A Conversation with Leonard Sherman

“In dogfights, as in business, strong players may gain a temporary advantage, but fighting for dominance with traditional weapons usually takes a heavy toll on all combatants, and the prospect for renewed battles remains a constant threat.” — Leonard Sherman

This week, our featured book is If You’re in a Dogfight, Become a Cat!: Strategies for Long-Term Growth, by Leonard Sherman. Today, we are happy to present an interview with Sherman, in which he explains the title of his book, details how companies can drive long-term growth, and lists companies that have successfully broken away from the pack by becoming a cat in a dogfight.

Don’t forget to enter our book giveaway for a chance to win a copy of If You’re in a Dogfight, Become a Cat!.

What inspired the unusual title of your book?

My motivation for writing this book grew out of thirty years as a management consultant and venture capitalist, working with a lot of companies struggling to restore profitability and growth. I observed a number of common causes of these business challenges, so when I joined the faculty at Columbia Business School, I made growth strategy the focus of my research.

The curious title of my book metaphorically captures the competitive challenge all businesses eventually face, as well as the management mindset required to sustain profitable growth. In dogfights, as in business, strong players may gain a temporary advantage, but fighting for dominance with traditional weapons usually takes a heavy toll on all combatants, and the prospect for renewed battles remains a constant threat. As examples, the ongoing dogfights between Walmart and Target, HP and Dell, and United and American Airlines have taken a heavy toll on all players. Cats are a different breed of animal—clever, solitary hunters who are more inclined to explore new territory and to redefine the game on their own terms than to engage with the pack in a no-win dogfight. Cats are agile and innovative, and seek their prey (or in business terms: customers) with tactics that dogs cannot easily replicate. In the business dogfights cited above, Amazon, Apple, and Southwest Airlines have clearly exhibited catlike behavior.

You point out that most companies fail to sustain long-term profitable growth. Why do they fall short?

The critical starting point for an effective business strategy is a genuine, customer-centric business purpose—by which I mean a corporate ideology that inspires an organization and provides strategic clarity on the purpose and priorities of the enterprise. I want to emphasize this point because it often gets short shrift. Skeptics might scoff at this notion, noting that every company says the right things about their vision but often acts differently. After all, Wells Fargo was founded on being “a trusted provider that builds lifelong relationships one customer at a time,” and VW was committed to “offer attractive, safe and environmentally sound vehicles.” But these aberrations serve to reinforce the imperative of a customer-centric vision that really guides corporate behavior. Companies that have the best track record in sustaining long-term growth have remained true to their founding corporate vision, including Johnson & Johnson, 3M, IKEA, FedEx, Starbucks, Apple, Costco, JetBlue, and of course Amazon. Commenting on the importance of Amazon’s customer-centric business purpose, CEO Jeff Bezos said: “We’re stubborn on vision but flexible on details,” and “whenever we get into an infinite loop and can’t decide what to do, we try to convert it into a straightforward problem by saying, ‘well, what’s better for the consumer?’” An abiding genuine commitment to delivering superior customer value serves all stakeholders well.

What else do companies need to do to drive long-term growth?

Committing to a customer-centric business purpose forces a company to continuously adapt its products and services to respond to ever-changing shifts in customer needs. In my book, I point to three strategic imperatives to sustain long-term profitable growth:

1. Continuous innovation—not for its own sake, but to deliver . . .
2. Meaningful differentiation—recognized and valued by consumers, enabled by . . .
3. Business alignment—where all corporate capabilities, resources, incentives, and business culture and processes are fully aligned to support a company’s strategic intent.

The starting point is recognizing the relentless need for continuous innovation. But I don’t mean innovation for its own sake, or the common tendency to pursue tit-for-tat feature replication that often leads competitors to create largely undifferentiated products that deliver more cost than value. Rather, I’m advocating transformative products and services that deliver meaningfully better value propositions to consumers who are served poorly (or not at all) by existing products. This requires a management mindset and business processes capable of continuously generating breakthrough products and services, as we’ve seen from companies like Johnson & Johnson, 3M, and Ball Corporation, each of whom has been innovating and outgrowing the market for more than a century.

It seems startups and smaller organizations can maneuver a changing market or customer needs easier than a large corporation. What are some strategies large organizations can incorporate into their business to become more agile?

The simplest answer is that companies need to maintain the same creative energy, speed, and focus that made them successful in the first place. That’s easier said than done, because large companies need to balance two very different management mindsets: the discipline, predictability, and structure to efficiently exploit current core businesses, in conjunction with the flexibility, adaptability, vision, and patience to explore entirely new and uncertain ways of creating consumer value. This need to be “ambidextrous” managing the inherent tension between exploitation and exploration is exceptionally difficult for most companies, especially when the “next new thing” can disrupt or potentially even destroy current profits.

But the commitment to continuous innovation is effectively the secret sauce explaining the success of the few companies that have been able to sustain long-term growth. And this strategic commitment can only come from the CEO. Contrast for example Apple’s willingness to disrupt its iPod business with the iPhone, Netflix’s willingness to push streaming video over DVR discs and Amazon’s commitment to the Kindle, jeopardizing its ecommerce book business, with the strategic inertia that ultimately felled Blackberry, Kodak, and General Motors.

How can a market leader hold onto their advantage and create long-term growth? Especially if they do not have the means to constantly create new products or services?

Well, I’d turn this question around. If a company doesn’t continuously allocate resources to renew its source of competitive advantage, it certainly won’t be in a position to respond when someone else brings a transformative innovation to market. At the end of the day, there are only a few things a CEO—and only the CEO—can do. One is to maintain a keen understanding of the evolving marketplaces in which the company can or must compete. Second is to allocate resources to balance the needs of current and next-generation products. Third is to ensure that business processes and incentives are in place to manage the inherent tension between established and formative businesses. And finally, the CEO needs to build a management team fully committed to the founding vision while rapidly adapting to evolving marketplace shifts.

What companies have successfully broken away from a “bad industry” stereotype?

I have a few favorites that fall into two categories. First are companies that have achieved extraordinary success despite competing in industries widely considered to be “bad businesses,” that are tough for anyone to succeed. JetBlue and Southwest are success stories in the challenging airline industry. I also profile the rapid growth of Yellow Tail wine, which entered an industry with literally thousands of largely undistinguished competitors, all vying for a relatively small number of wine consumers. Yellow Tail succeeded in becoming a cat in the dogfight by rejecting the prevailing image of wines as intimidating, complicated, expensive, special occasion products sold in bottles adorned with stately chateaux and regal emblems. Rather, Yellow Tail introduced an approachable, affordable, good-tasting wine in bottles adorned with a smile-inducing kangaroo, positioned for casual, everyday consumption. By breaking from the vulnerable, off-putting image of traditional wines, Yellow Tail attracted a large number of new consumers to the category and became the fastest-growing wine in U.S. history.

My other favorite examples are companies that have demonstrated the ability to deliver innovative, meaningfully differentiated products over exceptionally long periods of time. Because of their longstanding success, most of these exemplars are household names, like Apple, Amazon, Johnson & Johnson, 3M, FedEx, and Starbucks, but there are also lesser-known companies, like Ball Corporation, which has been outgrowing the U.S. market for over 125 years in the prosaic food container industry. But whether companies make mason jars, medical devices, or advanced mobile technologies, the common trait of these growth stars is the ability and willingness to continuously respond to or set the pace for ever-changing consumer needs. Apple has been a poster child in this regard for the past two decades, but even they will only remain as good as their next innovation.

How have successful companies in “bad industries” disseminated a new strategy to employees and customers?

Most employees are very perceptive in discerning between messages from the executive suite that are real vs. disingenuous posturing. It’s not enough for a CEO to say, “Employees are our most cherished asset,” or “customer satisfaction is our highest priority.” Rather, business leaders need to reinforce their desired strategic priorities with appropriate actions, including who gets praised, rewarded, promoted, reprimanded, or fired. The trouble with incentives is that they work, and thus a company’s culture, processes, and incentives need to be fully aligned with a company’s desired strategic direction.

A great example is JetBlue, which was founded with the purpose of bringing humanity back to air travel. In an industry known for soul-crushing customer service, JetBlue aspired to deliver a superior passenger experience. How does JetBlue ensure that all 18,000 employees understand and care about how their efforts contribute to the company’s strategic intent? About every two weeks, every newly hired crewmember—from baggage handlers to pilots to EVPs—spends a couple of days together with the entire top executive team to learn about the airline business and management’s expectations for the values that crewmembers are expected to embrace. And management’s commitment to “inspire humanity” is also reinforced in by the company’s ongoing business decisions, HR policies, and crewmember incentives. It is not an accident that JetBlue has been a customer satisfaction leader since its inception almost two decades ago, despite the challenges posed by a brutally competitive industry and demanding customers.

Can you share examples of companies in the news right now that are getting their growth strategy wrong?

Some companies lose sight of their founding corporate purpose, adopting instead an ends-justify-the-means management mindset that destroys growth, consumer trust, and shareholder value, as Wells Fargo and VW have recently experienced.

When it comes to growth strategy, there’s good news and bad news. The bad news is that sustaining growth over the long term is challenging under any circumstances, but particularly so when companies get caught in common growth-killing traps. First are situations where companies are reluctant to innovate, for fear of cannibalizing their current product lines. This is often a death spiral, as Sears, Blackberry, and Blockbuster have found. More recent examples include brick-and-mortar retailers like Walmart and Macy’s who are struggling to adapt to shifts in shopping patterns and consumer preferences. Second are companies that tend to overly focus on short-term profitability, including possibly over-investing in stock buybacks at the expense of R&D and other long-term growth initiatives. Arguably, IBM, HP, Target, and The Gap have been challenged in this regard.

Which companies are currently breaking away from the pack by becoming a cat in a dogfight?

The good news is that virtually every industry presents opportunities to become a cat in a dogfight. The notion that some industries are inherently unattractive is outdated. Wherever opportunities exist to overcome sources of customer dissatisfaction or high costs, companies can find attractive growth opportunities. Companies small and large, and young and old, like Casper, Uber, Dollar Shave Club, Netflix, Amazon, JetBlue, Apple, and 3M are proving that there’s no such thing as a bad industry, except if you’re an incumbent wedded to an outdated business model.