The Failure of Success
As we’re a learning organization, we all like to attend presentations, seminars both in the real world and online. I was recently fortunate enough to attend a presentation given by Professor Julian Birkinshaw of London Business School on ‘Strategic and Management Innovation’(
http://faculty.london.edu/JBirkinshaw/) . One of which the themes was what he termed the ‘failure of success’ where former giants of industries failed to see the writing on the wall about their demise. The end result being that either their dominance in an industry was greatly reduced or they completely disappeared as a business, often swallowed up by a growing competitor.
Several common factors emerged from organizations which suffered the failure of success. Firstly a ‘
blinkered’ view on the fundamental metrics of an organizations, the example of the electronics giant Phillips was used, where despite multiple comparative measures between themselves and the competition showing that they were losing ground they managed to justify that these weren’t really competing with them and so could ignore the data. As a result Phillips ran close to bankruptcy.
A second theme was that of
arrogance toward a new entrant, using Harley Davidson’s response to Honda in the 1960s, when they perceived them as an inferior product but when they started to gain momentum they were then ‘lucky’ when their Honda 50cc sales took off. A final theme was
complacency which leads an organization to believe that due to their successful history, and potentially deep pockets as a result of the past successes, there is no need to change what they’re doing, a recent example being Blockbuster being blindsided by start-ups such as Netflix who reinvented the movie rental business using DVD’s through the mail, right under the noses of the mighty Blockbuster, who is now desperately trying to catch-up and compete in the emerging digital streaming market.
So what does this mean to our, or your, business? Professor Birkinshaw had a few suggestions for ‘red flags’ which indicate that trouble could be coming. These covered a range of areas including: sales, customers, staff, products, financial and leadership. We’ll look briefly at each of them. The concerns in sales could be that your volumes are dropping or that your product ‘mix’ is changing and you could find yourself being dependent upon just a couple of key products.
With customers, you can look at your ratio of new to existing customers. Are you winning new customers or just relying on existing ones, in which case are you losing out to a competitor? Every organization will have a core of loyal customers which drive much of the revenue but the ability to attract new customers is a clear sign that what you’re offering is still relevant to the market.
On the employees side, how is your staff turnover? Are you seeing key people leaving the organization? If so why are they leaving and where are they going? If key people are leaving but your annual staff survey keeps coming back that everything is fine, are there hidden issues which are not being captured by existing measures?
For products, what is your proportion of new products? Do you even have any new products? If not then what is happening within the business to innovate and create new products?
As many consumers and technologists alike mourn the sad passing of Steve Jobs, it will be interesting to see if Apple can continue to rapidly innovate and create the new hit products which their founder made them famous for.
The financial red flags are the usual measures of cash-flow and working capital, is the business generating cash or having to survive on former glory.
Finally we come to leadership for which Professor Birkinshaw had two indicators, the first being the ‘shiny’ new office which tells the world ‘we’ve made it!’ but could in reality be the sign that the peak has been reached.
The other test is the having the CEO on the cover of every business magazine telling anyone who cares to listen about the secret to the company’s (read his or her)success. There have been several examples of this being the beginning of the end, with the worst cases being the companies hitting hard times while the magazines are still on the shelves!
Anyway, just thought I’d share with you the highlights of an interesting lecture. I hope that you found this interesting or useful or both. If not, please accept my apologies and I hope that you’ll find the next blog entry to be more enlightening.
We would be interested if you’ve any thoughts on, or examples of , organizations in the insurance industry which you think are doing well to avoid the ‘failure of success’ or manage to see the red flags and make changes before it is too late.
Cheers
Simon