There's a time and a place for calling on outsiders to help you with your decision making. Many large corporations have it all wrong
Last year AT&T spent $347 million on consulting fees, a hefty sum even in an industry that has reached $20 billion in annual sales. And just what are large businesses like AT&T spending the money on? Market studies. Business-process reengineering. Strategic plans. Mission statements and alignments of values. Even when those activities are warranted for large companies, they're costly and time-consuming. And all too often they end up in what I term "fad surfing": the practice of riding the crest of the latest management wave and then paddling out again just in time to ride the next one. Always absorbing for managers and lucrative for consultants, fad surfing is frequently disastrous for many organizations.
Here's where small, fast-growing companies have a better option: leveraging their internal brainpower first. Small companies usually aren't hemmed in by plans that are carved in stone and bureaucracies that move only when pushed (and even then only at glacial speed). And small companies usually are accustomed to moving quickly and taking advantage of opportunities, even when they don't quite know where they're going.
That's just what happened on a summer's evening in 1927, when Daniel and Dorothy, a young couple living in Fremont, Mich. (population 2,000), found themselves with a surprise visit from serendipity. Daniel, a 29-year-old World War I vet, was working at the Fremont Canning Co., a modest-sized fruit and vegetable packer owned by his father, Frank. On that particular evening Daniel was setting out for a night with his wife, but Dorothy was still in the kitchen, straining peas for their seven-month-old daughter, Sally. That Dorothy was straining peas was itself a noteworthy event, since in 1927 the dominant theory of nutrition was that infants be fed a liquid diet for almost all of their first year.
After Daniel urged Dorothy to pick up the pace, she suggested that Daniel take over the pea straining while she finished getting ready. Daniel's efforts were disastrous: peas splattered all over the kitchen -- with hardly any ending up in the strainer. After reviewing the results, Dorothy made a suggestion: "You can puree tomatoes at the plant. Why not vegetables for Sally?" And before long Daniel persuaded his reluctant father to investigate the idea of Fremont Canning's pursuing "commercially prepared foods for babies."
The rest, as they say, is history. Dorothy, Daniel, and Frank Gerber were on their way to transforming the Fremont Canning Co. into the Gerber Products Co. By the time the company had changed its name and dropped its adult food lines in the early 1940s, it had already become the preeminent baby-food manufacturer and marketer in North America. Two decades later, when Daniel recounted the company's story in his memoir "Babies Are Our Business" (in Sidney Furst and Milton Sherman's Business Decisions That Changed Our Lives), the Gerber brand had virtually become synonymous with baby food. It remained so in 1994, when the company was acquired by the Swiss conglomerate Sandoz for almost $4 billion.
How did the Gerbers create that $4-billion payoff out of Dorothy's modest idea? Well, first, of course, they welcomed serendipity into their business. While welcoming serendipity has always been a competitive advantage, today it is even more so, especially against large established rivals, which typically become so locked into inflexible strategic plans that serendipitous events become hassles to eliminate rather than opportunities to exploit.
But just inviting serendipity in for a chat isn't enough; the welcome mat needs to be combined with some rigorous testing and thinking. In the Gerbers' case, they were able to start with modest test runs using Dorothy Gerber and baby Sally as the first customers. When both workers in the plant and local townspeople began requesting the new food for their infants, the Gerbers decided that before venturing beyond the Fremont market, they needed to focus on some hard questions: Would the medical profession recommend commercially prepared baby foods? Would a grocer who had never been asked for baby goods agree to stock them? Would a cautious mother who knew nothing about our company care about this strange product? Here the Gerbers used outsiders and new business techniques, wisely consulting with pediatricians, nutritionists, home economists, and market researchers, and conducting a national survey to understand the purchasing preferences of mothers at a time when such surveys were quite new.
Now, as then, the use of outsiders can be valuable to small companies, but only when there is a critical need that can't be served well with in-house resources. With market research, for instance, there are times when customers won't be honest with a vendor but will with a third party, or when the vendor is so in love with its own product that the customer's message does not get heard accurately. And, it should be noted, the Gerbers never fell into the trap that snares many large companies today: letting outside consultants become the de facto leaders of the strategy and relegating the internal managers to implementers of the consultants' dictums. As one Fortune 100 vice-president said to me about a consulting firm that had been at his company for five years: "Top management says this is temporary, but there's always 'just one more study' that needs to be done. Now if any of us want to make a decision, we always have to check with the consultants first. And what do you know -- often another study is required."
The other focus for the Gerbers, which they pursued simultaneously, had to do with the cost of the product. "While seeking answers to these questions, many months were spent improving processing techniques and determining how the product could be refined at a reasonable cost," wrote Daniel. That's one of my favorite parts of the story, because it highlights a point often forgotten today: no matter how wonderful a new product or service seems, it will not succeed if it does not pass the "good deal at a profit over time" standard. You have to give a good deal to some group of customers while still making a profit for yourself, and then you have to continue to provide that good deal at a profit over time as circumstances change. That simple rule is often missed by companies that focus either on the good-deal side of the equation or on the cost side, thereby missing the point that the Gerbers understood intuitively: it's not either/or -- you have to do both.
And in the end, decisions about how to meet the "good deal at a profit over time" standard are ones for which the managers, and not the consultants, must stand accountable. When the Great Depression hit, the Gerbers invested in advertising to boost their sales. As times grew worse the Gerbers made even bigger investments in building research labs and hiring more health-care professionals. They could take those bold moves because they were deeply involved in the reasoning that went into those decisions. Turning over such thinking to consultants would have been unpalatable. Besides, a bold plan like the Gerbers' called for their complete resolve -- which could not be subcontracted to outsiders.
Seventy-five years after Dorothy and Daniel's digression with the peas, the lesson the Gerbers demonstrate is still relevant. Managing is a muscle. Use it or lose it.* * *
Eileen Shapiro is president of the Hillcrest Group, in Cambridge, Mass., and the author of Fad Surfing in the Boardroom: Reclaiming the Courage to Manage in the Age of Instant Answers (Addison-Wesley, 1995), from which this article was adapted.