employment must be a rewarding experience inorder to meet the needs of the customers and reward them. Higher revenues thenprovide a rewarding experience to the shareholders. The UEE becomes a three-legged stool of reward on which your corporate success rests.Arguably, along with employees in meeting the needs of customers, yet another

constituency must be satisfied as well. Vendors become our partners, supportingus in providing the goods and services we offer. It behooves us, therefore, to makesure they receive a rewarding experience as well.

2


Jeffery Pfeffer refers to the chain effect of what can go wrong in his book TheHuman Equation. In a downward spiral, all parties are negatively affected whenemployees are not having a rewarding experience. If employees are not happy,customer service suffers to the point that customers are not having a rewardingexperience. As business declines accordingly, shareholders ultimately suffer as thevalue of their stock declines — certainly not a rewarding experience!The prerequisite of a UEE, of course, is having or founding a business

organization that takes advantage of a business opportunity. The entrepreneurdiscovers a product or service need in the marketplace that a business operationcan meet. Or the owner of an ongoing company can expand or divert resources tosatisfy a new market need.

Rewarding experiences for shareholdersRewards for shareholders are virtually self-explanatory. Holders of company

shares expect to see their investment grow, and may also expect a periodicdistribution of dividends as tangible reward for their stock purchases. A robuststock compliments shareholders for their wisdom and foresight in buying thestock. Professor Michael E. Porter of Harvard Business School, perhaps the mostwidely read management strategist in the world today, insists that the onlyobjective of an enterprise is to enhance and maximize shareholder value.

Rewarding experiences for employeesProviding a rewarding experience for the organization is a little more complex.

Every enterprise will have a unique definition of that experience. It could simply beprofit-driven. Employees of a company enjoying enormous profits can certainly berewarded with a share of those profits in the form of handsome wages, generousbenefits or stock options. Prior to the market downturn of 2000, companiesranging from Home Depot to Microsoft enabled hundreds of employees to retirewealthy on the value of their stock — genuinely a rewarding experience!Then there are companies like Google. In 2004, as the drivers of that magical

search engine prepared to go public, the IPO finally settled at $85 a share. BillColeman, vice president of Salary.com, which tracks employee compensation,estimated that some 900 of Google’s 2,300 employees would be paper millionairesthat day the firm went public. Almost 600 would be worth more than $2 million!

3


The two founders of Google didn’t do bad either. Larry Page and Sergey Brineach hold about 38.5 million shares worth $3.3 billion. Google’s CEO, Eric Schmidt,holds 14.8 million shares, valued at up to $1.3 billion.But rewards for employees extend well beyond a windfall IPO or fat pay

envelope.Whole libraries have been written on how to develop more effectivemanagement practices, better employer-employee communication and theimportance of valuing the employee and soliciting employee input in managementdecisions. Rewards in this area could also extend to meeting the personal andfamilial needs of employees, such as offering daycare facilities, sports, fitness andrecreational programs and employee incentive programs.Employees can also receive a rewarding experience that emanates from the

service their company offers, or pride in its product. Employees of apharmaceutical company, for example, can take justifiable pride in producing acancer-fighting drug. Thousands of aerospace workers in Florida, Texas andelsewhere have taken enormous pride in being part of the space program. Thetight-knit community of engineers, technicians and support people at NASA regardthemselves as members of a greater family, to the point that every successfulmission is a personal triumph — while each shuttle disaster is a personal,heartbreaking tragedy.GlobalTec Solutions, headquartered in Addison, Texas, is a software development

company that specializes in creating real-time software for individual trading instocks, options, commodities, currency and other online trading. Their position isthat their success is all about their customers’ success. GlobalTec employees areextremely proud of how their products reward their customers financially. Thistransfers into a professionally rewarding experience for the employees themselves,who participate in an Ultimate Enterprise Experience.Cirque du Soleil, the internationally acclaimed pantomime circus, designed its

entire building so that all workspaces have internal windows looking out into thetraining and rehearsal areas. Employees, no matter what their function, can look upfrom mundane administrative tasks and be refreshed and reminded of thespectacular end product their labors help support.In addition, Cirque du Soleil designed its headquarters building incorporating

materials that remind everyone there of the group’s origins as street performers.The liberal use of circus props and artifacts reinforces employee awareness of andpride in their organization.

4


We talked at length with David Krishock, CEO of Scholastic Book Fairs, asubsidiary of Scholastic Books. He told us how, previous to joining thatorganization, he’d held a position with a major defense contractor, a largecorporation that made missile guidance systems and other armaments. He said, ineffect, that it was infinitely more gratifying spending his workdays at Scholastic, acompany committed to teaching and encouraging kids to read, than it wasmanufacturing products whose sole purpose was to break things and kill people.Linda Semmler, vice president of sales, said that when she felt she was losing

her way or got too bogged down in the day-to-day routine at the office, she wouldget out and go to one of her company’s book fairs. She would be rejuvenated bythe joy of watching children and their parents explore the magical world of books.Positive, reinforcing pride in what their company does is a powerfully rewardingexperience for the people at Scholastic.In our seminar division at Dynetech, we send individual associates out into the

field to attend our three-day training programs. Not only do they benefit from theprogram knowledge itself, but they sit side-by-side with our customers and studythe material with them. This gives our associates the opportunity to see firsthandthe quality of the value proposition, the value that the customers are receivingthrough the instruction we provide them.At the end of the day, we need to feel good about what we do.We have to put

out a good product in a responsible way, marketed with balanced and truthfulrepresentations, sold effectively and supported with conviction.Rewarding experiences for employees are also driven by the degree of value top

management puts on its workforce. The corporate culture not only helps definewhat the company is and what it stands for, but also the type of relationship thatexists between the boardroom and the mail room.Just as each individual employee must consider his or her job a rewarding

experience, the company must reward itself — with an enterprise-wide rewardingexperience. One large Florida residential-development firm has installed a large bellin its conference room. Every time a house is sold, the bell is tolled.While eachindividual feels the joy of reward, the corporate entity also savors the sound of thebell as another small victory in a tough housing industry.Let’s look at this example of employee reward. An employee ofWD-40 — we’ll

call himWade — moved his family from Chicago to San Diego so that he could jointheWD-40 team there.Wade loved the team in San Diego and enjoyed his new

5


work environment. His family, meanwhile, tried adapting to life in San Diego, butnever made the adjustment. For several reasons, they missed life in Chicago.Wade acquiesced to his family’s feelings and found a job with another company

back in the Chicago area, doing what he’d been doing in San Diego.Wade and hisfamily then returned to Chicago. After two years there, he realized that his“corporate heart” was in San Diego atWD-40. Even though his family didn’tconsider it home, he took an opportunity to return toWD-40 on theWest Coastbecause of the rewarding experience that he had received working there.There are similar stories throughout the corporate world, a growing body of

evidence that companies are able to create that Unique Enterprise Experience —giving the best possible experience to customers and shareholders by keepingtheir employees rewarded and fulfilled at several levels.

Rewarding experiences for customersWhat about the delivery of a rewarding experience to prospective and existing

customers? A rewarding experience for a customer derives from the concept of avalue proposition.Whether in an executive sales presentation, an automobileshowroom or the produce section of a supermarket, there must be a valueproposition every time a business offer is made. Customers must perceive thatthey are receiving value — paying a fair price for what they are getting. Price pointmust be commensurate with perceived quality, but never higher than that quality.A customer’s rewarding experience begins with a company’s ability to provide

good-quality products or services. If the new cell phone, barbecue grill or cableservice doesn’t work, the potential for customer reward is in immediate jeopardy.If the customer feels that the company is doing its best to rectify a bad situation,that customer may be on the way to feeling true customer satisfaction. If thatperception lasts, customer satisfaction matures into customer loyalty — a trulyrewarding experience for both the customer and the company.In the marketplace, if customer demands, the economy and technology all stood

still, customer satisfaction would be a snap. All management would have to dowould be to find the optimum combination of customer “hot buttons” and keeppushing them ad infinitum. In the real world, the dynamics of all these variablesrequire corporations to constantly adapt. They must shift their strategiescontinuously to meet new demands, conditions and contingencies while clingingto their core values and competencies.

6


In our research, we found that successful companies area already subscribing tothe principles of the Unique Enterprise Experience. They’re not calling it that, butthe concept of rewarding self-interest, of satisfying all adjacent constituencies inorder to realize one’s own objectives, is inherent in the way they do business.So how, in fact, does a company achieve such a seemingly daunting goal? That’s

a focus of the rest of this book. But first, let’s examine the commonalities ofmorphing corporations.

Characteristics of a Morphing Enterprise

“Intelligent DNA” — the fingerprint of a successful companyA key characteristic of a morphing enterprise is its ability to consciously adapt

and evolve no matter what circumstance or environment surrounds it. We think ofDNA scientifically in terms of an essential “fingerprint,” a unique genetic stampthat determines the characteristics of an individual. That DNA is not implanted ortransplanted after the fact. It is integral to every component of the organism.Similarly, an organization must have “Intelligent DNA,” an innate characteristic

that transcends a practice or policy. Such DNA enables the enterprise, and everycomponent of the enterprise, to intuitively sense the dynamics of change in itsenvironment, and to incrementally shift and adjust its processes, procedures andstrategies to cope with environmental changes.Stating it as simply as possible, Intelligent DNA is not something you do — it’s

part of what you are.This DNA, like the DNA of genetics, is certainly not new, but is now being

isolated and identified as a driver of change, ensuring a company’s ability to thrivein a dynamic environment. Harnessing the power of Intelligent DNA enablesorganizations to view their subtly shifting environs with revealing clarity. They cannot only perceive current realities, but, as we shall see in chapter four, also foreseethe realities of the near future.

The Unified Business Platform

In addition to the commonality of Intelligent DNA, morphing organizations sharewhat we call the unified business platform (UBP), the central nervous system ofthe enterprise.

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The UBP is a common communications program that runs the length andbreadth, from head to toe, of the company’s skeletal structure, into every square ofits organizational chart. And like the nervous system of the human body, it providesa means of instant, enterprise-wide, two-way contact. Sales figures can be readand analyzed by management. The sales force dealing with clientele in the field caninterface with engineers in R&D who are designing products for that clientele.Accounting can track expenditures throughout the company — and pinpoint areasfor reducing costs. The UBP is the ultimate system for letting the left hand knowwhat the right hand is doing.By way of background, as the business community moved into the age of

information technologies, thousands of software platforms were developed andsold to meet every need of every function of an organization.We can illustrate thisproliferation of independently designed software systems with a classic story fromearly railroading. Two railroad companies agreed to build a single railroad systemacross 19th-century America, to connect the East with the pioneerWest.When thetwo tracks met, somewhere in the Great Plains, it was discovered that they hadlaid their tracks using two different gauges of rail.More than a century later, as computers came of age in virtually every major

corporation, the accounting department bought accounting software, humanresources installed HR software, sales and marketing and management, and everybranch office and assembly plant bought its own software — and none of it wascompatible. Many corporations today operate the same way, each departmenthappily processing data on a legacy software platform unable to communicate withother software, or any newer, more sophisticated software other departments maybe using.

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UNIFIED BUSINESS PLATFORM — UBP

“The Nervous System”


Supposes our human bodies were constructed the same way — as if each arm,each leg, our brain and heart had their own nervous systems. You might cut yourfinger and bleed to death while your arm was still trying to communicate pain toyour head. A bee landing on your nose would sting you before your hand got themessage to swat it away.The key term is “unified,” in that a unified business platform carries the data in

real time to all areas of the organism simultaneously. For an entrepreneur runninga small consumer-goods business with no employees, he or she is the unifiedbusiness platform. But for every new partner and employee that comes on board,that UBP must expand as surely as new phones and computer terminals.Companies have different types of UBPs, but they all have the same purpose:

to gather information and intelligence both within and beyond the walls of theorganization. Jim Seneff, CEO and chairman of CNL, calls this type of monitoringactivity “weak signal research.” Every member of the organization is encouragedto poke and prod the marketplace, including competitors, for even the slightestindicators of change. (“So, how is business at your end?” “What’s new in SanDiego?”) A dozen insignificant bits of information can add up to a credible pieceof intelligence on an emerging trend or a pending development in the industry.Organizations today have a great technological advantage: tools designed with

metrics in mind. OutlookSoft Corporation has recently released the latest inunified,Web-based business performance-management software. The platformenables businesses to implement strategies in real time, linking goals toperformance targets that corporate decision-makers use to plan, measure andmanage performance. The benefits to the organization include accuracy,consistency, the unification of processes and real-time activity execution,autonomically collecting critical information and using it! You can do it all — plan,budget, forecast, consolidate, analyze, report and scorecard with organizationalobjectives forming the framework.1

Fortunately, platforms like the ones developed by OutlookSoft have a low cost ofownership and boast a quick return on investment. Key Performance Indicators —KPIs — once the advantage of large corporations alone, are now available for anybusiness interested in an automated performance-management system.

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1http://home.businesswire.com/portal/site/google/index.jsp?ndmViewId=news_view&newsId=20031112005487&newsLang=en; BusinessWire.com; OutlookSoft Launches NewVersion of Leading Business Performance Management Software.


The benefits of a unified business platform span the spectrum of industries. Justconsider stock trading. As recently as 1998, it would have been virtually impossibleto get an instantaneous analysis of stocks, including money flows and movingaverages — with every parameter that moving averages provide. Today, dependingon the trading platform, you can easily get all the information you ever wantedabout a stock and much more in real time. You want the moving numbers of theDow Jones Industrial Average, or the Standard & Poor’s for IBM?With just a fewclicks, it appears on your screen. Put in the parameters you want: one minute, oneday, one week, one month or one year, and you get it. With this information youcan evaluate in real time how a share of IBM is doing compared to the majoraverages.With this information an investor can make a more informed investingdecision than was ever possible five years ago.All this is possible because of a few key advances in technology. The first is the

unifying of information. If we didn’t have all the information in one place, unificationwould be impossible. Second, the data feed enables you to compare anythingapples to apples. Broadband, DSL and all of the techniques that replaced dedicatedlines and modem-based communication systems have given everyone access toreal-time data. Third is a set of metrics and the applications to make those metricsinterrelate smartly and autonomically. Without the metrics, you’d have a lot ofinformation without meaning.With metrics, numbers have value in that supportdecisions and decision-makers.One of the reasons thatWal-Mart is able to thrive while Kmart is barely surviving

is because of the unified business platform thatWal-Mart implemented at itsinception.Wal-Mart uses one of the most advanced information systems in theworld. These systems include automated, real-time stock replenishment and onlineprocesses to linkWal-Mart, its suppliers and its manufacturers to each other.Wal-Mart’s vendor-managed inventory system delegates inventory management to thecompany’s vendors whileWal-Mart itself manages the flow of these inventories.The system is effective — suppliers ship merchandise at the same rate consumerstake them off the shelves.With this type of autonomically based system it is nosmall wonder thatWal-Mart has become a benchmark for other retailers.Wal-Marthas also improved the quality of goods-and-supply logistics and retail pricesthrough global sourcing, i.e., acquiring certain products for all stores worldwidefrom a single source.

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At Dynetech, we have created a unified business platform we call eVoyager,written in-house to meet our specific requirements. It took us months and was noeasy task, but now we have a USP that will serve us regardless of how we expandand grow.(By the way, eVoyager was named after the Voyager 1 satellite featured in Star

Trek 2.This incredible satellite, launched in September 1977, was programmed toseek out knowledge about the universe. At this writing it was leaving our solarsystem, and at some 8.5 billion miles from earth was still sending back signalsevery day! Figure the ROI on that one!)We had originally bought a system from company called iMIS to carry data on

sales and marketing in the mid-nineties. The iMIS System was pitched to us as an“integrated database.” As it turned out, regardless of what the software publisherclaimed, this system was not even remotely integrated. It was, at best, an eventplanning tool, and a not particularly good sales and marketing programWhen webrought some technology in-house, we took at look at iMIS and asked ourselves afundamental question:Would this system enable us to run all aspects of thecompany — from the external environment to internal accounting and processing,shipping, back office accounting, finance administration and profit-and-loss, as wellas all the monitoring and metrics that were necessary for us to understand howwell we were actually operating?After six months of study of all of our different software systems we had in the

company in the company, the answer was no. At the time we began that processwe were generating about $8.5 million in sales with 50 associates. So we decidedto build a system that would be fully integrated and would represent a completeand unified business platform for the entire company. By the way, “unifiedbusiness platform” was not a common term at the time, or even a common termnow. There were “CRM applications,” “enterprise solutions” and various otherterms, but I have not heard from any other source the term “unified businessplatform.”To my best knowledge, I think we coined the term.So we began the process of building an original UBP.We worked backward to

create the system.We started by identifying the most basic requirement, byasking ourselves, “What do we need to know?” — i.e., absolutely criticalinformation.We then identified the metrics we needed to obtain that information,and do it in real time.We then produced hard copy, on plain paper, in order to get

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this information literally in people’s hands at any particular time, whether it’s daily,weekly, monthly or per inquiry as needed.We had to capture the information in order to manipulate it in the way we

wanted.We had to make sure the information was tied together uniformly and thatwe had all the different types of legacy data incorporated into it. We then had tobegin producing reports on an automated basis.We knew that our managersneeded to access their information as easily as possible, so we made sure that itwas systemized in a way that was flexible enough for individuals who didn’t have astrong technology background to pull the reports.It took us two-and-a-half years to complete Version 1.0 of our UBP. Today, with

that platform, we can say that all legacy systems have been incorporated into it, sowe are functioning with just one system across the entire company. By contrast,when HP purchased Compaq Computer Corporation on May 3, 2002, the largesttech merger in business history inherited a global mishmash of literally thousandsof information systems.Today, eVoyager works splendidly. It gives us the intrinsic communication we

need to run every aspect of our organization from top to bottom, vertically andlaterally — all the way from external customers to sales and marketing to humanresources to back-office accounting to purchase orders to project management. Inthe process of doing that we’ve also established metrics for every singlecomponent of the enterprise, as we’ll see below.

The “3 M’s” of a morphing enterpriseA unified business platform is an absolute necessity for an organization to

implement the “3 M’s” of a morphing enterprise — monitoring... measuring...and modifying.

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UBP

3 M’s


MonitoringEach organization must continuously and scrupulously monitor every facet, every

detail of its external and internal environment — from operating costs, salesrevenues and profits to employee absenteeism and turnover. If a firm’s sales aresatisfactory but customer buying patterns are beginning to change, a businessowner or CEO needs to know now — not after the fact.The data from sales required to analyze current customer preferences and spot

emerging trends is available to executives and their marketing analysts onlythrough the advantages of a UBP.With enterprise-wide metrics, executives canuse a common source code to access any data they need from any area of thecompany to make tactical business decisions.In today’s microchip world, we have access to every tech tool we need to

monitor our environment — inside and outside the company.We should know ifthe ad we ran onTV last month has sold sufficient product to justify the ad — orrunning that ad again.We should also know if our employees are as happy with thecompany culture this year as they were last year. Most important, we need toknow if our customer values our product the same way we value it.Wal-Mart is the textbook example of using a unified business platform to

implement enterprise-wide monitoring of retail sales.Wal-Mart knows exactly howeach product is selling in every store, every day. It maintains the largest computersystem in the world!Wal-Mart executives like to say they have access to moreintelligence than the CIA. This type of real-time information helps keepWal-Martone step ahead of Target, Kmart or any other competitor. They know the very daythat sales of a certain brand of paper towels decline — then use the data that nightto adjust their order from the supplier.The external environment is easier to monitor as well. Not so long ago, it was far

more difficult to research a company’s stock performance and financial condition.Online executives today can access a wealth of real-time information about virtuallyany competitor, available with a point-and-click. Today you can pull up any companyyou choose and get their stock performance, their past-five-year stock history,most recent news articles, pictures of the board of directors and their bios.Technology has given business the electronic tools to monitor any department,

office or assembly line of any business. But it is up to each company to articulateits objectives so that it can define what it should be monitoring and measuring.

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Then there is nothing about a business enterprise that cannot be monitored — if itis working from a unified business platform.As some examples from our own organization, Dynetech has defined goals and

objectives in such areas as marketing, sales, fulfillment and human resources.In marketing, our objective is to provide qualified leads to our sales staff in the

most cost-effective way possible. Accordingly, we have metrics in place to recordand track the demographics of those who respond to our marketing. Are weattracting prospects in lower income groups than we’d like, for example, orrespondents who are just curious rather than seriously interested in what weoffer? Once we’ve monitored and measured who those people are, we can adjustour marketing sights however necessary to better focus on those who, accordingto our database, are most likely to buy.In sales, meanwhile, the objective is to convert leads to sales at the highest rate,

with the lowest cancellation rate and at the lowest cost per conversion possible. Toachieve that objective, we hire and train the finest sales professionals we can find.We monitor their turnover rates, and continuously fine-tune their salespresentation and skills to boost those rates.In fulfillment, our goal is to sustain an exceptional buyer experience with a

high perceived value. How do we monitor that? First, we track the retention rate,i.e., how many buyers follow through on their purchase without canceling.(Actually, this is a full-refund warranty, good up to 14 days after date of purchaseand before a buyer receives the product. Such cancellations are due to “buyerremorse” or a change of the buyer’s mind for any reason, rather thandissatisfaction with the product.)We also conduct customer experience surveys, enabling customers to rate and

comment on the quality of our products and services. Third, we monitor theadditional sales per buyer. After an initial buy or over the course of a seminar, dothey purchase books, tapes and CD packages? All three of these monitoring toolsenable us to design the metrics required to measure and modify if and as required.In Organizational Development, our human resources function, our objective is

to establish a working environment in which our associates have a highly fulfillingassociate experience. How do we monitor associate job satisfaction?We conductconfidential associate surveys each quarter. We monitor the rate of turnover ineach area of the enterprise. And we track the percentage of new associaterecruitments that originate through referrals of current associates.

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We even quantitatively monitor individual associate performance and measure itagainst pre-established expectations. How is this seemingly subjective taskaccomplished?We draw up a Performance Agreement for every associate at thetime of his or her hiring. It spells out in detail the duties and responsibilities of eachassociate, so that no misunderstanding exists as to what is expected by and ofDynetech. Most important, the Performance Agreement includes the metrics bywhich performance can be measured and assessed at periodic reviews.We’lldiscuss the Performance Agreement in greater detail in a later chapter.Metrics in all these areas are in real time and give us the information we need on

a daily, weekly or monthly basis — and all year-to-date information. That’s the kindof comprehensive e-business platform, one such as eVoyager, which enables us tomonitor every activity in our enterprise.In addition to Dynetech itself, we recently went through the acquisition of a firm

called GlobalTec, a Texas-based software development firm that has created acommanding position in the development and distribution of software for thefinancial marketplace. Dynetech acquired that company for $130 million. And whilethe company had a good amount of financial information at its disposal in real time,what it didn’t have was information that indicated very clearly what it was to bemonitoring on a day-to-day basis and the metrics with which it could measure thatinternal and external information. The first thing we did in order to establish thevaluation for acquisition was to evaluate the financial performance against anexternal audit. Thereafter, however, we had to establish over the next six weekswhat the appropriate metrics were which would allow us to monitor on a dailybasis the performance of the organization in itself as well as its performance inrelation to its external environment.

MeasuringMonitoring is only valuable as a means of measuring. And what you can

measure you can control. Companies that don’t measure and analyze theinformation they monitor are only collecting annoying data no one knows or careshow to use, and wasting money on the costly task of data collection.While consulting with a European manufacturing company, Craig found that the

organization was collecting various types of data throughout the productionprocess. It gathered data at the beginning of the process to find out how productweights were varying. It also collected figures on waste that was being discarded.

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But it was not collecting the information strategically and there was nothing beingdone with it. Finally, all this information was discarded because no one knew whatto do with it, and valuable data was lost and the cost of that collection was anegative impact on the employees and the bottom line. This is information thatshould have been having a positive impact on the company.Morphing companies all monitor and measure their environments. They measure

productivity and performance, use of resources, percentage of waste, material andhours lost on rework, safety and absenteeism. Remember: Any performance, taskor procedure that can be measured can be managed.At Dynetech, one of our missions is to organize, manage, schedule and produce

professional, top-end sales seminars around the country. That means we talk aboutmeasuring in terms of “cost per,” since our leads are generally attendees at oursales events.We measure in terms of “cost per attendee” and “revenue perattendee,” “cost per sale,” and “revenue per sale” “cost per campaign” and“revenue per campaign.”We also talk about the efficiency ratios of each of the media we use to generate

those attendees and sales.We even track our return on investment as well as ourcoverage numbers that reflect the amount of dollar coverage of our marketingcosts in relation to our sales revenue. Measurement enables us to continuouslyfine-tune our product and its delivery.We constantly rewrite sales presentations tomake them sharper, stronger and more efficient. We track sales to measure theeffectiveness of our sales speakers, and periodically replace an average speakerwith one producing higher sales figures.The process for determining the metrics often begins with examining an area of

operations that seems as if it could be improved. Once we identify a problem area,we determine what data would give us a clearer picture, via monitoring, of what’shappening in that area.What does a manager need to know to better manage adepartment? That way we begin with a body of empirical evidence rather thanunsubstantiated opinions.When the nature of that data is determined, weconstruct the metrics that will enable us to measure that problem area. Metricsemploy what we call Key Performance Indicators (KPIs) that quantify unmistakablywhether or not certain expectations or standards are being met — by an activity, aprogram or even an individual.This process offers two immediate benefits. First, it forces the manager to

understand what specific information he or she needs into order to manage more

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effectively. And second, it ensures that only pertinent and useful data is gathered,so that reams of random and useless information is not generated.

Making sandwiches the old-fashioned wayRollins College sent a team of consultants to a large sandwich plant in

Nottingham, England. The company — we’ll call it Baselweed Foods — makesprewrapped sandwiches for vending machine sales all over Britain. It had been inbusiness for a while, and evidently was using the same production practices forthe duration of its existence. Although the plant was profitable, the executives atBaselweed were certain that production waste was costing them far too much.What the consultants found could fill an entire chapter on how not to make

15,000 sandwiches an hour. The production line was staffed by manual sandwichassemblers who addressed a continuously moving conveyer belt of bread slices.Each employee added ham, chicken, meat loaf, cheese or lettuce to the stack ofingredients, depending on the customer’s order. Because it was difficult to stopthe conveyer belt in the case of a mishap, approximately seven out of every 100sandwiches had to be discarded in a nearby barrel as waste. It all seemed like ascene reminiscent of an old I Love Lucy show.Adding to the inefficiency was a large egg mayonnaise vat or “depositor” that

towered over the start of each assembly line, fitted with a vertical dispensing tube.Instead of using high compression pneumatic extrusion to force the mayo downonto the bread below, this Rube Goldberg contraption simply relied on the weightof the mayonnaise itself. The problem was that as the depositor slowly emptiedfrom use, the weight of the mayonnaise remaining in the vat decreased until thelast several kilograms of mayonnaise could not be forced out. Periodically a manwould come along and manually scoop out whatever he could, then hose out thevat. This would move the unused mayo out of the plant, downstream andeventually into a government wastewater-treatment facility. Because of the volumeof this egg-based effluence, Baselweed was charged by the government fortreating its waste.Finally, the mayonnaise that had already been spread on sandwiches that were

ultimately thrown out was also lost with the other ingredients, causing thesandwich maker to pay three times for its inefficient use of this ingredient.We’ve gone to some length to tell this story not because it is incredible, but

because of this amazing discovery by the Rollins team of consultants. No one had

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any idea of how many sandwiches were wasted by any one shift of sandwichmakers because although the waste barrels were continually emptied andmeasured, they were not measured during each product run. The company onlymeasured aggregate waste, and didn’t drill down or use metrics to monitor thesystem. In addition, other refuse — wrapping paper, plastic gloves, etc. — werealso tossed into the same barrels. And no one had ever bothered to count howmany cans of mayonnaise were being dumped into the vat each day or each shift.Waste measurement was unknown, so no one counted the overage. Perhaps itwas too much trouble, but more likely it was because the plant was makingmoney, running as few as 12 and as many as 18 to 20 assembly lines 24 hoursa day!After two weeks on-site, and no doubt many sandwiches, the team

recommended production changes that now enable workers to measure theirwaste, and begin to manage and reduce it systematically.Measuring means having the metrics in place to measure employee

performance as well. Both CNL and Scholastic Book Fairs use KPIs to track andmeasure how employees are doing with regard to their job tasks and goals. JimSeneff, CEO at CNL, can pull up on his PC screen the KPI status of any employee.There is no way to overlook personal achievement — or avoid addressing personalshortcomings.Looking beyond their front door — or their mayonnaise vat — morphing

enterprises measure sales revenues, profits and other elements that define theircompetition. They measure their own financial strength in the context of theeconomy at large. Success in an uncertain economy demands that businessowners take advantage of all the measuring tools the company has available — andcontinually seek new ones.

ModifyingImplicit in effective measurement is the need for corrective action. Modification

is the end result, the whole raison d’être for monitoring and measuring. In amorphing enterprise, monitoring, measuring and modifying continuesimultaneously and automatically.At one point we at Dynetech discovered, through monitoring and measuring that

we were experiencing a 29 percent cancellation rate, which meant we wereretaining only 71 percent of our sales. This was a case in which we monitored and

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measured but only stabbed at the problem and took no decisive action for almost ayear. Yet we were confounded that this unacceptable cancellation rate remainedvirtually unchanged.Finally, we created a task force that ultimately became a separate department. It

was given the responsibility not only of creating an 85 percent retention rateenterprise-wide, but also became responsible for driving a task force affectingevery major department.We gave it a director-level responsibility, and moved itfrom operations into sales. These modifications reflected to everyone how seriouswe were about reducing the rate of cancellations. Subsequently, thesemodifications resulted in a drop from 29 percent to 21 percent cancellation rate insix months, and we were well on our way to our goal of reducing that rate to15 percent.Today at Dynetech, our UBP, eVoyager, is as intrinsic to our being as... our DNA.

Because data is monitored and measured in real time, we’re in a position to takeimmediate action on it. This is why we use the term “incessant modification.”As an example of that, we recently had a situation in which a newly installed

marketing manager who was made responsible for media purchasing. He didn’thave much seasoning with us in media management, and started making decisionsthat were counter to those in marketing who had more experience inimplementing our media-purchasing strategies. He was using as his primary driverfor the purchase of media the cost per attendee, and backing into the amount ofmedia to be purchased. Our low season extends from mid-May to mid-July.Recognizing that he would end up paying more per attendee during this period oflow attendance, he cut back on media purchasing so he could continue to meet ourspending objective of $100 per attendee.We recognized a dramatic drop in sales almost immediately. The number of

attendees plummeted not only due to the seasonal low period, but also because ofless media exposure. A more prudent strategy would have been to temporarilyignore the $100-per-attendee guideline and spend more in advertising to reachmore prospects and sell more product, in order to compensate for slow-seasonattendance. Instead, it was a double hit to our organization.We immediatelydiscovered what the media-buying decision had been, and modified the purchasingstrategy.

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Mastering the concept of adjacencyCorporations grow two ways — organically through new clients, new products or

new geographic markets; or inorganically through acquisition.Wal-Mart is theclassic example of organic growth. Honeywell, as just one example, grewinorganically overnight with its purchase of AlliedSignal in 1991. So did Disneywhen it purchased ABC television.The danger of acquisition as a growth strategy is that a company that has been

selling one product line suddenly finds itself trying to sell another completelydifferent line, one in which it has no experience or expertise, and no other interestthan to make money. The rule of thumb, as Tom Peters recommended, is: “Stick toyour knitting.” Do more of what you do best.The concept of adjacency is a characteristic of the morphing company. Inorganic

adjacent growth often develops incidentally, in response to an emerging marketneed. Often it’s a case of, “Well, we’re already doing this. We can do that too.”An apple grower sells bushels of apples at a stand beside the road. Customers

stop, buy apples and ask for apple juice. The grower already has the apples so heextracts the juice from some and begins selling fresh apple juice too. He even letssome of it distill enough to sell apple cider. Customers buy apple juice and ask forapplesauce. So the grower crushes some of his apples and concocts his ownbrand of applesauce. Before long, he’s selling apple jelly. The grower hasresponded to the demands of his market and moved, morphed from bushels ofapples to an entire line, using the concept of adjacency. People who would neverbuy apples buy applesauce or apple jelly.But… from time to time when customers ask for grape juice, the grower doesn’t

run out and plant grapes. He knows nothing about grapes. He sticks to what hedoes know, apples, and prospers — with minimum risk.In my earlier years I had an Italian restaurant. This proved to be profitable and we

built up a respectable clientele. Before long customers began to request deliveryto their offices and homes, so we expanded into delivery service. Then, they beganto ask us if we catered special events. Sure, I said, we can do that. It was a naturalstep from serving meals to preparing them for catering, and eventually delivery.CNL, as another real-life example, began as a real estate investment company

specializing in land and commercial business properties. Some of the properties,such as office buildings, needed management services, so CNL began managingproperties. It was only a short hop from the service of managing properties to

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buying and managing restaurants. Finally, CNL stepped into an area of investmentthat was naturally adjacent to restaurants — hotels and/or resorts. Adjacentopportunities are usually stepping stones a company can easily take along a pathto growth.The demands of the marketplace, however they change, are never wrong.

Companies that ignore the opportunity to meet those demands are making amistake by not recognizing the concept of adjacency as a means of growth. AndCEOs are not doing their job if they allow a disconnect with the market so thatthey do not recognize adjacent opportunities.The same CEOs need to keep an eye out for other enterprises who are gazing

over the fence into their pasture of profitability and considering adjacent growth.No area of the marketplace is safe. Ram Charan, eminent executive advisor and co-author of Execution — The Discipline of Getting Things Done, recently spoke at aconference hosted by Crummer Graduate School of Business at Rollins Collegeand sponsored by Dynetech. Charan pointed out that the greatest threat to HomeDepot is not its competitors, such as Lowe’s, but a retail giant such asWal-Martthat has the resources and especially the unified business platform to stock andsell home supply products at very competitive prices.

The Architecture of a Morphing Enterprise

The processes and activities of a morphing enterprise don’t take place in avacuum. And while every successful company operates within a uniqueorganizational structure, successful morphing requires a basic architecture.

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3Ms

SILO- 3Ms SILO-

3Ms

SILO- 3Ms

SILO- 3Ms

SILO- 3Ms

SILO- 3Ms


The larger an organization becomes, the more likely it is to become a prisoner ofits own bureaucracy. Even worse, a prisoner in solitary confinement becauseinternal communication has become over-organized and under-effective.Paperwork, not productivity, seems to drive the company. An organizationalarchitecture is required to respond to both internal and external forces.We’llexamine architecture in greater detail in chapter 6. Right now let’s look briefly attwo structures that rise from the architectural plans of morphing.

SilosSilos are the core business units — departments, divisions or separate business

entities — that stay in close contact with the customer. They could also bedelineated by product, service or brand silos. They perform a minimum ofinfrastructural duties and have about them an entrepreneurial spirit. Personnel inthe silos stay on the front lines of business. They conduct the three M’s in theexternal environment and are the tentacles of the company that reach out andprobe the economy, open new markets, expand products and services, andgenerate customer satisfaction.In brand-based organizations such as Proctor & Gamble, the silos are Clairol,

Bounty, Crest, Pampers, Iams, Tide, etc. Brand managers and salesrepresentatives build direct relationships with customers as they sell andservice accounts.At Dynetech, our silo-specific functions are marketing, sales and fulfillment.

Operating as silos, their mission is to stay in contact with prospects, buyers andusers, respectively. Each of these areas enjoys the autonomy and flexibility theyneed to be entrepreneurial entities within the context of the enterprise.Silos continuously modify themselves as they see changes in customer needs,

attitudes and behavior. They have the best of both worlds. They belong to theparent company, but retain the independence to adapt to change as needed. Theone caveat with regard to silos is that they may get so independent thatcommunication begins to break down, as those in the silo try to assume moreautonomy than is appropriate for a department or division of a larger enterprise.Silos can develop in two ways. They can be formed due to the organic growth

and expansion of a company.When a New Product Sales silo becomes so largethat it runs the danger of becoming unwieldy, another such silo can be spun off so

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that the company might have New Product Sales — Farm Equipment and NewProduct Sales — Industrial Equipment.The other way to add silos is through inorganic growth, or acquisition, wherein

the newly acquired company or product line becomes a separate silo of thecentral organization.

Shared servicesSilos are made possible by the shared services

concept, which we consider the backbone of theDynetech organization.Shared services centralize administrative

functions required to conduct business. Thesefunctions vary from one organization to the next,and may include accounting, IT and human resources.At Dynetech, we have four shared services: OrganizationalDevelopment, Legal, Finance andTechnology. By implementing a shared servicesfunction, we can remove these tasks from the daily activities of silo-basedemployees who can then devote their time to generating prospects, making salesand satisfying customer needs and cultivating long-term customer relationships.David Krishock at Scholastic says of his company’s shared services concept:

“The job of the office is to supply reps with the tools and capabilities that will allowthem to function most efficiently.” They’ll do anything they can at Scholastic tosupport their field reps, whereas nonmorphing organizations will have their repsdrop everything to help corporate out of a jam.The Shared Services people at CNL Financial Group understand the nature of

their relationship with their various silos, to the point that they refer to them as“clients,” entities that are in the same organization but must be satisfied as muchas any outside client in order for CNL to continue its pattern of success.Meanwhile, those outside customers may never see shared services. But they

will certainly feel the effects, because the silo that touches them will be able tofully support their needs — thanks to shared services.

Centralized support, internal tuningShared services are able to be cost-effective because they can pool their

resources to support each silo of the organization. The effectiveness of sharedservices is its economies of scale.

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SILO

SILO

SILO

SILO

SILOSILO

SILO

SHAREDSERVICES


For instance, an analyst working in shared services could interface with each siloand then share information among silos. Trends affecting one silo are likely to affectanother.Without constant communication and centralized support, common trendscould go unnoticed.With regard to measuring, shared services are measured using the metrics of

efficiency. The performance of those three functions operating as silos, meanwhile,are measured, as we have indicated above, by metrics that measure prospectgeneration, conversion and retention as well as customer satisfaction andrelationship building.

Enterprise-wide communicationShared services are responsible for constant communication. As the enterprise

circulatory system, it uses eVoyager, our UBP, to send information from the heartof the company to the furthest extremities — and back! Along the way, silosextract whatever data they need to sell product, and provide those rewardingexperiences to customers.Historically, most organizations do not communicate well. It’s probably optimistic

to say that “there’s always 10 percent that don’t get the word.” Shared servicesshould include the best communications specialists available — those whoprocess and analyze incoming data efficiently and can disseminate that data quicklyand effectively.Unlike mushrooms, corporations do not grow well when kept in the dark.

CultureEach of the companies we identified and interviewed has a strong corporate-

wide culture. Each has a community built around the principles of morphing andeach supports continuous adapting. They share information; make informed,judicious decisions; and maintain a long-term perspective.Long-term thinking and strategizing are often difficult. The business environment

doesn’t champion a long-term perspective, becauseWall Street doesn’t rewardsuch a perspective. And shareholders are often too impatient to think in thelong term.In addition, continuously adapting is often uncomfortable.We may prefer to

choose to “not mess up a good thing.” A purpose of this book is to change theculture of an organization bound by such thinking. The very essence of “notmessing up a good thing” starts a company’s destruct mechanism ticking.

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Summary

In this chapter we introduced the Ultimate Enterprise Experience (UEE) anddefined it from a corporate perspective as a company that brings rewardingexperiences on a sequential basis, i.e., not simply to its customers andshareholders, but, even more fundamentally, to its employees. The thesis is thatwhen employees are happy, they are motivated to work to create and maintaincustomer satisfaction. And when customers enjoy a pleasant buying experience,they become loyal purchasers of goods or services, and shareholders are rewardedin the form of greater value for their stock.We talked about Intelligent DNA, a corporate gene that is intrinsic to every

successful organization. This DNA recognizes changing conditions, internal andexternal, and drives a shift of direction of focus in the enterprise so that itcontinuously anticipates and confronts those changing realities.We also discussed the methodology for finding and examining companies that

were prospering despite the swings of the economy, so that we could identify thecharacteristics of what we call a morphing enterprise.The most prevalent common denominator was the unified business platform

(UBP), an enterprise-wide IT application that serves as a “central nervous system,”enabling an enterprise to communicate and operate vertically and horizontally. TheUBP then enables that enterprise to install the “Three M’s” of a morphingcompany: monitoring, measuring and modifying. The underlying premise is that anyperformance, task or procedure that can be measured can be managed, controlledand modified to handle changes in a company’s internal and external environment.Another commonality among prospering companies was an organizational

architecture that consists of two basic internal structures: silos and sharedservices. Silos are comprised of the sales, customer contact or outreach functionsof a firm, while shared services handled all internal support. This concept enablessales and marketing people to operate vibrantly and with virtual autonomy in themarketplace, unencumbered by administrative duties. Shared services, meanwhile,provide centralized support, internal tuning, enterprise-wide communication and astrong, sound corporate culture.So how in fact did we get to the current situation that businesses find

themselves in? Next we look at how business in general has evolved to thetheories and practices that exist today. A clear look at where we came from willbetter enable us to see where we’re going.

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Chapter 2

Management —the Evolving Door

to SuccessHistory is a guide to navigation in perilous times.History is who we are and why we are the way we are.

— David C. McCullough

Chapter 2: Management — the Evolving Door to Success

On June 24, 1812, without a declaration of war, Napoleon began his campaignagainst Russia, crossing the Niemen River into Lithuania with his Grande Armée

numbering 475,000 troops. He reached Moscow in mid-September only to findthat the Russians had burned the capital and there was nothing left to conquer. OnOctober 19 he began his retreat west across the vastness of Russia, hoping tobeat the Russian winter. It was an unparalleled human disaster. On December10, only 10,000 frostbitten, starving French solders crossed the Niemen.On June 22, 1941, without a declaration of war, Hitler began his campaign

against the Soviet Union. As had happened in 1812, the Soviet people burnedeverything in the path of the German army, depriving them of food supplies. InSeptember a year later, the German 6th Army under General Paulus attackedStalingrad, beginning a horrendous battle that lasted through the winter. Sub-zerocold and cold lead killed 100,000 German soldiers before General Paulussurrendered. Once again, the Russian winter and the terrible vastness of the landhad helped defeat a determined invader.These two tragic stories remind us that history is more than the dog-eared

record of a dusty past. It is an overlay that suggests our fate if we are eitherignorant of or choose to ignore the past. Or... it is a blueprint of previous successeswith which we can build our own success.On the unforgiving battlefield of corporate warfare, we must understand where

we came from in order to understand where we are going. You’d never buy a stockbased on its performance on a single day. More than likely, you’d take into accountthat stock’s past performance, its cyclical trends, market conditions and otherfactors before buying it.If you devote all that study to just one stock, how much more investigation, due

diligence and study are required to understand the performance of a business, itsindustry and the ebb and flow of the economy that washes around its foundations.In this chapter we examine the evolution of business management, several

approaches to management and some tools managers use in their quest forsuccess. But this is not just an overview of business management history. Thepoint, the underlying lesson, is that no matter what management approach or styleone uses, or what tool is used to ratchet up productivity, morphing can work withinthe framework of the organization. The prerequisites of a morphing organization —an Ultimate Enterprise Experience with an imbedded Intelligent DNA, using a

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unified business platform and employing the disciplines of the 3 M’s – areuniversally applicable.

How’s business? About the same as it ever was.Ironically, for all our microchip-based, laser-driven technology, business is

conducted very much as it was a century ago. Entrepreneurs still focus on buildingbusiness empires. Or at least a branch office. They still use human and financialresources to create something larger than themselves. Judicious decisions are stillmade, based on all available evidence and information. Competitors and otherentrepreneurs still yap and nip at their heels.At the turn of the 20th century, John Piermont Morgan stood accused of the

most infamous antitrust suit of the era. J.P. Morgan & Co. effectively controlled theflow of financing across the country and acted as the Central Bank before itscreation. Not surprisingly, nearly 100 years later Bill Gates faced the same sort ofominous suit. Microsoft was accused of controlling the software market and, byextension, the computer market. Morgan was brilliant in top hat and spats. Gatesis a visionary in geek’s clothing. Both Morgan’s and Gates’ companies exercisedenormous power both within and beyond their industry. Then, as now, individualsand companies resented their power, curried their favor and sought to stand asclose as possible to their wealth. Simultaneously.Why? Because human geniusand human greed are constants regardless of the course of history.

How’s business? More complex than it ever was.Although corporations have traditionally faced many of the same problems over

the past century, and labored toward the same basic goals, management policiesand styles have continued to evolve as the business of business became morecomplex. Management policies, in fact, were forced to change as the countrymoved from an agricultural economy into industrialization — and then into whatwe’ve dubbed the “Information Age.”Management styles and practices also had to acknowledge the emergence of

social forces as well. More sophisticated employees now demanded betterworking conditions and higher pay, profit-sharing and day care. The boardroom alsohad to deal with stricter government guidelines, greater environmental awareness,the black revolution, the sexual revolution and even the gay revolution. It also hadto cope, often reluctantly, with its new role as a neighbor in the “global village.”

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Corporate America, as much as it would prefer otherwise, cannot operate in asocial vacuum. So it has been dragged, often kicking and screaming, into the 21stcentury. That’s because, given the options of change or status quo, corporationsand individuals would just like to stay where they are, thank you. “Hey, if I wantchange I’ll break a dollar.”It’s axiomatic that technology moves faster than human willingness to accept

that technology. In the early seventies, newfangled ATMs sat idle while bankingcustomers found a place to park, walked into the bank, stood in a line andwithdrew $20 for the weekend. Today, Internet banking is still in the stage ofgradual public acceptance. In fact, the Internet itself was already 25 years oldwhen the public adopted it as a great way to forward “You’ll love this!” e-mails to50 annoyed friends and relatives.

Many new ideas get around — but do not make a revolution.For all their innovation and boldness, none of the above developments were

revolutionary, in that they triggered revolutionary change. Of course, the humandrama has seen some revolutionary developments that have propelled us forwardexponentially – the invention of the wheel, the telephone, the combustion engine,the airplane and the Internet, to name a few. But seldom have technologicalbreakthroughs utterly changed the way we live.When credit cards were developed in 1951, they were hyped as revolutionary —

the successor to cash — certainly not the accomplice to staggering personal debt.And from that first Osborne portable computer with its postcard screen... to thosebrick-sized car phones with the prestigious antenna in the back... to DVDs andPalm Pilots — each breakthrough application changed the pattern of our lives byonly a few degrees at a time.Similarly, changes in managerial science have not thundered through the

corporate world like successive storms of revolution. Each one begins with smalltentative steps, bold new ideas and viable applications of those ideas.New ideas emerge continuously. Some wither in the heat and light of

application. Others create an exciting new spin on how we do business. Qualityimprovement, MBO,TQM and re-engineering were all considered revolutionary atone time. They were eventually integrated into common business knowledge.Management digested them and moved on. Constantly evolving.This book is about making constant, conscious evolution the backbone of

business.

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Our world changes too quickly for business management to ever be perfected.Instead, for as long as there are two executives left to trade business cards,corporations will have to undergo continuous change just to keep up. Therefore, anew way of managing is required: incessant change and incessant management.Morphing is just that. It’s a process in which an organization deliberately evolves

in order to thrive in its constantly changing environment. Corporations now need toimbed structure and processes that will enable them to incessantly morphregardless of the ups and downs of the economy, new markets, emergingcompetition or advancing technology.

Where Management Has Been

The message of this chapter is fourfold:1) In order to place morphing on the continuum of business concepts we needto review the various management theories, methodologies that developedover the course of modern business and even dominated prevailing businessthinking for a period of time.

2) These theories are nothing other than a foundation for you to understandwhat is going on today. If they contribute anything, it is that their best ideashave survived and have been filtrated and homogenized into our standardbusiness thinking. They are not intended in and of themselves to be theanswers to all our business challenges.

3) No one theory we discuss is revolutionary, but they are all evolutionary in thatthey grew out of previous theories and survived in whole or part because theyhad the strength of some merit in them.

4) There have been and still are many approaches to business management, allof which have pearls of value we can adapt. And there is an impressive box ofmanagement tools we can use to turn theory into profitable practice.

Besides, we can’t begin to forecast the future of management without peeringinto the past — the same past that defines who we are today. Conditions change,people change, business changes. Management would be an endless, drainingcycle of trial and error if important lessons were not recognized and adopted. Abrief survey of management provides us a point of departure and evaluation.Throughout the history of business, an in-box full of management theories and

philosophies have shaped the world in which we work today. Four specificmovements are worth examining. These were not the result of one person’s

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ideology, but a culmination of several theorists, academics and business expertswho contributed to the evolution of management over the past 120 years.

Classical managementThe classical management movement is the first management model that

gained widespread acceptance in the United States. It predominated from around1885 to 1940. During this time America was a country in major transition.Workerswere moving away from the family farms and into cities in order to work in largefactories. This workforce relocation moved management from its long-standing roleof paternal boss to that of professional authority.The classical management model called for managers to be more involved in

efficient planning, organizing, influencing and controlling of work activities.2 It alsorequired managers to begin to look past the individuals in front of them and focuson the best interests of the organization.With more people, more problems andmore capital invested in factories, there was a demand on management forstronger supervision.And smarter supervision. The result was a demand for greater innovation.

Frederick Taylor, author of Principles of Scientific Management, for example,focused his research on finding the best way to perform any given task.Whileworking at Bethlehem Steel, he observed the way workers loaded 92-pound blocksof pig iron onto rail cars. An average worker could load 12.5 tons of pig iron a day.Taylor examined the elements of the task, i.e., walking speed, the way workerspicked up the iron and the distance to the rail car. He then devised a “one bestway” to perform the task, and increased the individual daily load from 12.5 toapproximately 48 tons.3

In order to motivate the workers, Taylor instituted higher wages for higheroutput. Although the daily wage of workers increased, the wage per pig ironloaded decreased, benefiting both management and workers. The benefits ofTaylor’s work were far-reaching because they were applicable to many types ofbusiness — and are still used today.United Parcel Service — UPS — usesTaylor’s methodologies. UPS has done

numerous studies of how individual drivers can contribute to organizational

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2Pan Suk Kim et al., “The History of Management: A Global Perspective.” Journal ofManagement History. 1.1 (1995) 59 – 77.3Charles Wreger and Amedeo G. Perroni, “Taylor’s pig-tale: A historical analysis of FrederickW. Taylor’s pig-iron experiment,” Academy of Management Journal 1974: 6.


efficiency. One starts by breaking down each driver’s daily routine into individualsteps and factors — how fast they drive, the number of delivery stops they make,the distance between stops and much more.One result has been that the drivers are taught to honk twice before they

approach the door so that the customer may look out the window, meet the driverimmediately and save precious seconds. Such a step-by-step analysis continuouslyimproves UPS efficiency and the profitability of the company.Henry L. Gantt, a colleague of Taylor’s at Bethlehem Steel, implemented a wage-

incentive program that was far more effective thanTaylor’s, providing bonuses forworkers who finished their tasks in less than an allotted time. He also offeredbonuses for managers who were able to use workers more efficiently to reachtheir own goals.Gantt, however, is best known for a by-product of his incentive plans. The Gantt

Chart shows the relationship between planned and completed work, and the totaltime elapsed in order to help workers visualize the process and avoid delays.4 Thisis vital when dealing with large projects because it can show where there aredelays and their effect on the project as a whole.Bechtel Group, founded over a century ago, is one of the largest construction

and engineering companies in the world. Bechtel’s competitive advantage isfounded in its project-management capabilities. Large projects often havesignificant penalties for late completion and incentives for early completion, makingproject management integral to the success of the project. Two of Bechtel’s high-profile endeavors include building and running a rail line between London and theChannel Tunnel and extinguishing Kuwait’s post-war oil well fires in 1991.5 Theseprojects and many others like them could not be tracked and controlled without theuse of tools such as Gantt charts.The primary contribution of classical management was that it created a

foundation from which future management theory would evolve. The classicalmovement formalized management and brought attention to it as one of the mostimportant aspects of business.On the downside, it depersonalized workers, often disregarded their welfare and

encouraged abuses by overzealous supervisors. In the manufacturing sector, it

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4Pan Suk Kim et al., “The History of Management: A Global Perspective,” Journal ofManagement History, 1.1, 1995: 59 – 77.5Heizer, Jay and Barry Render. Operations Management 6th Edition. New Jersey: PrenticeHall, 2001.


gave rise to such excesses as child labor, long hours and abhorrent workingconditions. The response to these abuses was the organized labor movement ofthe 19th century.Nevertheless, regardless of its faults, classic management practices spawned

new ideas and added in an effort to create a better organization through morethoughtful management of human resources.

Behavioral managementBehavioral management was popular from the late twenties through the thirties.

It was seen as the solution to the flaws of the classical management theory, whichwas perceived as cold and unfeeling toward employees. It became evident throughthe behavioral movement that the relationship between management and workersdid not have to be a zero-sum game. The potential benefits of cooperation betweenthe two parties drew the attention of several scientists and business executives.The Hawthorne experiment is probably the most significant contributor to

behavioral management studies. Named for the General Electric plant at which itwas conducted, the study found that relationships formed in small work groupswere the prime cause of increase in productivity.6 Researchers concluded thatgroup influence significantly affected an individual worker’s behavior. Workers weremore concerned with group standards, expectations, acceptance and security thanmonetary benefits for higher productivity. They valued the loyalty of their peers,and wanted to be liked and accepted as dependable co-workers.This small group loyalty isn’t confined to the private sector. During wartime,

soldiers perform under the most perilous combat conditions, risking their lives tothe point that “uncommon valor becomes a common virtue.” Decorated veteransare often asked why they put themselves in such jeopardy.Was it for flag orcountry or democracy? “No,” they answer, almost in one voice, “it was for theguys beside me.” And “We fought for each other.”Abraham Maslow is another significant contributor to the behavioral movement.

Maslow’s hierarchy of needs identifies five levels of needs all people strive tosatisfy: physiological or survival, safety, love or affection, esteem and self-actualization. As each lower-level need is satisfied, individuals move up to the nextlevel. Eventually they would reach self-actualization, which is a level of full

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6Augustine Brannigan and William Zwerman, “The Real ‘Hawthorne Effect,” Society. 38.22001: 55 – 61.


potential. Managers following Maslow’s ideals attempted to reduce barriers toworkers reaching self-actualization, in the belief that a fulfilled worker is a moreproductive worker.Douglas McGregor formulated two theories on how to manage people: Theory X

andTheoryY. Theory X, a holdover from the classical management period,represented what was routinely practiced at the time, that managers should usetheir authority to order, even threaten, employees to get work done.TheoryY, by contrast, assumed that workers were capable of self-direction and

accepting responsibility. Accordingly, managers would simply explain a given task,whereupon employees would take on the responsibility themselves and performthe task on their own. McGregor’s work persuaded management to step back andrelinquish some control to employees, introducing the idea of self-management.As a result of giving employees more responsibility, they began to show initiative

in solving problems that management was not even aware of. Employees at anauto parts factory in Kentucky, for example, took it upon themselves to fix whatdidn’t work well. Seat foam for car seats is awkward to handle and difficult to moveto assembly lines. Larry Hacker, a team leader in the packaging department, said,“There has to be a better way.”7 Hacker fiddled with scrap metal to create a largecart with shelves to wheel the foam around. Previously the foam had been inplastic bags and then put into boxes that had to be moved around by a forklift.Hacker’s “returnable carts” proved a great success, and now save the company anestimated $304,646 a year.8

The behavioral management movement led to a better understanding ofemployee motivation, group dynamics and leadership. It refuted the idea thatemployees are simply tools, as they proved over and over to be valuableresources.9 Management had evolved to include a humanistic point of view. Itfinally recognized that an organization would be nowhere without employees andthat personally fulfilled and respected employees were worth their weight in gold.This type of management thinking gradually reduced workers’ need for and

dependence on labor unions. As a result, “open shops,” non-union employees andstate right-to-work laws have decimated union management since the sixties.

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7Robert Rose. “Kentucky Plant Workers Are Cranking Out Good Ideas,” The Wall StreetJournal. 13 Aug. 1996: B1.8Rose B1.9Kim, et al., 59 – 77.


Quantitative managementThe methodologies of quantitative management stemmed from models used

duringWorldWar II. These quantitative models were used extensively to improveperformance on everything from soldiers to aircraft to submarine warfare. TheBritish used them to determine the maximum effectiveness of their aircraft againstthe Germans, while the United States used them to improve survival of Alliedconvoys crossing the Atlantic.10 After the war the techniques used in militaryproblems were applied to common business problems such as inventory control,scheduling and customer waiting lines.John Louis Von Neumann created a type of mathematical analysis that dealt with

conflict situations known as Von Neumann’s game theory. These situations lead toan outcome that depends on the collective actions of several players as well aschance effects.11 Von Neumann’s game theory encourages managers to pushbeyond emotion to reach an analytical end result or “payoff.”This exercise is especially useful when a company is unwilling to accept failure

or loss. Such companies routinely continue failing projects or begin unprofitableones because of the time, money and effort already invested, or just stubbornpride. Acting on what might be called “corporate emotion,” they just can’t bringthemselves to cut their losses.Kodak is such a company. As the day of digital technology dawned, many

traditional photographic product manufacturers began to invest in digitalphotograph technology. Kodak, however, resisted such a change, even though itwas aware of competitors’ moves, the rapid advance of digital technology andgrowing consumer interest. Like a proud old patriarch of its industry, Kodakclaimed that it had always been in the film business and, by God, would continueto be. Kodak simply didn’t see digital technology as a threat. Executive vision atKodak was way out of focus. Its hidebound leadership was too caught up inKodak’s legacy — and the company was left behind.Quantitative management was the last large-scale management philosophy to

be integrated into management application. The new ideas contained in theclassical, behavioral and quantitative movements took considerable time to be

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10Kim, et al., 59 – 77.11Macrae, Norman. “Grapes of Math — John von Neumann by Norman Macrae,” NewRepublic, 207.22 1992: 36 – 40.


accepted into mainstream thought. The modern management movement, on theother hand, is a more evolutionary based movement. The acceptance of new ideasand methodologies is the basis of the entire movement.

Modern managementWhat we refer to as “modern management” began during the sixties and has

gained prominence over the past four decades. It incorporates the acceptance ofnew ideas and the integration of new theories into the existing managementfoundation.As the tempo of business began to accelerate through technology, so did the

pace of idea generation. Just walk through the Business section of your nearestBarnes & Noble. According to The Wall Street Journal, some 4,700 business bookswere estimated to be published in 2003 alone.12 Everybody’s got a “secret,” a“breakthrough” or “10 ways to” improve business management. Although a lot ofbooks, CDs, audiotapes,Web sites and newsletters generated by business“experts” and “consultants” may not be worth your time, thousands of potentiallyuseful, even brilliant new ideas go into publication each year. As just a fraction ofthis universe of ideas is put into practice, management evolves continuously, at anoften imperceptible, even glacial pace.Years ago, in the Academy of Management Review, Harold Koontz aptly named

this dilemma the “management theory jungle.” Koontz explained that a managerhas to sift through piles of management approaches in order to determine whichone is the best solution for the current problem, situation or task. He discovers that“management science” is not a science at all, but rather a collection of disjunctiveideas...“Big Ideas” that worked for somebody.When Koontz’s article was published in the early sixties, he identified six

approaches to management.When he revisited the article in 1980, that junglehad become even denser, with 11 identifiable management approaches.13 Imaginewhat the figure is today! No wonder some managers find themselves practicingMBBS — “Management by best seller.”

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12Carol Hymowitz, “IN THE LEAD: Business Leaders List Books That Inspire and Inform TheirWork.” The Wall Street Journal. 24 Oct. 2003: B.113Harold Koontz, “Management Theory Jungle Revisited,” Academy of Management: TheAcademy of Management Review. 5.2, 1980: 175 – 188.


Six Approaches to Management

After some cutting and combining, we’ve defined “modern management”through six approaches, a buffet of managing styles, from which managers canchoose, depending on their circumstances and resources. Each has been the BigIdea for more than one corporation, and all are potentially valid, given thechallenges, circumstances, culture and resources of a company.

The process approachThe process approach views management as a process in which projects are

handled through employees working in small groups. This process is a circular one:Managers plan, organize, lead and control — and controlling leads back to planning.The performance of these groups is vital to improving the organization as a whole.Business processes require continuous adjustment, addition or elimination, andthe process approach focuses on these needs.

The systems approachA system is a collection of smaller processes combined together to reach a

larger goal. For example, the way in which a worker applies paint to a piece offurniture is a process within the manufacturing system. There are two types ofsystems: open and closed. Closed systems are basically those that do not interactbeyond their own walls or organization. They generally operate under very stableconditions. Open systems, on the other hand, routinely work with and respond totheir outside environment because of less stable conditions. If all manufacturingmaterials are produced in-house it would be a closed system. If the materials arepurchased through an outside vendor, it would be an open system.

The contingency approachThe contingency approach recognizes that organizations are unique and require

unique processes and techniques. Contingency management emphasizes the needto assess and analyze a company’s entire management environment beforemaking key decisions. Just as a doctor would never prescribe the same medicationand dosage to every patient, managers should never assume that what works foranother company will work equally as well for theirs.

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Strategic approachStrategic management is an extension of the contingency approach in that it

calls for managers to take into account the organization’s environment whenmaking decisions. It gives an organization a wider view of the business terrainaround it, enabling it to take maximum advantage of opportunities as they appearon the horizon. It also provides a deeper view in terms of the future, so that it cananticipate opportunities and be ready for them. Organizations using strategicmanagement are no longer looking six months or a year in advance, but severalyears to ensure that the organization is properly positioned for success.

Japanese-style management approachW. E. Deming introduced a new comprehensive style of management called the

Japanese-style management, or Total Quality Management (TQM). TQM can beapplied to virtually every facet of an organization. It focuses on reducing “variabilityin processes,” or defects, in an effort to continuously improve quality. Deming’sbasic philosophy on quality is that productivity improves as variability decreases.14

As early as 1937, Joseph Juran, another pioneer in quality management,developed the Pareto Principle, which helps separate the “vital few” from the“useful many” in the workplace. This is commonly referred to as the 80-20principle, which today is a valuable tool for millions of managers around the world.Philip Crosby, the “Father of Zero Defects,” showed companies how to measure

the “price of non-conformance” so that even in administrative, shipping,accounting or other support areas, they could count dollars saved by working inconformance to requirements – or “getting it right the first time.”

Excellence approachThe excellence approach entered the limelight in the early eighties with the

publication of Tom Peters and RobertWaterman’s book, In Search of Excellence.The authors sought out successful organizations that they considered excellentand documented the management practices that were consistent among thosecompanies. The book was a best-selling primer for corporations at the time,suggesting such innovative techniques as “MBWA” — Management byWalkingAround. The excellence approach focuses on continuously striving for improvement

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14Kim, et al., 59 – 77.


in all areas of the organization without getting too deeply into the mathematics ofmeasuring to define just what “excellence” is.Although some academics believe what we live and work in today is the “post-

modern” movement, the same ideas and premises remain. New ideas willcontinue to impress the business community, and astute managers will integratethose with merit into their body of management knowledge and expertise.

So... what’s the big idea?Business today is moving at the speed of thought. Traveling at such velocity,

managers in search of the Big Idea can be trapped between two extremes. If theyjump on a trendy new idea, nicely wrapped and available in hardback, they can bedestroyed by an unproven or misapplied theory. But if they fail to jump soonenough, they can be left in the dust of competitors who did adopt a bold new styleor technique of management.The answer? Stop looking for the Big Idea. No single idea or theory will solve all

your business problems. There is no quick fix. Instead of spending time in thestudy of possible answers, managers should spend time getting to know theircompany. They need to understand exactly what their business is like, right downto its DNA.What makes it tick?What is it facing — from within and without?Whatdoes it do well?Where can it improve? Managers who fail to understand their ownbusiness will never be able to fix it no matter how great the newest Big Idea is.

The Latest Managerial Tool Sets

Over the past decade or two, five new trends have caught the attention ofmanagers.We’ll call them Change Management, Conglomerate Thinking,Corporate Growth, Technology and the Internet. These trends have been seen asthe answers, the silver bullet, the Big Idea, the path to nirvana. In fact, they aresimply tools used over the years by many of the most successful businesses.Some worked, while some have been invalidated by experience.

Change managementChange management developed as a result of rapid changes adopted by

organizations and how employees accepted those changes. It’s a rule of thumbthat, as new ideas and practices are introduced into a company, employees resistthose changes and defend the status quo. Change interrupts established habits

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and patterns. Change disturbs comfort zones. But in order to remain efficient andstay competitive, even in order to survive and save the jobs of employees, changesmust occur. Because of the instinctive resistance that change generates, theorganization, the employees and the situation all require change management.Change management is only as effective as the managerial skills in leadership

and supervision. According to John Kotter, author of Leading Change,management’s mandate is to minimize risk and to keep the current systemoperating. Change, by definition, requires creating a new system, which in turnalways demands leadership.The goal of this leadership is to ensure that employees understand why the

change is occurring. They must know not simply how change is going to affectthem, but how it’s going to benefit them. They must realize that the end result ofchange will justify temporary confusion, new working patterns, or even the need tolearn new skills. Without employee buy-in, if even the most beneficial change isinaugurated with no regard for employees, or without employee acceptance, thechange will not only be rejected like a bad corporate graft, but will often create anenduring chasm of misunderstanding, mistrust and alienation.Leadership skills come into play when generating the plans, procedures, goals,

and methods to execute the change. That leadership must trickle down from thevery top of the corporate structure. The reasons for the change and the anticipatedbenefits must be so clearly communicated that they generate the spark of not justacceptance but of enthusiasm among employees. And they adopt the change astheir own.Is change management the answer? The Big Idea? No, it is a means to an end, a

management tool to strong leadership to navigate through periods of corporatechange and upheaval.

Conglomerate thinkingThe sixties, more than any other decade, were the era of the conglomerates. The

more diversification, the better. It mitigated business risk and filled revenuepotholes. Thirty years ago, acquisitions usually meant acquiring companies in othersegments of the industry in order to hedge the bet against a downturn in one’sown industry.Conglomerate thinking is not the trend now. These days, the trend is to look very

cautiously at acquisitions as being just one method of achieving a strategic

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advantage. If anything, acquisitions are being considered only when the acquiredentity is closely aligned to one’s current business. That’s why a First Union Bankacquires aWachovia Bank that in turn acquires a SouthTrust Bank. Or why Disneyacquires ABC and other entertainment-related companies, in order to extend itsinfluence more profoundly into more homes. The idea of creating a conglomeratefor the sake of diversification, of moving into unfamiliar industries as a means ofrisk mitigation, has been invalidated.In the sixties, Litton Industries was an example of a company that had

deliberately created a conglomerate of companies in several diversified industriesso it could reduce its risk, and normalize over rough times or bumps in theeconomy. A major defense contractor already established as a primary builder ofU.S. Navy combat vessels, it acquired companies engaged in IT systems,telecommunications and computer components. In 2001, it was acquired byNorthrop Grumman.Conglomerates often face daunting challenges when it comes to managing

diverse product lines and divisions. Such diversification creates a need for twoentirely different management strategies: cost cutting and growth fostering.Allocation of capital may mean diverting dollars from a dynamic, high-growthenterprise to a struggling sister company. Few companies consider theorganizational change factors when sizing up their deals, and the results can bedramatically different when a company does or does not understand those factors.Several cases in point show how it can work and how it can fail.DaimlerChrysler built one of the great “merger of equals” facades of the

nineties. Almost immediately after the merger, from the executive suites down,Chrysler began bleeding employees. It became clear the “merger of equals” wasmore PR than reality. German executives, with little understanding of the Chryslerculture, then took the helm and started another talent exodus. The Americanautomotive ingenuity Daimler purchased drove right out the door.Another German-American “merger” was that of Siemens AG with the

Westinghouse Power Generation Business Unit with headquarters in CentralFlorida. Both companies manufactured, serviced and maintained power-generationplants for a worldwide clientele of utilities and commercial power users. Althoughtouted as “combining the power of two great leaders,” and “our coming togetherinto a common family,” this was actually the purchase ofWestinghouse bySiemens.

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Even before the contract was signed, in August 1998, differences in culture andmanagement style generated misgivings atWestinghouse. American managerswho traveled to Germany to meet their counterparts returned with ominousreports. “Germans keep their office doors closed and wear their suit coats all day,”they said. “All they do is meet.” Even small idiosyncrasies became big deals,especially forWestinghouse employees used to a casual, open work environmentin a Florida-style atmosphere. “If a guy’s a doctor, you’re supposed to call him ‘Herrdoktor so-and-so.’”In order to mitigate such reports, both companies made sure that employees

were kept apprised of every step of the acquisition process. Buy-in was consideredkey to a successful deal. Siemens newsletters emphasized German workers aspeople very much like the Americans, with families and homes and dogs. At theWestinghouse Florida headquarters, a large, attractive booklet was published anddistributed to every employee, focusing on how much alike “these two globalgiants in power generation” were.Gradually, over the months and years following the deal, Americans and

Germans got to know one another as people. A sort of exchange program wasbegun, so that each could spend time working with and understanding the other.Meanwhile, the first three years were profitable ones, as power-generationcompanies from Eastern Europe to China built new power plants and purchasedSiemensWestinghouse turbine/generator systems faster than they could bemanufactured. Even after the Enron debacle and an economic slowdown broughtnew orders to a trickle, SiemensWestinghouse has prospered, shifting its focus tothe maintenance and service of existing power plants. Today, even the mostskeptical employees admit that things are going smoothly. After a shaky start, thisconglomerate has become a textbook model of how to survive the trauma ofmerger/acquisition.The AlliedSignal and Honeywell merger, meanwhile, has taken nearly four years

to integrate. And the AOLTimeWarner merger fiasco was headline news formonths. All the capital in the world cannot ensure flawless due diligence, fulldisclosure or perfect company valuations, and it certainly won’t buy off employeediscontent. In fact, predicting the actions of employees is nearly impossible. Sowhy is corporate America still enamored with mergers and acquisitions?Companies and conglomerates will never stop acquiring because the potential

benefits can be so great. Energetic growth, increased efficiencies, increased

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market share, bolstered earnings and being king of the industry mountain aredifficult sirens to ignore. GE is often held up as the pinnacle conglomerate, a truesuccess story. But even General Electric has problems. Recently, GE’s CEO, JeffImmelt, has had problems sustaining GE’s traditional double-digit growth in today’seconomy. As of this writing, Immelt was hoping to rectify the problem by acquiringmedia giant Vivendi.And in February 2004, the communications giant Comcast Corporation made an

unsolicited bid to effect a hostile takeover ofWalt Disney Company. According toComcast Chief Executive Brian Roberts, the $61 billion stock-and-debt offer waspart of a larger strategy to become the predominant player in the digitalentertainment revolution, offering movies, TV, music and online services as well asthe delivery systems that bring them to the public. A former Disney executivehimself, Roberts also suggested that Comcast could “refresh” the look and feel ofDisney theme park attractions, which are showing their wear after decades ofoperation. The final outcome of this unsolicited bid was unsuccessful in large partbecause of organizational pride, control and differing culture issues.While conglomerates continue to fix their problems through a series of

acquisitions and divestitures, that strategy is not always the answer. Businessesthat are up for sale will never tell you all their problems. More then likely, they willdo everything in their power to hide them. So while the business you purchasemay solve the problem or growth issue you thought you had, it will more than likelyprovide you with new ones that only emerge after the ink dries on the acquisitioncontract. And that’s probably not what you or your shareholders had in mind.Acquisitions have a single purpose, to inorganically grow and diversify an

organization. They’re not the Big Idea to answer all of your business problems.Again, acquisition is only a tool to get to where you want to be. If you haveproblems now, an acquisition will probably make it worse. If you don’t know whereyou are going, acquisitions will confuse you more. Successful conglomerates havestrong vision and bold decision-making to keep them on the path to success.Without those advantages, executives run the risk of destroying value rather thanbuilding it.

Corporate growthWhen we think of a corporate giant such as Microsoft, several images come to

mind — huge revenues and cash flow, monopolistic power or maybe even the fact

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that the company employs thousands and thousands of individuals — all imagesbased on the size of the company. The enormous size of any company leadsindividuals to assume they are successful.But success is often not a factor of size. Consider the thousands of mom-and-

pop enterprises that have prospered for years — independent groceries, fruitstands, restaurants, and lawn maintenance, plumbing, repair and cleaning servicesthat are all doing quite well and in fact represent the largest employers in thecountry.High growth is definitely not a strategy. In fact, it might actually be a hindrance.

While a 35 percent or even a 50 percent annual growth rate is cheered byWallStreet, it has been discredited as a business driver. In many instances, largercompanies are doing poorly onWall Street. After Enron andWorldCom, job seekersare afraid to work for them, and customers are shy about doing business withthem. They’re too large to customize product, to personalize service or to navigateand negotiate quick turns in a fast-moving world.Other drawbacks to bigger organizations include fading vision. Instead of

scanning the horizon and investing capital in the future, many companies havebecome satisfied corporate dinosaurs, still lodged firmly in the past, basking inearlier victories and past glories. As Kodak has proven, it’s hard for large companiesto reinvent their own product line, even if new products and technology are betterand the handwriting appears to be on the wall.For a host of reasons, then, the driver to achieve corporate nirvana, has been

invalidated.Finally, instead of focusing on how to show a profit at the end of this fiscal

quarter, executives need to take a longer view, a strategic view that includesproduct development, a broader market base, and greater customer and employeesatisfaction.With such determined vision, profit and growth result naturally. Higherearnings underwrite investments in better, more advanced equipment, expandedR&D and new product and employee development. Growth for the sake of growthexpands only personal egos and short-term profits. High growth is not the answer,certainly not the Big Idea. It’s only a byproduct of a successful company. It willcome when you aren’t looking for it… when you turn your organization into amorphing enterprise.

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TechnologyDuring the first years of the Information Age, technology was a two-headed god.

Businesspeople who should have known better paid homage to every sassy littleupstart startup company that announced a quicker, snappier way to perform someIT service. For every legitimate Microsoft, dozens of wannabes sold stock inproducts not yet produced. It was technology, so it had to be good. And indeed itseemed so, until the “tech wreck.”On the other side of the technology idol, starstruck executives bowed to the

latest, hottest business software applications, proclaiming each purchase andinstallation the magic machine that would make millions.For many companies real-time technology is vital. Millions of dollars are spent

daily on developing technology applications to help companies hold the leadingedge in their industry. For Goldman Sachs, as an example, it’s vital to theirbusiness because from second to second, numbers mean value, and if they falltwo seconds behind, millions of dollars are at play. Stock prices are inherentlyvolatile, which means real-time prices critical to their business are at stake.However, an investment in real-time technology is not necessary or possible forevery company, and too much technology can actually cause more problems thenit solves.Technology is useful in that it helps a company achieve its goals. Having figures

in real time can be very beneficial, but doesn’t guarantee success. Computersdon’t run companies. People do. A CEO cannot look at a sheet of paper anddetermine a course of action for the company. Technology can provide the data sothat when a tough executive decision must be made, figures become usefulindicators — not dictators.Wrigley’s, for example, prefers not using debt to finance growth. As a result,

their return on equity is much lower than it would be if they used debt financing.Does this meanWrigley’s return on equity from a project should be as high as thatof a dot-com company or others in their own industry? No, because everybusiness is different. In the early nineties, microchip technology provided somecompanies a competitive advantage. But today everybody uses, or should beusing, technology. Technology is a tool to help you make an informed decision. Itwill never be the answer itself.Businesses have become more efficient through the use of improved

telecommunication technology. Now executives don’t have to fly from NewYork to

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Los Angeles to have a meeting to turn around and fly right back. Teleconferencingallows decision-makers to stay where they are needed and work more efficiently.On the other hand, technology can also make a company run less efficiently. In theshort run there are high costs associated with implementing technology. A newsystem in the long run can possibly help the business become more efficient, butbefore buying what the tech companies are selling you have to determine ifknowing some of those real-time numbers is worth the investment and how youwill use the information. For some companies data mining has paid off, but forothers it may have brought to light the same information that could have beenacquired using existing channels.Another factor that must be addressed in the long run is the life cycle of the

technology. Because technology is changing daily, to keep up with the latestsystems would be quite expensive, and in the long run may not pay off. Just take alook at the computer on your desk. It’s not the latest model, is it?We all know howoften new computers, chips and software packages come out. It is simply notfeasible for anyone to keep up with every new item on the marketplace. Now thinkabout it on a corporate level; it can become a mind-boggling, cash-drainingobsession to remain on the top of the technology wave.The main idea here is that technology is nothing more than another tool, much

like a telephone, to help conduct business. Adding technology will not necessarilyimprove your business, because bad decisions can be made off of the datareceived from the most advanced systems. The implications of technology as adriver for success are too complex to be realistic. It is not your computer thatmakes you successful; it is what information you program it to give you, and whatyou’re able to do with it. We are not attempting to discredit the importance oftechnology in business. It is an incredible tool. But it is just a tool, not an answer.Kmart never harnessed the power of advancing IT. It was always behind its

competitors, because it never embraced the full potential of technology as part ofits culture.While it’s true that Kmart executives invested millions on newtechnology, most of their key decision-making relied on judgment and instinct.What Kmart needs, according to Marcia LaytonTurner, author of Kmart’s TenDeadly Sins, is a “robust, unified IT backbone to run everything from cash registersto inventory management to logistics planning.” In other words, what Kmart needsis aWal-Mart IT system — a unified business platform that will enable it to morph.That’s the real power of technology.

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The InternetThe Internet, while certainly a technology that has revolutionized every facet of

our lives and virtually every business enterprise in the developed world, is a toolthat has often been mistaken for the Big Idea itself. The infamous dot-comboom/bust rose and fell on the false premise that the marvels of e-business wouldreplace such basics as quality, customer satisfaction, even the product itself. Basedon pure hype, stocks of barely existent companies with often nonexistent productsor services skyrocketed into stratofantasy. A lot of hotshot paper entrepreneursmade millions and escaped; others were destroyed. It was a costly lesson.The Internet, then, is not the Big Idea. It is simply another outlet — a cybersales

rep that demonstrates whatever you’re selling in colorful graphics to prospectsfrom Boston to Budapest. It’s a globally accessible location for a retail store, open24/7 to take orders and communicate with customers.More important is the realization that e-commerce will never replace brick-and-

mortar retailers. The big companies who may have been initially threatened, or atleast felt threatened, by e-shopping needn’t have worried. They continue to havethe advantages of volume purchase leverage, a network of long-term relationships,established distribution channels and brand awareness. And now they’ve expandedinto e-commerce. That’s why today, eBay is successful — but so is Target.Amazon.com is selling vast cartons of books. But so is Barnes & Noble, along withStarbucks latte and a place to browse for books and friends on Friday nights.But no matter what the venue — cyberspace, store space or office space —

executive visionaries and managerial decision-makers must nurture and be drivenby an Intelligent DNA that tells them instinctively when to adjust, when to correctby even one degree the focus and direction of their company. An eye-poppingWeb site and a sophisticated e-commerce structure are no substitute for incessantmorphing.

Summary

To recap, business has gone through a number of management theories andmovements, as management styles evolved. If there is a trend, it is consistentlyaway from the autocratic style of classical management and toward a moreparticipatory style that treats employees more like partners than asset units.

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A study of various Big Ideas that impacted business reveals six approaches tomanagement, each of which has been successful for a given company with a givenculture and resources, and under a set of circumstances. These approaches are:process, systems, contingency, strategic, Japanese-style management and theexcellence approach.In recent years, five predominant tool sets have emerged — each with tactical

answers. These trends are 1) change management, 2) conglomerates, 3) bigbusiness, 4) technology and 5) the Internet. Because their applications enjoyedsuccess across the business landscape, many executives took these tools to bethe Big Idea they’d been looking for. They learned that tools are a means to an end,implementers of Big Ideas — but not the Idea itself. And each of them, regardlessof the excitement and the short-term exuberance they create, will not sustain anorganization over the long term, through the tides and winds of the businessenvironment. They must be management tools in the deft hands of a morphingenterprise.Our conclusion?We return to our thesis of the Ultimate Enterprise Experience,

in which the customers, the employees and the shareholders all experiencebenefits from an enterprise relationship.When we focus on the UEE experience,will we effect acquisitions that are appropriate to the strategic positioning of thecompany?The answer is yes. Are we going to achieve a level of growth that iscommensurate with the viability and health of the organization? Again, yes. Are wegoing to seek out and incorporate technology that is relevant to our organization?We will. Will we take advantage of the Internet to broaden our global presence orexpand our sales base into new markets?Yes, to whatever extent is appropriate.But all of these tools will be dependent on the integration into our enterprise of aunified business platform and the application of the 3 M’s of a morphingorganization.While we understand the historical advance of business theory and adopt those

elements that have proven useful, we avoid subscribing to any one theory as thepanacea, just as we avoid making acquisition or growth, technology or the Internetour primary success driver.In the past, corporate America has faced seemingly insurmountable obstacles —

and, by and large, overcome them all. As we move into the future of management,it’s time to look at what we are confronted with today. How we address currentchallenges will determine how management will evolve to meet those oftomorrow.

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Chapter 3

Good to GreatIsn’t Good Enough

Enduring great companies preserve their core andpurpose while their business strategies and operatingpractices endlessly adapt to a changing world.

— Jim Wilson, Good to Great

Chapter 3: Good to Great Isn’t Good Enough

At the outset of this chapter, we need to define and delineate an “enterprise-scale” organization versus a “self-employed” entity. It is a proven and accepted

fact that 80 percent of all new companies fail within three to five years, for manyreasons but mostly because of undercapitalization. Self-employed companies aretypically those with from one to, say, 20 employees, and with revenues measuredin hundreds of thousands of dollars or even the low millions. They are “mom-and-pop” retailers, or a small group of consultants or service providers, or themanufacturers of a component that goes into the sub-assembly of a largerhardware application. These new companies account for most business failures.But beyond an inability to never get off the ground or crashing shortly after

takeoff, companies often fail during a second critical time — when they attempt tomake the transition from a level of simple self-employment to that of a companythat is enterprise-scale.For our purposes, we define an enterprise by four criteria: 1) It has a proven

business solution, i.e., a product or service that others will buy; 2) it is scalable, inthat it can replicate itself efficiently to new levels of growth and expansion; 3) it isearning at least $25 million in annual revenue; and 4) it has at least 50 employees.The third class of business organization is the large enterprise, with hundreds or

thousands of employees, multiple offices or plants, a large and varied productbase, and a regional, national or even global market presence.The principles of morphing can enable organizations in all three categories to

prosper as they grow. The Intelligent DNA of a “one-man shop” arises from theentrepreneurial spirit and enthusiasm of that man or woman who has founded thatshop. He or she knows and understands his or her customers intimately, stays inconstant touch, anticipates and satisfies needs — and works 18 hours a day todo it.Passing that DNA to the second employee, the third, the fifth and the 10th is

exponentially difficult, because each new employee works for the company for adifferent reason than the founder. So that founder, whose primary strengths andinterests still lie in developing and improving a widget or line of widgets, must nowbecome a human resources specialist and motivator, inculcating the DNA thatbecomes more critical the larger the enterprise becomes.Corporate executives today enjoy more advantages than have ever been

available before. The owner of a small family business, whether in Mobile orMoline, has more information to help run his or her business than J.P. Morgan or

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Henry Ford had. These advantages include advancing computer technology, bettereducation at undergraduate and graduate levels, a wealth of business publications,seminars and conferences, and the application of proven business practices.Yet with all these advanced business tools, most businesses aren’t performing

any better or worse than they did a century ago. Just as in 1890, or 1920,companies rise to success... or falter and fall into oblivion. That’s because,regardless of the sophistication of tools available, basic rules and practical, provenguidelines still govern business. Once management masters these rules andguidelines and have established a pattern for success, they have the foundationnecessary to move one step further, to create a morphing enterprise.

Morphing and the Point of No Return

Many actions create morphing organizations.We will discuss momentarily fourcommon situations morphing organizations encounter on their evolutionary path:molting, becoming more robust, abandoning legacies and starting over.Theircommon link is that their occurrence is identified by a point of no return.There maybe many more options that create organizations that thrive in any condition.However, these are prevalent patterns with a proven track record.Any company moving along a continuum of progress comes to a point at which

it must make fundamental changes to ensure ongoing thriving and even surviving.Technology and competition wait for no one. A top-selling coffee pot must beupdated. A popular computer must be upgraded. An emerging market opportunitymust be seized before competitors even know about it. And the time to act is notwhen another coffee pot or computer maker unveils its new product line and salesbegin to dip. JackWelch at GE insisted that the company remain number one inany market, and the reason was that he felt if you weren’t on top, you were alwaysreacting, not driving the future. Morphing companies drive their own future and,many times, the future of their industry.The time to act is a point on the continuum when sales are booming. That point

is key, because after it passes, it’s too late to redesign or reconfigure anything. Thecoffee pot manufacturer better make sure its R&D department is well on its way tothe next-generation pot before that point. For it is the point of no return, afterwhich any new product is just a reaction, not an innovation — and is likely to fail.

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Morphing organizations that understand and accept their readiness to morphseldom reach these points. They use their processes, structure and culture tocontinuously adapt to present challenges and anticipate future ones.However, many organizations, because of their own inattention to forces around

them, or their inability or unwillingness to take action, are forced to make decisionsafter they have passed a point of no return, the point at which they lost control oftheir future.A pilot has redundant instrumentation, weather forecasts, perhaps even a co-

pilot and engineer at his disposal when flying a plane. However, none of thesethings could help him when he enters a death spiral. The point at which he realizesthere is nothing he can do to save the plane is the point of no return.All pilots have choices and duties to perform while in command. Don’t mistake

the death spiral for another maneuver, or maintain your situational awareness at alevel that prevents unintentional attitudes. It is the pilot’s responsibility toconstantly monitor and analyze his environment — inside and outside the cockpit.When the pilot chooses to continue with an unanticipated adjustment to a flightplan, ignores instrument readings, becomes distracted, the pilot may very well flyright past the point of no return. He failed to realign his plane to its environmentand went into a tailspin. Sometimes distractions in the cockpit cause the pilot toforget the number-one job of a pilot — fly the plane — and the same happensin business.The point of no return triggers change management, even crisis management. It

is the point in time after which a company must take drastic, surgical action tocontinue to survive in the business environment.In fact, surgery is an appropriate metaphor for this situation. A CEO picks up his

executive scalpel and begins to cut out the dead tissue in order to save hiscorporate patient. Much likeWinn-Dixie or KBToys that we cited in chapter one, hebegins to sell off stores, real estate, subsidiary companies or other assets. He laysoff employees and reduces operations. But like operating on a spreading cancer,the question becomes, how deep do you cut? How much do you cut out to savethe corporate patient before killing it?Morphing organizations use evolutionary concepts to anticipate and thrive in

those environments and avoid points of no return, while competitors simply reactto the whims of customers, the market and the economy.

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MoltingMolting is an action a company can take before or at the point of no return.

Molting is the process of shedding ineffective, and often unprofitable, activities,processes or procedures. But, more important, it can mean shedding departments,products and key individuals that have led growth previously, but have since losttheir effectiveness. Molting is also referred to, euphemistically, as “downsizing” or“rightsizing,” or something less complimentary by those who are “downsized.”Numerous companies have begun doing this with key departments in the

company. Take BellSouth, in Atlanta. Empty spaces now sit where the payrolldepartment used to sit, as well as the employee benefits office. Executivesrealized that they could outsource these activities to companies who specialize inthem much cheaper than having the processes in-house. This made BellSouth amore profitable company despite the tough times they are facing in the telecomindustry.As has been pointed out, Kmart now sees the greatest value of many of its

stores in the real estate on which those stores sit. In an example of classicmolting, it is selling them off for the cash it needs to offset relentless losses.Molting comes as a response to a wrong turn by executives down a path that

does not lead to success. It strips an organization down to its core functions, to apoint where a company can begin the process of renewal in the appropriatedirection.Sears molted in a unique way when it realized it didn’t have the resources

necessary to run the credit card side of their business. In mid-2003, it sold off thisdivision to Citigroup, which now runs Sears credit quite effectively. This divestmentenabled Sears to once again focus on retail sales, its forte for more than a century.Sears also renewed its marketing strategy. Take, for example, its endorsement of

theTV program Extreme Makeover: Home Addition. Sears donated all theappliances for newly renovated homes. In keeping with Sears’ past strategy,“Come see the softer side of Sears,” endorsing this TV program was meant tosignal to consumers that Sears was walking the walk.But Sears is beyond the point of no return. For all its desperate flailing to be

perceived as something it isn’t, Sears, like its doomed savior, Kmart, is no longerrelevant to the market, or to its former customers who are now filling the aislesand the tills ofWal-Mart.

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Becoming more robustA morphing organization has the capability to handle difficult economic times. A

corporation in the morphing mode enjoys a resiliency that helps ensure robustnessin dark as well as stable economic times. Perhaps the cash flow will not be asgreat in tough times, but it will still be positive.Morphing organizations also stay strong in a down economy by applying some of

the same belt-tightening measures that work for all businesses. However,morphing organizations operate this way regardless of economic conditions.Wachovia Bank realizes the importance of having quality people in their

organization. During rough economic times, they don’t suspend their strategy ofhiring recent college graduates, and they continue to emphasize the importance ofgetting quality people into the organization.15

Robustness is also achieved by leveraging the structure of morphingorganizations at every opportunity. Silos create leaner organizations. Seven peopleare able to run the hospitality division at CNL because of their silos, which aresupported by a strong shared-services division. This division has over several billiondollars in assets!

Abandoning legaciesThe term “legacy” refers to corporate traditions and norms, essential elements

that allow the informal transfer of values and information throughout theorganization. At no cost to the company, tradition and norms disseminateknowledge, processes, procedures and behavioral models to employees. Anorganization’s legacy describes “how things are done around here.”Saturn depends on legacies. This is what helped build their brand. Part of their

legend is the story about an engineer who delivered a seat personally to acustomer on a remote Alaskan island because the customer couldn’t take the carto a dealer. This story illustrates the level of customer service Saturn strives for.In a constantly changing market and in changing times, no legacy is permanent,

and certainly, as we’ve pointed out, not a “sacred cow.” Stubbornly held legaciescan hinder and hurt the profitability and growth of any organization.WD-40 had toabandon their legacy of being a one-product company. Once they began puttingother products into the market, they became a company with exciting newpotential.

15http://www.goizuetaperspective.com/browse.cgi?article=52


Some think that holding on to traditions is what defines their organization.Whilemany organizations have strong traditions or set-in-stone procedures and hold onto them like family heirlooms, most companies don’t have the flexibility to adaptoutmoded legacies to new environments. Legacies, like business practices, mustevolve to satisfy existing conditions, not comfy habits.

Starting overBefore making the decision to start over, executives must decide whether or not

they understand the organization well enough to know what it is developing into —and if they like it. If either answer is no, they need to start over.Starting over can mean various things: selling everything and starting with cash

to reinvest in different opportunities; starting over with your management team;even starting over with a department that has new or different strategicresponsibilities.For Corning, starting over was the only option. The company that was known

primarily for making CorningWare had to reinvent itself in order to survive.16 TodayCorning is renowned for its research and development in telecommunications,environmental issues, advanced display, semiconductor materials and life sciences.Their expansion into to high-technology markets has redefined who Corning is wellbeyond the makers of a great chafing dish.

Current Conditions that Influence Business

Technology — faster than a speeding thoughtTechnology can now provide real-time information to everyone. Business

software is so specialized that you can get a CD or DVD that targets the specificneeds of accountants and ad agencies. Dairy farmers and dentists, entrepreneursand managers take the resources provided by computers and, like any otherresources, use them to produce goods and services as cost-efficiently as possible.

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16<http://www.corning.com/media_center/media_kit/corning_today.aspx>

One computer can do the work of 50 ordinary men. Nocomputer can do the work of one extraordinary man.

— Elbert Hubbard


The only difference is that we are able to get that information NOW!The Internetputs data on the screen at the speed of light — and faster than the speed ofthought.As a result of the technological boom of the nineties, data today is measured in

milliseconds. That’s because companies like Sybase and Aspect Communicationssurvived the dot-com implosion to create and revamp Internet support products,those lightning connectors that now make real-time data as easy to access astoday’s weather. Such organizations brought us into the Information Age and haveenabled companies to develop the full potential of the information superhighway.Thomas Friedman, The NewYork Times columnist, talks about the advantages of

real-time communication in his book, The Lexus and the Olive Tree. He confirmsthat the speed of information can reward those who follow sound businesspractices and devastate those who don’t. The 1997Thailand currency (baht) crisis isnot only an example of the bandwagon effect of speculative investors, it alsopoints to the power of real-time global information systems. Friedman quotes aThai financial expert:

“It should have not been a disaster, but because of the bandwagon effect,

everyone jumped on our currency. So instead of just going down fifteen or

twenty percent, it went down fifty percent. Because the market is globalized,

[traders] learned about our lack of reserves. The first time they attacked our

currency was in February, and then in March, and then in April. And each time

our Central Bank came out and said, ‘We won.’ But they actually lost each

time. Because the reserves were being run down.We thought the world didn’t

know about our reserve levels, but the markets knew — our own people didn’t

know — but the markets knew. My friends in Singapore and Hong Kong knew,

and they were calculating each time we defended our currency how much

reserves theThai government had left to intervene with.When you ask our

former Prime Minister he will tell you that none of this information was being

presented to him. But the market had it figured out and they knew when there

had been a turning point, when we couldn’t defend the currency anymore. And

that’s when they really went after us.”17

Since American corporations make long-term commitments to developingnations, those countries are directly affected by our real-time capabilities. The

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17Thomas L.Friedman, The Lexus and the Olive Tree. (NewYork: Anchor 2003) 138.


economies of Singapore, Mexico and Argentina have been casualties of real-timeinformation, which can not only penalize, but paralyze a country.

Uncertainty and volatility — facts of business lifeIn the century or so since the beginning of the industrial revolution, one would

think that the business world would have developed an operative model with thestrategic flexibility for growing and sustaining a company regardless of economicor market conditions. One might also assume that, thanks to technology, educationand accumulated experience, entrepreneurs today would be more successful everbefore. But this is simply not the case.Gary Hamel, writing for the Harvard Business Review, points out that in less

turbulent times, executives had the luxury of assuming that business models weremore or less immortal. Today, becoming different is the imperative. It’s a task thatbedevils even the largest organizations. McDonald’s must become different inorder to restart its growth in a burger-weary world. Sun Microsystems mustbecome different as it seeks to protect its high-margin server business from Linux.Hamel’s thesis is that continued success no longer hinges on momentum.

Instead, it rides on resilience, on the ability to dynamically reinvent businessmodels and strategies as circumstances change. Strategic resilience is not aboutresponding to a onetime crisis or rebounding from a setback. It’s about continuallyanticipating and adjusting to deep, secular trends that can permanently impair theearning power of a core business. To achieve strategic resilience, companies willhave to overcome the emotional challenge of eliminating denial, nostalgia andarrogance; the strategic challenge of learning how to create a wealth of smalltactical experiments; the political challenge of reallocating financial and humanresources to where they can earn the best returns; and the ideological challenge oflearning that strategic renewal is as important as optimization.What Hamel calls strategic resilience, we call morphing.By the very nature of business, as an organic entity, it will always experience the

uncertainty of economic cycles. It will always wander into circumstances thatconfound its owners, conditions and events that throw out of balance thesustainability of any business model. If it can happen, it will!Investor trust and confidence, propelled by all the information available, can fuel

uncertainty in every business environment. Investors are eager, even desperate,for proof, whether in figures, facts or stories, that the company is profitable. Even

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when there is undeniable evidence that the company is doing well, savvy investorsbecome fickle at the first sign of trouble. The years of solid financial performanceand a strong balance sheet can easily be ignored, and skittish investors can erodethe accumulated market value of an organization in minutes.Robert Levy, manager of Mass Mutual Funds Focused Value A, commented in a

BusinessWeek interview that “investors often unfairly punish solid companiesreporting temporary shortfalls.” His investment strategy has been to focus “on thelong term that helps him uncover promising opportunities temporarily hurt byoveremotional investors.”18

He cites the retail electronics chain Best Buy as an example. Levy projected,based on Best Buy’s market position and infrastructure, its solid financialperformance, that it would create solid value into the future. Yet investors punishedthe retailer repeatedly between late 2000 and 2003. The stock reached a high of$63 in early 2000 only to end the year at $14. Similar to 2002 the stock reached ahigh of $54, but ended the year at $24. Finally, in December 2003, the stock closedat $53.25. A patient investor who purchased Best Buy anytime prior 1999 wouldhave realized excellent double — to triple-digit returns. But the market continues togo after the quick buck and brokers continue to get their fees every time someonebuys or sells.Political, economic and social events are the factors that add volatility to our

business cycles. Every company is exposed to these factors. In the finance world,events that affect all businesses are called systematic risks. Examples includeSeptember 11th, the dot-com bubble burst, the IraqiWar and even the capture ofSaddam Hussein.

Short-term growth, short-term gratificationWall Street analysts tout the advantages of long-term investing. But it’s just lip

service. The inherent risk of investing always leads them back to the short-termstrategies, and the gratifying rewards of short-term growth. Some of the toughesttasks in building or rebuilding the strength of a corporation take years, not months.Companies struggling to make their quarterly numbers can and do lose sight of thelong-term horizon in their quest to look good onWall Street.

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18Fund Q&A, “Quality Stocks on the Cheap,” BusinessWeekMay 2003<http://www.businessweek.com/investor/content/may2003/pi20030520_5753_pi025.htm>.


In 2002, AT&T, McDonald’s Corp. and Safeco Corp. announced they were nolonger giving bottom-line quarterly earnings estimates. They joined such marketstalwarts as Coca-Cola,Washington Post Company and Berkshire Hathaway Inc. inending the practice of telling analysts and investors what they expect to earn in agiven quarter. Although some analysts voiced the opinion that this practice wasmotivated by missed performance projections, this discontinuation of quarterlyearnings estimates was regarded by others as a means of lessening stock pricevolatility caused by short-term expectations.Risk is one of the largest factors driving short-term behavior, but there is a larger

issue — instant gratification. Look at America today.What kind of social reality doyou see? Hungry? Order a pizza and it’ll be there in 20 minutes. Need to talk withsomeone? Call them on your fashionably small PDA cell phone-Game Boy-Day-Timer-calendar-clock-camera-Treo. Need to sell some shares of Google?AMERITRADE executes trades in one nanosecond — on your PDA at that!No wonder corporate executives, shareholders and the analysts who track their

stocks focus on the near term... The price spike... this morning’s TheWall StreetJournal is in a constant state of apprehension. Sell now!Technology has made immediate gratification a two-sided coin in the financial

world.While executives struggle to satisfy the hunger and expectations for short-term gains, investors can enjoy trading with almost instantaneous satisfaction. Infact, as investors in the markets, we indulge in immediate gratification because wecan. It wasn’t too long ago when stock trading involved a phone call to ourstockbroker down at, say, Merrill Lynch who handled our purchase or sale, butcharged us $300 or $400 to get in… or the same to get out. Then we often had towait to see how we did in next morning’s paper. The costs of trading made usmuch more cautious and deliberate about our stock trades.Today, it’s a whole different story. Instead of paying hundreds of dollars to buy or

sell, we pay in many cases $8.95 to $29.95 to get in and out of a stock.We can doit online without ever having to bother our broker. Even better, thanks to theInternet, we have access to a continuous flow of real-time data.We can seeexactly what other investors and traders are doing.We can study performancecharts, color signals, breaking business news and any other input that might have abearing on the performance of a stock.

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As a result, in minutes and with little technical sophistication — and even if we’renot rabid day traders — we can jump in and out of stocks, and take profits if wedesire, with no thought of long-term strategies.Short-term thinking often guides other aspects of our personal financial life as

well. Over the course of our working years, many of us buy new homes, new carsand great vacations, instead of putting funds away for retirement, which is so farinto the distant future we don’t even want to think about it. Besides, there’s stilltime to prepare for the winter of our lives.We think much like Aesop’s foolishgrasshopper who played while the busy little ants stored up for the winter.Because of instant gratification and short-term thinking, a vast percentage ofAmericans are forced to work well past retirement age, and live on a meager andshaky Social Security system. If we run our personal lives in the short term, it’sonly natural we’d run our business, and manage our investments, the same way.Executives and managers cope with urgency, anxiety, and uncertainty every

working day. Aside from satisfying shareholders, management must makedecisions that keep the company on track. Torn between crises, management willreach out like a drowning man afloat in a storm to make a desperate grab for anyshort-term solution.Executives and managers are clamoring for new ideas to breathe life into their

corporation. As companies try to understand the changing nature of their businessenvironment they continuously apply new models, new programs — “the flavor ofthe month” — to enable them to manage whatever crisis the next morning bringsin the door... and whatever it takes to increase sales... whatever it takes torecapture that lofty vision lost in the chaos of survival.Mr. Helmuth von Moltke (1800 – 1891) was possibly the most committed

disciple of the Austrian militarist, Clausewitz, and by many considered the mostbrilliant military man since Napoleon. He headed the Prussian and German GeneralStaff from 1858 to 1888. Moltke understood that planning for the unexpected wasan absolute must on the battlefield. He wrote:

No plan of operations extends with certainty beyond the first encounter with

the enemy’s main strength. Only the layman sees in the course of a campaign

a consistent execution of a perceived and highly detailed original concept

pursued consistently to the end. Certainly, the commander in the chief will

keep his great objective continuously in mind, undisturbed by the vicissitudes

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of events. But the path on which he hopes to reach it can never be firmly

established in advance. Throughout the campaign he must make a series of

decisions on the basis of situations that cannot be foreseen. The successive

acts of war are thus not premeditated designs, but on the contrary are

spontaneous acts guided by military measures. Everything depends on

penetrating the uncertainty of veiled situations to evaluate the facts, to clarify

the unknown, to make decisions rapidly, and then to carry them out with

strength and constancy.19

Here Moltke says that in order to “penetrate uncertainty” you must have clear,accurate information; the capacity to make decisions rapidly; and the ability toexecute those decisions with confidence and consistency. This is not the kind ofdecisive leadership prevalent in the business world today.

Management by best sellerBusiness trends seem to follow the guidance and wisdom of the consultants,

authors and experts of the day. It makes sense that businessmen and women whoare in the trenches turn to people who are seen as professionals and knowledgegurus for current organizational ideas and theories. But how appropriate for specificcompanies is education in general business management? However successful itmay have proven in some sectors, will it work for your company?Some firms promote individual learning with periodic training seminars. Others

recommend and even purchase current business best-sellers for distribution totheir employees. The result is a well-versed staff that not only discusses, butapplies current techniques to the benefit of the company.There are various experts who are respected in the business community today –

Peter Drucker, Gary Hamel and Jim Collins, to name a few. They are experienced,successful management gurus whose work is widely read and respected. Theirbooks provide useful business methodologies that can improve performance,typically with case histories, to illustrate their application in the workplace.Companies that care enough about the management expertise of their employeesshould be commended for taking such initiatives.However, the business consultants and experts who espouse current trends

tend to be focused on the status of a specific component of business. Therefore, a

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19Tiha von Ghyczy, Christopher Bassford, and Bolko von Oetringer, ed. Clausewitz onStrategy, (USA:Wiley, 2001) 55.


danger exists that a current and possibly narrow business theory, however valid inone context, when applied to a different or inappropriate situation, can do moreharm than good.We call this practice “MBBS,” or “Management by Best Seller.”Business management can be compared to “horizon management” that a pilot

uses to keep his aircraft on course. A horizon gauge in every cockpit enables thepilot to visually line up the altitude of the aircraft with a bar that represents theearth’s horizon. If the “wings” of his plane are aligned with the line of the horizon,the pilot is flying straight and level.Sometimes, pilots are tempted to veer from their course, following data that

takes them on this or that tangent. This is referred to as “chasing the needle.”Business managers run the same risk when they practice MBBS. One book mightstress more learning, another more technology, yet another, more marketing. Themanager who changes his or her management methodology, however successfulit may be, to fit the “flight chart” of a given best seller is, essentially, “chasingthe needle.”Such a course of action can easily destabilize an enterprise. Instead, managers

should think more in terms of synthesizing the gospel of a given best seller, pickingand choosing elements that are appropriate rather than adopting that book or anybook from cover to cover.EDS has fallen victim to MBBS. Early on, its management systems seemed to

be tailored around Peter Senge’s work, The Fifth Discipline: The Art & Practice ofThe Learning Organization. Companies in the learning mode tend to take morerisks, as they see opportunities not only as potential profit makers, but also ascritical learning experiences.EDS, once a seemingly solid organization, has experienced cracks in the very

foundation of its enterprise. Michael Jordan, EDS’s most recent CEO, remarks that“the troubled computer group has been confused, unfocused and lacking in clearaccountability.”20 Jordan’s predecessor, Richard Brown, made several decisionsbased on Senge’s “learning organization” management style, one of which was topush the “megadeal.” Megadeals lead to expanded corporate experiences andtherefore present great learning opportunities. But they also represent significantrisks. As a result of Brown’s risk-taking, EDS saw a significant drop in their marketcapitalization when shares dropped 53 percent in September 2002. That was after

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20Nic Hopkins “Rescue specialist found ‘a confused company” final 4th edition, TheTimes 3July 2003: 25.


Brown had announced EDS would fall 80 percent short of projections.21 At thattime analysts commented that Richard Brown “failed to address key trends in therapidly changing tech landscape.”Most recently EDS is touting the virtues of a book by Steve Luengo Jones, titledAll-To-One: TheWinning Model for Marketing in the Post Internet Economy. True tothe cyclical nature of their success, EDS is again following the latest managementstyle. Sadly, EDS is moving down the same path, one which addresses the issuesof the post-dot com era, and not the future of the IT consulting business.The business community has particularly embraced Good to Great, by Jim

Collins. Collins conducted extensive research into the stock performance ofhundreds of companies. After creating qualifying criteria, he identified 12 “great”companies and dissected the qualities that made them great. His list of 12includedWalgreens, Circuit City, supermarket chain Kroger and Kimberley-Clark.The book offers some astute observations about solid financial performance.We only argue that the basis of selecting those outstanding companies wasstock performance — stocks that yielded the highest returns and growth rates.The problem with using stocks as a yardstick for “great” or anything else is thattheir value is based on short-term performance, quarterly earnings forecastsand reports.Short-term financial performance is important, but a focus on short-term results

will not necessarily lead to long-term success. Not every company highlighted inGood to Great is the solid performer Collins acclaimed in 2001.Collins is one of many business experts using specialized knowledge and

experience to shine a spotlight on business. As well-intending executives prowl thebookstores looking for the path to profitability, they need to be aware that businesswriters draw trends from one area of business for application to another, offeringshort-term solutions to temporary problems.Fixing temporary problems, of course, is essential. A business cannot succeed

in the long term if it is hemorrhaging cash in the short term. Damage occurs whena solution to a temporary problem is hailed as the latest umbrella solution to allorganizational needs and challenges.

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21Andrew Park, “EDS: What Went Wrong: Did CEO Brown know the extent of its woesmonths before investors were warned?” BusinessWeek 7 April 2003.


Adrian Slywotzky and RichardWise wrote a book titled How to GrowWhenMarkets Don’t.22 The main argument of the book is that companies must recognizethe opportunities that surround their products or services in order to grow duringdifficult economic times. The authors suggest if you are losing profitability, youshould implement the tactics suggested in the book. Again it would be very easyto pick up this book and adopt its suggestions, some of which will surely boost thebottom line. Yet that very act, without maintaining a holistic perspective, will onlyperpetuate the future use of short-term remedies.

Alarmist writersManagement By Best Seller exists because of the urgency consultants and

experts place on current business problems and solutions. Not only do businessexperts prescribe specialized remedies to greater enterprise-wide issues, but theyalso offer immediate solutions that urge organizations to turn entire strategies ona dime.Question:What do Greenpeace and Gary Hamel have in common? First, each

has a noble cause: one trying to save the life of our planet, the other trying to savethe lives of companies. But second, often they are both alarmists. One uses highdrama and confrontation to focus on critical environmental issues; the otherpushes the corporate revolutionary panic button.Hamel writes about “revolution” in Leading the Revolution: How toThrive in

Turbulent Times by Making Innovation aWay of Life. In that book, he espouses atotal disassembling of current business practices, implying a cataclysmic breakupto be replaced by his radical management methodology.But revolution is simply not a characteristic of business, any more than a glacier

will characteristically break up into ice cubes. The real issue is the volume ofHamel’s message, its shrill tone in a marketplace already filled with a cacophony ofdire predictions and warnings.Unfortunately, we need alarmists because alarms are the only sounds that get

the attention of business amid the growing chaos.We can compare yet anotherbusiness book with yet another casino along the Las Vegas Strip. If you’re a casinoowner, how do you attract customers already besieged by all the spectacle ofCaesar’s Palace and Bellagio and the Luxor?You spend a billion dollars or more to

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22Adrian Slywotzky and Richard Wise, How to GrowWhen Markets Don’t. (NewYork:WarnerBusiness Books, 2003)


build a casino that screams louder than they do!You re-create the canals andpiazzas of Venice, complete with gondolas and café violinists. You build the EiffelTower, or wrap a heart-stopping roller coaster around the towers of Manhattan.Anything to shout above the din, “Hey, look at this! Come in here!”So it is that best sellers must scream a louder, more urgent alarm, a wake-up call

to avoid corporate Armageddon!The dichotomy is that by the time the message of a Gary Hamel reaches critical

crescendo in the boardrooms and penthouse suites, the natural pendulum ofbusiness has begun to swing back in the opposite direction. The problem or crisisportrayed in the best seller has already begun to correct itself, so that the alarmistis shouting outdated alarms!Alarmist books do serve a purpose, of course. Aside from generating enormous

book sales, lucrative speaking engagements and consultancies, and an appearanceon MSNBC, these books give us additional insight into often-narrow issues in theenterprise which may need some correction. The key is perspective. Know yourbusiness and you’ll see immediately when some gem of insight glints among thepages of the latest best seller.

Patches — Not Solutions forTires or Companies

Using specific trends, methods and theories to solve large, organizational issuesis like throwing a Band-Aid over a gaping wound. Corporate patches are the nextgeneration of academic ideas created by the latest crop of business experts. Threepatches that have been prominent in recent times are: returning to anorganization’s roots, outsourcing, and benchmarking and best practices.

Back-to-basicsA number of business articles and books have recently surfaced urging

organizations to get “back to basics.” There is no question in our minds thatcompanies across the competitive landscape do need to return to the basics, andthat those writers espousing a return to basics remind us that it’s those proven,rock-solid basics that form the foundation for success. Similar to a coach whocomes into an NBA team and reminds the team that the basics of basketball areshooting, rebounding and blocking.

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So what are those basics?We assert that they are wrapped around theelements of the Ultimate Enterprise Experience, as opposed to simply achievingsuch goals as high growth or greater profitability.Integral to returning to the basics as defined by the UEE is, for the enterprise

that has lost it way, the need to readdress the DNA of the organization. That way itdoesn’t begin “chasing the needle,” but goes back to the basics in that it staysfocused on its strategic alignment.Strategic planning at Dynetech begins each August with the refinement of a

three-year plan that takes effect the following year. We start with an understandingof what our strategic position is — internally in terms of our resources, externallyin terms of the business environment in which we find ourselves.We then begin the process of structuring — first, our strategic alignment;

second, what our goals are; and third, what tasks are required to achieve thosegoals.We then decide what we are going to achieve, what we need as metrics andwhat we need to monitor. When this planning is completed, we publish a playbookand make it available to everyone we hold accountable on our senior and mid-levelmanagement teams. That enables us to stick to the basics, while also enabling usto morph consistently with our strategic alignment. All this planning is finished byNovember 1, so that management at every level is ready to roll immediately afterthe NewYear.The benefit of this adherence to our strategic alignment is that rather than

“going back to basics,” we stay meticulously close to the basics we’ve proven inperformance to be sound and workable for us, regardless of the dynamics of ourinternal and external environment.

Outsourcing and offshoringAt the outset, we need to distinguish between what we refer to as

“outsourcing” and what we regard as “offshoring.” Offshoring is outsourcing that

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One day Alice came to a fork in the road and saw aCheshire cat in a tree. ‘Which road do I take,’ sheasked. His response was, ‘Where do you want to go?’‘I don’t know,’ Alice answered. ‘Then,’ said the cat, itdoesn’t matter.’ ”

— Lewis Carroll


takes advantage of substantial global economic variances that benefit us inthis country.Offshoring has accelerated the growth of a middle class in such countries as

India, where MBAs process invoices electronically for a number of Americancorporations — and for substantially less than the same tasks would be performedin this country.The offshoring of manufacturing to China for virtually every household product,

toy, novelty and knickknack has pumped billions of dollars into the Chineseeconomy. More important, it has created a new generation of fledgling capitalistswith discretionary income who can now start small businesses and buy homes,cars and color TVs. China’s growing consumerism is quickly making communism —and the communist government — irrelevant to everyday life.Outsourcing, essentially a domestic term, is the practice of sending job work

outside the company to get it done at a lower cost, and to help the company staycompetitive in a tough marketplace. A certain amount of outsourcing is appropriate— but how much? In September 2002, IBM decided that outsourcing $5 billion inmanufacturing contracts with Sanmina-SCI, an electronics contract manufacturer,was an excellent course of action.23 Furthermore, in December of that same year,IBM Global Services announced that it had awarded J.P. Morgan Chase & Co. anoutsourcing contract valued at over $5 billion. The seven-year outsourcing contractis “the largest computer services deal in the financial services sector ever,”declared Eric Ray, vice president of financial markets for IBM Global Services inSomers, N.Y.24

Outsourcing is gaining momentum because it cuts production costs, avoidspaying benefits, bypasses union demands, skips the hassle of FICA and simplifiesa number of other HR-related administrative tasks associated with permanentemployment. For reasons such as this, like many other management patches, thecost savings of outsourcing can be substantial, but it often makes organizationalstructures more difficult to manage.As we mentioned, Sears handed off its credit card business to Citigroup. IBM is

trying to shed some of its ancillary activities by signing big-dollar outsourcing

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23“Why outsourcing is suddenly in, CNETNews.com” 29 Sept. 2002<http://news.com.com/2009-1001_3-959785.html>.24Paula Musich, “IBM, J.P. Morgan Sign $5 Billion Deal,” Enterprise News & Reviews 30Dec. 2002 http://www.eweek.com/article2/0,4149,801867,00.asp.


contracts in order to focus more on its core competencies. But it’s entirely possiblethat the organization will begin to handcuff itself to the outsource companies andlose operational control rather than create a more operationally efficientorganization.As it stumbled toward bankruptcy, Kmart relied on outsourcing as a quick fix to

reduce operating costs. It outsourced its enormous fleet of trucks, its foodwarehousing and distribution, and many of its IT functions, in the case of fooddistribution, to Fleming Cos. This contract to deliver consumables was long-term,but in 2001 as Kmart fell further and further behind in paying Fleming’s bills, thecompany cut Kmart off — food deliveries stopped.With nothing but virtually emptyshelves awaiting food customers, revenues took another hit, and Kmart filed forbankruptcy in early 2002.At Dynetech, our point of view on outsourcing is that it can be a valuable tool in

specific areas, but may be overvalued in other areas. Outsourcing is possible for usin shared services because, in effect, shared services is nothing more than“internal outsourcing.” That may sound like an oxymoron, but when one of ourparticular product lines such as Securities Trading Corporation outsources itsinfrastructural support to our own shared services function, the Dynetech BusinessServices Group, that group is providing an internalization of the efficiencies of thatinfrastructure.From our standpoint, there’s nothing wrong with that type of outsourcing

provided it’s used in an appropriate way. If, on the other hand, we attempt tooutsource what we regard as a core process or a core component of thatbusiness, then that’s when problems arise. If it is used in an area that is integral tothe enterprise, outsourcing can create complications that the company doesn’twant to deal with.For instance, customer service is so important to Dell that when it outsourced a

substantial amount of its customer service, the deterioration of that servicecreated a rise in customer complaints. Dell made the decision to shut down theoutsource operation and bring service back in-house again.

Benchmarking and best practicesMany corporate leaders who are unable to handle the uncertainty of the

business world become hesitant, take fewer risks and allow best practices toguide their organization. “What’s working in the industry will work for us.”

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For others, their organizational structure simply will not allow them to respondquickly enough. In this case, whether in compensation levels, distribution or qualityassurance, managers tend to measure their performance by benchmarking — or,“Good enough for them; good enough for us.”When an organization is unable or unwilling to move in a direction determined to

be the best for its purposes, but instead follows the tracks of others, best practicesand benchmarking become drivers and not a solution.Worse, best practices andbench-marking are usually symptoms of a company — and specifically companyleadership — that has lost its creative, entrepreneurial spark. The founder, that leanand hungry young hound who started the company once so long ago, is eitherhappily retired or is embalmed in a corner office and not to be disturbed. He issatisfied with what he has done. Executives around him collect their checks, tiptoeabout counting the years until their own retirement or are updating their résumé intime for the next trade show. Such a company is marching along in the parade,content to be in step with its peers and hoping to be invisible so that no one willnotice that it has settled for mediocrity on its way to the dumpster of oblivion.We at Dynetech use incessant monitoring, incessant measuring and incessant

modifying of our own particular practices to keep the “best practices” for us in thecontext of our enterprise.With regard to benchmarking, we feel there is no problem in learning what

others in our industry are doing. In the broad sense, that’s nothing more thanobtaining competitive intelligence, which is always a prudent practice. That’s R&D.But when we become external, looking beyond the company at those things asbeing drivers as opposed to simply being information that is being monitored, thenthat’s where the damage occurs.

Management by Software — Installing Quality

The history of business brought us through the Fredrick Taylors and Demingswhose management methodologies gave birth to today’s generation of softwaresolutions, including CRM, Balanced Scorecard and Six Sigma. Each manages

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Show me a thoroughly satisfied man, and I will showyou a failure.

— Thomas Edison


processes while integrating customers into daily business. Each process is builtupon sound research, principles and practices and provides insight to what leadersand managers should be doing. However, that’s not enough. Companies mustintegrate and use total solutions that range across the complete managementspectrum. Let’s look at some of these systems.

Customer relationship management (CRM)Customer Relations Management (CRM) is a software system that uses people,

processes and technology to develop long-term, profitable relationships withcustomers. In captures better, faster information on customer needs and enablesmore cost-effective management of customer relationships by the automating andstreamlining of processes.Aon Corporation, a Fortune 500 company with its home office in Chicago,

maintains offices in 125 countries and is a global leader in risk management,insurance brokerage and human capital consulting services. Like many othercompanies, it has begun installing a CRM system, initially in its Australianoperations. Aon plans to use Australia as its testing ground to derive bestpractices, thus allowing other divisions to avoid the usual pitfalls of adopting newoperating methods.Has CRM lived up to expectations? Jorina Choy, a writer for Asia Computer

Weekly, says, “Whether the CRM software vendors like it or not, CRM has a badname. Complex implementations, failure to yield desired results, escalatingmaintenance costs have all marred the reputation of CRM. Gartner once reportedthat 50 percent of CRM projects generally fail.”25 It is also recently stated thatalmost 42 percent of CRM software licenses bought end up unused.It is safe to say that CRM is not always the silver bullet to target better

customer-relationship management. From our perspective it is a question of theorganization having the right solution for the right job.We believe that the CRMfailure is the result of poor management — not the CRM system. Manyimplementers of CRM think that once they have bought the technology andsoftware, they have done their duty; many times they fail to understand the

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25In fact, this particular survey was conducted in early March of 2003 at Gartner Inc.’s CRMSummit Spring Conference. Gartner surveyed hundreds of companies in 2002 that haveinstalled CRM applications, and about 55 percent of the respondents characterized theirrollouts as failures. Marc L. Songini “CRM projects continue to inspire caution, users say,”ComputerWorld 10 Mar. 2003: 7.


complex nature of implementing that system into their organizations. How long willit take to backfill necessary historical data, to build custom reports that are actuallyuseful to managers and, through trial and error, to find out how to make it pay offfor them?In January of 2002 Gartner Inc., Mercer Management Consulting and Meta

Group consolidated their research and came up with six reasons why CRMcan fail26:1. No Focus—Managers did not understand the limitations of products they

were purchasing; therefore, the project focus often changed to suit theseconstraints.

2. No Change-Management Policy—The need for CRM was apparent, but theprocess of utilizing the technology on a corporate level.

3. No Buy In— Some individual groups simply are not willing to use the newsystem.

4. Business Units Are Silos— Lack of cross-functional communication andplanning between separate departments.

5. Complicated Procedures—The complexity of a CRM system has a tendencyto push managers into streamlining their business processes.

6. Poor Training— Either employees were not trained properly or the technologyoutruns their capabilities.

Finally, with respect to CRM, it is nothing more than another software systemamong many being used across corporate America. Its greatest problem is that it’snot integrated into a unified business platform.What businesses need is thefunctionality of CRM within a unified business platform. To view their solution as aCRM management solution in and of itself, as opposed to being an integral part ofthe UBP, aggravates the problem of corporate schizophrenia that it’s attemptingto address.

Balanced ScorecardAon is also looking to connect its CRM software with a balanced scorecard

system. In the same interview as above, Mr. Harmer further commented:

With the investment we were making, we wanted to go a stage further than

just understanding our clients.We wanted to ensure that we could understand

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26Kathleen Cholewka. “CRM: The failures are your fault,” Sales and Marketing ManagementJan 2002: 23 – 24.


the dynamics of our business, and how we are performing, which is why we

are also implementing a range of Enterprise Performance Management

solutions, including Balanced Scorecard.27

The Balanced Scorecard system views organizations through four perspectives,financial, customer, learning and growth, and internal business processes.28 Theultimate goal of the BSC system is to develop a measurement system that willallow an organization to function more efficiently.Since the BSC was designed by its creators for executives to become the driving

force, we are concerned this force is not sustainable. It is safe to say that a BSCchange project will outlive the tenure of the management team that started it,leaving it up to their successors to follow through with the BSC initiative.Who then will drive change in the corporation? Everyone, because they will be

using the scorecard to monitor, measure and modify their organizations, or so thatis how the system is intended to work.

Six SigmaIn our data-driven world, Six Sigma is a wonderful marriage of our current

business philosophies and technical abilities. Six Sigma, a product of JuranInstitute, has its origins in Joseph Juran’s book,Managerial Breakthrough, firstpublished in 1964. In that book, Juran introduced a step-by-step sequence for“breakthrough improvement,” a business process with a goal of nothing less thanperfection. To achieve Six Sigma an organization must not record more than 3.4defects per million units of output.According to figures on the Six SigmaWeb site, “General Electric, one of the

most successful companies implementing Six Sigma, has estimated benefits onthe order of $10 billion during the first five years of implementation. GE first beganSix Sigma in 1995 after Motorola and Allied Signal blazed the Six Sigma trail.”29

There are significant benefits to implementing Six Sigma. But many companiesare not aware of the depth of commitment and the scope of cultural fit required tomake Six Sigma succeed.Who other than GE, Motorola, Siemens and other

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27Frank Chamberlin, “Peoplesoft strong on Internet solution,” CRM Magazine.<http://www.whitepaper.com.au/contents/casestudies/peoplesoft.html>28For an in-depth explanation of the BSC system, visit the following link:<http://www.balancedscorecard.org/>29<http://isixsigma.com/sixsigma/six_sigma.asp>


organizations of their size would be able to throw the economic and managerialweight behind an idea such as Six Sigma? In addition, Six Sigma is a time andlabor-intensive process to implement; it will not create the quick fix it has to bedone the way business is done to be successful. As with other business tools, SixSigma is yet another management system that may or may not be appropriate foran organization.

We Have Not Learned Our Lesson

What we suggest is that we look beyond the limitless business theories to focuson the concrete, practical and proven steps it takes to make business succeed andprosper day in and day out. Yes, take the best of each theory and work it into yourorganization, but only if you are committed to that practice becoming part of yourDNA, not an add-on.Business operates on a specific premise. It is designed to serve itself — and

survive by serving others. But in one respect, business is like sports; learningspectacular plays or mastering difficult shots will not do the team any good withouta sound knowledge and application of the fundamentals. It will not work withoutpractice, practice, practice and commitment to work until you get it right.More tools and more solutions mean that there is a higher probability of using

the wrong tool and means greater need for due diligence when choosing businesstools. It is too easy to pick another tool up rather than figure out why the last onefailed. CEOs have a multitude of choices and all have the same access toinformation, technology and experts.CEOs have a short shelf life. About two-thirds of all major corporations have

replaced their CEO at least once since 1995.30 A study in 2002 by Booz AllenHamilton claims CEOs live in a hostile habitat and have a shrinking life span.Between 1995 and 2001, the worldwide mean tenure of all CEOs dropped to 7.3years. In 2001, 39 percent of the turnover was involuntary, up from 25 percent theyear prior.31

The lesson, then, is perhaps not just in choosing the correct trend or theory dujour, but also in focusing the simplicity of doing business. It’s an eternal truth thatsound business basics can propel corporations past simple survival and intosuccess.

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30Hagberg Consulting Group <http://www.succession-planning.com/succession_crisis.html>31Jeffrey Sonnernfeld, “The CEO Blues,” TheWall Street Journal 9 Dec. 2003:A20.


But the most important points are these.• Get a firm grasp on classic management methodologies as taught inPrinciples of Business 101.

• Understand the current, fashionable management trends as characterized inthe business best sellers of your choice, and look for kernels of wisdom andinsight among the pages of rehashed clichés.

• Know, really know your own business — its strengths, its weaknesses andits potential.

• Then pull from whatever wellsprings you have, be it through strategies,practices, industry knowledge, connection to the customers, tactics andtechniques you need, to slowly, patiently lift your enterprise from being agood company to that rare and underpopulated plateau of great companies.

Paying Tribute to the Basics

As we examine how companies survive, we realize certain basics cannot beoverlooked.We will introduce a list of qualities that make companies thrive in thenext chapter, but first let’s identify the basic attributes each company must have.These attributes must be seamlessly implemented, be foundational to theenterprise, part of the DNA.

A viable product or serviceThe first and most obvious of these assumptions is that a company must have a

product or service that satisfies the need of a segment of the market. To do that, aproduct or service should offer buyers a reason to buy. It could be the first productor service of its kind and generate excitement in the market. Some feature orbenefit could make it a better value, or it could meet the specific needs of a nichemarket. The whole reason for the existence of corporate research and developmentis to continue improving a product or service, to keep it at the leading edge ofindustry technology, to add more and more “bells and whistles” that keep it viableand desirable in the marketplace.By contrast, during the dot-com boom, hundreds of back-bedroom companies

raised tens of millions of dollars but never produced a viable product. When thatfact became apparent, they folded, taking millions of dollars with them and helpingcripple investments in technology for years.

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A competitive advantageThis attribute is closely aligned with product or service viability, but addresses its

quality in the context of other companies who are selling the same or a similarproduct or service. Many corporations today are swamped by competitors, due tolack of a product with a distinct competitive advantage. In cases where oneproduct is pretty much like another, it’s the job of marketers to create thatadvantage in the minds of consumers. The perception of that product or service ashaving one feature that delineates it from competitive products or services iscreated by what advertisers call the Unique Selling Proposition (USP), a standardweapon in the arsenal of ad agencies everywhere.The competitive advantage is never static. It is continuously under attack by

competitors. That means the way it is marketed and distributed must change withthe customer and the industry. If you invent the better mousetrap, one thing iscertain. Others will follow and threaten the ability of your enterprise to surviveand flourish.A company can have a competitive advantage, but no viable product. For

instance, suppose Allied Carbon Products has made the finest carbon paper in theindustry for 60 years. They own the market for carbon paper. They maintain theclear competitive advantage. But they have no viable market because hardlyanyone buys carbon paper anymore.A company can also have a viable product or service but no competitive

advantage. For example, we looked at Kmart earlier. It presented a good exampleof a company with a viable product. Looking at their business platform, they shouldhave been able to thrive. But they didn’t. It may have had a viable product, but ithad no competitive advantage.When a customer thought of Kmart, no specificproduct or service came to mind that offered a competitive advantage over anotherdiscount store. As former Kmart CEO Jim Adamson remarked in early 2002, “Theissue is, who is Kmart?”Customers are not brand-loyal enough to pass up another company’s

competitive advantage. This may have been true in the past, but the increase inoptions on the market has diluted customer loyalty. A proliferation of discountchains, supercenters, or supermarket chains and convenience stores makes it easyfor customers to shop prices, to drive past his or her old favorite to the newcompetitor a few blocks away or a few keystrokes away.

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Valid consumer baseThe product that a company has identified must target a specific customer and

capture a valid customer base. If the customer is too ambiguously identified, theproduct will fail in the marketplace. Even the most basic items — breakfast cereal,soap, magazines, hair shampoo — are targeted to specific consumer groups.Soap, in fact, is a prime example. Each brand has differentiated itself based on

price, aroma, color, form (liquid, solid, gel), antibacterial, skin-sensitive, and otherattributes. In order to compete against each other, they had to prove their valueproposition is worth buying — and prove it to their segment of the buying andbathing public.The customer base must be a sufficiently large segment of the general market,

or, in the case of niche industries, there must be enough margin to support thebusiness.For example, in one major city of more than two million people, there is only one

Lamborghini auto mechanic, who we’ll call “Mario.” He specializes only in themaintenance of these Italian beauties, and is the only one in the city who can fixthem. There are a little over 30 Lamborghinis in the entire metropolitan area, soMario has cornered the market and is doing very nicely. Even better for Mario, it’ssuch a small niche market that it would not support another Lamborghini specialist.As long as Mario keeps his small customer base happy, he’s fixed for life!Look at Kmart again. They too had an identifiable product. They sold everyday

low-priced items. Their problem is that they’ve lost sight of their customer. Thecustomer is looking for everyday low-priced items, all right, but when given thechoice, they’re now more likely to chooseWal-Mart or Target. Why? A number ofreasons, including better store design, i.e., a brighter, cleaner appearance andmore spacious aisles; better trained, more motivated employees; or a store thatactually has the product in stock. Kmart could not prove their value proposition, socustomers drifted off elsewhere. In this case, the customer was easily identified,but Kmart lost sight of them.By contrast, Wal-Mart has maintained its vibrancy in the market on the strength

of relationships, both with its suppliers and its customers. SamWalton’s pledge,required of every employee, is still taken today by every employee:I solemnly swear and declare that every customer thatcomes within 10 feet of me, I will smile, look them in the eye,and greet them, so help me, Sam.

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When I, Larry, was in law school in the mid-seventies, a friend of mine, JerryWilkoff, was vice president of merchandising for Federated Department Stores,working in NewYork City. Federated had a layoff, and Jerry found himself out of ajob. He subsequently had the opportunity to become vice president ofmerchandising for a small retail operation headquartered in Bentonville, Ark.,working directly for its founder, SamWalton.Jerry didn’t last long atWal-Mart. He was overcome by a fundamental difference

between how Federated andWal-Mart priced their merchandise. SamWaltontalked about nothing but the intrinsic value of merchandise. He would take a lookat goods, and immediately assign to them what the retail price to the customershould be, based on the intrinsic value the customer received. Having assignedthat retail price, he would then negotiate a wholesale cost that would allow him tomake a profit on the resale of those items.“Intrinsic value.” That was Sam’s language. Jerry said at the time that coming

from the world of Federated, the department store approach was in essence that ifit was a brand name, whatever the merchandise was, you “keystoned” it, so that ifit cost you $100 you sold it for $200. And it was irrelevant what the intrinsic valuewas. You stacked your shelves with 100 percent markups and then you liquidatedout the balance.Whatever was left over at the end of the season, you took yourmarkdowns, got rid of it and brought in the next season’s goods. Intrinsic valuewas a tough concept for Jerry to get used to, and in fact he didn’t get used to itand soon left theWal-Mart organization.In terms of whatWal-Mart was doing, Sam’s concept of intrinsic value, together

with the incredible demands for supply chain management, is a model that hasworked famously. Federated and other traditional department stores, meanwhile,are having a tough time. In fact, as this was being written, Burdines, one of thecountry’s oldest department store names, disappeared, having been bought out byMacy’s after more than a century of retail operation.SamWalton may have passed on, but his spirit, his determination to attract and

keep customers, still motivates a thriving retail empire. In early 2003, Sam’s legacyto global retailing encompassed some 1,650Wal-Marts, 1,066Wal-MartsSupercenters, 500 Sam’s Clubs and 31 neighborhood markets in the United Statesalone, as well as hundreds more from Canada to China, Britain to Brazil. Wal-Martis now the largest food store in the world, while Kmart is struggling.

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Communicate the product compellinglyOnce a company has a viable, identifiable product, it must be marketed as

desirable, even necessary, to the customer through the skillful use of branding andmarketing.Without powerful marketing and advertising to communicate a clear,compelling message to customers, even the most viable product, with anadvantageous position among its competitors, will fail.Repeat business is another area requiring compelling communication to the

buying public. In fact, the ability to increase same-store sales is a key in revenuegrowth for many corporations. Same-store sales is the preferred form of revenuegrowth at Darden Restaurants. It costs less to increase business at an existinglocation than to build new locations. Darden Senior Vice President of CorporateRelations RickWalsh explained the importance of repeat business and same-storesales to the company’s success.“Darden needs both types of growth to succeed: increasing the number of

guests in our existing restaurants and opening new restaurants. The goal is to getthe same amount of growth for each type, but increasing guests in existinglocations is preferred because it has the least amount of risk.”Darden’s ability to grow same-store sales is important because it runs two

international, billion-dollar restaurant operations: Red Lobster and Olive Garden.Through the use of compelling communication, successful marketing of thesebrands and other family restaurant chains has kept customers loyal and increasedcustomer bases at locations totaling more than 1,300 restaurants across theUnited States and Canada. Large revenues from existing locations of theseestablished brands give Darden the cash and flexibility to test and roll out newconcepts, such as its Smokey Bones Barbeque & Grill that opened in 2000,Bahama Breeze and Seasons 52.

DistributionThe next basic is that a product, particularly at the retail level, must be

distributed easily and conveniently to the end user. That’s not to say necessarilythat the actual distribution process is simple. The process, however complex itmight be, must deliver the product in a timely enough manner to satisfycustomers. People endure enough stress in their lives without having to wonderwhere a product is when they need it. They want a seamless process from desireto purchase to getting their hands on it.

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This basic truth seems simple enough. Yet many companies get caught up inthe technology of their product, or even the sophistication of distribution itself —and neglect the element of customer service. They forget all about customersatisfaction and the fact that customers don’t care when they get the product —as long as it’s as soon as humanly possible!For example, consider an everyday business practice: ordering office supplies.

We have several choices — Office Depot, Staples, or OfficeMax and others.Whatdetermines our final decision?The answer relates directly to distribution. Theseretailers all have the same basic product line, so we move on to the question ofconvenience and speed of delivery.Which of these companies can get it to usfaster?Which has the closest location — or even better, can one of them deliver?The bottom line is that they absolutely must have pens and paper clips, printercartridges and file folders in the right size, right brand, right price when thecustomer wants them — right now!Dynetech is focused on creating and managing distribution channels for products

that are otherwise difficult to get to their respective markets in an effective way.The learning products we market, for example, are not the type typically found inthe neighborhood bookstore. So at the business seminars we produce, we createour own bookstore, an area dedicated to selling books, CDs, DVDs and other retailproducts.We also useWeb marketing to sell our products, and, in the case of agrowing list of titles, generate best sellers.

Continuous replicationAnother basic that an organization should never forget is the expertise to

replicate. “Replication” for our purposes means being able to successfullyintroduce a new business model in a different product market using the systemsand techniques that have made us successful in the past. The easier and wider inscope the replication, the better. Previous products alone are not enough; it is oursystems, techniques and DNA that make it possible for us to replicate. If and whenresearch indicates that a successful marketing program will work elsewhere, boldcorporate leadership can save substantial dollars in replicating what has alreadybeen successful. Once again, we’re talking economies of scale.An example of successful replication is that of expanding the perceived uses of

an existing product. The makers of Arm & Hammer Baking Soda decided thatbaking soda could be used for more than baking, so it created an incredible list of

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new uses, new reasons to pick up another box at the store. It absorbs food odors,so keep one in the refrigerator. It creates an effective paste to relieve the pain ofsmall burns. It’s an antacid, so dissolve it in water and drink it to relieve heartburn.Finally, pour it down the drain to unclog the kitchen sink. Now that’s replication ofa success!Wherever it is justified, incessant replication is mandatory and can help a thriving

corporation enhance one of the primary goals of an enterprise — to make money.As always... “Show me the money!”

Seamless supportThe business process must be supported professionally and comprehensively.

Examples include the shared services concept and human resources. In today’slabor market, employees require much more in the way of benefits — medicalinsurance, maternity leave, employee-assistance programs — making HR farmore than an overhead cost. It needs to be viewed, supported and funded as astrategic partner.CNL has pioneered this idea well. The company no longer maintains a traditional

HR department. It is part of shared services and supports every business functionthat needs human resource services, thereby achieving economies of scale.Shared services itself acts as a consultant to every business unit. CNL’s solutioncould be a harbinger of things to come in HR. As the workforce continues to bemore demanding, HR departments as we know them may well become integratedinto a shared services concept.

Commitment to profitable decisionsThe debate on whether or not a company exists to make a profit is a baffling

one. Unless they’re specifically not-for-profit, the reason for such a debate is itselfbaffling. Companies need capital to exist and operate. It’s that simple. Of course,profit is not the only motivation behind an organization. But without profit, acompany would not succeed.Profit is the only legitimate source of capital. Achieved internally, profits are

easier to rely on and far less expensive than creating debt or raising equity. If acompany relies on profits as its source of capital — and is profitable — it isensuring infinite future growth potential.Accordingly, executives and managers must always ask during every decision-

making process, “How will doing this make the company more profitable?” And

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“Will the cost and effort invested in this activity or project be justified by the profitit will produce?” Or, phrased in a more pedestrian way, “How can we justify this tothe satisfaction of our shareholders?”WhenWalt DisneyWorld came to Central Florida in 1971, community leaders

and charitable organizations initially regarded it as a potential “sugar daddy,” onesurely willing and financially able to underwrite every worthy cause. After all, theDisney name fairly reeked with magic and goodness.But it quickly became apparent that the Disney organization was first and last a

profit-driven business, with only limited interest or participation in the communityaround it. Explained one Disney official, “We make all decisions based on onepremise. How does this benefit Disney?” In the 30-plus years since, Disney hascarefully chosen its charitable events and activities, and created many of its own,based on the projected benefits that Disney accrues from that participation.A morphing company is committed to making decisions that boost profitability.

The legitimate use of capitalThere are times when an organization would be ill-served if it did not seek

outside capital. Opportunities arise, often unexpectedly, that almost force acompany to rely on outsiders for capital. And these opportunities are almost alwaysrelated to increasing profitability.A situation arises, for example, where a company has the opportunity to invest in

a certain project. The initial outlay for the project is fairly large, and forces thecompany to seek capital from sources other than profits, i.e., debt or equityfinancing. In order for this to be a legitimate use of capital, the long-term benefitsmust be reasonably, even conservatively, projected to ensure profitability andenhance the firm’s success well into the future. A successful organization has tobe built on the realization that every dollar spent is a dollar not available to investon a new concept, or to enhance the business basics.

Cash is kingAt the end of the day, the amount of cash on hand is the blood of an

organization. Cash is the critical resource that companies must have in order toexist — not receivables, not the price of the stock, not investments or inventory.Cash flow is everything. Regardless of quarterly earnings or annual reports, cash isconcrete evidence of financial performance.

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George A. Cloutier, Chairman and CEO of American Management Services, hasa long and successful career on the entrepreneurial front lines. He also chairsPartner America, a partnership with the U.S. Conference of Mayors that works topromote business development and growth for small business. Before foundingAmerican Management in 1986, he worked as a CEO, CFO and turnaroundspecialist in the venture capital, retail distribution, food and sporting goodsindustries.In addressing the question of why so many small businesses fail, Cloutier notes

that a lot of them go under because their owners get distracted from focusing onthe bottom line, and put all of their energy into increasing sales and the number ofworkers they have. But the successful ones focus on the financial statement,viewing it as their report card. “When they’re losing money, they admit it andchange the way they do business. They’re able to bury their ego and say, “I reallyhave to make a profit this month,” Cloutier says. The problem seems to occur whenorganizations are doing well and change the way something is done; the companyloses focus and they do not make a profit.

Summary

We began this chapter with a look at current conditions and factors thatinfluence business:Accelerating technology, with its dividends and liabilities.Uncertainty and volatility, dynamics that threaten any enterprise that stands still

and seeks comfort in holding on to their established market.The pressure to pursue short-term growth and the temptation to embrace short-term gratification.We also examined four courses of action that must be taken before an

enterprise reaches its point of no return: molting… becoming more robust…abandoning legacies… and starting over.“Patches” are no solution. Quite the contrary, patches may be an admission of

the incapability or unwillingness to seek root causes of problems. Nevertheless, inthe short term, these patches can prove useful when used not as strategies but ascollateral practices.Going back to basics is an excellent way to refocus an enterprise that has

strayed from the course that made it successful.

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Outsourcing may be economically viable, but it cedes a portion of companycontrol to outsiders with no emotional investment in the firm.Benchmarking should be used in its broadest sense as a means of intelligence

gathering, getting close enough to the competition to look over his shoulder.Best practices, using monitoring, measuring and modifying, can keep the

enterprise centered on its own successful practices, rather than trying to emulatethose of others.We examined three business software products: Customer Relationship

Management (CRM), Balanced Scorecard and Six Sigma. Each has advantages anddrawbacks, but none of them should be used in place of a strong unified businessplatform; but rather, they should be integrated into that platform.Finally, the nine basic survival mechanisms we’ve just discussed are not enough.

Mere survival should be no one’s goal. Morphing organizations stride forward,beyond these basics, and thrive.We have everything within the organization to deal with the conditions listed at

the beginning of this chapter. Even better, we have the information and technologyto begin that conscious evolution into the corporate entity that will dominatebusiness in the 21st century.The morphing organization.

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Chapter 4

The Morphing Enterprise

The only thing more risky than innovation is failing toinnovate. So change as little as necessary — but change.

— Kirk Cheyfitz, Thinking Inside the Box

Chapter 4: The Morphing Enterprise

In the previous chapter, we examined various factors that affect today’s businessworld, the impact of technology, the need for effective communication,

management practices and change. In addition, we now understand that dozens,even hundreds, of business experts and gurus have developed and espousedbreakthrough business systems and trendy management methodologies, usuallyfor the prestige, peer recognition or to position themselves as consultants tocorporate executives.But we’re also forewarned that each system, philosophy or program must be

examined carefully to determine whether it applies to one’s unique managementcircumstances and environment. Otherwise, in the rush to be “current,” managersmay be simply subscribing to “Management by Best Seller” or otherwise “chasingthe needle.”While there is no magic recipe or wonder tool for ensuring business success,

there will always be commonalties that are requisites for survival. No matter howmuch we differ, we all must process information, provide marketable products orservices, develop customer relationships, maintain a healthy cash flow and makea profit.However, just because we have mechanisms in place for business survival,

there’s no guarantee that we’re insulated from dips in the business cycle. Forour organizations to move beyond surviving to thriving, we must, in the besttradition of Maslow, satisfy more than basic business needs.We must get to apoint where we have the information, ability and will to make conscious, timelyand pivotal course-correcting business decisions that lead our organizations toself-actualization. That’s when we achieve “conscious evolution,” the foundationof the morphing enterprise.No competitive advantage is sustainable. Not even the executive suits in the

executive suites of the Fortune 500 can sustain competitive advantages withoutconstantly modifying themselves. Many of our own business peers succeedtemporarily, only to fail in the long run, because they failed to retune theirstrategies to harmonize with environmental changes.The remedy for many corporations is some current incarnation of change

management, codifying practices that shift direction and focus to treat thechanging marketplace as a moving target. Change management will not beeffective as long as we continue the current trend of treating our organizations like

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machines.We should realize that our organizations are living entities in whichchange comes about at a slower, more organic pace than we would like.Companies are organisms that evolve in an ever-changing society and world.

The process of corporate evolution depends on mutations, new ideas andinitiatives that imbue an organism with the characteristics it needs not only tosurvive but to thrive. The leadership of such a company must make the consciousdecision to evolve, to analyze, anticipate and strategize with a focus on both thevital organs of the company and the outside business environment in which itcompetes and exists.

From Surviving to Thriving —Defining Who We Are

Having read this far, you probably subscribe to the premise that survival is notenough. If survival is your noblest goal, you’re holding in your hands no more thana bookshelf filler. If you as an owner simply pay tribute to the basics of business,your enterprise may well survive for years as a static, stable and comfortablecompany that one day falls to your heirs or to a buyer who finances yourretirement.But since the economy is more like a roller coaster than a merry-go-round, even

“surviving” companies must survive cyclic economic downturns. Most often,mature companies can handle a certain level and duration of cyclical lows. A firm’sability to operate well during economic troughs defines its resilience. Conventionalwisdom suggests an organization must be at least 10 years old in order toexperience a full business cycle, although recent studies have shown thatrecessionary periods are deeper and shorter than previously assumed. Somewould argue that companies spend more time in the white water today than theydo in the peaceful, calm waters.As we discussed in chapter 1, morphing begins with providing a rewarding

experience for all those involved in the organization — a plateau of fulfillment wecall the Ultimate Enterprise Experience (UEE). As we reach out for that experience,we must reach inward as well. We must confront ourselves.We must define ourenterprise by several standards: what we are... who we are... what we stand for...and where we’re going as a business.

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The corporate modelCompanies, consciously or unconsciously, begin operations with a business

model. Sometimes it is only expressed by a founder who says, “I want to start acompany that…”That model might be providing quality products at low cost to amass market, or offering customized services to narrow niche markets. Thebusiness model, the types of products or services a company offers and to whom,defines the company and what it does. The model of a corporation is perhaps theeasiest element to define. It’s the answer to the question, “What do you do?”Thequestions that follow are more abstract and elusive and more critical to long-term survival.

The corporate cultureIf the business model delineates what a company is, its culture defines who it is.

The culture is the soul and spirit of the company, an intangible that generatesemployee pride and enthusiasm for the job beyond the quality of the product orservice.Burton Snowboards is a California company that has incorporated the spirit of its

products and services into its culture. It is comprised from the top down ofindividuals who love the sport of snowboarding. Jake Burton Carpenter, founderand CEO, has created and developed a business model that has woven a seamlessconnection between his products and his people.Leigh Ault, the PR manager for Burton, observed, “It’s an interesting feeling

when you see the entire VP team in line for the first chairlift on a workday, and yousee Jake and his family out their as well.” Sure, Burton employees snowboardduring work hours, but getting out on the slopes is a reward for the hard work thatmakes Burton successful. This type of incentive reinforces Burton’s culture andstrengthens employees’ identity with their employer. The result is that companyand its employees are bound and bonded together as smoothly as the elements ofthe snowboards they produce.CNL Financial Group in Orlando is another good example. One might assume

that creating excitement for an employer that finances real estate investments ismore challenging than for a snowboard manufacturer. But when you ask aroundCNL, you discover unwavering pride in being part of a corporation that respects theworth of each individual, yet holds billions in assets across the country. Every CNLemployee wears the list of core values on their security badges. Often in

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meetings, those values are called upon to provide a litmus test for decisions. Butmore important, CNL’s universal reputation for professionalism draws and retainsthe quality of employee the firm needs to continue its phenomenal growth.

The corporate missionAside from staying profitable, great companies have a larger purpose to their

operations, the expression and application of some core values. This purpose isexpressed in a term that, unfortunately, has been trivialized through misuse: theMission Statement.In a thriving company, it’s vital that everyone in the organization stand for

something more far-reaching than day-to-day operations, and be guided by morethan standards of convenience and situational ethics. That’s why so manycorporations regale visitors to their lobby with a prominent plaque that proclaims“Our Mission.”Effective, organic mission statements move past the lobby, and are infused into

every decision. Such a mission permeates every individual in the organization aswell as the corporate culture itself. A working mission dictates the direction acorporation takes, and will ultimately catapult that company toward profitableopportunities.Many organizations go through the process of developing a mission statement

and a set of core values or beliefs. Arguably, a lot of organizations use their missionstatements as window dressing, not fully subscribing to the ideals expressed. Bycontrast, companies such as Darden,WD-40 and CNL integrate their missionstatements into the decision-making process. They have permeated the corporateculture and each individual involved with the organization.Darden’s mission statement is “To nourish and delight everyone we serve.”

WD-40 Company believes their mission is to “provide a superior product, whichhas above expectation performance at a superior value,” and CNL’s core values arethe cornerstone of what they stand for:

• We will respect the dignity of every individual.• We will honor truth.• We will value our tradition to serve.• We will champion a long-term perspective.• We will develop people and foster teamwork.• We will encourage faithful stewardship.

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Through our interviews of the executives of these organizations, a clearmessage emerged regarding the values expressed in the mission statement:Integrity is the cornerstone of their companies.At Dynetech, what we call our SHINE is a statement of the company’s six core

values. Rather than hang this statement up in the lobby to impress visitors, wecreated a series of six colorful posters, with copies distributed throughout ouroffices and corridors. Each incorporates a large photo of a Dynetech employee intoits graphic, so that the value statements take on the immediacy of co-workers onesees every day. Our six core values are:

• Excellence — Dynetech is committed to the highest level of excellence.• Accountability — Associates are responsible for their choices and actions,and expect to be held accountable.

• Flexibility — Our people know that flexibility enables us to move rapidly inlight of changing market conditions. This is the driver of Monitoring,Measuring, Modifying… and morphing.

• Entrepreneurialism — Dynetech is committed to the spirit ofentrepreneurship guided by strong corporate discipline. And don’t grow it —morph it!

• Integrity — Associates require honesty, trustworthiness and integrity ofthemselves and others.

• Open Communication — Dynetech should be a safe environment in whichassociates can openly communicate with each other thoughts, feelings,ideas and opinions without fear or consequences.

When Darden Restaurants split from General Mills in 1994, it embarked on ajourney to unearth the company’s values. According to Roger Thompson, seniorvice president of research and strategic marketing, the company discovered thattheir core values had been deeply embedded in the company since the early daysof entrepreneur Bill Darden. He said:

Our CEO probably could have told us what the company’s values were, but

instead we gathered research.We talked to stakeholders including vendors,

customers, and employees about traits that described Darden.We listened to

and documented the traits that they clearly articulated. Management took in

that feedback and let it resonate.We then communicated our findings in a first

draft of what we found Darden values to be.We took them back to the

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consumers and gave them a chance to challenge them.Were these the values

reflected by our servers and restaurants?We tested them until we had a

consensus that the values accurately portrayed “who” Darden was in the

values, mission, and vision that we stand for today.

The message here is that in addition to knowing how a business functions on abasic level, its leaders need to know what their company stands for. A clear under-standing of what values and beliefs drive decision-making within the corporationsenhances its ability to find and pursue opportunities that it can fully exploit. Thenthe leaders must make sure that they build that into the fabric of the organizationand communicate it relentlessly to all employees, vendors, shareholders andcustomers.

The corporate visionFinally, there has to be a vision for what the organization will look like years from

now. Providing vision is at once the most fundamental duty of leadership — andoften its most difficult, even for top executives.As a leader, you must create a vision — a clear, simple, reality-based, customer-

focused vision — and communicate it effectively to everyone. Translate your visioninto bulleted points. Have your managers write them down and buy into them. Aleader’s responsibility must be to remove every blinder, every barrier to ensure thatvision is first clear, and then adopted as real by everyone in the organization. Thegreatest victory of a visionary is to capture minds and have them work not justwillingly but enthusiastically toward achieving your vision.Vision is brave, strategic thinking. Stretch your horizons. Let your mind soar.

Challenge your imagination to make your vision big! Otherwise, a small vision isjust an idle wish framed in the lobby beside the mission statement.

Dealing With the VariablesOnce they are solidly defined by model, culture, mission and vision, companies

are better prepared internally to confront challenges externally in threecontinuously changing areas: customer needs, industry outlook and economicconditions.

Customer needsCustomers drive demand and profit. Excellence in business is not just satisfying

customers today, but anticipating their needs for the future. Organizations that

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always seem to have the right product in the right market at the right timeexemplify this kind of foresight.In addition to knowing where current customers’ needs are headed in the future,

thriving companies simultaneously segment existing markets and look for newones. The choice of a target market is just as important as the product or service acompany offers. The best product in the world will sit and die on the shelves if it isnot targeted to the correct audience.In the early years of Burton Snowboards, Jake Carpenter looked to 23-year-olds

to buy his product. He would return after a day of selling with his truck still two-thirds full. Not only did he have the wrong age market, but since his real marketwas 15-year-olds, the boards were overpriced by about $40. Research,repositioning and persistency paid off, and today Burton, a privately held company,is said to have captured one-third of the $2.1 billion snowboard market.32

Industry outlookIndustries also change. The burst of the technologies bubble and the dot-com

bomb are two industry-based developments that created investment disaster notexperienced since theWall Street collapse of 1929. This debacle was a classicexample of emotion, even greed, driving stock prices well beyond their actualvalue. Investors were not concerned with a business plan or even the existence ofa product. As long as the “opportunity” was Internet-based or even Internet-related, capital would be available. In this case the momentum generated by thesheer amount of capital being thrown into these industries pushed the market pastany rational resistance level. Eventually the market corrected itself. Why? Becausemarkets will always go through a correction when investors finally begin to lookbeyond the hype and hoopla for solid information, and stop investing just becausethey’re caught up in the momentum.We must look into the future of industries as well as company-specific

opportunities because, historically, business cycles tell us there will be decreasesin demand, increases in competition and higher production costs. A companyshould be prepared for those challenges by creating alternative options, by lookingover the horizon and trying to determine where it will be, not where it is today.

32Student Research Download Burton Research 67<http://www.burton.com/company/default.asp>.


A company who clearly understands this concept is CNL. Jim Seneff, thefounder and CEO, states the CNL investment philosophy is to “protect thedownside and the upside will take care of itself.” The focus here is to protect thecompany from the effects of difficult economic times. In fact, Mr. Seneff takes thisphilosophy one step further, as he said during an interview: “Investing must becounter cyclical. Buy low, sell high. By ensuring stability during difficult economictimes our organization has the ability to invest precisely when we need to invest.”33

Across town, another Orlando firm has built its success on the same notion.Appropriately named ContraVest, this real estate organization specializes in thedevelopment, construction and management of upscale multifamily residentialcommunities across the country. Since its founding in 1986, ContraVest hasdeveloped and/or built more than 20,000 residential units in nine states, totalingover one billion dollars in projected value.According to Gerry Ogier, co-founder and chairman, ContraVest has been

successful over the years by moving counter to the prevailing dynamics of themultifamily real estate market. Seizing such investment opportunities requires afirm grasp of market conditions, a clear vision of the long-term health of theeconomy and the confidence to take bold initiatives.

Economic conditionsWe also need to be aware of the economic outlook. Business occurs in cycles.

Companies must have the capability to determine if a decrease in profits is a resultof poor performance or an economic downturn. An organization must be clear as toexactly why a concept did not meet expectations.As an example, Darden’s restaurant concept China Coast did not meet

expectations, but many of its top executives are still with the company. The seniormanagement at the time was well aware that the problem was not withmanagement, but was in fact a systemic issue. Counterintuitive to other Dardennew-product rollouts, which pretest a concept at a prototype location, China Coastwas rushed to too many locations before it was field-proven. In addition, unlike theOlive Garden concept, too many authentic and popularly priced Chineserestaurants abounded in the market for it to support a “homogenized” menuperceived as faux Chinese. Nevertheless, confident in their people and trainingprograms, Darden did not throw the baby out with the bathwater.

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33Interview with Jim Seneff CEO of CNL Financial Group 3 July 2003.


Even more important than preventing business failure during a weak economy isanalyzing profitability in good economic times. Strong economic environmentsenable firms to capitalize on their investments. Yet when things are going reallywell, many executives are slow to adopt change or even spend time strategizingfor the future, because they’re too obsessed with trying to squeeze out every lastdrop of ROI. The countercultural response is to use good times to make thechanges when resources are readily available instead of when we are faced withominous conditions.But it’s an immutable fact of business that every product has a life cycle. So

good times, as well as focusing on a healthy ROI figure, are times to evaluate theexisting product line. How long will this or that product attract customers?Whereis the product in its life cycle? Have sales peaked? If not, when?You can’t wait untilsales begin falter to introduce a new product or the dramatic improvement of anexisting product. Your R&D had better be working hard to perfect and roll out thenext generation of product now, while strong profits are generating R&D dollars.Otherwise you’ll be fighting fires for a while, tightening belts because there wasnot another product waiting to roll out. Proctor & Gamble has always done anexcellent job avoiding fires because they understand the product life cycle. Butmore importantly, they are willing to let go of poorly performing products. They alsowork hard to ensure they always have products in various stages of their life cycle.

No competitive advantage is sustainableThere is no such thing as a sustainable competitive advantage. In fact, it is the

very opposite; even the best business ideas must constantly be modified in orderto achieve long-term success.Competition is ruthless, and in the words of Hobbes, corporate lives are nasty,

brutish and short. Unless an organization has a natural or unnatural monopoly(artificially created by the government) another group of individuals is alwayslooking to take your market share. The greatest example of the need for business-model adaptation lies in the airline industry.Delta, American, Northwest and the host of other organizations that choose to

live with the massive hub-and-spoke delivery of airline travel built in the earlyseventies are now feeling the pressure of the new niche players. JetBlue, AirTran,Southwest and Ryanair have used their second-mover advantage to design a moreprofitable business model. Only now are Delta and others experimenting with thesame business model, with Delta’s introduction of Song and United with TED.

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Corporations come and go. The East India Trading Company, the Pony Expressand Studebaker all lost their competitive advantage and vanished into legend. FromBabylon to Rome to Britain, world history itself is littered with the dust of empiresthat lost their competitive advantage and political and military dominance.

The sirens’ song of short-term successIt’s axiomatic that a strong stock market makes us all brilliant investors, and a

strong real estate market makes us all brilliant real estate entrepreneurs. It’s thestrength of that particular segment at that particular point in time that makes ussuccessful, not our extraordinary competence.Similarly, some companies are extremely successful within a relatively short

period of time, due in large part to one or more of three conditions.1. The business was profitable in prosperous economic times.2. It was able to weather an economic downturn because it was competent.3. It was able to capitalize on another company’s problems or errors.A healthy economy is a deceiver. Even companies with unstable business

models can rake in a profit during a bull economy. American Management Serviceshas advised more than 5,000 small-business owners in 400 industries over thepast 14 years. Its CEO, George Cloutier, says this.34

When a downturn in the economy finally comes, many poorly managed small

businesses — which now exist in a state of “delusional euphoria” — will be

squeezed and fail. They won’t be able to afford their fixed costs for such things

as rent, more workers and sophisticated technology, the prices having climbed

amid boom times.When the music stops, there are not going to be many

chairs left.

Sometimes competency is enough, at least for the short term. In business, itmay be enough to keep an organization afloat for a period of time, until eventuallythe economy enters a downward spiral and the facade of solidarity is ripped away.Once again, the airline industry provides an example of this. To no one’s surprise

it was already struggling, but after 9/11, the wrappings came undone. Decliningprofits could no longer be whitewashed, and some airlines were forced to close.Many airlines used it as a catalyst to make changes they couldn’t make in goodtimes, but in a disaster mode no one could argue with them.

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34Al Karr, “Why Small Businesses Fail,” Fortune.com


A fear that should be held among business leaders is that current success, oneday can implode into failure the next. All the innovation in the world couldn’t helpApple, Philips or Sears, who continue to fight for business survival. Even IBM andGM have lost their competitive advantages at one time or another.Charles O’Reilly, author of Winning through Innovation: A Practical Guide to

Leading Organizational Change and Renewal, calls it the “success syndrome,” adisease that every company is susceptible to. Sweet complacency that sets inwhile you and your company are enjoying what is, really, short-term success.Relax. Enjoy yourself. It is the alluring, beguiling song of the Sirens in Ulysses... or,more recently, of the movie “Oh Brother, Where Art Thou?” But while you’re beinglulled by prosperity, you can bet that competitors, new technology and otherdynamics in the business environment have marshaled their strength and are readyto strike.35

Fortunately, IBM is still a great corporate icon. However, this was not always so.In the mid-nineties, internal corporate failure translated into the loss of 200,000jobs and billions in shareholder value. The IBM culture was too inwardly focused,conscious decision-making was limited by bureaucracy, employees were arrogant— a feeling of entitlement with their jobs without truly valuing what made them.They believed their own legend.IBM had lost its core of excellence, customer satisfaction and respect among

employees to a preoccupation with internal procedures. An external force, thechanging market, eventually caught up to the company36. As the technology bubblecontinued, “big iron,” as IBMers called it, which carried high margins, was replacedby PCs and networks and nimble providers like Dell.The bottom line is that each of these companies did their homework to succeed

— in the short term. The airlines, Apple, Philips, GM and IBM may not have had tolose millions or even billions in false competitive advantages if they had adjustedtheir strategies to meet changing environments. Ultimately, such an enterprise hastwo choices: It can cling to the model it enjoyed so much success from in the past,or modify its business strategies to suit the new environment continuously.Southwest Airlines, as it happened, was able to stay strong. And they did so

without government assistance at a time when the major air carriers were

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35Barbara Buell “Ambidextrous Organizations,” Standard Business retrieved on 12 Dec. 2033<GSB. Stanford,edu.36Buell.


receiving billions in emergency aid. Southwest was an operation that maintained ahealthy cash flow. It, like other airlines, had empty planes shortly after September11th; the difference was that they could handle it while many companies couldn’t.The other airlines were forced, instead, to survive month to month, takegovernment aid and hope for a return to normal, as it had always occurred that wayin the past.The Marriott organization is a similar example. Marriott has experienced

drastically low occupancy rates due to the slumping tourism industry. They’ve hadto cut costs and make strategic decisions in order to weather this tough time. Theyseem to have done a good job, though, because as soon as two years after 9/11,they were projecting optimistic growth earnings as high as 17 percent to 22percent, according to Marriott’s analyst meeting in late November 2003.Take another look atWal-Mart. They have achieved a competitive advantage to

the point that they are the largest retailer in the world. Yet having achieved thatpinnacle of success,Wal-Mart leadership has no intention of standing still, ofcalcifying at that pinnacle. Instead, every day,Wal-Mart uses the relationships ithas with customers and with suppliers to continue to be responsive to whatcustomers expect fromWal-Mart, to consciously evolve and morph withmarketplace changes.According to CBS MarketWatch,37 the current economy’s upturn has sent a

message to the discount retailers. Profits were slightly lower than expected.Whenpeople have more money, they tend to reward themselves by shopping at pricierstores. This short-term dip in revenues will hardly affectWal-Mart, where attentiveleadership will adjust and tune its marketing strategies accordingly.

Morphing Is Evolution — Not Revolution

In December 1903, theWright brothers began the revolution of manned flight.Some people knew that this world was changed forever, though many had troubleseeing that. In 1775, shots fired on Lexington Green signaled a revolution thatbirthed “a new nation, conceived in liberty...” Colonists realized that whatever theoutcome, there would be no turning back. These are examples, respectively, oftechnological and political revolution — sudden, irrevocable events that bend thecourse of history.

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37CBS.MarketWatch.com, 4 Dec. 2003.


Revolution in the corporate environment is also rapid change, often a hard turnindirection that quickly and radically alters how a company is run. It may be sparkedby a takeover by a larger enterprise, or by the installation of a new CEO whoinaugurates a “scorched earth” policy to turn failure around. Revolution is an eventemanating from a decision for strategic change. Unfortunately, for an enterprise,even a potentially beneficial revolution can be cataclysmic in its effects on thepeople in that enterpriseCorporations, as we’ve pointed out, are living organisms. For that reason,

executives need to act more like biologists, recognizing that in living organisms,change does not happen instantly. New practices, programs and strategies areintroduced and adopted, and eventually replace the older ones as they provethemselves more effective. This is an evolutionary process. The fittest, mostflexible companies, therefore, will become more effective as a whole, enablingthem to survive and, even better, thrive.

Orcas and corporationsLong before the first company opened its doors, the animal kingdom was

evolving to survive in its own changing environment. Science tells us that whalesonce lived on land, but evolved to take advantage of nutrient-rich oceans. TomHarris, author of How Whales Work, explains that whales were able to evolvebecause they overcame a major obstacle to their living in the sea — the need tobreathe air. Over the ages, the whale adapted to its new watery environment. Its“nose” moved from the whale’s face to the top of its head in the form of ablowhole, enabling it to breathe air at the surface of the sea while feeding on thenutrients below. He might have also pointed out that those whales that did notadjust and adapt disappeared from the planet.As organisms of another sort, companies must also evolve to meet changing

conditions. Pitney Bowes recently made a decision to continue its evolution as aleader in mail and document management solutions. It selected a ZIM two-wayreal-time text-message paging system to replace the current technology in use bythe company’s 350 field service representatives in Canada. It is already realizingimprovements in service delivery and cost-efficiency.By taking a proactive position in adopting emerging communication trends,

the company was acknowledging its goal to remain a leader in businesscommunications. Reduced costs, more responsive service and greater customer

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satisfaction resulting from this one change will help ensure that Pitney Bowesstays at the profitable forefront of its industry.Referring back to O’Reilly’s book, Winning through Innovation, he cites Hewlett-

Packard, Johnson & Johnson and Asea Brown Boveri as companies still able tocompete successfully in mature markets because they nurtured ideas andinitiatives born of market and technological changes. HP, in particular, continuouslymorphed itself from focusing on instruments to minicomputers, personalcomputers, and later, networks. Johnson & Johnson, once a consumer productcompany, modified itself to take advantage of the then-profitable pharmaceuticalindustry. ABB faced certain failure as a slow-paced heavy engineering firm inSweden and Switzerland until carefully paced, fundamental, strategic changesturned the company into an aggressive global competitor.

Conscious evolution — and the doctrine of incrementalismThe difference between orcas and corporations is that whales evolved to

survive — or else pass into extinction. Contrasted with natural evolution in whichsome species disappear, morphing is deliberate and conscious evolution, whichdoesn’t require that the existing corporate organism die off.At Dynetech, we call this the Doctrine of Incrementalism.Conscious evolution occurs when a company analyzes and anticipates its

business environment, and then identifies and adopts the ideas, innovations andinitiatives that will enable it to survive and thrive. Incrementalism invokes a gradual,step-by-step process — often “baby steps” — in which the enterprise moves,making often barely discernible mid-course corrections in response to, and in syncwith, its internal and external environment. (At Dynetech, we sometimes call this“following theYellow Brick Road”) Each step must be validated by the market withwhich you’re trying to achieve alignment, or else it’s prudent to pause, reanalyzeand perhaps “devolve.”In addition to listening to and watching the marketplace, applying the Doctrine of

Incrementalism requires an incessant awareness of employees that an incrementalstep is required. In a recent memo to our managers at Dynetech, I pointed out that“Trigger events, such as requests for reprints, purchase orders, customercomplaints, current market intelligence and the like are… signals for enhancementor improvement. Don’t focus on wholesale or massive changes. Focus onincremental changes each time.”

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Sony has recognized that dominating the computer game market will securetheir place in the minds of consumers living in an increasingly digital society. Thedesign and functionality of Sony’s PlayStation 2 emanate from consciously adoptedstrategies for becoming a leader in digital products.The Doctrine of Incrementalism is at work at Sony. The company is consciously

evolving to secure its place in the profitable market for digital consumerelectronics. Sony credits the success of the PlayStation 2 to a conscious decisionmade to use a flexible game design, and to evolve in tune with game customertastes.38

Implanting DNAThriving organizations implant Intelligent DNA in their organization that enables

them to automatically sense changes in their market, so they can incrementallyadjust their processes, procedures and strategies.We have previously cited Scholastic Book Fairs, based in Florida. Its parent

company, Scholastic Inc., is headquartered in NewYork. Scholastic Inc. is anexcellent example of a business with Intelligent DNA that helps it to constantly andconsciously evolve. The company was founded in 1920. Its first publication was alocal high-school sports newsletter. In 1993 it provided, through AOL, the firstonline service for teachers and students. Today, it is a global children’s publishingand media company that has a deeply implanted corporate mission of “instilling alove of reading and learning for lifelong pleasure in all children.”The company has been successful for some 85 years, using this mission, among

other strategies, to publish more than 750 titles a year. Publications include thehighly profitable Harry Potter series that in September of 2003 broke all previouspublishing records. Eleven million copies of Harry Potter and the Order of thePhoenix were sold in 12 weeks, 5 million of which were sold in the first 24 hoursafter retail rollout.39 Another Scholastic success was an agreement to publish all

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38David Becker, “Players: Clash of the Titans,” News.com., 10 Dec. 2003, 12 Dec. 2003<http://news.com.com/2009-1043-5114058.html>.39a) “About Scholastic,” Scholastic.com. 2003, 12 Dec. 2003 <http://www.scholastic.com/aboutscholastic/>. b) “Scholastic Sells 11 Million Copies of Harry Potter and the Order of thePhoenix in Twelve Weeks,” Scholastic.com. 12 Dec. 2003.<http://www.scholastic.com/aboutscholastic/news/press_092303b.htm>.


novels, coloring and activity books, picture and storybooks based on DreamWorks’next five animated films, including the film sequel Shrek 2.40

In an interview with David Krishock and Alan Boyko, CEO at Scholastic BookFairs and vice president of business operations and product development,respectively, the company’s customer-centered focus became the main point ofour discussion. It became clear to us that the company is laser-focused to remainsensitive to their market, and continuously adjusts its strategies, procedures andeven its people and culture to compete more effectively in the publishing market.One effective strategy is the active cultivation of relationships inside and outside

the company. Scholastic employees, for example, are enormous contributors to thecompany’s success. Krishock believes the people in his organization are committedto change — looking for it, creating it and embracing it. All Krishock has to do isintroduce the opportunities his employees need to institute change.For example, Scholastic is committed to supporting field representatives who

then support Scholastic’s customers. To measure and evaluate the effectiveness ofthese efforts, Scholastic has implanted a performance culture, including a set ofmetrics and key indicators that incessantly measure performance. The company’smost successful reps therefore shine in the field and on performance reports. Inthe spirit of a shared services function, the corporate office exists to support thefield, not the other way around.

Morphing to Meet New Realities

Unlike evolution in nature, morphing is the process whereby an organizationdeliberately evolves in order to survive in new realities and thrive in itsenvironment.When an organization is morphing, there is direction and adestination because conscious choices are made.A morphing enterprise is an organization which has imbedded structure and

processes that enable it to incessantly morph. Adaptation is critical. A morphingcompany will observe how other companies are satisfying their customer bases,and then determine how that applies to them. Not to be confused withbenchmarking or following best practices, this is recognizing when and howanother firm is functioning better than yours, and then integrating what isappropriate into your own operational efforts.

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40“About Scholastic,” Scholastic.com 2002<http://www.scholastic.com/aboutscholastic/people/milestones.htm>.


Morphing in action — a case historyIn 1972 my father opened a 600-square-foot bait-and-tackle shop in Orlando. It

was nothing big or fancy, but served a small, steady customer base. My dad’sintentions were not to become the next fishing conglomerate; he wanted to servehis customers and pay the mortgage each month. Profit margins were good, buthe had to sell a ton of baits and hooks to make it pay.The shop was located near Evans High School, located then, as now, in an

economically depressed area of Orlando. One day, a student came in and asked ifhe sold white high-tops, a style of Converse tennis shoes that was consideredideal for neighborhood basketball. Other kids began to come in, looking for whitetube socks as well as white high-tops.The first few times students inquired, my father told them that he did not carry

anything other than fishing supplies. But then he made what became a majorstrategic decision. He ordered a small batch of Converse tennis shoes. They flewout of the store as fast as he could buy them. He placed a larger order, and theywere sold just as fast. He also started carrying matching tube socks, and then thesame socks in Evans’ school colors, and thenT-shirts in the Evans colors.My father’s attitude was, Well, I’m carrying tennis shoes, so I might as well carry

socks and T-shirts, and might as well get them in the school colors. He didn’t call itthat, but he was invoking the concept of adjacency. He was taking small, lateral,low-risk steps to expand his business in the direction the market demanded.Dad’s store was never the same. He continued to incrementally modify his stock

based on changes in the external environment — on what sports gear was hotwith the kids at Evans High.When I came home to work in the store during one ofthe summers I was in law school, I noticed that he’d been selling more and moresporting goods. In fact, his big-ticket items were now the Converse shoes, but withonly a 40 percent profit margin. So we began to look around for other items. Thelocal PopWarner Little League was looking for soft rubber shoe cleats.We found asource in Asia and bought them wholesale for $2.20 each, then sold them for$7.95, a much healthier profit margin.Within two weeks of receiving a shipment,they were all sold out.Incrementally Dad’s modest bait-and-tackle shop became a bait-and-tackle and

sporting goods shop, expanding to a 4,500-square-foot store next in a popularshopping mall. By that time our business was comprised of one-third fishing, one-third hunting and camping, and one-third athletic goods He never called it that, of

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course, but Dad’s “moving to meet the need” and his responding to the dynamicsof the ambient environment were the purest form of morphing.We subsequently sold off the fishing inventory, and then hunting and camping

business to a competitor, and became 100 percent sporting goods. That entiretransition, that incessant morphing from a small bait-and-tackle shop to a muchlarger and more profitable sporting good store, occurred over a period of five years.Eventually, we expanded into a franchise chain of nine athletic stores.

Dad’s unified business platform — all in his mindThe above story is also instructive in that it illustrates the changing nature of and

need for that unified business platform we discussed in the first chapter. One ofthe requirements of a morphing company is incessant alignment, staying alignedwith the needs of the market. As long as Dad was doing everything — ringing upsales, talking to customers, ordering products, analyzing profits — his UPB was inhis mind. But as the company began to grow, with more employees and moreproducts — and eventually nine locations — Dad experienced separation fromthose customers and a distance from the dynamics of his market. The little bait-and-tackle shop had morphed into a new organism requiring a more complex UBP.The fact is that when any “one-man shop” becomes a scalable enterprise, it

loses that intimacy of contact. It must focus on integrational alignment, so that allphases of the operation — retail sales, wholesale buying, sales and marketing,accounting and awareness of what’s happening out there in the fickle marketplace— all these elements are on the same wavelength, operating from the sameplatform.There was a time when my company’s UBP was all in my mind. These days, with

more than 300 associates and millions in monthly revenues, I must trust a carefullyselected team of managers to make the day-to-day decisions, based on thestandards, values and the elements of morphing I’ve developed for the enterprise.I expect that Management Team to lead and manage in my stead, using all thetechnology of a sophisticated software platform to monitor, measure and modify asthey deem necessary.

Kmart — the flickering blue lightIn order to describe what a morphing company is, let’s take a look at what a

morphing company isn’t. Imagine a company that was once at the top of its game.It was a market leader, a company that had its hand on the pulse of the consumer.

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Yet it failed to recognize the changing market engulfing it. Competitors weregaining ground and becoming stronger, consumers wanted something different,and this company still failed to see the light… they were too focused on theirown... blue light.Kmart faced what most companies face, a healthy set of competitors. Kmart,

Wal-Mart andTarget all opened in 1962, but that seems to be where the similaritiesend.Wal-Mart created a cost-cutting empire supported by a world-renownedsupply chain system. As we’ve pointed out,Wal-Mart’s founder, SamWalton,created his empire through the strategic use of intrinsic value, to establish a fairretail price and then drive the vendor down to a wholesale cost that enabledWal-Mart to sell it profitably. Moreover,Wal-Mart embraced technology as a way tomake its supply chain and managerial systems responsive, and it paid attention tothe data as it came in.Wal-Mart maintains its healthy market share using two key strategies: quality

goods at fair prices, or a high customer perception of intrinsic value... and amazingtechnology supply-chain management that keeps track of what is being bought andsold — and keeps costs down. In fact, Wal-Mart is relentless in its efforts to drivevendor prices down in order to create greater value for its customers. It is alsorelentless in forcing vendors to ascribe to its notion of real-time merchandising inorder to have the data it needs to maximize efficiency.Target, on the other hand, has created its own dynasty centered on superb

merchandizing. Target has also created a near cult following for its trendy private-label program. This has enabledTarget to hold on to part of the market share aswell. Both of these retailers started small with limited merchandise. Both havegrown, changed and have stayed in close touch with the consumer every step ofthe way.Kmart, however, stuck to its guns, doing what it did best even after it was no

longer best for the company. Initially Kmart had been the leader of this trio of retailgiants. But it continued to rely on brand recognition and use its Blue Light Specialsto attract customers. Along the way, however, the “specials” became less of abargain and all too infrequent. Merchandise was selling at a fair rate, but it wasslowed by numerous stock-outs on popular items. Kmart stores began to showtheir age. The affluent neighborhoods moved to other areas of town. Meanwhile,Kmart continued to open new stores on the same model and the same problems.Even though it was growing, Kmart failed to change with the consumer base.

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It’s important to point out that Kmart executives were not operating in anintelligence vacuum. All the information, all the data on its competitors, was easilyavailable. The reality is that anybody could go to aWal-Mart and see whatWal-Martwas doing. They could visit a Target and see what Target was doing. They failed tomaintain an organizational emphasis on staying current, on keeping an eye oncompetitors to see what they were up to. If, for example, they saw the wayTargethad created itself, they could have opened their ownTarget, a prototype storeemulating what Target was doing, and in doing that continued to remain current.Even if it means duplicating your competition, you must remain aligned with themarket on an ongoing basis. It is sad that Kmart didn’t do that, because they hadthat capability.So here Kmart lies, a hollow shell of its former self, selling fair-quality goods,

laboring under overpriced leases in bad neighborhoods and sticking to a businessplan that is outdated and outflanked by the competition. And as if these weren’tenough burdens, even their home-fashion spokesperson, Martha Stewart, was inprison at the time of this writing. Kmart was simply too focused on its pastsuccess to realize its future days were numbered. It failed to see where the marketwas going, how consumers’ tastes had changed. Kmart customers wantedcleaner, better-lit stores, wider aisles and trendy products — all at a lower price.Today, of course, they get all that — at other stores.The company was DOA at the federal courthouse for bankruptcy protection. Its

executives believed they could revive the old beast despite being long past thepoint of no return. Finally, Kmart reinstated itself, only to put back in place thesame business plan to compete in the same market against the same competitors.

America loves a comebackAmericans love a comeback, but this one didn’t slow their changing shopping

patterns. Kmart is an anachronism — too dated and disconnected, too slow toreact and just not what shoppers want.Then, in a classic twist of irony, in November 2004, Kmart announced its

purchase of Sears for $11.5 billion. This is a case of one sinking ship latchingon to another. The acquisition of Sears will not negate the fact of Kmart’s faultyand dated business model. And in fact, Kmart can take no guidance from Sears,which is also adrift with regard to what it is. They are both infected by the samedeadly virus.

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At the same time, Ed Lampert, theWall Street hedge-fund mogul whoengineered the acquisition, is no fool. His company, ESL Investments, owned 43million shares of Kmart at the time of the acquisition announcement, and 31 millionshares of Sears. He perceived, quite rightly, that the primary value of Kmart is inthe real estate it owns. In fact, he had previously cashed out on a number of Kmartlocations, selling them to other retailers, including Sears.With the purchase ofSears, he essentially bought those locations back.Lampert’s strategy now will be to sell off much of Kmart’s real estate assets

piece by piece, then use that cash to reinvent the remaining Kmart locations underthe Sears name. But all the multimillion-dollar dealing in the world will not changethe basic fact that both Kmart and Sears, regardless of how they re-emerge, arehistory unless they adapt to what customers want in today’s retail environment.The lesson, once again, is that a morphing organization continuously monitors its

environment to adapt in ways that ensure success. Kmart stubbornly andrepeatedly failed to adapt its business plan and day-to-day operations to the retailworld around it, continuing to go back to what made it successful in the past, notthe future.

Summary

Companies that can be characterized as morphing organizations have manyattributes in common. First and foremost, of course, morphing companiescontinuously shift and adjust their strategies and practices to respond to changesin their marketplace.We call this conscious evolution.In order to makes these adjustments, they incessantly monitor their market,

gathering data, but also amassing what Jim Seneff at CNL calls “weak signalresearch,” an intuitive feeling of what’s happening out there by putting bits ofinformation together. Like the CIA they collect lots of information from varioussources and then begin to piece together what they see over the horizon. They alsomonitor themselves — every employee, every shift, every task, every request.Then they measure those factors quantitatively. If an employee or a department

is slipping, the figures show it. CEOs of morphing companies don’t feel somethingis not up to standards on the production line or in shipping — they know by whatthey see in the numbers. This is where technology is essential — real timeinformation on what is happening now, not last month or last quarter, but now, andthen doing something with that data!

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Finally, they modify. No process, no strategy and certainly, no employee isexempt from modification to benefit the organization. Don’t buy into your ownpress. Stay focused on how things should be done. Modify as needed and as newinformation comes in. Don’t be afraid of failure. Instead, recognize the forces ofchange, and keep your eyes open to how your organization is reacting to change.Most morphing companies, as we’ve seen, have adopted the shared services

concept, wherein centralized business units provide for infrastructural needs. Bysupporting the requirements of the many silos of customer-related activity, sharedservices enables those silos to concentrate their time and talents exclusively onsales and marketing.They are risk managers as well. They don’t leap into ventures without due

diligence and protecting the downside. They are comfortable with calculated riskand don’t mind waiting... and waiting some more until the time and circumstancesare right. They’re slow on the trigger — but fire a fast bullet. A morphing companysticks to its knitting too, in that it does what it knows how to do. Of course, it canexpand, but not into a marketing area in which it has no knowledge.A morphing company is not so proud of its past that it wants to continue that

past right into the future, regardless of whether future markets are identical withthe past. Such a company, to its certain detriment, tends to believe its own legend.A morphing company plays to its own strategy, not everyone else’s. It avoids

Management By Best Seller. It combines a measure of traditional managementwith a teaspoon of newly emerging management trends and then molds them tofit its own style and culture. It’s an original recipe that uses the new information toenhance and adapt but not radically change the DNA.A morphing company displays wisdom and maturity. Yet it is not slow and

stodgy, but aggressive in its marketplace. It is creative and vibrant, an exciting,exhilarating place to come to work every day.We closed this chapter by citing the best example of a bad example. Kmart has

staggered through bad times brought about by its own out-of-date business modeland its stubborn resistance to change that model. Then, no doubt understandingthat Kmart’s real value is now in its real estate holdings, Kmart’s Ed Lampertpurchased Sears and, with the proceeds from his real estate sales, plans to financethe creation of a new retail entity. Yet until Kmart focuses on who its market is andwhat they want in retail shopping, until it becomes a morphing organization, all thecash shuffling in the world will not keep the blue lights burning.

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Chapter 5

Beyond the E-Myth

Given the choice of becoming chairman of their companyor owner of their own small enterprise, most would optfor the latter. Starting a business has become the newGreat American Dream.

— Mark McCormack,What They Don’t TeachYou at Harvard Business School

Chapter 5: Beyond the E-Myth

Gerber’s E-Myth Revisited

A few years ago, in his best seller, The E-Myth, Michael Gerber talked about“working on your business, not in it,” much like a sculptor works on a piece of art.We propose to take Gerber’s analogy one step farther. He sets up the frameworkwe need, a framework that enables a business to run without the manager, but wewould build over that framework, setting up the business so that it measures allthe indicators of its efficiency and profitability. Metrics such as these would givethe company a clear-cut method for strategically aligning itself with itsenvironment.To better understand the framework we’ll be building over, let’s review Gerber’s

e-myth. The e-myth represents a deeply rooted American myth aboutentrepreneurs that has created a lasting perception that they are Herculean — thesingle solitary heroes that go against all the odds to start businesses. In thiscountry, we look to legends like GeorgeWestinghouse, Howard Hughes, JohnDeLorean and, yes, Bill Gates.Nowadays, only a few entrepreneurs live up to this myth of larger-than-life

boldness and energy.With the mortality rate of entrepreneurs so high and withothers who have lost their vision and creativity, sold out and retired, one may bemisled to believe entrepreneurship is more hype than reality. Perhaps worse, themyth has done us wrong, either frightening potential entrepreneurs from buildingthe business of their dreams, or misleading well-meaning but ill-preparedindividuals to expend resources, time and energy on fatally flawed enterprises.41

Both of these were, at some point, seized with the spirit of entrepreneurship.They could have come to the realization that they were good at what they did, butnot appreciated or rewarded appropriately. They came to believe that if they wereever going to realize the full potential of their lives, they had to take their destiny intheir own hands — and quick! Once the entrepreneurial spirit seizes an individual,life is never the same. The insatiable itch for self-determination must be scratched!

It’s no myth. Dreams come true — or fade — in the details.Kipling wrote, “If you can dream and not make dreams your master; if you can

think and not make thoughts your aim...” you can succeed. How many “wannabe”

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42Michael Gerber, “The E-Myth Revisited: Why Most Small Businesses Don’t Work andWhat to Do About It” (from ch. 1 of The E-Myth Revisited), E-MythWorldwide<http://www.e-myth.com/learn/book_ch1_01.htm>


entrepreneurs kept their eyes on the dream, were dominated by it, and let thedetails slip through the cracks? And how many bold business venturers forgot thatlittle demons such as administration, human resources and FICA would drain themof the creative energies they would need to stoke the fires to forge that dream?

BusinessWeek’s Jill Coplan reported on a 38-year-old Phoenix entrepreneur threeyears ago. Even with three solid business launches, he was still unfulfilled. Likemany of us, he fell for the myth that entrepreneurship would bring him moremoney, success and satisfaction. As he planned his next venture, he wasoverpowered by the expenditures of time and energy that lay ahead: construction,hiring, acquiring debt and many other responsibilities. The cold realities of hisproject swamped his plans for another venture.One of the most frequent reasons for entrepreneurial failure is that those who

are seized with the spirit often make a fatal assumption. They assume that byknowing the technical or creative side of business, they can build that businessbased solely on those skills. They also believe that their passion can overcome theneed for sound business basics and the need to develop talent within theirorganizations.Look to the field of advertising for some of the best examples of this erroneous

assumption. A graphic artist or photographer or copywriter tires of working latenight after night for peanuts, “making somebody else rich.” He or she may indeedbe a creative genius, but who pays the office rent and utilities?Who bills the clientand chases down slow pays?Who calls on a dozen clients with a dozen quirks ofpersonality? All the creative genius has to do is sit in a cubicle and be creative.Then one day, overworked, underpaid and underappreciated, he or she says, “I’mgoing out on my own.” Only later, thrashing about in the deep water of self-employment, does the genius realize that the ability to draw, write or compose aphoto is not enough to survive in the business world.While arts and skills are valuable assets, beginning entrepreneurs often fail to

anticipate all those other elements of creating a new enterprise: preparing theproduct, building a marketing program, locating and developing facilities — pluscustomer relations, purchasing, accounting, insurance, taxes and all the rest. Andthat’s just a small business.42

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42Gerber, “The E-Myth Revisited.”


Passion becomes just a jobWhat happens is that a noble passion deteriorates into a job. Passionate

entrepreneurial crusaders become business owners. Founding goals and loftyvision are sacrificed to the requisites of survival, making the paycheck, staying ontop of accounts receivable, etc. Gerber portrays the small business in his book, TheE-Myth Revisited, as an example of how easily we as businesspeople can loseourselves in the details of surviving. And the only way to dig ourselves out is towork on our businesses and not in them, to build and run an organization thatessentially runs itself.Gerber has written volumes on how to do that. However, he has not done justice

to the most important process, a process that must be implanted in theorganization so that it runs itself: monitoring, measuring and modifying to not justsurvive, but thrive in any business environment.Which, as you now know, is therecipe for morphing — and it is the linchpin of this book.

Aligning operations — A continuous task with continuous dividendsWe propose going beyond Gerber’s E-Myth. Equip your business with

mechanisms that measure all the important indicators for your company. This willgive the company a clear-cut tool for staying on top of the details and fine-tuningthe business enterprise to deal with its environment.Some organizations make a business out of doing this for client companies.

Mercer Human Resource Consulting develops metrics that measure theperformance of employees, strategies and performance. Mercer consultants haveidentified the bottom-line benefits of aligning the structure of a business with itsperformance goals. Mercer reports that “most organizations have evolved, ratherthan been designed,” resulting in loose alignment. As a result, a company that isloosely or haphazardly aligned may report revenues that are as much as 20 percentto 30 percent lower than those of a company that is well aligned. However, if theconscious decision to align the company is made, by measuring and usingindicators, that gap can be bridged. The “before” picture can look much like that ofa company that represents the classic entrepreneurial organization whose name isbeing withheld to protect the innocent.

• $1.2 million in losses• 31 full-time employees• 7 employees directly reporting to the CEO, each managing 48 differentresponsibilities

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• 13 company cars• An 8 percent share of the market• A reactive sales strategy

The “after” was made possible by taking a seriously deep look at the company,using a system of metrics to identify ways of creating closer alignment sustainablefor at least eight years:

• $6.8 million in profits• 21 full-time employees• 4 direct-reports, each with 96 key responsibilities• 8 company cars• 28 percent of the market• A proactive sales strategy

Specifically, deciding to look for indicators of poor alignment can be the bestdecision you ever make for your organization. Get out your checklist. Are you losingmoney, customers or market share? Are you in a hurry to implement a newbusiness strategy? Is your organization too internally focused? Are you looking forthat magic bullet, a customer-tracking system, outsourcing system, anything tosolve that nagging problem?These are indicators, just a few signs of a need todevelop a clear way of aligning your business internally as well as externally.43

When Kmart began to lose customers toWal-Mart andTarget, its executivesdidn’t make such a checklist. It had a culture of overconfidence and never worriedabout competitors gaining on them.When he was asked when that attitudechanged, Tony Camilletti, a former Kmart consultant, remarked, “Since they filedfor bankruptcy.”We have learned as much about the evolution of the business enterprise through

new technologies in the past few years as we did over the past five decades. That’sbecause of the enormous monitoring options now available, technology that wastoo onerous and required hardware and programming that has only come availablein the last few years. A corporation can consciously implant processes, much likescientists can implant DNA, into its very infrastructure. This enables theorganization to deliberately and consciously evolve over time in order to keep itfacing toward and relevant to the environment in which it operates. Consequently,the organization effortlessly and incessantly changes as market conditions change.

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43CEO/Senior Executive Reward, Performance & Benefits, CEO Forum Group<http://www.ceoforum.com.au/200209_remuneration.cfm>.


Organizations As Autonomous Organisms

Many writers on organizational theory, such as Peter Senge, have used themetaphor of “organization as organism” to suggest an entirely different image fororganizational control than that of the traditional authoritarian hierarchy.44 Onethread of that metaphor that has not been heavily explored is the organism’sattempt to maintain homeostasis, or balance, through operating autonomically.The human involuntary nervous system, for example, autonomically controls

some of the most important organs and systems of the body, including thecirculatory system and the digestive system. The body is set up in such a way thatcertain functions occur in response to certain situations.For people living in Florida, with its high relative humidity much of the year, the

body autonomically seeks to maintain the optimal internal temperature of 98.6degrees. How? By activating the function of perspiration that cools the body. Bycontrast, those living in harsh winter weather may often shiver involuntarily as theirnervous system seeks to warm the body.We don’t have to remind ourselves toperspire or shiver. It just happens so that we can adapt to the environment aroundus and maintain homeostasis.The secretion of adrenaline is another autonomous body function. Inherited from

our primal ancestors as a survival device, adrenaline is triggered in moments ofpanic or rage to prepare the body for “fight-or-flight.”We don’t have to think aboutit. Our heartbeat and blood flow automatically go into heightened alert.Just as temperatures and conditions vary for individuals, markets vary for

corporations. By constantly measuring your organization’s external environment,you can continuously make changes to ensure that the environment inside yourcompany is operating at its optimal level. Your organization needs to automatethose functions, like circulatory and digestive systems. That way, the dynamics ofyour business environment, internal and external, are handled so you can focusyour energies on developing, enhancing and staying at the forefront of yourmarket.Typically, corporations that are surviving figure out what’s going on around them,

and make the necessary changes.We propose taking a step beyond that. Wepropose that it’s not a question of constantly measuring your company’s

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44Peter M. Senge, “The Fifth Discipline,” (1990) 293.<http://www.amazon.com/gp/sitbv3/reader/105-9178335- 6056441?asin= 0385260954&pageID=S08V&checkSum=aHBSvJ1Ft2aNODbFGkYSBAsuCxF5WwW4fzHbSlO7XWI=#>.


environment. Instead, you are going to create in your organization a mechanismthat enables your organization itself to measure its own external environment, andincessantly make the changes. The result is that your organization is morphing onits own. Rather than your having to initiate the changes to be made, thoseadjustments occur autonomically, because you’ve aligned it with the monitoringand measuring process.

Cometa — and a market created by consumersCometa is an example of a company that adapted to an emerging need in

a dynamic market environment. In recent years, public wireless large-areanetworks —WLANs, or “hot spots,” have been introduced to the retailmarketplace. These self-contained modules provide broadband access to corporatenetworks by a virtual private network. At the same time they enable retailcustomers to check and send e-mails while consuming their burgers or bagels. Afriend of ours recently sat in a Starbucks in Hong Kong’s Festival Walk shoppingmall. Over a latte, he accessed AOL, checked his e-mail and Instant Messaged hisdaughter. There was no charge; it was simply a value-added service of Starbucks.Cometa, with its wireless service-oriented technology, was co-created in

January 2003 by Intel, AT&T and IBM to build and run hot spots in restaurants,coffee shops, offices and at golf courses for retailers and others who want to offerWLAN services to their own customers or visitors. In fact, Cometa is rolling out itsfirst 250 hot spots at McDonald’s restaurants, Barnes & Noble bookstores andother retail locations.It is arguable, however, that the major service providers dragged their feet in

providing hot-spot technology to the general public. After all, hot spots have beenon college campuses for years. If anything, we suggest that any of those providersor even Internet service providers could have entered that field far moresuccessfully long before the public actually had the service. If AT&T alone hadacted faster in exploiting this field, it would not have lost the market share it has inrecent years.As this book goes to print, we do not have nearly the hot spots we should have.

For example, every major downtown in North America, including downtownOrlando, which prides itself on being a technology hub, should absolutely beprovided, by its government, a technology hot spot to which it could attach all of itswireless technology.

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Commercial hot-spot development, then, has responded to a market thatconsumers have already created. Although it was slow on the uptake, Cometarecognized a marketing opportunity and had the technology to seize thatopportunity.The phenomenon of a customer-generated market is not unusual, especially in a

world in which most consumer electronics are handheld business toys. Last year’scell phone is archaic because it presents no image of the caller and can’t downloade-mails. Retail product developers rush to add more bells and whistles tonotebooks, cell phones and palm-held organizers.Consumers found a way to do their e-mail at Starbucks before the turn of the

millennium. In fact, at the Starbucks just down the block from our offices atDynetech, a number of individuals morning, noon and night were doing theirtechnology on laptops. Consumers create the market. It is the company thatmonetizes that market quickly and appropriately, and in the forefront of the creationof the market by the consumer, that ultimately benefits, because that is morphingbased on the ambient environment.

Eckerd inertia — A prescription for failureIn contrast to Cometa, the Eckerd retail drug chain letWalgreens outflank and

out-maneuver it until April 2004, when the Florida-based chain of some 2,800stores was sold by owner J.C. Penney Co. Inc. to two buyers, CVS Corporation andthe Montreal-based Jean Coutu Group.Eckerd, with 622 stores in Florida alone, was an industry leader until the late

eighties. ThenWalgreens entered an aggressive period during which it improved itsservice, upgraded its stores and increased its merchandise offerings. It alsopioneered the bold, handsome freestanding drugstore, while Eckerd stayedcontent for too long located in increasingly unappealing strip malls. Meanwhile,such discount chains asWal-Mart andTarget, and supermarket giants such asPublix, opened in-store drug and pharmaceutical operations that created theconvenient grocery/drugstore one-stop shopping experience.As we stated in the introduction to this book, what continues to fascinate us is

the question of why a company with such a pristine heritage simply allows itself togo out of business, presumably while being run by very competent, intelligentpeople who are obviously technically proficient in what they do. It’s not as ifEckerd, as an example, didn’t have top-notch retailers, or didn’t have management

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who understood how to market pharmaceuticals. They did. How is it, therefore,that these smart people could allow themselves to be outflanked in a businessthat they’d been in since 1898? How could they have gotten to the point that theyhad to be sold off, their stores closed down, and their identity in the marketplacelost forever?That’s why this book is being written, because over and over we see companies

of the same sort of pedigree allowing themselves to be put out of business, notsurviving and rendering themselves extinct.The Eckerd example provides the answer. The Eckerd organization, as a living

corporate organism, had no built-in method of changing.At this point, let’s talk about how businesses evolve and survive, and how this

process contrasts with evolution in the natural world. A business, unlike a species,has the ability to survive individually and to ultimately prosper in its newly morphedidentity. A natural species cannot do that in terms of an individual specimen, butonly as an entire species.Between 10,000 and two million years ago, the most recent Pleistocene era, or

Ice Age, covered formerly temperate climates with frigid temperatures that killedvegetation.Warm-weather species of small herbivores — rabbits, squirrels —either migrated further south or perished. Carnivores such as saber-toothed tigerswho hunted these small game moved south as well or perished with their formerprey. In North America, camels and horses disappeared. The point is that the entirespecies became extinct. A handful of American camels didn’t survive to regeneratetheir species. All specimens died.In the early years of the 20th century, a business species called the automobile

industry had many specimen — Studebaker, Maxwell, Ford, Stanley Steamer andOldsmobile, to name a few. Over the years, the tastes and needs of the drivingpublic changed. But the species did not die out. Instead, those individualspecimens that modified themselves, that continuously evolved and morphed intowhat car buyers were looking for, survived.As fossil fuel prices continue to climb andWestern countries rely more and more

on oil from an increasingly fragile and even hostile part of the world, theautomobile makers with the courage to design appealing hydrogen or electric-powered vehicles will survive in the near tomorrow. Other specimen will beconsigned to the gas combustion graveyard.

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When a species gets out of touch with its environment, then an individualspecimen that is no longer aligned with that environment dies. And it is onlythrough evolving — adapting — that the species can survive — if it does at all.The lesson is that a company survives and thrives over a period of time because

it can indeed modify its being to adapt to the environment, e.g., its market. Thisbook is about what a company needs to do not only to survive individually as aspecimen but to allow itself to prosper in a way that creates a thriving and uniqueenvironment for itself and its customers.Returning to Eckerd, it was unable to perceive what was going on in the

marketing environment all about it, and unwilling to change with the times or withcustomer preferences and demands — unable to morph! So it quietly disappearedfrom a marketplace-leadership position it had dominated for decades.

Technology As a Vital Tool of Morphing

In the first chapter, we introduced the idea of the unified business platform(UBP) as a central nervous system of enterprise-wide communication andintelligence-gathering. As we’ve discussed, technology today has played a majorrole in the ability to develop a UBP in larger businesses. There are three maincontributors:

• The Internet, providing connections and deliveries of actual data in real time.• The power of the Pentium generation, the ability to effectively manipulatethe data to get the exact information that is needed.

• The ability to perform these functions on a PC, as opposed to the great bigmainframe monsters of the past.

Using the Internet, for example, employees can stay in contact from home,work, the airport, a “hot spot” on any Internet-connected computer on the planet.Employees communicate in real time with employees, with the company and withcustomers. The chat room medium that used to be tedious with dial-up technologynow experiences no delays and no lags — face-to-face communication without thedemands of physically being present.45 Even grandparents can stay in touch withtheir dispersed families through Internet technologies that offer videoteleconferencing without expensive equipment and dedicated lines.

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45Jeff Tyson, “How Internet Infrastructure Works,” HowStuffWorks.com accessed 18 Nov.2003 <http://computer.howstuffworks.com/internet-infrastructure.htm>.


Power makes your UBP effective, shrewd and exact. Today’s processors andthose currently being developed strive for these attributes by performing threeessential tasks:

1. Perform mathematical operations on an extremely sophisticated level (thestock analysis we discussed earlier, for example), on a nanosecond level

2. Move data from computer memory area to another (again, connecting anddelivering information), smart interfacing of applications and computers

3. Make decisions and move on to a new task based on those decisions46

The third task is perhaps the most relevant to morphing. If your processor, aspart of a unified business platform, can turn a mix of relevant and irrelevant datafrom a dynamic business environment into decisions and executions, you are thatmuch closer to building an organization that is autonomous and continuouslymonitors, measures and modifies itself.When you realize how PC connectivity empowers the individuals in your

organization and frees you from having to invest money and space in mainframecomputers and physical spaces, you realize that organizational autonomy is equallyin reach of every company regardless of size or location. From Chicago to Shanghaito London to Caracas, time and space no longer present the barriers of the past.Morphing companies know their technology and optimize its use to boost

profitability. Yet, some industries still lag behind in applications. It’s been said thatthe future is here — it’s just not evenly distributed. The health care industry is acase in point.Featured presenters at a medical technology conference pointed out that the

health care industry has the technology to accomplish several goals, but thattechnology needs to be put in the hands of in-the-trenches nurses, clerks,clinicians and doctors.Kent Brodie, a technical systems manager with Medical College ofWisconsin,

illustrated this point by holding up his ATM card and saying that he could go to aterminal anywhere in the world and get cash.“I can also go to anyWalgreens and they can fill my prescription,” Brodie said.

“Yet if I am injured and go to an emergency room across town, the staff will haveno access to my patient records.Why not?”You can’t blame it on HIPA, stateregulators or the federal government. It’s because the integration of medical

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46Marshall Brian, “How Microprocessors Work,” HowStuffWorks.com, accessed 19 Nov.2003 <http://computer.howstuffworks.com/microprocessor2.htm>.


information technology has not been driven by a business case strong enough toget physicians and other key players in the medical business to integrate medicalinformation.Instead they do what they have to just to keep up with business. Such

integrated technology also has such a low priority because, while it might providecritical, even lifesaving data on patients, the health care industry sees it as justanother high-tech frill, another expense to absorb profit. Without a sense ofurgency, there simply has not been a driving force in the industry.But an even more subtle dynamic is at work here.When you think about most

drivers of any type of innovation of this nature, it’s because that innovation is in thebest interest of a business, an opportunity for the business to make a profitthrough that application of new technology. In other words, the innovation is eitherdoing something to benefit the organization itself or to benefit customers. So thebusiness is chasing it because it has a potential for profit.In the case of health care, no segment of the industry is driving that integration

of technology — not the doctors, not the hospitals and clinics, not the insurancecompanies. There are some instances in which such technology is being adopted,usually by upscale wellness programs or large, well-funded medical centers suchas Mayo Clinic. But there is no place where what is being driven is a centralizeddatabase of information that a business can profit from. Until that happens, theenabling technology is not going to be there.Many times, however, theses types of technology drivers offer substantial value

propositions to the consumers. The very fact that the technologies are there allowsus to create a value proposition to the consumer, and that is sufficient as abusiness case to make it happen.For example, were it not for 4X Made Easy® software, consumers would not

even consider getting into spot currency market trading. The same is true forCommodities Made Easy®. It’s not so much that the software for the securitiesmarketplace is providing a good enhanced set of features; it is the fact that thesoftware is actually driving the underlying activity itself, because without thetrading software, individuals would not even be engaged in the underlying activityof spot market trading, let alone doing it as well.Once you’ve optimized your UBP technology, you want to make sure it’s

scalable. During those three, four or five years before your technology becomesobsolete, it might very well be appropriate to upgrade it. Scalability gives your

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organization the ability to continue to expand your platform if necessary. Zeroscalability only drives your UBP up a dead-end road.Multimap, Europe’s leading provider of mapping and location-based services, has

just scaled up via MapInfo’s street-network routing solution.Without a scaleablebusiness platform, Multimap would be unable to grow its business beyond the sixmillionWeb site visitors it hosts per month. That growth is dependent on offeringnew value to customers that their former platform couldn’t support. Sean Phelan,founder and chairman of Multimap, says “As a leader in online mapping, it’s vitalthat we use fast, robust and scalable technology” to deliver value to consumerswhose needs and demands are constantly changing the business landscape.47

Your UBP should also be accepted 100 percent. By this we mean the UBP mustbe embraced by the entire organization. Acceptance begins with a leadershipdecision to invest in the technology, and a CEO who publicly demonstrateswholehearted commitment.Every single person in the company must be motivated and ready to accept

something as radically different as a unified business platform.Your biggestobstacle will be institutional inertia, the tendency to resist anything new. To counterthat, begin an awareness campaign well in advance of conversion. Convince thepeople in your organization that it’s in their best interests to use and support it. Ifthe culture doesn’t embrace it, you’ve just spent a lot of money to go nowhere.So encourage benefit-based buy-in. Show how the UBP will facilitate internal

communication, make each employee’s job easier and eliminate delay anyconfusion being caused by a hodgepodge of legacy information systems. Generateexcitement, so that conversion day is a day of celebration for the whole companyand for the entire staff.

New technology?... Or new toys?As you develop a unified business platform for your organization, avoid chasing

the latest technology. Yes, it’s tempting. More and more of us rely on our PDA toremind us of appointments and tasks. About two years ago, an associate of oursupgraded his PDA for no reason other than the rollout of the newest and boldesttechnology.What did he really get? He got a new PDA with more bells and

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47“Multimap Selects MapInfo Routing J Server to Direct Customers from A to B,”TMCNet.com, accessed 21 Nov. 2003<http://www.tmcnet.com/usubmit/2003/Nov/1021431.htm>.


whistles, but he still uses it for the same functions: getting to appointmentsthroughout the day. He spent $300 so he could carry around the newest PDAtechnology and show it off to friends, even though he didn’t even know how to usea fraction of the features built into it. Similarly, instead of chasing technology fortechnology’s sake, companies should focus on specific technological tools that willhelp them optimize their unified business platform. Sometimes it is easier to buythe hardware and software than it is to make it really work for the organization.New technology that does not enhance and build on the UBP is just buying newtoys to keep up.You don’t want to be the guy who has to admit to buying wasted technologies.

There are stories, like the one told by Ethan Dunham, president of Pulse BusinessSystems. Trying to pay for alteration work at a nearby tailor shop was a hasslebecause the company’s automated bookkeeping system was so complex.Whatused to take a minute or two was now taking 10 minutes in the name of efficiency.Customers, including Dunham, began taking their alteration business down thestreet. So much for embracing technology — if it doesn’t add value to thecustomer experience or management’s ability to morph, you’re just spending goodmoney after bad.48

However, there are ways to use today’s technological tools without investingblindly. Just know what you need and how to use it. Joseph Anthony, a journalistfor Microsoft’s bCentral.com, offers several suggestions when shopping fortechnology.Upgrading your current systems? More often than not, it’s more economical to

buy new, rather than invest in existing or “proven” technology that will be obsoletein less than five years.We must all sigh and accept that tech spending never ends. There’s hardware,

software, maintenance and training.What you can avoid are software programsthat are incompatible with existing systems. Software consultants make theirfortunes helping companies integrate basically incompatible software systems,because preplanning was lost in the rush to update.My — Craig’s — sailboat is equipped with a GPS chart plotter system that is

integrated into my other electronics. It has the ability to do amazing things, but Iuse it as a simple visual map application and have tied it into the autopilot for

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48“7 Ways to Avoid Wasteful Tech Spending,” bCentral.com; accessed 21 Nov. 2003<http://www.bcentral.com/articles/anthony/233.asp>.


routing and DSC radio for emergency location. I’m only using 25 percent of thissystem’s capacity, and I’m happy with it. Why don’t I use more of its capability?Because it takes too long to get through all of the applications and it meets myneeds. How many organizations dumb down their technology because it takes toomuch effort or cost to really take advantage of the capability? Organizations alsodrive their operations sporting a lot of unharnessed high-tech horsepower. Forwhatever reason — the love of toys, ego, technomania — they’re focusing onwhat’s under the hood of their company rather than developing the capacities ofthe human resources sharing the ride.

Getting wired for sound businessAn organization cannot move forward on the success continuum without

programming itself with intelligence about its market — a constant rewiring toforces and factors in the environment in which it moves.Like the captain of a great sailing vessel, responsible for commanding an

adventurous voyage across uncertain seas, corporate leaders are responsible forcontinuously monitoring the conditions around them, modifying the course of theirorganization amid the changing currents of the business environment. That’s how“captains of industry” optimize their organizational efforts and objectives.Becoming wired, or connected, to the business environment should be a priorityregardless of the method used to the run the organization. Methods of sailing varyaccording to the way boats are rigged, but the principles of sailing are the same forall craft in a seagoing environment.As small player in the music industry, EMI needed desperately to acquireWarner

Music.When they were unable to, EMI executives began to restrategize in order tocope with an increasingly hostile music business environment. That translated intopossibly being acquired themselves. In late 2003, a private equity group,Blackstone, considered such a purchase, already having had strategic partnershipswith EMI. This would take EMI private as well, infusing the company with theequity it needs to compete in the touch world of the music industry.49

The issue, then, is not the type of environment EMI is in. That’s not going tochange for the moment. Other music companies are dealing with it as well. The

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49Tim Arango and Erica Copulsky, “It’s Just Edgar in Warner Talks,” NYPost.com, accessed25 Nov. 2003 <http://www.nypost.com/business/11727.htm>.


issue is how well EMI understands that environment and how well it can steeritself through it.What exactly does it mean to “steer well”? If an organization is able to steer

itself successfully through its business environment, it is moving forward asprofitably as possible without losing control. In fact, the simplest technique ofsailing is called “sailing before the wind”: steering one’s vessel as efficiently aspossible without losing control. The sailing vessel accomplishes this by followingthe same course as the direction in which the wind is blowing. In these optimumsailing conditions, the wind, in effect, pulls the boat forward into itself. For a sailor,moving before the wind is absolutely exhilarating!Why not rig your business that way as well? Use what you have to allow the

business environment to pull you toward your objectives rather than forcingyourself or others to operate toward certain ends. There is no reason to fear thepotential loss of control over the business because, as you’ve learned in earlierchapters, the organization has a clear understanding of “who” it is, what it does,the tools it has and what the objectives are.Allied Technologies Limited is a leading South African multibillion-dollar Rand

Technology firm that provides solutions for a variety of communicationsapplications. The company has excelled in international communications technologybecause it is “a truly adaptable company that has managed to thrive in acompletely transformed business landscape.”While the information andcommunications technology market has been extremely unpredictable, Allied hasnavigated those waters by staying centered on providing customers with superior,innovative services and by using tools and strategies that reflect the realities oftheir market environment.50

The search for genuine solutions — not a quick fixNo doubt companies like Allied deeply and carefully probed their environment for

problems and solutions. By contrast, others may take a quick look and, all toooften, skim over the root problems to get directly to a much-needed, immediatesolution, even if it is a Band-Aid approach. Action above everything, including logicand common sense, causes numerous false starts and develops a culture of “hereit comes again.”

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50“Altech Judged Top ICT Company,” Finance24.com, accessed 25 Nov. 2003<http://www.finance24.co.za/Finance/Companies/0,6778,1518-24_1438049,00.html>


Once a genuine root-cause problem has been identified, executives or engineersor IT specialists can work toward a solution. In the meantime, of course, they can“fix” it temporarily, treating the symptoms, as long as a “quick fix” isn’t mistakenfor a permanent solution.A quick scan of the business environment reveals that many companies are

using up their Band-Aids addressing symptoms, but with no sustained results. Andworse, they’re not becoming aware of buying — pattern changes until they showup at the cash register.For example, a retail chain — we’ll call it HotWear — sells to teens and young

adults, one of the most fickle demographic segments in retailing. But HotWear iswired to the market environment. It conducts customer-satisfaction and brand-preference surveys. Their in-store salespeople are trained to listen to customercomments as they stroll among the racks and stacks of merchandise, and watchwhat they pick up for consideration and for how long. They also walk throughcompetitors’ stores, observing and listening. Marketing subscribes to teen fashionmagazines, noting what the celebs are wearing at those Hollywood galas. Theyalso attend the major fashion marts to see whose line is creating the buzz for thecoming season.In-house, because they have an effective unified business platform, they

maintain side-by-side sales comparisons — by week, by month, by year — todetect buying shifts, subtle patterns that align themselves with what they’rehearing in the market.All this weak-signal and not-so-weak-signal intelligence and database research

tells HotWear when a brand is emerging from the pack — or another brand haspeaked.When they detect a breeze of change in what their customer base ismoving toward, they shift their buying incrementally — before the cash registersreflect a drop in sales.

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ALERT: DiscernableShift in Brand Popularity

What’s “In” —What’s “Out”

COLLECT DATA:Product/Brand LoyaltyConsumer Surveys

CONCLUSION/SOLUTION:Change in

Customer Preferences;Change Product to Match


Our hypothetical HotWear chain is operating as a morphing organization becauseits decision-makers use the power of their UBP to anticipate changes in theirmarket, and to shift ever so slightly to be there with what their customers want,usually before their competition — and certainly before sales figures begin to falter.

Problem-solving at Darden — “Hot by Design”Darden Restaurants is always careful to identify the root-cause problem, even if

there are several problems associated with obvious symptoms.What Darden doesis prioritize these problems. It identifies the most pressing or “infectious” problemin order to assess the other, often related problems.By conducting a consumer survey in one of their restaurant chains, Darden

discovered that a significant number of customers found their food substandard —that it just didn’t taste good. But instead of immediately tampering with the recipe,management collected information about the problem foods themselves. Aftercombining this information with observation of food-preparation practices in theirown restaurants, the company discovered that food temperatures were nothot enough.So instead of changing recipes, and potentially sabotaging their own competitive

advantage, Darden’s management focused on the temperature issue in a big way.What was once a set of symptoms and problems evolved into Darden’s “Hot byDesign Program,” standards, processes and materials for each dish that ensurethat customers receive food at the perfect temperature. The program includesemployee training on new practices and the importance of maintaining each andevery standard in order to meet and exceed customer expectations.“Hot by Design” is the result of Darden wiring itself to its customer

environment, and it works. By re-surveying customers they now found the samefood items to be above standard. Darden was not only able to meet customerexpectations, but exceed them. Darden took the time on the front end to correctlyidentify a problem — and solve it.Wiring your organization to its environment requires tools customized to the first

rule of morphing: Know your business. Know your Critical ManagementInformation Requirements, the resources available, and understand yourobjectives. Once you understand what information you need, then you have toestablish the metrics to get you there. The key, of course, is to get all the pertinentinformation, but not spurious or irrelevant information that muddles rather than

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clarifies your requirements. And watch out for that seductress of so manyconfident executives — intuition.

Keeping Intuition in Perspective

In his article, Don’t Trust Your Gut, Eric Bonabeau discusses intuition’s importantrole as a decision-making tool as well as its dangerous unreliability if relied onsolely to solve complex problems. Bonabeau goes on to identify analytical toolsthat combine the power of instinct and the realities of doing business.51

Bonabeau, a chief scientist at strategy consulting firm Icosystem, encouragesexecutives to take a complete inventory of the current situation before jumping toassumptions and action. He goes on to state that globalized commerce multipliesthe complexities of doing business more every day. As they approach decisions,managers face several alternatives and mounds of “pertinent data.” There is lesstime to do more — and a great excuse to fall back on intuition when makingimportant decisions. There is even some scientific research that supports the useof intuition. And unfortunately, even poor intuition feels right many times.No wonder 45 percent of corporate executives rely more on instinct than facts to

help them run their businesses. Decision-making consultant Gary Klein haswitnessed the phenomenon firsthand, reporting on the trend in his book, Intuitionat Work. He has found in many cases that intuition is at “the center of the decision-making process,” while analysis is relegated to the role of support tool to ratify andlegitimize intuitive decisions.52

Believe it not, that’s how a lot of executives do business today. And it’sdangerous. Those few who truly believe that intuition replaces fact-based reasoningare guilty of intellectual laziness, inappropriate risk-taking and self-delusion.Whatthey don’t realize is that the very factors that overwhelm — alternative strategies,plentiful data, restructuring options — are the tools to improve business.Time is no longer as great an issue either. One of the key answers to the time

crunch is… technology.We have already been introduced to the powerful newdecision-making technologies that enable us wade through alternatives and identifyviable solutions in seconds. These tools, combined with experience and analyticalskill, produce consistency, stability and rationality you can depend on.53

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51Eric Bonabeau, “Don’t Trust Your Gut,” Harvard Business Review May 2003: 116-12352Eric Bonabeau 116 – 123.53Bonabeau 116 – 123.


Our position is that there is a role for intuition. Its success stories abound.Michael Eisner listened to his heart and put millions behind the hit game showWho Wants to Be a Millionaire. Robert Pittman had a vision that moved him to leadAmerica Online in a new direction. Intuition is transformative. It’s romantic,inspiring, visionary and has the power to turn business into an art form.But… the first and firmest foundation for decision-making is sound information.

If you have a strong technical understanding of your company, and a criticaldecision is required, you gather all the data you can. If, after looking at the issueobjectively from every facet, you’re still not sure, intuition can tip the balance.Conversely, data can reveal an intuitive misstep before you take it, so that you havethe opportunity to redirect a course of action before you begin it.More than likely, however, intuition will confirm what data has revealed. Intuition

has been described as the quiet voice of wisdom, the subjective whispering ofwhat you know in your heart. It may not sound very Harvard Business School, butit works too often to be discounted.We can’t fall for it, though. The lure of unsupported intuition may render us

unable to deal with the realities of decision-making that managers are trained toconfront. Fred Smith succeeded with FedEx but bombed with a new product calledZapMail, a proprietary faxing network. George Soros’ speculations went south dueto Russian securities and tech stocks. Understanding the dual nature of intuition iskey to using it prudently.

Other mind tricks in decision-makingThe human mind that often soars to new heights of creativity and brilliance is the

same quirky villain that often pulls the wool over our eyes, and happily lets us foolourselves. As we can all attest, the mind is a minefield of biases and flaws. One ofthose flaws is the tendency to maintain the status quo, actually making decisionsthat validate and perpetuate the way things currently are, and to reject change.“We’ve gotten this far. Let’s keep with a successful strategy and not rock the boat.”One of the inherent biases comes from being influenced by the first set of data

we come across. The most perilous flaw, Bonabeau continues, is the human needto recognize patterns. It’s our way of taking information and experiences from thepast to then understand the present and anticipate the future.54 Seemingly logical

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54Bonabeau 116 – 123.


patterns can lead us to illogical conclusions. “This is the same conclusion we cameto five years ago. I don’t need to see anything else.”While there is a place for this type of thinking, usually in life-or-death situations, it

has, at best, a limited role in business. The tiniest bit of logic gets thrown out thewindow when you are, say, being held up at gunpoint. Yet the tiniest detail canmake all the difference in complex business situations.When you try to understandthe threats and changes revolving around your business, you have a mandate fromyour shareholders, employees and customers to run the numbers, dissect thestrategies and re-evaluate ideas.Under the day-to-day circumstances of doing business, most managers know

better than to fly by the seat of their tuition. And using your tools effectively meansyou know a lot more of what is really going on and make better decisions. Similarto a pilot in bad weather, there is a tendency to go with the feel of the plane, butbecoming an old pilot means you have learned to rely on your instruments as wellas your flying instincts. In addition to technology, we have another new set oftools. A special field of study called “decision sciences” uses such trendy terms assystem dynamics, decision trees, real options, portfolio management and otherinnovations to help managers weed through options. These methods have theirlimits in that decision sciences are usually not among the skills sets employed bytoday’s business executives. They need tools that are easy to use and reliable, twoattributes alien to the decision sciences!55

Agent-based modelingBonabeau also recommends agent-based modeling. This decision-making tool is

not new, but is reliable. It reveals how systems work and evolve. By having acomputer perform an agent-based modeling simulation, one can create millions ofvirtual decision-makers that demonstrate system dynamics. This tool enablesmanagers to make decisions about complex systems with interrelated andunpredictable elements: global markets, multifaceted organizations, supply chains,technology networks and others.Southwest Airlines used agent-based modeling to overhaul cargo operations,

saving $2 million in annual labor costs. Pacific Gas and Electric used it to managethe electron flow through the company’s power grid, also saving money andproviding more reliable service. Now, we can use agent-based modeling to look

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55Bonabeau 116 – 123.


closely at how markets and competitors evolve, and evaluate the strategic andtactical options we have to confront them.56

Other games planners playThere are other executive computer games too. Artificial evolution, or

evolutionary computation, takes the basic process of evolution, which takes thebest options, combines them and mutates them into better options, and backs itwith computer power. Analytical software accepts your randomly developedalternatives and evaluates them to choose the best performers and “mate” them.This is called a generation.With every new generation, the software createsconstantly improving alternatives and solutions. Cemex, a Mexican cementcompany, used evolutionary computation to determine delivery routes.57

Interactive evolution, a variation of artificial evolution, combines computingpower with human intuition and experience to judge alternatives with metrics.First, interactive evolution software produces as many options as desired. Next,you and your colleagues examine these options using your own judgment as wellthe program’s metrics to choose which options will “mate” and create even bettersolutions. Procter & Gamble and Pepsi-Cola use it to create products and packagedesigns with consumer preferences as their guides.58

Keep in mind these technological tools don’t drive your decision-making, justserve to enhance it, optimize it. To quote Bonabeau, computers “expand (themind’s) creative potential,” allowing us to “break through the interpretation barrier”that keeps us from understanding complex situations.Perhaps some of the biggest decisions we face relate to growing our

companies’ sales and entering new markets.With such a multitude of corporationsthat provide every service and product consumers could ever want or need, it’s amarvel that companies can still generate sales and profit from unexplored territory.While the specific and high-tech tools used to make these decisions are oftenproprietary, the decision-making processes are basic and can be applied to anycompany in any kind of economic situation.Unfortunately, many decision-making processes are out-of-date, having been

born in various business schools at or just prior to the dawn of the computer age.

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56Bonabeau 116 – 123.57Bonabeau 116 – 123.58Bonabeau 116 – 123.


We were surprised to find that a number of them, really just theories, are beingapplied to modern business.Gap analysis is the exception. In the simplest terms, a business uses gap

analysis to examine the products or services in an industry and identify what islacking, or discover untapped windows of marketing opportunity. After years of usein business and industry, however, gap analysis remains a viable technique foridentifying business opportunities.It was sometime during the 1980s that Darden Restaurants, then a strategic

business unit of General Mills, performed a gap analysis to determine where thefuture of restaurants, like Red Lobster, was heading. Their research analysts plotted(on a graph much like the one below) where competitors were currently positionedin the dining industry. They found that most restaurants fell into one of threecategories: quick service, family-style or fine dining.Quick-service restaurants include McDonald’s, Burger King and Checkers, which

offer basic foods with drive-thru services. Family-style restaurants — Denny’s,Perkins and Friendly’s, for example — have become the dinner of choice for themany families looking to save cooking time and preserve the family dining

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FINEDINING

QUICKSERVICE

FAMILY-STYLEBasic Foods

Drive-Thru

EXAMPLES:

• McDonald’s• Burger King

Family-Oriented

EXAMPLES:

• Denny’s• Friendly’s

Exclusive,Upper-ClassTastes

EXAMPLES:

• Morton’s• Houston’s


experience. Fine dining includes high-ticket establishments such as Ruth’s ChrisSteak House and Houston’s, which cater to the upscale dining market.From this analysis, Darden saw two distinct opportunities. The first was a gap

that existed between quick-service and family-style restaurants, and the secondwas a gap between family-style and fine-dining restaurants. Darden had equalopportunities to fill in both of these gaps, so it chose to focus on the secondopportunity — between family-style and fine-dining establishments — andpioneered what is now known as the “casual dining” industry.That decision has paid off with $2 billion in operations and the development of

Red Lobster and Olive Garden, which now dominate casual dining. Darden is theclear industry leader, most recently moving into two new casual dining concepts,Bahama Breeze and Smokey Bones BBQ, in 1997, and the upscale Seasons 52.But how did Darden executives know they were focusing on the right

opportunity and not just any opportunity? If a gap analysis were enough for everycompany to succeed in business, we wouldn’t need all the business books andconsultants that pack the bookstores and conference rooms.

The human advantageThe other, even more critical component of the decision-making process is the

invaluable experience, knowledge and intuition of seasoned executives like thoseat Darden who honed their own strengths with a decision-analysis tool like gapanalysis. Data alone will not propel a company into the Fortune 500. However,capable executives with solid knowledge of their organization and its capabilitiescan use accurate and timely data to craft success.Several years ago, NexCura, Inc., partnered with the American Cancer Society

(ACS) to offer ACSWeb site visitors information available through cancer profilingtechnology. NexCura embedded a cancer profiler or decision-support tool withinthe America Cancer SocietyWeb site, www.cancer.org. This technology madeavailable the knowledge and experience of health care professionals at ACS forcancer patients and survivors. The result has been accurate, personalizedtreatment information. Harmon J. Eyre, M.D., ACS’s national chief medical officer,noted that the profiler directly furthered “the mission of the Society to empowercancer patients and survivors in their fight against this killer.”Through NexCura’s profilers, cancer patients and survivors connect to extensive

databases of clinical studies. The technology itself ensures that information is

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objective and tailored to educate the patients about appropriate treatment optionsavailable to them. The user can get information on risk tolerance, potential sideeffects, questions and possible treatment outcomes based on group survival data.Of course, circumstances in every company and every industry are different. But

in order to thrive in any environment, every organization needs a solid decision-making process that uses the most high-tech, real-time data along with the skillsand intuition of seasoned and knowledgeable human participants.

The value of continuous measurementActivities should not be measured for the sake of measurement.Why bother?

However, if measurement is the means to improve some aspect of the enterprise,it can be invaluable. Recent advances in metric technology have greatly enhancedthe potential of measurement, providing management real-time, continuousfeedback of how things are going.Wal-Mart, for example, uses continuous measurement as a valuable asset. Every

day,Wal-Mart knows exactly the volume, nature and pace of its sales. Because ofits sophisticated computer system, it can tell how much better it’s doing thanprevious years. This is true for Target as well. Both of these companies use real-time data to make strategic and tactical decisions. For example, they know almostinstantly what inventory is moving quickly and when to reorder.When data collection, analysis and tactical management are in sync, companies

are where they need to be. This enables stores likeWal-Mart andTarget to scantheir environment for windows of opportunity and keep ahead of any potentialcompetition. Meanwhile,Wal-Mart rarely, if ever, runs out of inventory — oroverstock — while others in the industry will. No customer need ever hear, “Oh,we must be sold out of that. Sorry.”These are ready examples of the effective and timely use of measurement. But

we can just as easily look at Kmart for an example of ineffective measurement. Ofcourse, they probably have systems in place to keep track of their inventory, butthey also need to make sound decisions based on the feedback they receive. Thisis one of Kmart’s main failings. Yes, they promised big with their blue light specials,but too often they cannot deliver. People walk into Kmart expecting to buy — butall they find is empty shelves and lame excuses. Goodbye, Kmart shopper.Kmart ignores the value that continuous measurement gives an organization.

They neglect to analyze where people are or were spending their money. Theymiss the idea that one of the main benefits of continuous measurement is to keep

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management current on actions they need to take. Sure, they still have thesystems in place — but why? Kmart simply doesn’t know how to be a retail giantbecause its business model is wrong. Goodbye, Kmart. Not even Sears can saveyou now.

Taking action now: incessant modificationAs you’ll recall, monitoring, measuring and modifying are the “three M’s” of a

morphing enterprise. The final “M” — modification — is the point of departure,when an organization takes action in the face of change.We’ve already discussedhow even Fortune 100 powerhouses like IBM and GM loose their footing fromtime to time. Regaining your footing, your advantage, comes from continuousmodification that reflects and responds to changes in your business environment.Recognizing and identifying change is not enough. Executives must demonstratethe determination and courage to take effective action.We discussed Scholastic Inc. earlier as a successfully morphing organization.

Throughout its history, the company has consistently identified ideas and initiativesthat call for modification and adaptation, and implemented them wholeheartedly.As a result, it has moved from magazine to book publishing, from school bookclubs to national book fairs, from a national to a global market, and from hard-copycontent to real-time multimedia.And the company doesn’t stop. In interviews with David Krishock and Alan

Boyco from Scholastic, we learned of the organization’s ongoing response to theirchanging market. It includes expansion of strategic business relationships,improved communications and a commitment to constant change that leapfrogsthe competition, i.e., the use of computers, television, video games and instantmessage services for children. That’s incessant modification at its finest.Years ago, compliments of the United States Air Force, a friend of ours was

learning the basics of using radar to direct aircraft. On one training mission, hisinstructor, a crusty sergeant, looked over his shoulder at the radar scope and sawsomething slightly amiss.

“Turn him starboard to two-seven-zero,” barked the instructor.

“He’s on a two-six-eight now,” replied the young lieutenant. “That should be

close enough.”

“Listen, Lieutenant,” said the instructor, “Two degrees might not be a big deal

to you, but if you keep that pilot on his present heading, he’ll be 20 miles off

course in about 90 seconds.”

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The point is, don’t put off even a slight change of course if your information andintelligence, your monitoring and measuring, tell you to modify. Letting a neededcorrection slide will put you miles from where you want to be in no time at all!

Summary

We propose the following steps toward becoming a morphing enterprise:• Operate in such a way that strategic and functional business units worktogether seamlessly and autonomously to conserve the energy that goesinto constant, nonvalue-added management.

• Wire your organization to the environment in which it operates, primarilyfocusing on always being in touch with competitors and consumers; look forthe weak signals.

• Continuously measure all these efforts, providing a platform from whichto constantly adjust, and become a proactive company that thrives, notjust survives.

• Use intuition appropriately, after a foundation of knowledge based on datahas been established. Never replace the prudent use of information withintuition.

• Bold modification is the whole reason for monitoring and measuring aprocess. Don’t hesitate because your modification might only be a degree ortwo. One degree of change not taken can put you miles off course beforeyou realize it.

In the next chapter, we’ll talk about enterprise architecture, the ideal structurethat will enable your company to continuously modify itself. We’ll reveal what amorphing enterprise looks like, how it operates and why it is successful.

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Chapter 6

Enterprise Alignmentand Architecture

Many minds fixed to one vision is alignment;Many minds seeing many visions is simply chaos.

– Denis Waitley, Empires of the Mind

Chapter 6: Enterprise Alignment and Architecture

In this chapter, we’ll delve further into the architecture, or the organizationalstructure, of companies best prepared to morph continuously. Morphingcompanies have a particular type of architecture that operates with implantedDNA, and within the framework of that architecture are most likely to thriveregardless of market conditions.One of the crucial qualities that runs through that architecture and supports it

emanates from the unified business platform.We call it alignment. Let’s return toour schematic from chapter one. Alignment is the ring of internal discipline thatkeeps every member of an enterprise on the same frequency, or “aligned” withregard to what the company is, what it does, its principles, goals and other factorsthat define that company. It nurtures what we consider to be a community ofprofessionals.Alignment is best achieved through the capabilities of an effective UBP, because

it relies on clear, continuous communication. The best way for you to understandalignment is to describe the various vehicles in Dynetech that keep us aligned andunified as an organization of more than 300 individuals of diverse backgrounds,interests and experience levels.The first step in achieving alignment is taken during the hiring process. At

Dynetech we think in terms of hiring talent rather than just filling positions.Whenyou hire talent, there is a clear understanding of what is expected — defining the

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Alignment — A Ring of Discipline

SILO-3Ms

SILO-3Ms

SILO-3Ms 3Ms SILO-

3Ms

SILO-3Ms

SILO-3Ms

UBP

UBP

UBPUBP

UBP UBP


“win” for each person in terms of performance measurement. Aside from theglowing resume, what is your gut, your intuition, telling you about how theprospective employee will fit into the organization? Remember — the talent youhire is a competent human being with potential for making the company moresuccessful; the position you fill is just a square on the organizational chart.

Alignment Begins with thePerformance Agreement

In an earlier chapter we discussed the Performance Agreement. At the beginningof every associate relationship, we prepare an in-depth Performance Agreement.This document defines Dynetech by its principles, protocols and performancestandards. It begins with the Vision and the Mission of the Organization. It gives anOverview of Dynetech Corporation as a goal-driven organization, and defines howan associate can expect to be regarded by the company in terms of trust, dignity,respect, recognition and support.Other areas of the Performance Agreement include:• Cultural Standards —These include standards of demeanor and behavior,quality of work, commitments to teamwork and leadership, meeting ofdeadlines and general professionalism.

• Organizational Procedures —This area covers the accepted steps used toaccomplish routine tasks, or rules about communication, tidiness, noiselevels, lunch breaks and other housekeeping practices.

• Job Title, Description, Job Functions —These are the specific duties andresponsibilities of the individual who signs the Performance Agreement.

• Empowerments —This section enumerates areas of authority, accessibilityand responsibility commensurate with the position.

• Cultural Expectancies —These are expectations of performance dealingwith initiative, leadership, creativity, judgment, resourcefulness and othersubjective skills and talents.

• Cultural Deliverables —The associate is charged with performing his or herjob with such intangibles as adaptability, self-management, teamawareness, effective communication, focus and other culture-basedqualities.

• Performance Expectancies — Specific position-related responsibilities. Theexecutive assistant of Dynetech, for example, “will handle routine

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processes and deliverables in the normal course of the day, withoutreminders, supervision or management.”

• Performance Deliverables —This section lists specific tasks to beperformed in the normal course of the day, as well as behavioral guidelinesappropriate to the associate’s position. In the case of the executiveassistant, many of these tasks relate directly to assisting the chairman andhelping coordinate his events and activities.

The Performance Agreement is so associate-specific that it eliminates any doubtor confusion regarding associate performance, attitude and relationships with otherassociates or with the company. As has been mentioned, it also provides themetrics for measuring performance, which is addressed and reviewed on an annualbasis for all employees, and every six months for executives, including directorsand managers.This agreement is the initial step in achieving alignment at Dynetech — from the

chairman to the receptionist. As we’ve indicated, communication is absolutely vitalto the health of an enterprise, particularly its alignment. More than 20 years ago,Tom Peters wrote in his breakthrough business work, In Search of Excellence, “Aremarkably tight — culturally driven/controlled — set of properties marks theexcellent companies. Most have rigidly shared values. The action focus…emphasizes extremely regular communication and very quick feedback; nothinggets very far out of line.”Processes and practices that sustain that alignment include:• The Intranet —This internal communication vehicle is a company-wideportal to eVoyager, company news, directories, event photos and otherinformation specific to the individual associate’s job. Every associate atDynetech has a workstation, and when they pull it up first thing everymorning, they’re greeted by our Intranet, in a visual feel and format muchlike the Internet.

• DyneTalk —This is the company newsletter, available in three formats. It isposted on the Intranet; it is distributed in full-color hard copy to everyassociate’s mailbox; and it goes out as a full-color e-mail. Much like theIntranet, the newsletter communicates exactly what’s going on around thecompany as well as any plans for the near future. This enhances thealignment of associates in that it precludes any rumors, gossip ormisinformation that might develop as a result of a lack of information.

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• All-associate bonus program — If Dynetech meets its financial goals, wedistribute an all-associate bonus on a quarterly basis. Although we are not apublic company and are not required to, we announce the numbers monthlyvia e-mail and again quarterly along with bonuses. Since the inauguration ofthe Bonus Program, we have not missed meeting our financial goals, andhave not failed to hand out bonuses. Once again, alignment is strengthened,in this instance by the promise of financial reward over and above salary.

• Management team strategic planning — Strategic planning for the comingyear begins in September of each year and ends in October. This gives us astart plan for the following year, as well as a broad outline for the year after.The inclusion of management in this planning enables them to provide inputfrom their perspective and establish buy-in to whatever plans evolve duringthis period.

• All-associate training days —We conduct three training days a year for allassociates, as well as quarterly management meetings. The managementmeetings, held off-site in a formal atmosphere, give us an opportunity toevaluate results from the prior quarter, and establish what needs to bedone to modify anything in addition to changes that have been made alongthe way.

• Weekly and monthly financial reports —We provide weekly analysisreports each Friday for the full Monday – Sunday week prior. They are boundreports that have all the output reports, as well as backup information andfinancial analysis. It is mostly intended as a review of important criticaldata — information from sales, marketing, accounting or anything elserelating to the operation of our business. Monthly financial reports providethe same sort of analysis information in hardbound copy. Once again, all thisdata is available for study by associates, and as another vehicle formaintaining alignment through full-disclosure dissemination of companyinformation.

• Weekly 90-minute managers meeting —To strengthen alignment further,we hold a weekly meeting everyWednesday morning for all managers, toensure there’s open and ongoing communication among them.

• One project management system —We maintain one project manage-ment system for the entire company. Everyone operates out of that one

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project management system.We have one project manager whose job is tomaintain that system.

More about Silos and Shared Services

As we discussed in chapter one, the architecture of the morphing enterpriseconsists of two primary elements: silos and shared services. This structure worksbecause the emphasis isn’t on the organization; it is on the silos and theirinteraction with consumers.In this chapter, we examine more closely the function, attributes and benefits of

both silos and shared services. The definition of shared services will become clearas we describe its function.

Silos — the entrepreneurial tentacles of a morphing companyAfter speaking with the CEO ofWD-40, Gary Ridge, we recognized that silos can

be delineated not only by function or product line but even by geography. In thecase ofWD-40, its silos are delineated by global market area, offering a physicalpresence and serving the varying needs of customers in the U.S., the UK, theMiddle East, Africa, Asia and Australia.As we’ve learned, CNL uses silos, which are delineated by the investing sector

in which they’re active: real estate: restaurants, hospitality, retirementcommunities, corporate and community planning, commercial and residential, andshared services.

Each silo is dedicated to the relationships, customer transactions andcompetitive forces within their specific market segment.

• CNL Restaurant Inc. manages land leases with restaurant franchises suchas Applebee’s, Bennigan’s, Burger King and Pizza Hut.

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CNLRestaurant

Inc.

CNLHospitality

Corp.

CNLRetirementProperties

Inc.

Corporate&

CommunityPlanning

Commercial&

ResidentialSharedServices

CNL Financial Group, Inc.


• CNL Hospitality Corp handles land lease relationships with hotel and lodgingcompanies like Marriott, Hilton and Radisson.

• CNL Retirement Properties Inc. works exclusively with assisted livingfacilities, retirement communities, medial offices and walk-in clinics.

• Corporate and Community Planning is strategic in nature and focuses onconstant evolvement and change.

• CNL Real Estate Services works with commercial and residential planningand development.

• Shared Services is dedicated to supplying each business unit with theresources they need to be competitive and effective. They are in- houseconsultants.

Silos are sensoryEach silo is focused on meeting the needs of their specific customers. They are

the hands of the organization that reach out to consumers every day. That directconnection provides a great deal of information and feedback to the organization.By “touching” the customer, those in the respective silos are gathering informationabout all aspects of their market.For example, Darden Restaurants was constantly monitoring their customers’

preferences based on their continual contact with the consumer. Back in the earlynineties they were asking restaurant-goers why they ate at Red Lobster. Contraryto their belief, they came to find out it was because of the family time they feltaround the dinner table. One woman exclaimed, one hopes jokingly, “It is cheaperthan getting a divorce.”Immediately, the marketing campaigns changed and they were able to stay

slightly above the competition by understanding the mind-set of their customer.The sensory ability of each silo and each sales representative to touch

customers intensifies the entrepreneurial spirit. The more a silo can sense themoods and preferences of customers, the better it can serve them.

Iridium — and the idea whose time came... and went!One company, Iridium LLC, is an example of what can happen when a company

does not use it sensory ability. Michael Norris, former vice president of Iridium, adivision of Motorola, told us a classic story of an amazing product, and how itsvalue proposition failed to shift with its market. Iridium developed a global satellitecommunications network targeted at top executives who were out of contact with

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their home offices much of the time — a space-based system with land-basedgateways.But Iridium didn’t do its homework on the competitive environment.While it was

building its network, the capability of the GSM network was being expanded toeventually cover every country in Europe, Africa, Oceana and Southeast Asia, theprimary market areas that account for the bulk of international business voicecommunications. Iridium took its eye off the ball and lost touch with both itscompetitors and its consumer market.Nevertheless, Motorola continued to push for the system, since it would be

providing all the hardware. The cost of this 66-satellite development was over$5 billion.The idea and its implementation were so complex that it gestated over a10-year period. During that time, Iridium lost contact with the dynamics of the cellphone market. It stayed focused on planning and development, fine-tuning abrilliant concept that was becoming more and more dated every day.As a result, the day it rolled out, the Iridium phone was obsolete. For example, it

had a peculiar antenna that protruded rather like an ear out of the device. At thesame time, other phone manufacturers were moving toward smaller, sleeker, morecompact models. Yet this unwieldy handset was priced at $3,000, with usagecharges at $7 per minute.

Months after it opened its doors, Iridium was still not generating enoughrevenue to sustain it operations. Iridium’s network never made it... and Iridiumis history.

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Iridium Handset Sprint Cell Phone


Silos are nimbleBecause they are smaller entities with a specific focus, silos can move as quickly

as consumer preferences change. A popular business writer, Gary Hamel, hasidentified nimbleness as essential to the success of any business in the informationage. This is made possible only in a silo structure supported by shared services.Sprint, unlike Iridium, kept its eye on the marketplace — not its own research

and development. Unfettered by bureaucratic blinders, it saw and heard what itscustomer wanted — and acted accordingly.At Dynetech, we were running a local TV commercial, but needed to produce a

newTV spot.When I sat down to meet with the producer of the commercial, hethrew out ideas similar to one we had run nine months ago. I tried to dissuade himfrom this idea, explaining that we are responding to our customers, whosepreferences were constantly changing. After nine months of running the oldcommercial we had much more information about their tastes and preferences. Itwould be useless to run a similar one.What was effective nine months ago wasnow obsolete. He was not grasping this concept. “But if it was effective then,” heasked, “why switch off a good thing?”This is precisely the trouble organizations get into. Instead of staying nimble,

they become inflexible. Their silos aren’t able to make quick tactical changesbecause of bureaucratic sludge. Change becomes hard, and visionaries seekingchange finally throw up their hands.Throughout this book, Kmart has been our most frequent example of how to

destroy a national retail chain — or any company — through inflexibility, lack ofdefinition, lack of focus and a host of other sins. During its first 10 or 15 years, ithad a solid value proposition, articulated in the call to “Buy decent goods at greatprices.” But during the late seventies and early eighties,Wal-Mart andTargetmoved in and captured Kmart’s value proposition. Restated, they promised thatcustomers could buy quality goods at lower prices — with better service andcleaner stores. But Kmart never budged from its original proposition until it wasway too late.Before today’s technology, flexibility was a quality limited to small, agile

companies. Consider the metaphor of a female gymnast. She is lightweight andpetite, so she can flip and move in ways most of us cannot. Because of herflexibility, she can flip, twist and twirl with incredible grace and elegance.

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By contrast, imagine a weightlifter. He is large, muscular and very strong. But heis probably slower and more ponderous, and cannot move with the nimbleness ofthe gymnast. Just like many large organizations, the bigger the man, the slower hisreaction time. On the other hand, such large organizations asWal-Mart have usedtechnology to stay as nimble as retailers many times smaller.Companies need to get to the point where they are so nimble and able to adjust

to their surroundings that their size is not a factor in their agility, and they are nothurt by the ever-changing environment. They’re not hurt in a slow economy either,because they can roll out of it.

The spirit of independenceIn addition to enabling an organization to become nimble and sensitive to

customers’ needs and market changes, silos enable large corporations to give eachsmall business unit an independent, entrepreneurial feel. They empoweremployees to serve customers’ best interests.Without the encumbrances ofadministration and other bureaucratic tasks, silos are able to manage product salesand market growth. They create and sustain the energy a company requires to stayvital. Silos encourage initiative. Those in the silos are far more likely to think out ofthe box, leading the company into new areas of opportunity that would haveotherwise gone undetected.

The downside of silosFor all their advantages, a balance must be struck between the freewheeling

spirit of the silos and the discipline and structure of the parent company. Nosystem is perfect, because those who design systems, regardless of what theymay try to tell you, are human and imperfect. Silos are no exception. Thoseworking within a silo, for instance, may begin to feel isolated. They may begin towonder what others in the company, particularly in other silos, are doing. In theirperceived isolation, they sometimes feel as if they are not being treated orsupported with the same enthusiasm as other silos.Silo dwellers may become so fragmented in relation to the company that they

begin to feel like their silo is an independent company. Their primary loyalty mayshift from the company to the silo. No one appreciates them, they think. “Everysilo for itself,” they shout, as they begin to dig bunkers and hoard yellow pads. Asiege mentality may develop that undermines the productivity of the entire silo, as

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employees spend more time fortifying and less time performing the duties andobligations they were created for.The solution is to enlist representatives of all silos at the outset to hammer out,

codify and enforce performance guidelines and operating standards that arecommon to all silos. These guidelines and standards act as both a lifeline and aleash between corporate and silo personnel. They say, “We’re here to help you;you’re part of the team.”They infer, “Don’t get too far away from us.”

Managing risk through diversificationBuilding new silos should never threaten existing business units. In fact, the

more silos a company has, the more the organization is able to protect itself fromcyclical downsides. Diversification is often the best strategy for managing risk.CNL, for example, has many different small-business units. In a hypotheticalbusiness climate, hospitality properties may be in a slump, while commercialbuilding investments are hot. One region of the country may be in a recessionwhile another area is booming. Silos give CNL the diversification it needs to beinvesting in momentarily depressed properties while enjoying profits fromfinancially strong ones.

Managing market shareThe creation of additional silos should not divide and reassign other silos’

existing market. Such a move risks generating internal competition. Instead, newsilos should tap into new markets that build on the strengths and breadth ofcorporate knowledge, skills and culture of the entire enterprise. Opportunities fornew products and services, and new profit centers, are best handled by new silos,staffed with personnel who specialize in those market areas.When we talked to the people at Darden, they told us how they are constantly

reviewing the needs in the marketplace, and that they’re always evaluating thenext silo to pull the trigger on.When they decide to open a new restaurant, theyevaluate it in very specific areas to see how it might perform, how it complementsthe current mix of concepts and how it may need to be modified. Currently, theirnewest restaurant venture, Seasons 52, is a silo that is being monitored for publicacceptance of the new dining concept. They have already opened the prototypelocation in Central Florida, and are planning other locations soon.The silo concept is certainly not foreign to companies, but it is often

implemented without the help of shared services.When a morphing company with

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a shared services function decides to initiate a new silo, it can do so withminimum risk with the support of existing shared services personnel, substantiallyreducing upfront costs! A number of the companies we spoke with talked aboutnew silos being opened with as few as four people who begin the process ofexploring, designing and implementing the pilot operations.When companies try to open a new silo without the help of shared services, the

results are often different. They incur such high overhead costs that even if theirsilo is profitable, costs of operation generated by administration, accounting, HRand other support services may easily negate profitability.Silos should not compete with each other. Ideally, each serves customers in a

distinct niche with unique products and selling propositions. Instead of taking theWD-40 brand and placing it on new products,WD-40 executives decided to usethat brand as a foundation to support new operations. None of the new productsinfringe on the lubricant market in whichWD-40 has been so successful.Silos also encourage and enable marketing individuality based on widely diverse

environments.We askedWD-40’s Geoff Holdsworth, Managing Director AsiaPacific, andWilliam Noble, Managing Director Europe, Middle East & Africa, howoperations of the other silos affect their particular operation. They both said thatvery little of what they do overseas affects or reflects domestic operations, simplybecause customers in foreign markets differ in needs, lifestyle, culture and manyother factors requiring local marketing solutions.

Managing product growth and innovationTesting the market can be done within a silo, so that such testing does not

jeopardize the whole business.When we talked to Andrew Madson, president ofOlive Garden, a Darden chain, he remarked, “We don’t risk our livelihood everytime we venture into new territory.” That’s why, should the Seasons 52 conceptfail, other restaurant operation will be unaffected. Obviously, this level of financialstrength has been achieved over the years, but low startup costs made possible byshared services is certainly a major factor.

Making new ventures seamlessLisa Schultz, a senior vice president with CNL Shared Services, spoke about

how CNL recently started a new division and was able to leverage the initialresources because of the backing of shared services. CNL Shared Services wasable to increase the productivity of division staff personnel simply by removing

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initial overhead risk that all entrepreneurs incur when they start a new business,i.e., bookkeeping and accounting, human resources, communications systems andother support functions.Dynetech provides a similar advantage to entrepreneurial ventures. It gives

startup companies office space, phones, executive and strategic insight,accounting and other services so they can focus on making their companysuccessful. In return, Dynetech receives a percentage of the profits realized byeach of these independent silos.

Deflating the bloatSilos keep the company from becoming bloated. “Bloat” refers to the

bureaucratic structure that develops in order for mature companies to continue togrow. Bloat was very common in the eighties when bigger was better. Consultantswould come into companies and say that it would be more efficient for yourcompany to have people in each division who knew the ins and outs, that it wasnot effective to have a decentralized company. This line of thinking required everydepartment to hire accountants, HR specialists, administrative types and otherswho clogged the corridors and tied up the conference rooms with interminablemeetings.The same consultants returned 10 years later and said, “Too many people! You

can do the same job more profitably by getting rid of the excess and having oneperson do the job for all the divisions.” One such firm, an internationally activeproductivity specialist named Alexander Proudfoot, made millions by going intocorporate operations and showing how 250 employees, for example, could do thejob of the present 400. After a few weeks of interviews and time-allocationstudies, they would make a list of positions to eliminate, even employees to “pinkslip,” hand it to the CEO and leave town. Deflating the bloat, unfortunately, usuallytakes a human toll.

Shared services — a network of support tucked among the silosShared services are the multifunctional unit within a company that centralizes

administrative functions required to conduct business: accounting, HR, IT andorganizational development, to name a few. By creating shared services, we canremove these administrative tasks from the daily activities of employees, who canthen devote their time to customer needs, expectations and relationships.

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Shared services is an integral part of a successfully morphing company, and as itgrows, this department must grow as a necessary support unit. Shared servicesmay be called a number of things. At Dynetech, it’s the Business Support Center.Darden calls it the Restaurant Support Center. Whatever its name, it will allow thecompanies to be most efficient and put their resources to best use.When each silois wrapped up in its own administrative tasks, it distracts the management teamfrom the customer, who can become neglected. As soon as any piece of thecompany becomes disconnected to the buyer, the silo is on slippery ground. Itmust either quickly recover, or call it quits. Shared services allow the silos to focuson their top priority, the business itself.As we look at each company mentioned above, they all have a shared services

department or activity. It is called different names in each company; they all servethe same purpose. They all provide the framework for the company to makemoney. Most likely, the personnel working in shared services will not deal withcustomers. Like the engine of an automobile, it stays out of sight, but propels themachine forward quietly and efficiently.According to Proctor & Gamble, “The Global Business Services (GBS) provides

best in class logistical and administrative support. Corporate Functions (CF)ensures that functional capabilities within the company remain at the cutting edgeof our industry.”59 P&G has a very effective shared service.

Attributes of shared servicesWhat are the attributes of shared services? Shared services add value to the

company by providing the infrastructure to support silos effectively yet seamlessly.Customers do not necessarily see shared services. They see the goods andservices sold through relationships and business transactions that occur in eachsilo. We have described that silos must exist for companies to be most efficient,but now let’s examine the importance of shared services. They also providecorporate executives with a unified system of reporting financial, human asset andother critical data so they can monitor multiple silos with common metrics.

Services refined by new technologiesShared services is not a new concept, of course, but emerging technologies

now provide shared services with a degree of leverage not possible before. Online

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communication, large computer infrastructure systems and operations trackingsoftware are among the tools that enable unified business platforms and theinternal communication between silos and shared services to exist.Just as technology fuels continuous external monitoring, measuring and

modifying, it also facilitates the collaboration of employees, vendors andconsumers. Shared services makes more sense than ever because we have thetechnology to exploit companies’ internal capabilities.

Shared services — a concept with infinite variablesWe know the benefits of economies of scale. A shared services function creates

enormous economies for the corporate organization. One marketing department,one HR department, one accounting team, one legal department, etc, is infinitelymore efficient than such a team in each silo. Yet because every silo of everycompany has different support needs, the decision needs to be made regardingwhich support services should be “in-sourced” to shared services and which aremore appropriate to remain within each silo.So which services are best shared, and which need to remain in each silo? The

main prerequisite for sharing a service is the degree of power that the particularservice could add to a company’s response to customers or competitors.Willefficiency be increased?Will silos become more responsive to their customers?Will product or service quality to customers be enhanced?Similarly, the decision to centralize an activity and remove it from business-unit

operations depends on the degree that it affects the customer. A shared servicecan handle many common jobs: IT, Accounting, Strategic Business Planning, HR,Training and Development, Quality Assessment, Real Estate, Purchasing andDistribution.Each of Darden’s silos is at different stages in its development. Red Lobster is a

mature brand that focuses on maintaining an existing customer base, whileSmokey Bones is still building its constituency. Shared services provides a forumand a format to share lessons learned and industry expertise. It also pumpsstandardized best practices and procedures into the silos. Of course, there is aneconomy of scale that exists when four separate chains utilize the same overheadpool, especially in market research that would be more costly if each restauranthad to perform the function on its own. By using shared services, Darden is able to

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monitor its different customers better than if they could not combine their findings.This immediately gives them a competitive edge.

Centralization and circulation of resourcesShared services is the heart of an organization. It is the organ that continuously

pumps a company’s lifeblood — information, feedback, resources, and technology— to the silos, the outreaching hands of the company that work directly withcustomers. It could also be likened to a central nervous system that gathers andevaluates information and disseminates it to the various silos as appropriate.Shared Services gives each business unit the benefit of big company resources,while allowing them to maintain the flexibility and independence of a smalltactical unit.

Internal monitoring and measuringInternal monitoring is one way that shared services can empower silos to make

the best possible decisions. Morphing organizations are continuously monitoring,measuring and modifying their external environment in order to adjust todemographic and lifestyle trends. But the three M’s should also be applied to acompany’s internal environment.Our body continuously monitors the signs of our life — heart rate, pulse and

oxygen in the blood system. It inherently understands the need to breathe, and ourlungs act accordingly. This system-wide monitoring provides a better overview ofour condition than any part of our body could give. The same is true with a sharedservices function. It knows the company best! It takes the financial pulse andunderstands the condition of the company like no silo could.Jim Seneff, CEO of CNL, understands the power of internal monitoring through

shared services. In fact, he instituted a common language at CNL. This commonlanguage is known as Key Performance Indicators, or KPIs. These KPIs are locatedat every level of the organization and act as a mechanism to monitor theperformance of employees within every silo. KPIs connect the everyday tasks ofindividual workers to company goals and objectives.The KPIs are largely different for every silo, but there are a few common ones.

For example, a manager must score a certain rating on his or her employeesatisfaction surveys. Each employee fills these surveys out anonymously, and themanager is then held accountable for his score.

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Often the Key Performance Indicators are financial standards. For instance, onesilo might need to increase sales by 10 percent. This is a concrete, easy-to-measure goal. If a 9 percent increase is achieved, you’ve missed the mark. KPIsprovide a very specific goal with no leeway. Either you hit it or you fall short. Thereare few arguments for nonmeasurable goals. Just like performance on anassembly line or shipping dock, it’s a job cannot be measured, it cannot bemanaged.

Driving down the messageShared services provides the company with a common language that links

individual jobs to corporate strategy and goals. Our team spoke to many membersof the executive team at CNL, all of whom mentioned in one way or another thephrase “driving it down.” It is the culture of CNL to maintain the language andbehavior of “driving down” information, getting it to all levels of the organization.This driving down ensures that every employee understands how their particularperformance affects the company for better or worse. Driving down preventsdisconnect in the ranks and eliminates indifference resulting from lack ofunderstanding of the vision, mission and strategies of the company.“Driving down the message” highlights the fact that communication is

absolutely key to developing a morphing company. Top executives need tocommunicate clearly to employees below them, and in fact, that communicationshould flow both ways. “My door is always open” should be more than anexecutive cliché.KPIs, as used by CNL, provide and formalize such communication as a way to

clear up any ambiguity of roles. It is a way for upper management to measure theperformance of others in the company. The days of promotion or bonuses based onvague, subjective criteria are over.CNL takes the KPI concept one step further. Each month, senior managers

evaluate how the KPIs are coming during Return on Performance (ROP) meetings.These are often filled with “robust” conversations, as many people called them.“Are you hitting your goals (KPIs) based on the time line?” “Are you going to hityour yearly goals? If not, why not?” “What is going to change between now andthis time next month?” But one might even hear, “Good job! Keep it up.”

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Providing a snapshot to the CEOAnother aspect of Key Performance Indicators at CNL and other corporations is

the snapshot of the entire company provided to the CEO and top management.This is especially valuable in organizations such as CNL and Darden that have manysilos operating in different markets with various demands. KPIs provide consistentmetrics and measures and track the progress of all business units. Instead ofrequesting information from each unit, a CEO can ask shared services to pull themetrics from all units. This snapshot can eliminate much of a CEO’s uncertaintyabout performance.

Resource reallocationIn addition to the internal monitoring and comprehensive snapshots, shared

services also provides an internal mechanism to use resources as efficiently andeffectively as possible. Shared services has the luxury of looking above the silos,the ability to see the forest though the trees and, therefore, the insight and abilityto reallocate necessary resources. Take the accounting department. It isresponsible for the finances of every silo of the organization and can see whensome are performing well while others are underperforming. It can use thisinformation to benefit the organization as a whole.When responding to thechanges of Sarbannes-Oaxley, the shared services unit at CNL combined thebrainpower of all silos to come up with best practices within the company andminimize any negative impact on one unit over the other.For instance, when one silo has exceeded sales expectations and has extra cash

on hand, accounting can spot this excess and reallocate it to another departmentthat might need capital to regain its footing. The advantages of shared servicesproviding a “view from the top” are endless. During times when the economy is ina prolonged slump, this wider view enables managers to make prudent decisionsthat keep the company alive.

Information sharingShared services is a central switchboard that receives and disseminates

information among all the silos within a company.WithinWD-40, communicationsbetween their geographic silos are essential. The United States is their mostmature market, the U.K. is the next largest and then Australia. As these marketsgrow, data shared by more established market areas with newer areas not only

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gives the new market a competitive advantage but strengthens the organization asa whole.In addition to internal information shared between business units, companies

can use shared services to reach out to the industry or even general businesspractices. Darden has grown as a result of combining information from therestaurant industry with practices from the entire business community. RickWalsh, SVP of corporate communications at Darden Restaurants, talked to usabout Darden’s cross-industry commitment to excellence:

When Darden benchmarks performance, we don’t just look to best practices in

casual dining.We look to see how are we doing compared to Microsoft...

mufflers... discount retail. We focus on where the money is going and what

those organizations are doing to bring it there. Then our task becomes, how

can we bring those practices, and that money, to Darden?

The consolidated administrative power of shared services can be applied tosearching the global business network for best practices. As a result, not only arebest internal practices translated between silos, but great practices of any other,unrelated industry can be extracted and modified to enhance a company’sperformance.

More benefits of shared servicesThe overall benefits of shared services are endless. And incorporating silos and

shared services into an organization is essential to create and maintain acompetitive advantage. Shared services can take the administrative tasks awayfrom individual business units and give a company the flexibility andresponsiveness to meet and exceed their consumers’ expectations. Individual silosneed to be free to interact with the customers. Shared services gives them thisfreedom. And as we’ve pointed out, by pooling the administrative tasks of theorganization, the resources and intellect of the business units can be focusedentirely on the customer.For example, the attention of any particular silo should not be focused on or

worried about employee disputes and problems: let the HR department worryabout it. The attention should be on the end user, and that’s it. It should functionlike an entrepreneur by making decisions on the cutting edge of consumerdecisions and presenting solutions to problems that consumers didn’t know thatthey had.

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Shared services vs. outsourcingAs we’ve seen in chapter two, one of the latest business trends is outsourcing.

And, as Internet communication becomes more sophisticated, outsourcing is nowa global industry, in which U.S. companies outsource their accounting and othersoftware tasking to firms in such unlikely places as India and South Korea.The idea of shared services is basically an internal outsourcing entity. This is due

to the fact that they do not generate revenue, yet they provide services to the silosand increase their profitability. Therefore, shared services must be careful not tocharge for a task that would otherwise be available outside of the organization at alower cost. Furthermore, if the internal cost is higher, there’d better be a goodreason.Overall, the benefits of having services shared internally must outweigh the

costs. Even if it seems more expensive at a glance, the advantages of corporateentrepreneurial freedom make the shared services/silo concept one that everycompany should explore.

Summary

We began this chapter with a definition of one of the most crucial characteristicsof a morphing enterprise — alignment. Alignment is the internal discipline thatkeeps every member of the enterprise on the same frequency, aligned with regardto who the company is, what it does, its principles and goals, and other definers ofthe company. In order to achieve the level, quality and continuity of communicationrequired to achieve and maintain alignment, the enterprise must have in place aunified business platform.Dynetech’s multifaceted training, networking and communications system takes

full advantage of the UBP to maintain alignment, as is outlined in detail in thischapter.The other element discussed at length in this chapter is the architecture of

morphing itself, especially the special services/silo architecture. The structure ofCNL Financial Group is used as a model of the morphing architecture, while thestory of Iridium’s failed global satellite communications network is an example ofan enormous enterprise that ignored the environment around it and suffered anenormous failure.

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Chapter 7

The Sixth Discipline:The Interior Décor

Being in your own business is working 80 hours a weekso that you can avoid working 40 hours a week forsomeone else.

– Ramona Arnett, President, Ramona Enterprises

Chapter 7: The Sixth Discipline: The Interior Décor

By now you’ve come to understand what a morphing organization looks like —from the outside in. It is comprised of various entrepreneurial silos, all of which

are supported by a shared services unit that relieves those silos of theiradministrative responsibilities.We’ve discussed the value of real-time information and how essential it is to the

morphing enterprise that aims to optimize its processes and profits. But how doesthe morphing enterprise show up in the commercial landscape, in its businessenvironment?

Making yourself at homeBy looking within our organization, we can create tools that help us continuously

monitor, measure and modify it, as well as help us however and to what extent weare satisfying our customers.This is a lot like the interior of a home. Picture yourself walking into a room. The

room can be bare, much like a startup business; it can be fully decorated, more likea well-established firm; or it can be old and filled with heritage, like a Coca-Cola orFord. The important thing is to understand what you have and what to do with it.Much like a can of paint, a set of screwdrivers or a tape measure, tools areavailable to organizations to help them monitor, measure and modify themselvesand their environment, in order to create an enriching experience for theircustomers and themselves.We invite you to take a good look, a close look, insideyour organization — at the interior décor.Morphing organizations have already accepted that invitation. They focus on

infrastructure... and on culture — the two most dominant elements driving a firm’sinternal operations. They have tools that monitor, measure, and modify not only themarket environment and other external aspects of their business, but the structureand culture in place within that business. The result: both customers andassociates enjoy a rewarding experience.

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I never met a super successful high performanceperson who wasn’t enthusiastic.

— Daniel S. Peña, BuildingYour Own Guthrie


Corporate evangelism“Evangelism” is a term often limited to religious connotations. But Merriam-

Webster also defines evangelism as a “militant or crusading zeal” for any cause.Employees of a company who are so excited about their product line or service, orthe company itself, are swept along by what we culture. Just imagine what youcould do if your employees were stirred with a “crusading zeal” for your product orservice! You can see the difference “zeal” can make by comparing the cabinexperience on Southwest Airlines to one on Delta, United or one of the othercarriers where the employees have lost faith in their organization and aren’t surehow long they will have a job.Corporate evangelism lives and breathes at CNL Financial Group. That’s why the

company’s beliefs have permeated the rank and file. And it all started with a clearunderstanding of who they were, what they had to offer and how things were tobe done. Business at CNL is conducted with core values at the foundation, i.e.,mutual respect, absolute truth, a long-term perspective and teamwork. There’seven an investment philosophy guiding their investment decisions. As a result,CNL does a better job satisfying a client than their industry peers and fills its hallswith employees who are excited about being there.An evangelist is one who believes in his or her cause and wants to share it with

as many others as possible. CNL is truly a team of believers in what they do.Withso much passion, energy and enthusiasm, it’s easy to “buy what they’re selling.”This organization clearly has a mission in its market, driven by the power ofcommercial evangelism. And as an outsider, you can feel and sense that energywhen you enter the building, unlike some organizations you walk into and think,“Who died?”

Creating Energy, Excitement and Ownership

One of the most important elements of any organization, of course, is thepeople.Watching people in morphing companies operate is much like watching anuclear reactor. A reactor has a core containing many atoms, usually uranium, thatcreate nuclear fission. The heat created by that fission is then transferred intoenergy.When one of the atoms in the core splits, another splits as a result, thenthe two halves eventually reunite, and the process occurs continuously. The resultof the process is a self-sustaining source of energy from the reactions taking placein the core.

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The theme of fun runs through a great deal of theexcellent companies’ research. The leaders and managerslike what they do and they’re enthusiastic about it.

— Tom Peters, In Search of Excellence

The people of a morphing organization are much like atoms, feeding off of eachother and creating a kind of emotional energy. As a close-knit team, they’re able tosustain the energy of the organization and create a rewarding, even excitingexperience for all parties involved. Much like the element of “fun” discovered byPeters andWaterman in the early eighties, we found a sense of excitement inevery company we identified as a morphing organization.Garry Ridge, CEO ofWD-40, created massive energy within the corporate office

ofWD-40 when he committed to earning his master’s degree in executiveleadership. In one interview atWD-40, an officer talked about how Garry goingback to school was like sending the entire organization back to school. As she putit, “We were all learning everything that Garry was soaking up.” After every schoolday, he would go home that night and e-mail his associates what he had learnedthat day. After he returned, he integrated the lessons learned into executivemeetings, group discussions and even to individual employees. This engendered aspirit of inclusiveness, the feeling that the principles of executive leadership werenot secrets, but were a treasure of knowledge to be shared by everyone. A senseof ownership was generated and sustained in every employee.Ridge’s commitment to learning extends to a break room library where

employees can check out books, most of which belong to him, so that they cancontinue to learn. This focus on education atWD-40 has generated an energy thathas helpedWD-40 become a classic morphing organization.In a similar breakaway from traditional relationships, eBay has taken its

organizational structure beyond its employees. eBay has revolutionized thebusiness world, crediting blockbuster financial results to a unique infrastructurethat treats buyers like employees. CEO MegWhitman even describes the companyas a “dynamic self-regulating economy,” a concept lending itself well to thecontinuous monitoring, measuring and modifying morphing calls for.According to an article in BusinessWeek, eBay is morphing into a successful

organization with a new way of doing business. The company’s infrastructure hasbeen described as a “nexus of economic activity,” an organization 30 million strong


and governed by laws and norms that include a feedback system buyers andsellers use to rate each other’s transactions.eBay has even formed its Trust and Safety Department in response to fraudulent

and offensive marketplace activity. The department is a collaboration between eBayemployees located worldwide. There is also an educational system that holdsclasses around the country, providing information and tips on how to sell on eBay.There is even an eBay bank, known as PayPal payment processing, that allowsbuyers to make payments to sellers without merchant credit cards. Thistransparent infrastructure turns customers and vendors into eBay’s key strategicpartners, part of the eBay company and culture.Companies look to eBay to learn powerful business lessons. They learn

management based on trust and cooperation rather than coercion and aggression.eBay has set the standard for how trade and commerce should be conducted. Itsexecutives are role models as they behave like servants rather than corporatemanagers.With reputations to uphold, eBay users have established a quality ofonline behavior that serves to make the company appealing to more and morethousands of users around the world.Of the culture,Whitman uses the words “democratic… listening, adapting,

enabling.” Take one of eBay’s most valued programs, the Voice of the Customerprogram. Dozens of users report their transaction processes and needs everymonth. Hour-long phone conferences with users are held twice a week. Using astrategy almost unheard of previously in the business world, users — all thosewho buy or sell — are empowered with ownership in eBay.

A Look at the Morphing Culture

What do you get when you remove all the physical trappings of a business?You’re left with processes, people and values — otherwise known as corporateculture. It’s not the mission statement, it’s not the product of an executive team’sretreat and it’s not the awards hanging on the wall — it is the people and culture.Culture is a set of values, beliefs, norms or expectations that a company

practices on a daily basis. It’s the first step toward morphing that complements thesucceeding steps: understanding who you are, understanding what you have andknowing where you want to be.A lot of being a part of a culture is unconscious. If you want some interesting

perspectives on what your corporate culture is, ask around. Ask prospective

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employees, a couple of clients, your consultants and your vendors. Did they “feel”the culture the last time they talked with an employee or came into your office? Forexample, the last time a customer called in with a problem, how did they feelabout the resolution? Delighted with the experience, or grumbling aboutbureaucracy? Unfortunately, they might be able to tell you more about your culturethan you can. The point is to have a clear understanding of who you are as acompany, and harnessing that culture for the purpose of morphing — deliberatelyevolving in order for your company to thrive, whatever its environment.You see, culture drives your organization and what it does. It moves employees

toward what to think, what to do and how to feel. It’s not a “Big Brother”dictatorship, but the fact is that people are influenced by the values, beliefs andexpectations of their environment. Culture evolves constantly too. Today’sinspiration can be tomorrow’s stumbling block.In addition, elements of a basically healthy culture can be detrimental to

achieving a company’s goals and objectives. Avoiding conflict is a good example.Some companies discourage direct confrontation on issues, believing that a facadeof harmony is better for those involved than dealing with and exorcising theproblem. Like an untreated wound, however, an unresolved issue, whether a policyor operational or personal problem, can fester into a larger crisis. By contrast, oncethat unhealthy trait is identified and understood, strategies can be initiated thatpromote truth, honesty, constructive criticism, mediation, healthy discussionand resolution.Hewlett-Packard encourages a consciousness of its cultural values. In fact, such

a consciousness was necessary during HP’s merger with Compaq. In Norway, forexample, HP and Compaq facilities, employing a total of 450 people, were mergedamid concerns about cultural collision. HP anticipated these issues and actedproactively. It established shared management teams and reorganized processesand functions to support “the HP way.” HP’s core values had served the companywell for more than 50 years, and was credited with giving HP the ability to growyet maintain focus on customers, shareholders and employees. The merger wentwell because executives realized a need to understand how employees behaved —the culture — and acted accordingly.The homogeneity that corporate culture brings to an enterprise should also be

adaptable to the national and regional cultures in which it operates. This isabsolutely crucial as that enterprise steps into the global business arena. The

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WD-40 Company nurtures a culture that is appropriate for such a worldwidemarketing organization. In order to deliver effective, branded products toconsumers through many different trade channels,WD-40 links employees inoffices around the world with a culture-based UBP. After visiting the corporateheadquarters and Corporate Brand Support Center in San Diego, we becomeconvinced of the close alignment and integration of employees, brands and theorganization itself. The firm encourages continuous learning. There is a healthydiscomfort with the status quo. This is apparent in that they have evolved fromWD-40 cleaner as their sole product to an inventory that includes 3-IN-ONE, Lavaand many other brands. In addition, they have formed “TeamTomorrow,” anexecutive committee charged with anticipating the future ofWD-40.60

The company attributes its global success to talented employees andinternational executives, distributors with an intimate knowledge of local marketsand cultures, and its unified business platform.The most visible expressions of culture are artifacts — the design of the

corporate headquarters building, the company logo, the office decor, even whatemployees wear to work. It’s the rituals, slogans, symbols and celebrations. It’seven the company jargon, and the myths and legends of past victories inmarketplace wars.What’s interesting is how useful these cultural artifacts are inmotivating employees toward greater innovation, corporate goals and objectives.In an article, James Higgins and I — Craig — have expanded on the concept,

proposing that innovation is achieved with the support of cultural artifacts. It’s allabout managing your culture to shape the desired outcome using existing culturalartifacts: values, sagas, language systems and metaphors, and ceremonies, ritualsand symbols.61 We found that Corning, 3M, Cirque du Soleil and many otherorganizations have used cultural artifacts to successfully reach objectives.

A community engaged in ongoing conversationWhen you meet that one special someone in your life, one of the most

important elements in the relationship is communication. There must be ongoing

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60<http://www.wd40.com/AboutUs/our_philosophy.html>; WD40.Com; AboutWD-40Company:WD-40, Lava, 3-IN-ONE, 2000 Flushes, Carpet Fresh, X-14 and Spot Shot are…;Accessed November 18, 2003 (new accessed date: August 2, 2007.61”Want Innovation? Then Use Cultural Artifacts that support it.” (2002) James Higgins &Craig McAllaster. Organizational Dynamics 31(1), p. 74 – 84


conversation. If that conversation is absent, the relationship will go nowhere. Themorphing organization is much like this, in a constant state of dialogue andcommunication.Key to becoming more integrated is conversation among employees. Once an

example, a standard, is set that shows the value of conversation, employees willrealize the importance of communication, and the overall demeanor of the staffimproves.There must be a climate in the company that encourages truth. It’s vital that

everyone involved have all the correct information they need to make prudentdecisions. At work, as in marriage, the lack of truth, or partial truth, or evenwithholding facts, is always counterproductive to company relationships.Information is power, and if that power is held by a few, you will not get the powerof the many — a morphing organization.The path to truth is found by asking questions rather than giving answers. By

asking questions, you’re engaging in conversation. Astute questions enable you todissect a problem or situation without laying blame. From this you will be able toextract information, address the need and fix the problem.

The driving force — a crucial determinationUnder discussion today is the concept that organizations should not rely on a

powerful leader to operate and succeed. Strong leaders, after all, have led Enron,Adelphia and other powerhouse corporations into trouble and even oblivion. And,eventually, even the most successful leaders often fall under their own spell andlose the confidence of their shareholders, as Disney’s Michael Eisnerdemonstrates.However, there may be another point of view. Rather than discounting strong

leadership, it blends the assets of a strong individual leader with the capabilities ofthe organization, allowing it to become its own driving force.A visionary alone is not enough. Lee Iacocca was powerful enough as a visionary

to save Chrysler, yet an inadequate leader of sustainability. At Ford during the1950s, Iacocca was a fountain of innovation and a proven leader as he rose topresidency. At Chrysler, he left his legacy by rebuilding the company, cutting costsand orchestrating an unprecedented government bailout. But for all the energy hespent as a driving force at Chrysler, the organization was unable to become its owndriving force. The board of directors at Chrysler was helpless against the self-

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serving side of Iacocca that was constantly pursuing pay increases and pensiondeals. In the end, Chrysler was left a seemingly innocent victim of cronyism,personal vendettas, strategic blundering, rash decision-making and poorjudgment.62 But if the organization and its leader were truly in line with each other,if the organization had become as strong as Iacocca and if the Chrysler hadbecome truly self-sustaining, millions of dollars might not have been wasted (weare reminded of Chrysler’s failed sports car project with Maserati, for one).63

We can even relate the disconnect between Iacocca and Chrysler back to whatwe know about dictatorships. Anthony Kronman is the dean of Yale’s School of Lawand has commented on the writing of a new constitution in Iraq, and the creationof a democracy to support it. He said that history will be made as the Iraqis facethe challenges and questions that go along with such change.Who should draft thenew constitution? Should there be a federal system, and how will a balance ofpowers be achieved? Can religious freedom coexist with an official religion? Howwill past crimes be addressed?The search for answers was best captured by the comments of a young woman

Kronman met in Iraq — “I know the separation of powers is a good thing, but towork it requires habits of cooperation and compromise that we do not nowpossess. For more than 30 years, we have lived in a dictatorship.We have all hadto look out for ourselves.We lack the political habits we will need for our newconstitution to work.”It is clear the Iraqis need to acquire the habits of self-government — self-

sustainability — to thrive once again. They have seen it all — the rise and fall of thetyrant Saddam, and now the rare opportunity to harness a new driving force, tobecome a country that drives itself. The catalysts and visionaries are in place,American intervention and an Iraqi governing committee passionate about reform.Will the torch be passed on to the Iraqi nation to motivate itself, to drive itself andbecome self-sustaining?64

We can ask the same of our own organizations. A driving force, to one extent oranother, exists in virtually every company. It could be the founding entrepreneur, acurrent CEO, an executive visionary or some other “prime mover” who becomes a

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62Alex Taylor III, “Legend in his own mind?” Fortune, Vol. 132, Issue 2, 24 July 2995: 157.63<http://www.wikipedia.org/wiki/Lee_Iacocca>.64Anthony T. Kronman, “Our War, Our Duty,” TheWall Street Journal (Eastern ed.) 2 Oct.2003: A. 16.


human catalyst. In the case of the Disney organization, the original driving force,Walt Disney, and the family-oriented culture he created, as been replaced by thatof Eisner, who initially brought Disney back from the abyss when he started — buthas he now sacrificed the Disney vision on the altar of ego and profit?But how do we meld the force of an individual driver — a strong leader — with

the potential of the organization as a whole?What qualities must a company haveto “outlive” that individual, assume for itself the mantle of driving force and sustainthat force? A classic HR question is the “Mack truck” scenario:What happens ifthe CEO walks in front of a Mack truck tomorrow?Where do we as an organizationgo?What happens when the driving force of your organization is gone tomorrow?Back to Disney — what happened to the driving force whenWells was tragicallylost in a skiing accident?Was Eisner as effective then as he was before?Other disciplines provide analogies. Returning to the field of nuclear science

shows us that the impact of a driving force on an organization is much like anuclear reaction. It takes an initial energy — the power of a strong leader — toinduce a reaction, but the resulting explosion can be controlled and managed sothat it becomes a useful source of ongoing energy — the organization as a self-sustaining driving force.Let’s look at the morphing organization’s community and culture. A driving force,

a CEO or other visionary becomes involved with his organization. Every time thatCEO makes a strategic decision or initiates a new market, the organizationresponds — in particular, the appropriate business unit, or silo, is created,engaged, or embarks on new strategy. As a result, capital, information and energyare created, developed and focused toward bringing that decision to reality.This process, begun by a strong leader, is controlled by the organization itself,

including policy, procedures, allocations and other tasks. It’s absolutely essential tokeep this process going, so that it becomes self-sustaining. That’s the waymorphing organizations work. They harness the power of their culture and usecapital, information and energy to constantly penetrate markets, maximizeresources and handle whatever challenges may arise. Remember — nothingreplaces the individual visionary, the prime mover, but the organization has tosurvive and become its own driving force.65

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65<http://www.usafa.af.mil/dfp/cockpit-phys/ne3th3.htm>.


Creating a culture of disciplineStrategic planning is a lot like a game of pool. A good shooter isn’t just focused

on sinking as many balls as possible, but also determining into which pockets theballs will fall. During strategic planning, then, it’s important to focus not just on“getting things done,” but on identifying and committing to goals — specific“pockets” of opportunity — before you line up your shot. That’s how you create aculture of discipline.

True accountabilityThe next step is holding everyone on your team accountable for their areas of

responsibility, using measurable standards of accountability. A commercial pilot, forexample, accepts full accountability and responsibility for his or her own actions.When expectations are not met, passengers could lose their lives. However, acapable pilot acts with controlled discipline that requires continuous feedback fromhis instruments, feedback through the controls, continuous communication withother crew members and ground controllers, and immediate action howevernecessary to keep his flight safely on course.The result of measured accountability is a team of disciplined people offering

disciplined thought and taking disciplined action. And while many believe that kindof power only rests in the executive offices, it’s just as necessary that everyemployee buy into such discipline.

Push, don’t pullAs we mentioned earlier, going from good to great is evolutionary, not

revolutionary. The process is a series of continuous and consistent pushes thatpropel in the same direction every time. So instead of relying on a single push tomake all the difference in your company, your company has to be evolutionary —and keep on pushing!We take our cues from history itself and the development ofinstitutions and industries that are, today, irreplaceable resources.One such resource is the health care industry. This is an industry with deep roots

that go back to the use of leeches to “bleed” patients in the 18th century, and farmore primitive medical practices that date back to Hippocrates.Yet health care is always evolving, either in response to needs or in anticipation

of them. In other words, responding and anticipating have continuously pushed inthe same direction: toward a better standard of living. And just like yourorganization, the evolution of health care must continue both in methods and

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delivery of services.Who knows?Years from now, radiation and chemotherapy willbe regarded to be as primitive and counterproductive as leeches are today.There is value in exploring the health care industry further to understand the

pushes it needed to make viable differences. Developments at Johns HopkinsUniversity during the 1900s provided a significant push. At a time when physiciansdominated the medical practice, the opening of the university’s medical schoolushered in the “close integration of science and medical education.” This resultedin advances in invasive and noninvasive techniques, residency training andspecialization. The health care workforce has never been the same since.Decades later, institution of the medical license, another push, legally sanctioned

practices once reserved solely for physicians. Now, nurses, physician assistants,psychologists, social workers, optometrists and dentists exercise moreindependence and greater treatment discretion and patient influence than waspreviously possible.Pushes in the health care industry have made the difference. Quality improved,

and new techniques were accepted. The general public now enjoys more medicaloptions and alternatives available than ever.

Reconciling the Long-term Perspective withShort-term Mind-sets

The Sacred CowAt this point, you might be asking, “What about my organization’s sacred cows?

Will morphing require sacrificing them?” Every organization has sacred cows — anindividual, department, strategic business unit or custom that is understood to beinfallible, immovable and beyond criticism.At the same time, today’s business world has us sacrificing sacred cows left and

right. Dell succeeds with negative working capital. Dot-coms peddled overpricedstock before they even had a product! Customer expectations and stock values arehighly volatile. Author and Vanderbilt professor Richard Oliver has been tracing thisphenomenon, identifying sacred cows in strategic practices and recommendingtheir sacrifice.

• The Sacrifice: Industry Analysis• The Rationale: Attempting to measure an industry is futile because thesimple act of measuring is enough to change the industry. There are no

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static industries in the modern business world. Having a comprehensiveknowledge of competitors’ suppliers, customers, substitutes and rivals isimpossible. Customer bases are being re-segmented every day, especiallywhen today’s customer is without a clear understanding of what they needor want.

• The Sacrifice: Sustainable Competitive Advantage• The Rationale: Industry lines are blurred. Competition is global and can nowquickly and accurately identify and copy their rivals. Temporary competitiveadvantages are the best we can hope for.

• The Sacrifice: Long-term Customer Relationships.• The Rationale: Customers shop globally via the Internet. Price andconvenience are top-of-mind. Customers expect flawless service.Customization, timing, and pricing dominate. As a result, the customer isfleeting and fickle rather than loyal.

So what exactly is left?Without the comfort our sacred cows provide, are wedoomed to do business in the dark? Our savior, according to Oliver, is a newstrategy: a mode of operation that is constantly changing and is quick enough totackle the frantic and fast-paced market.We call it morphing. It is organizational flexibility. It is customer-focused rather

than customer-driven. Instead, the organization drives strategy. Sound familiar? It isthe morphing enterprise. Amazon.com is one, investing time and money on unifiedbusiness platforms, human capital and the organization much more so than itscustomerWeb site.WD-40 is another, a virtual company focused on marketing, yetinnovative, with a team that incubates organizational creativity and communication.These companies still develop visions and goals, once operational tasks are

handled. Strategy implementation is developed daily through a system thatcompiles information and provides the appropriate output for decision-making andreal-time responsiveness. Such a system helps enable the company to stayflexible, serve customers’ needs and beat the competition. Dell’s system serves itscustomers by morphing customer teams into smaller units whenever a growingcustomer segment is identified. It is what Oliver calls “the amazing ability toreflexively tune” strategy.Many believe that the ability to morph is reserved for the youngest, most

energetic companies. Not so. Morphing is an attainable goal for every organization,once they identify which sacred cows are holding them back. At the same time,

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market entrants must begin without a dependency on out-of-date business trendsor guidelines and practices, while established firms must free themselves of whatis little more than a psychological dependence on the sacred cows that once madethem profitable.We can all leverage technology as well. While we disagree with Oliver’s idea of

technology as the end-all, be-all answer, we do believe in technology as a toolavailable to both new and old. It is useful, affordable and available.With it, we cantake on even the most formidable opponent. The dot-coms do it all the time.Amazon, AOL andYahoo! have grown to give AT&T, IBM and MCI/WorldCom a runfor their money.That’s what has worked for them — but what about your company?We’re not all

in the information and media business. Some of our sacred cows might still beviable.What we all must do is keep an eye on the market.Take a look at the recording and/music industry, for example. It’s been forced to

change just to survive. Mass layoff and consolidations have occurred. The culprit?Eighty percent of albums never turn a profit and the bureaucracy of marketing,distributing, and retailing keeps products from reaching the consumer in time andat an affordable price. Album packaging is wasteful, and product return rates aresky-high. Meanwhile, albums sold off the Internet are easy to download andhighly profitable.With declining sales, creative agency Grabiner/Hall began to re-examine the way

they did business. They found they needed to change their thinking about their ownsacred cow: the sales call. Since then, the traditional sales call has evolved into thebusiness meeting — a way to qualify prospects, reveal needs and analyze fit. Thecompany’s risk-averse business model was next to go, evolving from selling acommodity to selling “magic.”A sales agent at Grabiner/Hall used to show their prospects a portfolio filled with

work samples. Doesn’t everyone?Your rationale is that the agent is representing acreative agency whose bread and butter is print and interactive design. It turns outthe portfolio was a sacred cow that had to go. Uncomfortable?Yes. Successful?You bet. Portfolio-less sales agents were forced to actually engage their clients in ahealthy discussion of their business and marketing goals. Clients were sold on theinterest and insightfulness of the agents.What about Grabiner/Hall’s business model? It seems outrageous to tamper

with what is regarded as the very foundation of a corporation. Nevertheless, it

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worked for this creative agency. Instead of selling design services and related ads,logos, collateral pieces andWeb sites — commodity items — Grabiner/Hallfocused on offering something more fundamental, their Unique Selling Proposition— USP.66 Advertising people define the USP as the one product, service or othercustomer advantage a company can offer customers that no other company can.The firm’s USP was a terrific sales vehicle for agents who listened, askedprovocative questions, identified marketing challenges and came up with creative,comprehensive solutions.The Grabiner/Hall lesson is not a lesson on sacrificing sacred cows when

necessary. It’s a lesson about making a commitment to never become complacent,to continue to change and to have the courage to walk away from any potentialcustomer that is inappropriate to who you are as a company. It’s not easy, but it ismorphing — the conscious decision to evolve.

Learning Moments vs. Screwing Up

Garry Ridge is a proponent of learning from your mistakes.When we were atWD-40 speaking with him and other employees, we had an opportunity to discoverthe way a very successful company handles mistakes, which they call “learningmoments.”

“Nobody at theWD-40 company makes mistakes.” It is actually true, because

the culture ofWD-40 has embraced Garry Ridge’s idea of learning moments.

When you look at a mistake you make at any point in your life, you usually

learn from it. Take the hot stove.When you are young, you touch it and you get

burned — something you remember and don’t do again. This simple analogy is

the driver behind what occurs atWD-40. If for some reason you have a

learning moment, you take it as such and move on. If you encounter

something similar in the future, you know how to handle the situation. There is

a cycle that Garry Ridge shared with us that demonstrates how the learning

moment fits into any situation.

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66Kande Hall, “Getting Comfortable with Being Uncomfortable,” SAM; Vol. 2, Issue 5,Sept./Oct. 2001: 42; Copyright Marketing Bulletin Board


The Gary O. Ridge, WD-40 Leadership Cycle67

VisionThe vision needs to be clearly and easily understood and consistently

communicated. It should be a place we feel we can get to, and the result of gettingthere should be better than where we are now.Without a clear vision no one goesanywhere.

ValuesThese are both personal and organizational for alignment and are hierarchical. It

is a platform that empowers people to make decisions.

PlanningPlanning and executing have always been a core part of management. However,

if we just plan and execute, plan and execute, without review of the execution, weget caught in the typhoon zone.

Typhoon ZoneThis is where we end up doing more and more of what does not work and we

destroy the business.We avoid it by flowing throughThe Leadership Cycle.

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67<www.thelearningmoment.net/pdf/WD-40-4.pdf>


ExecutionBy reviewing the planning and execution to avoid the typhoon zone, we create

the learning moment.

ReviewWhat did we set out to do?What actually happened?Why did it happen?What

are we going to do next time?

Learning MomentFrom the review we discover the learning moment’s point of realization — that

can be positive or negative, but never bad! A learning-moment culture allows“mistakes” based on the value that the mistake is a learning moment from whicha positive outcome can make us a better company — a learning-moment culture isrigorous as well as respectful.

LearningLearning is the final outcome. A learning organization is one that is renewing

itself on a daily basis.We beat the competition and make ourselves morecompetent by embracing the learning moment, which creates the learning culture.With the right products, the right people who are passionate, andThe LeadershipCycle (which creates a culture where passion is enhanced), you have a magnificentorganization that is applauded by profits.68

A morphing company makes conscious decisions in good times and bad.Whatwe found out about Darden Restaurants is a good example here. A Darden silo,China Coast Restaurants, was not meeting projections and showed little chance ofa turnaround, so management made a conscious decision: to close down thatconcept. The philosophy here is this: better for business to suffer only once andthen respond. In Darden’s case, this was quite appropriate. Because of the siloconcept and the economy of scale of China Coast, they had the ability to buildseveral units, test the business model and then pull the plug without adverselyaffecting Darden Restaurants as a whole.

Moving forward: horizon management for the futureHorizon management is a process with which an organization can be guided

based on the long term rather than intermediate concerns. CNL Financial Group

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68TheLearningMoment.net.


uses the horizon management process. CEO Jim Seneff explains, “We tend tooverestimate what we can do in one year, and we tend to underestimate what wecan do in five years.” He’s recognized just how hard it is to see the horizon withoutestablished and evaluative tools to determine rates of return, sources of capital,capital cost and more in a very granular way.In response, CNL constantly scans the environment. That’s because there are

people in the company who are executing — making sure that things happen —but also people who examine the industry horizon and constantly report what theysee — shortcomings and all.Monitor, measure, modify and morph. The morphing enterprise doesn’t just

follow the steps — it is constantly in pursuit of them, from morphing to monitoringonce again and for the life of the organization. The interesting thing aboutmonitoring is that it can be used twice. There is forward-scanning monitoring thatkeeps track of trends that your organization can adapt. It’s like using forward-scanning radar to make sure you know what is over the horizon for yourorganization and your industry. The government calls it “intelligence.” Jim Seneffcalls it “weak signal research.” It reveals what is going on in the world so that youare always drafting, flowing, and never stuck behind.There is also systems monitoring. It is shared services and the ability to know

how we’re doing on a real-time basis.We have to make decisions as managers andas leaders. Having a balance of both of these monitoring functions is the goal.Take a blood test, for example. The results indicate the levels of various

chemicals in your body and compare them to recommended or optimum levels.That’s internal quantified monitoring, systems monitoring. Based on that, you candecide whether you should be eating more bananas, less red meat and so on.At the same time, you’re also operating in the enviro-system around you. Your

home air-conditioning system turns on if the house temperature reaches 76degrees, while the heat turns on if it gets below 74. No matter what, you’ve gotthe monitoring tool, the A/C system, and based on what is measured, it modifiesthe atmosphere in which you operate. In the same way, your organization must bequantifiably monitored to begin a process that continues to measure, modify andmorph. However, smart home systems also monitor the outside temperature sothey can determine the most efficient way to use the system.External monitoring, forward-scanning, is the continuous monitoring of the

relationship between the products and services you offer and changes in the

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marketplace. This leads you back to internal monitoring, reviewing how well yourbusiness can do all those things necessary to provide products and servicesdesired by the marketplace.Questions are answered: Can we sustain these products and services? Can we

modify them?What is the profit potential of these products and services? Anythingthat would require looking at internal monitoring. But remember — internalmonitoring is not all you do. Most likely there are companies offering similarproducts and services. You have to be externally monitoring — watching yourcompetitors — to answer questions just as important: Why are people buying theirproducts and services?What do customers want?Monitoring externally assumes your organization is internally aligned. As long as

you have your company aligned the way we have described, there is nothing moreto do but keep your eye on the horizon. Consider the pilot of a precision fighteraircraft. He checks and aligns his instruments, and is assured by the gauges beforehim that every system of his plane, including his weapons system, is performingperfectly. In fact there are so many things going on in the cockpit that the pilot hasto autonomically, handle routine functions so when a target or threat pops up onhis fire control radar, he can visually sight it and be ready to “pull the trigger.”Organizations have to be just as aligned — aligned to a target and autonomic in

response to changes in the environment. In short, pilot your organization usinghorizon management and be ready to pull the trigger when necessary.We take the term “horizon management” from nautical navigation, which, near

the coast, uses buoys or lighthouses to help chart positions. Both thesenavigational aids are firmly in place in the channel or onshore. The fact that they arestationary and constant makes them invaluable to a vessel moving toward a harbor.Organizations, too, have their own buoys or lighthouses. They have guiding

lights, beacons placed in the landscape so that at all times, the organization isaligned with the environment. Imaginative accounting and the subsequentconsequences, for example, would never arise if some kind of “moral beacon”were in place to keep the company on course and away from the kind of practicesthat interrupt and corrupt normal operations. Unlike channel markers, horizonmanagement in business is more suited to guide a company safely in pursuit oflong-term goals rather than through impending shoals.

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Safe Sailing in Uncertain Seas

In chapter four we saw that the morphing organization is integrated so that allthe parts work together, similar to a sailboat. With this in mind, let’s look at the roleof the manager in business today.On a racing sailboat, the crew is everything. Since the boats are essentially

designed the same and are supposed to meet the same specifications, it is thecrew that sets apart the winners from the losers. There are various crew memberson the boat, and all must be in position to effectively operate the boat; mostfunctions on the boat must be handled in an autonomic way. The CEO of anycompany will generally take any of these positions, depending on the size of thebusiness and how it is run. The following analogies should tell you which crewmember you are, as well as identify those who fill other positions.

MiddlemanThis is your typical entrepreneur. The middleman goes where he is needed,

when he is needed there. You can find them in companies large and small. One ofthe key roles of the middleman is to become “rail meat” when the sailboat isheeling because of the strong wind. As we see when companies go bad,sometimes it is the role of the manager to take the blame, and if really heelsharply, the rail meat will be thrown overboard.

TrimmerOn the sailboat, the trimmer is always adjusting the sail trim. This is what we see

CEOs of companies on the road to becoming a morphing organization doing. Theseconstant adjustments give the boat an edge over the competition, and do thesame in business. This shows the company’s commitment to continuous evolution.

SkipperIt is the skipper’s job to make sure that everything on the boat happens and

works in sync. He constantly directs what needs to happen, and is in command ofthe overall vessel. This is typically the manager who delegates authority and,depending on the success of the “voyage,” is the one is rewarded with praise —or blame.

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TacticianThe tactician’s role is to monitor the wind and decide how best to harness its

energy. If you have a good tactician, he will be able to spot where the wind isstrong and give the boat a real advantage in competition. Those companies whohave reached the self-actualization point of morphing have a tactician. At CNL thechairman is the tactician. AtWD-40 it is an entire team of EVPs.Having a tactician is one thing that sets apart the morphing organization from the

rest. But there are many companies out there that refuse to submit to therelentless poking and prodding.WD-40 does not supply quarterly estimates. AsGarry Ridge said in the interview we had with him, “Of course we have themetrics to gauge our near-term results, but I am managing this company for futuresuccess. This requires a perspective thatWall Street simply is not willing to lookthrough.”As we indicated in chapter three, Coca-Cola and a growing number of other

corporations subscribe to this same policy. Of course, this doesn’t mean that acompany shouldn’t create incremental goals on a monthly or quarterly basis. Butby submitting them to investors in such a fashion, the company is now held to thatstandard. And once companies start managing for the purpose of making theirquarterly numbers, they lose sight of their long-term horizon.Remember, these quarterly estimates are based on assumptions of future

events — and who has ever predicted their business future accurately?Yet,WallStreet holds companies to their quarterly predictions, so those that release theirquarterly numbers are doomed to managing in the near term, to the detriment oflong-term goals. UnlikeWD-40 and Coca-Cola, these firms, submitting toWallStreet’s previously mentioned need for instant gratification, have created acounterculture of financial disclosure.

Sustaining the Morphing Process —Even Beyond Yourself

The morphing organization experiences continual alignment with a flourishingenvironment on which it can build an enduring legacy — a sort of commercial“cathedral” that will outlive its creators. Unfortunately, to take this analogy further,too many CEOs believe that the corporate entity, the cathedral itself, is the legacy.

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After all, Notre Dame Cathedral in Paris, built in 1163, stands today as a monumentof strength and a lasting legacy of architectural greatness.But look inside Notre Dame. Its heart is dead. Today it is, for the most part, a

tourist attraction. Noisy tour groups come and go, cameras flashing irreverently,while only a faithful few still worship there. It’s more of a stone-cold mausoleumwhere French Christianity is buried alongside forgotten priests and princes. Theliving organism that created it, the medieval Christian culture, is dead, but thebuilding and its symbolism remain.Any true legacy is in the vibrancy of a living culture passed down from the

progenitors of an organization. By contrast, Independence Hall in Philadelphia is atourist stop as well. Visitors throng disgorged from buses to seeWashington’s penstand or Franklin’s desk. Yet the legacy of Independence Hall is alive. It lives in thefreedom proclaimed in 1776 by farmers and tradesmen and lawyers who practicedhorizon management and never knew it. It is a constitution that created agovernment of laws, not men. If you’re an American, you are the legacy ofIndependence Hall. And your responsibility is to pass it on to your children so theycan pass it on, intact, to their children.Horizon management shoots for the far country. It’s a management of faith

versus data.Which of this nation’s Founding Fathers, for example, could haveforeseen beyond their horizon what they’ve wrought, and how their dreams for therepublic have become the realities of the early 21st century? Like Jefferson orFranklin, you may never reach that horizon yourself. You may not even fit with whatyou see on the horizon. Nonetheless, you’ll constantly monitor it so that yourorganization can measure, modify and continue to morph, without you, ifnecessary, into the future.

Summary

Morphing companies have experienced the epiphany of conscious evolution —realizing that they have an opportunity to consciously evolve and taking advantageof it. This is what ultimately leads to the greatness that all companies are trying toachieve — providing a rewarding experience for their customers and themselves.Every company we interviewed demonstrated that course corrections over time,

however small, however subtle, are evolutionary actions that build toward adramatic transformation, by which its people can better meet their customers’needs. By contrast, had they tried to change every element of their corporate

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structure in one great effort, the resulting revolution may well have been sodaunting that it would have failed, thrown the firm into chaos and possibly disaster.By making progress a gradual process, by morphing, company leaders are more

easily able to accomplish employee buy-in, keep change under positive control, andmonitor and manage its effects on the organization.As complex as the morphing process seems, it is time to bring it full circle.

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Chapter 8

In Search of Elegance:Integrating the Elements

If an organization is to meet the challenge of a changingworld, it must be prepared to change everything about itselfexcept its beliefs as it moves through corporate life.

– Tom Peters, In Search of Excellence

Chapter 8: In Search of Elegance: Integrating the Elements

When we think of the term “elegance” in the context of mechanics, we think of,we hear, the quiet reassuring hum of a well-oiled machine. A finely tuned

automobile engine, an air-handling system, even a 12-ton combustion turbine, canoperate with such elegant precision that you don’t so much hear it as you sense itsefficient presence. If you do listen, what you hear is smooth and clear, evenmelodious, a symphony of primarily metallic components relating to one another tocreate energy or to produce motion with energy. That’s elegance.Elegance in our world soothes and pleases all our senses. If you’ve ever dined at

a Ruth’s Chris Steak House you’ve enjoyed genuine elegance at work. From themoment you take your seat until you walk out the door, the experience runs sosmoothly that it might escape your notice. You observe a virtual ballet of five or sixwaiters all working together to serve you by doing what they need to. This invisibleeffort toward perfect service is why so many business meetings occur at Ruth’sChris.After watchingTigerWoods play a round of golf, it’s easy to think, “I could do

that.” Then, during your next golf outing, you are plagued by hooks and slices, andaway that little fantasy goes. That’s becauseTiger plays an elegant game of golf.You too might be able to be elegant at golf, but not without a lot of practice andwork at refining your style. The same goes for business; elegance makes it lookeasy. But we know better.Elegance is balance too.When elegance appears, the company is no longer

trying to maximize at all costs, but, with patience and grace, optimizing its valuesand competencies.Why? Because maximizing every capability and competency inan organization will dry up resources, and disguise outputs as profits and positivecash flows.The sound and sense of morphing in an enterprise are elegant. No abrasion, no

unseemly noise, no contradictory or superfluous motion. And, of course, morphingis invisible to the eye — except when the eye sees brightening financial reports.Throughout the previous chapters, the concepts of morphing have been defined

and described. Now it’s time to discuss the top-down initiatives that will engageand motivate employees at every level to buy into morphing as a means ofsurviving and thriving, regardless of changes in the market or the economy as awhole. The actions prescribed involve leadership, systems and culture.We conclude with a summary of morphing as the elegant harmonies of several

elements — a corporate condition, a nervous system, a process, a structure and a

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discipline, the synthesis of which imbed a genetic characteristic deeply into thegrain of the enterprise.

Preparing to Morph

In order to create a distinct competitive advantage, we take each of theconcepts of morphing and construct a plan that organizations can use to developthe characteristics of a morphing organization. There is no specific order a companymust use to initiate the process, nor does a company necessarily have to completeevery step. As stated throughout this book, companies are unique — those whoare successful make decisions that are best in their unique situation.Take one of our morphing models, Scholastic, for instance. It’s in the process of

developing a customer relationship management system. Though the company isalready running very effectively, they are considering a greater reliance ontechnology. Although its business would continue to be based on relationships, itsleadership is willing to change, to evolve toward applied technology, if such achange offers new opportunities.Ascertaining the company’s readiness to morph is critical. Each company, even

individual departments within a company, will have different levels of readiness.Those levels change over time as environments change and the organizationmorphs.

Know thyselfFirst and foremost, companies need to satisfy the most basic organizational

need of profitability. Once cash flow is stable, a business can then know who theyare, what they stand for and where they are going. This information drives thebusiness strategy and structure of every organization, from mom-and-pop shops toglobal corporations.Not too long ago I, Larry, took a graduate-level course in buyer behavior. The goal

of the course was to develop a competitive strategy for taking market share awayfrom a market leader. To do this, my project team chose to work with a local bikeshop owner known as the market leader among Orlando’s specialty bike retailers.During an interview with him, we learned that even though he has been in

business for 13 years, he felt like his business has only recently been capable ofproviding excellent customer service. For years, he had to focus on sustaining

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enough profitability to survive. Now that he’s profitable, he has a clearer idea ofwhat his business does, what that business stands for and where it is going.The bike shop sells bicycles, of course, plus accessories and gear, and provides

repairs as well as other cycling-related services. The business stands for customersatisfaction, relationships and service. The owner is looking ahead, planning toopen a second location to secure exclusive brand-retailing rights.Identifying core values is essential for every company going into the morphing

mode. These values express what the company stands for, a composite of beliefsand standards by which the company operates. They are, in effect, both the identityand the conscience of the company.The people atWD-40 Corporation know exactly who and what they are. The

identity of the company is that of being the best at providing products that matchthe company’s long-standing retail niche — the “squeak, smell and dirt” business.AlthoughWD-40 markets six other brands — Spot Shot, 3-IN-ONE Oil, CarpetFresh, 2000 Flushes, Lava and SOLVOL — 60 percent of the company’s $238.1million in revenues for 2003 came from the original WD-40 product. Theestablished global recognition of its flagship product, WD-40, enables the companyto move beyond fundamental brand identity in its marketing. It has the luxury ofdreaming up an infinite number of applications for the product in order that loyalcustomers use it up as quickly as possible and have to buy more.

Know thy environmentFor a company to know itself is to understand its competencies and culture.

Companies must also be aware of external challenges and their relation to externalenvironments. Joe Lee, CEO of Darden Restaurants, Inc., dines at competitorsregularly just to get an idea of what the other guys are currently doing. Dan Lyons,Darden’s senior vice president of human resources, told us that constant researchis a company-wide priority. It is a tool of risk-mitigation, a foundation for newbusiness development and a proactive stance on identifying customer needs andmarket potential.Knowledge of what’s happening in the industry is available through market

research, customer feedback and employee surveys. This information helps keepan eye and ear on their competition not only by perusing their financial reports, butby paying attention out in the field, by listening to the buzz, by conducting “weaksignal research” with customers and suppliers over lunch.

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At the same time, while companies need to be aware of the present, the focusmust be on the future. Business environments change rapidly. Companies can onlyadapt if they know the nature and extent of that change. The benefit of specificdata exceeds that of broad canvassing of large databases as a basis for decision-making.Specificity is not only important to the obtaining relevant data, it is also possible

due to today’s technological advances.While real-time information makes currentdata a reality, it also allows organizations to survey explicit information relating toits consumers. Morphing companies use technology as an important tool inkeeping an eye on competition and on the changing desires of their customerbase.

Commit to conscious evolution — not technologyA commitment to conscious evolution is not a commitment to technology. A

commitment to pure technology typically takes a company further into thetrenches of IT and software applications than they need to venture. As mentionedpreviously, on my sailboat there is quite a bit of computing power, yet I use it forbasic chart plotting and to drive the autopilot. It is nice to have, but buying a moreexpensive GPS system would be an even more inefficient use of technology andmoney. If the analogy were carried forward to your organization, the 90 percent ofunused capacity would be nothing more than a black hole costing more money.Similarly, most computers that have the power to do things that only computer

programmers understand. Yet each year, many companies upgrade their ITsystems or get super-fancy notebooks to have the best computer money can buy.Then employees use the new system for nothing more than what they did on theprevious system. Including Solitaire. A company driven, even in part, by the pursuitfor the latest computer system, regardless of requirements, has committed itselfto wasting money.A commitment to conscious evolution, by contrast, is a commitment to choosing

the technology that fits the needs of the organizations, its employees andcustomers — both now and in the future. It requires an initial investment in newsoftware programs and hardware, networks and training. A commitment toconscious evolution also requires an intimate knowledge of your business — itscompetencies and culture and its external challenges and environments. Armed

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with that knowledge, executives can confidently choose the platform that is thebest fit for the company.It is key that morphing companies use long-term horizon planning in information

integration. Today’s software programs and applications will not necessarily meetthe IT needs of tomorrow. Finding the programs and vendors that have thecapacity, ability and motivation to grow is essential to conscious evolution. It is acommitment to creating an electronic platform that will connect vendors,employees and customers as technology and needs evolve. As we have explored,that is one of the majorWal-Mart competitive advantages over Kmart. Wal-Marthas the technology and uses it, mines it and integrates it within the company andwith suppliers.Finally, commitment to conscious evolution often requires saying goodbye to

legacy IT system. A corporation may be using what was a state-of-the-artinformation-sharing system. Antiquated market leaders such as iMIS have capturedupward of 40 percent of market share. A commitment to that particular technologywas made in the past to meet past requirements, but that doesn’t mean it’smeeting the needs of the company now and into the future. Companies must havethe foresight to look at where they need to be, where they need to go and find theelectronic platform that will get them there. For a lot of companies, that meansletting go of existing systems, even if it means building a new platform to get thecompany where it needs to be.A major service-based company that we know was still usingWindows 98-based

software applications in 2004. Many of their applications are so old that cross-organizational integration is not only impossible, employees in divisions around thecountry spends hours every week converting data so it can be sent to corporatefor integration into reports. Several of the companies they have acquired have hadto dumb down their state-of-the-art systems so that they can fit into a legacysystem that is a serious impediment to a forward-looking, morphing organization.We are sure that executives in this organization would agree with the fact that

saying goodbye to legacy systems would be desirable, yet senior managementsees it as being too difficult and expensive to accomplish. It would be a distractionto current initiatives and an impediment to current period earnings. However, thecost of a unified business platform that fits every facet and function of anorganization’s environment is miniscule compared to the consequences of failing tostep up to the plate and commit to integration. Every day an organization delays in

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this most important concept, the more they leave the door open for a competitorto take the initiative in their market, the more they leave themselves open tomaking decisions without timely and accurate data. How much is that worth inyour business?We end with a synopsis of the elements needed for any enterprise to become a

morphing enterprise.

Corporate culture — the groundwork for morphingMorphing organizations begin with a corporate culture that is expressed in terms

of core values, a belief system that is clearly articulated and enthusiasticallyadopted. Employees, for example, want to believe that others around them work,act and speak with integrity. They want to believe that management cares aboutthem.When worthy virtues are exemplified in the culture — and practiced in goodfaith every working day —the groundwork is completed to begin creating amorphing enterprise.

The unique enterprise experience — the condition for morphingThere’s nothing new about a company working to reward its customers with

good products or services at a fair price, while at the same time rewarding itsshareholders with healthy stocks and periodic dividends. Traditional wisdom says,“Please the customer, reward the shareholders.”But, as we’ve learned, an enterprise must also provide a rewarding experience

for another group — its employees. A firm can produce and sell the finest gadgetin the world, but if untrained, unmotivated, even disgruntled employees are slow torespond to customer requests, orders or complaints, the quality of the product orservice alone will not retain customer loyalty. And it won’t be long before theshareholders are not enjoying a rewarding experience with the portfolio.The Unique Enterprise Experience for a corporation is one in which that

company operates in such a way that it provides a rewarding experience not onlyfor customers and shareholders, but for employees as well.Like a three-legged stool of rewarding satisfaction, the Unique Enterprise

Experience supports the growth of a morphing organization. It provides theconditions necessary to inaugurate the characteristics of morphing and nurturesthem to fruition.

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The unified business platform — the nervous system for morphingMorphing requires continuous, universal communication, the ability to access

and share data enterprise-wide. This level of communication is impossible whenvarious functions of the enterprise maintain their own job-specific software.Whether a company is doing business across town or across the globe, it cannotoperate seamlessly when, for example, sales and marketing are using marketing-specific software, HR is using its own software and 10 branch offices havepurchased seven different management software programs.A unified business platform replaces every legacy system with a common, all-

inclusive communications system. The UBP has the ability to keep every employeecurrent and connected. Like a central nervous system, its nerve endings touchevery cubicle, every workstation, providing enterprise-wide Intranet, e-mail, datadisplay and analysis, calendars, directories, archives, teleconferencing, voice mailand any other communications function required. No employee should ever againshop Circuit City for an EZ Bookkeeping software package… or AdminiSoft 2.0.Your unified business platform, comprehensive and scalable is the last softwareyou should ever purchase.

Monitoring, measuring and modifying — the processes of morphingWith a unified business platform in place, every task and project across the

scope of the enterprise can be coded, tracked and monitored for progress. Thatincludes sales figures, manufacturing reworks, customer returns, advertising costsper sale, even employee performance. Quantitative comparisons can be mademonth to month, year to year, brand by brand, sales rep by sales rep… Usingpredetermined metrics, it can be graphed, charted and measured against mutuallyagreed-upon expectations. And in the hands of competent management,measured results become a flight plan for whatever incremental changes in courseare necessary. Rule of thumb: If it can be measured, it can be managed.

Silo/shared services architecture — the structure of morphingIn any sales-driven enterprise, the sales representative is the outreach arm by

which sales are made, revenue is generated and customers are kept satisfied,enjoying the “rewarding experience” of being a customer. And it only makes sensethat the best place for a sales representative is pitching a potential customer… orout serving the day-to-day needs of a customer… or answering questions… orsolving any problems that may arise.

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Unfortunately, traditional business practice also demands that a sales repcomplete paperwork on sales calls, sales activity and travel expenses; coordinatewith suppliers; attend sales meetings; troubleshoot equipment or service glitches;return phone calls; schedule and juggle appointments; plus handle numerouschores that enable the sales office to operate more smoothly.As we have seen, the shared services/silo enterprise architecture assigns core

support responsibilities to a centralized administrative support function. Sales andmarketing people are grouped in surrounding clusters or silos, where they focus alltheir time, attention and talents on expanding sales and customer satisfaction. Thisstructure gives salespeople virtually all the entrepreneurial latitude of anindependent organization, with all the leverage and support of a large corporateentity. At the same time, one shared service function is supported by several silos,making such support far more cost-effective.

Internal alignment — the discipline of morphingLike the members of a cathedral choir in sublime performance, every individual

in a morphing organization is expected to be performing on the same page, inharmonic accord with those around and with the enterprise as a whole.Specifically, every employee needs to understand the culture and values of the

company, its mission, goals and objectives. Each employee must also grasp andsubscribe to the vision of that company. The commonalities enable the enterpriseto achieve and maintain internally what we refer to as “alignment.”Alignment is a function of the unified business platform, by which the company

can communicate to every employee, from the executive offices to the mailroom.At the practical level, alignment includes the continuous, uninterrupted flow of

information pertaining to the company and to their department of that company.And because trust builds loyalty, truth is as important as flow. Employees can smella cover story miles away. They want and deserve to know what’s really going on —and trust what they’re told. News, information and data can be disseminated bymeans of periodic meetings, company publications, memos, e-mail orWeb site.You recall our definition of “elegance,” that virtually soundless humming of a

machine or organization operating in perfect balance and synchronization. Muchlike an automobile, then, internal alignment is critical to the organization forenabling it to provide ideal performance… to achieve elegance.

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Intelligent DNA — the compass of morphingWhen all the elements of morphing are installed in a company, Intelligent DNA is

created. Intelligent DNA is born of information and intelligence gathered frominside and outside the company. It becomes an intrinsic characteristic buried deepin the organization. It communicates intuitively how and when and to what degreean enterprise should incrementally adjust and self-correct. Intelligent DNA is thedriver of a company’s conscious evolution, the direction finder that incessantlytakes an enterprise from where it is to where it needs to be as the externalenvironment of market forces inexorably evolves.

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Epilogue

Morphing —The Last Word

Epilogue — The Last Word

Morphing — The Last Word

Implicit in everything we’ve discussed is the fact that there is only one reliablesource of capital: profit. Every other source is illusionary, as, we feel, Kmart’sEdward Lampert will realize at some point following his purchase of Sears. Off-loading real estate for cash will never enable “Ksears” to return to prior to thepoint of no return. Until that organization adopts the principles of morphing, call itwhat they will, Lampert has merely entangled the anchors of two sinking ships.

Morphing, finally, is paying attention. It’s “management by walking around” tosee why your business is humming — or coughing! It’s installing the metrics tomeasure your productivity and quality — and using all that data you collect fortaking decisive action to improve them.

Morphing is recognizing that nothing remains static, especially in a marketplacewhere demands change with frenetic fickleness. Today’s state-of-the-art computeror wireless wonder will be tomorrow’s carbon paper, slide rule or rotary phone.

Morphing is creating lean, sleek silos of entrepreneurial energy... hungry tacticalteams of marketeers fired by excitement, high on imagination and unencumberedby the chains of administrative paperwork.

Morphing is the conscious evolution of your company, turning... turning... so thatits leading edge is always just beyond where the market — and the competition —is today. At the same time, your executives, beginning with your CEO, are alwayslooking beyond even that point, squinting with anticipation toward whatevertomorrow’s potential may be.

Morphing is using the concept of adjacency to recognize a horizontal market,and to move easily, step-by-step, from one product or service to another, relatedproduct or service that a prospect or customer needs. Apples to apple juice toapplesauce.

Business, like life, was never meant to be stodgy and dull. You owe it to youremployees, your shareholders and especially your customers to make their sharedinterest in your company, your Unique Enterprise Experience, a genuinelyrewarding one, a wellspring of vitality and profit that can be achieved and sustainedno matter what the economic climate looks like outside your window.

We wish you well.

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Morphing: Radical Evolution for Revolutionary Times · Morphing: Radical Evolution for Revolutionary Times Preface It’snotoftenthatacareerentrepreneurialmaverickandanivy-coveredcollegedeanﬁnd

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