Dow(n) and Out: Can General Electric Reclaim Its Legacy?
Mark Miller and Lucas Conley
discuss their new book about building a long-term brand.
Old-school brands like GE and Sears have
struggled in a changed economy where too much focus on the short term can be a
liability. Building a modern legacy company requires a different approach to
management and customer relations. “As counter-intuitive as it may seem,
we’ve found that brands guided by long-term ambitions make faster, better short-term
decisions than their nearsighted competitors,” write Mark Miller and Lucas
Conley in this opinion piece. They are the authors of Legacy
in the Making: Building a Long-Term Brand to Stand Out in a Short-Term World.
Miller is the founder of The Legacy Lab, a research and consulting practice, and the chief
strategy officer at Team
One. Conley is the executive editor of The
Legacy Lab, and a former researcher for The
Atlantic and staff writer for Fast Company.
This past month, General Electric — the last
remaining member of the Dow Jones Industrial Average’s original 1896 index —
was removed
from the world’s most prestigious equity benchmark. News
of the venerable brand’s dismissal from the Dow, the index of 30 large,
publicly traded U.S. brands reflecting the health of the financial markets, was
somber but not entirely surprising. Down more than 80% from its all-time high
in 2000, GE had come to account for less than 1% of the overall weight of the
index. Under new leadership and in the throes of a massive reorganization, the
question in the wake of GE’s delisting is not so much whether it can return to
the Dow someday, but whether it will survive and, if so, what it will look like
in the years to come.
GE is only the latest in a long line of fallen bellwether brands
to make headlines for the wrong reasons. In recent months, Toys “R” Us, Necco
and Gibson Guitars — culturally significant icons with more than 293 years of
combined history between them — all filed for bankruptcy protection.
RadioShack, founded in 1921, has filed twice in the past two years. If media
accounts are to be believed, a procession of brands — household names like
Sears, Guitar Center, J.Crew, J.C. Penney, Cole Haan, and Neiman Marcus — may
be poised to join them.
While anecdotal accounts like these might make it sound like
longstanding legacy brands are on the brink of becoming endangered, the
statistical evidence reveals a full-blown mass extinction event is well
underway. In the 1920s, the
average lifespan of a company on the Standard & Poor’s 500, a list of the 500 most valuable companies traded on
the U.S. stock market, was 67 years. Today, that number is 15 years. On
average, an S&P company is being replaced every two weeks—meaning that,
by 2027, an estimated 75% of the S&P index will have turned over. We now
live in a short-term world, an era where the products we buy often outlast the
brands that made them.
The Short-term Trap
No one is more alarmed by the trend toward “short-termism” than
the leaders of the mainstay brands themselves. Speaking on behalf of some 200
CEOs of major U.S. corporations, Warren Buffett, the chairman of Berkshire
Hathaway Inc., and Jamie Dimon, the chairman of
JPMorgan Chase, authored an op-ed in the The Wall Street Journal last
month titled “Short-Termism
is Harming the Economy.” Lamenting the market’s
“unhealthy focus on short-term profits at the expense of
long-term strategy, growth and sustainability,” Buffett and Dimon advise
weaning off short-term targets, like quarterly sales estimates, in order to
“strengthen the U.S. economy, benefit America’s workers, shareholders and
investors, and leave a generational legacy we can be proud of.”
Lifting our collective gaze from the quarterly horizon is a
great start, though we should not stop there. In order to revitalize
longstanding icons like GE and build the next generation of bellwether brands,
it’s time for a fundamental shift in how we think about building legacy.
In today’s short-term world, the traditional rules for building
and maintaining long-term brands are losing their power. In their place, we
propose a new, forward-looking approach to building legacy that we have
observed at pioneering brands like Patagonia, The Ritz-Carlton, Taylor
Guitars, The New Yorker, and a rare group of others we profile in
our new book, Legacy in the Making: Building a Long-Term Brand to Stand
Out in a Short-Term World.
Traditionally, building a brand has meant focusing on short-term
measures of conventional success like quarterly profits, growth, capturing
consumers and dominating categories. In contrast, modern legacy builders ask
more of their brands, resulting in five far-reaching transformations in the way
enduring brands are built in the modern age. Together, these five
transformative perspectives on brand building constitute what we call the
modern legacy mindset:
1. From
institutional to personal:
Traditional brand leaders buy in to
management systems and institutional processes with the goal of following
market trends. Leaders with the modern legacy mindset invest in individuals who
are seeking to make a meaningful contribution, beginning with their own
long-term personal ambitions. If brands like GE are to thrive, not just
survive, they should be committed to making a social contribution deeper, and
more lasting, than simply their next dividend.
2. From
attitudinal to behavioral:
Traditional brand leaders imagine their
brands first from the outside in, believing that attitude — what they say and
how they posture –matters most. Leaders with the modern legacy mindset build
from the inside out in accordance with beliefs that drive behaviors because
actions matter more than words alone. For long-established brands like GE, this
requires clarifying their beliefs and inspiring their employees to bring them
to life.
3. From
commanding to influential:
Traditional brand leaders hoard
information and tell customers what to do, striving for category dominance and
sales superiority. Leaders with the modern legacy mindset consider their social
influence and invite customers to help tell their story because sales follow
saliency. Iconic brands like GE can succeed by treating customers like owners,
rallying them behind the brand’s ambition and encouraging the adoption of
products and services the world really needs.
4. From
orthodox to unconventional:
Traditional brand leaders focus on
mastering rules – “business is about making profits” — and take conventional
wisdom for granted –“there are no profits in altruism” — all in the interest of
maintaining the status quo. Leaders with the modern legacy mindset forge
extraordinary and lasting change by breaking rules, including reconciling
paradoxes – “business can make money and be a force for good.” Brands like GE
have long aspired to be the best at what they do. To build unconventional
modern legacies, they need to be the only ones doing what they do.
5. From
episodic to perpetual:
Traditional brand leaders tend to grow
stale by repeating the past or lose their identity by renouncing it. Leaders
with the modern legacy mindset find a new way, cultivating enduring
significance by bringing the past forward and reinvigorating their brands each
day. Founded in 1892, GE has more than a century of history to draw on. To stay
perpetually relevant, longstanding brands like GE need to find new ways to use
the past as a bridge to the future, making legacy every day.
Given this new perspective on brand building, can GE make the
transformation from traditional to modern legacy? There are some glimmers of
hope. CEO John Flannery, appointed in August 2017 after more than 30 years with the brand, is personally committed
to streamlining the conglomerate and
preserving its innovative “center of gravity” — aviation, power and renewable
energy.
To realign the company’s beliefs and
behaviors, he’s revamping
the board and the management,
building a leadership team of “fresh eyes and people with institutional
memory.” In the process of selling off more than $20 billion in assets, he has
sharpened the unique identity of the brand, cut
the quarterly dividend, lowered short-term
expectations, and made difficult commitments in the name of long-term success.
“We’ve changed many things,” Flannery told investors on June 26, the day the
brand was delisted from the Dow. “But the essence of GE endures . . . We
are motivated first and foremost by making a positive difference in the world.”
Though GE’s impatient investors might think otherwise, our
research shows that it’s in the brand’s best interests to think long-term. As
counterintuitive as it may seem, we’ve found that brands guided by long-term
ambitions make faster, better short-term decisions than their nearsighted
competitors. And in today’s rapidly evolving market, brands like GE must do
more than bring good things to life at the end of each quarter. To build modern
legacies, they must find ways to keep those good things alive and thriving for
years to come
http://knowledge.wharton.upenn.edu/article/how-to-create-a-modern-legacy-company/?utm_source=kw_newsletter&utm_medium=email&utm_campaign=2018-07-12
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