[IMGCAP(1)]Most firms and companies do not like the word “failure,” but in the new concept of leadership management it is an entrepreneurial talent that only the long-term successful firms and companies will exhibit.

I am often asked why this is so important to a firm or company, and it all boils down to understanding the quadrants of the life cycle of markets, services, products and the company.

By definition there are four quadrants in the life cycle of these entities: emerging quadrant (where startups and new products begin); growth quadrant (where the entity moves into viability from emerging); maturing quadrant (where the entity moves and grows slowly but also starts dying); and the aging quadrant (where it dies). Not surprisingly, the position of the products and services of the firm or company pretty much dictate what quadrant the firm or company itself is in, and the markets dictate the products.

Nobody likes to hear that a firm or company is like a person, but it is going to eventually die over time. The graveyards of business are filled, and we only need to think of Arthur Andersen, Enron, Eastman Kodak and Circuit City on a large scale, but many, many more in the SME (small to medium enterprise) environment. Could they have been saved? Or an even better question is could a managing partner or a CEO have saved them?

It seems obvious that a managing partner or CEO needs to understand the inevitable and provide the leadership management plan that is required to keep renewing itself, because that is the only thing that keeps a firm or company from eventually dying, and it is a soul-searching process that must be constant.

The managing partner or CEO must first have the courage to honestly assess the status of where the firm or company stands as an entity in these four quadrants, with a corresponding assessment of its products and services, recognizing that there is a circular process of stability and viability that must be constantly utilized to keep from becoming an aging or dying company or firm.

Understanding and evaluating the life cycle in which the firm or company resides is the first step in altering the aging process, and the second step is doing something about it, much like exercise and proper diet are first steps for increasing the life of a human being.

What we have seen from working with clients and non-clients is that the very successful firms and companies are the ones that keep reinventing their services and products. This underscores the importance of how a firm or company must provide its services and products. As mentioned earlier, the status in the quadrant life cycle of a company or firm’s products and services reflects the status of the firm or company itself within its own life cycle.

The axiom of optimal product life cycle says that normally the optimal product and service life cycle is to have approximately 75 percent of your services and products in mature quadrants and 25 percent in emerging and growth quadrants. That is more difficult than it sounds because emerging services and products leave the emerging quadrant very quickly, either ceasing to exist and not making it to a viable product offering, or leaving the emerging quadrant and making it into the growth quadrant.

If the axiom is correct for the long-term viability of the firm or company, then what and how does a CEO or managing partner keep replacing the 25 percent that should always be in the emerging quadrant?

To accomplish this paradigm the process of product and service flow must be understood, and that precarious word “innovation” must become engrained within the fiber of every department and individual within the firm or company.

The process flow comes first. Practically all new services and products emanate from current services and products within the maturing life cycle of the firm or company, which normally means that they are ideas whose time has come. They normally come from innovators within the firm or company who see the current maturing service or product and provide new meaning and direction within the market.

We are not speaking about product line extensions. We are speaking about taking some functionality of the current maturing products and services that are moving toward the aging quadrant themselves, and recreating them as new and exciting services and products that might create a whole new market over time, or even replace the current maturing market over time.
Apple did this with the iPhone, taking a flip cell phone and making an emerging product with new services (music) and then a brand new market.

There have to be some innovators within the firm or company who can brainstorm and be able to envision the new functionality of the new product or service so that it launches into the emerging life cycle quadrant with a solid chance for success.

It is here that the concept of constructive failure must apply, because the introduction of a new service or product into the marketplace is fraught with risk to the resources of the firm or company. It is the topic of our next article in the series.

Greg Weismantel is president of Epic Group, a management consulting firm and advisor on strategy for small and large firms and companies. It partners with clients to identify their primary driving force while recognizing strategic opportunities of their markets, products and services that will deliver the highest value for ongoing growth and sustainability.