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About Face: Companies That Reinvented Themselves

Against long odds, these companies survived near-death experiences.
Jim Motavalli

The only thing we can be sure of in the current business climate is that the center won’t hold—what’s been true for decades is not necessarily true anymore. And that means that companies with huge name recognition, established markets and long-held approaches to selling their flagship products are going to have to rethink, rebrand and reinvent. Coasting won’t work.

The ground is littered with the corpses of companies that once dominated their fields, from Sam Goody to Lehman Brothers, Woolworth’s to Borders. But many other enterprises have survived near-death experiences because they were alert to changing times and the opportunities presented by ever-evolving technology. Here are the stories of three of them.

National Geographic Spreads Its Wings

The National Geographic Society, a somewhat elite club in its early days, was founded in 1888, and the magazine first published that same year. In 1914 the magazine treated readers to its first color photograph, a glimpse of its future—National Geographic became known for its gorgeous images.

As the decades passed, though, color photography just didn’t seem as novel as it once did, and young media consumers increasingly identified National Geographic as the magazine their parents read. Its core market has increasingly shrunk. Subscription revenue fell from $284 million in 1999 to $211 million in 2009. English-language circulation stands at 5.2 million, half of what it was in the 1980s.

With a rapidly aging customer base in the late 1990s, National Geographic Society CEO John Fahey clearly saw the need to turn the ship around before it hit the iceberg. The answer, Fahey recognized, was diversifying into other media platforms.

The first step was modernizing the company’s approach to TV. National Geographic’s first television specials—those featuring Jacques Cousteau and Jane Goodall, most famously—appeared in 1964. They were groundbreaking hits in their day, but as cable options expanded, National Geographic’s science, exploration and animal documentaries decreased in popularity. National Geographic had to learn to entertain as well as inform.

Enter an unlikely visionary: Rupert Murdoch, whose Fox broadcast empire owns a majority stake of the National Geographic Channel, which launched in 2001. The programming, a take on Murdoch’s sensationalistic model, has morphed into what Fahey calls “factual entertainment”—it’s reality TV elevated by embed journalism. With programs set inside foreign prisons, or following American troops in Afghanistan or border security agents, it’s hardly Grandpa’s cable channel. It’s also profitable, producing an estimated $100 million in revenue for the Society in 2012.

But that’s only part of the picture. Fahey describes the future of National Geographic as “a magazine that’s alive and organic on a day-to-day basis,” which means a lot more online content, especially if it can produce revenue. Bringing that idea to fruition now falls to Chris Johns, the veteran photojournalist who in June added the title of group editorial director to the editor in chief role he’s held since 2005. The expanded position gives him content authority over not just print, but digital and video across all distribution channels. In short, Johns’ mission is to reverse the public perception of National Geographic as a dusty travel magazine piling up on the retirement home’s coffee table.

Johns points out that technology advancements—hand-held high-definition cameras or tiny audio recorders—are the tools that enable his journalists to tell their stories better than ever before. At the same time, their stories are more accessible.

When change comes rapidly to an institution with entrenched people and policies, it’s inevitable there will be dissension in the ranks—the kind that can sink a reinvention.

There’s truth, Johns says, in the business adage that 20 percent of employees will be early adopters, 60 percent will be interested and wait to see how the reinvention plays out, and 20 percent will actively resist change. “My priority is to work with the 60 percent who are open but need guidance and encouragement,” Johns says, “combining them with the early adopters. You have to give people a chance to come with you, stick their necks out. We want people to take calculated risks even though they might fail.”

“We were a carefully curated magazine that came out 12 times a year,” Johns says. “Now we’re moving much faster across all platforms. Reporters used to working on involved assignments with long lead times are becoming used to producing shorter pieces that get online very quickly. They like that. And our photographers are developing healthy traffic on Instagram.” Johns will carry out his mission under a new CEO, Gary Knell, formerly of National Public Radio, in a change announced in August. Fahey remains as chairman of the National Geographic Society.

National Geographic has more than 2.5 million followers on the photo sharing site, a place where gorgeous images are once again as beloved as they were in the pages of the magazine a century ago. The more things change, the more they stay the same for this legendary institution, constantly ahead of the curve in pursuit of its founding mission.

Xerox Stops Copying the Past

A house made of paper can be easily toppled, and that’s the position Xerox was in during the late ’90s, when Asian competition for its copiers and other hardware led to a mountain of debt and a drastically shrunken share price. Clearly, the company’s needs went far beyond a new marketing plan—it needed to explore new business.

The turnaround can be traced to the early 2000s, when Xerox’s current CEO, Ursula Burns—the first African-American woman to head a Fortune 500 company—began to ask an important question. “What is it that Xerox really does?”

Burns became CEO in 2009 and almost immediately made a bet so huge and risky it could’ve completely derailed the company—the $6.4 billion takeover of Affiliated Computer Services (ACS), Xerox’s largest acquisition ever.

The goal was to make Xerox an instant player in the $500 billion market for technical business solutions. Xerox was still making money selling copiers, but it was obvious to Burns that the revenue wasn’t going to be enough to turn the company around.

“Risk and opportunity are carpool partners—they arrive together,” says Kevin Warren, president of Xerox’s U.S. client operations. “A lot of people get paralyzed on the risk side, and can’t move forward. Ursula Burns had a lot of challenges—she was a brand-new CEO trying to make a big acquisition when credit was tight, but the board backed her. The result was a real turning point in the growth of the  company.”

Xerox’s turnaround could have been stunted entirely by the market’s reaction. The stock price, already low, plunged because of the move into uncharted territory, which incurred massive new debt. “The analysts didn’t initially understand the strategic play,” Warren says. So Burns and ACS’s former CEO Lynn Blodgett (now president of Xerox Services) went on the road to sell investors on the  plan.

Their outreach effort worked, the ship righted itself, and Xerox now draws 55 percent of its revenue from services, not hardware. “It’s a challenge in today’s environment to balance the short- and the long-term,” Warren says. “You have to drive innovation, be bold, and embrace disruptive forces that can reset the playing field to your advantage.”

Just as National Geographic needed to rally the troops, Xerox had to persuade a workforce torn by layoffs to embrace the new direction. “If your people don’t get their heads around it, if they don’t understand what’s in it for them, the strategy will fail,” Warren says.

In a “permanent whitewater,” as Warren calls it, there’s no guarantee that big corporations will remain big. According to the Harvard Business Review, in 1958 the average time companies had been on the S&P 500 was 61 years, but that dropped to just 25 years in 1980. Now it’s just 18. Does Dell get to sell PCs forever? Nope. Is Clear Channel licensed to print money because it controls so many radio licenses? No again.

In reinventing itself to stay ahead of the curve, Xerox has an ace in the hole—PARC (or Palo Alto Research Center Inc.), which was founded in 1970 as a branch of Xerox and in 2002 was spun into an independently operated subsidiary that provides R&D for Xerox as well as outside companies and the government.

PARC was a pioneer of ubiquitous computing and communications technology, and its current research is right on the edge of what technology will allow in the near future; the organization identifies itself as being “in the business of breakthroughs,” and some of its applications sound like science fiction. PARC is currently working on tiny, dirt-cheap smart tags that will make up-to-the-second readings to provide all kinds of useful information when attached to a product, or to form bandages that can sense whether you’re healing or not. “We will be able to make microprocessors using standard printing methods,” says PARC CEO Stephen Hoover, “without high-temperature processing or nasty chemicals.” The Xerox branch envisions a new age of ultra-low-cost electronic “chiplets,” each no bigger than a grain of sand, the technology that will enable the world of stuff around us humans to have its own autonomous connectivity and intelligence—The Internet of Things.

New tech is opening up many new businesses for Xerox. “Parking is a pain,” Burns pointed out to MIT Technology Review. So Xerox is working to capitalize on parking solutions such as a smartphone app that points you toward an open spot—then charges you accordingly.

Since it was spun off to operate independent of Xerox a decade ago, PARC’s directive to create profit has made it stronger. “We’ve become really focused on driving the financial results,” Hoover says, “because if we can make profits, then we can do more independent research. If you’re not single-sourced, the world is your oyster.”

Hyundai Finds Its Keys to the Future

In 1986, Korean automaker Hyundai began selling cars in America. Its Excel hatchback and sedan, each priced at $4,995, hit the market’s sweet spot—168,882 were sold the first year. And that turned out to be a big problem.

The cars weren’t very good. And unlike Toyota, which sold its first car, the awful Toyopet of 1957, to only a few buyers, Hyundai’s bad cars were very visible. The Excel had enjoyed one of the largest brand launches in the history of the auto industry, and it threatened to backfire big time.

John Krafcik, president and CEO of Hyundai Motor America, looks back at those early struggles and laughs. “Every Asian automaker stumbled badly when launching in the U.S.,” he says. “The early Excels had long-term durability issues and were not high-quality automobiles.”

Krafcik sees this initial stumble as the first of three “ethical moments” Hyundai faced. The company addressed its problem with an internal push to match Toyota’s quality standards. Eventually that target was met, but the cars still didn’t sell because the public remembered horror stories of Hyundai  breakdowns.

The company’s timely answer to this second ethical dilemma, in 1999, was a 10-year/100,000-mile warranty, unprecedented in the industry at the time. It worked, and Hyundai’s U.S. market share zoomed from 1.1 percent to 4 percent by 2009 and 5.1 percent in 2011.

The third ethical moment? Well, Hyundai’s dealing with that one now. The company’s sales in June were up 1.9 percent compared to the same month in 2012, unimpressive when compared to results from other automakers—General Motors was up 6.5 percent, and Toyota leapt 9.8 percent. “Any growth is good, but this performance is well below the projected industry average,” said Edmunds.com senior analyst Jessica Caldwell.

Krafcik fumes over such perceptions because Hyundai caps its global production at 7 million cars annually. It chooses not to satisfy unmet demand, limiting production in an effort to get as close to zero defects as it can—the desire for ultimate quality control has led to a go-slow expansion schedule. “This is a self-imposed production constraint coming from the pure, unadulterated need to delight every customer,” he says. In other words, once Hyundai is satisfied that every single car off the assembly line is going to make its new owner happy, it will increase its capacity, maybe in the United States.

Hyundai defines its mission to “delight the customer” as the creation of quality, well-appointed and beautifully designed cars for less money than the competition. That has long been the niche of Japanese companies such as Toyota and Honda, but in the 2013 Brand Keys Customer Loyalty Engagement Index, Hyundai tied with Ford for first place.

Krafcik has gotten some of the credit for this, which seems to make him uncomfortable. He was the 2013 Automotive Executive of the Year—credited with helping reshape the way Hyundai approaches the American market—but prefers to call attention to his “dream team.”

Hyundai is taking some risks with its ongoing production cap. A motivated buyer who dearly wants but can’t find the Marathon Blue Veloster (with the six-speed manual transmission) may be less than delighted. Through May of 2013, Hyundai and its partner, Kia, together lost almost a point of market share, and not because consumers don’t like their cars. Hyundai doesn’t yet have a fix for this challenge, but Krafcik believes it is setting the stage for big wins down the road.

“I can’t think of another case where a major volume brand gave up sales to ensure long-term quality,” Krafcik says. “We have set high targets for ourselves, and there’s a lot to keep us busy.”


Your Reinvention

Four lessons from NatGeo, Xerox, Hyundai:

Every culture is different, but these companies set examples that can be useful in the rebirth of your small business.

Forget the sacred cows. Even a much-respected, venerable business can’t rest on its laurels or guarantee profits from an illustrious history. National Geographic had to overcome its stuffy, too-scholarly attitude. It can be difficult to shake up the established order, but that’s what good leadership is all about.

Change the concept. The word Xerox literally came to mean “copy,” but the company couldn’t limit itself forever. Xerox now draws more than half its revenue from services. Take a step back. Does your basic profit model need a makeover?

Think long-term. Hyundai has been willing to lose sales—and take some criticism—as a result of its decision to cap production at 7 million globally. But if the plan achieves its goal of solidifying the company as a quality leader, it will quickly make up for the lost sales and add market share. Delayed gratification can pay off big time.

Look ahead. No company (including these three) will succeed if it doesn’t stay on top of fast-moving technology trends. Search for new platforms and learn to work effectively within them.

Post date: 
Nov 19, 2013

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