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.
Dow Jones Newswires