Transformation: From selling sea-shells to a leading global energy provider
Transformation with Tony Saldanha: Can you evolve?
New Revenue Model
Did you know that Shell evolved from a decorative sea-shell trading business to being an energy behemoth? The need for constant reinvention isn’t new. It’s the frenetic pace to reinvent, driven by digital disruption that’s new. There’s a lot to be learned from how other successful companies and entrepreneurs of the past reinvented themselves. Let’s take Warren Buffet as an example.
Buffet's portfolio of industries today spans constructions, materials, utilities, insurance, finance, consumer goods, media and so on. What is not a significant holding is textiles, the industry from which the two original companies that gave Berkshire Hathaway its name, came from i.e. Berkshire Fine Spinning Associates and Hathaway Manufacturing Company. Buffet was originally a financial investor in the early 1960s and got into the Berkshire Hathaway holding company business almost by accident.
The strange way in which he came to formally own Berkshire Hathaway in 1965 is fascinating. Berkshire Hathaway was a textile company with a long history. It was founded in 1955 with the merger of Berkshire Fine Spinning Associates and the Hathaway Manufacturing Company. In 1962, Warren Buffett was a hedge fund investor in Berkshire. He noticed a pattern indicative of the decline in the textile industry in the US. Whenever Berkshire sold off one of its manufacturing units, its stock climbed up. Buffett had collected a substantial amount of Berkshire stock when the President of Berkshire, Seabury Stanton, made a verbal agreement with him to buy his stock for 11.50 dollars.
However, when the official tender offer from Berkshire arrived in the mail a few days later, the offer price was only 11 and three-eighths. Buffett was incensed. He went about buying Berkshire stock, to take control of the company and fire Stanton! After acquiring Berkshire, he spent the next 20 years trying to revive the textile industry in the US. He failed, and the end of the original Berkshire textile business became inevitable. Berkshire closed in 1985. The saving grace for Buffett was that it generated enough cash for him to buy into the Insurance industry, which in turn spawned the rest of his empire of holdings.
Lessons for digital transformation leaders
The lessons from past disruptions are still re-applicable. Here’s the most important one - there’s always plenty of warning. Even better, the warnings come from multiple sources– your industry trends, your customers, your business model trends, and your own business performance and organization.
During periods of immense change, as in the current fourth industrial revolution, the winning companies and leaders pay extra attention to the warning signs of disruption. And, even when they make the occasional mistake, as Buffett did with the Berkshire company, they pivot.
Here’s the dilemma for leaders. Digital disruption tends to be over-hyped, but on the other hand, there’s no doubt that it's not a fad either. And that frames their issue i.e. When, Where and How much to act. That’s where a clear strategy to leverage digital elements within your overall business strategy comes in. Operate from a disciplined strategy, and you'll avoid the pitfalls created by hype, and harness digital's immense possibilities. Operate from herd instinct and you risk wasting money and being disrupted anyway.
Not surprisingly, Buffett maintains that the dumbest stock he ever bought was Berkshire Hathaway. If he had invested his initial capital into the Insurance industry instead of textiles, he figures he could have made another $200 Billion! What he did was learn from his mistake, and pivot successfully. So, Berkshire Hathaway is no longer a struggling textile company but a conglomerate that owns dozens of “value” companies. Buffett isn’t alone in this. Several successful companies have demonstrated the ability to evolve. Western Union started off as a telegraph company before finally ending up as the largest money transfer service in the world. AMEX transformed itself from a package and money delivery provider using service riders in the 1800’s to a global financial behemoth. As mentioned earlier, Shell went from an ancestry in retailing decorative and collectable sea-shells to be a global energy giant. What’s your plan to be agile?