On Management

Dec. 21, 2004
Failure to shift along with customer preferences can be costly.

For most of my lifetime, I've admired certain companies that have been virtual business icons -- practically synonymous with the American way of life. Now four of those icons are on the brink of competitive disaster because they failed to shift their approach to business at the right time or in the right way. Eastman Kodak Co., Levi Strauss & Co., McDonald's Corp., and AT&T Corp. all are suffering the consequences of their own dominant positions -- and from stubbornly sticking with the status quo and outmoded thinking. Like tall, rigid trees in the forest, they refused to bend with the winds of change.

  • Kodak -- Its dominant position in film and imaging products is declining rapidly. It has been damaged by Fuji Photo Film Co.'s frontal attack and aggressive pricing, as well as the slow start in its digital imaging business. And Hewlett-Packard Co. is threatening the company's photo printing and paper business with printers that will allow digital-camera pictures to be printed as easily as e-mails -- and on HP paper. Over the years, Kodak's massive strength cultivated a tree-like rigidity and a high cost structure that George Fisher is trying mightily to trim. Alas, even if he proves more successful than he has been in the last two years, he will still retain much of the old tree's trunk and shape -- simply denuded of many of its limbs. It won't be the vital, flexible, and aggressive growth organism he needs to combat fast-growing competitors.
  • Levi Strauss -- Late last year, Levi Strauss shocked the world by announcing massive employment cutbacks in its U.S. plants. The company had fallen asleep at the wheel and failed to shift its shape of value to accommodate changing consumer-behavior patterns. The result was a "squeeze play." On the high side, the squeeze came from designer jeans at higher prices and margins. On the other side, Levi Strauss lost market share to lower-priced private-label and mass-marketed brands. The firm has no apparent solution except to use expensive "company stores" and/or outlet stores with lower prices. Its popular Dockers and Slates lines could also be squeezed the same way unless it acts fast.
  • McDonald's -- The fast-food leader has made numerous missteps in recent years -- not because it was unwilling to change, but because its great size and belief in its own practices caused it to misunderstand the shape of value desired by customers. From misadventures in pasta dinners to the ho-hum reception given the much-advertised Arch Deluxe, McDonald's became too wedded to consistency. And it shifted to healthier foods (remember the McLean Deluxe?) and sacrificed taste quality. Moreover, its processes lacked the ability to customize sandwiches to consumers' wishes and still deliver "fast" food.
  • AT&T -- The telecommunications giant is under attack from a plethora of competitors, large and small. Sprint sold transmission quality. MCI sold package deals like "Friends & Family." WorldCom Inc. grew at a breathtaking rate through acquisitions. The Baby Bells have tried to surround AT&T and obtain rights to encroach on its long-distance territory, while keeping AT&T from entering local markets. And the Internet telephone threatens the very foundation of the system -- the network!
While AT&T was blundering about aimlessly -- selling off its crown jewel, Bell Labs (now Lucent Technologies), and making ill-fated ventures into management consulting -- competitors shifted their shapes to match the desires, whims, and wishes of telecommunications customers. There are many similar stories out there, but few involve such legendary American brand names. At least in the near term, these four companies all will survive. And perhaps they'll recover some of their lost competitive advantage. But will they ever regain the stature they once had? John Mariotti is president of The Enterprise Group, Knoxville, and author ofThe Shape Shifters: Continuous Change for Competitive Advantage.

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