The Death of a Corporation
One of the things that I end up talking about at the many companies is digital relevance. This is often paired with a very large elephant in the room that no one seems to want to talk about: the impact that an aging and change-reluctant workforce has on a company’s ability to grow and adapt.
And, I’d like to do a bit of grounding here. People are always writing/talking about the Silicon Valley innovators: Apple, Amazon, Yahoo, Google, etc. These are no longer the new and innovative companies. They are the old guard; the well established enterprises where people park for decades to grow and evolve their career; these are also the companies struggling to keep their market share as startups nip away at their heels. So, where does that leave everyone else… the telcos? The banks? The decades old companies that existed before the onset of the internet? Remember Encyclopaedia Brittanica? Paper dictionaries?
Meet Company B. They are a traditional company with some of the typical struggles that you see in companies with captive technical departments. They have a workforce that consists of people who have been with the organization for decades. They are using antiquated technologies because of corporate mandate/regulation. Company security mandates have not given the workforce the opportunity to grow and evolve their own skill-set by using new tools.
It’s not all doom and gloom for Company B: they are still able to communicate using older technologies picked by the company. But, unfortunately, hours in the day are lost to technical failures and connectivity struggles because the product they’ve purchased is difficult to use and tightly coupled with the code base.
Meet another company — Company E. Their internal security team has not updated their knowledge or skills in decades and because of this they are way behind the security curve. But rather than work to improve their knowledge and capabilities, their solution is to lock down the company and prevent anything “new” or “innovative” from entering the confines of the firewall.
With Company E, “new” means using tools like Gmail, Google search, maps, video communication, Google Drive, and websites like Facebook or Dropbox. In some cases they have formed partnerships with other monolithic organizations and as a part of this partnership they are required to keep tools built by competing companies off corporate machines.
The unfortunate thing here is that Google tools and Dropbox are neither new nor innovative — they are the bare minimum needed for people to collaborate and communicate with each other.
The biggest issue faced by Company B and Company E is that they don’t realize there is a problem. From their perspective, their company is “solid,” an industry pillar, and a great place to work. However, in retrospectives, team members constantly talk about faults in the corporate culture, the inability to get things done in a timely manner, finicky technical systems, and the extremely high turnover rate.
A new problem is an inability to hire millennials who look to Silicon Valley for guidance; and, the change makers in the millennial set won’t put up with irrelevant and heavily political companies because this looks bad on their resume.
With the Googles and the Apples slurping up the best and the brightest, what is left behind? Change for the Company B and Company E’s of the world at this point in their lifecycle is expensive and difficult. Also, in order for change to happen, the most difficult transformation of needs to occur: that of corporate culture. And, this is a messy, ugly, painful, sticky, gooey, explosive thing to do.
If any of the above sounds familiar to you, you are no longer digitally relevant.
The Lifecycle of a Corporation
When studying the philosophy of history, students learn that history can be either liner or cyclical. In the linear view, every person, society, and civilization follows the same path from birth to death. And, along the way there is a predicable set of stages that each experience.
Over the past two decades of working in technology, I’ve come to see the same stages in companies as the grow, evolve, and change. Every company follows a similar growth path, and if key risk areas along this growth path are ignored than the ultimate outcome is failure.
Stage 1: Beginning / Start-up
Marked by a period of chaos and lack of direction. This chaos can destroy a company before it even starts and is the reason why Forbes states that 90% of all startups fail; some exist in this uncertain state for years. The key to success at this stage is to find structure early so you can be prepared for the next stage.
Stage 2: Period of Rapid Growth
Almost inevitably, most startups who come out of their chaotic period enter into a rapid growth phase. The trigger that a company has moved from one to the other is growth that is difficult to keep up with. A company will make technical sacrifices in order to grow and build the capital needed to fund expansion. It’s important at this point to slow down and be mindful of fixing technical debt, the “ilities”, and invest in the technology that is being built/used. If not, this is the point where the seeds for frankensystems start to grow.
Meet Company L: an online clothing retailer that hit the Internet like a bolt of lightening. Their popularity forced the company to make quick technical choices that didn’t scale with their growth. A few years later they found themselves in a position where their systems constantly slowed down or crashed during peak sales times; this damaged their reputation and their profits. When faced with a costly code re-write they chose to move their product to an external shopping cart provider, thus shutting down their development department and putting dozens of people out of work.
Unbeknownst to Company L, is they have only temporarily solved their growth problem; and, they are now at the mercy of an external provider who have their own maturity issues and technical struggles.
Stage 3: Balance and Stability
Companies that are able to manage rapid growth enter a period of stability; this is a desirable place for a company to be. It is marked by a loyal customer base, sustainable growth, and if the seeds of frankensystems were not planted in the previous stage, technical stability. During this phase it’s important for companies to clear up technical debt, manage corporate bloat, evaluate the value of the items in their portfolio, and look to future lines of business. McKinsey’s horizons model is important because it’s the innovative 30% that becomes future lines of business.
A good example of a company in this phase is Google. They are stable, they have a loyal customer base, they have critical thinkers who can focus on “moonshots,” and the recent switch to a holding company model (Alphabet) and management of their Alpha and Beta BETS set them up for valuable future lines of business.
But, Google is not without struggle; they are able to carry hidden bloat because of their financial stability and carefree culture. And, the never-ending war for talent in Silicon Valley makes it hard and expensive to maintain the innovative edge created by critical creative thinkers; also, Google technology is specific to Google so ramp up time is time consuming and when people leave they are hard to replace. People are their primary capital and because of this they dance on the line between balance and being too large to sustain.
Stage 4: Too Large to Sustain
If bloat continues and innovation stagnates to the point where companies start to lose their loyal customer base, the company starts the tragic slow-motion slide towards extinction.
Most times the slide starts because companies can no longer meet customer expectations. They are too far removed from their product and customers (due to bloat) to be effective. It’s critical at this point to remove bloat and identify pockets of irrelevance. This is the type of organization that digital irrelevance thrives in. People will fight to maintain the status quo. In really toxic situations people will actively work to sabotage attempts at change. The biggest limitation for companies in this stage is the unwillingness of their own people to change.
Meet Company W. They have grown exponentially for years via a series of acquisitions. Because of this they have a mishmash of global offices, a large collection of duplicate product lines, and a variety of different corporate cultures. They recognize that this is no longer sustainable and the company has become so unwieldy that it’s about to fall over.
This is the state in which a lot of corporations sit. As such, it’s not game over for Company W. But recovery will be difficult and take strong leadership. This company needs to take stock of what they have and unify. It’s critical for them to define their corporate goals, identify the value in their various lines of business, identify toxic areas within the organization, define / unify the culture, and control corporate bloat. If bloat is allowed to grow unchecked the company will continue to slip into decline.
Stage 5: Decline
Companies in decline struggle with their relevance. Their customer base is mainly captive, meaning there are no other market alternatives or they are trapped by contract. Companies in decline have no new lines of business coming through the pipeline. The corporate culture is toxic by nature because most innovative, creative thinkers have left. Those that remain hold on for dear life because they are technically irrelevant and obsolete in the market.
Companies are almost beyond help at this point. To turn things around you need strong, unstoppable leadership, and a mass extinction event to reset the culture. There needs to be an equally strong innovation that revives the product in the market. One of the hardest things to recover from in technology is a perceived market irrelevance. Just ask Microsoft and Yahoo, they have struggled in this state for years.
You’ve already met Company B above. This is a large corporation that’s business is not related to technology but there is a huge technology component to what they do. They have a large number of in-house developers and an equally large number of employees who are not very technologically savvy. This corporation has built relationships with external and captive consultancies, agencies, and third party businesses who help them achieve their technical goals.
Company B has struggled to bring quality software to the market in a timely manner. It takes them years to plan products and even more time to implement. Software development practices are antiquated and focus on maintaining existing technology. Key people in management positions actively sabotage attempts at change.
Because the product development process is slow, key projects are often restructured, scrapped or abandoned. To make arbitrary timelines, innovative features are constantly thrown out or devalued without using a method to rank project priority or determine what brings the most value to the organization and the end user. By the time a product does reach the market, it is too late and not valuable or effective enough to enhance business or bring new clientele. What clientele they have are captive because they are unable to leave.
This company is free falling towards extinction. I’ve never consulted for a company that has been able to turn around from this point; in all cases we’ve walked away because even strong leadership is not enough to turn things around.
Stage 6: Extinction
This is the death of a company. It is no longer relevant or sustainable. This can happen silently (Encyclopedia Britannica) or in a very loud and public manner (Nortel, Blockbuster). Some companies get bought and cannibalized (Converse); others simply disappear into the annals of time.
What Can We Do?
The thing to note is that this is preventable. There are key moments in a company’s lifecycle where decline is identifiable and can be prevented or mitigated. The focus early in the lifecycle should be on stability and the future; whereas the focus in later stages should be on minimizing waste/bloat and defining value in the current product portfolio.
Finally, focus throughout the entire lifecycle should always be on building and supporting great people. If you have an empowered, critical thinking, loyal people base then you will be able to evolve and adapt to any of the stages above. It’s the collective brain power of these people that help minimize risk and bring you into the future.
The other thing that I’ve observed over time is that that state of the company is often matched by the state of the people. If a company starts to decline, then the people follow this path (or vv – it’s difficult to tell which is the horse and which is the cart — and the two may be too tightly intertwined to decouple).
The secret sauce in every corporation is the relevance of the brain power of the people.
This article was originally posted on October 12, 2016 on LinkedIn Pulse.