Tuesday, June 07, 2005

Why Companies Hate Subtraction

I just read an interesting article in the June 6 issue of Sports Illustrated. Apparently, the International Olympic Committee (IOC) considered a proposal to add a few sports like golf and rugby to its menu, but its bylaws state that in order to do that, the IOC would simultaneously have to eliminate the same number of current Olympic sports. Quoth Sports Illustrated:

“That’s when the trouble began. The proposal stirred up such a hornet’s nest that it never came to a vote…The episode proved again that while the Olympic family has been terrific at broadening its program to include everything from taekwondo to circus events such as synchronized swimming and trampoline, it has been incapable of seriously considering whether those, or other sports, really belong in the Games. No sport has been removed from the Olympics since polo got the ax after the 1936 Games.”

I find the same problem in business organizations. They love to add, they hate to subtract. Companies find it easy to add functions, product lines, market sectors, staff, and entire divisions, but getting them to seriously discuss eliminating functions, product lines, etc. when they no longer create value—well, that’s another story.

Back in the early 1980’s, CEO Jan Carlzon turned around an ailing SAS airlines and made it the premier European business traveler airline. He did it by focusing hard on the kinds of routes, planes, and services that were important to business travelers, and simultaneously, by dumping the routes, planes and services that were not important to them. He even stopped marketing to non-business traveler airlines. If tour groups and tourists wanted to use SAS, that was fine, but his marketing dollars went almost exclusively towards what he called “good business”, in his case the business traveler market. Carlzon’s moves made SAS sharply focused internally and clearly branded externally.

Too many companies get bogged down with a load of “bad business” lumped in with their “good business”: products and services that have become low margin commodities, niches that yield a lousy return on investment, customers that yield a lousy return on investment and ought to be fired, dog divisions that ought to be sold, costly internal functions that ought to be digitalized, outsourced, or divested. Jan Carlzon’s philosophy was that the secret of good business is avoiding and eliminating bad business. But companies don’t like subtracting any business, even if it’s bad business, because subtraction means getting rid of some revenues, internal fiefdoms, and individual comfort zones.

Meanwhile, Sports Illustrated describes the Olympics now as so “supersized” that hosting them (a.k.a. execution) has become a “gargantuan” task that requires cities and countries to go “deep into hock to hold them” (a.k.a. debt). In the spirit of Carlzon, the magazine suggests that “by dumping the circus acts (like ‘synchronized anything’, rhythmic gymnastics, equestrian dressage, among others) and toughening qualifying standards, the Games could grow stronger”.

So would companies.


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