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Meet the Masterminds: James Champy on Outsmarting the Competition

James Champy is Chairman of the Perot Systems’ consulting practice, and recognized throughout the world for his work on leadership and management issues.

His first book, Reengineering the Corporation: A Manifesto for Business Revolution, which he wrote with Michael Hammer, upended traditional thinking about nearly every aspect of managing an organization.

Champy's latest book, Outsmart!: How to Do What Your Competitors Can't, illustrates six ways that "smart" organizations achieve breakthrough growth in the toughest markets. 

We asked Champy how consultants can apply these ideas to their clients and practices.

McLaughlin: What is happening in the market that led you to write this new book?

Champy: Some companies are developing new models for business operations that make it possible for them to get and stay ahead of the competition.

I considered about a thousand companies, looking for businesses that are achieving sustainable success by delivering new products and services to customers in innovative ways. I found some valuable lessons that we can apply to our own businesses and those of our clients.

The most significant trend that I see is accelerated strategic decision making.

McLaughlin: What trends did you observe that helped those organizations achieve sustained success?

Champy: The most significant trend that I see is accelerated strategic decision making. The book examines the experiences of people who learned how to adjust their ideas and mobilize change very quickly. What’s transforming strategy in these companies is that acceleration: they test ideas in the market faster than ever before, and then rapidly adjust their operations to get to what really works.

McLaughlin: What’s your take on the current state of strategic planning in most organizations?

Champy: When I see the strategies that many companies produce, I have a hard time finding the call to action that a good strategy should evoke. You want strategy to energize people around new ideas and get them going.

McLaughlin: As leaders think about opportunities to differentiate their companies, what would you suggest as a good strategic move?

Champy: I’ve always believed that how a company operates can be a strategic differentiator. Now some very important strategy thinkers disagree with that. When I ask them why, they say well, other organizations can copy operational processes. I don’t believe that’s necessarily true.

Some companies develop a mode and level of operational excellence that’s no secret but is still difficult to copy. That’s because other companies may not be as competent in execution. I also think operations are increasingly strategic.

McLaughlin: Do you have an example of an organization that you think does a good job differentiating itself through its operation?

Champy: Well, look at two current leaders in retail: Target and Wal-Mart. How they operate is out there for everyone to see, but nobody has been able to duplicate that very easily. You might argue about the quality of their products, but that’s not the point.

Operational excellence is the basis for the distinctiveness and ability of those two companies to deliver at a low price. To some degree, the same is true about General Electric.

GE has never been secretive about its strategy or what products it is moving or businesses it is in. The company bases its long-term competitiveness on a high level of operational excellence.

McLaughlin: Could you elaborate on the contrast between what you call “smart” companies and “incumbent” ones?

Champy: Sure. A smart company either has, or is in the process of adopting, a new business model that goes beyond thinking more expansively about the products or services the company can offer to customers. Enabled by technology, the smart company also changes the way it delivers those products and services.

Smart companies take advantage of the current technology infrastructure and the reality of the flat, global market. And smart companies see technology, the flat world, and business change as opportunities, not as threats.

A smart company either has, or is in the process of adopting, a new business model that goes beyond thinking more expansively about the products or services the company can offer to customers.

As the label suggests, incumbent companies have been in business for some time. They may, in fact, be historically successful, and may even own pieces of the market. But for one reason or another, they’re stuck in an old business model.

An example of a smart company is The Minute Clinic. Its locations offer quick, convenient diagnosis and treatment of common family ailments, seven days a week, with no appointments. Many physicians and hospitals—the incumbents in healthcare—should be learning from the Minute Clinic business model.

McLaughlin: How do you help incumbents recognize that’s what they are?

Champy: This has been an issue for almost as long as I have been a consultant. We all know that either fear or vision can drive a company’s appetite for change. When a business is in trouble—maybe because a huge market shift is coming—it must change or die, as the expression goes.

The real problem is incumbent companies who should fear what’s happening in their markets but don’t. They may not see it, or their leadership may not be strong enough or have enough vision to meet the challenge. For years, I’ve seen companies that are in that predicament.

Often it’s the people deep in an organization, who have direct experience with customers, who see and feel what executives do not. The most effective technique to open their minds is to put the management team squarely in contact with customers so they hear or see what their customers see. In that way, I have had some success in helping the leaders in an incumbent organization get real about how they’re doing.

McLaughlin: If you are able to make an executive team aware of incumbency’s limitations, what do you do next?

Champy: Once they understand the need for change, you begin, not with a broad investigation of what they might do, but by helping them step back and assess the organization’s strengths as an enterprise. What is the company’s distinctiveness? What does it do particularly well?

With that as a foundation, you go into the marketplace and look for the unmet needs in your industry. To return to the Minute Clinic example, that company is tapping into the unmet needs of someone, for example, with a sore throat on a weekend. Look for the unmet needs of customers in your markets and then, building on your strengths, expand into what you might do.

McLaughlin: Do smart companies approach business risk differently than incumbents do?

Champy: Yes. Smart companies exhibit almost no sense of risk. In researching the book, I always asked what mistakes they made and what might they have done differently. In every case there was silence.

After they thought about it, most of them said well, we made mistakes but we adjusted; I can’t recall any big errors we made. Some pointed to a few management techniques they wish they had adopted earlier, but nothing strategic.

McLaughlin: Do incumbent organizations have to be more risk conscious?

Champy: These days, most large incumbents are publicly-held companies. And inside these companies, risk is always an issue. Every new concept is subject to the question of whether and how this will affect earnings per share.

The tyranny of shareholders is having a greater negative impact on incumbent companies than I have ever seen before. In spite of the recent financial market crisis, incumbents have never had more cash than they do right now.

The shareholders, of course, want to get that cash back in dividends or other forms. They resist some new ideas because they’re afraid that when you start spending money and it doesn’t pay off, or it doesn’t pay off fast enough, it will affect their earnings per share.

So, in a large organization, every suggestion for expansion—never mind a bold new idea—is subject to seemingly endless analyses about risk. That really slows things down.

McLaughlin: Do you think incumbents find acquisitions easier to “sell” within their organizations than bold, new ideas?

Champy: Yes. It’s a simpler way to justify a return on investment. And it’s usually a lot less risky than creating something new. An acquisition might affect your performance, but it’s a capital investment. The company is not spending expense dollars.

The challenge with acquisitions is to integrate the ideas and the people that you’ve acquired into the business. Often, that kind of integration doesn’t work as planned; the history of big acquisitions shows a pretty poor success rate.

McLaughlin: One more question: If you could give an executive one piece of advice about how to outsmart competitors, what would it be?

Champy: First, let’s assume that the executive has a sense of ambition about making something good happen. Without that drive, nothing great will happen.

I would say remain focused on the core strategy of your business, but listen to what customers are telling you. Stay actively engaged in your market—always be walking in the marketplace with your ideas. Be prepared to adjust your strategy, and then move quickly and decisively.

McLaughlin: That’s terrific. Thanks for your time.

Find out more about Champy at www.jimchampy.com.