Perils of success increase with time

As the Celtic Tiger continues to roar and optimism abounds, business confidence is in increasing danger of turning to arrogance. This might be a salutary time for Irish strategists to reflect on a topic that is now of growing interest in the popular international business journals - the question of why many good businesses fail to stay the course over the longer term.

In spite of the burgeoning interest in management books and the growth in business education, the truth is that we are still not as good as we should be at helping successful companies to stay healthy over the longer term. The perils of success only seem to increase with time.

Take a look at the list of the top companies in any of the world's leading stock markets and see how radically it changes over any 20-year period.

As management guru and former Shell senior planner Ari de Geus has pointed out, there are some notable exceptions - companies that have survived for two or three centuries or more, like Stora in Sweden or Sumitomo in Japan. However, such exceptions only reinforce the general conclusion that the relatively short lifespan of the average corporation represents a lot of under-developed potential.

Why does it happen? Two reasons are particularly worthy of examination: business blindspots and management hubris.

Business blind spots develop because, as companies become successful, the strategies that bring them success tend to develop into conventional wisdoms that eventually block out fresh thinking and innovative approaches.

This is why companies that develop into industry leaders often find themselves unseated within two decades by totally new arrivals. This is not a new trend, nor is there any sign that it is on the wane.

For example, in the early 1950s, the conventional wisdom among the world's leading makers of skis was that the future of the industry belonged to the wooden ski. The metallic ski was seen as technologically unfeasible and a contradiction in terms.

Howard Head, an entrepreneur with a background in aeronautical engineering, proved them wrong and in less than a decade stole the most profitable segment of their market as a result.

In the writing instruments industry of the 1960s, it was widely believed that building a brand around a low-priced disposable ballpoint was a commercial impossibility. Every leading player in the industry "knew" this, but they forgot to tell Marcel Bich, the French founder of BIC Corporation, and you only have to glance at the pens on your desk to know what subsequently happened.

Similarly, in the 1970s, it was common knowledge among the industry leaders of the time that the discount retailing format was just not viable in population centres of less than one hundred thousand people.

Apparently, however, word had not filtered down to Bentonville, Arkansas, and Sam Walton succeeded in building what has since become the largest retailing company in the world, Wal-Mart, by exploiting this massive mote in the eye of the competition.

Indeed, the perils of conventional thinking can often extend from blindly following dangerous business maxims to making fatally flawed assessments of key competitors. Lord King, the former boss of British Airways, is on record as saying that if Richard Branson had been wearing a suit when they first met in the early 1980s, he might have taken his entry into the airline industry seriously.

Moreover, it seems the seasoned senior IBM executives that first negotiated on the supply of MS DOS with what they regarded as a very "wet behind the ears" Bill Gates had a similar kind of problem.

Now we all know that Microsoft has since displaced IBM as the ringmaster in the computer industry and that Richard Branson has gone from strength to strength - but whatever happened to Lord King?

If you are a business leader or company strategist, it is important to try to identify what is the conventional wisdom in your industry at any given time, and challenge it to detect when it might be changing from wisdom to convention. In doing this, it is important to be open to a plurality of voices and perspectives within the organisation and to recognise that the "hierarchy of imagination" in any company is not the same as the hierarchy of authority or experience, as management guru Gary Hamel likes to remind us.

A second and related danger is hubris, a peril that Danny Miller of McGill University refers to as the "Icarus Paradox". Indeed, hubris is often the reason why blind spots develop and remain unchallenged until it is too late, and the problem is most acute at the very top.

Research has indicated that leadership effectiveness varies over time in any particular job, rising in the early years as experience accumulates and credibility grows, but then reaching a peak before heading into decline. The length of this cycle will vary with the context of the leadership - for example about 10 years for top US basketball coaches, which mirrors quite closely the Charlton era in Irish football - but the overall pattern is quite general.

Why does it happen? It seems that all too often the more successful a leader becomes, the more invincible they tend to feel, the more convinced they become in the wisdom of their own judgement, the more resistant to challenging views and the more insulated from the changing realities on the ground. Ken Olsen is one of the great entrepreneurial figures of modern commercial history, yet the spectacular rise and later decline of Digital provides one of the most salutary examples of this peril of success.

The most important aspect in dealing with hubris is to recognise that no leader, no matter how good, is ever immune, because the process is not just personal but organisational. It is as much about how people respond as how leaders behave.

"Success is a lousy teacher," according to Bill Gates, who recognises only too well how the perils of hubris have affected all of the former greats in his industry. Halting the slide into hubris can often require imaginative responses.

In companies like Intel and Coca Cola, the overall approach has been to try to embed a strong anti-hubris ethic into the corporate culture, reinforced by such mantras as "only the paranoid survive" (Intel) and "the world belongs to the discontented" (Coca Cola).

Intel learned about the dangers of hubris and isolation at the top following a crisis in the mid-1980s that saw the bottom fall out of its original memory business. Other leaders and their companies have taken different approaches.

At Sony, Akio Morita once hired an opera singer to bring a totally fresh perspective to the company's product development strategy, while Jean Riboud at Schlumberger had a senior executive on the team with right of access to any meeting and no official title or responsibilities other than to "force people to think" and try to keep hubris at bay.

The most dramatic was the one taken by Kiyoshi Kawashima, who decided to cut short his own very successful tenure as president of Honda when he found his key people had taken to agreeing with him most of the time.

"Success breeds failure" is the counter-intuitive message of this article. Leaders and business strategist need to be alert to the dangers, and try to take some actions to anticipate and mitigate them, well before the effects begin to show.

Brian Leavy is Dean of Business Studies at DCU