Corporate DNA

Almost exactly seven years ago (amazing how long I have been blogging) I wrote an extended piece about how hard it is to change corporate DNA.  I was writing about GM but also used Wal-Mart as an example.  Part of this piece read:

A corporation has physical plant (like factories) and workers of various skill levels who have productive potential.  These physical and human assets are overlaid with what we generally shortcut as "management" but which includes not just the actual humans currently managing the company but the organization approach, the culture, the management processes, its systems, the traditions, its contracts, its unions, the intellectual property, etc. etc.  In fact, by calling all this summed together "management", we falsely create the impression that it can easily be changed out, by firing the overpaid bums and getting new smarter guys.  This is not the case - Just ask Ross Perot.  You could fire the top 20 guys at GM and replace them all with the consensus all-brilliant team and I still am not sure they could fix it.

All these management factors, from the managers themselves to process to history to culture could better be called the corporate DNA*.  And DNA is very hard to change.  Walmart may be freaking brilliant at what they do, but demand that they change tomorrow to an upscale retailer marketing fashion products to teenage girls, and I don't think they would ever get there.  Its just too much change in the DNA.  Yeah, you could hire some ex Merry-go-round** executives, but you still have a culture aimed at big box low prices, a logistics system and infrastructure aimed at doing same, absolutely no history or knowledge of fashion, etc. etc.  I would bet you any amount of money I could get to the GAP faster starting from scratch than starting from Walmart.  For example, many folks (like me) greatly prefer Target over Walmart because Target is a slightly nicer, more relaxing place to shop.  And even this small difference may ultimately confound Walmart.  Even this very incremental need to add some aesthetics to their experience may overtax their DNA.

Corporate DNA acts as a value multiplier.  The best corporate DNA has a multiplier greater than one, meaning that it increases the value of the people and physical assets in the corporation.  When I was at a company called Emerson Electric (an industrial conglomerate, not the consumer electronics guys) they were famous in the business world for having a corporate DNA that added value to certain types of industrial companies through cost reduction and intelligent investment.  Emerson's management, though, was always aware of the limits of their DNA, and paid careful attention to where their DNA would have a multiplier effect and where it would not.  Every company that has ever grown rapidly has had a DNA that provided a multiplier greater than one... for a while.

But things change.  Sometimes that change is slow, like a creeping climate change, or sometimes it is rapid, like the dinosaur-killing comet.  DNA that was robust no longer matches what the market needs, or some other entity with better DNA comes along and out-competes you.  When this happens, when a corporation becomes senescent, when its DNA is out of date, then its multiplier slips below one.  The corporation is killing the value of its assets.  Smart people are made stupid by a bad organization and systems and culture.  In the case of GM, hordes of brilliant engineers teamed with highly-skilled production workers and modern robotic manufacturing plants are turning out cars no one wants, at prices no one wants to pay.

Changing your DNA is tough.  It is sometimes possible, with the right managers and a crisis mentality, to evolve DNA over a period of 20-30 years.  One could argue that GE did this, avoiding becoming an old-industry dinosaur.  GM has had a 30 year window (dating from the mid-seventies oil price rise and influx of imported cars) to make a change, and it has not been enough.  GM's DNA was programmed to make big, ugly (IMO) cars, and that is what it has continued to do.  If its leaders were not able or willing to change its DNA over the last 30 years, no one, no matter how brilliant, is going to do it in the next 2-3.

Megan McArdle makes some very similar points as I about Wal-Mart and how hard it is to change corporate DNA.  I recommend you read the whole thing.

  • SamWah

    The SR-71 took a long time to reverse course because it went so fast. The Queen Mary because it was massive. But they turned because the pilot and Captain wanted to turn. And nobody down below was putting up resistance. GM--did they really want to change? Was there an incentive for change? Did anyone really look for bottlenecks and resistance and way-less-than-optimal procedures? I'm guessing those answers are all 'no'.

  • http://twitter.com/tjic tjic

    I remember that post!

    > Almost exactly seven years ago (amazing how long I have been blogging)

    OMG.

    We're getting old.

    FWIW, I liked your post on the topic better than Megan's. ...but both were good.

  • thomas Sawyer

    This is so true. And to a great extent, the DNA is transmitted by computerized information systems. And that is why WalMart became so successful. They came along late enough that they were able to create logistics information systems in a world with cheap storage, scanners and with the UPC widely in place among manufacturers. While most retailers were debating, "should we" and "how do we" incorporate these tools into our DNA, WalMart just blew by them. (Think Sears, K-Mart, etc.)

  • sabre_springs_mark

    It is easy to do incremental change when the situation is not absolutely bleak. For Instance, if the Titanic steered clear of the ice berg, by taking proactive action, the captain would have willed the ship the correct way and the Titanic "company" wouldn't have sunk, but once the iceberg is in view, all the will of the Captain is not enough to steer the company onto a safer course. This is what really happened with Hostess. Even if the Bakers accepted a new contract - it was the antiquated distribution system that was really putting the company under, and they didn't have the funds to change that.

  • GoneWithTheWind

    GM failed to make those little cars that people supposedly wanted but the best selling vehicles over those 30 years were full sized pickups and large SUV's. They would still be the best sellers except that the law requires U.S. auto makers to make little Pintos and other death traps to meet fuel standards. They sell the little casket cars at a loss because they must sell them in large numbers so the cars people want (the SUVs and pickups) cost more. So where is the problem? Was it GM and other car manufacturers for selling the cars people wanted or was it the government for putting restrictive regulations in place that put the companies at a competitive disadvantage.

  • http://twitter.com/intrfirst ][

    The culture changed quick when Sam passed away, but that seemed to be more of a function of the heirs than an actual need for change.

  • http://twitter.com/intrfirst ][

    General Motors was(and still to some extent, is) a place where one could buy a car from a company that did not have the small-car mindset. Chrysler manages to also meet the desire for larger cars being made to the US mindset of more power per dollar versus their transplant and Detroit-turned-Eurotrash(Ford) brethren.

    Asking General Motors or Chrysler to make a small car is like asking Honda to put more than an I-4 in a regular car or to ask Hyundai to stop copying off of everyone else.

  • wes dean

    Corporate DNA, reactionaries, running dog capitalists, it's always the same. They must be purged. I agree with the spirit of this post and find it invigorating that Coyote is not afraid to think outside the box. And some folks still think the commies have no good ideas. Purge them, purge them all!

  • nehemiah

    In fairness to Hostess management, the antiquated distribution system was in large part influenced by union work rules. Only certain employees who were members of union X could deliver Wonder Bread to the stores, while it was necessary for employees of union Y to deliver Hostess Cup Cakes. Separate trucks, different different drivers mostly going to the same places. There were also limitation at the dock as to which union loaded which products on which trucks. How do you optimize a supply chain with those constraints? You have to get work rule relief from the union or get out of the business.

  • nehemiah

    I don't know, I kind of like the Ford Mustang.