Earlier this year the Harvard Business Review ran a feature entitled The Grass Isn't Greener, in which it made the point that shifting into a hot new industry probably won't typically revive growth and that for most organisations it is better to focus Instead on winning in their own industry
Mattel’s troubles illustrate one problem with grass-is-greener thinking: the assumption that managerial talent and knowledge are fungible. Shareholders often assume that a company that’s capable in one area can rapidly learn to be capable in another. In fact, the capabilities that matter form over decades and may involve millions or billions of dollars in human and financial capital. Firms that have moved into and dominated new areas, such as Apple in online music and Amazon in computer services, chose industries that took advantage of unique capabilities they already had.
The second problem is the assumption that an industry that seems superior today will remain so. There are always some industries in a “hot” part of the growth cycle because of a breakthrough innovation, favorable regulations, or some other advantage. But hot industries often cool. Half the industries we studied that were in the top quartile from 1991 to 2001 ended up in the bottom quartile during the next decade. This variability, found in every type of economic cycle, shows why it is generally very risky to enter an industry at its peak. Time Warner’s disastrous 2000–2001 merger with AOL provides a cautionary example. At the time of the deal AOL had a five-year TSR of 40%. A year later, as the dot-com bubble deflated, the combined company’s stock fell from $90 to $33.
The fact that there’s no such thing as a bad industry is even more relevant to CEOs. Yes, temporary issues may depress returns—overcapacity, say, or a discontinuous change that means customers can meet their needs more easily elsewhere. But the fear that an industry is doomed—that its products and services have become so many buggy whips—is usually overblown. History suggests that periods of turmoil within industries, just like periods of high growth, rarely last. Most industries and market segments have remarkably consistent returns over the long term.
Our 10-year analysis of TSRs proves the point. If you throw out the number one and number 65 industries in our study (tobacco and semiconductors), the median returns of the “best” and “worst” industries are within 16% of one another. The gap within industries is far greater: The top companies in each industry have annual TSRs that are 72% higher, on average, than the TSRs of the worst companies. Be a good or a great company in just about any industry, and you won’t be looking for new businesses to enter—you’ll be popping champagne.
The takeaway is clear: Your chance of getting superior returns is far better if you stay in your own industry and improve your performance than if you move into a new one.
Having made a decision to stay focused on their own industry, FranklinCovey's role in helping organisations to realise superior returns is to ensure that they execute effectively on their potential. This work includes
- prioritising strategic objectives and defining them in a clear and compelling way
- translating these objectives through the levels of an organisation so that everyone feels engaged and maintains a clear sense of how they are contributing
- ensuring that individual and team commitments towards the strategy get translated to actual work on a daily and weekly basis
Collectively these elements ensures that any organisation can tap into the resourcefulness and the initiative of its entire workforce to retain / enhance its competitive position and maximise total stakeholder returns.
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