William Dunk's 1999 Annual Report On Annual Reports
REVOLUTION FROM ABOVE:
The first rule of innovation is that the greater the need, the less likely it will happen. Its relatively easy to put forward all-talk radio or 3-door cars. But campaign finance reform or the healthcare revolution, the lack of which are draining our society, are far from liftoff. To get them done, we will need some variation of Jesse The Body Ventura.
In our management consulting practice, we see the same inertia on big ideas. Of the 15 or so start-ups we advise, and the more than 30 incubator projects we assist at large companies, none is more gratifying and more frustrating than a Big Idea out of New England. It resides in a Boston-based healthcare seedling whose business is providing the absolutely best information about critical diseases in a patient-friendly manner to afflicted men and women across America. The promise is that it will cut healthcare costs and dramatically improve the treatment process. Those whove tried it love it. But the iron triangle of government, insurance companies, and healthcare providers, which have given us cripplingly expensive medical costs and declining treatment quality, is marvelously resistant to patient-biased improvement, so this patient-oriented system is expanding at a snails pace, rather than at a gallop as it should.
Innovation -- and sometimes the lack of it -- is what 1998s leading annual reports are most about. After a couple of decades of downsizing and restructuring, companies began to turn to growth again in the early 1990s, when they realized they could not grind out annual earnings gains through cost-cutting alone. This quest for growth has been the subject of our most recent annual reports on annual reports. To get revenues, companies have pursued overseas expansion (particularly in Asia), mergers, and partnerships with other companies. For a host of reasons, all of these still have not produced the kind of revenues major companies need for growth. So now, more and more, they are turning to innovation as their holy grail, looking for regeneration, not from external crutches, but from internal agility.
Innovation -- The New Religion
As businessmen talk about innovation in this years annual reports, they wonder if they are spending enough time and money on it to stay competitive. Our business leaders secretly wonder whether we are falling behind innovation-wise. For instance, a report from the Council on Competitiveness in Washington shows weve been spending on the right stuff for innovation in the 1980s and 1990s, but we look like we might fall behind other nations in the decades ahead.
They realize, too, as we shall see in their reports, that innovation means much more than R&D. Innovation is manufacturing, marketing, and all the processes that drive business activity. As Amazon.com grabs market share from Barnes & Noble, and Nokia captures the wireless phone market, chief executives sense that changes in the world of commerce are leaving them in the dust. They are thinking how to rework their companies to at least keep up with the pace of change, if not to lead it.
Likewise, General Electric 1998. It talks of pursuing globalization, product services, and Six Sigma quality. But it is Sigma Six on which Chairman Jack Welch dwells, because it is remaking GE in his eyes. He notes, "After observing the transformational effects this science, this way of life and work, had on the few companies that pursued it, we plunged into Six Sigma with a Company-consuming vengeance just over three years ago." And he credits GEs improved product innovation to "Six Sigma tools and methodology."
If Welch is more explicit than most about how he is pursuing innovation and transformation, Philip Knight of Nike is most open about his yearning for it: "Most of our troubles are really symptoms of a larger, more difficult problem. We are a very well-managed $5 billion company. Right now, though, we are a $10 billion company trying to get to $15 billion. Management has been stretched too thin. Thats how you get problems." Asia downturns and all, Knight knows that he cant blame his bad results on the marketplace, but, in fact, that his company is a bit out of touch with his markets. He plans to get his company reconnected.
Of course, there were a host of companies that dwelt less on their efforts to remake their companies and more on their fine-tuning of their new product machines. Analog Devices comments on its 12% rise in R&D spending from 1997 (from 14% of sales in 1994 to 18% of sales in 1998), coupled with long lists of technology breakthroughs and product introductions. Merck, on its cover, states, "We introduced 14 new medicines in the past four years -- a productivity record for Merck research, manufacturing and marketing." It also includes its recipe for the legal/governmental climate that fosters "Pharmaceutical innovation: the enabling conditions." Adaptec, in an innovative newspaper format for its report, boasts "Record New Products Rate Boasts User Productivity" on page 1. In other words, plain vanilla product innovation still counts -- for some -- even in the new world of holistic corporate reincarnation.
Taking Giant Steps
Through transformation or through big ideas, many corporate leaders -- worried about current revenues or their place in the world after 2000 -- are, like the leaders in China, trying to foment a revolution in their companies, without saying "revolution." A very few come right out with it. Richard A. McGinn of Lucent says theres a networking revolution around the globe, and he intends to lead it: "These requirements play to Lucents strengths and make us uniquely qualified to lead this revolution." Goodyear claims, "Staying one revolution ahead means massive commitment to product and process technology." American Freightways in Arkansas proudly announces "its American Flyer .... the most revolutionary service in less-than-truckload (LTL) history. It does what the "experts" have consistently said cannot be done." At the end of the day, in 1998, a number of corporate chieftains think they are waging very quiet revolutions.
What we see in the 1998 reports is that companies are trying to get to 2000 before it arrives, afraid that it will pass them by. Some think they need a process (Six Sigma) to do the trick, others a quickened pace of new product introductions. Others think they need to focus on big ideas to get to fast forward, while those who have been in really slow moving industries think nothing short of a corporate revolution will get them where theyve got to be. Clearly, however, none of them are quite sure whether they are breeding fleet-footed, sure-witted stallions or whether they still have nags that will get left at the starting gate. Perhaps this is because revolutions that come from the top rarely succeed, unless you are Bismarck.
Years ago, when I was teaching young college students in New York City the "whys" and "wherefores" of Colonial American history, I asked all the students (when we were discussing the American Revolution) how theyd start a revolution. One bright lady replied, "Id hold a costume party." Intuitively, she knew that you cant make big things happen in conventional ways. And this is what we should look for in annual reports -- something unconventional.
Like Nike which features letters of all sorts and sizes in its report that have poured in from consumers in order to say its listening to its customers. Or Yahoo which shows us 1,000 ways to get connected to everywhere on the Internet and which calls its founders -- "Chief Yahoos." Or Vorwerk in Germany that speaks to human conditions and dilemmas in its report to interest many readers who arent fascinated by the specifics of its products. Or Adaptec or Campbell whose big reports and big graphics may suggest they embrace expansive thinking. If revolution is in the air, things better look, smell, and feel differently. Or as Campbell says, wed better be "thinking outside the can."
William P. Dunk
Companies cited in this report:
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