A Turnaround Is a Lot Like Baking a CakeGregory S. Carpenter and Gary F. Gebhardt and John F. Sherry, Jr.
After Karl Benz invented the motorcycle, Harley-Davidson battled 110 rivals, including Henry Ford and BMW, to emerge as the undisputed leader in the U.S. Harley-Davidson dominated the market for years, becoming the ride of choice for the military, police, and biker gangs. When Honda launched an inexpensive model for consumers in 1959, Harley-Davidson largely ignored it. Within seven years, Honda was outselling Harley-Davidson two to one. Harley-Davidson’s market share plunged from more than 80 percent to less than 10 percent, casting the future of an American icon in doubt.
Harley-Davidson’s story of success-followed-by-struggle reveals an obvious, if overlooked, truth: All companies struggle, sooner or later, no matter how successful or for how long. All may appear invincible, but none is, of course. Just look at Microsoft.
Struggling companies resort to a list of familiar actions: Bring in new faces, hire consultants, rejigger incentives, listen to the customer, or reorganize—sometimes more than once. Despite dedicated efforts, massive resources, and even brilliant managers, most efforts fail.
Some businesses do reinvent themselves and enjoy a resurgence. Harley-Davidson’s survival is no longer in doubt. EBay, Alberto-Culver, IBM, and others have enjoyed second acts as well. But how do they do it when the odds seem heavily against reinvention?
To explore that question, we studied seven companies trying to reinvent themselves, including Harley-Davidson, Motorola, and Alberto-Culver. (The other four would not allow us to identify them publicly.) We found that all took the same, well-known actions. Even so, most failed, but a few succeeded spectacularly.
We discovered that the sequence makes the difference. Some companies approached the problem as if making a salad—prepare the ingredients and combine. Sequence is ignored. These companies failed to reinvent themselves.
Companies that successfully reinvented themselves approached the challenge more like baking a cake: recognizing that sequence, timing, and subtlety are crucial. This approach reflects the implicit assumption that the ingredients are limited, the process is delicate, and more important, you cannot reverse the process to correct a misstep.
Resurgence works along the same principle. It operates through a four-stage process:
Reinvention does not begin with the customer. Facing a new threat, many executives look to the customer first. But the real solution is rooted in culture. Admitting that a company’s culture leaves it vulnerable, despite producing success in the past, is a very difficult conclusion to reach. But it is an essential first step in reinvention.
Cultural transformation requires new experiences. Culture is the product of shared experience, and therefore changing the culture requires new experiences. Offering test rides to potential buyers and riding motorcycles with Harley owners gave employees a depth of understanding that is difficult, if not impossible, to create otherwise. There is no substitute for direct experience with customers. Understanding the customer perspective makes the most compelling argument for change possible.
Reconnecting with the market is a companywide responsibility. In many businesses, understanding customers and competitors is the responsibility of a few groups, such as sales and marketing. Understanding customers and the company’s role in the market is knowledge everyone has in organizations that successfully reinvented themselves. Without it, change is slow and contentious, and it often fails. Common understanding bridges functional differences, speeds decision making, and sparks innovation.
After struggling for years, a transformed Harley-Davidson launched a new strategy—offering baby boomers a motorcycle with an authentically rebellious heritage, something Honda could not engineer and something baby boomers found hard to resist. Three years later, in 1986, Harley-Davidson roared past Honda. Defying the odds, Harley-Davidson recaptured the lead in the U. S. market and has held it since—marking its greatest success yet.
Carpenter, Gebhardt, and Sherry are co-authors of Resurgence: The Four Stages of Market-Focused Reinvention.