Strategic Shrinkage (Not Growth)

I've always been fascinated by counterintuitive business strategies. You know, the ones that make you tilt your head and go, "Wait, what?" So when I stumbled upon the story of IBM's revival in the 1980s and 1990s, I couldn't help but grin. It's a tale that flies in the face of conventional wisdom, much like finding out that the secret to getting stronger is... taking more rest days.

IBM was once the 800-pound gorilla of the tech world, it found itself wheezing and stumbling, buried under its own bureaucratic blubber. The board, in a moment of desperation (or brilliance, depending on how you look at it), brings in Lou Gerstner as CEO.

His mission? Save IBM. His strategy? Make it smaller.

Gerstner's approach was about as subtle as a sledgehammer. He hacked off the hardware division, streamlined operations, and pivoted towards services and software. It was messy, painful, and involved thousands of layoffs; 35,000 or roughly 11%. The move worked and IBM thrived. It emerged leaner, meaner, and more innovative than ever before.

My favorite story on this subject is one of the best known examples, Apple.

Apple's story of strategic shrinkage is a fascinating one. In 1997, when Steve Jobs returned to the company he co-founded, Apple was on the verge of bankruptcy, 30 days of cash remaining. Jobs took a bold step and streamlined Apple's product line, cutting it from 15 products to just four. He also refocused the company on innovation and design, and made the tough decision to discontinue the Newton personal digital assistant and other underperforming products. This strategic shrinkage allowed Apple to concentrate its resources on developing revolutionary products like the iPod, iPhone, and iPad, which ultimately led to Apple becoming one of the world's most valuable companies. By paring back its operations and refocusing on core strengths, Apple was able to reignite growth!

This got me thinking - what if the secret sauce of business growth isn't endless expansion, but strategic shrinkage? It's like pruning a tree. You cut away the dead wood to make room for new growth. Counterintuitive? Absolutely. Effective? You bet your bottom dollar.

I hear your arguments, "but what about market share? What about our influence?" I get it. It's scary to think about intentionally making your company smaller. It goes against everything we've been taught about business growth. I believe that sometimes you need to take a step back to leap forward.

Research backs this up. A study published in the Strategic Management Journal found that firms that engage in strategic asset reduction often see improved performance in the long run. It's not just about cutting costs; it's about refocusing your resources where they can do the most good. It's removing the bloat within the organization, both with personnel as well as processes, rules, and bureaucracy. As Elon Musk has said, "as the size of a company grows, the communication pathways grow exponentially. It gets out of control really quickly." Shrinkage gives you an opportunity to clean this up so future growth goes smoother. As the military likes to say "slow is smooth, smooth is fast!"

I know this isn't easy. It's like trying to convince a hoarder to throw away their prized collection of bottle caps. There's resistance, fear, and a whole lot of "but we've always done it this way" to contend with. Leadership has to be prepared for some tough conversations and even tougher decisions.

So, how do you actually do this?

Well, first, you need to take a hard look at your business. What parts are just dead weight? What projects are you hanging onto out of sentimentality rather than strategic value? It's time to channel your inner Marie Kondo and ask, "Does this spark joy... and profit?"

Once you've identified the areas that need trimming, you need to communicate. And I mean really communicate. Not just a memo slapped on the break room fridge, or an email blasted to all; but genuine, open dialogue with everyone involved. Your employees, your customers, your investors - they all need to understand why you're doing this and where you're headed. Cut off the rumors and misconceptions before they ever get a chance to take root.

Now, I'm not saying this approach is for everyone. If you're running a lemonade stand, you probably don't need to worry about strategic shrinkage (unless your expansion into artisanal pickle juice isn't going as planned). But for many businesses, especially those feeling bloated and sluggish, this could be the wake-up call they need. I propose that a self-induced shrinkage is infinitely better than when it's forced on you by the market conditions.

Have the courage to zag when everyone else is zigging. Be willing to look at your sacred cows and say, "You know what? Maybe it's time for a barbecue." Because sometimes, the best way to grow isn't to get bigger, but to get smaller and better. Next time someone tells you that bigger is always better, just smile and think of IBM or Apple. Occasionally the best way forward is to take a step back, trim the fat, and focus on what really matters. Who knows? Your leaner, meaner, smaller company might help you springboard growth going forward.