The Guardian as a phoenix

One of the company cases that Costas loves to present at the London Business School is that of the British newspaper, The Guardian. Their story of disruption is an obvious one, of course: a newspaper that came under severe attack because of the growing distribution of online news. Their reaction, however, was a lot less evident. While most major papers, like The New York Times, decided to put their digital content behind a paywall, The Guardian opted to keep access free. They believed this was important because they represented the “liberal voice” of the population that needed to be heard by as many people as possible.  

So instead, they opted for a contribution model, allowing readers to choose for themselves if, and how much, they want to pay or not. This might surprise you, but they do receive millions of pounds every year in revenues, some years even more than if they had put up a paywall. They chose accessibility, and it worked out for them.

But Costas went on to explain that it was not just this one change that saved them. A really big part of their restored financial performance was about cutting organizational costs, about 20 to 25% over the last five years. On top of that, they totally restructured the organization to create a lot of cross-functional teams. It was, he emphasized, “not one major thing that made their rejuvenation successful, but the accumulation of many things together, big and small.”

Never one thing

And that is exactly what a lot of academics and authors fail to recognize, according to Costas. “We tend to focus on one or two major actions and conclude that that is what made a certain phoenix successful. But the reality is that a million little things contributed to its success. With Microsoft, for instance, they did not just move to the cloud and focus on a subscription model. One of the biggest changes they made, was the culture, which was a lot less visible. The same with KBC: they got out of a lot of money losing operations in Eastern Europe and Russia, but they also refinanced the organization, transitioned to a culture that was a lot more customer-driven and made a lot of other changes too. We must not stare ourselves blind on the big changes.”

Implementation over strategy

Just like Costas, I believe that leadership plays a huge role in driving the change in phoenix companies. He went on to add that the value of leaders lies beyond their ability to make relevant strategic decisions. “Take Walmart, for example, one of their major strategic decisions was the development of their online delivery business”, he explained. “Was that a good decision? Obviously. But didn’t the leaders running Walmart 5 or 10 years ago also see the need to move online? They probably did. The difference is that they did not act on it.”

What does define greatness in leadership, according to Costas, is courage: the ability to make decisions and implement them, even if they may seem risky at first. “It’s about not just seeing strategically what is needed but actually acting on it even though it requires investments that are painful. Like Walmart making a huge acquisition to boost their online capabilities.”

The courage to kill an irrelevant business

This lack of courage constitutes one of the biggest pitfalls of big  companies. “When you change your business from A to B, then it’s an irrefutable fact that business A will suffer. That’s a risk you must be willing to take, because trying to have your cake and eat it too won’t work in this case. People always think that Kodak went down because they did not understand the looming disruption of digital photography. This is wrong. They did move into digital photography. But they also made the mistake of trying to keep analogue photography – business A – alive: instead of allowing customers to use the digital files, they forced them to print their photographs which makes absolutely no sense. So of course the customers stayed away. And so, by trying to keep their old business model alive, Kodak also killed the new one.”

Nestle, on the other hand, understood the repercussions of this conundrum and went a different way. They knew that launching Nespresso would cannibalize their Nescafé revenues, but they went ahead anyway, not trying to shield the latter from the growth of the former.

Culture transformation

“Company culture and psychological safety play a huge part here. It’s about making sure that both sides of the business don’t try to hurt each other. Because that is what you get in a highly competitive culture with incentives that are focused on individual or departmental success. It’s culture, it’s mindset, it’s the people, it’s the incentives: all of this has to change if you want to give a radical innovation, a change in the business model a chance.”

Costas also thinks that the general characteristics of phoenixes - though obviously each phoenix is unique and performs in very different circumstances - have not really changed over the past 50 years: strong leadership, healthy culture, sound structure, etc. What has changed is the uncertainty and volatility of the market. Where, before, companies could maybe have gotten away with a culture that was not optimal - if they had great products, powerful leadership, fluid innovation, etc. - this is no longer the case today. “The characteristics are broadly the same, but today they are probably more powerful than they were before.”

We ended the conversation by talking about ethics and sustainability. And how difficult it is for companies to renounce revenues if a product, service, business model, marketing practice etc. is bad for the environment, society or individuals. But we also both believe that customers and employees are becoming more demanding in these areas and that this puts pressure on companies to behave differently. Not just the phoenixes. All organizations. For me, these aspects are not just about renouncing things, though, it’s about finding immense opportunities. Like Hermès is doing by developing a sustainable leather alternative grown from mycelium (the root system of mushrooms). You can read about that in one of the former editions of The Never Normal.

Want to learn more about the methods of successful phoenix companies? Read my latest book The Phoenix and the Unicorn.