Once upon a time in my career I had a chance to work on a fighter jet program. Talk about your ultimate IT project! During this time I learned a great deal about planes and how they work. I finally realized why during airshows a stunt airplane will often start going very fast and then pull up into a straight vertical climb – it turns out that this is very hard to do. If the pilot can’t keep the plane going fast enough, then what you’ll see is the plane start to shudder, come to a complete stop, and then the nose will pull to one side and the plane will start to hurtle towards the ground. This is all great stuff for an airshow; however, it can be disastrous for a company.
A revenue growth stall can cause even the strongest, most high flying company to come crashing down. A perfect example of this is the jeans company Levi Strauss & Company. Back in 1996 business was going gang-busters. Their sales had just popped over $7B and things were looking great. Then it stalled. By 2000 sales were only at $4.6B (down by 35%).
Not to pick on Levis Strauss. The same stall has hit Apple, Caterpillar, 3M, Toys “R” US, etc. Why should we care if we don’t work for these companies? Ultimately IT needs to be the lookout that is in the crow’s nest of the company and is able to detect a stall before it overtakes the company. If we are unable to do this critical job, then there is a good chance that we’ll have confirmed that IT just doesn’t matter any more.
Why are stalls so deadly to a company? Since things are going so very well just before a stall hits, many companies, just like an airplane in an air show, are actually accelerating as they enter a stall because all of the metrics that they normally use to tell them how things are going are telling them to spend, spend, spend. Senior management often never sees the stall coming.
How bad is a stall? Some very smart guys over at the Corporate Executive Board (Matthew Olson, Derek van Bever, and Seth Verry) have done some research and what they’ve uncovered is that companies lose about 74% of their market capitalization (measured against the S&P 500) in the 10 years after the stall. Of course, the CEO and his/her senior team are replaced (hear that CIOs?).
Why do companies stall? If stalls were unavoidable then there would be little for CIOs to do except to prepare defensive strategies. Research has shown that most stalls are a direct result of choices that a firm’s senior management makes about either strategy or the design of the organization. What is even more damning is that 50% of the identified root causes fall into one of 4 categories:
- Being held captive by a premium position.
- A failure in the management of innovation within the company
- Abandoning a core market or product too early.
- Talent Management failures.
What’s a CIO to do? We’ll take a look at each of these four root causes and provide some suggestions on how the CIO and the IT department can make sure that the firm doesn’t get stuck in a stall that all to quickly turns into a death spiral.
Have you every worked at a company where things switched from being great to being horrible overnight? Why did this happen? Did your IT department play a role in causing the problem or did they help the company restart its engine? Leave a comment and let me know.