Tolstoy makes an observation in the introduction to his book Anna Karenina; “All happy families are alike; each unhappy family has its own unhappiness ”. Famous entrepreneur and investor Peter Thiel explains in his book Zero to One that this observation is the opposite for businesses. Thiel says: “All happy companies are different; each gains the power of a market, becomes a monopoly, by solving a specific problem. All failed companies are the same; they did not know how to avoid competition.
I totally agree with Thiel, but believe that some additional remarks are needed to strengthen his thesis. Firstly, happy companies cannot be happy forever. They must constantly innovate and constantly bring new products to the market quickly, otherwise they might get caught up in the competition. Secondly, unhappy companies cannot survive with these unhappiness for a long time. That is, they cannot constantly manage in a commoditized market with low profits in a perfectly competitive market. Minimal profits that are overly dependent on turnovers disappear in the slightest global or local crisis, leaving the company out of play if the company’s liquidity is not sound. So, unhappy companies must also find a way to free themselves from competition and create blue oceans & purple cows.
As a management consultant who has been working with companies for many years with the aim of increasing management quality in various ways, I have found that companies are in one of the four regions formed by two axes in terms of competition. I try to determine their place in this map before working with companies, especially on strategy, increasing profitability or innovation processes. This position is important for the company to reveal its internal and external strength in competition and profitability. This affects the entire strategy design and strategic management setup. In short, we are working on to make happy companies happier and unhappy companies happy.
I previously stated that I have examined companies in two axes. I named this model the Innovate to Market (I2M) Model. The first axis is those who can and cannot innovate, the second axis is those who can quickly bring this innovation to the market and get a share from the value they create, and those who cannot reach the market and cannot get a share of the value. In other words, we look at the innovation capacity (awareness, desire, innovation processes, culture, design, agile prototype production, agile tests, results) on the vertical axis. On the horizontal axis, there are those (planning, value chain, supply chain, product management, sales, and other marketing elements) who can bring innovation to the market quickly and make money from it.
Companies are often unable to innovate and compete with their existing products or services in terms of price to get value from the market. So they’re in zone 2. This is not an ideal area, but this is an area where problems are hidden under the carpet. Companies have high turnover and in fact meager profits hidden behind it, and it is difficult for the company executives to raise their heads up and recognize the unhealthy state. The companies in this zone, actually lacks awareness. They feel like they’re happy but actually they’re unhappy. Companies in the first zone are either out of the game or are on the verge of a bankruptcy. The companies in the fourth region, on the other hand, are companies that constantly innovate but have limited operational capabilities and systems in bringing this value to the market. Many start-ups are located in this region.
Ideally, companies should be located in the third zone. In other words, these companies are happy companies in terms of having a strong innovation capacity, producing innovative products and services and offering them to the market within the shortest time and lowest costs. Start-ups in the 4th zone are expected to migrate themselves into the 3′rd zone by developing operational capabilities and satisfying revenues. Many companies in the past as start ups, successfully locate themselves in the 3rd zone coming directly from the 4th, demonstrated a strong performance, and then gradually fell into the 2nd region due to the bureaucracy, layered management, relying on safe and familiar strategies, distancing from innovations and losing their entrepreneurial spirit coming with the growth. This is the period of maturity and after that decline phase of companies. Some companies realize the situation, accept it, become ready for change and put their best efforts to return to the 3rd zone. For that, they strive to become innovative again, become lean and agile in thinking and operations, especially in areas such as innovation, R&D, value chain and customer experience. The results may save the next decade.
If you are in zone 1, stop working as soon as possible. You have no chance of recovery. It’s too late now. But if you’re in zone 2 or 4, there’s a lot to do. Therefore, in this model, you need to determine where your company is and what needs to be done to move from the current place to the most optimal point; the 3rd zone.
I strongly recommend that strategic management, R&D, internal audit and the marketing departments take this evaluation very seriously. As a result of this evaluation, the company should put forward concrete and feasible action plans and, better still, embed these action plans in objectives and KPIs. For successfully making such an assessment, the participation of internal auditors as the third eye is crucial. They will add objectivity and independence to the work to be done.