One of the classics in the Harvard Business Review’s history is an article by
Let’s look over the past several decades and ask: what is the best business example of the proper use of inquiry before moving to advocacy, and then the worst, where inquiry was ignored and disaster occurred.
Inquiry Then Advocacy
When Lou Gerstner took over IBM in 1993, one could barely imagine a more tense business situation. IBM’s primary product, the mainframe computer, had seen its revenue drop from $13 billion in 1990 to less than $7 billion in 1993. In the 1991-93 period, IBM had generated losses totaling $16 billion dollars. IBM’s stock price was hovering around $40 a share, off significantly from historical levels of well over $100.
Literally upon arrival, the financial press was all over Gerstner to explain his new strategy for saving IBM. He refused to answer that question and spent the majority of his time simply talking to customers and understanding their problems and their views of IBM. He also did extensive interviewing with employees to understand their mindset and capabilities.
After the first four months, Gerstner emerged with his plan for saving IBM. He announced to all IBM employees via email that their new role in life would be: “to help customers solve their information technology related business problems.” Basically, his plan was to transform IBM from a computer company to a much broader services company.
Gerstner then went to work, reorganizing the company around customers and making a huge push to increase IBM’s services revenue. All of this involved some very tough decisions such as massive layoffs, the sale of some operations, and the closing down of several manufacturing plants, many projects, and several offices.
During the mid-90’s we saw IBM turn the corner and recapture its prior glory. By 1999, the new business model had generated spectacular results. That $40 stock price of 1993 had grown rapidly, splitting twice and was trading at $120 per share. In my view, what Lou Gerstner pulled off was the premier example over the last several decades of jumping into a new situation, inquiring thoroughly as to what is going on, and then becoming a powerful advocate of a very simple and specific strategy designed to cure the company’s ills.
No Inquiry, Just Advocacy
Here is my vote for the worst example. In 2009-2011, JC Penney’s business stagnated as competition closed in on them. Target was taking JC Penney’s customers through their high-quality merchandise at typically lower prices than those of JC Penney. Additionally, on the higher end, Macy’s was taking business from JC Penney, offering high-end merchandise at only slightly higher prices.
The JC Penny board decided to bring in a new CEO; Ron Johnson of Apple. At Apple, he launched the Apple retail outlets which were a raging success, selling leading edge, premium-priced products in a very simple but contemporary setting. Unfortunately, when he arrived at JC Penney, he skipped the inquiry step and immediately moved into action, converting JC Penney stores into something akin to Apple stores. He worked to eliminate price promotions and displays and began forming independent boutiques within each JC Penney store. Each of those boutiques represented a well-known brand (e.g., Levi’s ).
This rapid and dramatic change at JC Penney totally baffled JC Penney’s loyal customers, who wanted respectable but low priced merchandise coupled with some terrific deals each and every week. The result of the new CEO immediately jumping on a strategy that worked in a completely different situation was a major catastrophe for JC Penney. Sales were down over $4 billion versus year ago in 2012 and the stock price was off 55%. Net, the new CEO had completely ignored inquiring about the low-price department store retail segment and immediately became the advocate of a strategy that was a complete mismatch to the existing customers.
These best and worst examples demonstrate why the Argyris article is a classic. Remember: don’t skip the inquiry step.
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