Week 6 Failure Analysis/Change Strategy1
Week 6 Failure Analysis/Change Strategy
Blake Austin, Diana Ali, Jose Egred
LDR/531
Instructor: Hoby Follis
January 13, 2014
Failure Analysis
Contrasting Companies:
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- Sharper Image (losing Company)
- Apple Inc.
When it was founded:
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- 1977
- April 1, 1976
Founder:
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- Richard Thalheimer
- Steve Jobs
Quick Description
Week 6 Failure Analysis/Change Strategy1
The Sharper Image was a pioneer of high end consumer electronic products. It created its retail space and presence by offering premium consumer products not available anywhere else. It grew to a $760 million value publically traded company with 196 stores in the most expensive malls in America and overseas. Eventually, competition from other stores like Apple Stores, Brookstone, Radio Shack, Macys, and legal claims against the company from improperly advertising the benefits of the company’s Ionic Breeze air purifiers forced the company to file for bankruptcy protection and liquidate in 2009.
The Sharper Image made its debut as a small mail order business in 1977 while founder Richard Thalheimer attended law school. He used an initial $1,000 investment to buy and market a line of high tech digital watches for runners. He liked the idea and continued advertising, and financing with short-term credit lines. Within years he was mailing eye-catching catalogs of products that were must-haves for the 25-44 year old upscale man.
Their catalog and retail stores boasted high priced gadgetry that included $ 7,000.00 high tech massage chairs, $8,000.00 replica Coca Cola vending machines, a suit of armor that sold for $3,800.00 etc. The catalogs drew people to their stores, where most purchasers were able to leave with less-expensive, but still premium products, such as anti-fog shaving mirrors, phone cases, battery chargers, etc.
The Sharper Image, Inc. failed on two fronts. Established retail giants did not want to cede one of the most desirable demographics in consumer marketing (25-44 males desiring better products) and competed aggressively. Secondly, the Ionic Breeze air cleaner, once comprising 35 % of company sales, was found to have falsely promoted benefits from the product. Mr. Thalheimer was removed from his position as CEO (while retaining a seat on the company’s Board of Directors) in September 2006. A turnaround specialist, Jerry W. Levin, was brought in to try and repair the damage, but the negative publicity and costs of litigation removed any remaining corporate good will, and the entity folded in 2009.
Companies like The Sharper Image are dependent on the next new thing to drive consumer demand. An enterprise that has to offer new products to entice their customer base will suffer and ultimately fail if the ‘next new thing’ is not offered in quick order. Loyalty in this retail space is unheard of without new products to drive the cachet of purchasing for them.
Apple, Inc. (Apple) is an incorporated entity that designs, manufacturers, and markets mobile communication along with media devices that include music players, related software, networking solutions, digital content and applications, etc. In 1977 Steve Jobs had a vision of bringing the world a related piece of engineering for personal use that everyone can use and enjoy. His first commercially successful product was the Apple II personal computer, which allowed users to actually use a computer for real world tasks.
Apple’s history reads like a corporate soap opera. Just the story of its humble beginnings in a garage, to incredible product success, to a number of years of mixed successes and failures, to Apple famously firing Steve Jobs, its founder and chief executive visionary, would be a great story by itself. The company’s renaissance, led by the re-hired Mr. Jobs, into music distribution (iTunes), personal music players (iPods) to more ubiquitous mobile phones (iPhone) and tablet computers (iPads), Apple underwent a rebound in fortune previously unknown in American business history. Investors in Apple had been handsomely rewarded, with many i-millionaires created in the first and second Apple economic boons.
It should be noted that Apple has been a product-driven enterprise. Consumer tastes and preferences developed with the Apple II did not extend to the Apple Macintosh (different platforms; the Macintosh was the next successful product offering after the Apple II). Apple’s product line drove its value as an enterprise, after the lean non-Jobs years, he returned and began an unprecedented string of successful product launches. The new product offerings drove customers to Apple products.
Mission Statement
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Sharper Image Mission statement “Our Company’s mission isto sharethis enthusiasm--to sharethe fun of discovering all kinds of exciting, well-designed, and technologically advanced products. As The Sharper Image has grown, my passion for new products has grown, too, and today we are an international icon innovation--a unique kind of specialty retailer that represents the highest standards ofcustomerservice.”
One should note the ambiguous tone of the statement. The reference to Mr. Thalheimer’s “”…my passion for new products has grown…” enthusiasm for his company in the first person is surprising. This may be the only mission statement I am aware of that refers to the founder and his passion for new products. The company should have a vision for what it does and how it does it, not based solely on its’ founder’s whims. This is troubling, especially since the company is so linked to the whims of its founder. No plan for its own
Apple’s Mission Statement for 2013 reads “Apple designs Macs, the best personal computers in the world, along with OS X, iLife, iWork and professional software. Apple leads the digital music revolution with its iPods and iTunes online store. Apple has reinvented the mobile phone with its revolutionary iPhone and App Store, and is defining the future of mobile media and computing devices with iPad.” (Blodget, H. (2013))
This statement is not a mission statement at all. It is instead a summary of recent achievements, without a summary to drive its future. If one takes The Sharper Image and its lack of continuity as a model, troubled times are likely ahead for Apple. The driving force behind product innovation at Apple is no longer available, and the lack of new products might be a precursor of Apple’s long term financial future.
Leadership Style
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Sharper Image’s Richard Thalheimer was often characterized as an autocratic leader. Creative entrepreneurs are often autocrats, since they have brought their vision of the business to this point. It is also not surprising that he had to be replaced when the business was troubled, since the skill set that nurtures a business from inception to enterprise does not include the specific skills required in turnarounds. There was a high turnover of top level executives and leaders. Some employees labeled Thalheimer as a harsh boss, difficult to work for. Authoritarian leadership, according to Kendra Cherry (psychology.about.com), can be described as: “…characterized by individual control over all decisions and little input from group members. Autocratic leaders typically make choices based on their own ideas and judgments and rarely accept advice from followers. Autocratic leadership involves absolute, authoritarian control over a group.”
As the company grew, the autocratic leadership was the best recipe for success. Thalheimer traveled to Japan, Hong Kong and other high tech meccas to look for technologically attractive products that he would like to sell. An autocratic buying decision was an acceptable strategy. As the company grew, adding to the buying and purchasing effort would have been a smart strategy for the enterprise, diversifying the buying risk. Autocrats without that vision are doomed to be replaced when that kind of flaw must be addressed.
Over the course of many years, the leadership styles and CEO’s have changed hands in efforts to stay competitive to Steve’s vision of the company. Steve Jobs was reputed to be difficult to work for. His hard-nosed leadership style ruffled the feathers of board members and employees alike to the point of kicking him out of his own company. Steve’s ideas were innovative, seemed unnecessary at times, yet his unrelenting demand for product innovation ultimately saved the jobs of many of the people who engineered his firing.
The current CEO of Apple, Tim Cook, has big shoes to fill, and has not yet been able to produce a chief innovation officer or similarly empowered locator of new products or services.
The enterprise that is not so dependent on the seemingly limitless skills of the founder is the one better able to survive the limitations of the same founder. Both enterprises are/were new product dependent, and the failure of one may be a preview of the future of the second.
Organization and Culture of the Company
There were several reasons why the Sharper Image Company failed, but the main reason was that the company was not equipped to locate and market more new products. As the company recognized it was losing market share and revenue, they had to draw on different skills than their founder brought to the board room. The company needed to innovate and accept that powerful retail players were offering products specifically to appeal to The Sharper Image’s demographic.
Apple started with a stubborn belief that innovation to meet customer needs will drive consumers to your products. That stubborn belief needs an innovative product to meet those consumer demands. The enterprise has grown to more than 50,000 employees and annual revenue approaching $100 billion a year. Steve’s mandate of a series of weekly meetings to discuss new products and developments on existing ones sets the tone for the organization. Properly done, such meetings could generate a large number of new products and improvements to existing ones. Improperly done, people will be discouraged from the free exchange or offering of suggestions. Insecure management, or competitive employees who may not care for criticism of their products, will never allow for the benefits such interactions generate.
Simplicity is talked about daily by Apple’s organization structure. This allows the organization to take a successful product and make it better than it has in the past by ways of being smaller and holding more power, music, data, or whatever they are currently trying to achieve. One thing that works to the benefit of Apple’s organizational structure is the lack of P&L, the idea of a managerial hierarchy is frowned upon while only having one person associated with the gains and losses of the entire organization. Many people are associated with the results of sales and losses, yet this keeps things simple which baffles the minds of corporate structure (Lashinsky, A. (2011)).
This analysis seems to indicate what can happen without a complete vision of the future, and planning for that future. Companies like Oprah Winfrey’s empire, Martha Stewart Living Omnimedia, may follow The Sharper Image without a plan for diversification and replacement of the ‘face’ of the company. When a founder takes his/her enterprise as far as he can, the wise man realizes the best thing for that company is training his successors. Changes are something that are not automatically adapted, or easily accepted by everyone but without change and new implantations within any organization failure will soon follow.
Week 6 Failure Analysis/Change Strategy1
References
Blodget, H. (2013). Apple’s ‘Mission Statement’ Is Making People Worry That the Company
Has Gone To Hell” Retrieved from Google.com on January 11, 2014.
Elliott, Stuart, "A New Campaign Is Trying to Restore Sharper Image's Edge,"New York Times, September 6, 1996, p. D2.
Kotter International, (2012). Eight Steps for Processing Change, Retrieved 1/12/14 from Eight Steps for Processing Change
Lashinsky, A., & Burke, D. (2011).Inside Apple.(Cover story). Fortune, 163(7), 125-
134. Retrieved from the University of Phoenix Library on January 11, 2014.