Thinking Beyond Crisis: U2 and Other Stories Professor Thomas Lawton February, 2009 SM The current recession is causing many headaches in boardrooms throughout the world. We have had major names, like in the UK Woolworths going bust. Many companies are finding that strategies that appeared to work perfectly well in growth times are suddenly starting to be questioned. Now it’s very tempting at this time to hunker down and deal with the current situation, but there are alternatives. There is the long term to consider too and to help us look at that, Professor Thomas Lawton will explore his approach and some ideas around recession beating and planning for the future. Now Tom, should people be spending all their time looking at the current situation, there is certainly plenty to do there? TL I think the danger always in these sorts of crisis is to focus on the short term and that is understandable because many people are suffering right now, and many companies are under pressure. But there is really a need to keep a strategic mindset and I think the clever companies right now are those that are managing the bottom line, but at the same time looking ahead concerned with where is this going to take you. And of course, for every crisis there is an opportunity often for some companies as well. I had a very interesting one the other day concerning Ginsters Pies, who apparently had a record year because many people are trading down on the food that they are eating. So I think there is often opportunity and also to my mind there are four types of companies that exist right now doing this time of crisis. The way I would classify these would be firstly there is reactive negative. Reactive negative to me is a company that is in serious trouble. Woolworths you mentioned – there are several other High Street companies that are either disappearing or about to disappear, and a lot of that is because they have a strategy that has been flawed for many years. And it is times of recession that expose the flaws in these, when people are actually pulling back on their expenditure. And these are companies that are in freefall. Their vision is probably outdated, their value proposition to the customer is not appealing any more and their business model is inefficient and ineffective. And there isn’t much hope for these companies. SM So I imagine they have been struggling. Even during the good times they were doing not particularly well, and now they are really struggling? TL Exactly. These were companies that were not maximising their potential in any sense. If they were making any money, it was pretty marginal I would say. And many of them were losing money as well; it’s just that it wasn’t really a big issue in the media. But of course in times of crisis these things often get more media attention. SM So what are the other types, then? TL The second type is what I call the reactive neutral, and these are the companies that are simply sitting on their hands right now. They are waiting for the crisis to blow over, they have stopped investment, they have stopped expansion often and they are just trying to rein in expenditure in any sort of small way they can. This is many companies. SM I was going to say – that must sit where most people sit really. They are treading water, they are saying this crisis won’t go on forever, let’s move on once we have got over this crisis? TL Exactly – it’s where most companies are right now. And there is no strategy there per se, other than let’s stay alive, let’s get through this. The third category in the reactive one is what I call reactive positive. And the reactive positive is negative in a sense, but it is positive potentially in the long term. And it is companies that are taking the opportunity right now to cut back, to cut cost, in a way to make themselves more efficient in the long time. An example might be Sony. Sony have laid off quite a few people recently. I believe the reason being that they are trying to really restructure themselves internally in order to come out of this in a more lean way than they have been in the past because their costs have risen too much. So I think they are doing that in a way that is looking to the future and they are perhaps using times of crisis and recession as a cloak in which to get away with a lot of this cost cutting potentially. And there are many others like that as well. The final category is what I am calling proactive, as opposed to the reactive, and the proactive companies are those that see this as an opportunity. An opportunity to expand, an opportunity to beat the rivals, or to even take over the rivals. Now to be in that position typically you have to have resources, you have to be cash rich, for example. SM I was going to say, you need some deep pockets in times of recession? TL Exactly. It’s the companies that have built up the resources, have got the cash flow going and are entrepreneurial by nature in many ways too – and aggressive. It’s an aggressive strategy too, and as I say it’s predicated either on organic growth – so they are taking the opportunity to expand into other countries for example – or it’s inorganic, where they will take the opportunity to take over their struggling rivals in many cases. SM If I were a manager, I would say ‘Well which category am I in, then?’ What process do you go through, aside if you like from take it from an academic view, and say ‘I am sitting here in the boardroom, what strategy should I adopt according to what category I am in?’ TL I think the first thing is to re‐evaluate your strategy – if you even have one. And there are many people that if they don’t have one which is called an emergent strategy is a nice way, but they perhaps should just rethink about what is the basis of your strategy. To me a strategy is one of those things that many managers clearly are grappling with – what exactly is a strategy? Do I have the right one? How do I create one or how do I reshape one? To me, the core principles are to think about are well what firstly is your vision? What is your purpose as a company? And to me a vision has got two main elements, which are where are we trying to get to? What is the long term plan for this organisation in terms of growth? And what are we trying to be? And the second question, I think, is increasingly important in these days of ethics and corporate social responsibility where the issue of identity has become a much more important feature for organisations. So ‘What are we trying to be, where are we trying to get to?’ is the first thing. We think that ‘are we on track?’ is the second question. SM Because, I would imagine, it’s very easy to kid yourself really, and in a way recession is very much about let’s face up to reality? TL Exactly. It is very much like when you play golf and the ball goes into the rough. You are perhaps playing with somebody else and they don’t see what you are up to and you have the temptation to just kick it out onto the fairway. And I think that these are times also where you have to be honest with yourself, as well as with your colleagues and say ‘well, hey, we are in the rough and to get out of this we are going to have to perhaps use some different clubs than we normally would’. SM So where do we go from there, then? You have taken that tough decision; you have said that we need to move out of where we are now. TL Well it’s a balance. It’s a balance really between consistency and change. And when I say that to managers they say ‘well that makes sense, but what does that mean in practice? Where exactly should the consistency be and where should the change be?’ And to me again, the consistency issue is around your core elements of success and your core identity in many ways. And if I were to take the example of a recent piece of work I have done on U2 – the rock band – clearly a band that have been around now for thirty odd years and yet are still at the top of their game. And it raises the question of how do you in an industry – the music industry – where fads are common, where bands come and go regularly and where very few endure beyond a decade, let alone three decades, how do you actually do that? And more importantly perhaps, how do you actually make yourself appealing to younger generations because there are many groups that have consistently stayed alive or produced new music, but their fan base is ageing with them. But U2 somehow have managed to reach out to a younger audience as well as the audience that have grown up with them. And it is a balance here of change and consistency. So the consistency to me, the management jargon which many people may be aware of now of course is around core competencies, for example. What are the core competencies of U2? A core competency simply is the idea of what is it that is at the heart of your success as an organisation? So again, for companies in this sort of crisis it’s about rethinking what is it that has made us successful in the past? What appeals to the customer? What is it that really drives this organisation? In the case of U2 I think you would say there are three clear core competencies. One is around the sound, the distinctive sound – be it the Edge’s guitar or the drumming of Larry Mullen. It is how that sound coalesces in a coherent way, but it is still identifiable individually. It’s around the lyrics with a fundamental Christian message underlying many of the lyrics and also a poetic element to a lot of the lyrics. And thirdly it’s around the identity of the band – this idea of integrity and trying to make integrity cool. It’s about advocacy without preaching to people. And it’s a global identity and message of reconciliation and peace and so forth. So those are the cores which have remained consistent, and again this is relevant for managers, when the band have strayed off message, when they have moved away from that – I am thinking of the 1990s with say Pop or Zooropa albums, many people didn’t like that. Many of the fans didn’t like that, the critics didn’t like that, the stakeholders in general didn’t like this straying from the core. SM So one of the tricks really is to say what is core and enduring, but also a bit of experimentation that meant maybe you have got to do a bit of that to see will this go down well? TL Exactly. Experimentation was always important and when you realise that the experiment isn’t working, when your stakeholders – in the case of a company, be it your customers or your shareholders or whomever, is responding negatively you maybe need to backtrack on that. SM So take the feedback on board, look at it intelligently, cut your losses basically sometimes? TL Exactly and I think there is always some learning process from that. So even though some of the experiments of the 1990s were seen negatively in the case of U2, there was a feedback loop for example, the extent to which electronic sound, but also technology was integrated into the U2 brand as they moved forward. And not all the experiments went wrong. Achtung Baby was seen as one of their best albums for example, and that was also quite experimental at the time in many ways. So I think not everything goes wrong when you experiment. So there is the need to maintain the consistency around the core roots of success, and then to build and element of innovation and change on top of that and a group like U2 are very good at innovation, are very good at actually seeing what is coming and incorporating that. SM Now this is all very well talking about pop groups – let’s talk about some kind of solid businesses. I have heard for example, recently, Toyota and Cisco are examples of organisations that have really flourished in previous recessions and pulled themselves through. Were they applying some of these U2 principles there? TL Both companies you mention are very good companies. They are very clever companies, very strategic companies, but also with a basis of operational efficiency underpinning it. Now clearly Toyota is suffering right now because the car industry is worse hit than many sectors, as you are aware, and they are taking a hit on that. I think though that Toyota will come back very effectively because Toyota, like one or two other companies, are very cogniscent for example of the environmental issues and the need to develop hybrid cars and electric cars and so forth going forward. And they have invested a lot in that and they are one of the few companies that have been doing that well in advance of the industry norm and before there was any government demand for example to do that. SM So take the initiative, think ahead, be very much in tune with the market and the feedback and where you need to go? TL Absolutely. And another good example is Coca Cola in this respect. I was speaking for example with an old friend of mine who is a senior executive at Coca Cola recently and he was talking to me about the way in which very stealthily Coca Cola have been redeveloping what is underneath the brand. So there is a need to maintain brand integrity which U2, Coca Cola, Toyota – all of these great companies and organisations and bands are aware of, – but at the same time underneath there is constant change and innovation and updating. It’s the old analogy of the swan on the surface of the pond – everything looks fantastic at the top and cool and calm and collected and is moving forward in a nice clear fashion, but underneath there is a lot of controlled chaos, to some extent I would say. Creative chaos. SM Tom, you have given some very useful thoughts that I am sure many companies could do with looking at very carefully. Thank you.