Many companies struggle and fail, not because they are bad at what they do, but because they are great at what they do. Look at Kodak, for example. Its decline didn’t result from the company being poor at film processing. On the contrary, the company’s success has stalled precisely because it is great at film processing. And it’s the same with many other companies.
There are many other examples: Nokia, Olivetti, Blockbuster, The Gap, M&S, HMV and virtually every British motor company have struggled or failed because they’ve been unable, or unwilling, to change as quickly as their markets.
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.
- Arrogance. Success can breed a belief that you will always be successful and have a right to further good times ahead.
- 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.
- 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.
So how do you ensure that your company continues to climb the growth curve, and avoids hitting a performance plateau or decline? Here are five steps you can take:
- Look out for the ‘weak signals’. Understanding the dynamics in your market is critical in anticipating the need for change and responding accordingly. All too often, change is only introduced once profit performance has already eroded, even though the signs of decline – in terms of customer feedback, innovation performance, the rate of market share growth or the growth of a new, disruptive rival may have been evident several years earlier. You must be more attuned to these early warning signs. As former Intel boss Andy Grove put it, “Only the paranoid survive”.
- 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. In 2003, for example, the England rugby team won the world cup. However, by focusing on victory at that tournament as the ultimate goal for the team, it was difficult for the new management to subsequently raise the bar and the team’s performance quickly declined.
- A focus on action. The best lesson for focusing on action is this quote from Michael Bloomberg, from his book, Bloomberg on Bloomberg, “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.”
- Cannibalise your own sales. Defensiveness is a key factor in turning market leaders into also-rans. At the heart of this mindset is 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 and the iPhone, and Gilette has done something similar with its series of razor improvements.
- 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. I admire UK electrical and electronics retailer DixonsCarphone. They operate in a highly competitive market and have made bold moves over a series of decades to stay relevant and profitable. Twenty years ago they launched new formats such as The Link (for mobile phones) and PC World. Along the way they launched Freeserve, which changed the face of UK internet participation, and, in recent years have removed the Dixons brand from the high street, developed the KnowHow brand and merged with Carphone Warehouse. 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.
Which of these five approaches will help you ensure that your success does not create the seeds of future failure?
© Stuart Cross 2017. All rights reserved.