20 May Capabilities, not buzzwords: Being different is good!
SeaWorld, Target, BP, Sony US and Air Products. The connection? All announced “restructuring” in 2014 and 2015. And all will, of course deliver the traditional dog’s dinner of buzzwords: synergies, growth agenda, customer focus, value for shareholders, cost reduction. Holistic to be sure.
What these announcements fail to mention is the development and leverage of powerful, specific, differentiating capabilities for the organization. This is true of most “strategic” restructuring efforts.
Contrast this with Marriott International in 1997. The company was fresh off divesting non-core assets, and managing its recent acquisition of Ritz-Carlton Hotels and Renaissance Hotels. COO Bill Shaw asked his core team of executives to define what Marriott must do better than its competition. The following six months of intensive collaboration and analysis, and the subsequent implementation of the team’s recommendations kicked off a nine-year run of nearly 14-percent annualized share-price growth.
Team decisions were specific and detailed. They focused on those capabilities needed to differentiate Marriott. This was a short list, two of which were clearly evident:
- Develop deep customer loyalty
- Create and leverage powerful, differentiating brands
By focusing on capabilities – the organization’s ability to deliver unique value to customers – Marriott executives agreed on what mattered most. They could set priorities and focus efforts. Initiatives tangential to the differentiated capabilities were deemphasized.
As evidence of its brand focus, Marriott today has 7 “Collections” of hotels encompassing 15 uniquely defined brands. These include Ritz-Carlton and Bulgari in its Luxury Collection, TownePlace Suites in Extended Stay, and the cornerstone Marriott Signature hotels. The company has grown through acquisition and internal investments laser focused on building this suite of “powerful, differentiating brands.”
At the other end of the success spectrum, AT&T of 1996 pursued a commercial customer strategy described by one of its executives as “any and all customers.” As a result the company had over 400 different commercial billing systems, often tailored to the “unique” needs of one large customer. By most accounts billing was the single largest element of per-minute telephony cost.
Capabilities are the building block of competitive success. While corporations must perform a vast array of activities, only a few of those truly differentiate. Firms that identify capabilities important to customers, and then ruthlessly build and enhance those capabilities, succeed. On that short list of central capabilities, only excellence matters. On all others, firms only need “passing grades.”
To see this in action, one needs only look at competitive athletics, where success and failure are starkly defined. Compare the physique and training regimen of world-class gymnasts, cyclists, weightlifters, and football players. Even within a sport different positions may have very different training demands. Bart Connor, 1984 Olympic Gold-Medal gymnast, noted that no one can possibly train “twice has hard as his competitors.” The difference in performance is focus and incremental effort.
In a large, complex company this focus is even more critical. An athlete’s ill focus leads to rapid decline. A global firm’s mis-investment may take years to manifest itself. Its subsequent correction will be difficult and often impossible.
During the 1990’s British Petroleum (now BP) grew from a sleepy national oil company to a global super-major. It relied heavily on acquisitions in its transformation – Amoco, Arco, Aral, Castrol, Sohio and others. Yet by many accounts BP’s acquisitive prowess was not complemented by a post-merger integration capability – one that would bring the new assets onboard into a consistent, reliable operating framework. Reviews of disasters in 2005 at its Texas City refinery (15 dead, 170+ injured) and in April 2010 at the Deepwater Horizon offshore platform (11 dead, 17+ injured, vast environmental damage) cited lack of consistent operational standards and practices as major causal factors.
Over the past 160 years Corning has capitalized on targeted investment in glassmaking technologies and a clear definition of its business to grow to a consistent global powerhouse. A vital capability of its business model is the ability to identify, form and manage joint ventures (JVs) to take many of those technologies to market. Corning management understands its own capabilities, seeks partners with complementary capabilities for that particular technology, then “packages” the JV to instantiate the full complement of capabilities needed.
So, does your executive team understand what, specifically, you must do to outperform competitors? Is it a short, prioritized list? Oh, “ten items” is not a short list! Do those execs agree on the capability list? Is it specific enough to drive decision making and investments?
Here is an experiment: ask each of your direct reports to send you a list of the five capabilities that differentiate your firm. And have each of those people ask his or her direct reports to do the same, all responses sent to you. At Marriott and at Corning you will likely see dramatic consistency in responses. Elsewhere? And in your shop?