It’s tough at the top: Why nothing fails like success, and what to do about it

There is nothing more challenging in business than maintaining success – it is far, far harder than achieving success in the first place. Companies that are able to align their capabilities and build distinctive advantages to perfectly meet current market opportunities cannot necessarily adapt to meet tomorrow’s.

Time and again once exemplar companies are relegated to also-rans by their failure to respond to changes in customer need, technology or competitor set. Companies such as Netscape, Kodak, The Gap and IBM have all suffered this fate and of the top 100 US firms from 1917 only one had outperformed the market average over the subsequent 80 years, while 61 had ceased to exist.

How confident are you that today’s market leaders will still be at the top, or even around, in 10, 20 or 30 years time? There is nothing written in stone to suggest that Apple, Tesco, WalMart, Google or even Coca-Cola will be protected from future demise. My hunch, if history is anything to go by, is that several of them will struggle or even disappear in the next few decades.

There are three factors that sew the seeds of failure in successful organisations. Often these factors appear in combination rather than independently, but it is useful to separate them to understand the dynamics at play.

  1. Arrogance.
    Success can breed a belief that you will always be successful and have a right to further good times ahead. Competitors are ignored and customers are seen as simply a route to further profit, rather than individuals (or organisations) that need to be understood and served with integrity and respect.

    The avatar for the arrogant organisation is Enron where the arrogance led to illegal acts. It would appear that the management team of UK bank, the Northern Rock, also believed that past success would inevitably mean future triumphs, even when other banks were reducing investment in the US sub-prime markets.
  2. Defensiveness.
    Some successful companies see strategy as establishing a strong, defendable position in the market rather than an ongoing journey of value creation. Like a Middle Ages’ fiefdom defending a castle, these companies develop a siege mentality to the market dynamics.
    For example, in his book The Future of Management Gary Hamel dissects how the US Car Industry failed, over twenty or more years, to match the efficient manufacturing systems of Japanese competitors, preferring instead to seek government protection. He quotes one US car executive as saying, “It was five years before we acknowledged that Toyota really was beating us. Over the next five years we told ourselves that Toyota’s advantages were all cultural. For the next five years we focused on their manufacturing processes. It’s only in the last five years that we’ve finally admitted to ourselves that Toyota’s success is based on a wholly different set of principles – about the capabilities of its employees and the responsibilities of its leaders.”
  3. Business model inertia.
    Perhaps harder to change quickly is the inertia of a company’s business model. Even when managers do not display arrogance and are not defensive, the complex web of processes, capabilities, assets and cultural approaches that drove market-leading performance is not easily changed overnight. The resulting inertia allows new entrants with new business models to rapidly challenge and even topple established leaders.
    For example, BA’s UK and European routes have been effectively ended in the past decade as a result of the introduction of the low-cost, low-frills airlines Easyjet and Ryanair into the market. BA weren’t arrogant about their position, or particularly defensive – they established their own low-cost brand, Go, which was eventually sold to Easyjet – but their business model was simply unable to compete.

So how do you ensure that your company continues to climb the growth curve, and avoids hitting a performance plateau or decline? Here five practical ways for you to stay ahead of the competition and continue to ride the wave of success.

  1. Raise the bar continually
    It’s important to recognise and celebrate success, but don’t let it go to your head. All market leaders need to set increasing standards for success or their competitors will do it for them. If you fail to sustain your leadership in the market, performance levels will begin to plateau or even decline (see Exhibit 1).
    As a rule of thumb major organisational changes takes two to three years to deliver positive, sustainable results. Understanding where your business lies on the S-curve of performance growth is critical in anticipating the need for change and responding accordingly.
    All too often, however, change is only introduced once profit performance has eroded, even though the signs of decline – in terms of customer perceptions or the level of new product development, for example – may have been evident several years earlier. Companies need to be more attuned to these early warning signs. As former Intel boss Andy Grove put it, “Only the paranoid survive”.

    One company that has successfully responded to changing circumstances is McDonalds, the ubiquitous burger chain. I has delivered successive quarters of sales and profit growth not only in the face of recent economic uncertainty, but also while it continues to be at the forefront of campaigns focused on food health issues, environmental concerns and anti-globalisation protests.
    A key element of McDonalds ongoing success has been its agility and willingness to continually evolve. As consumer tastes and requirements have changed McDonalds’ managers have been willing and able to refine the proposition. Eighty percent of their business may still come from their core ranges – Big Macs, Quarter Pounders and fries – but McDonalds now offer salads, higher-quality coffee and new types of sandwiches – all of which are delivered within their value-focused system.
  2. Focus your innovation on what won’t change.
    Amazon.com CEO, Jeff Bezos, stated in a Harvard Business Review article that that he based Amazon’s strategy on what was not going to change over the next 10 years, rather than (as most companies do) on what will change.
    By following this approach Bezos is able to give a long-term focus to the organisation for radical innovation.In many ways this is a simple notion. Yet it is also I believe vitally important for longer-term business success.
    In contrast many organisations focus their strategy on the latest, most immediate market issue. The apotheosis of this approach was the dot.com bubble. Feeling pressurised by others’ activities companies quickly jumped on the bandwagon in fear of being left behind and literally wasted millions if not billions of pounds, dollars and euros.
    Amazon’s approach is both different and better. The leadership team has agreed the key themes that they believe will not change in the midst of all the noise and turmoil of today’s business environment. For Amazon’s consumer business, they have identified three areas: range selection, low prices and fast delivery.
    The power of the Amazon approach is the focus and relentlessness with which they pursue their agreed themes. For example, the agreement around low prices led Bezos and his team to create the Marketplace concept. Amazon now allows other sellers to sell the same products as Amazon on the same page as the Amazon product.
    There are two immediate and interconnected advantages of Bezos’ approach:

    • It creates organisation-wide focus for innovation. Amazon’s three themes are simple to understand for everyone, and enables clarity of focus for radical innovation.
    • It enables true leadership and avoid defensiveness. The Amazon team is prepared to take ongoing leadership decisions within these three areas. In this way they are continuing to stay ahead of their competitors and maintain a leadership position.
  3. A focus on action.
    High-performance companies will certainly plan, but match their planning ability with their ability to act, learn and improve at pace. Michael Bloomberg, the boss of Bloomberg is completely focused on the importance of action, and has written, “While our competitors are still sucking their thumbs trying to make the design perfect, we’re on version No. 5. By the time our rivals are ready with wires and screws we’re on version No. 10. It gets back to planning versus acting: we act from day one; others plan how to plan – for months.”
  4. Cannibalise your own sales.
    Defensiveness is a key factor in turning market leaders into also-rans. At the heart of this mindset is a reluctance, bordering on refusal, to cannibalise your own sales. The trouble is that, in a dynamic market, if you don’t cannibalise your sales you will be overtaken by other players.
    Apple has brilliantly overcome this issue in the way it has managed the market strategy of the iPod. After its initial launch in 2001 Apple has limited the headroom for competitors to launch rival products by regularly bringing to market new versions of the iPod that deliver better performance at lower prices. The company is now repeating this approach for the iPhone.
  5. Reinvent your business model.
    Innovation at a product level is admirable and necessary. Innovation at the level of your strategy and business model requires a far bolder mindset. For this reason I admire UK electrical and electronics retailer, Dixons. They operate in a highly competitive market and have made bold moves to continue to seek to be successful.
    Ten years ago they launched new formats such as The Link (for mobile phones) and PC World. Along the way they also launched Freeserve, which changed the face of UK internet participation, and in the last year or so have removed the Dixons brand from the high street and refocused it as an on-line retail brand.
    Although these moves do not guarantee future success they have helped the company keep up with the pace of change – and sometimes to lead the market.

The bottom line

Maintaining and enhancing success is never easy, but it is certainly more fun than being stuck in the pack or being squeezed at the bottom of the heap. These five approaches will help you take an action-based and innovation-focused approach to ongoing market leadership and enable you to avoid the inertia of success.

 

To find out more contact Stuart by clicking here or call +44-(0)1636-526111.