By Christopher Mims
Investors and boards long obsessed with quarterly profits are
now hunting for leaders to make big, fast bets to fend off upstarts
shooting for the moon
Ford Motor Co.'s recent decision to boot then-Chief Executive
Mark Fields, a 28-year veteran of the company, exemplified a shift
in the priorities of big companies across the U.S. The message is
simple: In an age of rapid disruption by the software and tech
industries, a leader have to pick up the tempo and make riskier
bets sooner... or else.
To make things worse for established players, investors aren't
comparing them to their traditional rivals, but to quick-moving
Silicon Valley startups that are poised to make them
irrelevant.
For pretty much any industry you can name -- not just autos but
manufacturing, logistics, finance, media and of course retail --
there are tech startups purporting to have better ideas, ones they
say they don't need decades to make into realities. It isn't as if
all these industries will see massive CEO turnover, but it does
mean established companies need to consider drastic measures. They
must be willing to tell their stakeholders they may have to lose
money and cannibalize existing products and services, while scaling
up new technologies and methods.
"Ten years ago, innovation was based on features and functions,"
says William Ruh, chief digital officer at General Electric. "Now
it's about your business model and transforming your industry."
Before, companies could innovate by acquiring tech startups. But
the top disrupters now grow so quickly and capture so much market
share, they become too valuable to buy or are unwilling to sell.
"It's now a battle to the death," says Mr. Ruh.
Mr. Fields did much that was good for Ford, returning consistent
profits. But as it became clear the automotive market was entering
a revolution of electric vehicles, self-driving technology and
ride-sharing -- with stars like Uber, Tesla, Lyft and Waymo
starting to shine -- Ford's stock sank. The share price is down 40%
since Mr. Fields took over three years ago.
Mr. Fields even set a course for adopting these emerging
technologies. He just couldn't do it fast enough for Ford and its
shareholders.
Other CEOs are being dismissed as their businesses post losses
in the face of tech-heavy competition. In the past year alone they
include Ronald Boire of Barnes & Noble, GNC Holdings' Mike
Archbold and top executives at three of the six major Hollywood
studios.
Mickey Drexler, CEO of beleaguered J. Crew, admitted that if he
could go back 10 years, he might have done things differently, to
cope with the rapid transformation of retail by e-commerce. Who
then would have predicted that in 2017, the No. 1 online retailer
of clothing to millennials would be Amazon?
CEO turnover isn't necessarily the only solution on the table,
says Horace Dediu, a fellow at the Clayton Christensen Institute
for Disruptive Innovation, a think tank based in the San Francisco
Bay Area. Companies also have to incubate potentially disruptive
startups within their own corporate structures. This means
protecting them as they develop, and being willing to absorb their
losses for as long as their competitors do. Consider, for example,
that Amazon made almost no profit for its first 20 years.
Another retailer, Amazon rival Wal-Mart Stores Inc., has
recently seemed to be managing this transition well. In its most
recent quarter, Wal-Mart's e-commerce division increased sales 29%
from a year earlier. Many analysts thought the company overpaid for
Jet.com, which cost it $3.3 billion in August 2016. But the
acquisition brought e-commerce veteran Marc Lore, who became chief
executive of Wal-Mart's online operations and quickly replaced
existing executives with members of his own team. Importantly,
Wal-Mart credits its recent growth in online sales to "organic"
growth of its Walmart.com operations -- the division Mr. Lore
heads.
Even companies that have long depended on in-store, analog
experiences are following this playbook. Luxury brand company LVMH
Moët Hennessy Louis Vuitton, for example, hired Ian Rogers, the
former CEO of headphone maker Beats and a former Apple Music
executive, to build an e-commerce portal for its high-end
brands.
To the extent that an executive shake-up brings in leaders who
can build and protect disruptive business models, the new leaders
must be part of a team with the rare skill of maintaining an
existing business at the same time. It's a skill that GE Chief
Executive Jeff Immelt, for one, has mastered.
GE has seen steady growth as its core businesses expand while it
adds new product lines. It can't just innovate; it has to deliver
innovations at scale. Before we give up on every company that
doesn't have an eccentric, hard-charging founder and technologist
at its helm, remember the advantage big companies like GE do have
over upstarts: the manufacturing and logistics infrastructure
sufficient to deliver new products globally.
To return to automobiles, consider General Motors Co. It's
possible, albeit unlikely, that GM could become merely a supplier
to transportation service providers like Uber. To counter that
threat, GM is investing in companies such as Lyft, while also
experimenting with its own ride-sharing services. Should GM buy
Lyft, perhaps Logan Green, chief executive of Lyft, could take a
high post at the car maker -- even the CEO job. It would certainly
make sense in a future where auto makers sell subscriptions to
transportation instead of cars.
Sound outlandish? Ford didn't think so. Its new CEO, Jim
Hackett, was previously head of the company's Smart Mobility
division, which works on autonomous cars.
(END) Dow Jones Newswires
May 26, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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