Firms are reluctant to abandon the past in favour of a better tomorrow. They hang on to yesterday’s winners until they are made irrelevant by rivals. They hesitate to move from low to superior yield services/products. Abandoning a service appears to shrink revenues and profits. Hence they resist strategic abandonment.
For a growth strategy to be successful leaders must first decide what to abandon. If a firm is to grow it must systematically rid itself of services which are no longer of value to the customer.
They Had the Courage to Abandon The Past
- Intel’s CEO Andy Grove in the mid 80’s, faced with significant competition, abandoned the memory chip market despite the fact Intel had created this market. Intel refocused and became the dominant supplier microprocessors.
- Verizon abandoned/sold its unproductive, largely rural telephone companies in Hawaii, Maine, Vermont, and New Hampshire. Proceeds were reinvested in a next generation networks.
- GE’s Jack Welch sold/abandoned over 100 businesses that did not fit his company vision. The story of how Welch developed a successful policy of abandonment is told in his book “Straight from the Gut”.
- Royal Roads, Athabasca, and NorthCentral University abandoned a 200 year old university model focused on academic research, tenured faculty, and bricks and mortar. They developed a low cost model riveted on the delivery of applied programs, taught by leading practitioners, and distributed on-line. This model appeals to working professionals.
They Clung to Yesterday’s Winners
- Legacy airlines have retained a business model that is out of phase with market realities. Unwilling to adapt to change, they gave way to competitors with innovative business models, a low cost structure, and low rates. Many were quick marched into CCAA/Chapter 11 or bankruptcy.
- GM stuck to producing gas-guzzling automobiles and SUVs. It placated its workforce with unsustainable benefit packages and hourly wages. It maintained this strategy despite a growing green movement, soaring gas prices, and uncompetitive labour costs. Even in the face of bankruptcy GM resisted change. It sought a government bailout and thus became a ward of the State.
- William H. Johnstone, a former Bethlehem Steel VP, challenged Bethlehem leadership to adapt to change. He identified the economic forces, new technology, and foreign competitors that were driving change. Dissident insiders aborted any opportunity for change. Bethlehem, once the second largest steel maker in the USA, filed for bankruptcy in 2001.
A Policy of Strategic Abandonment
Change brings new realities. The trick is to identify the new realities and exploit the resulting opportunities. The task is to move the organization from an outmoded past to an innovative future. The leadership must ask “Of our current products/services, policies, processes, practices, and resources which should we abandon and which provide opportunity for improving performance?”
Strategic abandonment is not solely about abandoning products, but abandoning business practices, processes, and policies that no longer fit the operating reality. It includes dismissing poor performers, time servers, and those that do not live up to the firm’s values. Strategic abandonment is about growing the business. To grow the business, as Joseph Schumpeter suggested, you need to engage in your own form of “creative destruction”.
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