I recently read a statistic that stunned me – of the companies that made up the Fortune 500 in 1955, only 60 remained on the Fortune list in 2017. That means 88% of the companies from the 1955 Fortune 500 have either gone bankrupt, merged with, or were acquired by another firm, or they still exist but have fallen out of the Fortune group. My first thought after reading that stat was how can that be?
I actually worked for one of the 60 companies – IBM - that was in the Fortune 500 in 1955 and in 2017. I joined IBM in Cleveland, Ohio as a sales trainee in its Data Processing Division in 1977 and was part of the company during some of its greatest years - and during some of its worst years, too. In 1984, IBM was recognized by Fortune magazine as The Most Admired Company In America. By 1991, IBM was perilously close to going out of business! What happened in seven short years to bring a company that had been a mainstay in American business for over eighty years, to its knees? How did it come so close to being one of the 88% who failed to have the staying power to remain on the Fortune list?
At the time, I didn’t see the difficult issues that were on the horizon for Big Blue, but with the benefit of hindsight, I can see clearly what happened – IBM stopped focusing on bringing value to their customers and instead, was more concerned with bringing value to IBM. They lost sight of their priorities; they lost sight of their values; in today’s language, they lost sight of their WHY,
As Simon Sinek, the noted author and speaker describes it in his very popular TED talk, “Start With WHY,” people don’t buy what you do, they buy why you do it. People want to be inspired and that includes the people who create the goods and services a company sells, and the customers who buy them. Mr. Sinek believes the number one priority of a company is to know WHY they are in business and if the only reason is to make a profit, the company needs to rethink their WHY.
In 1985, IBM’s new CEO said he was concentrating on IBM generating $100 billion in revenues and figuring out how the company would be structured once they achieved that milestone. What wasn’t discussed as much during these years was how IBM should be structured to bring the most value to their customers. In fact, in 1991, this same CEO wanted to break up IBM and create satellite companies out of IBM’s ten key divisions, which he felt would generate more profits.
When IBM continued to sustain huge losses, the CEO was replaced by an outsider. Bringing someone in from the outside to be CEO had never been done in the history of IBM. The new CEO had a background in retail and marketing, not in technology. His first decision was to change the focus and really the culture of IBM. The new CEO said he wasn’t going to break IBM up into mini-companies, but rather, he wanted to use the full strength of a united IBM to solve customer problems. He said IBM’s #1 priority was focusing on bringing value to the customer. In essence, it became IBM’s new WHY statement.
Over the next ten years, IBM CEO Lou Gerstner’s drive to change the culture inside IBM by making the customer the most important reason for being in business, was proven to be the right approach. Within a few years of changing their focus, IBM was out of the red and posting record revenues and profits, and most importantly, customer satisfaction was at an all-time high.
The lesson IBM learned the hard way is a valuable one to remember. Don’t get me wrong – having financial goals, with a focus on generating profits, is one of the most important things a company can do. It allows the company to grow and be viable for the benefit of its employees, their customers and for the community.
However, spending the time to define and reinforce with employees WHY the company exists is crucial to long term success. Focusing on the type of culture the company desires isn’t something a company can check on quarterly, but rather, it needs to be cultivated with the same drive and focus as the most important financial goal. Reinforcing the company’s values, with the leaders of the organization talking and walking them every day, is a key piece of what a company’s priorities should be. The companies that fail to know their WHY, fail to cultivate a strong culture, fail to reinforce their values, fail to hire the absolute best people and take care to train and reward them well, have shown time and time again to be the companies that aren’t as successful. They become just like one of the 440 companies from the 1955 Fortune 500 that didn’t survive to be a part of the 2017 list.
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