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When growth stalls there's often blood on the carpet
What do Levi Strauss & Company, 3M, Apple, Banc One, Caterpillar, Daimler-Benz, Toys ‘R’ Us and Volvo have in common?
They are all among the companies that Olson et al. (Harvard Business Review, March 2008) cite as suffering a sudden stall in growth after a period of healthy rises in revenue.
Take the case of Levi Strauss & Company. It achieved $7 billion sales for the first time in its history in 1996, after a decade in which overall revenue had more than doubled. But then sales nose-dived. By 2000, revenues were 35% down on four years earlier and the company’s market value fell from $14 billion to $8 billion. Its share of the US jeans market more than halved during the 1990s. And while Levi Strauss is now regaining its footing after a programme of organizational change, it has yet to return to growth.
According to Olson et al, the most common reaction when growth stalls at a major company is to blame ‘big, external forces – economic meltdowns, acts of God or government rulings – for which management cannot be held accountable’. In fact, though, four reasons account for almost half the failure to maintain growth: the firm’s inability to change from a previous premium position; a breakdown in innovation management; a premature abandonment of core business; and a lack of leaders and employees with the skills needed to execute strategy.
The authors put forward their view that companies should commission a team to identify their core beliefs, analyse their strategy, appoint a ‘shadow cabinet’ of talented employees to test the executive-committee agendas, and ask a venture capitalist to attend the strategy review.
Olson et al. point out that, on average, companies lose 74% of their market capitalization, as measured against the S&P 500 index, in the decade surrounding a stall in growth. Once growth has stalled, the chances of recovery diminish rapidly over time. Yet many of the reasons are controllable. In this context, the natural reaction of most companies to a stall in growth – to replace the chief executive and the rest of the senior management team – is entirely logical.
Such blood on the boardroom carpet makes great television, as anyone who watched the US series about Madison Avenue in the late-1950s and early-1960s will know. The current Mad Men follows a long tradition of dramas about scheming bosses and boardroom battles, which includes such programmes as The Brothers, The Plane Makers, The Power Game, Mogul, The Troubleshooters, Dallas and Howards’ Way.
Morrish (Management Today, Feb 2008) wonders why, of late, programme-makers seem largely to have shunned the genre in favour of dramas based in hospitals, doctors’ surgeries and police stations. Such settings are, Morrish concedes, more immediately exciting than the offices of a major conglomerate, but for every Sergeant Barlow there is a JR Ewing and for every Dr Kildare a Ken Masters.
With all its machinations, intrigue and political incorrectness, Mad Men may have made the world of business ‘sexy’ again. And Donald Draper seems destined to take a place among the pantheon of fictional boardroom greats.