How Even The Best Strategies and Companies Can Fail
One of my readers asked me if I'd read Jim Collins' book Good to Great in response to the story of a customer's winning strategy and how it related to the origins of strategy management consulting. I had read the book many years ago and the author made some interesting observations that certainly ring true when I think about the customer's success. I'd run out of reading material on the return flight from visiting another customer so I popped into the bookstore at Chicago's Midway airport to see if I could find a compelling business book and ran across How the Mighty Fall by Jim Collins. The book identifies 5 step-wise stages of decline:
- Hubris Born of Success
- Undisciplined Pursuit of More
- Denial of Risk and Peril
- Grasping for Salvation
- Capitulation to Irrelevance or Death
I'd recommend reading the book and so I won't rehash the details of each stage here, but you can probably guess at some of these.
Jim explores some potential early warning signs during the first two stages such as preserving the status quo because it brought you initial success (Confusing What and Why) and problematic leadership changes (Problems with Succession). There are a few more such as forgetting what got you there and obsessive focus on growth, but I wanted to focus on first two because I think they're easily addressed. I agree with Jim's assessment that no one factor could be readily identified as a consistent primary cause because usually more than one is an issue.
Confusing what with why reminded me of another book I'd read earlier this year called Reth!nk by Ric Merrifield. In it, the author describes the way people often confuse what they are trying to accomplish in a particular business process with how they have currently implemented it. In doing so, they often miss opportunities for innovation that can deliver significant advantage and differentiation in the marketplace. I immediately wondered what might have been had these companies used Ric's methodology for analyzing their processes and concluded that at a minimum, their decline might have been a lot less severe, perhaps even avoided altogether. Unfortunately, they probably didn't have a good idea how to measure the cost or impact of these processes in any meaningful way so in the absence of concrete data, they went with the status quo. What if they had a blueprint of their business that allowed them to analyze their inefficiencies and experimented with different scenarios using the capabilities I identified in one of my other posts about the problems with forecasting?
Such a blueprint might also have helped avoid some of the issues identified by Jim Collins in his discussion of Problems With Succession. Jim's research showed that "over 90% of the CEOs that led companies from good to great came from the inside; meanwhile over two-thirds of the comparison companies in that study hired a CEO from the outside yet failed to make a comparable leap." A lone exception was IBM's Lou Gerstner, who spent several months learning the situation at IBM before embarking on his strategy. I immediately recalled a conversation I had with one of Gartner's CPM analysts who indicated that his own research showed that one third of CEOs in large corporations are forced out or fired because their strategies failed to deliver the expect results, in large part because their strategies are often disconnected from the way the business actually works. In other words, they'd failed to map their strategy to the blueprint of the business to see how it might affect the business. This actually brings me to my main point for today.
Companies that can link their core processes to their results are much more likely to succeed with results as much as 30% higher than their peers in the same industry. They accomplish this with a measurement framework that allows them to link their revenues, costs and capacity to the processes that drive their business. A Profitability Modeling and Optimization solution (see Is Excel Limiting Your Strategy's Success?) is a critical enabler for this framework and enables that link to your strategy. It becomes the blueprint you can use to test your strategy as Drs. Kaplan and Norton recommend in their book, The Execution Premium. As a CEO, wouldn't you like to know your strategy's chance of success before you implemented it? You'd probably be more inclined to agree to a pay-for-performance incentive plan that so many investors are clamoring for these days. Food for thought.
Let me know your thoughts by joining the conversation.