The theory of evolution

 Darwinian adapt-or-perish principle applies to businesses in every industry

By Claude Solnik
The Daily Record Newswire

LONG ISLAND, NY — Many corporate executives believe consistency is king – that the only way to build a brand is to become known for doing something well, and to stick with it.

But the corporate landscape is littered with the ashes of companies that clung to old products and ideas, instead of adapting to changing markets, while towering above are successful firms that changed so dramatically they’re hardly recognizable.

Certainly, consistency counts – but many companies find they must evolve their business models or become extinct. In many cases, drastic change is “not only a good thing,” noted Thomas Shinick, adjunct professor of management and marketing at Adelphi University in Garden City, “it’s a necessary thing.”

Roll with it

The poster child for corporate reinvention is IBM, the Armonk-based multinational technology and consulting corporation. Launched in 1911 as the Computing Tabulating Recording Co. – it manufactured, among other things, cheese slicers and punch cards – the company reformed as International Business Machines in 1924 and became the preeminent computer manufacturer of the 20th century, focused first on large-scale computing and later adding a cornerstone personal-computing division.

Then, in 2005, IBM reinvented itself again, selling off its PC business to Lenovo and refocusing on technological services and mainframes.

Many thriving firms have followed this path. PricewaterhouseCoopers, one of the Big Four accounting firms, has successfully transformed from a tax-and-audit practice to a highly regarded consultancy; Carle Place-based 1-800-Flowers.com has nurtured its floral roots to grow one of the great online gift catalogs, including gourmet popcorn and fruit bouquets; and while Nathan’s Famous will always be known for serving delicious hot dogs, today the Jericho company outsources everything from manufacturing to marketing.

Even smaller-scale businesses must adapt to changing markets. Lake Success-based Astoria Financial cut “savings and loan” from its name – and its business model – to adopt a more versatile slate of services, sliding into business banking as mortgage markets thinned.

“The name change hasn’t made the difference,” noted Astoria CEO Monte Redman. “But it highlighted us. People are looking at us, to see the people we have and our products and services.”

Restaurants, meanwhile, are “continually reinventing themselves,” Shinick noted.

“People get bored of eating the same food,” he said. “They want something different.”

Thinking ahead

The Darwinian adapt-or-perish principle applies to businesses in every industry, on every level. And technology has only upped the stakes, forcing established firms to be nimble in a world filling with innovative, web-friendly competitors.

“Things are changing so rapidly today,” Shinick said. “Companies sitting on a product or service need to look at what they can do differently. You can have a product that’s been great, but if a new company says, ‘Ours is better, cheaper, faster,’ that new product will gain market share.”

Young competitors raised on the Internet are just one of many forces driving corporate transformations. In some cases, companies today want to be more defined by ideas than products; you might not buy your laptop from IBM anymore, but when you think technology, you think Big Blue.

It’s part of the “intangible economy” now defining the American marketplace, according to P.M. Rao, acting dean of LIU Post’s College of Management in Brookville.

“A tangible economy is an economy of manufacturing, with factories and buildings and tangible assets,” Rao said. “This economy is characterized by intangible assets, like intellectual property.”

Companies that define themselves with a single product or specific group of services risk being left in the dust, he added, noting the most successful firms are based not on products but people.

“What are the assets of Microsoft? Not the buildings,” he said. “They have smart people. People as assets don’t show up on the balance sheet, but that doesn’t mean Wall Street doesn’t value it.”

A good example of this intellectual focus can be found at Motorola. In 2006, when Motorola purchased Holtsville-based Symbol Technologies, it assumed not only Symbol’s products but its patents – the very bait that lured Google, which in 2012 snatched up Motorola’s mobility unit for a cool $13 billion.

“Google bought it for its patents,” Rao said, noting the search-engine king later sold the mobility business to Lenovo for $2.9 billion, but retained the Symbol patents. “All these companies want to acquire patents to use them as defensive barriers from lawsuits.”

The biggest impetus for change, however, may be a basic desire to offer new products and services. When PwC acquired Virginia-based business consultancy Booz & Co. in April, it was part of a larger push to expand PwC’s services.

“We have engineers working for us, doctors, scientists, FBI folks,” PwC Long Island Managing Partner Paul Salerno noted. “When you get into that broad thought process, you’re not only a tax person, you open a broad field.”

Broadening the field was the plan for Melville-based Canon USA, which transmogrified from a camera company to an all-around imaging giant with numerous office and healthcare applications. Shinick called that shift “smart,” citing a new Canon USA model that “looks at what people are starting to use … and moving in the direction of those markets.”

License to grow

Firms are also reinventing themselves through new licensing arrangements, expanding their ability to promote their brands while cutting production costs.

Rather than make them itself, Nathan’s Famous now outsources hot dog production to Illinois-based John Morrell Food Group, a division of Smithfield Foods. When he announced the Morrell Group deal in March, Nathan’s CEO Wayne Norbitz said one goal was to boost “continued awareness and growth for Nathan’s.”

Some Long Island businesses have found themselves on the other end of these licensing deals, such as Marchon Eyewear in Melville, which manufactures products for big-time brands including Nike, Michael Kors and Lacoste.

Licensing, to some extent, was also behind IBM’s most recent transformation. While reintroducing itself as a tech consultant and mainframe operator, the company still collects revenues from licensed technologies and products.

The groundwork for the 2005 sale of IBM’s personal computing division was laid by Mineola native Louis Vincent Gerstner Jr., who served as the company’s CEO from 1993 to 2002. The Chaminade High School and Harvard Business School graduate, who’d previously helmed RJR Nabisco, admits he knew little about technology when he arrived at IBM – but he could read a spreadsheet, and saw shrinking margins in the personal-computing market.

So Gerstner remade the longtime computer-maker as a consultancy. Suffice it to say, it worked: In 2012, Fortune ranked IBM the No. 2 U.S. firm for number of employees, No. 4 for market capitalization, No. 9 for profitability and No. 19 for revenue.

Many major corporations that didn’t display this foresight and adaptability – insert your favorite Kodak or Blackberry joke here – have faded to black. But what sounds like super-advanced prognostication is really a simple matter of knowing where to drop your bait, according to Shinick.

“It’s like fishing,” he said. “Where are you going to fish? Where the fish are. It sounds so basic, but that’s really what it’s all about.”

Comments

  1. No comments
Sign in to post a comment »