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What Got Us Here Won’t Get Us There

September 7, 2013

Any firm pursuing growth straddles a shifting line between stability and risk.   Entering new markets, launching new product lines, and establishing new distribution channels all require a dynamic blend of proven and experimental strategies and processes.

As such, HQ staff and their mature lines of business need to refine and recalibrate how they interact with all parts of the evolving organization.

Firms that succeed in this regard are particularly good at following two key rules of business transformation:

Rule #1:  Cull your livestock: protect the “cash cows,” purge the “sacred” ones

Cash Cows deliver the substantial profits that underpin the company’s value proposition for the foreseeable future. These are the business units that have achieved sufficient scale and maturity to produce healthy operating margins.  And it is these profit centers (vs. fresh injections of outside capital) which often fuel a firm’s expansion plans.

Yet Cash Cows often feel marginalized in the fanfare of growth initiatives, especially when management is faced with the classic resource paradox:   the need to spend disproportionate time and resource for their fledgling operations.   Executives must take care not to loosen their embrace on those delivering the major revenue streams contributing to the healthy bottom line.

It might not be sexy but the care and feeding of a firm’s Cash Cows must remain a core operating principle for the firm’s management.

But if a Cash Cow begins to “coast” on past success rather than on-going (or potential) contribution, it can quickly take on the attributes of a “Sacred” cow, where flawed thinking and sub-par performance are allowed to skew decision-making and the allocation of the firm’s time and resources.

Sacred Cows appear in all parts of the organization:  in the lower and middle ranks, they are those “pioneer” employees whose loyalty exempts them from hewing to the firm’s core values or evolving performance standards; at the top, they are those executives whose leadership deficiencies go unchallenged by virtue of their positional power or special relationship with the CEO.

Sacred Cows emerge in organizations that assume future success is simply a matter of recreating conditions that produced past glory.  This false logic can prove fatal with new customer channels, emerging markets, or evolving consumer trends.  Companies unwilling or unable to adapt to the new landscape do so at their peril.

Rule #2:  Calibrate your flight plan: fly the HQ helicopter according to the terrain

The role of the HQ in a mature organization is one of strategic governance and stewardship.  Staff in these roles tend to fly high so they can scan the horizon for competitive threats and market opportunities.  If they fail to maintain sufficient distance from the day-to-day operations, they can easily be drawn into the weeds, at once dis-empowering those tasked with regional and local leadership and, critically, taking their eyes off the big picture.

But when a company enters new territory (products, customers, consumers, or geography), it needs to adjust its altitude, especially at the onset, when it is  confronted with “unmapped” terrain.  In this initial phase, savvy companies take pains to “fly low,” acquiring the critical first-hand, on-the-ground intelligence to understand local conditions and to nurture new relationships.  Simply hiring local staff or letting an acquisition “fend for itself” may be less disruptive in the short-term but will hamstring efforts for long-term integration and the creation of a shared corporate culture.

Ultimately, successful business transformation is more art than science: each company has its own “sweet spot” that optimizes both its legacy operations and its new ventures. Executives in these companies are highly attuned to subtle changes in their “livestock,” knowing when to nurture and when to show “tough love.” They have mastered the ability to inject their company DNA in ways which resonate in the new lines of business yet fundamentally align them with the broader corporation. They remain alert to the new terrain, constantly tweaking the mix of centralized control and local autonomy, flying low to embed best practice but pulling back at the right time to allow the new venture to breathe and mature.

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