Wednesday, April 18, 2012

Sextants and Anchors

An interesting metaphor: a mission statement is the anchor that tethers a company to its industry. The declaration that "this is what we shall do" is also declaring "we shall do nothing but this." A company that indicates "we are in the oil business" is setting a course for itself, not merely to indicate that it will provide petroleum products, but also that it will not manufacture frozen peas or operate a theme park.

The reasons for doing so are straightforward: specialization gives a firm clear direction - money and time are finite, and cannot accommodate every possible opportunity. Also, specialization gives a firm the ability to do one thing, or a group of closely related things, exceptionally well.

The problem in adhering to a statement that "we shall do this and not that" can be limiting, and presumes that "this" is a better choice than "that" for a given organization. Sometimes, it is, and they are in the right line of business. Sometimes, it is not, and the consequences are unfortunate. And sometimes, things change: the tides move, and the firm is beached.

The anchor that tethers a firm also has a second function: it can be pulled up if there is a need to sail away. And may firms, including some very successful industrial giants, have done exactly that. People often seem surprised when a firm that is known for making one kind of product actually began in a completely different industry. Many of the companies that are currently considered to be in car manufacturing began my making motors to power the machines and conveyors in factories - but when a more lucrative opportunity arose, they changed significantly. Sometimes, it's vertical expansion (taking on more tasks in the value chain of a product); sometimes horizontal (offering more products of a similar kind); and sometimes transformational (moving to completely different and unrelated industry).

But before I go off too far in an unintended direction, the point I was trying to work towards is the importance of considering whether being tethered to a given place makes sense for a firm.

The problem with being anchored is more obvious when you consider other factors, such as channel. The company that declares "we are a brick-and-mortar retailer" or "we are a catalog merchandiser" and anchors itself to that channel loses its advantage when that channel dries up.

Imagine the consequences to any firm that relies anchored to an industry or channel that is losing customers - or better still, review the bankruptcies a that have occurred over the past few decades. In some cases, it was misfortune or mismanagement, but in many, the firm remained anchored to products or practices that once were sound and profitable.

In that way, it makes sense to question your devotion to your anchor, even the most fundamental elements of a mission statement - though this is likely because the mission statement, as written, is unnecessarily constrictive.

No comments:

Post a Comment