Recent events have shown us that intelligence about the world at large can be, to put it politely, malleable. If the people responsible for operations provide and shape their own intelligence, they will tend to produce information and analysis that fit their preconceptions. The same is true for corporate intelligence. Especially as companies and industries mature, they may face decisions that their operating executives find difficult to confront. These companies–indeed, all companies–need a chief knowledge officer, someone who provides honest, unbiased intelligence about the world around a company and where the company stands in that world.
In our increasingly knowledge-based economy, every company will eventually have such an officer, and those that get there first will have a competitive edge. Just what this person will do is still being invented and will differ from industry to industry. The CKO’s duties may be as varied as recommending whether a company should buy, sell, or make its technologies, or determining where technology is going and where new competitors may arise. But there is no better example of the need for a chief knowledge officer than the necessity for some companies to manage decline skillfully.
Death is a part of business life. Fruitful markets will one day go fallow. Unfortunately, very few enterprises have figured out how to navigate the downside of a sales curve and wring profits out of fading products. Guiding a company to a graceful exit is far from the only role of a CKO. But it’s a task that epitomizes the need for such an officer: It requires a clear-eyed assessment of where a company stands in its life cycle, and it means facing unpleasant realities that less dispassionate executives may be unable to deal with.
Consider Polaroid. This icon of photographic innovation was toppled by the emergence of digital photography and one-hour developing. Polaroid saw it coming and made an all-out attempt to go digital. But it never stood a chance in this new digital world. All of its know-how was rooted in chemistry. Unfortunately, Polaroid made a mess of its own demise. The company’s core business, instant photography, was declining only slowly. If it hadn’t attempted to fight the inevitable, it could have steered itself to a very soft landing, providing a decent return to its shareholders and a lot more security to its employees. Polaroid needed a chief knowledge officer–someone who could ensure that its core asset had a profitable death.
What is the biggest business blunder in the past half-century? That’s easy: Steve Jobs’s decision not to license the Macintosh operating system, which cost Apple $559 billion (going by peak market values). Apple had, and probably still has, a better OS than Microsoft’s. Instead of leading a $23 billion also-ran, Jobs could have been Bill Gates, with a company worth $582 billion. But Jobs failed to foresee the Mac OS’s decline and to take appropriate action: Give in to the inevitable and license the thing.
You can’t really blame him. Those who invent something are always the last to part with it. Fortunately for Microsoft, Gates did not invent the original DOS operating system, but bought it. What is bought is easily sold (or, in the case of Windows, leased). It’s up to the knowledge chief to cast a cold eye on the future, gather unbiased intelligence on emerging threats and opportunities, and make the tough recommendations to buy, hold, or sell.
Gates is a prototype CKO. He passed the chief-executive reins to Steve Ballmer and gave himself a new mission as Microsoft’s chief software architect. Gates is still defining his role, but according to Ballmer, it is Gates’s job to forecast how “emerging software technologies can be woven together and parlayed into must-have industry-standard products.” To put it bluntly, it’s up to Gates to ensure that Microsoft continues to control the technology channels that have made it rich. By focusing on this challenge, not on running the company, Gates will determine Microsoft’s future success or failure.
A knowledge chief must understand, just as Gates had, that every market eventually reaches saturation. The personal computer, for example, is at a point where more memory and faster speeds are irrelevant for most users. Peak computer penetration seems to have been already reached, with about two-thirds of all U.S. households owning one. The PC industry is confronting a replacement market, not a growth market. It is the job of the CKO to anticipate this cycle and to manage its downside.
The failure of many firms to get ahead of the curve in understanding the life cycles of their industries can be seen in the 2001 recession. While American recessions are completely normal, the 2001 recession had some different characteristics precisely because it occurred in the midst of an industrial revolution. Think of the big-name companies that went bust in 2001, such as Bethlehem Steel, Burlington, Chiquita, Kmart, United Airlines, and U.S. Airways. Of the 10 biggest bankruptcies in U.S. history, 6 occurred in 2001 and 2002.
Now name the famous companies that went broke in the bigger (but still modest) 1990 to 1991 recession. You can’t, because there weren’t any. Normally, blue-chip companies that have survived a number of recessions don’t go under in a mild recession. The big casualties of 2001 failed because they lacked a strategy for managing the demise of their old business models. Had they possessed such a strategy, they might have bought themselves enough time to build new models that would have led to future growth.
Skillfully managing a decline is not a management failure, even though myopic executives often view it as one. If an organization has the courage, discipline, and intelligence necessary to become the only big-time survivor in its industry, it will often find that there are profits to be mined for years to come. General Electric, often described as America’s best-managed company, can be seen as a collection of sole survivors: electric locomotives, power systems, and aircraft engines. The company understands that managing through a maturing market is even more critical than seizing on an emerging one.
A company’s knowledge chief tries to determine when an industry has matured, when it is smart to retreat, and when the time to exit has arrived. Those who lead may choose to ignore such intelligence, but they should be forced to listen to it.