Retailing icon Radio Shack declared bankruptcy early thisFebruary despite a long and storied history of success. Founded 94 years ago, thecompany grew into a chain of 7,000 stores by serving hobbyists and bringing innovativeproducts to market. As the techies’ world shifted from ham radios to computing,Radio Shack introduced one of the first pre-assembled personal computers, theTRS-80, in 1977. That machine ran on an operating system written by Bill Gates,had 4K of RAM, and sold for $599. In 1983, well before competitors like IBMintroduced portable computers, Radio Shack offered its Model 100 laptop, which soldover six million worldwide.
From the 70s through the 90s Radio Shack’s products wereconsidered leading edge. Its stock price hit $76 in 1999. Then along camecompetitors like mail-order giant Dell and the ensuing loss of PC market share.Divesting its computer manufacturing operation in the early 90s, the companyfought back with numerous rebranding efforts and by adding smart phones amongother consumer electronics to its line. Left in the lurch were the do-it-yourselftechies who were the cornerstone of the company’s prior profitability. Insteadof shopping in stores staffed with knowledgeable fellow hobbyists, their needsfor components were available only by mail order. Radio Shack lost relevancyfor its core customer.
Radio Shack is not alone in the museum of failedenterprises. Of the companies listed on the initial Fortune 500 ranking issuedin 1955, 88 percent have fallen off the roll. Radio Shack’s fate is proofpositive that bad things can happen to good companies. Most owed theirexistence to once successful product or service innovation. Most failed becausethey did not keep up with a rapidly changing marketplace.
What happened to companies like Radio Shack? Taken singly orin combination, several slow-moving events occurred:
- Their markets changed as customers’ perceptionof value shift – Radio Shack’s success was built on their customers’ ampleleisure time, a feature of life in the 50s and 60s that began disappearing inthe 70s.
- Their business model became obsolete – MajorU.S. airlines lost their customers to regional carriers like Southwest whooffered no-frills air travel at a lower price.
- Their processes failed to deliver the newperception of value – Low cost steel maker Nucor with their product focus andinnovative use of scrap steel stole market share from integrated producers likeU.S. Steel.
- Their management rejected the need to change andadapt to the new market realities – In the 1970s U.S. car makers failed torecognize the threat of Japanese competition.
Companies fail when they don’t concentrate on meeting theircustomers’ needs. Business thought leader Theodore Levitt called that conditionmarketing myopia.
So what can senior managers and owners do to avoid the near-sightednessthat can seal their fate?
- Beware newcompetitors on the edge of your radarscope – The foremost sign of anantiquated business model is the appearance of a new, better model that createsand delivers value differently. Think Amazon.com.
- Watch yourleading-edge customers and theircustomers – Those who are fast adopters of new processes, materials and thelike are most prone to embrace the latest new opportunities in your market.
- Monitoryour cost structure – Simple metrics like sales and profits per employeecan warn of increased cost. It’s hard to stave off competitors, satisfycustomers, and make a profit if your costs are out of line.
- Create acontinuing sense of urgency – The need for speed should be proactive sothat change can occur in advance. Don’t be surprised by the advent of newcompetitors, products, and services in your market. Get ahead of the wave.
- Questionthe ‘way things are done around here’ – When strict adherence toestablished processes becomes the status quo, better methods are never tried. Whenchange is needed, don’t get stuck looking in the rear view mirror fightingyesterday’s battles.
- Seek therealities – To lead a company to success, its leadership must listen to itswork force, suppliers, and customers to find the truths that threaten its survival.Acknowledging the facts is the first step in stemming the bleeding.
- Focus atall times on your customer– Remember Drucker’s adage, “The purpose of abusiness is to create a customer.” Always seek to understand the product andservice attributes that your target customers deem important. What’s good foryour customer is good for your company.
- Investigateyour non-customers – Every company has more non-customers than customers. Findout why non-customers don’t buy from you, what it would take to sell to them,and whether you can do so profitably.
- Anticipatenew market paradigms – Demographic change is a key mover of markets. Babyboomers are aging out of their prime buying years and being replaced by the 18-to 36-year-old Millennials whose purchasing preferences are much different. Alsodon’t forget your company must be a member of the digital economy.
- Makebuying your products easy – If you aren’t selling via the internet, you’regoing backwards.
- Hirecompetent people – Employing a staff with experience only in your industrycan leave you blind to opportunities and solutions that external hires may haveexploited and utilized. It’s always wise to have broad business experience onyour team.
JohnChambers, CEO of Cisco, recently said, “Every company’s future depends onwhether they catch market transitions right.” Smart companies are constantlylooking over their shoulder so that they can be at the right place at the righttime with the right products when those transitions occur.
Bottom Line: Themarket is tough and forever evolving. Because of that, you can safely bet thatyour company’s current business model will eventually become outmoded. Theapathy that brings about such circumstance is never intentional. But fewmanagers work hard and continually enough to overcome their company’s potentialmortality. Don’t wait for an emergency before responding to keep your companyrelevant to the market.
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