In This Issue:
How to Change When a Company Can't Grow the Way It Used To
What happens when a company with an impressive success record reaches a point where few growth avenues remain in its traditional markets?
Companies in this situation are at a critical juncture. Since they'd like to keep growing, they will have to do something different from what they did before. Merely repeating what once worked so well no longer provides adequate growth. So, the companies look for new opportunities.
Nonetheless, these companies are still key players in the business where they previously achieved impressive success. But, that business may now be softening. Worse yet, that business may have been hit hard by a cyclical downturn. And, even if that business is still holding its own, it can no longer expand the way it once did. Despite these kinds of challenges, however, the business that once drove impressive success remains an integral part of the company. As new directions for growth are explored, the company should not forget how crucial that business most likely still is.
Yet, under pressure to find new opportunities, it is easy to ignore the importance of the business that once drove impressive growth. Many companies neglect that existing business while taking big risks with new possibilities. After all, growth has high priority.
But, this is a mistake. As explained in one of my earlier newsletter articles entitled "Does High Risk Lead to High Reward?", those big risks are not likely to pay off. What does often pay off, however, is building on strengths when transitioning toward new opportunities. And, in most cases, those strengths are related to the business that once drove the impressive growth. That's why it is generally best not to seriously jeopardize that existing business when new opportunities are pursued.
A good example of how to approach this is Southwest Airlines, as described in the July 18 Forbes article entitled "All Grown Up". Southwest achieved tremendous success with low cost, short haul flights serving second tier airports. But, as Southwest grew, there were fewer opportunities to expand into second tier airports. And as Forbes points out, when fuel prices rose, improved load factors and longer flights became increasingly important for profitability.
Facing this new, highly challenging environment, Southwest saw promise in trying to attract more business travelers. So, Southwest made changes. According to Forbes, Southwest looked at its "thou shalt nots". Some of them, such as short haul only and no major airports, were changed. Others, such as no first class seats, were left unchanged. Thus, unlike many companies in the midst of change, Southwest recognized that it should preserve key facets of its business that drove its previous success. In fact, the way Southwest made its changes was described in Forbes as "tinkering with a Southwest practice, but without going all the way".
Even after modifying its short haul, no major airports policy, many of Southwest's flights still are short haul and/or operate out of second tier airports. The policy change does not mean Southwest will aggressively try to transform itself into a long haul, major airports airline. The change merely allows Southwest to gradually start serving more major airports and to offer longer flights, carefully trying steps it would never have taken years ago when there was ample expansion opportunity in short haul and in second tier airports.
Based upon my research, which looked at numerous other situations where companies were at a critical change juncture, Southwest's overall approach is on the right track. Southwest is not doing a massive overhaul of its business that completely abandons what made it succeed. Undertaking an extreme overhaul generally would not fare well. Instead, Southwest is pursuing new opportunities in an evolutionary manner that preserves key elements related to its success.
Only if the previous business deteriorated so badly and lacks any viability, or if there are other special circumstances, would sweeping changes that abandon the past make sense. And, even then, it is worth considering whether previous strengths can be leveraged into the new.
Yet, despite an overall approach that seems to recognize the importance of past strengths, Southwest still faces challenges. Southwest is at a point in its development when companies often cannot resist the temptation to overemphasize new markets and downplay prior strengths. Southwest must not yield to that kind of temptation. Southwest must not succumb to overconfidence that it will do well in areas where it lacks strength, which is a mistake companies at a critical change juncture often make.
The many companies wrestling with challenges like Southwest's, where what once worked well no longer does, need to carefully evaluate when and how to change. Generally, they should not change in ways that completely abandon their strengths. And, since change that is too extensive can impede success, sweeping changes should usually be avoided except in special circumstances. By being selective about change and paying attention to their strengths, companies will be far more likely to succeed.
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