How Manufacturing Companies Can ‘Be Here Tomorrow, Too’

BCG leader says CEOs must purposefully self-disrupt their companies and create environments for continual innovation.

A surprising number of companies, especially manufacturing outfits, fade from the Fortune 500 each year, either from actual decline—or from being eclipsed by fast-growing companies, often from the digital sphere. Since the 1960s, the average number of companies exiting the iconic listing has increased by 36 percent a year, according to the Boston Consulting Group.

Martin Reeves, senior partner and managing director at BCG, told Chief Executive there are lots of things manufacturing CEOs can do to battle history, remain vital and relevant, and grow as fast as any other type of company. Many of his ideas are included in a new book, The Imagination Machine, in which Reeves and his co-author address myths about how companies can spark ideas and growth in their organizations.

CEOs should “embrace or even precipitate a crisis” for their company, Reeves said, “because complacency is the enemy. Go and talk to dissatisfied customers. Maybe you’re a very good company, but what about the two percent who used to be your customers? Also, conceive of who your new competitors might be, partly by looking ahead.”

Reeves said that large-company CEOs must be especially ready to engage in such tactics because “very small companies live in constant contact with their competitors” and customers. “The bigger a company gets, the more preoccupied the CEO is with internally facing activities. And the weak signals you need in order to adapt aren’t internal—they’re external.”

CEOs also should “set ambitious and even unrealistic goals; that stretches current thinking to the breaking point.” And, Reeves said, chiefs must “leave time for reflection. Especially in North America these days, businesses and employees are very busy and productive—and overstretched.

“Imagination is not something you can exercise under stress, in no time at all. It requires time and space for reflection. You have two jobs: drive the current business, and reflect on future possibilities.”

For manufacturing chiefs, product development can be a crucial area for creating both current and future business. Reeves said one example in the book is about Hindustan Unilever, headquartered in Mumbai, India, and a subsidiary of U.K.-based CPG giant Unilever.

“They needed ideas for transformative products,” Reeves explained, “so at one point they sent all 15,000 employees of the company into the field to look for ideas.”

Brooks Automation is a mid-market semiconductor manufacturer in Chelmsford Massachusetts. The company was successful and had a large share of its markets “but began growing more slowly and had to find new sources of growth,” Reeves said. So Brooks began creating new markets in areas such as precision cryogenic storage and progeny biobanking for scientific and medical research. “It’s a big business,” Reeves said.

In The Imagination Machine, the two co-authors offer a strategy for “renewing imagination and vitality of the company,” as Reeves described it. Chiefs must “get six things right to have an imaginative company that renews its lease on the future:

• A reason to reimagine: “If you’re not attending to things that don’t fit the pattern and the current mental model of the business, you won’t have reason to renew the model,” Reeves said.

• Working the idea: “You may have noticed a new market segment emerging, but usually ideas are born nasty and incomplete and [just] slogans. You need work the idea, which is essentially understanding the elements of your mental model and the tension in it, and recombining the elements. We’re not trained to do that in business school.”

• Collision:  This happens when a CEO “takes the idea out of your head back into the world and you test it. It’s not just about validating the idea, because almost all ideas fail the first time. It’s iterating and generating new surprises and insights.”

• Epidemic: This “is the social stage,” Reeves said. “An idea that doesn’t spread within the company or beyond, to investors and customers, is just a solitary fantasy. Often, structures of large companies are very efficient at diffusion of mature work, but there are huge barriers to the diffusion of ideas across the organization – firebreaks and silos.”

• Certification: At this stage, “you’ve worked on the idea and tested it, and you have a group of people excited about it, but understanding why a new thing or product or even a business model is successful is a subtle thing. Usually, it has many different elements. You need to say what is the essence of its success, or you can’t replicate it. It needs to be replicable by a set of people not involved in its initial innovation. This is a non-trivial stage.”

• Encore: This is “both the most difficult and the most valuable stage,” Reeves said. “It used to be the case that an entrepreneur created a new business model and 95 percent of them failed. The five percent who succeeded went on to coast for the next 15 to 20 years on the back of the innovation.

“But now, competitive advantage deteriorates very rapidly – within a year. So in this stage, you need to view your own past successes skeptically and remain paranoid, challenging the basis of previous successes and creating future-option values.

“The ultimate challenge is to be here tomorrow, too.”