Like products, companies also have a 'life cycle.'
By Thomas R. Schori, Ph.D., and Michael L. Garee,
Principals, Millennium Marketing Research, 808 E. Ironwood, Normal, IL 61761-5239.
Tel. 309-532-8466 -
NOTE: This article was also published by the American Marketing
Association's Marketing News, June 22, 1998, Volume 32, Number 13.
Over the years, we’ve observed what seems
to be an interesting phenomenon¾that, like products,
companies, too, exhibit rather characteristic life cycles. Most of us have long been
cognizant that successful products go through a definite life cycle. Let’s look at
the traditional product life cycle:
- Introduction. When a product is first introduced to the market, sales
may be flat for awhile. Given the growth-share matrix made famous by the Boston Consulting
Group (BCG), this stage of the product life cycle may also be likened to a "Problem
Child." If successful, sales begin to grow, which defines the second stage of the
product’s life cycle.
- Growth. This stage of the product’s life cycle (which, in BCG's
parlance, might be equated with a "Star") will eventually begin to slow, finally
to level off, bringing us to the next state of the product's life cycle.
- Maturity. If the company plays its cards right, this stage of the
product life cycle may last a long while. It’s to the benefit of the producing
organization that it does, for this stage roughly corresponds to what would be classified,
in the BCG's terminology, as a "Cash Cow." And, of course, one would like to
enjoy the benefits of a cash cow for as long as possible. Most products are in this stage
of their life cycles. Sooner or later, however, sales begin to decline, which brings us to
the final stage of a product’s life cycle.
- Decline. Here, sales are on the decline. The product the organization
nursed in its growth (when it was a "Star"), reaped benefits from it in its
maturity (when it was a "cash cow"), now must be nursed again in its decline,
when its glory days are over. Ultimately, when its contribution to the organization is
negative, it must be cast away. Sad, but true.
Obviously, then, the inevitability of the product life cycle means that a company must
continue to introduce new products, or it will ultimately fail. But, based upon our
observations, there are some other factors that occur in the natural life cycle of a
company which doom it, ultimately, to failure. So, let’s now look at what we see as
the stages of a company life cycle:
- Beginning to walk (the "toddler"). The new company is
launched¾a small business, like the thousands that are created
each and every year. Most quickly fail because they don’t understand the needs of the
market and they lack a vision of how their company can uniquely meet those needs. While
they may well have the technical skills needed for success, they lack the necessary
entrepreneurial drive and vision. Uniquely meeting the needs of the market coupled with
entrepreneurial drive and vision are the necessary ingredients to proceed to the next
stage of the company life cycle. Two companies that the world knows well, Apple and
Microsoft, were able to do just that, relatively contemporaneously. Both uniquely tapped
in to the market’s need, coupled with the necessary entrepreneurial drive and vision
provided by a couple of youngsters (Steve Jobs and Bill Gates) who had absolutely no
preconceptions of what couldn’t be done.
- Running up the hill (the "adolescent"). At this point in the
company life cycle, the company continues to meet the market’s needs, and may
experience rapid growth. The rapid growth results from their having met the market’s
needs better than their competitors, and letting the visionary zeal of the founders
continue to drive their efforts. In theory, this visionary zeal could persist long after
the founder’s demise. And, in some cases it does. For example, General Electric (an
old, old company) continues to grow and prosper. It does so because Jack Welch brought
back the entrepreneurial drive and vision that are essential to continued growth and
prosperity. It is at this stage, though, that most successful companies eventually falter,
and thus, enter the next stage of the company life cycle. They do so by forfeiting the
direction provided by the entrepreneurial visionary to that provided by what we might
nicely term "professional managers." Or more aptly, bureaucrats. The kiss of
death! Apple succumbed by bringing in Pepsico's, John Sculley ; Microsoft, so far, has
not.
- Running in place ("aging athlete"). At this point, the
heretofore successful company has come to the conclusion that they no longer have the
wherewithal to manage the company. They need help. Enter the professional managers.
What’s kind of amusing here is that the origin of the professional manager concept
goes back about a century, when the prevailing thought that a "trained manager"
could manage anything. Dumb thought then; dumb thought now! Professional management
quickly degenerates to bureaucratic management. Letting rules dictate what is done, not
visionary zeal. Years ago, we heard a presentation made by a large consumer product
company’s research director. He mentioned that his company had a research manual
which proscribed exactly how each research project was to be conducted. Talk about
bureaucratic! At the time, we speculated that that company was not long for this world.
And it wasn’t; it rapidly proceeded to the final stage in the company life cycle.
Some companies are able to continue "running in place" for quite some time. But
having put aside the visionary zest of their youth, the end result is inevitable. Falling
down!
- Falling down (the "old geezer"). It is at this stage of the
company’s life cycle in which share declines, and declines, and declines. Abruptly or
gradually, ultimately, the company simply ceases to exist. It may go out of business in
its entirety, or may be acquired by another more visionary company. Either way, the hopes
and dreams of those associated with the company are stilled.
Knowing that products exhibit rather predictable life cycles, astute marketers will do
their level best to regularly introduce new products to replace those that pass through
their life cycles. It is in this way that companies can continue to be viable entities.
Knowing, too, that companies tend to exhibit predicable life cycles, companies’
visionary leaders need to assure that their companies are well-stocked, not with
sycophants, but with budding visionary leaders. Has Bill Gates stocked Microsoft with
budding visionary leaders? If not, when he's gone, so, too, will Microsoft follow.
The moral of the story is simple. To succeed in the long-term, you need visionary zeal.
Becoming a slave to bureaucratic rules is a sure-fire recipe for failure.
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