s it mean for a company to perform well? Any definition
must revolve around the notion of results that meet or exceed the
expectations of shareholders. Yet when top managers speak with us privately,
they often suggest that the gap between these expectations and management’s
baseline earnings projections is widening. Shareholders tend to
think that today’s earnings challenges are cyclical. Executives, who find
themselves frustrated in their efforts to improve the performance of their
companies no matter how hard they swim against the economic tide,
increasingly see the problems as structural.
This anxiety is understandable. The overcapacity spawned by globalization
shows no sign of easing in many industries, including manufacturing sectors
such as aerospace, automotive, and high-tech equipment as well as service
sectors such as telecommunications, media, retailing, and IT services. Combined
with the increased price transparency provided by digital technology,
this overcapacity has given customers greatly enhanced power to extract
maximum value. The result—the ruthless price competition that rules
today’s markets—has convinced many top managers that profits won’t rise
dramatically even if demand picks up from the recession levels of recent
Lowell L. Bryan and Ron Hulme
Generating great performance requires a more dynamic
approach to building and adapting a company’s capabilities than
merely squeezing its operations.