All Rights Reserved © 2004 Thomas W. Day
Most small businesses die from lack of focus. One of the keys to business success is finding what you do well and doing it well. Lots of small companies fail because they don't have a specialty, a skill that the company performs exceptionally. Lots more fail because they forgot what it was that they knew how to do in a misdirected search for something different to be doing.
For example, a company that builds a great kitchen widget decides that kitchen widgets are never going to be big dollar items, so the management wanders off in search of another widget market that provides more net profit. The folks back in manufacturing are still cranking out kitchen widgets, but nobody's running the show. Asking employees to care more about the company's direction than the owner's are willing to demonstrate is a logical fallacy and, pretty soon, the company's kitchen widget market starts to deteriorate. If the execs continue to search for a brighter, shinier place to play, the employees who can find a better managed place to work will head for higher ground. After all the talent has left, the product starts showing the effects and established customers look for a better supplier.
Often, this collapse of corporate momentum causes the execs to start wandering around with more urgency. They may try moving manufacturing overseas, which usually results in more competition when the overseas manufacturing company discovers they can build and market the product they were expected to produce.
IBM tossed computer manufacturing to the Far East with this clever management technique. Once, the only company (other than Compaq) able to build a quality personal computer, IBM decided to safe a little manufacturing money by moving all assembly to Japan. A few years later, Sony, Toshiba, NEC, and a host of Japanese manufactures were building and selling their own computers. IBM, however, was forced out of the market because they didn't have the manufacturing or design skills necessary to build personal computers. They had trained their competition and, then, got their butts kicked. Meanwhile, IBM's foolish, misdirected management was still looking for a market where their limited skills could produce a higher profit margin.
A couple of decades back, I worked for a mid-sized company that built a particular pro-audio product. In the company's past, every time the company started to do well the CEO would want to "branch out" into another area of the industry. Nobody in the company had any experience with actually using pro audio products, so the "branching" usually required a lot of consulting with potential customers and acquiring of engineers with expertise in the anticipated new market and products. Lots of resources would be wasted with a predictable result; a mediocre product and the distraction from the one product we knew how to design and build. The company ran through this cycle three times in the ten years I worked there. Each time, the distraction drained the company's productivity and set profitability back dramatically. Twice, the new market products were sold off to either a customer or one of the engineers who were brought in to develop the product. Both times, the buyer built a solid position in the new market and a new business was launched at the expense of an established business.
For the first few years in the company's growth period, these distractions did minimal harm to the overall business. We had momentum, our competition was mostly brain-dead and dying, and the core products were very good so we didn't lose much of our base market with these distractions. In the last decade, lots of new competition has appeared (lots of it from Asia) and the company's growth has stagnated in the last five years. The reaction, predictably, has been to flail about looking for a richer market and a new product line. They have a wide collection of new products that are falling flat in the market and the core products are losing ground. It's a new world of competition, too, and the momentum appears to be shifting away from their base. It will be interesting to see what happens in the next few years.
Lots of strong American companies have shot themselves in the foot when they lost focus. There isn't much an employee can do about fixing executive focus. The best we can do for ourselves is to watch what they do, if they're looking away from the action, it's time to polish up the resume.