Why is it that even in the midst of massive hemorrhaging, leaders still resist change?

Staying intensely focused on what made an organization successful in the past can be a myopic shackle that prevents transformational change needed to ensure its survival.

Twice in my career I have been a senior level newcomer in companies losing a lot of money. One was Sam Wyche Sports World, a local retail chain whose market was invaded by big box retailers. The other was KEMET, a North American based manufacturer whose customer base transitioned from original equipment manufacturers on the west coast of the United States and Mexico, to contract manufacturers in Asia.

In both cases, after studying the situations and suggesting out-of-the-box ideas to turn the companies around, it was explained to me that I did not understand the companies or their customers. I am impressed that, even in the midst of massive hemorrhaging, in neither case was management prepared to change. A transformational idea must have a patron very high in an organization to protect it from the organization’s culture, which will instinctively surround the invader with antibodies and attempt to kill it.

Sam Wyche had a long, proud heritage in the local market. The company was started by and named after the former Furman University, San Francisco 49ers, and Cincinnati Bengal football coach. I walked into a manager’s office and suggested a new strategy. “We tried that ten years ago, and it didn’t work.” So, I came back later with a new idea. “We tried that five years ago, and it didn’t work either.” Eventually I got insistent, “My ideas may be no good, but we are losing a lot of money. Suggest something different yourself.” That was fruitless, and a year after I left the company was liquidated.

KEMET was a global market leader in the production of commodity electronic capacitors. Fifteen years earlier, original equipment manufacturing customers did not want their production lines for their products shut down because commodity parts weren’t available. They did not want a warranty claim because the component was defective. Customers made KEMET a preferred supplier and paid a small price premium for creating an industry leading system to deliver components with near perfect quality and on time delivery.

By the time I got to KEMET, others in the industry had narrowed the performance gap. In addition, the initial base of original equipment manufacturing customers had seen their products mature and profits erode, so they outsourced production to contract manufacturers who operated on very thin profit margins. These new customers moved manufacturing from North America to Asia and eliminated the preferred supplier price premium. Fundamental changes in the marketplace meant KEMET was no longer able to earn sufficient profit to support its expensive overhead. The company needed to fundamentally change its business.

I commissioned a research project to interview customers worldwide. The company perceived it was in the business of producing capacitors. Its customers perceived it was in the business of reliably delivering a quality product. It seemed obvious to me as a recent outsider that the company should find new electronic components where customers perceived that the quality and delivery reliability was not good enough. KEMET could crank these new products through its proven system to improve quality and reliability to customers, and again earn a good profit.

I found a new electronic component we could produce, and approached the CEO. “Well, if that were the business we were in, that would be a great idea,” he said. So I found another component and approached him again. I got the same answer. Staying intensely focused on being the best at one type of electronic component helped the CEO lead the company to strong performance over the past fifteen years. He and his senior management team all became very wealthy in the process. Now that focus became a myopic shackle that prevented him from leading the company to the transformational change that ensured its survival.

At both Sam Wyche and KEMET, the incumbent managements wanted to refocus on the basics that had made the companies great to begin with. They desperately wanted to believe that if they got back to blocking and tackling well, they could return to their former glory. They couldn’t, or didn’t want to, see that outside changes made it impossible to go back to the future. In Sam Wyche’s case, big box retailers were here to stay. In KEMET’s case, customers now spoke Mandarin.

The emotional challenges that leaders experience in accepting the brutal realities in front of them are minefields that they must navigate. These same challenges also open tremendous possibilities for entrepreneurs to exploit.

Rudyard Kipling nailed it perfectly. “If you can keep your wits about you while all others are losing theirs and blaming you, the world will be yours and everything in it.”

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This is a lesson from my career about seeing around the corner to find opportunity in the turbulent times we are living through. How can my experience help you take your organization to the next level by defining what is essential, attracting an outstanding team, holding them accountable, and letting go? Contact me at j3warner@gmail.com and let’s find a time to talk. John Warner