Jim Champy Offers Candid Analysis on How to 'Outsmart!' the Competition

Jim Champy knows the importance of staying ahead of the competition. The author, who co-wrote Reengineering the Corporation with Michael Hammer, turns to innovation in his new book Outsmart! How To Do What Your Competitors Can’t. In an interview with Six Sigma IQ, Champy reveals surprising and seemingly counterintuitive lessons on marketing and innovation, drawing on the strategies of some of today’s best "high velocity" companies.

Tell us a little bit about Outsmart! What inspired you to write it?

Outsmart! is a book that describes new ways of doing business, new ways of thinking about competition in an industry and as the subtitle suggests, how to do what your competitors can’t. And the idea for the book came from observing, for a few years now, that businesses are fundamentally operating in different ways. Part of it is globalization, of course; part of it is the Internet and what the Internet enables, but I have also felt for a long while that businesses have to go beyond the process reengineering work that I have been engaged in for the last 15 years.

I had to create a new business model, a way for companies to bring new products, new services to their customers, different products and improved products. This includes companies that are operating in a fundamentally different way. I researched companies that were operating in new ways and doing different things for their customers.

You talk about marketing and innovation. How are those two components related to the radical redesign of business processes you spoke of in your book Reengineering the Corporation?

Well, I am still a very strong believer that a company has to have great process management. And, in fact, as I looked at the companies and researched companies for Outsmart! that have a level of operating excellence. It’s not just about efficiency. It’s about getting better in the way you operate so your customers experience you as a high-quality company. Think about the way you experience a well-run retailer, like a Target, from a company that’s not well run. Or how you experience a service like Zipcar, a company I write about, from a different car rental company that isn’t operationally excellent. I am a believer that operational excellence is a differentiator, and if you are really good operationally and process-wise, which we wrote about in the Reengineering book, it’s a significant advantage.

In the opening of Outsmart! you mention Peter Drucker, who in the 1980s said "chaos is an opportunity, not a threat." How is this relevant for today’s business world, and what advice can you give companies that are struggling in the current market?

Drucker’s advice is more relevant today than it has ever been. You can look at this from a glass half empty perspective or a glass half full perspective. I am a strong believer that when you are in a chaotic market, and you are operationally good or even excellent, you have an opportunity to gain market share over your competitors. If your competitors dig a hole and go into some form of trench warfare rather than being aggressive, it gives you an opportunity to grow your market.

But one of the things that is important in this challenging market is maintaining focus. Think about the things you do extremely well, the kind of business you do well and the kind of products you do well. You have to focus on that and get rid of all the peripheral stuff. You can’t afford to waste money or resources. Chaotic times are good for aggressive well-run companies. Think of some of the best-run companies. Even those companies have to become much more focused on what they are doing, what markets they are going after and what they can excel in.

Do you feel that today’s turbulent economy still leaves room for innovation, growth and risk?

Absolutely! Innovation doesn’t take a vacation during times like this. Look at companies such as SmartPak, a company that provides horse supplements for aging horses. Or if you read about Partsearch, the company that sorts and organizes 8 million different parts to consumer electronics, those are very innovative companies. Innovation doesn’t slow down in times like this. It is more challenging to define the resources and the funding for those ideas, but I think this is exactly the time to take risks. It may seem a little flip, but nobody is looking, everybody is weary.

You mention that competitive companies depend on culture to manage behavior. Are issues of culture, inclusion and innovation thrown out the window during tough economic times?

Unfortunately they are. People try to stop innovation and they do it by downsizing. There is a wonderful phrase that people said in the last recession that said you can’t shrink your way to greatness. And they shrink in an un-thoughtful way during these periods. They do blanket staff reductions. They lose very good people and the ambition of good people. Then there are some companies where I think this won’t happen. I write in the book about Smith & Wesson, the gun manufacturer. Smith & Wesson has gone through very hard times. And even at a company of that scale, size and maturity, you can be sure people there are thinking about how do they hold on to their best period. They come out of this period stronger not weaker. We are going to see a split. We will see some companies that will downsize and hurt their competitiveness and other companies that will be more thoughtful and come out of this stronger than they were before.

What are your predictions for industries that will remain competitive in the next few years? And what kinds of companies do you feel optimistic about?

You know I feel very optimistic about companies in healthcare. It’s such an important industry globally, but certainly the U.S. pharmaceutical companies, I have always been a great admirer of what they produce. They are heavily criticized because sometimes they are not as efficient in the way they do their work, but if you step back and look at the progress they have made in the diagnosis and treatment of disease and health disorders it’s pretty remarkable. Even in difficult times they generate a lot of cash, do good work. I also like the consumer product companies like Proctor & Gamble.

Nobody should buy stock based on my advice. But people are still going to buy soap, people will still buy food. They just might not buy quite as much of it. I have also always been a lover of good technology companies. There will be a slow down in the buying of technology hardware. The Dells and the Apples of the world might be challenged.

But this is the time that technology applied to business makes business more efficient. I think those companies will come through this difficult period quite well. There will be pressure on the top line, but everyone will see pressure on the bottom line. Everyone will find their margins under pressure as all consumers and buyers want more products for fewer dollars, more for less. It is very important to be an operationally-excellent company.

Interview by Blake Landau