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Always change a winning team!
Especially in sports the adagium Never Change a Winning Team is what coaches live by. If it ain’t broke, why fix it? is probably what you have heard at work.
But does it make sense to leave things as they are when you are successful? Is your magic formula forever creating top-results? What happens when your successful product becomes obsolete and you have little room to change course, because all your processes have been set up for that one product?
Let’s have a look at 3 examples showing the importance of changing a winning team:
- Apple and the iPhone: is the winning team losing?
- Disney in the 90s, Katzenberg’s letter
- Bayern Munich, Barcelona, Real Madrid, and succession management
And finish with a few recommendations.
1st example: Apple and the iPhone: is the winning team losing?
The iPhone has become absolutely vital to Apple’s success. After the first iPhone’s launch in 2007, it took less than three years for it to become Apple’s biggest product in terms of revenue. For the past four year’s the iPhone’s share of Apple’s total revenue has hovered between 55 and 70 percent of total sales. The launch of the iPhone X in time for the holiday season last year propelled the iPhone’s revenue contribution to a record level of 70 percent for the holiday quarter.
But when we look at Apple’s valuation, as depicted in the FT graph, we can draw two conclusions:
- The launch of the iPhone has an enormous positive impact on the share price – short term. Apple’s revenue stream, converted into the company’s market cap, heavily relies on one single product.
- In a few cases, the share price dropped significantly until the next iPhone was launched. But in the case of the latest launch, the iPhone XS, the market cap of Apple tumbled from over 1100 bn USD to under 700 bn USD!
The iPhone XS’s base price was set at a 1’000 USD, which makes it the most expensive iPhone ever. This begs the question: did Apple go for the double whammy by raising the price to such an extent that it priced itself out of the market? A comparable Samsung S9 is priced at 720 USD.
According to Tim Cook, CEO of Apple, a sudden dip in sales in China may be the biggest factor behind Apple’s drastic revenue shortfall. He placed the blame for the reversal on economic conditions in China, but also on a number of issues that he said led to fewer people than expected upgrading to newer models of the iPhone in the developed world.
Is the iPhone’s value proposition not good enough anymore for customers paying a very high price? Did the iPhone lose it’s technological and design edge? Or is it not that important or necessary anymore to change your phone every 20-24 months?
Betting on a single product to win does not seem to be the right strategy when the rules of the game have changed.
2nd example: Disney in the 90s, Katzenberg’s letter
In January 1991 Jeffrey Katzenberg, then chairman of Walt Disney Studios, sent a 28-page memo to his colleagues. Entitled “The World is Changing: Some Thoughts on Our Business”, it lamented that the studio had lost its way. The finances were sound—Disney had outdone its competitors at the box office the year before—but Mr Katzenberg felt the company was unduly focused on blockbusters.
It should be less fixated on big budgets, big names and whizzy effects, he urged, and concentrate on developing original ideas and executing them well. “People don’t want to see what they’ve already seen,” he said. “Our job is not to count on recycled formulas, but to create and develop fresh, new stories.”
Katzenberg clearly asks for change – or perhaps demands for it – as he recognises that he has to change the winning team, because the rules of the game have changed. He sets out quite a number of rules how the transformation should take place, of which two must never be broken (from his letter, page 25/26):
- Always exercise intelligence and good taste: These are two things to never compromise. If we decide to make a “tent pole” movie, then let’s make it as intelligently as possible, with intelligent risk. If we choose to use a major star, let it be an intelligent choice for that role and for that movie. And, as we develop projects, let us always keep in mind the indefinable question of taste. Disney films mean something very specific. But, Touchstone and Hollywood films also reflect a certain entertainment ethic, one that we can be proud of and one that we should continually respect.
- Reserve the right to fail: We’ve become big enough and successful enough that no one movie can be the difference between profitability and unprofitability for our studio. If we are to achieve greater success, we must be creative. If we are to be creative, we must risk failure. Therefore, to succeed we must occasionally fail. And sometimes, not so occasionally.
Katzenberg helped Disney create new animated classics, including Beauty and the Beast (1991), Aladdin (1992), and Lion King (1994). Those successes, as well as good profits from live-action films, helped Disney grow tremendously. Jeffrey Katzenberg left Disney three years later. He then founded Dreamworks with Steven Spielberg and David Geffen.
3rd example: Bayern Munich, Barcelona, Real Madrid, and succession management
The last decade of European football has seen Barcelona, Real Madrid, or Bayern Munich always win. Since 2010, the three clubs have combined to win 75% of their league games, while drawing 15% of the time, and losing just 10% of their matches. Together, they’ve won seven of eight Champions League titles and 13 of 16 Bundesliga and La Liga championships.
But recently, their dominance has started to fade – predominantly in their home competition. Halfway down the season:
- Barcelona is still leading La Liga, but only 5 points ahead of the number 2…
- …which is not Real Madrid – they are 5th with 10 points behind
- Bayern Munich is 2nd in the Bundesliga with 5 points behind the number 1
Still time to catch up, right? Or is it a trend that we see?
The consultancy 21st Club has developed the World Super League rating system, which aims to quantify the quality of a given team based on its recent underlying performances.
The graph shows that the dominance of Bayern Munich, Barcelona and Real Madrid has started to fade earlier than this season. As a matter of fact, the performance of the teams are in decline since 2014, relative to the new rising stars: PSG, Manchester City and Juventus.
There are many factors for this change, of which one is money: the Premier League’s broadcasting contracts have exploded and oil and gas money flowing to certain clubs, such as Manchester City and PSG. The financial entry barrier did not hold.
However, what you do with the money is of more importance. You cannot buy more than one Messi or Ronaldo. Besides, a team needs to be a well-oiled machine, which is more than 11 highly talented individuals. A very wise lesson of Sir Alex Ferguson:
“The first thought for 99% of new managers is to make sure they win – to survive. They bring experienced players in, often from their previous clubs. But I think it is important to build a structure for a football club, not just a football team. You need a foundation. And there is nothing better than seeing a young player make it to the first team. The idea is that the younger players are developing and meeting the standards that the older ones have set before.”
It seems that Bayern Munich, Barcelona and Real Madrid have relied for too long on the same players and have neglected refreshing their squads and making sure that team performance is secured for the future:
- Bayern Munich’s starting XI average age was 26.3 from 2009-2016, but in the last 3 seasons it’s been 28, 27.4, and 28
- Madrid have their oldest starting XIs since 2004-05
- Barça are about 1.5 years older than what they were between 2008 and 2010
Succession management is essential, even when you have a winning team.
Recommendation: make changes to the winning team. On time.
The only constant in our world is change. The story of Apple and Steve Jobs tells you enough about how fortunes can fade and how radical changes need to be made to claw back the success you had before.
But also for smaller companies it is important to understand that times will change and that you need to change with it – even when you are so successful as you are right now. Please find here a few recommendations for your company:
- Change your value proposition correctly to match changing consumer trends and adapt your product portfolio accordingly
- Match your price with your value proposition, but keep an eye on the price of the next best alternative – even when you have been the reference product for so long
- Every product and technology has an S-curve, don’t rely on your blockbuster product forever – it will become obsolete
- Make timely changes to your company and its direction when the rules of the game have changed
- Be aware of the entry barriers you cannot influence, especially when the only entry barrier is financial resources
- Succession management for your high-potentials and your top talent is crucial to stay ahead of the game
- Make sure you have the right team mix of experienced seniors and eager juniors who can take over the baton