WSJ.com

Why Leaders Should Write Their Company’s Obituary

Writing your own corporate obituary can reawaken your company's incumbent advantage.

Par James Allen

First published on mars 12, 2017
min


This article originally appeared on WSJ.com. Do companies, like people, have an expiration date? Some evidence suggests that the half-life of business models has been shrinking and established firms have been disappearing at an increasingly rapid rate. Research by Bain & Co. finds that two out of three large companies (worth $5 billion or more) will stall out, go bankrupt, be acquired or break into pieces in the next 15 years. Despite that evidence, I believe it is possible for companies to be self-renewing and live indefinitely. This can only happen if leaders are aware of what might kill the company, and have the commitment and persistence to do something about it. How can companies get on the path to self-renewal? Consider the simple exercise often given to individuals engaged in career or life planning: Write your own obituary. Writing down what colleagues, friends and family members might remember you for can help you see how you should be living. It shows where to direct your energy as well as which activities are dispensable or harmful. Learn More Founder's Mentality Fast-growing companies can become global leaders without losing the values that helped them succeed. Bain’s research explores how large incumbents can also reignite their growth by recapturing their Founder’s Mentality®. The same exercise can help CEOs determine what their organizations need to live a productive life, and what could lead to an untimely death. CEOs should imagine they are business journalists, writing a postmortem on how the company began a slide toward oblivion—how it lost its leadership position, was targeted by an activist investor or acquired by a company with a more successful business model. What were the likely causes? Which factors in the downfall were knowable but not seen or addressed by executives? Which former strengths became fatal weaknesses? What could senior leaders have done differently to position the company for success? These theoretical obituaries would vary greatly in detail, but I suspect they will include a common thread: The natural life cycle of many companies goes from insurgency to incumbency to struggling bureaucracy to replacement by the next wave of insurgents. Consider Frederic Tudor, the so-called Ice King of New England. In the early 19th century, he hit upon the idea of shipping vast quantities of ice cut from New England lakes to southern climates, where the locals could benefit from its cooling effects. He took advantage of three nearly free New England commodities: lake ice for the core product, scrap sawdust for insulation and unfilled capacity on New England ships traveling to the Caribbean empty to pick up agricultural products for consumption back home. Tudor eventually exported his ice all over the world. The Ice King was an insurgent—until he wasn’t. He embraced every invention and disruption that would help advance his insurgency—until he didn’t. When a Florida physician named John Gorrie figured out how to create a more reliable source by using compressed air to freeze water into ice—an early version of the freezer—Tudor launched a smear campaign. Tudor decided that the future was a threat to him. There was nothing inevitable about this. Tudor could have embraced Gorrie’s invention and adapted his model. Like Tudor, too many incumbent companies, with the tacit permission of their CEOs, view the future defensively, which means they must fight or delay it. At best, they view the future passively, which means they have no power to shape it. They benefit from current industry rules and pricing structures, so they try to protect current profits even when prices are falling for their core offerings. Meanwhile, insurgent competitors bombard customers with superior offerings. Writing the obituary forces a leader to confront the future. CEOs will likely see that the company has an Engine 1 (which got them here) vs. Engine 2 (which will power their future) problem. Engine 1 generates most of the revenue and all of the profit, so it must be constantly fine-tuned. Engine 1 can also expand a company’s offerings into adjacent customers or regions. But the CEO has to spend some time identifying and developing Engine 2 for the next wave of growth. The trick for CEOs is to find a balance. They must lead the incumbent business and maximize returns on capital. Yet they must thrive in the industry’s turbulence, defining the company against the next wave of insurgents, while rapidly adapting to their innovations. What can CEOs do to reawaken their companies’ incumbent advantage and avoid sclerosis? Write their own corporate obituary. Understand their unique pathology and design the right self-help cure. Taking an honest look at their company, and then acting on what they see, can help ensure that their obituary isn’t the end, but a new beginning. James Allen is co-leader of the global strategy practice at Bain & Co. and co-author of The Founder’s Mentality.

This article originally appeared on WSJ.com.

Do companies, like people, have an expiration date? Some evidence suggests that the half-life of business models has been shrinking and established firms have been disappearing at an increasingly rapid rate. Research by Bain & Co. finds that two out of three large companies (worth $5 billion or more) will stall out, go bankrupt, be acquired or break into pieces in the next 15 years.

Despite that evidence, I believe it is possible for companies to be self-renewing and live indefinitely. This can only happen if leaders are aware of what might kill the company, and have the commitment and persistence to do something about it.

How can companies get on the path to self-renewal? Consider the simple exercise often given to individuals engaged in career or life planning: Write your own obituary. Writing down what colleagues, friends and family members might remember you for can help you see how you should be living. It shows where to direct your energy as well as which activities are dispensable or harmful.

Learn More

Founder's Mentality

Fast-growing companies can become global leaders without losing the values that helped them succeed. Bain’s research explores how large incumbents can also reignite their growth by recapturing their Founder’s Mentality®.

The same exercise can help CEOs determine what their organizations need to live a productive life, and what could lead to an untimely death. CEOs should imagine they are business journalists, writing a postmortem on how the company began a slide toward oblivion—how it lost its leadership position, was targeted by an activist investor or acquired by a company with a more successful business model. What were the likely causes? Which factors in the downfall were knowable but not seen or addressed by executives? Which former strengths became fatal weaknesses? What could senior leaders have done differently to position the company for success?

These theoretical obituaries would vary greatly in detail, but I suspect they will include a common thread: The natural life cycle of many companies goes from insurgency to incumbency to struggling bureaucracy to replacement by the next wave of insurgents.

Consider Frederic Tudor, the so-called Ice King of New England. In the early 19th century, he hit upon the idea of shipping vast quantities of ice cut from New England lakes to southern climates, where the locals could benefit from its cooling effects. He took advantage of three nearly free New England commodities: lake ice for the core product, scrap sawdust for insulation and unfilled capacity on New England ships traveling to the Caribbean empty to pick up agricultural products for consumption back home. Tudor eventually exported his ice all over the world.

The Ice King was an insurgent—until he wasn’t. He embraced every invention and disruption that would help advance his insurgency—until he didn’t. When a Florida physician named John Gorrie figured out how to create a more reliable source by using compressed air to freeze water into ice—an early version of the freezer—Tudor launched a smear campaign. Tudor decided that the future was a threat to him.

There was nothing inevitable about this. Tudor could have embraced Gorrie’s invention and adapted his model. Like Tudor, too many incumbent companies, with the tacit permission of their CEOs, view the future defensively, which means they must fight or delay it. At best, they view the future passively, which means they have no power to shape it. They benefit from current industry rules and pricing structures, so they try to protect current profits even when prices are falling for their core offerings. Meanwhile, insurgent competitors bombard customers with superior offerings.

Writing the obituary forces a leader to confront the future. CEOs will likely see that the company has an Engine 1 (which got them here) vs. Engine 2 (which will power their future) problem. Engine 1 generates most of the revenue and all of the profit, so it must be constantly fine-tuned. Engine 1 can also expand a company’s offerings into adjacent customers or regions. But the CEO has to spend some time identifying and developing Engine 2 for the next wave of growth.

The trick for CEOs is to find a balance. They must lead the incumbent business and maximize returns on capital. Yet they must thrive in the industry’s turbulence, defining the company against the next wave of insurgents, while rapidly adapting to their innovations.

What can CEOs do to reawaken their companies’ incumbent advantage and avoid sclerosis? Write their own corporate obituary. Understand their unique pathology and design the right self-help cure. Taking an honest look at their company, and then acting on what they see, can help ensure that their obituary isn’t the end, but a new beginning.

James Allen is co-leader of the global strategy practice at Bain & Co. and co-author of The Founder’s Mentality.