For want of a better idea, many companies often rely on a tried-and-true success formula. And why not? What worked before to pull their organization into profitability will surely work again, right?
Not so, according to Donald Sull, assistant professor at Harvard Business School. The sad truth is that a success formula may frequently go stale or, as he puts it, "harden," for a complex set of reasons that are, in fact, surprisingly predictable—though not easy to avoid.
"To succeed in business, every manager must make choices and take actions that may eventually hinder as well as help the organization," he writes in his new book, Revival of the Fittest: Why Good Companies Go Bad and How Great Managers Remake Them. These actions or commitments behave as double-edged swords, Sull says. They have a lifecycle, he discovered. But the good news is that they may also be re-tooled to successful and profitable strategic ends.
In Revival of the Fittest, he draws on his extensive global research in such diverse industries as personal computers, brewing, tires, and consumer banking to outline the pitfalls that managers should be aware of as they craft their strategy for the future. He also offers suggestions for avoiding the worst mistakes and gives advice for reviving your own company.
For most companies, a big jolt in the industry landscape is a pretty rare event, Sull says. The travel industry, for example, suffered such a jolt after the September 11 attacks. More common for most companies are the slow, incremental shifts that smart managers do see coming down the road. Why then aren't they better at shifting gears? According to Sull, most top managers are far sighted and methodical, active and dedicated, and bright and accomplished. But their ineffectiveness at coping with industry change is not just due to such commonly cited barriers as insufficient resources, he says.
"Managers get trapped by success, a condition that I call active inertia, or management's tendency to respond to the most disruptive changes by accelerating activities that succeeded in the past," he writes in Revival of the Fittest.
When Firestone was faltering in the tire industry after the introduction of radial technology, for instance, Firestone management responded by doing more of the same activities that had worked so well for the organization in the past. Firestone extended its existing technology, made more tires on the existing equipment, and kept the existing factories—some of them superfluous—at full throttle. In Firestone's view, it was calling on sure-fire weapons that had given the company its competitive edge in the past.
This is a common impulse of many managers facing similar threats. In the case of Firestone, Sull writes, it just dug itself into an even deeper hole. Its reaction did not make the company better able to fend off the threat of radial technology; quite the opposite. And companies don't only need to react to technological threats, Sull reminds the readers. Change also comes in the form of shifts in regulation, consumer preferences, and overall competitive dynamics.
"Managers often equate inertia with inaction—a passive phenomenon in which organizations change more slowly than their environment or fail to change altogether, like the deer in the headlights. But that rarely happens," he writes in his book, adding that the "car stuck in a rut" metaphor is more apt.
Managers should look out for the following risk factors of active inertia, Sull says. If your company has experienced four or more of them, you should be very concerned.
Your company boasts superior performance. This means that managers get comfortable with the status quo and think that they have hit on the winning formula and don't need to seek alternatives. The generated cash flow lets them carry on without the need for outside financing; but outside financing serves as an important "check and balance," writes Sull.
Your CEO appears on the cover of a major business magazine. Beware of the "cover curse"; it could lock-in your success formula. It can also lead to hubris.
Management gurus pronounce your company as outstanding. Another potential jinx. Look what happened to Digital Equipment, Kodak, and Wang Laboratories, once lauded by business academics.
You build monuments to your success. Resist the urge to construct fancy new headquarters, a clear sign of the company's sense of victory. "It can also lock a company into a community—a double-edged sword," Sull writes.
You name monuments after your success. Renaming football stadiums, ice hockey rinks, and the like "is another red flag that sometimes signals success has gone to managers' heads."
Your CEO writes a book. The success formula becomes public and is harder to amend later.
Your top executives look alike. Look around. Your company won't stretch itself when all the managers think alike and see the business in the same way.
Your competitors all have the same zip code you do. "In some cases, not just one company but an entire community of firms latches onto the same success formula" as happened with Akron, Ohio with tires; Detroit, Michigan with automobiles; Sheffield, England with steel; and Jura, Switzerland with watches.
That's the active inertia trap, in a nutshell. So how do managers avoid steering their companies into it? An organization can overcome active inertia by explicitly committing to what Sull calls transforming commitments. If active inertia grows as a result of the company's defining commitments—its strategies, processes, resources, relationships, and values—then transforming commitments are the bold actions that make a company less likely to fall back on the status quo.
But transforming commitments are not risk-free, as Sull describes in the book. Putting them to work depends on the company's financial cushion, competitors' likely response, and management's ability to lead the transformation. Two other questions should be asked, Sull advises: "Does the change in environment threaten your company's core business?" And, "Does your company have a good alternative to the status quo?"