Here today, here tomorrow: is your company in for the long run?

Jun 01, 2004 Strategy, The East African

You lead a large, long-established, obviously successful East African company. It is a veritable behemoth, looming large over the corporate landscape. Its products are household names, loved by consumers. It is a profit machine, churning out handsome dividends to smiling shareholders. There is every reason to feel confident about the future.

Allow me to send some strong whiffs of coffee in your direction: wake up; you could be extinct within five years!

East Africa’s corporate sector is staring at a whirlwind of violent change, make no mistake. And when we reap this whirlwind, there will be a number of famous casualties left by the wayside. We can expect unprecedented volatility in earnings and protracted profit slumps for all but the best companies.

Why? Because we’ve had our heads in the sand for far too long, and retribution is on its way. Many of our famous corporations have ignored the need to computerise their operations – but their competitors, both here and abroad, haven’t. These companies persist with manual, paper-based processes, while those that will bring them down obtain real-time information at a mouse-click. Others are still treating their workers as beasts of burden – ferried to work in trucks, minimised on the profit and loss account. Their future rivals are regarding employees as part of their capital and a source of competitive advantage.

Major political and regulatory change is around the corner. Donors are linking aid flows to changes in legislation, aimed at freeing up markets and getting the state out of private business. The word ‘monopoly’, which kept our businesses unnaturally robust and our CEOs unnaturally somnolent for so long, has become a term of derision. Citizens are no longer the goats we used to shepherd into polling booths to vote as directed, and will agitate for economic development as never before. Customs treaties are in flux throughout the region, and trading blocs will take shape and dissolve before our eyes over the coming years. We will soon be engaged in hand-to-hand market combat, not just with our fellow Kenyans, Ugandans and Tanzanians, but with South African, Egyptian, Indian, Middle Eastern and Chinese firms. What has been a trickle could soon become a flood.

To cap it all, our consumers will no longer stand for any nonsense in product or service quality. They have tolerated shoddy goods, defective parts and sullen service for decades. As our middle class grows, travels the world and consumes world-class products, it will place its wallet where the quality is. As our prodigal sons and daughters in Diaspora return to these shores, they will infect the consumer population with tales of how things are done elsewhere – and will carry with them the expertise to make it happen here.

If you are a business leader who cannot see these forces at play, it can only be because there is sand in your eyes. You think I exaggerate? Cast your eyes across the oceans. Coca-Cola, the unchallenged world leader in soft drinks for as long as any of us can remember, is reeling from a simple change in customer tastes. As people get better off and more knowledgeable, they just don’t like the idea of sugary carbonated drinks any more – no matter how much trendy advertising you throw at them. The company that has thrived for a century on the basis of its much-protected cola recipe now requires reinvention.

Or take Microsoft, the world’s most dominant company for the past 20 years or so. You would think Microsoft’s leaders could afford to take it easy. Not so. “We are always two years from irrelevance”, Bill Gates is reportedly fond of telling his managers. And he is right. The company currently faces a relentless onslaught from Linux, the open-source operating system that is providing a cheaper and more flexible alternative to customers around the globe.

And therein lies the answer to the problem. Gary Hamel, a leading management thinker, says that companies have to learn resilience – the ability to recover from the shocks and stresses of an ever-changing business landscape. Crucially, however, resilience is not about repeating the formulas that led to previous successes – it is about being willing to shed them. Resilience is about dynamically reinventing business models and strategies as circumstances change. It is not about “rebounds” or even “turnarounds” (Mr. Hamel memorably refers to a turnaround as “a transformation tragically delayed”). It is about having the ability to anticipate changes and movements. It is about having the capacity to change even before the need for change is obvious.

How do you instil such abilities and capacities in your successful company? The first step is to ensure that all your senior managers accept reinvention as a fact of life. Consider any of the consistently successful companies in East Africa, and you will see a record of reinvention. East African Breweries Limited was a traditional monopolistic brewer as recently as ten years ago, with a large portfolio of physical assets and a huge workforce. It then embarked on a journey of questioning all the fundamentals of its business, and began to shed assumptions and sacred cows in equal measure. It discarded idle assets, revamped all its key processes, and gained formidable strength in marketing. This dramatic streamlining saw it face the two most daunting challenges in its recent history – the arrival of SAB/Castle, and the seismic shift in consumer tastes and drinking patterns – with aplomb. Today, it is an extremely fit business, generating KShs 28 billion (USD 350 million) in annual turnover from just 1,100 employees.

Nation Media Group, with its “Nation” brand, has dominated the East African newspaper market for decades. Yet it saw the seeds of destruction in this very dominance years ago – and set out to do something about it. Today it is a diversified, multi-territory media house – with a stable of radio and TV stations, a variety of newspapers, publishing and courier businesses, and one of Africa’s most popular websites. As competition intensifies in a once-quiet media industry, NMG is able to lead from the front.

Strategies decay. The first step in building strategic resilience is to recognise and embrace this fact. Using the successful strategies of yesteryear is almost certainly a the path to an early corporate grave. Where will fundamental change hit your company? Being able to ‘see’ the change on the horizon requires many things. It means you have to be at the places where change happens first – like the Internet, or where the young hang out. It means talking regularly to the customers who don’t buy from you. It means listening with a keen year to the activists who may assail your company.

It also means having the will to experiment, continuously. Resilient companies encourage innovation and reward it. They listen to what may sound like highly debatable propositions. As Mr. Hamel puts it, they “launch swarms of low-risk experiments” – and hope that one or two may provide tomorrow’s outsize successes.

The companies that thrive and survive move resources quickly and efficiently. They recognise that legacy strategies have large constituencies of vested interest -and dismantle them ruthlessly. They earmark a proportion of their capital budgets to innovative projects – and are willing to lose money on them.

Ultimately, resilience is a function of diversity. Biological diversity underwrites our planet’s survival, and Mr Hamel points out that our companies are no different. We have to encourage diversity in our ranks – diversity in race, tribe, age, background, experience and skills. Anticipating the future demands the ability to listen to many voices simultaneously – and hear the winning idea that may emerge.

Building strategic resilience is an act of courage. Successful CEOs need to have the guts to dismantle the very strategies that led to their success in the first place. By the time external forces start to drive change in the company, it’s usually too late. The impetus that matters can only come from within.