If You're in a Dogfight, Become a Cat!, by Leonard Sherman (preface)

Preface

PRIOR TO JOINING the faculty of Columbia Business School, I spent more than three decades in management consulting, providing advice on business strategy to senior executives in the automotive, aerospace, and other industries around the world. I also served as a general partner in a corporate venture capital fund and as an investor and board member for a variety of high-tech startups.

My thinking over this time was shaped by a number of emerging theories of business strategy, from Porter’s Five Forces and the Boston Consulting Group’s growth–share matrix at the beginning of my career, to disruptive technology frameworks in the middle, to new ideas on big-bang disruption and the death of competitive advantage at the end. At each step along the way I approached my consulting assignments and venture capital investment opportunities with messianic zeal, as consultants do, fully committed to the prevailing strategy theory that promised to help solve vexing client problems. I was as guilty as anyone of the old adage: if the only tool you have is a strategic hammer, you tend to see every client problem as a nail.

Looking back over my career, I am gratified to have actually changed the strategic direction of a few troubled clients, who went on to achieve great success. But if truth be known, most of my consulting engagements were less successful. For example, I worked on and off for over a decade for what was once the largest corporation in the world (General Motors), but couldn’t alter their steadfast decline into bankruptcy. And at the turn of the new millennium, I enthusiastically recommended investments in promising start-ups, some of which did not survive the bursting of the dot-com bubble.

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Along the way, it was easy to rationalize such disappointments by concluding that the client wouldn’t accept my wise counsel or that they didn’t properly execute the recommended strategy. But the passage of time has tempered my hubris and provided a broader perspective on the challenges of managing a complex business enterprise. Failure is a great teacher.

But perhaps I’m being a bit too hard on myself. After all, being deeply immersed in the workings of business strategy over many decades, it has become increasingly apparent that most companies do not achieve and sustain long-term profitable growth, with or without the help of consultants.

A 2007 study by my former employer, Accenture, showed that only about 5 to 20 percent of companies, depending on industry, were able to consistently outperform competitors across business and economic cycles.1 Bain consultants James Allen and Chris Zook examined the annual reports of the Forbes Global 2000 and found that on average, CEOs projected that their company would grow at twice the rate and be four times more profitable than the industry average. In other words, as Allen waggishly notes, “the entire world of business is projecting to take share from the entire world of business.” But after examining the performance of the Global 2000 over the decade 2001–2011, Bain found that only about 10 percent of companies actually met their growth targets.2 And in perhaps the most extensive study of long-term growth rates, researchers at the Corporate Executive Board found that only 13 percent of Fortune 100 companies were able to sustain as little as 2 percent annual real revenue growth from one decade to the next over the past fifty years.3 Many of my MBA students find these results surprising, and perhaps even a bit unsettling. After all, they have made a significant personal investment to learn the latest strategy theories, management best practices, and analytical frameworks that hold the promise of driving superior business performance. They have every reason to expect that they can beat the odds and achieve better outcomes over their careers.

I share their conviction and optimism, even after my own chastening experience in discovering that there are no silver bullets or universally applicable business-strategy frameworks or management best practices that ensure superior business performance. While I have

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been a beneficiary of the insightful strategy thinking contributed by Michael Porter, Bruce Henderson, Clay Christensen, C. K. Prahalad, Paul Nunes, Youngme Moon, Rita McGrath and others that will be reviewed in this book, I have also come to appreciate that effective business strategy is inherently dynamic and context sensitive. No one universal framework or management prescription fits all business circumstances. What works well for one company may actually be quite harmful if applied by another company operating in a different market and competitive environment. And what works well for a company at a given point in time may be counterproductive after its business circumstances change.

Thus the purpose of this book is to share practical advice in addressing two of the most common and vexing questions facing business executives: t Why is it so hard to achieve and sustain long-term profitable growth? t How can businesses achieve this?

Answering these questions has been the central focus of two popular MBA courses that I have been teaching at Columbia Business School for the past nine years. After making and observing innumerable mistakes over my own business career, I joined the ranks of academia with the intent of helping next-generation business leaders avoid common pitfalls and showing them how to lead better businesses. This book is similarly motivated, with the hope of reaching a wider audience beyond the cozy confines of Columbia Business School.

The curious title of this book metaphorically captures the competitive challenge eventually faced by all businesses, as well as the management mindset required to overcome the odds against sustained profitable growth. Consider the mental image conjured up by a dogfight, where rival dogs (firms) scratch and claw for territorial dominance (market share), often battling with largely similar tactics (products and services). In business terms, such conditions generally refer to mature, commoditized markets characterized by slow growth, slim margins, and intense competition, making it difficult for any one firm to effectively break away from the pack. In dogfights, as in business, strong players may gain a temporary advantage, but the ongoing fight for dominance usually takes a heavy toll on all combatants, and the prospect for renewed battles remains a constant threat.

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Cats are a different breed of animal—clever, solitary hunters who are more inclined to explore new territory and to redefine the game on their own terms than to engage with the pack in a no-win dogfight.

Cats are agile and innovative, and seek their prey (customers) with tactics that dogs cannot easily replicate.

Throughout this book, I will feature many firms that emulate catlike behavior to break away from the pack, even in industries known for intense competition and unfavorable economics. Exemplars can be found in virtually every industry, from high tech (Apple) to low (Yellow Tail wine), selling either products (LittleMissMatched socks) or services (citizenM hotels).

In business terms, these firms avoid competitive dogfights and break away from the pack by embracing the three strategic imperatives required to drive sustained profitable growth. t Continuous innovation—not for its own sake, but to deliver. . . . t Meaningful product differentiation—recognized and valued by consumers, enabled by . . . t Business alignment—where all corporate capabilities, resources, incentives, and business culture and processes are aligned to support a company’s strategic intent.

By continuously delivering innovative and meaningfully differentiated products and services, companies can attract and retain customers at favorable prices, while making it difficult for competitors to replicate their business practices. These outcomes are the essential drivers of long-term profitable growth.

While this prescription may seem to draw on a heavy dose of common sense, it turns out to be difficult and rare for companies to actually incorporate these imperatives as the foundation of their business strategy, underscoring the objective of this book to explore why this is, and what to do about it.