When you watch Super Bowl XLVI this coming Sunday, you will likely see at least one end zone celebration. Don’t worry if you miss the spectacle. You can watch business executives perform them any day of the week.
Guess the company that made this statement. Bonus points if you know the year:
“Our brand is recognized in every corner of the earth. Our technology is the envy of our competitors. Our leadership is experienced, capable and bold . . .”
A) Apple
B) Eastman Kodak
C) Microsoft
D) Federal Express
Less than one decade after the company’s CEO performed this solo verbal tango, his company filed for bankruptcy. On January 19th, 2012, The New York Times reported, “. . . the company — which since 2004 has reported only one full year of profit — ran short of cash.”
By now, you know the company is Eastman Kodak. The year was 2004. From bravado to bankruptcy in just eight years! How did it happen? We’re about to find out, so get ready for a deluge of Kodak Lessons Learned. If you’re inclined to probe for insight by delving into Kodak’s financial statements and operational statistics, I can save you the time. Running short of cash is a sales failure. And behind every sales failure is management that ignored risks or made poor assumptions. Usually both.
“Well, Kodak just couldn’t survive the fast adoption of digital technology,” someone recently told me. A point that will stoke discussion for many years in B-School strategy classes around the world. Not that Kodak CEO Daniel Carp and COO Antonio Perez didn’t know about the forces of technology. They paid considerable homage to the word digital in their 2004 Letter to Shareholders—forty-six times, in fact. But equally significant is that the words risk, trend, and opportunity, were mentioned zero, one, and two times, respectively. What did still-thriving archrival Fujifilm Holdings executives do that Kodak didn’t? Manage risks.
“The whole philosophy of risk management is moving from reactive to proactive.” according to Steve Culp, managing director of Accenture. “Companies with even slight advantages in detecting and managing emerging risks can obtain significant competitive opportunities,” he said.
Amen. We’re all more comfortable when we can plan strategies using logic and reason, instead of using fairy dust and wind. Power to the naysayers! They can call out risks without being branded “not a team player.” Culp’s statement casts risk management in a better light—more Moneyball than Chicken Little.
In adrenaline-charged sales organizations, risk management performs an indispensible duty that might seem mundane and prosaic: planning. Our risk awareness explains why sales funnels taper from top to bottom, why sales pipelines require specific multipliers, and why forecasts contain probabilities.
But there’s a powerful difference between risk-aware and risk-savvy. In a 2010 survey I conducted with CustomerThink, sales professionals responded that the greatest threats to revenue attainment are economic and competitive. Yet, a recent survey Accenture conducted revealed that “57% of companies do not now measure political risk, 44% do not gauge reputational risk, and 50% do not measure emerging (unexpected) risk.” For most companies, those three expose a huge, unprotected backside! And in their last Kodak moment in bankruptcy court, Kodak executives more resembled the Coppertone girl.
Over the next several months, we’ll learn more about the missteps Kodak made. One thing is certain: overlooked or underestimated risks will be on the list. Here are my top candidates for often-overlooked risks that are the most consequential for other sales organizations:
Hubris risk: Also known as arrogance risk. Had Kodak executives not played their own music so loudly, they could have better heard the roar of the technology trains that combined to hit them full on. Warning signal: Management consistently responds to sales issues by saying “sell what we’ve got!” or “bring me solutions, not problems.”
Information risk: As organizations continue to depend on data and information for the raw material of their CRM systems, data quality control will become more important. But with the explosion of data, quality cannot keep pace, and uncontrolled data will lead to a major backfire. Warning signal: Prospects don’t have a clue why you’ve contacted them.
Strategic risk: Also known as choosing the wrong strategy. In their letter to shareholders, Netflix executives demonstrated this risk most compellingly: “We believe that DVD’s will be a fading differentiator given the explosive growth of streaming, and that in order to prosper in streaming we must concentrate on having the best possible streaming service. As a result, we are beginning to treat them separately in many ways.” Oops! Warning signal: management proclaims the company’s strategy is “spot on” before customers do.
Tactical risk: Also known as executing the right strategy the wrong way. In the article, McDonald’s Twitter Campaign Goes Horribly Wrong (January 24, 2012), McDonald’s Social Media Director Rick Wion provided this explanation: “Last Thursday, we planned to use two different hashtags during a promoted trend – #meetthefarmers and #mcdstories. While #meetthefarmers was used for the majority of the day and successful in raising awareness of the Supplier Stories campaign, #mcdstories did not go as planned. We quickly pulled #mcdstories . . . With all social media campaigns, we include contingency plans should the conversation not go as planned. The ability to change midstream helped this small blip from becoming something larger.” Warning signal: actual outcomes aren’t anywhere close to intended outcomes.
Ethical risk: The flip side to a “revenue-focused” sales force happens when just three words are added: . . . no matter what. Without ethical boundaries, revenue focus will foster many behaviors—not all of them trust-enhancing. And no business calamity is more corrosive to shareholder value than broken trust. All this would be easier, of course, if ethics had global ANSI standards, but they don’t. “What is considered ethical in India may be different than in China or in the United States,” said Tom Zara, of Interbrand. All the more reason to pay attention (see Hubris Risk). Warning signal: Management says, “We don’t need written guidelines . . . that type of thing could never happen here.”
Reputation risk: Merck, Penn State, BP . . . there’s a long list of once-proud brands that have recently fallen in the mud. But there’s plenty at risk for companies that haven’t crossed the ethical line. According to an article by Joe Mullich in The Wall Street Journal, January 17, 2012, “A survey by the Federation of European Risk Management Associations (FERMA) . . . found that reputation risk from social media was cited as ‘a material risk’ by nearly 50% of European companies—making it one of the greatest cyber threats that organizations face.” Warning signals: no defined corporate social media strategy, deer-in-the-headlights expressions after reading a Tweet from an unhappy customer.
What makes all these risks riskier is the effect of rapid change. In my research for this blog, I discovered the irony that a Kodak engineer, Steve Sasson, invented the first digital camera in 1975—almost forty years ago. It would be easy to say that Kodak had ample time to plan and strategize for a future devoid of photographic film. But we know that the combination of hundreds of inventions and technology innovations along the way eventually contributed to Kodak’s demise. Kodak’s outcome was the byproduct of keeping their heads in the sand for many years, but rapid change in the last eight catalyzed the company’s fate. Pity. “Ran short of cash” is not an elegiac summation, considering the company’s many contributions to our culture.
Companies that survive rapid change manage risks remarkably well. They don’t run away from them, or dismiss the messengers with condescension. They bring risk management principles to every planning meeting. The ability to recognize risks is a great beginning. Using the insights strategically will separate sales winners from losers.
