Diamonds. “Tears of the gods.” The most concentrated form of wealth known to humanity. Few objects conjure such a range of experience and emotion. Searing heat in deep layers of the earth’s mantle yields the product called ice. Miners in hardscrabble African villages and polishers in India’s bustling diamond centers create gemstones worn by the world’s elite. A product often associated with bleak and poor regions, diamonds have become a symbol of enduring love.

For all the emotions evoked by the gems and their production, the business world of diamonds was, for decades, more like diamond itself: colorless and highly stable. De Beers Consolidated Mines, descendant of a company founded in 1880 by explorer and adventurer Cecil Rhodes, reigned over the world’s diamond supply, parceling out the gems to dealers in a manner designed to maintain prices and protect profits. Sir Ernest Oppenheimer, chairman of the company that controlled perhaps three-quarters of all diamonds mined and sold in the twentieth century, described the strategy explicitly: “Only by limiting the quantity of diamonds put on the market, in accordance with the demand, and by selling through one channel, can the stability of the diamond trade be maintained.”

Yet by 1999, De Beers’s run of success, like all good things, seemed to have come to an end. New Chairman Nicky Oppenheimer and new Group Managing Director Gary Ralfe were looking at a company whose market value had declined substantially, whose market growth rate had turned negative, whose profit margins were hovering close to zero, and whose share of global production had dropped to around 40 percent. As Oppenheimer and Ralfe discussed the situation with shareholders, the other board members, outside analysts, and the management team, they found no shortage of opinions about how to tackle the situation.

Some observers felt that the market would turn around. It was thought that the key was to hold the course for a bit longer, cutting costs and using De Beers’s industry scale to resuscitate the century-old formula of supply control. But hadn’t things changed forever with the entrance of new competitors? Others believed that the answer was to attempt to recoup market share of production by acquiring competitors or by investing in new mines. Of course, De Beers was already investing in new mines. The question was, How would further investment revive the company’s performance in a new competitive environment, where the development of synthetic diamonds was on the rise? Was it possible that De Beers’s primary source of past differentiation as the controller of supply was finally reaching some natural limit?

One of De Beers’s unique and most valuable assets was a $5 billion stockpile of rough diamonds that it could draw on to stabilize prices in the marketplace. Yet even this massive asset was no longer an effective tool, and it was becoming difficult to maintain given its enormous economic opportunity cost. A few mavericks suggested that perhaps De Beers should begin to diversify into new areas, recognizing that the market for diamonds was not what it used to be. But wasn’t that the riskiest strategy of all? De Beers was diamonds.

As the financial pressure mounted, the management team concluded that the situation De Beers faced would not be reversed by following a strategy close to the one it had followed in the past. Maybe, they thought, the answer could be found in De Beers’s many underutilized customer assets: its unique image in consumers’ eyes as the custodian of what the company would come to call “the diamond dream” as well as the strong De Beers brand, the company’s unique access to and reputation with customers at all points in the value chain, and its track record as the provider of the most valued gems in the world. Perhaps the company could find a way to shift from a supply-based source of competitive differentiation to a new strategy built on these hidden assets.

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Unstoppable

Learn more about how companies can use hidden assets to renew the core and fuel profitable growth.

And find a way it did. De Beers shifted the strategic focus from its obvious asset—the mines and the huge stockpile of rough diamonds—to hidden assets rooted in the company’s unique relationship with consumers and customers and the power of the De Beers brand, which is virtually synonymous with the finest diamond gemstones. These assets and their power were hidden, because the success of the supply-driven strategy had long compelled a focus on the supply-based assets. This focus was intensified by the formal, almost secretive relationship De Beers had with its customers, who purchased gems in lots they could not view beforehand at what were essentially take-it-or-leave-it prices that further reduced customers in De Beers’s estimation. Once the idea surfaced to turn the strategy on its head, ideas came fast and furiously, as if bottled up for years: branding, retail, jewelry design, consumer segmentation, and the umbrella marketing concept of De Beers as global custodian for all time of the diamond dream.

In the months that followed, De Beers outlined and began to implement this strategy, a radical departure from its profit model. The company liquidated 80 percent of its diamond inventory and invested in new forms of generating demand and in getting closer to each customer segment. It invested in brand building. It developed new product ideas for its distributors and jewelers and new consumer advertising campaigns to market those ideas. For example, De Beers developed new products such as the three-stone ring (to celebrate the past, present, and future of a relationship, or the birth of a child), diamond rings for men, and the “right hand” ring for women—a diamond ring women bought themselves as a symbol of independence.

For the first time in a century, De Beers even restructured its storied client base and uniquely strict contracts to sight-holders, its core customer base. Sight-holders are the diamond dealers and cutters and polishers who buy rough stones and turn them into gems for future sale. One observer, looking at De Beers’s history and proposed future, queried in the midst of the change, “Can an ardent market manipulator such as De Beers, which until recently was proud to call itself The Syndicate, really be taken seriously when it announces such a dramatic volte face? After all, its first two changes alone will shine enough light on murky practices to revolutionize the gem trade . . . The new rules will change this relationship dramatically.” And they did.

Gareth Penny, the current group managing director, explains:

It was clear when the senior team got together in 1999 that we had to make major changes. You have to start with the big questions: what is your DNA? What is it you are really good at? I think most people are not very good at understanding their core. In 1999 I am not sure that we understood that, or how it had changed.

We have been more successful than we expected. Driving demand, we have gone from negative growth in diamond jewelry worldwide to over 3 percent growth per annum and, more recently, to over 5 percent growth. This is a significant accomplishment in a $60 billion global industry. By 2001, we valued the diamond part of the business at $9.3 billion, quite a change from its estimated value of only $1 billion just two years earlier. (De Beers contained more than the diamond business; for instance, it held a 35 percent stake in Anglo American.)

No two situations are alike, and De Beers is clearly a unique business with a history like none other. However, the wrenching issues faced by Oppenheimer, Ralfe, Penny, and the rest of the management team are not unusual. Are the changes in the marketplace ephemeral or permanent? Will they happen gradually, buying us time? Or are we at the tipping point of acceleration into crisis? Can the solution be found in operational restructuring or organizational change, through fundamental strategic redirection, or some combination of all three? If the answer is strategic, what is the right path forward? Is it a small course correction, or is it more significant? What do I do now? And how do I keep running a business while working at the same time to change it fundamentally?

This book is about what to do when you begin to fear that your success formula may be approaching (or careering toward) its natural limit or seems to be losing momentum. The focus of the research underlying the book was to distill the lessons of companies from around the world that set out to reinvigorate their businesses by making fundamental strategic changes. We set out to understand how businesses that seemed to be on an unsustainable path, and facing challenges that were becoming more difficult, reinvented their strategy, renewed their performance, and at the same time continued to operate. How did these management teams identify a new course? Which methods were most useful in figuring it out? What are the repeatable success factors that can be applied in other businesses? How did the companies shift from one course to another?

Other books have examined business turnarounds. Jim Collins, in Good to Great, looked at the remarkable stories of eleven businesses that made significant and lasting improvements in performance. Unstoppable is different in several respects. First, the focus here is on strategic redirection. Collins’s companies generally did not redefine their strategy but rather revitalized their organizations, management approaches, and operations. In addition, this book examines closely the role of hidden strategic assets in transformation, a topic not probed in Good to Great.

The intent is by no means to suggest that strategic change is always the answer. Often it is not. Nor is the objective to discover a silver bullet solution to a vexing problem. Instead, my goal is to provide some lenses and benchmarks and tools that executives can use when it begins to dawn on them that their company’s core strategy and competitive advantage of the past may no longer be enough for the future.