Questioning the Time Horizon
The question here is, “Are we in it for the long haul or out to exploit a short-term opportunity?” The answer will drive completely different behaviors.
Business professors James Collins and Jerry Porras published a seminal work in 1994[2] that dealt with the sustainability of organizations while everything around them was in flux. They crystallized a few key factors that allow organizations to become sustainable over the long term. The term they coined was “built to last.” It looked like a winning philosophy, but was it?
[2] Built to Last: Successful Habits of Visionary Companies, James C. Collins and Jerry I. Porras, Harper Collins, 1994
Recent history of new-economy organizations has challenged some of the premises behind this thinking. Lately, Collins has been forced to question his strategy of building great companies to last, and he has started to ask whether sustainability is for everyone.[3] The choices that organizations must make regarding the planned life are influenced by the ownership strategy of the company and the nature of the rate of consolidation of the organization’s industry.
[3] “Built to Flip,” James C. Collins, Fast Company, March 2000, Issue 32, page 131
The technology-driven stock market has witnessed many new entrants that weren’t “built to work” and, consequently, have failed. Many of these new organizations today don’t intend to last forever. They were “built to flip”—to be acquired by a new entrant or competitor or to float a public offering for great initial gains. The planning choices made by the corporate entity in question must identify which approach is appropriate because the value proposition, strategies, and stakeholder relationships will vary for each. Let’s look at the attributes of the choices: “built to last,” “built to work,” and “built to flip.”
“Built to Work” Versus “Built to Last”
The criteria for “built-to-work” organizations center around excellence in whatever the business is about. “Built-to-work” organizations might be intended to become great, long-term companies in their own right (that is, “built to last”), or they might fully anticipate that they will be gobbled up by a major player in the marketplace. Regardless, all work is done according to the highest possible standards, and value added is clearly demonstrated. These organizations make a distinct contribution to their markets, investors, and customers. They provide meaning to staff and associates through the intrinsic value of the work itself.
“Built-to-work” and “built-to-last” organizations are unconditionally committed to their principles and values. They are passionate about their relationships and the trust that makes them work. They develop strong brands and teach the market their beliefs. They develop their organizations through leadership and teach their staff their beliefs. They invent products and services that make a difference and build a sustainable business engine around them. They nurture their culture at an evolutionary pace but never stop doing so. This requires time, constancy, and consistency, but process efficiency and speed are always being sought.
This might sound like a romantic view of an old-economy business, but the essence of this view is just as important today. In a new-age “built-to-last” organization, partnerships become paramount because of the need to focus on a core competency associated with a value proposition. But, the organization must still be part of a world-class value chain. The difference between the old and new “built-to-last” models is simply that, today, the set of partners must have complementary value propositions and a commitment “to last” together.
For “built-to-work” organizations, global consolidation, mergers, and acquisition frenzies can’t be ignored. Established, “built-to-last” organizations often will have a strategy of acquiring solid new ventures with new ideas while they are small, and the culture isn’t yet rigid. This can be an efficient source of R&D for more established firms. The new-venture, “built-to-last” organization must choose whether it wants to be acquired or to take on the attributes of a long-time, successful entity. For some, there’s little interest in building a great, long-lived company but more interest in quickly creating something of value while it’s still valuable. The strategies, relationships, and processes will vary greatly.
This view is completely consistent with the thinking of Clayton Christensen, who describes what happens to markets when a disruptive technology or way of working arrives on the scene.[4] According to Christensen, the marketplace incumbent can choose to resist and watch the competitor take market share, or it can acquire the upstart competitor, as Microsoft and other market leaders have done so well in the recent past. The new kid on the block can choose to sell or to fight, but ultimately not every one will last. There will be a shakeout. A good example of this is the handful of automotive companies we see today, compared to more than 450 in the early 1900s.
[4] The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail, Clayton M. Christensen, Harvard Business School Press, 1997
For some companies, life is the extent of the product development cycle, and, once that is done, the company ceases to exist. It’s all about products, and the company is simply a means to bring an innovation to market to be exploited by others. Japanese electronics R&D consortia fall into this category, whereby the commercialization of the product is performed by organizations other than those who developed the concept. The idea generators make their income from royalties and rights, not by selling products. This practice is commonplace in medical devices and biotechnology as well as in university-based research firms. Many large firms looking for innovation can purchase this form of R&D without significant risk. In this scenario, companies are often acquired by some entity with sales and marketing capability that has the economic structure and wherewithal to allocate strategic resources to exploit the opportunity. The acquiring entity will be able to leverage faster, better, and cheaper than the developer. This is a different value proposition. This model is hard to beat for companies trying to do it all. Managers have too many variables to focus on, and too many things can go wrong. Trying to be best at everything means that they are trying to be better than a partnership of companies, each of which is doing everything to be the best at only one aspect. It’s an argument as old as business itself: How can I best allocate my scarce resources? Today, the resources in question are the time and effort of our skilled, experienced human managers and professionals.
“Built to Flip”
For “built-to-flip” organizations, the company’s life is merely the idea life. What’s for sale is the potential of the idea—the business plan, not the business itself.
“Built-to-flip” organizations depend on their ability to attract the right skills with the appropriate incentive plans. It was easy when every dot-com company could launch an IPO, creating instant millionaires within the newly traded company. However, after the rush, these companies are having a harder time attracting those who don’t want to accept what’s now seen as a higher risk. This short-lived phenomenon clearly wasn’t a sustainable model. I believe that, although there’s significant opportunity in the new economy, it will be for those who are developing “built-to-work” organizations, and the “built-to-flip” propositions will be more transparent than they were previously. Workers will look for meaningful work as an intrinsic measure, not just for financial gain.
Establishing a Time Horizon
Regardless of the life span anticipated for the organization, the approach will remain the same:
Know the mission and value proposition
Know your principles
Understand your stakeholders
Weight your stakeholders’ emphasis
Develop your criteria
Evaluate your priorities
Pick your processes
Make them work
The emphasis on a number of key factors will vary depending on the organization’s choice of approach. Table 2.1 points out the likely emphasis for each type of business, although it won’t be universally true for all businesses.
| Built To... | Likely Value Proposition | Key Stakeholders | Measures |
|---|---|---|---|
| Last | Customer intimacy or operational excellence | Customers and consumers, suppliers, staff and owners | Customer loyalty, return on equity, staff retention |
| Work | Product leadership | Partners, staff | Rate of innovation, time to market, staff acquisition |
| Flip | Product leadership | Venture capitalists, founders and staff | Staff acquisition, time to takeover or IPO, return to founders and shareholders |
Another critical factor in determining the planning horizon is the incentive plan for the organization’s senior management. Robert Kaplan and David Norton’s balanced scorecard[5] defines four major types of measures that can be used as incentives:
[5] “Having Trouble with Your Strategy? Then Map It,” Robert S. Kaplan and David P. Norton, Harvard Business Review, September/October 2000, pages 167–176
Financial
Customer
Process
Innovation
If the executive-reward horizon encourages a short-term return, we can expect to see decisions and behavior that focus on the short-term financial and process efficiency aspects at a possible cost to customers and innovation in the long run. The financial and process measures will focus on productivity and optimization of existing assets, not on revenue and market share growth. Cost reduction and lean operations will prevail even if it’s at the expense of staff loyalty and retention of organizational learning. The opposite could also be true if the leadership has an incentive for pursuing market growth and longer-term sustainability. Knowing the personal drivers of those at the top will be a leading indicator of behaviors and measurement results to come.