Like most families I know, ours has its own group chat. We stay connected through a stream of daily texts. Most of it is the typical stuff like reminders of appointments, things to get done, sharing interesting stories from the world of sports, entertainment and so on.
This week, the Molinaro group chat was full of texts about the demise of the children’s retailer, Gymboree. We were all sad to hear about the end of a once great brand. At its peak, Gymboree was the place to go. When our kids were much younger, it was the only place we shopped for much of their clothing. The company offered great quality, good sale prices and friendly staff. The outfits we bought lasted and were passed down to friends who passed them to other friends when they were no longer needed.
Upon hearing this week’s news, I spent some time researching the company again. Like a lot of retailers, this company has had its own struggles. Despite many attempts, it was announced this week that it will once again file for bankruptcy protection (for a second time) and will close 800 stores.
Gymboree was trying to survive the retail apocalypse. Like most companies in this sector, Gymboree could not change its business model quickly enough to deal with the decline of bricks and mortar stores, the rise of online shopping and aggressive new competitors targeting the market they once owned.
This story isn’t unique. We’ve all seen many companies struggle to survive and when they finally collapse, I find myself asking why. How did it happen? What did the leaders miss through all of it?
To answer this question, I went back to re-read some classic ideas in the management literature. One of the most prolific management thinkers was and continues to be Peter Drucker. He had a lot to say about companies—what made them successful and what caused them to fail.
As he reflected on the demise of companies, he said that the root cause is typically not that things are being done poorly, or even that the wrong things are being done. Rather, he proposed that the right things were being done, but fruitlessly and without results.
To him, a company’s demise was due to having the fundamental assumptions on which a company was founded no longer fit with the current reality it was experiencing in the market. These fundamental assumptions shape everything the leaders and the company do: what it takes to win, what customers value and what results are meaningful, to name a few.
Drucker called these assumptions the theory of business, and he believed they are at the root of the malaise that so many companies experience. Essentially, for many of these companies, their theory of business is no longer viable. To make matters worse, the old theory of business blinds leaders to emerging trends and industry realities. They may devalue contrarian points of view, dismiss an upstart competitor or not be open to changing an old formula for success. This story plays out repeatedly, company after company.
If we really take Drucker’s words to heart, then as leaders one of the things we need to do on a frequent basis is to be open to questioning our own theory of business. Through my consulting experience, it is surprising to me how many leaders are not even aware that they have a theory of business and even fewer are prepared to challenge it. But in today’s world of disruptive change, I believe this is something all leaders need to get good at.
I find the start of a new year is the perfect time to engage in this kind of thinking. Here are some guidelines that I have used with my own clients based on some of Drucker’s ideas.
There are three categories of questions: those related to your business environment, your business strategy and what your leaders need to do to drive success.
Take some time, either on your own or with your team, to discuss your answers to these questions. See if you are on the right track or if changes need to be made to your core assumptions about your business.
- Your Operating Environment
- What are the fundamental assumptions you have about the current state of your industry, your business model, and what it will take to win in the market?
- What are your assumptions about what your customers truly value? What assumptions are you making about your competitors? Are they valid?
- Your Business Strategy
- What are the underlying assumptions that led to your current strategy?
- How does your company make money today and will that need to evolve in the future?
- Has your strategy been created in a vacuum by a few leaders or were many involved?
- Your Leadership Expectations
- What underlying assumptions are shaping the decisions you make on the leaders you bring into your company, promote or terminate?
- Do you create an environment where leaders can challenge the status quo and really call out assumptions and practices that are getting in your way?
- Is there absolute clarity among your leaders on what it will take to win?
Start with these questions. I’m sure they will trigger many more.
In today’s world, leaders need to ensure the sustainable success of their organizations. The lesson from Gymboree, and other companies before them, is that a once great brand doesn’t always last forever.
If we adopt Peter Drucker’s ideas, then as leaders we need to be accountable to regularly challenge our fundamental assumptions because they shape how we think about our companies, the decisions we make and the actions we take.
This week’s gut check for leaders blog asks: Is it time to challenge your assumptions about your business?
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© 2019 Vince Molinaro