The perils of success

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, in market after market, 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 ITV, British Steel, British Leyland (or, perhaps, any company that starts with the word ‘British’!), Netscape, Kodak, The Gap and IBM have all followed this route. 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 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 is that several of them will struggle or even disappear in the next few decades.

There are three factors which 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 Northern Rock Bank 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 companies see strategy as establishing a strong position in the market and then seeking to maximise their performance from it, rather than an ongoing journey of value creation. Like a fiefdom from the middle ages 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.

The bottom line

Review your business for signs of arrogance, defensiveness and inertia. Although each of these factors are difficult to overcome once established, they are not impossible to surmount. I will set out how you can best ride the wave of success in the next edition of Great Results.

 

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